FEDERAL COURT OF AUSTRALIA

White v Norman; In the Matter of Forest Enterprises Australia Limited (Receivers and Managers Appointed) (in Administration) [2012] FCA 33

IN THE MATTER OF FOREST ENTERPRISES AUSTRALIA LIMITED (ACN 009 553 548) (RECEIVERS AND MANAGERS APPOINTED) (IN ADMINISTRATION)

THE COURT ORDERS THAT:

1.    The plaintiff bring in draft minutes of order within seven days reflecting the conclusions reached in these reasons and any claims for interest and costs.

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

IN THE MATTER OF FOREST ENTERPRISES AUSTRALIA LIMITED (ACN 009 553 548) (RECEIVERS AND MANAGERS APPOINTED) (IN ADMINISTRATION)

REASONS FOR JUDGMENT

Introduction

1    Forest Enterprises Australia Limited (‘FEA’) is an incorporated company. On 14 April 2010 Mr Timothy Norman and Mr Salvatore Algeri were appointed as receivers and managers of FEA. They are the defendants to this proceeding in their capacity as receivers and managers of FEA. Voluntary administrators were also appointed to FEA on 14 April 2010. Mr White, who is the plaintiff, was the chief executive officer of FEA from 26 March 2003 to 19 April 2010. He was also a director of Tasmanian Plantations Pty Ltd (‘Tasmanian Plantations’). Tasmanian Plantations was a wholly-owned subsidiary of FEA.

2    Prior to 19 April 2010 the plaintiff was employed by FEA under a written contract of employment. The terms of that contract were embodied in a letter dated 22 July 2009 which was signed by FEA’s chairman and the plaintiff (‘the July 2009 agreement’). There were previous contracts of employment between the plaintiff and FEA, the first of which was a letter dated 21 February 2003.

3    On 19 April 2010 the plaintiff’s employment with FEA came to an end. There is a dispute between the parties as to whether that was as a result of a termination under the contract by FEA or as a result of a repudiation of the contract by FEA and an acceptance of that repudiation by the plaintiff. At all events, the plaintiff wrote to the board of Tasmanian Plantations on the same day tendering his resignation from the board and, on the following day, the defendants wrote to the plaintiff noting that his services had been terminated the previous day.

4    The plaintiff instructed solicitors and, on 28 May 2010, they wrote to the defendants on behalf of the plaintiff claiming, as employee entitlements with priority, the sum of $777,575.05. That sum was comprised of amounts for pre-appointment superannuation, annual leave, long service leave and retrenchment payments less an amount for wages.

5    The defendants disputed the plaintiff’s entitlement to the amounts he claimed and the plaintiff issued this proceeding.

6    In his Originating Process the plaintiff claims to invoke the jurisdiction conferred on this Court by one or more of ss 423, 433, 1321 and 1324 of the Corporations Act 2001 (Cth) (‘the Act’). He claims declaratory orders in respect of an alleged breach of the statutory duty in s 433 of the Act. The declarations he claims are that he is entitled to a payment from FEA of $777,575.05, or, in the alternative, such other amount as the Court considers appropriate, and that the whole of the plaintiff’s claim was and is entitled to priority in accordance with s 433(3)(c) of the Act. The plaintiff seeks an order directing the first and second defendants to pay to him the amount he claims in accordance with s 433(3)(c) of the Act. In the alternative, he claims that on appeal from the decision of the defendants as receivers and managers he is entitled to an order to the effect that the first and second defendants’ decision be reversed, and an order that he has a priority entitlement to a payment from FEA in the sum of $777,575.05. In the course of submissions, counsel for the defendants also made reference to the Court’s power to give directions to a receiver of property under s 424 of the Act.

7    The parties accepted that the Court had jurisdiction to determine the decision the defendants ought to have made having regard to the facts, and they did not make any submissions as to which of the various sections of the Act were the appropriate source of the Court’s power. It seems to me that s 1321 is the appropriate source of power and that the final orders of the Court should be framed having regard to the terms of that section.

8    At trial, the plaintiff’s formulation of his claim was as follows:

9    The claim for Non-discretionary Remuneration in lieu of notice (‘NDR’) and Discretionary Remuneration in lieu of notice (‘DR’) is based on clause 20.1 of the July 2009 agreement. That clause deals with the termination of the plaintiff’s employment and is in the following terms:

The Company may terminate this agreement by giving you twelve (12) months’ notice in writing or, in lieu of giving you part or all of that period of notice, pay you an amount equivalent to your Non-discretionary Remuneration and Discretionary Remuneration for the period of notice not given. The amount of Discretionary Remuneration payable on termination will be the pro rata equivalent of your average percentage entitlement in the two years prior to termination.

10    The principal issue between the parties is whether payment by FEA to the plaintiff of the amounts claimed by way of NDR or DR is prohibited by Div 2 Pt 2D.2 of the Act. That Division prohibits the payment and receipt of benefits in connection with a person’s retirement from office without member approval. The relevant version of Div 2 of Pt 2D.2 for the purposes of determining the issues in this case is the Division in effect immediately before 24 November 2009. On that date the amendments effected by the Corporations Amendment (Improving Accountability on Termination Payments) Act 2009 (No 115, 2009) (Cth) (‘the Amending Act’) came into operation. Part 3 of Sch 1 of the Amending Act provided that the amendments made by Pt 1 of Sch 1 applied in relation to a retirement from an office, or position of employment, held under an agreement entered into or an agreement renewed or extended, or an agreement for which a variation of a condition of the agreement happens, on or after the commencement of Part 1. There is no dispute between the parties that the plaintiff held his office or position of employment under an agreement entered into before 24 November 2009 and that this agreement was not renewed or extended or varied in the relevant sense after that date.

11    There are other issues in dispute between the parties. The defendants contend that the plaintiff is not entitled to a consumer price index increase which forms part of his claim. They contend that the plaintiff’s claim for priority in respect of leave of absence payments (that is, annual leave and long service leave) should be rejected because such payments were not “due” on or before the “relevant date” within s 433 and s 556 of the Act. In addition, the defendants contend that the plaintiff has not calculated his claim for DR in accordance with the provisions of the July 2009 agreement, and, as a result, has overstated his claim for this item.

The facts

12    At the trial the plaintiff tendered three affidavits which he had sworn and the defendants tendered an affidavit sworn by Ms Julie Francis Thatcher. The defendants are partners of Deloitte Touche Tohmatsu (Deloitte) and Ms Thatcher is a director of the Corporate Reorganisation Group of Deloitte. Neither the plaintiff nor Ms Thatcher were required for cross-examination. The parties also tendered a Statement of Agreed Facts and the facts which follow are, for the most part, based on that document.

13    I begin by outlining the important aspects of the July 2009 agreement between the plaintiff and FEA. The agreement contains a statement that the terms of “this agreement” apply to the exclusion of those contained in the agreement “issued” by FEA on 3 October 2007. There is a statement to the effect that the chairman of FEA, who signed the letter on behalf of the company, noted that the plaintiff had first commenced employment with FEA on 26 March 2003. There is also a statement that FEA would continue to employ the plaintiff on the terms of “this agreement” subject to the termination clause in clause 20.

14    Clause 3 of the agreement appears under the heading, “Duties” and provides as follows:

You will report directly to the Board of the Company or its delegate. During your employment under this agreement, you must:

•    undertake to the best of your abilities such duties and exercise powers, authorities and discretions in relation to the business of the Company as the Board shall from time to time delegate to you, commensurate with your skills and experience;

•    in the discharge of such duties and the exercise of such powers, authorities and discretions, conform to, observe and comply with all reasonable and lawful directions, restrictions and regulations of the Company made or given from time to time;

•    comply with all legal requirements, statutory or otherwise, pertaining to your position as an executive of the Company and your responsibilities as an executive; and

•    act in good faith in the best interests of the Company.

15    Clause 7.1 deals with NDR and clause 7.2 deals with DR. Those paragraphs relevantly provide:

7.1    Non-discretionary Remuneration

Your Non-discretionary Remuneration (‘NDR’) is $485,500 per annum on a total cost to employer basis which is inclusive of a base salary subject to PAYE, superannuation (at the minimum level the Company is required to make for your benefit under statute), fringe benefits tax, except for the income protection and life insurance pursuant to paragraph 15(d), and other benefits. Your base (PAYE taxable) salary is payable monthly by direct deposit. Your NDR is reviewable on an annual basis with the increase (which for each year of the contract shall be not less than the same percentage increase as the increase in the Consumer Price Index for Hobart for the twelve months period prior to the review) taking effect from 1 April each year, …

7.2    Annual Incentive Plan (Discretionary Remuneration)

You will be eligible for an incentive payment of up to $409,000 per annum for financial years in each case on successfully meeting, in each financial year, key performance criteria. The key performance criteria for each year are to be determined by the Board by no later than the time at which the Company’s audited accounts for the preceding financial year are finalised. Your entitlement to any bonus for the preceding financial year will also be determined at that time.

The amount of the annual incentive plan payment is reviewable on an annual basis. The increase (which for each year of the Contract shall be not less than the same percentage increase as the increase in the Consumer Price Index for Hobart for the twelve months period prior to the review) will take effect from 1 April each year …

16    I have already set out the terms of clause 20.1 (at [9]). Clause 20.9 is in the following terms:

If the aggregate of:

(a)    the amount that would, but for this provision, be payable to you under this paragraph and

(b)    the value of all other payments made in connection with your retirement as chief executive officer of the company,

exceeds the maximum amount that could, because you are a person retiring from such board and managerial offices, be paid to you under s 200F or 200G of the Act the amount payable to you under this paragraph 20 will be reduced so that the aggregate of all benefits given, paid or payable to you in connection with your retirement are equal to that amount.

17    Clause 25 of the agreement is in the following terms:

25.    Entire contract.

    Subject to law this Agreement constitutes your entire contract of employment with the company. It supersedes any prior understanding or agreement between yourself and the company and any prior condition, warranty, indemnity or representation imposed, given or made by you or the company.

Your employment with the company will continue to be subject to the terms of this contract, unless varied or replaced by agreement in writing, despite any change to your position, duties, reporting responsibilities, or the location of your employment.

18    I turn now to address the earlier contracts of employment between the plaintiff and FEA. Those contracts are relevant because of one of the contentions raised by the plaintiff and disputed by the defendants. Subsection 200F(2) is set out below (at [59]). The plaintiff claims that if, contrary to his submission that s 200B does not apply to the NDR and DR benefits, those benefits nevertheless fall within paragraph 200F(2)(ii), that is to say, they were given to him as part of the consideration for his agreement to hold the office of chief executive officer of FEA. The defendants dispute that contention and submit that the plaintiff held the office of chief executive officer of FEA from 26 March 2003 and that the NDR and DR benefits under the July 2009 agreement were not part of the consideration for the plaintiff agreeing to hold the office of chief executive officer of FEA. They contend that he agreed to hold that office in March 2003. In the alternative, the defendants contend that if the plaintiff was holding the office of chief executive officer by virtue of the July 2009 agreement then the relevant period under subsection 200F(5) and for the purposes of the calculation of the amounts under subsections (3) and (4) is the period commencing in July 2009 and not earlier.

19    On or about 11 March 2003 the plaintiff and FEA signed a letter setting out the terms of the plaintiff’s employment by FEA. The contract provided that the plaintiff was employed as the chief executive officer of FEA and that his employment was to commence on 26 March 2003 and continue for a minimum period of three years from that date. The contract provided that the plaintiff’s employment could be terminated effective on or after that time by FEA giving six months’ notice in writing or providing six months’ non-discretionary remuneration in lieu of notice. Clause 6 of the contract provided that the plaintiff’s NDR was $200,000 per annum on a total cost to employer basis inclusive of a base salary subject to PAYE superannuation, fringe benefits tax, and other benefits.

20    The plaintiff’s duties appeared under the heading “Organisation Relationships” and were defined in the following way:

You will report directly to the Board of the Company. During the term of your employment under this agreement, you must,

•    undertake such duties and exercise such powers, authorities and discretions in relation to the business of the Company as the Board shall from time to time delegate to you, to the best of your abilities;

•    in the discharge of such duties and the exercise of such powers, authorities and discretions, conform to, observe and comply with all reasonable and lawful directions, restrictions and regulations of the Company made or given from time to time;

•    comply with all legal requirements, statutory or otherwise, pertaining to your position as an executive of the Company and your responsibilities as an executive; and

•    act in good faith in the best interests of the Company.

21    On 25 June 2005, the plaintiff and FEA signed a letter containing the plaintiff’s terms of employment. The letter provided that FEA was pleased to confirm the plaintiff’s employment as chief executive officer. It provided that the plaintiff’s employment would commence on 26 March 2005, and continue for a minimum period of three years from that date. It provided that the plaintiff’s employment could be terminated effective on or after that time by the company giving twelve months’ notice in writing, or by providing twelve months’ non-discretionary remuneration in lieu of that notice. The plaintiff’s NDR is stated to be $300,000 per annum. The statement of the plaintiff’s duties was in identical terms to the statement of the plaintiff’s duties in the letter signed on 11 March 2003.

22    On 8 February 2006, the plaintiff and FEA signed a letter dealing with the plaintiff’s employment as chief executive officer of FEA. The letter provided that the terms of the agreement would apply to the exclusion of those “issued” by FEA on 25 June 2005. The plaintiff’s employment was stated to commence on 26 March 2005 and continue for a minimum period of three years from that date. The letter provided that in the first two years from that date the agreement could be terminated by FEA giving twelve months’ notice in writing, or providing twelve months’ non-discretionary remuneration and twelve months’ full discretionary remuneration at the rate applicable as at termination in lieu of notice. In the third year of the agreement it could be terminated by FEA giving notice in writing or providing non-discretionary remuneration and full discretionary remuneration at the rate applicable as at termination in lieu of notice on a pro rata basis for the remaining term. The plaintiff’s NDR is stated to be $300,000 per annum. The statement of duties was in identical terms to previous agreements.

23    On 4 October 2007, the plaintiff and FEA signed a letter of employment in relation to the plaintiff’s employment as chief executive officer of FEA. That letter of employment provided that the terms of the agreement would apply to the exclusion of those contained in the agreement “issued” by FEA on 8 February 2006. It provided that the plaintiff’s new term of employment would commence on 26 March 2007 and would continue for a minimum period of three years from that date. It provided that in the first two years from that date the agreement could be terminated by FEA giving twelve months’ notice in writing or by providing twelve months’ non-discretionary remuneration and twelve months’ full discretionary remuneration at the rate applicable as at termination in lieu of notice. In the third year of the agreement it could be terminated by the company giving notice whereupon the plaintiff would be entitled to his non-discretionary remuneration and discretionary remuneration up to the end of that notice, but not being less than twelve (12) months’ non-discretionary remuneration and three (3) months’ pro rate discretionary remuneration at the rate applicable at that time. The plaintiff’s NDR is stated to be $375,000. The statement of the plaintiff’s duties was in identical terms to previous agreements.

24    In summary, the plaintiff was employed as the chief executive officer of FEA from 26 March 2003 to 19 April 2010. He had during that time five employment contracts with FEA, each of which was a fresh or new contract and not simply a variation of a previous contract. There were some differences between the contracts. The principal difference between the July 2009 agreement and the earlier contracts related to the period of employment. There are some differences between the statement of the plaintiff’s duties in the July 2009 agreement and the statements in earlier contracts but they are not significant differences.

25    I turn now to the circumstances surrounding the annual general meeting of FEA held on 30 October 2009. Those circumstances are relevant because one of the plaintiff’s contentions is that the payment of the NDR and DR benefits was approved by the members of FEA within the terms of s 200B and s 200E of Div 2 Pt 2D.2 of the Act.

26    In or about October 2009, FEA published its annual report for 2009. It contained a remuneration report which included a statement that the remuneration of directors and senior executives was agreed to by the board of directors as a whole. The report also contained the following:

CEO employment contract renewal

Mr Andrew White continues in the position of CEO under the term of his new employment contract dated 24 July 2009. Rather than being a further three year term, this new employment contract does not have a fixed term.

Mr White will be provided with remuneration comprising two primary components: Non-Discretionary Remuneration (NDR) and Discretionary Remuneration (DR). The Company may consider other components from time to time, including equity components.

The NDR will increase by an amount at least equal to the CPI increase for Hobart for the 12 months prior to the annual review. Following a request by Mr White, this amount has not increased as a result of the execution of this new employment contract. The NDR is subject to an annual review. The DR is subject to achievement of key performance criteria as determined by the board.

27    The report also contained the following statements under the heading, “Employment Contracts”:

The contracts for service between the company and specified directors and senior executives are on a permanent basis, the terms of which are not expected to change in the near future.

It is the economic entity’s policy that employment contracts for executive directors and senior executives, excluding the CEO and CFO/Company Secretary, has been for a term of 3 years, however an alignment process is in place with the expectation that shortly these contracts will be on a permanent basis. These contracts are capable of termination on 6 months notice and that the economic entity retains the right to terminate the contract immediately by making payment equal to 6 months pay in lieu of notice.

The economic entity has entered into employment contracts with each executive director and senior executive, excluding the CEO and CFO/Company Secretary, that provides for the payment of benefits where the contract is terminated by the economic entity, or the individual.

The economic entity has entered into employment contracts with the CEO and CFO/Company Secretary on a permanent basis, but capable of termination on 12 months notice and that the economic entity retains the right to terminate the contract immediately by making payment equal to 12 months pay in lieu of notice. The contracts provide for the payment of benefits where the contract is terminated by the economic entity or the individual.

The employment contract outlines the components of remuneration paid to the executive directors and senior executives but does not prescribe how remuneration levels are modified year to year. Remuneration levels are reviewed each year to take into account cost of living changes, any change in the scope of the role performed by the senior executive and any changes required to meet the principles of the remuneration policy.

The names and positions of each person who held the position of director at any time during that financial year are provided above. The Key Management Personnel and five named executives in the consolidated group who received the highest remuneration for the financial year are:

Name        Position

A.D. White    Chief Executive Officer …

28    The annual report does not set out the amount of NDR and DR specified in the July 2009 agreement.

29    On or about 28 October 2009, FEA sent a notice of its 2009 annual general meeting and explanatory notes to its members. In the notice of meeting the members were told that a resolution adopting the Remuneration Report was “a non-binding, advisory vote only and does not bind the company or its Directors”. They were told that the board would take the outcome of the vote into consideration when considering the company’s remuneration policy.

30    On 30 October 2009, FEA held its annual general meeting and at that meeting, the members passed (among other resolutions) an ordinary resolution in the following terms:

That the remuneration report of the company as set out in the company’s annual report for the year ended 30 June 2009 be adopted.

31    It is an agreed fact that at the date of the appointment of the defendants as receivers (that is, 14 April 2010) FEA had not commenced to be wound up voluntarily. It is also an agreed fact that at that date the plaintiff had not applied for and had not been granted any leave which he had not already taken, with the effect that no leave of absence payments were then due to him. It is an agreed fact that on 23 November 2010 the creditors of FEA resolved that it execute a deed of company arrangement and that this was done on 14 December 2010. It is also an agreed fact that property has come into the hands of the receivers and that the property exceeds the amounts claimed by the plaintiff.

32    The events surrounding the termination of the plaintiff’s employment on 19 April 2010 are important to the resolution of the first issue in dispute. It is agreed that on that day, the plaintiff attended a meeting at 233B Charles Street, Launceston, with the first defendant (Mr Timothy Norman) and Mr Stuart Whitehead at which the following occurred:

1.    The first defendant noted that he was joint receiver and manager of FEA and was in the process of assessing the business;

2.    The first defendant said that as a consequence of the receivership, the plaintiff’s services were no longer required and his employment was terminated;

3.    The first defendant said that FEA would abide by the terms of the plaintiff’s employment agreement; and

4.    The first defendant requested that the plaintiff collect his personal effects and leave the business on that day.

33    Before leaving the facts I should mention that it was an agreed fact that the plaintiff was a director of Tasmanian Plantations from 26 March 2003 to 19 April 2010. However, the company search tendered in evidence states that he was appointed a director of Tasmanian Plantations on 1 March 2007. The submissions proceeded on the basis that the latter date is the correct date.

Issues in Dispute

34    By agreement, the parties identified the principal issues in dispute between them. It is convenient for me to deal with the issues in this case by reference to the issues identified by the parties.

1. Did the events described in paragraph 7 of the amended points of claim and paragraph 7 of the amended points of defence constitute:

(a)    termination of Mr White’s employment contract in accordance with its terms;

(b)    repudiation by FEA of the employment contract, and acceptance of that repudiation by Mr White; or

(c)    repudiation by FEA of the employment contract, and election by Mr White not to accept that repudiation?

35    The “events” described in paragraph 7 of the Amended Points of Claim and Amended Points of Defence referred to in this question are the discussions between the plaintiff and the first defendant on 19 April 2010 (see [32] above). It is common ground that FEA had the power in clause 20.1 of the July 2009 agreement to terminate the plaintiff’s contract of employment. The relevant limb in this case is payment in lieu of notice. It is common ground that if, on 19 April 2010, FEA had paid the plaintiff his entitlement in lieu of notice then that would have been an effective termination of the contract. Furthermore, I think that even if it had paid the plaintiff something less than what was later found to be his true entitlement, the same result would follow, providing FEA’s actions were bona fide and indicated a willingness to recognise its error once an authoritative exposition of the contract was given (D.T.R. Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 431-432 per Stephen, Mason and Jacobs JJ).

36    The plaintiff contends that a purported termination of the contract without payment on 19 April 2010 was not an effective termination and was in fact a repudiation. He contends that he accepted the repudiation and has a claim of damages for breach of contract. As I understood it, he contends that even if he did not accept the repudiation, his claim is one for unliquidated damages for breach of contract and he referred to Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 463-467 per Dixon J (as his Honour then was) and Visscher v Giudice (2009) 239 CLR 361 at 379-381 [53]-[55] per Heydon, Crennan, Kiefel and Bell JJ).

37    A party may repudiate a contract by renouncing his liabilities under it whether that be by evincing an intention no longer to be bound by it or by showing that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way: Shevill v Builders Licensing Board (1982) 149 CLR 620 (‘Shevill’) at 625-625 per Gibbs CJ (with whom Murphy and Brennan JJ agreed). The Court is to approach repudiation of a contract bearing in mind that it is a serious matter and is not lightly to be found or inferred. The Court must consider all the circumstances of the case: Shevill at 633 per Wilson J. Those circumstances are the objective acts and omissions and not, for example, an uncommunicated intention. To pose the test formulated by Deane and Dawson JJ in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 658 in terms of the facts of this case, the question is whether, viewed objectively, the conduct of the first defendant on behalf of FEA on 19 April 2010 was such as to convey to a reasonable person in the situation of the plaintiff, repudiation or disavowal, either of the contract as a whole or of a fundamental obligation under it.

38    In the circumstances, the first defendant’s statement that FEA would abide by the terms of the plaintiff’s employment agreement was a statement to the effect that the company would pay the plaintiff his entitlements on termination. The defendants contended that failure to make payment on 19 April 2010 was not critical and that they had a reasonable time within which to make payment. I think that contention is correct. Certainly the parties acted in that way because it was only when, in May 2010, the defendants indicated the amount the company was proposing to pay that a dispute arose. In my opinion, the contract was not repudiated by FEA on 19 April 2010.

39    The plaintiff advanced an alternative submission to the effect that FEA repudiated the contract on a date after 19 April 2010, but I agree with the defendants that such an argument is not pleaded and that the plaintiff should not be permitted to raise it at this stage. In those circumstances it is not necessary for me to deal with the defendants’ response to that argument to the effect that the failure to pay within a reasonable time constituted a breach falling short of repudiation.

40    The conclusion that the contract was not repudiated on 19 April 2010 means also that it is not necessary for me to consider the defendants’ alternative argument that, by his solicitors’ letters dated 28 May 2010 and 16 July 2010 respectively, and the filing of his Points of Claim dated 21 December 2010, the plaintiff irrevocably elected to claim under the contract rather than to claim damages for breach of contract. There appears to be a good deal of force in that submission.

41    The answer to the first question is that the events referred to in the question constituted the termination of the plaintiff’s employment contract in accordance with its terms.

2. Is Mr White’s entitlement following termination of the employment contract:

(a)    an entitlement to payment under the contract; or

(b)    an entitlement to damages for breach of the contract?

42    It follows from my conclusion in relation to the first question that the answer to this question is that the plaintiff’s entitlement is to payment under the contract.

3. To what sum of money would Mr White be entitled upon termination of his employment, absent the application of any provision of the Corporations Act 2001 (Cth) (the Act)?

43    There are three areas of dispute between the parties concerning the plaintiff’s entitlement under the contract upon termination of his employment.

44    First, the defendants contend that the plaintiff is not entitled to calculate his claim so as to include a consumer price index increase from 1 April 2010. Clauses 7.1 and 7.2 of the July 2009 agreement are set out above (at [15]). No annual review of the plaintiff’s NDR or DR took place as envisaged by those clauses, but the plaintiff contends that he is entitled, at a minimum, to the consumer price index increase. The defendants contend that as no annual review was carried out before the termination of the plaintiff’s employment he is not entitled to the consumer price index increase.

45    The plaintiff referred to Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455. In that case the High Court was dealing with the obligation to pay rent under a lease which contained a rent review clause. The lease was for a period of eight years and the rent payable was to be reviewed after three years. The rent was fixed for the first three years and there was a minimum amount specified for the rent as reviewed. There was no provision dealing with the rent payable during the rent review process and the tenant argued that no rent was payable during that period. The Court rejected that argument and said (at 464):

Apart from cl. III(vii), the lease contained no provision relating to the amount of rent to be paid for the last five years of the term. The reference to $144,000 in that clause did not fix the amount of rent for the last five years pending or in default of determination of the equivalent of ten per cent of the mean of the designated valuations obtained by the parties. It merely provided the minimum amount which could result from that determination (see Booker Industries Pty. Ltd. v. Wilson Parking (Qld.) Pty. Ltd). It was submitted on behalf of Gollin that, during the period from the commencement of the fourth year of the term without agreement and such time as a reviewed rent was determined, Gollin was under no obligation to pay anything at all on account of rent. That construction of the lease, which was not advanced in the courts below, has something to commend it on the ground of the literal interpretation of the words used. It has little to commend it on the grounds of commercial efficacy or common sense. It involves the conclusion that the intention of the parties to be derived from the lease was that the obligation to pay rent monthly in advance should be devoid of all content during the period involved in obtaining valuations and ascertaining the rent in accordance with cl. III(vii) notwithstanding that the agreement between the parties was that the rent as determined for the last five years of the term must be at least equal to the rent fixed for the first three years. The preferable construction of the lease is that the obligation to pay rent monthly in advance, in its application to the circumstances which would exist during that interim period, required the continued payment, by monthly instalments in advance, of that minimum annual amount of $144,000 on account of the rent as finally determined.

46    The plaintiff submits that similar reasoning should be applied here. It may be noted that this case does not involve a choice between no remuneration and remuneration including the relevant consumer price index increase.

47    The question is one of the proper construction of the clauses in the contract. The plaintiff is entitled to an annual review of his remuneration and to an increase not less than the relevant consumer price index increase taking effect from 1 April each year. It seems to me that the question is whether, if an annual review is not carried out, the plaintiff’s only remedy is to sue for damages which may comprise the relevant consumer price index increase, or is he entitled under the contract to the relevant consumer price index increase with effect from 1 April with the possibility of damages if he can show that the failure to carry out the annual review caused him greater damage? In my opinion, the latter construction is the preferable one having regard to considerations of commercial efficacy and common sense. I accept the plaintiff’s argument with respect to consumer price index increase.

48    Secondly, the defendants challenge the amount claimed by the plaintiff for DR. They agree that his percentage entitlement in 2008 was 78.75 per cent. However, they claim the entitlement for 2009 was nil and not the 11 per cent claimed by the plaintiff.

49    The plaintiff was not paid a bonus in 2009. However, he claims that he met key performance indicators entitling him to 11 per cent and that FEA acknowledged this fact. He asserts the following in his affidavit filed on 28 June 2011:

20.    I did not receive any bonus for the financial year ending 2009. At the time that bonuses were being awarded to other employees, I was told by Will Edwards, the Chairman, that whilst I had achieved one KPI which he said would result in a cash payment of $46,400, he said that the mood of the Board was against granting bonuses in difficult circumstances, so I told him I would decline to accept this bonus entitlement as I agreed with the sentiment.

21.    I calculated my percentage entitlement to a bonus in the financial year ending 2009 on the basis that I had a 11% entitlement based on $46,400 divided by $409,000.

50    It is true, as the plaintiff submits, that clause 20.1 uses the word “entitlement” rather than the word “payment”. However, clause 7.2 provides that the plaintiff’s entitlement to any bonus for the preceding financial year will be determined by the board of FEA at the time at which FEA’s audited accounts for the preceding financial year are finalised. There was no determination by the board of entitlement. In fact, the evidence suggests that it did not make a determination in the plaintiff’s favour and that the plaintiff accepted that fact. I reject the plaintiff’s argument that he had an entitlement of 11 per cent for 2009.

51    Thirdly, the defendants claim that the plaintiff’s calculation for DR is erroneous because he has calculated it by reference to a period of 12 months whereas he should have calculated it by reference to the relationship between the period the plaintiff worked under the July 2009 agreement, and the period of 12 months (that is, 80.3 per cent). This follows, so the defendants argue, from the use of the words “pro rata” in clause 20.1. I reject this argument. It seems to me that the terms of clause 20.1 are quite clear. The plaintiff is entitled to either 12 months’ notice or, in lieu of that notice, a projection of what he would have earnt in that period. No reason in logic or policy was identified by the defendants for confining the plaintiff’s entitlement in the manner they advanced.

4. Are any amounts payable to Mr White by FEA “benefits given in connection with [Mr White’s] retirement from an office” as contemplated by s 200A of the Act?

52    The defendants contend that payment of the NDR and DR benefits are prohibited by the provisions of Div 2, Pt 2D.2 of the Act.

53    It is convenient at this point to set out the relevant provisions of Div 2 Pt 2D.2.

54    The starting point is subsection 200B(1) which was in the following terms:

(1)    The following must not give a person a benefit in connection with that person’s, or someone else’s, retirement from a board or managerial office in a company, or a related body corporate, without member approval under section 200E:

(a)    the company;

(b)    an associate of the company (other than a body corporate that is related to the company and is itself a company);

(c)    a prescribed superannuation fund in relation to the company.

Note 1:    Sections 200F, 200G and 200H provide for exceptions to this rule.

Note 2:    Section 9 defines board or managerial office.

55    Subsection 200D(1) dealt with the receipt of a benefit and was in the following terms:

(1)    A person who:

(a)    holds, or has at any previous time held, a board or managerial office in a company or related body corporate; or

(b)    is the spouse of a person referred to in paragraph (a); or

(c)    is a relative of a person referred to in paragraph (a) or of the spouse of such a person; or

(d)    is an associate of a person referred to in paragraph (a) or the spouse of an associate of such a person;

must not receive a benefit if the giving of the benefit contravenes section 200B or 200C.

Note:    Section 9 defines board or managerial office.

56    The phrase “board or managerial office” was defined in s 9 in the following way:

board or managerial office (when used in Division 2 of Part 2D.2 (sections 200A to 200J) in relation to a body corporate) means:

(a)    an office of director of the body corporate; and

(b)    any other office in connection with the management of the body corporate’s affairs that is held by:

(i)    a person who also holds an office of director of the body corporate or a related body corporate; or

(ii)    a person who has held an office of director of the body corporate or a related body corporate at any time within the 12 months immediately before the loss of, or retirement from, that office.

The plaintiff fell within this definition. He held a relevant office in FEA, being the office of chief executive officer, and he was a director of Tasmanian Plantations which was a related body corporate of FEA.

57    Subsection 200A(1) described important concepts in subsection 200B(1) and was in the following terms:

(1)    For the purposes of this Division:

(a)    a benefit is given in connection with a person’s retirement from an office if the benefit is given:

(i)    by way of compensation for, or otherwise in connection with, the loss by the person of the office; or

(ii)    in connection with the person’s retirement from the office; and

(b)    giving a benefit includes:

(i)    if the benefit is a payment—making the payment; and

(ii)    if the benefit is an interest in property—transferring the interest; and

(c)    a person gives a benefit even if the person is obliged to give the benefit under a contract; and

(d)    a pension or lump sum is paid or payable in connection with the person’s retirement from an office if the pension or lump sum is paid or payable:

(i)    by way of compensation for, or otherwise in connection with, the loss by the person of the office; or

(ii)    in connection with the person’s retirement from the office; and

(e)    retirement from an office includes:

(i)    loss of the office; and

(ii)    resignation from the office; and

(iii)    death of a person at a time when they hold the office.

58    Section 200E dealt with member approval and (relevantly) was in the following terms:

(1)    If section 200B or 200C requires member approval for giving a person a benefit, it must be approved by a resolution passed at a general meeting of:

    (a)    the company; and

(b)    …

(2)    Details of the benefit must be set out in, or accompany, the notice of the meeting at which the resolution is to be considered. The details must include:

    (a)    if the proposed benefit is a payment:

    (i)    the amount of the payment; or

(ii)    if that amount cannot be ascertained at the time of the disclosure—the manner in which that amount is to be calculated and any matter, event or circumstance that will, or is likely to, affect the calculation of that amount; and

    (b)    …

These requirements are in addition to, and not in derogation of, any other law that requires disclosure to be made with respect to giving or receiving a benefit.

59    Section 200F provided for exceptions to the prohibition in s 200B. It provided, relevantly, as follows:

(2)    Subsection 200B(1) does not apply to a benefit given in connection with a person’s retirement from an office in relation to a company if:

(a)    the benefit is:

(i)    a genuine payment by way of damages for breach of contract; or

(ii)    given to the person under an agreement made between the company and the person before the person became the holder of the office as the consideration, or part of the consideration, for the person agreeing to hold the office; and

(b)    the value of the benefit, when added to the value of all other payments (if any) already made or payable in connection with the person’s retirement from board or managerial offices in the company and related bodies corporate, does not exceed the greater of:

(i)    the amount worked out under subsection (3); and

(ii)    the amount worked out under subsection (4).

(3)    The amount worked out under this subsection is the amount worked out using the formula:

where:

relevant period is the number of years in the relevant period or 7, whichever is the lesser number.

total remuneration is the amount of the total remuneration of the person from the company and related bodies corporate during the last 3 years of the relevant period.

Note:    Relevant period is defined in subsection (5).

(4)    The amount worked out under this subsection is:

(a)    if the relevant period for the person is less than 12 months—a reasonable estimate of the total remuneration that the person would have received from the company and related bodies corporate during the relevant period if the relevant period had been 12 months; or

(b)    if the relevant period for the person is 12 months—the total remuneration that the person received from the company and related bodies corporate in the relevant period; or

(c)    if the relevant period for the person is more than 12 months—the total remuneration that the person received from the company and related bodies corporate in the last 12 months of the relevant period.

(5)    For the purposes of this section, if a person has held an office in relation to a company:

(a)    throughout a period; or

(b)    throughout a number of periods;

the relevant period for that person is that period or the period consisting of those periods.

60    Finally, ss 200H and 200J should be noted. Section 200H provided:

Subsection 200B(1) does not apply to a benefit given by a person if failure to give the benefit would constitute a contravention of a law in force in Australia or elsewhere (otherwise than because of breach of contract or breach of trust).

Section 200J provided:

(1)    If giving a benefit to a person contravenes section 200B, then:

(a)    if the benefit is a payment—the amount of the payment; or

(b)    otherwise—the money value of the prescribed benefit;

is taken to be received by the person in trust for the company concerned.

(2)    Subsection (1) applies to the whole of the amount of a payment or of the money value of the benefit even though giving the benefit would not have contravened section 200B if that amount or value of the benefit had been less.

61    The area of dispute between the parties in relation to the fourth question is whether the NDR and DR benefits are benefits in connection with the plaintiff’s retirement from the office. The critical words are “in connection with”.

62    In Minister for Immigration and Multicultural Affairs v Singh (2000) 98 FCR 469 the Full Court of this Court considered the meaning of the phrase “in connection with” in a section in the Migration Act 1958 (Cth). With respect, Black CJ, Kiefel, Sundberg, Katz and Hely JJ dealt comprehensively with the approach to be taken and it is sufficient for me to set out what their Honours said (at 477 [28]-[29]):

28. The case law on the phrase ‘in connection with’ indicates that it is an expression of wide connotation that merely requires a relation between one thing and another: for example, Perrett v Commissioner for Superannuation (1991) 29 FCR 581; Burswood Management Ltd v Attorney-General (Cth) (1990) 23 FCR 144; Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280. But in Burswood at 146 the Full Court quoted with approval a statement made by Davies J as follows:

‘Expressions such as “relating to”, “in relation to”, “in connection with” and “in respect of” are commonly found in legislation but invariably raise problems of statutory interpretation. They are terms which fluctuate in operation from statute to statute ... The terms may have a very wide operation but they do not usually carry the widest possible ambit, for they are subject to the context in which they are used, to the words with which they are associated and to the object or purpose of the statutory provision in which they appear.’

29. The phrase ‘in connection with’ does not necessarily require a causal relationship between the matters said to be connected: Perrett, and phrases such as ‘having to do with’ are sometimes referred to as a useful synonym: Re Nanaimo Community Hotel Ltd v British Columbia [1944] 4 DLR 638. But so too are phrases such as ‘in the course of’, or ‘forming part of’: Dawson v Hoffman Brick & Potteries Ltd [1924] VLR 208. As the Full Court emphasised in Burswood at 146 reference to reported cases is of little assistance, because the nature of the relationship between one thing and another which is encompassed by the phrase ‘in connection with’ depends so much upon the statutory context in which the words appear.

(See also Claremont Petroleum NL v Cummings (1992) 110 ALR 239 at 279-280; Pearce D C and Geddes R S, Statutory Interpretation in Australia (7th ed, LexisNexis Butterworths, 2011) pages 377-378 [12.8].)

63    The rival contentions are as follows. The plaintiff contends that the obligation to pay the NDR and DR benefits derived from the fact that the required notice of termination was not given. The defendants contend that the termination was a loss of office and therefore retirement from office and that the NDR and DR benefits are sufficiently connected with that event. The obligation to pay the NDR and DR benefits was in lieu of notice of termination. The defendants emphasised the point that the authorities were to the effect that there need not be a causal connection between loss of office and the benefits, although they submitted there was in fact such a connection in this case.

64    In support of his argument, the plaintiff relied on certain remarks by Einstein J in Randall v Aristocrat Leisure Limited (ACN 002 818 368) [2004] NSWSC 411 (“Randall v Aristocrat Leisure Ltd”). That case involved a claim for damages by the chief executive officer of a company for repudiation of his contract of employment. One of the defences raised by the company involved a consideration of Div 2, Pt 2D.2 of the Act.

65    Einstein J said that he generally adopted the plaintiff’s submissions on the application of the Act. His Honour said (at [507]-[509]:

However, section 200B(1) cannot apply to Mr Randall’s claims under clause 5.4 (three months’ notice payment) and 3A.8 of the contract (one month’s salary relocation allowance and payment of relocation expenses). Nor can the section affect Mr Randall’s claim for a bonus.

The three month’s notice payment is not a payment to compensate Mr Randall for loss of office or otherwise in connection with his retirement from that office. Rather, it is a payment made in lieu of the three month’s [sic] notice of termination required to be made under clause 5.4 to bring about the effective termination of Mr Randall’s employment at the option of Aristocrat.

Equally, the payment of the one month’s salary relocation allowance and the payment of expenses made in connection with the relocation of Mr Randall back to Australia are not to compensate him for his loss of office nor are they in connection with his retirement from office. They are a contractual entitlement intended to reimburse Mr Randall for the costs and associated difficulties of moving from one country to another as part of his employment with Aristocrat.

66    Einstein J earlier made remarks (at [480]) to the effect that his observations were obiter dicta. Furthermore it seems that his Honour had in mind further submissions as to “whether and, if so, where the Act analysis and findings may be said to be engaged”.

67    I do not think that there is any doubt that the termination of the plaintiff’s employment was a loss of his office of chief executive officer and therefore his retirement from that office (paragraph 200A(1)(e)). The direct cause of the engaging of the contractual obligation to make the NDR and DR payments was the decision to proceed that way rather than by way of a notice of termination. In a sense, the NDR and DR payments are not directly linked to the loss of office per se, but to the mechanism adopted to bring about the termination. But, as the authorities show, the words “in connection with” are words of wide import and there is no need for a direct link. On the face of it, the NDR and DR payments follow from the plaintiff’s loss of office, albeit, one must add, the circumstances in which that came about. Is there reason, having regard to the subject matter and purpose of the provisions, to read down the phrase, “in connection with”? I am not able to identify any such reason. In fact, the breadth of the exceptions in s 200F, particularly that in paragraph 200F(2)(a)(ii), suggest the broad interpretation is the correct one.

68    In my opinion, the NDR and DR benefits are benefits in connection with the plaintiff’s loss of office and therefore retirement from FEA.

69    Before leaving this question I should deal with an argument advanced by the defendants which I have not relied on because I do not think it is correct.

70    One of the amendments to Div 2, Pt 2D.2 introduced by the Amending Act was the addition to s 200A of subsection (1A) which was in the following terms:

(1A)    Without limiting subsection (1), a benefit is given in connection with a person’s retirement from an office or position if the benefit is given in circumstances specified in regulations made for the purposes of this subsection.

71    Regulations were made under that subsection (Corporations Regulations 2001 (Cth)) inserted SL1 2009 No 328, Sch 1 [1] effective 28 November 2009) and they included the following regulation, relevantly:

2D.2.03 When benefit given in connection with retirement from an office or a position

(1)    For subsection 200A(1A) of the Act, each of the following circumstances is specified in relation to a benefit:

(a)    …

(c)    circumstances in which the benefit is a payment made to a person in lieu of the giving of a notice of termination.

72    The defendants submit that the amendment to s 200A and the regulation were “declaratory” of the position as it was prior to 24 November 2009. They made it clear that they were not suggesting the Amending Act was a declaratory Act; plainly, it is not because the Amending Act was not intended to have retrospective operation (see Pearce D C and Geddes R S, Statutory Interpretation in Australia (7th ed, LexisNexis Butterworths, 2011) para [1.29]). The defendants’ submission was that the amendment to s 200A and subsequent regulation were declaratory in the sense described by McColl JA (with whom Ipp and Basten JJA agreed) in Hooker v Gilling [2007] NSWCA 99 (‘Hooker v Gilling’) at [40]-[42].

73    The defendants sought to support their argument by reference to the Explanatory Memorandum to the Amending Act. It contained the following passages:

2.5    The Bill introduces a significantly lower threshold at which termination benefits must be approved by shareholders. Under the new arrangements, termination benefits for company directors and executives exceeding one year’s average base salary are subject to shareholder approval. In addition, the range of personnel whose termination benefits can be subject to shareholder approval is expanded from directors to also include senior executives or key management personnel. The Bill also clarifies the types of benefits that are subject to shareholder approval.

2.31    There is currently some legal ambiguity as to whether certain types of payments are considered to be a termination benefit requiring shareholder approval. To address this, the Bill contains a regulation making power to create regulations which prescribe things to either be a benefit, or not to be a benefit [Schedule 1, Item 7, section 200AB]. The Bill also provides a regulation making power to create regulations which prescribe certain types of benefits that are taken to be given in connection with a person’s departure from office [Schedule 1, Item 10, subsection 200A(1A)].

2.34    In addition, the draft regulations will prescribe circumstances in which a benefit is given in connection with a person’s retirement from an office or position. This could include for example, the automatic or accelerated vesting of options and payments in lieu of notice.

74    This case is very different from that of Hooker v Gilling [2007] NSWCA 99. The Amending Act introduced significant amendments. It cannot be said in this case that there is a clear indication to do no more than streamline existing provisions without adding new concepts. The Explanatory Memorandum does not make the legislature’s intention to clarify the position plain. Certainly the Parliament wished to remove as far as possible ambiguous cases and it chose to do so by introducing with prospective application a new regulation-making power which could lead to regulations which specify payments in lieu of notice. However, that is as far as it goes, and I do not think it advances the defendants’ argument. The plaintiff did not suggest that the amendment to s 200A and regulation added anything to its argument.

75    As far as the NDR and DR benefits are concerned the answer to the fourth question is yes.

5. If so, was any part of such benefit:

(a)    exempt from the operation of s 200B of the Act by reason of being a “genuine payment by way of damages for breach of contract” as contemplated by s 200F(2)(a)(i )of the Act;

(b)    exempt from the operation of s 200B of the Act by reason of being given to Mr White under an agreement of the type contemplated by s 200F(2)(a)(ii) of the Act; or

(c)    approved by FEA’s members as contemplated by s 200E of the Act –

and if so, what part?

76    As to question 5(a) the plaintiff’s claim following termination of the July 2009 agreement is entitlement to payment under the contract, and therefore the answer to the question is no. I should mention that the defendants contended that, even if there was a breach of contract, the plaintiff could not recover as damages amounts that FEA was otherwise prohibited from paying by reason of the provisions of Div 2, Part 2D.2. That contention appears to me to mischaracterise the nature of the plaintiff’s claim. The plaintiff claims that payments for NDR and DR are properly characterised as part of the plaintiff’s damages. If that proposition was established, then the defendants’ contention would be rejected.

77    As to question 5(b), it is convenient to deal with this question with a question added at trial (5A).

5A    Does the value of the s 200F(2)(a)(ii) benefit, when added to the value of all other payments made or payable in connection with Mr White’s retirement, exceed the greater of the amounts worked out under s 200F(3) and (4) of the Act, such that the s 200F(2)(b) condition is not satisfied in respect of that benefit?

78    It is common ground that the plaintiff held an office with FEA, being the office of chief executive officer. The plaintiff claims that the NDR and DR benefits are part of the consideration provided by FEA for his agreement to hold that office under the July 2009 agreement. As I have said (at [18]), the defendants contend that that is not the case because the plaintiff held the office before the July 2009 agreement and in fact he has held the office since March 2003. In the alternative, the defendants claim that if the office is the office held under the July 2009 agreement, then the relevant period for the purpose of working out the amounts under subsections 200F(3) and (4) is the period during which he held that office under that agreement, that is to say, the period from July 2009 to April 2010. The NDR and DR benefits exceed the amounts worked out under those subsections for that period.

79    The defendants referred to Nair v Arturus Capital Ltd (2010) 78 ACSR 43 and submitted that that case was distinguishable because there it was found that there were different incidents in the office in respect of which the termination benefit provided consideration, compared with the incidents of the office under the earlier agreement (at 50 [15]-[16]). That was not the case in the present case because any differences were immaterial. They also submitted that was the basis upon which the decision in Randall v Aristocrat Leisure Ltd [2004] NSWSC 411 should be distinguished (see [516] [530] [533]). The defendants submitted that the word “office” should be given the same meaning in paragraph 200F(2)(a)(ii) and subsection 200F(5), and referred to authorities which said that the same word in different parts of a section will generally be given the same meaning.

80    In my opinion, read as a whole the construction of s 200F for which the plaintiff contends is the correct one. The words of paragraph 200F(2)(a)(ii) are that the benefit must be:

given to the person under an agreement made between the company and the person became the holder of the office as the consideration, or part of the consideration, for the person agreeing to hold the office.

81    On the defendants’ construction the consideration for the plaintiff agreeing to hold the office would be past consideration under the agreement made in March 2003. I think the consideration is the consideration given by the company from time to time. The fact is that Div 2 Pt 2D.2 is concerned with benefits given in connection with retirement from office. The plaintiff held an office which he lost, and in relation to which, in consideration for him holding the office at that time, FEA had agreed to pay the NDR and DR benefits.

82    The relevant period for the purposes of determining how long a person has held an office in relation to a company is defined in subsection (5). It refers to an office not the office. It refers to a period and that must mean a period of time. It also refers to a number of periods. If the latter is relevant, then the relevant period is the aggregation of those periods of time. It seems to me that the matter which will distinguish a period of time from a number of periods of time is the periods of the contracts under which an office was held. A person who holds an office for ten years under one contract holds the office for a period of time, whereas a person who holds an office for ten years under two five-year contracts holds the office for two periods of time. On the face of it, in each case the relevant period is ten years. Is there any reason to limit the operation of subsection 200F(5)? It might be suggested that the definition is intended to cover only interrupted periods where a person holds a particular office, that is to say, there is a period between periods of office holding where a person does not hold office. It might be suggested that the definition is intended to cover only a case where a person holds different offices over a period of time. In my opinion, there is no apparent reason in logic, or by reference to the policy of the section, to limit the construction of subsection 200F(5) in either of these ways. It seems to me that successive periods of time serving in the same office should be aggregated to constitute the relevant period.

83    The answer to question 5(b) in relation to the NDR and DR benefits is yes, and the answer to question 5A is no.

84    As to question 5(c), the terms of s 200E are set out above (at [58]). Subsection 200E(1) provides that the benefit must be approved by a resolution passed at a general meeting of FEA.

85    Section 250R of the Act deals with the business of the annual general meeting of a company. Subsection (2) provides that a resolution that the remuneration report be adopted must be put to the vote, and subsection (3) provides that the vote on the resolution is advisory only and does not bind the directors or the company.

86    Accepting for the purposes of argument that a member approval may be given in advance of the immediate circumstances giving rise to the payment, the adoption of a remuneration report nevertheless does not amount to a member approval under s 200E. The process under s 250R, involving as it does an advisory vote not binding on the directors or the company, is quite a different process from that where a company seeks member approval for the giving of a benefit (Nair v Arturus Capital Ltd (2010) 78 ACSR 43). Even if this is wrong, the details of the benefit were not provided to shareholders within subsection 200E(2). The amount of the payment was not specified and the method of calculating, for example, the DR was not provided. There is no reference to the pro rata equivalent of the plaintiff’s average percentage entitlement in the two years prior to termination.

87    There was no members’ approval under s 200E of the Act of the NDR and DR benefits and the answer to question 5(c) is no.

6. Are any amounts payable to Mr White by FEA amounts in respect of leave of absence which were not due on or before the “relevant date” in respect of FEA and are therefore not entitled to any priority under ss 433 and 556 of the Act, and if so, what amount(s)?

88    The amounts in issue here are the amounts claimed for annual leave and long service leave. The defendants contend that those amounts are not entitled to priority.

89    Subsections 433(2) and (3) of the Act relevantly provide as follows:

(2)    This section applies where:

(a)    a receiver is appointed on behalf of the holders of any debentures of a company or registered body that are secured by a floating charge, or possession is taken or control is assumed, by or on behalf of the holders of any debentures of a company or registered body, of any property comprised in or subject to a floating charge; and

(b)    at the date of the appointment or of the taking of possession or assumption of control (in this section called the relevant date):

(i)    the company or registered body has not commenced to be wound up voluntarily; and

(ii)    the company or registered body has not been ordered to be wound up by the Court.

(3)    In the case of a company, the receiver or other person taking possession or assuming control of property of the company must pay, out of the property coming into his, her or its hands, the following debts or amounts in priority to any claim for principal or interest in respect of the debentures:

(a)    first, any amount that in a winding up is payable in priority to unsecured debts pursuant to section 562;

(b)    next, if an auditor of the company had applied to ASIC under subsection 329(6) for consent to his, her or its resignation as auditor and ASIC had refused that consent before the relevant date—the reasonable fees and expenses of the auditor incurred during the period beginning on the day of the refusal and ending on the relevant date;

(c)    subject to subsections (6) and (7), next, any debt or amount that in a winding up is payable in priority to other unsecured debts pursuant to paragraph 556(1)(e), (g) or (h) or section 560.

Paragraphs 556(1)(e), (g) and (h) are in the following terms:

(1)    Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:

(a)    …

(e)    subject to subsection (1A)—next, wages, superannuation contributions and superannuation guarantee charge payable by the company in respect of services rendered to the company by employees before the relevant date;

(f)    next, amounts due in respect of injury compensation, being compensation the liability for which arose before the relevant date;

(g)    subject to subsection (1B)—next, all amounts due:

(i)    on or before the relevant date; and

(ii)    because of an industrial instrument; and

(iii)    to, or in respect of, employees of the company; and

(iv)    in respect of leave of absence;

(h)    subject to subsection (1C)—next, retrenchment payments payable to employees of the company.

90    The relevant paragraph for present purposes is 556(1)(g). The relevant date in this case is the date upon which the defendants were appointed receivers, that is to say, 14 April 2010. The receivership of FEA did not bring the plaintiff’s employment or employment contract with the company to an end. That did not occur in relation to the plaintiff’s employment until five days later. No payments for annual leave or long service leave were “due” until the plaintiff’s contract was terminated. That was after the relevant date and, therefore (so the argument proceeds), the claims for annual leave and long service leave are not entitled to priority.

91    In a winding up, employees are given priority in respect of annual leave and long service leave by reason of the deeming provision of s 558(1), which provides that an employee is entitled to payment under s 556, “as if his or her services with the company had been terminated by the company on the relevant date”.

92    The plaintiff submits that I should read the words “pursuant to paragraph 556(1) ... (g)” in paragraph 433(3)(c) as incorporating the deeming provision in subsection 558(1). The defendants contend that I should not read the paragraph in that way. There are authorities on either side of the question.

93    In Re Office-Co Furniture Pty Ltd [2000] 2 Qd R 49, de Jersey CJ (“Re Office-Co”) construed the section in the manner contended for by the plaintiff. Chief Justice de Jersey said (at 52-53):

In terms of s. 433(3)(c), which relates specifically to receivership, these amounts are ‘debt(s) or amount(s) that in a winding up (are) payable in priority’, because of the effect of s. 558 in deeming the employment to have been terminated as at the commencement of the winding up. In other words, although s. 433 refers specifically only, as relevant, to s. 556, in determining what amounts are ‘due’ for the purposes of the latter section, one must necessarily read it with s. 558. I cannot see why one should go through that process for winding up, but not receivership.

…

In my respectful view, those determinations — neither of which expressly adverts to s. 558 — overlook the impact of that section of the Corporations Law, which I consider operates, in the case of a receivership, on s. 556, and thence s. 433, in the manner I have described. I also respectfully disagree with the view suggested in this context in Professor O’Donovan’s work, Company Receivers and Managers 2nd ed., para. 11.800, citing Love, that s. 558 ‘only applies in company liquidations’. I consider that it can, in that way apply, if indirectly, to cases of receivership.

94    Two judges of this Court have taken a contrary view: McEvoy v Incat Tasmania Pty Ltd (2003) 46 ACSR 392 (Finkelstein J) (‘McEvoy’); Vickers, in the matter of Challenge Australian Dairy Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2011] FCA 10 (Barker J) (‘Vickers’).

95    I can focus on the decision of Finkelstein J in McEvoy 46 ACSR 392 because Barker J in Vickers [2011] FCA 10 followed the reasoning of Finkelstein J, although his Honour said that he reached his conclusion “not without some hesitation” (at [54]-[63]).

96    In McEvoy 46 ACSR 392, Finkelstein J first noted that the general rule is that a contract of employment is not terminated by the private appointment of a receiver. His Honour next examined the legislative history of s 433. He began by considering the position under the New South Wales Uniform Companies Act of 1961. He examined the amendments in 1971 and 1973. The latter introduced the deeming provision that is now contained in s 558 in the form of subsection 292(1A). His Honour said that the legislative history suggested that the focus of the Parliament’s attention was on the position in a winding up. I do not accept the plaintiff’s submission that Finkelstein J misunderstood the legislative history. Finkelstein J next considered the cases including Re Office-Co 2 Qd R 49. Finally, his Honour considered the appropriate construction of s 433 of the Act. The construction question was and is whether “any debt or amount that in a winding up is payable in priority to unsecured debts pursuant to [relevantly] paragraph 556(1)(g)” is restricted to a debt or amount due by reference to subsection 556(1) alone, or includes the operation of that subsection as effected by the deeming provision in subsection 558(1).

97    Finkelstein J referred to the fact that there were many respects in which a receivership is unlike a liquidation. His Honour said (at 403 [25]):

In most cases, once a company is placed into liquidation all employees will, in due course, be dismissed because a liquidation usually spells the death of a company. Receiverships are different. In the first place, they do not affect the existence of the company. Second, it is often in the interests of the chargee that the company continue its business. To that end, staff are kept on and are often unaffected by the receivership. In those cases, a construction which places employees of a company in receivership on the same footing as employees of a company which has been wound up will operate in a discriminatory fashion, as the former employees will both keep their jobs and be paid out as if they had lost them. The construction could also produce the absurd result that an employee may work for up to 23 months without a holiday, and up to 29 years without a long break.

98    His Honour was of the view that the only purpose of subsection 558(1) was to ensure that employees would not, in a winding up, lose priority for annual leave and long service leave which was still accruing but had not yet fallen due at the commencement of the winding up. In essence, the legislative history and the fact that the unfairness in discriminating in a winding up, between employees whose employment was about to come to an end as a result of a winding up, compared with employees whose rights had accrued did not apply, or at least apply with the same force in the case of a receivership, led Finkelstein J to the conclusion that the deeming provision in subsection 558(1) was not part of subsection 556(1) when considered in the context of paragraph 433(2)(c).

99    Although the question of construction is not an easy one, I think the construction adopted by Finkelstein J is correct for the reasons his Honour gave.

100    The answer to question six is yes.

7. To what amount is Mr White entitled to priority payment out of the recovered property under ss 433 and 556 of the Act?

101    I will give the parties the opportunity to address this question in light of my answers to the earlier questions.

Conclusions

102    The plaintiff is to bring in draft minutes of order within seven days reflecting the conclusions in these reasons and any claims for interest and costs. If those minutes are not agreed I will relist the matter for the resolution of any outstanding issues.

Associate:

Dated:    2 February 2012