New South Wales Supreme Court CITATION : Fardell v Coates Hire Operations Pty Ltd [2010] NSWSC 346 HEARING DATE(S) : 18, 19 and 20 August 2009 JUDGMENT DATE : 28 April 2010 JURISDICTION : Equity JUDGMENT OF : White J DECISION : I give verdict and direct entry of judgment for the plaintiff in the sum of $819,180.50. I will hear the parties on costs. The exhibits may be returned after 28 days. CATCHWORDS : CONTRACT – EMPLOYMENT – employee was senior executive – participant in employee incentive schemes – employment contract provided for notice periods for termination of employment and payments to employee on termination – contract allowed employee to terminate contract for change of control of employer leading to material diminution of role and responsibilities and additional payment in lieu of notice – takeover of employer – employee gave conditional notice under change of control provision – employer terminated contract and employment - CONTRACT – construction of contract – employee not entitled to benefits under employee incentive schemes if employment terminated earlier – entitled to pro-rata benefits under transitional arrangements and amended employee incentive schemes – purported amendments of incentive schemes effective – plaintiff entitled to benefits under schemes as amended - CONTRACT – employee gave valid termination notice – change of control leading to material diminution in role and responsibilities – "entitlement" to more than 50% of shares in employer includes equitable interest – requirements for valid notice of termination – conditional notice valid provided condition is certain – notice operates on fulfilment of condition – employer wrongly terminated employment after valid notice given – breach of implied term not to hinder or prevent fulfilment of purpose of provision in contract – employee entitled to damages equal to amount payable under provision - CONTRACT – employee not entitled to redundancy payments – damages not reduced by earnings made after termination – employee entitled to be put in same position had contract been performed Corporations Act 2001 (Cth) LEGISLATION CITED : Civil Procedure Act 2005 (NSW) Industrial Relations Act 1996 (NSW) CATEGORY : Principal judgment Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 Re Primac Holdings Ltd & Anor (1988) 14 ACLR 580 Burton Group Ltd v Smith [1977] IRLR 351 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 Carter v Hyde (1923) 33 CLR 115 Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673 Fightvision Pty Ltd v Onisforou [1999] NSWCA 323; (1999) 47 NSWLR 473 Frederick v State of South Australia [2006] SASC 165; (2006) 152 IR 182 Gunnedah Shire Council v Grout (1995) 134 ALR 156 CASES CITED : Fryar v System Services Pty Ltd (1996) 137 ALR 321 Payne v Foxboro L & N Pty Ltd (1998) 81 IR 404 Thickbroom v Newcastle Wallsend Coal Company Pty Ltd (1998) 83 IR 193 Grout v Gunnedah Shire Council (1994) 125 ALR 355 Birrell v Australian National Airlines Commission (1984) 5 FCR McGrane v Ryan (1965) 7 AILR 83 Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 Byrne & Frew v Australian Airlines Ltd (1995) 185 CLR 410 Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 Peters (WA) Limited v Petersville Limited [2001] HCA 45; (2001) 205 CLR 126 TEXTS CITED : G J McCarry, Termination of Employment Contracts by Notice (1986) 60 ALJ 78 PARTIES : Plaintiff: Geoff Fardell Defendant: Coates Hire Operations Pty Ltd FILE NUMBER(S) : SC 2009/298538 COUNSEL : Plaintiff: I Neil SC with T Saunders Defendant: J R Clarke SOLICITORS : Plaintiff: Haywards Solicitors Defendant: DLA Phillips Fox IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST WHITE J Wednesday, 28 April 2010 2009/298538 Geoff Fardell v Coates Hire Operations Pty Ltd JUDGMENT Introduction 1 HIS HONOUR: The plaintiff was employed by the defendant as chief financial officer for the Coates Hire group of companies. The parent company of the group was a listed public company called Coates Hire Limited. The plaintiff's employment was terminated on 18 January 2008 following a takeover. He received 12 months' pay in lieu of notice. The plaintiff claims that this payment was incorrectly calculated, that he gave notice of resignation under a provision of his employment contract that entitled him to an additional payment equivalent to the total cost of his employment for an additional 12 months, that he was not paid moneys owing under two incentive plans, that he was entitled to an additional three months' salary, and that he was entitled to a redundancy payment. 2 Pursuant to a Scheme of Arrangement approved by shareholders on 17 December 2007 and by the Federal Court on 20 December 2007, which became binding on shareholders on 21 December 2007 and was implemented on 9 January 2008, all of the shares in Coates Hire Limited were acquired by Ned Group Holdings Pty Ltd, a subsidiary of National Hire Group Limited. The National Hire group of companies had formerly carried on a similar business in competition to the Coates Hire group of companies. After the merger there was no position for the plaintiff. 3 The plaintiff entered into a Service Agreement with the defendant on 4 December 2002. It replaced an earlier letter of appointment dated 22 April 2002. In the Service Agreement the expression "the Company" meant the defendant. "Coates Hire" meant Coates Hire Limited and its related bodies corporate, unless the context otherwise required. Clause 7.1(b) of the Service Agreement set out the amounts the defendant was required to pay if the plaintiff's employment were terminated pursuant to clause 7.1(a) for breach. Those amounts were accrued salary, contributions to a particular named superannuation fund, payment in lieu of unused annual leave and any amount due under applicable long-service leave legislation. Clauses 7.2, 7.3 and 7.4 provided: " 7.2 Termination by the Company where no breach by Employee (a) The Company may at any time and for any reason terminate the Employee's employment by giving 12 months' notice to the Employee and by paying to the Employee on the date on which that notice period expires the payments specified in clause 7.1(b) . (b) The Employee may at any time and for any reason resign from his employment by giving 3 months' notice to the Company. 7.3 Change of control and role and responsibilities The Employee may terminate this Agreement by giving 3 months' notice to the Company at any time within 12 months after any person becomes entitled to more than 50% of Coates Hire's shares leading to a material diminution in his role and responsibilities. If this Agreement and the Employee's employment is terminated pursuant to this clause 7.3 , then the Employee shall be entitled to: (a) the amounts referred to in clause 7.1(b) ; (b) payment in lieu of the notice period referred to in clause 7.2(a) ; and (c) an amount equal to the annual total cost of employment package applying on the Termination Date. 7.4 Payment in lieu of notice The Company may at its discretion pay the Employee the equivalent amount of his total cost of employment package in lieu of any notice period relating to the termination of the Employee's employment under this Agreement. " 4 Under the combined operation of clauses 7.2(a) and 7.4 the defendant could terminate the plaintiff's employment by giving 12 months' notice or by paying in lieu thereof the "equivalent amount of his total cost of employment package". The employee could resign by giving three months' notice to the company under clause 7.2(b). However, if the employee became entitled to terminate the agreement by giving three months' notice pursuant to clause 7.3 on a change of control leading to a material diminution in his role and responsibilities, and if his employment was terminated pursuant to clause 7.3, he was entitled to significantly more. The employee was then entitled both to payment in lieu of 12 months' notice and an amount equal to the annual total cost of his employment package applying on the "Termination Date". (The "Termination Date" was defined as the date of termination of the employee's employment with the company, whether under clause 7 or otherwise.) In other words, if the plaintiff's employment were terminated pursuant to clause 7.3 he was entitled to an amount equivalent to an extra payment in lieu of 12 months' notice. 5 The plaintiff claims that he gave notice to the defendant under clause 7.3 on 7 January 2008, or alternatively on 18 January 2008, and became entitled to payments in accordance with that clause. The defendant disputes that the plaintiff was entitled to give notice pursuant to the clause and disputes that either of the alleged notices was effective, even if the preconditions for giving a notice under clause 7.3 had been satisfied. The defendant contends that it terminated the plaintiff's employment pursuant to clause 7.2(a) and paid the plaintiff $456,750 in lieu of notice pursuant to clause 7.4. 6 The plaintiff disputes that the defendant accurately calculated his "total cost of employment package" within the meaning of clause 7.4. The plaintiff participated in what was called the short-term incentive plan (the Coates Executive Incentive Plan) and the long-term incentive plan (the Coates Hire Limited Performance Share Plan). The amount paid did not include any amounts that could be expected to have become payable under the short-term incentive plan, nor the value of shares or dividends to which the plaintiff says he would have become entitled under the long-term incentive plan. The plaintiff claims that the correct amount to be paid as 12 months' payment in lieu of notice under clause 7.4 was $1,325,679.98, not $456,750. The plaintiff claims that he is entitled to double that sum pursuant to clause 7.3(b) and (c) on the basis that the Service Agreement and his employment were terminated pursuant to that clause. Alternatively, if the plaintiff is not entitled to benefits under clause 7.3 because his employment was earlier terminated by the defendant, the plaintiff claims damages. He claims that after receiving his notice of 7 January 2008 purportedly invoking his entitlement under clause 7.3, the defendant breached implied terms of the contract by purporting to exercise its right of termination so as to deprive the plaintiff of the benefits of clause 7.3. 7 Moneys, shares and dividends to be paid or provided under the short-term incentive plan and the long-term incentive plan were available to participants who remained employees of the defendant at the time of the payment or provision of the incentives. The terms of the plans could be amended by the board (in the case of the long-term incentive plan), and the board or the managing director (in the case of the short-term incentive plan). 8 On 24 October 2007 the managing director of Coates Hire Limited, Mr Malcolm Jackman, sent an email to senior executives including the plaintiff. He advised that if the Scheme of Arrangement were approved, it had been agreed by all parties that there would be a transition plan in respect of the short-term incentive plan and that a "line in the sand" would be drawn at 31 December 2007. The short-term incentive payment would be calculated based on performance to 31 December 2007 and calculated on a pro-rata (50 percent) basis. Such incentive would be paid in July 2008, except that staff who ceased employment as part of any restructuring before July 2008 would receive their payment on termination. A similar change was advised to the long-term incentive plan. The long-term incentive plan involved the purchase of shares in Coates Hire Limited by a trustee for the participants in the plan. The purchase was funded by the company. Mr Jackman announced that a participant's entitlement to a long-term incentive would be calculated at 31 December 2007 and entitlements calculated on a pro-rata (50 percent) basis. A cash entitlement in lieu of Coates shares would be accrued and paid in July 2008, or on termination of the employment of any employee who ceased to be employed as part of a restructuring. 9 The plaintiff has not received any payments in respect of the 2007/2008 short-term incentive plan or long-term incentive plan. He claims $159,862.50 being a pro-rata incentive payment claimed to be owing to him under the short-term incentive scheme pursuant to the announcement made by Mr Jackman of 24 October 2007 and $57,093.75 being an amount equal to the pro-rata value of shares calculated according to the announcement made by Mr Jackman on that day. The defendant contends that the plaintiff is not entitled to be paid under the terms of either incentive plan and that Mr Jackman's announcement is not binding on it. 10 As an alternative to his claim under clause 7.3, the plaintiff contends that the defendant had a redundancy policy which was incorporated by reference in the Service Agreement, by which it was required to pay three weeks' severance pay for every year of service up to a maximum of 52 weeks' severance pay in the event that the plaintiff's position of chief financial officer became redundant. The defendant denied that it had such a policy in relation to employees in the position of the plaintiff and denied that any such policy was incorporated into the contract. 11 The plaintiff also contends that having invoked clause 7.3 he was entitled to serve the three-month notice period in that clause and is entitled to the salary he would have earned had he been permitted to do so. Background: commencement of employment 12 The plaintiff commenced his employment with the defendant in May 2002. Although employed by the defendant, he occupied the position of chief financial officer of Coates Hire Limited, the parent company of the Coates Hire Group. The plaintiff reported to the managing director. He was not himself a director of the board of Coates Hire Limited although he attended board meetings. He was a director of various subsidiaries. His initial remuneration comprising salary, superannuation, motor vehicle allowance and other benefits was $320,000. By a letter of appointment dated 22 April 2002 the plaintiff was advised that: " 4. Performance Incentive Scheme The Company has in place a performance incentive scheme with payment of the incentive dependant on the achievement of specific targets. You will be eligible to participate in the 2002/2003 Corporation Scheme, which is currently being reviewed and given the potential performance of the company, should equal at least 30% of your package. A copy of the current plan is enclosed. 5. Share and Option Scheme The Company has both an Executive Share Option Scheme and an Employee Share Plan, which you will be entitled to participate in. On the next issue of options, you will be entitled to participate at the appropriate level. Issue of options is at the discretion of the Board. On commencement you will be issued with 2,000 shares under the employee share plan. A copy of both plans are enclosed for your information. " 13 The plaintiff was admitted to both schemes prior to the parties entering into the Service Agreement on 4 December 2002. 14 Clauses 7.2, 7.3 and 7.4 of the Service Agreement are set out at para [3]. The Service Agreement contained the further relevant provisions as follows: " 1.2 Interpretation Headings are for convenience only and do not affect interpretation. ... 2. Terms of Employment 2.1 Engagement The Company shall continue to employ the Employee as Chief Financial Officer of Coates Hire reporting to the Managing Director and the Employee shall continue to serve the Company in accordance with this Agreement during the Term. 2.2 Term This Agreement will have effect from the date that it is executed by both parties until it is terminated in accordance with clause 7. 2.3 Letter of Appointment This Agreement replaces the Employee's Letter of Appointment dated 22 April 2002. The terms of employment contained in that Letter of Appointment shall no longer apply. ... 5. Conditions of employment 5.1 Package The Employee shall receive a total cost of employment package valued at $320,000, to be allocated in the manner agreed with the Company. 5.2 Review (a) The Company shall undertake an annual review of the total cost of employment package payable to the Employee having regard to the Employee's performance, current market conditions and practice, and inflation. (b) The Company may also at the Employee's request review the manner in which the Employee's employment package is allocated. (c) The adjustment to the employment package, if any, shall take effect on the 1 st day of July each year. In no event shall the total cost of employment package of the Employee be reduced. ... 6. Additional Benefits 6.1 Employee Share Plan The Employee will be invited to participate in each offer to be made under the Coates Hire Deferred Share Plan (expected to be adopted in November 2002) to the extent determined by the Company. 6.2 Executive Option Plan The Company is considering adopting an Executive Share Option Plan. The Employee will be invited to participate in this plan (if adopted) in accordance with its rules. 6.3 Incentive Scheme The Employee will participate in the Company's Incentive Scheme as outlined in the rules of that scheme. ... 16. Entire Agreement This Agreement contains the entire agreement of the parties with respect to its subject matter. It sets out the only conduct relied on by the parties and supersedes all earlier conduct by the parties with respect to its subject matter. " 15 Clause 5.1 is significant to the identification of what is comprised in the "total cost of employment package" where that expression is used in clauses 7.3 and 7.4. The plaintiff was in receipt of remuneration valued at $320,000 independently of his participation in the short-term incentive plan and long-term incentive plan. The short-term incentive plan and the long-term incentive plan 16 It was common ground that the terms of both incentive plans provided that an employee was only entitled to benefits under the plans if he or she was employed at the time the relevant benefits became payable or vested. 17 Thus the Coates Executive Incentive Plan for 2007–2008 (the short-term incentive plan) provided "all salaried employees employed on the 1st July 2007 and who continue to be employed at the time of payment of the incentive payment, are eligible." The incentives payable under this plan were dependent upon the achievement of key business targets for the period 1 July 2007 to 30 June 2008. Payment of incentives would not occur until after the sign-off of the full year accounts by the auditors and the board. 18 The Coates Hire Limited Performance Share Plan (the long-term incentive plan) was established by a trust deed dated 28 November 2002. It provided for the Plan Trustee to use contributions from Coates Hire Limited to acquire shares in Coates Hire Limited for the benefit of participants in the plan. This was at no cost to the participants. Eligible employees' participation in the plan was at the discretion of the board. Shares held by the trustee for the benefit of participants did not immediately vest in the participant, but the participant was entitled to receive dividends in respect of such shares held for his or her benefit. A participant forfeited any right or interest in the shares if he or she ceased to be an employee before vesting. Clause 12.1 provided that "Subject to the Listing Rules, the Board may add to or vary any of these Rules ... at any time by resolution of the Board." 19 The plaintiff received $609,000 under the short–term incentive plan in respect of the year ended 30 June 2007, being the maximum benefit payable to him under that plan. Under the long-term incentive plan he received dividends of $24,857.14. In addition the trustee of the plan purchased shares to the value of $73,950 on his behalf which, if he had remained in employment, would have vested in three equal tranches in January 2008, January 2009 and January 2010. The maximum benefit payable to the plaintiff under the short-term incentive plan for the financial year ended 30 June 2008 was $548,000. The maximum value of shares allowable to him under the Performance Share Plan for that year was $228,375 (dependent upon the company achieving financial targets). The plaintiff could receive benefits under the short-term incentive plan which more than doubled his fixed remuneration of salary, superannuation and motor vehicle allowance. He could receive or become contingently entitled to benefits under the long-term incentive plan to the value of up to 50 per cent of his total fixed remuneration. 20 The short-term incentive plan stated that it was funded from successful financial performance of the company. The incentive payments were calculated by reference to the "Business Unit's" earnings before income tax and return on assets. The plan stated: " The Board and Managing Director may at any time make alterations to the plan where deemed necessary. Any changes will be communicated to all participants as soon as practical. " 21 It was a further term of the plan that the HR & Remuneration Committee would have final approval in relation to the administration of the scheme and must sign off all incentives before any payment was made. 22 The version of the short-term incentive plan in place when the plaintiff's Service Agreement was entered into included the following terms: " The aim of the Coates Hire Business Unit Incentive Plan is to focus participants on Business Unit objectives and to reward them for achievement of set targets for the period 1 st July 2002 to 30 th June 2003. Principles : The plan is funded from successful Profit performance of the company and is based on improvement of ROTA year on year and achieving a certain target ROTA ( Return on Total Assets ) ratio. ... The incentive paid will be dependent upon achieving a satisfactory individual performance level (unsatisfactory individual performance may result in a reduced or zero payment). ... The Remuneration Committee will have final say in relation to the administration of the scheme and must sign off on the incentives before any payment is made. Acceptable Sales growth must be achieved to qualify (90% of budget). Achievement of less than the minimum Primary target will result in zero payment. ... " 23 The trust deed establishing the long-term incentive plan included the following provisions: " 3.6 The Company will pay all the expenses, costs and charges incurred by the Plan Trustee in operating the Plan, including the costs directly related to buying the Shares by the Plan Trustee. The Plan Trustee must not levy any fees or charges for operating or administering the Plan or the Trust, either Payable directly by Participants or out of the assets of the Plan or the Trust and must not grant a Security Interest over any Shares. ... 4.4 The Plan Trustee must use such contributions to acquire Shares for the benefit of Participants as directed from time to time by the Board. Shares will be acquired by the Plan Trustee in the ordinary course of trading on the ASX, from other purchases, or from a new issue of Shares by the Company for Participants as directed from time to time by the Board. Under no circumstances may the Plan Trustee repay to the Company or any Associated Company any amount received as contributions for the acquisition from Shares. ... 6.5 A Participant is entitled to receive any dividends (including franking credits), or other distributions or entitlements made in respect of Shares held by the Plan Trustee for his/her benefit under the Plan. ... 9.1 A Participant (and any person claiming through him or her) will forfeit any right or interest in any Shares or other entitlements under the Plan to the Plan Trustee if: (a) he or she ceases to be an Employee at a time when the Shares acquired by or for the benefit of the Employee under the Plan remain subject to any Relevant Requirements; or (b) the Employee, in the opinion of the Board, is dismissed for cause or commits any act of fraud, defalcation or gross misconduct in relation to the affairs of the Company or any Associated Company (whether or not charged with an offence), unless the Board resolves otherwise. ... 12. VARIATION OF RULES 12.1 Subject to the Listing Rules, the Board may add to or vary any of these Rules, or waive or vary the application of any of these Rules in relation to any Participant, at any time by resolution of the Board. 12.2 If an addition or variation under Rule 12.1 reduces the rights of Participants in respect of Shares held for their benefit prior to the date of amendment under the Plan, the Board must obtain the written consent of three-quarters of the Participants affected by such addition or variation. 12.3 Rule 12.2 shall not apply to any additions, variations or modifications to the Rules that are required to be made by the Board by any law. " Plaintiff's role and responsibility at Coates Hire 24 The plaintiff's initial letter of appointment dated 22 April 2002 stated: " As the Chief Financial Officer you will be totally responsible for the financial management of the company and work as part of the Senior Management Team in strategy and business improvement processes as outlined in the job description and in our various discussions. " 25 That role did not change after the entry into the Service Agreement. The plaintiff reported to the managing director. He attended all board meetings except if he were on leave. He was appointed as a director of a number of subsidiary companies. He was and was held out to be the most senior finance person in the Coates Hire group of companies. Together with the managing director, he attended on the six-monthly release of the group's results, and attended meetings with shareholders, fund managers, brokers and analysts and made presentations at various conferences concerning Coates Hire. He was responsible for the upgrading of the group's financial systems. His role as chief financial officer involved responsibility for timely financial reporting and analysis of management performance, tax management, capital and treasury management, cost reductions, and risk management. He presented papers and sat on panels at various conferences on corporate finance and investor relations. Takeover of Coates Hire Limited 26 On 1 May 2007 Coates Hire Limited announced that the directors had decided to "undertake a review of strategic options, with a view to maximising value for all shareholders. The review will consider both corporate and operational strategies and is expected to take some months to complete. This follows the receipt by the Company of a number of preliminary approaches from interested parties including private equity firms." On 28 June 2007 it announced that it would be embarking on a "formal assessment of indicative proposals". 27 In early October 2007 an offer was received from the Carlyle Group, described as a major American private equity partnership, and National Hire Group, a competitor of Coates Hire, to buy the shares held by shareholders in Coates Hire Limited for about $6.59 per share through NED Group Holdings Pty Limited, a subsidiary of National Hire Group Limited. On 9 November 2007 Coates Hire Limited advised the Australian Securities Exchange that the Federal Court had ordered the convening of a meeting of shareholders to vote on the proposal by NED Group Holdings Pty Limited to acquire all of the shares in Coates Hire Limited. The takeover was to proceed by way of Scheme of Arrangement. On implementation of the scheme, NED Group Holdings Pty Limited and the Carlyle Group would each have a right to a 47 per cent economic interest in the shareholder of NED Group Holdings Pty Ltd with the remaining six per cent to be non-voting interests held by financial investors. 28 A meeting of shareholders of Coates Hire Limited was convened and held on 17 December 2007. The scheme was approved by the requisite majority referred to in s 411(4) of the Corporations Act 2001 (Cth). On 20 December 2007 Emmett J in the Federal Court approved the scheme. In his reasons for approving the scheme his Honour observed: " [11] ... The affidavits also establish to my satisfaction that arrangements are in place for the provision of funding to enable the total consideration to be paid to shareholders. The scheme provides a mechanism whereby beneficial ownership will not pass until the consideration is provided. That mechanism is dealt with in a Deed Poll of 9 December 2007, executed by Ned Group Holdings Pty Ltd, and Ned Operations Pty Ltd. The Deed Poll is expressed to be executed in favour of each holder of fully paid shares in the capital of the Company. [12] The Scheme Implementation Agreement and the scheme itself are expressed to be subject to certain conditions precedent. I have evidence in the form of certificates on behalf of the relevant parties that all conditions other than the approval of the Court have been, or will be, satisfied. " 29 The deed poll of 9 December 2007 provided that: " Subject to clause 2, on the Implementation Date, in consideration of the transfer of each Coates Share to Bidco, Bidco shall pay or procure the payment of the Scheme Consideration to each Scheme Participant for each Coates Share registered in the name of that Scheme Participant at the Record Date. " " Bidco " was NED Group Holdings Pty Ltd. The deed also provided: " The obligation of Bidco to pay the Scheme Consideration to each Scheme Participant must be satisfied by Bidco, on the Implementation Date, depositing or procuring the deposit of the aggregate Scheme Consideration payable to Scheme Participants into a trust account operated by Coates as trustee for the Scheme Participants, those funds to be held on trust by Coates for the Scheme Participants for the purpose of sending the Scheme Consideration to the Scheme Participants in accordance with the terms of the Scheme. " 30 The "Implementation Date" meant the fifth business day following 2 June 2008, or such other date as notified by Coates Hire Limited to the ASX. No other date was so notified and on 9 January 2008 NED Group Holdings Pty Ltd acquired all of the shares in Coates Hire Limited. Changes to short and long-term incentive plans 31 On 24 October 2007 the managing director of Coates Hire Limited, Mr Malcolm Jackman, sent an email to the company's executives as follows: " Subject: Transition arrangements for the STI & LTI Plans Hi As you are [aware] I have been working on this topic ... we have now agreed what is going to happen and I need you to communicate the message to your people. The following words regarding the STI plan should be used in an email to all your salaried staff ... please use the exact wording ... remember these transition arrangements only apply if there is a change of control .. the fact that incentive does not get paid out until July means there is a quasi retention element to these arrangements As you are all aware the Coates shareholders will vote on the Scheme of Arrangement in late December. If the scheme is approved then the ownership of Coates will change in early 2008. It has been agreed by all parties that there will be a transition plan in respect to the Short Term Incentive Plan given Coates and National will merge on a change of ownership. In respect to the current STI we will 'draw a line in the sand' at 31 December 2007 in respect to the 2007 plan and the following arrangements will apply: a) The STI will be calculated at 31 December 2007 based on YTD performance versus YTD budget b) Entitlements [will] be calculated on a pro-rata basis (50%) and then accrued. c) Actual payment will be made in July 2007 d) Any staff who cease employment as part of any restructuring before July 2007 will receive their payment on termination The following words regarding the LTI plan (PSP Plan) should be used in an email to all your staff who have signed up to the PSP plan...make sure it goes only to these people ...please use the exact wording ...remember these transition arrangements only apply if there is a change of control As you are all aware the Coates shareholders will vote on the Scheme of Arrangement in late December. If the scheme is approved then the ownership of Coates will change in early 2008. It has been agreed by all parties that there will be a transition plan in respect to the Long Term Incentive Plan given Coates and National will merge on a change of ownership. In respect to the current LTI we will 'draw a line in the sand' at 31 December 2007 in respect to the 2007 plan and the following arrangements will apply: a) The LTI will be calculated at 31 December 2007 based on YTD performance versus YTD budget and business plan. We will apply a commonsense judgment on the various elements. b) Entitlements [will] be calculated on a pro-rata basis (50%) and then a cash entitlement in lieu of Coates shares will be accrued. c) Actual payment will be made in July 2007 d) Any staff who cease employment as part of any restructuring before July 2007 will receive their payment on termination." 32 It was common ground that the reference to July 2007 was a typographical error for July 2008. 33 On 28 November 2007 the directors of Coates Hire Limited resolved that subject to the scheme to acquire all the shares in Coates Hire Limited being approved at the scheme meeting on 17 December 2007, the company approved the release of the vesting conditions in respect of all shares under the Performance Share Plan pursuant to rule 12 of the trust deed for the plan as the board reasonably believed that a change of the control of the company would occur. It was resolved that the company notify the trustee of the Performance Share Plan and participants in the Performance Share Plan of the release of the vesting conditions upon the scheme being approved on 17 December 2007. The board noted that this action would allow participants in the Performance Share Plan to receive the $6.59 per share for those shares under the scheme on or about 9 January 2008. Plans for integration of businesses of Coates Hire and National Hire 34 During December 2007 the plaintiff, together with members of his staff, had meetings with their counterparts at National Hire to discuss the takeover of Coates Hire and integration of the finance and administration operations. On 13 December 2007 a Mr Siew of Carlyle sent to officers of Coates Hire and National Hire, including the plaintiff, an integration plan for the finance and administration areas. Responsibility was allocated to members of the team from National Hire including Mr Gavin Armstrong, the chief financial officer of National Hire. The plaintiff rightly considered that he would not have a significant role in the integration process. 35 On 20 December 2007 Mr Jackman wrote to the executives of Coates Hire and National Hire. He advised that interviews with the executives from both businesses would be held on 16, 17 and 18 January 2008 to assist him to make recommendations to the board as to who should be offered positions in the integrated business. The new senior executive team for the merged NED Group was to be announced in the week commencing 21 January 2008. 36 On about 14 December 2007 a Ms Anne Brennan was approached to consider taking the position of finance director for the merged group. At that time Ms Brennan was the chief financial officer of CSR Limited. She met with Mr Simon Moore, the chief executive officer of the Carlyle Group and Mr Peter Gammell, the chief executive officer of Australian Capital Equity, one of the investors. On 21 December she met with Mr Jackman. On 21 December she was offered the position, and on 1 or 2 January 2008 she advised Mr Moore that she intended to accept the position, but would need to give CSR notice. 37 On 21 December 2007 a document entitled "Coates Team Briefing No 5" was presented to senior executives of Coates Hire. The document stated the objectives of the merger and said that whilst legal integration was essentially complete, operational integration would begin on 14 January 2008. Executive appointments would be announced in the week beginning 21 January following a review and interview process on 16, 17 and 18 January. Committees would be established to "drive change". The document stated that "terms and conditions of employment will be maintained". First purported notice by plaintiff under clause 7.3 38 On 7 January 2008 the plaintiff sent an email to Mr Jackman with a copy to Mr Bill Cutbush, the chairman of the board of directors of Coates Hire Limited. The plaintiff wrote: " Malcolm, Following your teleconference with Coates senior executives on evening of Tuesday 18 th December 2007 and as outlined in the Coates Team Briefing No 5 presented on the Coates group wide teleconference on Friday 21 December 2007 at 10.30am, I confirm my understanding that in relation to Executive Appointments, there will be a review and interview process on 16, 17 and 18 th January 2008 with appointments and announcement in the week beginning 21 January 2008. If I am not selected for a comparable senior role, I wish to exercise my rights under Clause 7.3 of my Service Agreement. Kind Regards, Geoff" 39 Mr Jackman forwarded the plaintiff's emails to others including to Mr Tony Dage who had been appointed to head a committee dealing with integration. Mr Jackman asked Mr Dage to obtain advice from Freehills (a firm of solicitors) on the email. Mr Jackman wrote: " I would believe that Geoff, and others, can only invoke this clause, or equivalent, if we keep him on in a lesser role ... this clause cannot be invoked if his employment is terminated. " 40 Mr Dage said that he would obtain advice. He wrote: " My understanding is any potential change in control provison [sic] triggers as a result of two factors – a) corporate equity change and b) 'material diminution' in role/responsibilities. The senior team would have already done the numbers under the separation scenarios (notive [sic] v change in control) – with respect to Fardell, the difference if I recall correctly, is approx $500k incremental for changhe [sic] of control ($1M for change in control v $500k for notice). Will get back with you. " 41 Mr Dage told Mr Jackman that the advice from Freehills was that because the company was then still in the hands of the original shareholders and no decision had actually been made about who was going to be retained in what role, there could be no material diminution of responsibilities to trigger the change of control clause. 42 Mr Jackman agreed that he had no doubt when he read the plaintiff's email of 7 January 2008 that the plaintiff was seeking to invoke clause 7.3 of his Service Agreement. Appointment of chief financial officer for merged group 43 On 10 or 11 January 2008 Mr Moore told Mr Jackman that it had been decided that the plaintiff would not be part of the new senior executive team. He asked Mr Jackman to tell the plaintiff on the following Monday that his employment would be terminated as from 31 January 2008, that he would continue as chief financial officer until that date, and that Gavin Armstrong would be the chief financial officer from 1 February. This was the first notice that Mr Jackman had that the plaintiff would not be engaged as chief financial officer of the merged entity and that his employment would be terminated. He did not make that decision. Nor did he select Mr Armstrong for the position of chief financial officer of the merged entity. 44 Mr Armstrong was formally offered a written employment contract on or after 26 March 2008. The offer was said to be effective from 9 January 2008 and stated that his employment with Coates Hire as its chief financial officer started on that day. Notice to plaintiff that his employment would be terminated 45 On 14 January 2008 Mr Jackman advised the plaintiff that his employment would be terminated with effect on 31 January 2008. He said words to the effect of: " The finance team will be structured differently on a go-forward basis. The finance director will be a new appointee being a woman called Anne Brennan. Anne will start at the end of March. The CFO will be Gavin Armstrong. He will fill this role from 1 February 2008. Regrettably there is no role for you. Your employment will terminate effective 31 January 2008. You will need to arrange a meeting so that we can finalise details of the handover. " 46 Mr Jackman told the plaintiff that his email of 7 January 2008 was not relevant because there would be no material diminution in his responsibilities whilst he was employed by Coates Hire. He would remain employed as the chief financial officer until 31 January at which time his employment would be terminated in accordance with his contract. He said "your email was sent before any change of control occurred and can only be interpreted as conjecture on your part." 47 Mr Jackman gave the plaintiff a letter dated 14 January 2007 (but clearly intended to be dated 14 January 2008) setting out the moneys Coates Hire offered to pay including a "discretionary severance payment" of $375,062.02. The letter provided that the plaintiff would receive the severance payment in full and final satisfaction of all demands and that payment would be made upon the plaintiff's signing the letter. The plaintiff did not sign the letter. 48 On 14 January 2008 Mr Jackman publicly announced Ms Brennan's appointment as finance director and Mr Armstrong's appointment as chief financial officer. Mr Jackman also announced that the plaintiff would leave the company at the end of January. Plaintiff's second purported notice under clause 7.3 49 On 18 January 2008 the plaintiff handed a letter dated that day to a Mr Andrew Vlachos, who was apparently employed in the Human Resources Department. It was addressed to Mr Jackman and stated as follows: " Re: My Redundancy effective 31 January 2008 Thank you for your letter handed to me on the 14 th January and subsequently updated on 17 th January 2008, and your confirmation that my position is to be made redundant as of 31 January 2008 as a result of the transition arrangements following the take-over of Coates by the consortium of The Carlyle Group and National Hire Group Limited. The payments listed in the schedule Estimated Payments on Termination do not reflect my contractual rights under my Service Agreement. By email dated 7 January 2008 I informed you that I wished to exercise my rights under clause 7.3 of my Service Agreement if I was not selected for a comparable senior role. As you know, I have been the third most senior employee of Coates for several years. The change of control of Coates clearly leads to a material diminution in my role. Under clause 7.3 of my Service Agreement I am entitled to: 1. 3 months notice; 2. Amounts under clause 7.1(b) including my unused annual leave and pro-rata long service leave; 3. 12 months notice under clause 7.2(a); and 4. An amount equal to the annual total cost of employment package (including base salary, superannuation, car and incentives) [clause 7.3(c)]. In addition, I am entitled to: 1. 3 weeks per year of service under the Coates redundancy policy; and 2. STI and LTI payments under the Incentive Plans announced to Coates staff in October 2007. If these payments are made to me I will be happy to sign a Deed of Release in the terms outlined in your letter of 17 January 2008. " Termination of plaintiff's employment 50 On the same day, Mr Jackman was provided with the plaintiff's letter of 18 January. Upon receipt of that letter he decided that the plaintiff's employment should be terminated immediately. He asked Mr Vlachos to have the plaintiff attend his office at the end of the day. The plaintiff attended. Mr Jackman told the plaintiff that his employment was being terminated immediately and that Mr Vlachos would escort him from the building. The plaintiff was provided with a letter signed by Mr Jackman stating: " Termination of Your Employment As discussed with you earlier today, this letter is notice from Coates Hire Operations Pty Limited (the Company ) of the termination of your employment pursuant to clause 7.2 of the Service Agreement between you and the Company dated 4 December 2002. (a) Your employment with the Company will terminate today (the Termination Date ). (b) The Company will make payments to you in accordance with the schedule to this letter titled 'Final Payments on Termination' as soon as possible. ... " 51 It was common ground that on the same day the plaintiff was paid $401,545.17 as calculated in a schedule entitled "Final Payments on Termination". This comprised 12 months' fixed remuneration, plus accrued annual leave and long service leave, less what was described as "January salary payment". No submissions were made concerning the deduction of net $8,712.73 for "January salary payment". Presumably it was a deduction for salary paid in advance. 52 Mr Jackman denied that his purpose in terminating the plaintiff's employment forthwith on 18 January 2008 was so that the plaintiff could not invoke clause 7.3 of his Service Agreement (T68). 53 Prior to 18 January 2008 the plaintiff had been advised that his employment would terminate on 31 January 2008 and he was offered a discretionary severance payment calculated as a redundancy of three weeks' leave for every year of service provided the plaintiff signed a deed of release. The plaintiff's letter of 18 January 2008 prompted Mr Jackman to change his mind. He interpreted the letter as an ambit claim, as the plaintiff was both resigning and claiming redundancy. Mr Jackman understood from reading the plaintiff's letter of 18 January that the plaintiff was continuing to insist that he was entitled to the benefit of clause 7.3 of his Service Agreement (T72). 54 In para 66 of his affidavit Mr Jackman deposed that upon receipt of the plaintiff's letter of 18 January 2008 he decided that the plaintiff's employment should be terminated immediately. He gave the following evidence in cross-examination: " Q. ... Right up until the time when you made the decision to which you have deposed in paragraph 66 did you continue to believe that a difference between the circumstances in which the company terminated Mr Fardell's employment on the one hand and his successful invocation of clause 7.3 on the other hand was approximately $500,000? A. Yes. Q. I wonder if we could recap your evidence as to your state of mind when you deposed to paragraph 66 of your affidavit. At that time you belief was that Mr Fardell had sought to invoke cl 7.3 by his email of 7 January. Do you agree? A. Yes. Q. Yet at that time you understood that Mr Fardell was continuing to insist that he was entitled to the benefit of clause 7.3 of his service agreement. Correct? A. Correct. Q. Next you believed that Mr Fardell's email of 7 January had not been effective to invoke clause 7.3 of his service agreement because it was too early, correct? A. Correct. Q. Next you knew that Ms Brennan had been appointed to the position of finance director and Mr Armstrong to the position of chief financial officer of the merged entity. Correct? A. Not specifically but were to be appointed, had not been appointed, they were to be appointed. Q. Next you appreciate that as you told Mr Fardell on 14 January when you met with him, when Ms Brennan's appointment and that of Mr Armstrong became effective there would be no role for Mr Fardell. Correct? A. Correct. ... Q. ... you believed that Mr Fardell could only invoke clause 7.3 if he was kept on in a lesser role and he could not invoke that provision if his employment as terminated. Correct? A. Correct. Q. The reason why you decided on 18 January 2008, after receiving and reading Mr Fardell's letter to you of that day, the reason why you decided that you would change the mode of execution of your earlier decision and terminate Mr Fardell's employment immediately was to ensure that he could not successfully invoke clause 7.3 of his service agreement. Do you accept that? A. No I don't in any shape or form. " 55 I do not accept that denial. I accept that part of Mr Jackman's motivation in terminating the plaintiff's employment forthwith was that he considered the plaintiff was making an ambit claim in seeking both payment under clause 7.3, on the basis that he had given notice of resignation under the clause, and a redundancy payment. But that is not a sufficient explanation for Mr Jackman's decision to terminate the plaintiff's employment forthwith. He could simply have rejected the plaintiff's claim. In my view, Mr Jackman was concerned that the plaintiff was continuing to assert rights under clause 7.3 and had not accepted the severance package proposed by the defendant. I consider that he decided to terminate the plaintiff's employment forthwith to remove any further opportunity for the plaintiff to make any further claims. Cost of employment package 56 The defendant sought to terminate the plaintiff's employment by paying him "the equivalent amount of his total cost of employment package" under clause 7.4 in lieu of the 12-month period of notice provided for in clause 7.2(a). The plaintiff contends that the "equivalent amount of his total cost of employment package" included the benefits payable under the short-term incentive plan and the long-term incentive plan. He claims that the total cost of employment package for the financial year ended 30 June 2008 included sums of $548,000 being the maximum benefit payable under the short-term incentive plan, $228,375 being the maximum value of shares allowable under the long-term incentive plan and $92,554.98 being the value of dividends on shares provided to the plaintiff inclusive of franking credits. 57 In my view none of these amounts forms part of the "total cost of employment package" within the meaning of clause 7.4. That phrase refers to the "total cost of employment package" described in clauses 5.1 and 5.2 of the Service Agreement. Part of the matrix of facts against which the Service Agreement is to be construed is that when the agreement was entered into the plaintiff was in receipt of a remuneration package of $320,000 consisting of salary, superannuation, motor vehicle allowance and club/professional fees. Separately from that he was eligible for remuneration under the short-term incentive plan and was eligible to receive an allocation of shares under the long-term incentive plan. Clause 5.1 states the value of the "total cost of employment package" as being $320,000. It is clear from the extrinsic evidence as to how this sum was made up that the package did not include any remuneration or benefit under the short-term incentive plan or the long-term incentive plan. 58 Clause 6 describes benefits separate from and additional to the "total cost of employment package" the subject of clauses 5.1 and 5.2. It is not legitimate to use the heading to clause 6 to arrive at that conclusion, but it follows from a comparison of the two clauses. That is further illustrated by the fact that under clause 5.2(c) the "total cost of employment package" could not be reduced. But the short and long-term incentive plans were to operate annually and any benefit received depended upon the plaintiff's performance and the company's performance over each 12-month period. It was clearly not intended that merely because benefits were obtained in one year the plaintiff would be entitled to the same or a similar benefit, or indeed any benefit at all, in a later year. His entitlements to benefits in later years would depend on his own and the company's performance in those years. But if the benefits under the incentive plans formed part of the total cost of employment package, then a benefit once earned would be substantially entrenched by reason of the second sentence of clause 5.2(c). 59 Further, the company could at any time terminate the plaintiff's employment under clause 7.2(a). But the plaintiff accrued no rights to benefits under the short and long-term incentive plans as the financial year progressed. Whether a benefit would be provided would only be determined after audited accounts for the financial year had been prepared. In the case of the short-term incentive plan, the provision of any benefit was also dependent on the approval of the HR & Remuneration Committee. At the time of termination of the plaintiff's employment (and leaving aside Mr Jackman's announcement of 24 October 2007) it could not be said that he was entitled to any benefit under the short or long–term incentive plans for the then current financial year. It would be possible to calculate the maximum amount of benefit to which the plaintiff might become entitled, but it could not be said that he was then entitled to any such benefit. This indicates that it could not have been intended that the amount to be paid under clause 7.4 in lieu of notice, being the equivalent amount of the plaintiff's total cost of employment package in lieu of 12 months' notice, was to include the value of benefits to which he might have become entitled under either incentive plan had his employment not been terminated. It would be impossible to make the calculation. 60 Counsel for the plaintiff submitted that the reference in clauses 7.3(c) and 7.4 to the "total cost of employment package" was a reference not just to the elements of the package reference to in clause 5.1 but to the product of a review conducted under clause 5.2(a). Each year there was a review not only of the plaintiff's fixed remuneration, but of benefits under the short and long-term incentive plans. It does not follow that because annual reviews encompassed not only reviews of fixed remuneration, but of reviews of benefits under the incentive plans, that insofar as the reviews covered the latter, they were reviews of the "total cost of employment package" referred to in clause 5.2(a). What was done from year to year cannot control the meaning of the expression "total cost of employment package" in clauses 5.1, 5.2, 7.3 and 7.4. Insofar as the annual reviews covered decisions as to the benefits to be provided under the short-term and long-term incentive plans, they were not annual reviews of the total cost of employment package under clause 5.2(a). 61 There is no other dispute as to the correctness of the amount paid to the plaintiff as 12 months' payment in lieu of notice under clause 7.4. Entitlement to pro-rata benefits 62 The plaintiff contended that he was entitled to pro-rata benefits under the short-term incentive plan and the long-term incentive plan in accordance with the advice of Mr Jackman in his email of 24 October 2007 calculated as at 31 December 2007 based on performance to 31 December 2007. He had been invited to participate in each plan. He was entitled to benefits determined in accordance with the rules of each plan. The plaintiff submitted that the rules had been amended as advised in the email of 24 October 2007 and the plaintiff was entitled to payment accordingly. He claimed $159,862.50 being the pro-rata incentive payment payable under the short-term incentive plan if the defendant were bound by the terms of the announcement of 24 October 2007 and $57,093.75 being the amount equal to the pro-rata value of the shares to which the plaintiff would have been entitled under the long-term incentive plan if the announcement of 24 October 2007 was binding on the plaintiff. There was no dispute about the quantum of these claims. 63 In his opening submissions, counsel for the defendant argued that there was no consideration for the variation of the terms of the incentive plans contained in the email of 24 October 2007 and the defendant was under no legal obligation to make payments in accordance with that email. The plaintiff's riposte was that there was consideration provided by the plaintiff for his participation in each incentive scheme, namely his provision of services. Each scheme could be amended and was amended. The plaintiff seeks to enforce the terms of each scheme as amended. 64 In rejoinder, the defendant submitted that no amendment could affect rights of employees which had accrued or become vested (Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 at 430). Counsel argued that the rights of employees had accrued or become vested from the beginning of the financial year in which they were admitted to participation in the scheme as they had then a prospective right to receive payment or to obtain shares if they met performance criteria. Counsel for the defendant submitted that the announcement of 24 October 2007 should be seen as an ex gratia proposal from which the defendant was free to withdraw. 65 I do not accept the defendant's submission. Merely being admitted to participation in the schemes did not give the employees any accrued or vested right to benefits or to shares. No such right could accrue or become vested until at least the expiry of the financial year when it would become ascertainable whether performance criteria had been met. 66 There was no other basis for disputing the validity of the amendments to each scheme announced on 24 October 2007. I agree with the submissions of counsel for the plaintiff that the question is not whether there was consideration for a variation of the contract of employment but whether the schemes had been varied in accordance with Mr Jackman's announcement of 24 October 2007. Having rejected the defendant's argument based on accrued rights (an argument which comes ill from its mouth) there is no reason that the plaintiff was not entitled to the benefits payable under the schemes as amended. The quantum of those benefits is agreed to be $216,957 in the aggregate. Pursuant to the terms of the amended plans as announced on 24 October 2007, the plaintiff was entitled to receive that sum on termination of his employment on 18 January 2008. He is entitled to interest on that sum from that date pursuant to s 100 of the Civil Procedure Act 2005 (NSW) at the prescribed rates. Entitlement to payment under clause 7.3 67 The plaintiff primarily contended that his email of 7 January 2008 set out at [38] above was effective to entitle him to payment of the three amounts under clause 7.3. In the alternative he relied upon his letter of 18 January 2008 set out at para [49] above. I will deal first with the email of 7 January 2008. Counsel for the defendant submitted that the conditions for the service of a notice under clause 7.3 were not satisfied at the time the notice of 7 January 2008 was given, and even if the conditions were satisfied, the notice was not effective. Counsel for the plaintiff submitted that the conditions for the giving of a notice under clause 7.3 had been satisfied by 7 January 2008, but that in any event, there was no reason that a notice could not be given conditionally under clause 7.3 to operate immediately on the condition being satisfied. The notice of 7 January 2008 was conditional on the plaintiff's not being selected for a comparable senior role. If the notice were effective, it would only become operative on the fulfilment of the condition. 68 A notice could only be given under clause 7.3 "after" NED Group Holdings Pty Ltd became entitled to more than 50 per cent of the shares in Coates Hire Limited leading to a material diminution in the plaintiff's role and responsibilities. In my view, the notice would not be valid if given before a person became entitled to more than 50 per cent of Coates Hire's shares leading to a material diminution in the plaintiff's role and responsibilities, even if the notice only became operative after that event. 69 The first question is whether as at 7 January 2008 any person had become entitled to more than 50 per cent of Coates Hire's shares. In my view NED Group Holdings Pty Ltd had become "entitled" to the shares in Coates Hire. "Entitled" means having a title, right or claim to something. By that date all necessary approvals for the scheme of arrangement had been provided. NED Group Holdings Pty Ltd was both entitled and obliged to complete the acquisition of the shares by paying the consideration on 9 January 2008. It had an equitable interest in the shares not amounting to full beneficial ownership. It is clear that it was ready, willing and able to complete the purchase as it in fact did. It had a beneficial interest in the shares commensurate with its right to specific performance. 70 Counsel for the defendant submitted that in clause 7.3 "entitled" meant legally entitled to exercise the voting rights attaching to the shares. Counsel rightly submitted that the object of a "change of control" provision of the kind in clause 7.3 was to recognise that a party to a contract may have an abiding interest in the identity of those whose decisions may affect the substance and purpose of the arrangement. He submitted that the court should construe clause 7.3 in a way that gave effect to that purpose. So far as that submission went, I agree with it. But it does not follow that the change in entitlement referred to requires a change in legal title. Clearly a change in beneficial ownership could produce a change in control before legal title to the shares was transferred. Does it matter that the notice was given before the consideration was paid, although the purchaser was obliged and was able to pay? 71 The clause should be read as a whole. The word "entitled" takes its colour from the following words. That is to say, the clause is referring to a change in "entitlement" to the shares that may have a material effect on the plaintiff's employment. A person in the position of NED Group Holdings Pty Ltd could exercise influence over Coates Hire before it acquired legal title to the shares. That it did so was evidenced by the fact that by 7 January 2008 the new finance director, Ms Brennan, had been engaged and Mr Jackman had been engaged as chief executive officer of the merged business. As at 7 January 2008 NED Group Holdings Pty Ltd had the right to become registered holder of all of the shares in Coates Hire and was obliged to pay the consideration to the vendors of the shares. It was able to perform that obligation. In my view, its equitable interest in the shares meant that it had then become entitled to the shares within the meaning of clause 7.3. 72 Whilst construction of the word "entitled" in other contexts is of limited utility, this conclusion is supported by Re Primac Holdings Ltd & Anor (1988) 14 ACLR 580 at 585. 73 The question then is whether the balance of the condition was satisfied for the giving of a notice under the clause. 74 It is clear that the acquisition by NED Group Holdings Pty Ltd of the Coates Hire shares did lead to a material diminution in the plaintiff's role and responsibilities. It led to his being advised on 14 January 2008 that there would be no position for him with the company after 31 January 2008. The defendant submitted that that was not the position as at 7 January 2008. It submitted that there had then been no material diminution in his role and responsibilities. However, clause 7.3 does not require that at the time notice is given the change of entitlement to the shares should already have led to a material diminution in the plaintiff's role and responsibilities. The clause says "leading to ..." not "that has led to ...". "Leading" is used in the present tense and refers to a future event. 75 The plaintiff had formerly held the chief position in finance in Coates Hire. By 7 January 2008, Ms Brennan had been offered and had accepted the position of finance director. Whilst this was a new position for a larger business with responsibilities going beyond those of the plaintiff, her appointment meant that there would be a diminution in his role. He would no longer be the principal financial officer of the company. 76 As at 7 January 2008 there had been a change in entitlement to shares in Coates Hire Limited that was then leading to a diminution in the plaintiff's role and responsibilities, even if there had been no such diminution by that date. 77 In any event, in my view, there had been such a diminution in the plaintiff's role and responsibilities by 7 January 2008. The plaintiff had not been involved in the implementation of transitional planning and protocols for the finance and administration departments, including standardising accounting policies and financial reporting for management. Mr Jackman deposed that until the plaintiff's employment was terminated on 18 January 2008 there was no change to his authorities, that he remained a director of the subsidiary companies and there was no change to his ability to access Coates Hire's information systems hardware or software. However, it does not follow from this that there was no material diminution to his role or responsibilities. In my view, there had been such a diminution even as at 7 January 2008. 78 The defendant submitted that the transitional arrangements made no diminution to the plaintiff's role or responsibilities prior to 14 January 2008. The "timeline" for implementing the transitional procedures for integration of the two businesses was to commence on 14 January 2008. However, the plaintiff had been involved in a transitional plan for the finance team in December. I accept his evidence that he was to have no significant role in the implementation of transitional planning and protocols for the finance and administration department, but was merely to provide information. I accept his evidence that Mr Armstrong, the chief financial officer of National Hire, was to control the important financial aspects of the integration. This arrangement was in place prior to 7 January 2008 and involved a material diminution in the plaintiff's role. 79 Accordingly the plaintiff was entitled to give a notice under clause 7.3 on 7 January 2008. 80 The defendant submitted that the notice of 7 January 2008 was not a valid notice even if the conditions for the giving of a notice were satisfied. The defendant submitted that: " ... the email dated 7 January 2008 is not a valid notice of termination: a) It fails to state any period of notice at all; b) It does not on its face purport to terminate the contract of employment at all: it does not operate to bring the contract of employment to an end upon the expiry of a period of notice; and c) it fails to achieve the purpose of providing the employer with notice that the Service Agreement has been determined. " 81 The notice expressly referred to clause 7.3. It was not ineffective because it did not expressly give three months' notice of termination of the Service Agreement. 82 To be effective, a notice of termination of a contract of employment must specify a time when termination is to take effect, or that time must be ascertainable (G J McCarry, Termination of Employment Contracts by Notice (1986) 60 ALJ 78 at 79; Burton Group Ltd v Smith [1977] IRLR 351 at 354). The notice is to be construed according to how it would be understood by a reasonable person in the position of the recipient who had knowledge of the background of the dealings between the parties (Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 at 767-768; Carter v Hyde (1923) 33 CLR 115 at 126; Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673 at 677; Fightvision Pty Ltd v Onisforou [1999] NSWCA 323; (1999) 47 NSWLR 473 at [99]). 83 When the plaintiff said that if he were not selected for a comparable senior role he "wished" to exercise his rights under clause 7.3, he was purporting to do so on condition that he was not so selected. He was not merely advising the defendant of his state of mind and preferences (Frederick v State of South Australia [2006] SASC 165; (2006) 152 IR 182 at [63]). 84 Clause 7.3 described how the plaintiff could exercise his rights under that clause, that is, by giving three months' notice of termination of the agreement. In invoking that clause on the condition that he not be selected in a comparable role, the plaintiff gave three months' notice of termination of the agreement upon the satisfaction of the condition, that is, upon its being determined that he would not be selected for a comparable senior role. A "comparable senior role" was not necessarily a role that involved no material diminution in the plaintiff's role or responsibilities. Had the plaintiff been appointed as chief financial officer of the merged group reporting to the financial director, he would have held a comparable senior role, even though it involved a diminution of his former role and responsibilities. The condition that he not be selected for a comparable senior role was satisfied by 10 or 11 January 2008 when Mr Jackman was advised by Mr Moore that the plaintiff would not be part of the new senior executive team. The defendant called no evidence as to precisely when the decision was made. It does not matter because the defendant knew when the condition of the notice was satisfied and therefore had notice as to when the three-month period of notice commenced. 85 The defendant submitted that notice could not be given conditionally. The defendant argued that if the email of 7 January 2008 were to be construed as a conditional notice of resignation, as I have held it should be, then such a conditional notice was not valid. Counsel submitted that it was inconsistent with the purpose of providing for such notice to be given that the parties be allowed to adapt to the change in circumstances in respect of employment. Counsel referred to Gunnedah Shire Council v Grout (1995) 134 ALR 156 at 166; Fryar v System Services Pty Ltd (1996) 137 ALR 321 at 330; Payne v Foxboro L & N Pty Ltd (1998) 81 IR 404 at 408; and Thickbroom v Newcastle Wallsend Coal Company Pty Ltd (1998) 83 IR 193 at 198. 86 In Gunnedah Shire Council v Grout an employee gave notice of termination of his contract of employment which was accepted by the employer, although the notice given was too short validly to terminate the contract had it not been accepted. The primary judge found that the notice of termination was conditional. On appeal the Full Court of the Federal Court held that the notice was not conditional. The Full Court did not express any view as to whether a conditional notice would or would not be effective on satisfaction of the condition. Nor was that question decided by the primary judge (Grout v Gunnedah Shire Council (1994) 125 ALR 355). The issue arose before the primary judge in the context of a submission by the employer that the employee repudiated the contract of employment by providing an unreasonably short notice of termination. The relevance of the finding of conditionality was that, according to the primary judge, the employee did not repudiate the contract of employment because there was not an unqualified refusal to work (at 370). Neither the judgment at first instance, nor on appeal, decides, nor throws any light, on the question as to whether a conditional notice of resignation could be effective. 87 Fryar v System Services Pty Ltd also has nothing to say on whether a notice of termination of a contract of employment can be given conditionally. In that case Von Doussa J said (at 330) that: " A period of notice is to give an employee the opportunity to adjust to the change in circumstances which is to occur and to seek other employment: Matthews v Coles Myer Ltd (1993) 47 IR 229. The period may be worked out, as s 170DB [of the Industrial Relations Act 1988 (Cth)] allows, and it often is, as it is recognised that the employee's prospects of obtaining other employment may be better if the search is undertaken while the employee remains in employment ... " 88 His Honour then described the separate and distinct purpose for which severance payments are made and observed that the provision of a generous notice period did not justify the employer's failure to make severance payments so that the termination of employment was harsh, unjust or unreasonable. This throws no light on the present question. 89 In Payne v Foxboro L & N Pty Ltd the employer gave notice on 8 January 1996 that the employees' employment would terminate without further notice on 27 February 1996, but said that the new shareholder had not identified those employees to whom offers of continued employment would be made and that the employees' entitlements would be calculated "once termination of your employment has been confirmed". The termination of employment was "confirmed" on 26 February 1996 to take effect from the following day (at 405). Hill J held that 12 months' notice of termination of employment or payment in lieu thereof would have been fair and reasonable. His Honour said (at 408): " The respondents contended that the applicant had in fact been given almost two months' notice, that is from 8 January to 27 February 1996, which left only a balance of 1.6 weeks remaining. In my opinion, the advice of 8 January is fairly construed as conditional only; and it was not confirmed or made unconditional until 26 February, one day before termination. The fact that Mr Payne may have had a 'pretty fair idea' about the dismissal does not in my opinion, make the 'notice' any more definite or any less conditional. I consider that it would be quite unfair in the circumstances of this case to include the period from 8 January to 26 February 1996 as part of the period of notice. The 12 months' notice should therefore run on and from 26 February. " 90 His Honour did not decide that the notice was ineffective because it was conditional. Rather his Honour held that the notice ran from the time the condition was satisfied, that the notice given was unfair and that the applicant was entitled to relief under s 106 of the Industrial Relations Act 1996 (NSW). 91 In Thickbroom v Newcastle Wallsend Coal Co Pty Ltd the employee was given notice on 29 June 1998 that he would be retrenched on 3 August 1998, but the retrenchment would be withdrawn if the mine employees voted to accept a proposed enterprise agreement. There were other conditions of the letter of 29 June 1998 that made the notice uncertain. O'Connor J, in the Federal Court, held that the notice was invalid because it was uncertain for a number of reasons to which it is not necessary to refer. Her Honour continued (at 197-198): " Even if all of these difficulties with this notice could be overcome by recourse to the surrounding circumstances of the letter, known, according to the evidence, to the members of the group affected, in my view it would still be an invalid notice. The retrenchment is conditional on the outcome of the vote which is to be taken before the retrenchment (on one view) takes effect. Applying the principle set out in Fryar v Service Systems Pty Ltd which is relevant to a case such as this the 'certainty' of the employment situation and thus the opportunity to adjust to a change in circumstances should it occur would not operate until after 13 July, the nominated date for the vote. This letter is either a conditional notice of retrenchment, or a notice of retrenchment subject to a condition subsequent which is not satisfied (the meeting to vote on the enterprise agreement having been cancelled by letter dated 8 July, after the decision to close the mine was taken). On either construction it is not a valid notice." 92 Nothing in Fryar v Systems Services Pty Ltd supports the proposition that a notice of termination of a contract of employment is invalid if it is conditional. In the passage quoted O'Connor J recognised that the "'certainty' of the employment situation" would not exist until after it was known whether the condition was satisfied or not. A conditional notice of termination operates only from the fulfilment of the condition. It does not follow that a conditional notice is invalid merely because it is conditional. Of course it may be invalid for other reasons. The notice period might be too short. The passage quoted above must be understood in the context of the facts of which O'Connor J was speaking. I do not understand her Honour to say that in no case would a conditional notice of termination of a contract of employment be valid. If her Honour is to be understood as expressing that view, I would respectfully disagree. No doubt a conditional notice of termination contract of employment must be certain. The party receiving the notice must be in a position to know whether the condition has been satisfied or not. But provided the notice, including its specification of the condition on which it is to be operative, is certain, I see no reason why it should be ineffective merely because it is conditional. 93 The defendant submitted that the giving of notice of termination of a contract of employment is a unilateral right, the exercise of which does not depend upon the acceptance or rejection of the notice by the other party to the contract, and that the giving of the notice operates to determine the contract by effluxion of the period of the notice. It submitted that the purpose of providing in a contract of employment for a period of notice of termination is to enable the party receiving the notice to make other arrangements. An employee given such notice has a period of time in which to seek another job and an employer who receives notice has time to arrange for a substitute employee (Birrell v Australian National Airlines Commission (1984) 5 FCR 447 at 457, 458). That is so. But a conditional notice of termination is not inconsistent with these principles provided that the condition is certain and the notice operates from the time the condition is satisfied. 94 A person may resign his or her office in or membership of an organisation conditionally, unless the rules of the organisation provide otherwise. The resignation will then be effective on satisfaction of the condition and may not be unilaterally withdrawn after the condition is satisfied, although it can be withdrawn before the condition is satisfied (McGrane v Ryan (1965) 7 AILR 83). Subject to any contractual provision to the contrary, I see no reason that a different principle should apply to a contract of employment. 95 It was not suggested in the present case that the condition in the email of 7 January 2008 was uncertain. By at least 10 January it had been decided that the plaintiff had not been selected for a comparable senior role. I infer that that had happened by 9 January as Mr Armstrong's contract of employment with the defendant provided for him to fill the office of chief financial officer as from 9 January 2008. For these reasons I am of the view that on 7 January 2008 the plaintiff gave three months' notice of termination of the agreement pursuant to clause 7.3 conditionally upon his not being selected in a comparable senior role. That condition was satisfied and the notice was then operative. Pursuant to the notice of 7 January 2008 the plaintiff was entitled to the payments pursuant to clause 7.3(a), (b) and (c) if the Service Agreement and his employment were terminated by the notice. He did not receive the payment referred to in clause 7.3(c). 96 In case this conclusion is wrong, it is also necessary to consider the plaintiff's alternative claim that he gave notice under clause 7.3 by his letter of 18 January 2008. The defendant submitted that it was too late for the plaintiff to give notice under clause 7.3 on 18 January 2008 because the defendant had already given notice of termination of the plaintiff's employment. On 14 January 2008 it told the plaintiff that his employment would terminate on 31 January 2008. But that was not a notice of termination of employment under clause 7.2. The defendant did not then give 12 months' notice. Whilst it no doubt intended to make a payment in lieu of notice pursuant to clause 7.4 on 31 January, no step had been taken at the time the plaintiff delivered his letter of 18 January to bring the plaintiff's employment to an end in accordance with the Service Agreement. The plaintiff had not accepted the defendant's notice of intended termination of his employment as effective to terminate his employment or the contract of employment. 97 If the plaintiff had not already given a valid notice under clause 7.3 on 7 January 2008 and if the defendant's notice of 14 January 2008 did not preclude the plaintiff's giving notice under clause 7.3, there was no other obstacle to the plaintiff's giving notice under that clause on 18 January. Nonetheless, I do not consider that the letter of 18 January was a notice under clause 7.3. Rather than giving notice of termination of the Service Agreement, the plaintiff accepted that the defendant's letter of 14 January was effective to make him or his position "redundant" as of 31 January 2008. That was an acknowledgment that his employment would cease as a result of the defendant's action. In his letter of 18 January 2008, the plaintiff did not himself purport to give notice of termination under clause 7.3. In his letter of 18 January he asserted that he was entitled to payment under clause 7.3 of his Service Agreement. But on a proper reading of the letter of 18 January 2008 that was because the plaintiff contended he had exercised his rights under clause 7.3 by his email of 7 January 2008. I have accepted that contention, but if my conclusion is wrong, there was no fresh attempted exercise of rights under clause 7.3 by the letter of 18 January 2008. 98 The fact that the plaintiff claimed more in his letter of 18 January 2008 than he was entitled to does not affect the validity of the letter as a notice under clause 7.3. But in my view the plaintiff did not by his letter seek to invoke clause 7.3 afresh by giving notice of termination under that clause. He rather asserted that he was entitled to the money claimed in the letter by reason of his having invoked clause 7.3 by his email of 7 January 2008. 99 Clause 7.3 provides that the plaintiff is entitled to payment in accordance with that clause if "this Agreement and the Employee's employment is terminated pursuant to this clause 7.3". These words employ the distinction between termination of a contract of employment and termination of the relationship of employer and employee. A notice which is ineffective to terminate the contract of employment may nonetheless be effective to terminate the relationship of employment (Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 454, 469; Byrne & Frew v Australian Airlines Ltd (1995) 185 CLR 410 at 427-428). Notwithstanding that the plaintiff gave notice under clause 7.3, his employment was not terminated pursuant to that clause but was terminated by the actions of the defendant in dismissing him on 18 January 2008. 100 Counsel for the defendant conceded that if notice were given under clause 7.3, it was not open to the defendant to terminate the contract under clause 7.2 (T122-123). That concession was correct. It would be an implied term that upon the plaintiff's having invoked clause 7.3, the defendant should not hinder or prevent the fulfilment of the purpose of that clause (Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 at 378; Peters (WA) Limited v Petersville Limited [2001] HCA 45; (2001) 205 CLR 126 at [36]). By terminating the plaintiff's employment and thereby depriving him of the additional moneys payable under clause 7.3(c), the defendant breached the Service Agreement and is liable for damages. The quantum of the damages is the amount that would have been payable under clause 7.3(c). That amount was $456,750 comprising 12 months' salary, superannuation and motor vehicle allowance. Additional three months' salary 101 In addition, the plaintiff claimed that as he had given notice under clause 7.3 he was entitled to remuneration for the three months following the giving of the notice, and that by dismissing him on 18 January 2008 the defendant breached the Service Agreement and was liable for damages. The defendant submitted that the requirement of three months' notice was a condition wholly for the benefit of the employer. I agree with the defendant's submission. The purpose of such a provision is to give the employer time to find a replacement employee if that is desired. The employer could waive the requirement of three months' notice by making immediate payment of the amounts provided for in clause 7.3. The plaintiff is not entitled to three months' salary in addition to the moneys paid and payable under clause 7.3. Implied terms 102 The plaintiff alleged that the Service Agreement was subject to implied terms that: a) the defendant would not conduct itself, without reasonable and proper cause, in a manner likely to destroy or seriously damage the relationship of trust and confidence between the parties; b) that the defendant would act towards the plaintiff fairly and in good faith; c) that the defendant would not exercise any of its discretions under the contract capriciously or in bad faith or in a manner that destroyed or seriously damaged the purpose of other terms of the contract by which the plaintiff was entitled to payments or other benefits as a result of providing his services; d) that the defendant would not exercise any of its discretions under the contract in relation to payments or other benefits to which the plaintiff was entitled as a result of providing his services in a way that was irrational or perverse, such that no reasonable employer would have exercised its discretion in that way; and e) the defendant would act with due regard for the purposes of the contract, such that it could not act capriciously or unfairly towards the plaintiff, and would exercise any powers under the contract reasonably having regard to the nature of the contract and the entitlements existing under it. 103 It is unnecessary to consider these alleged implied terms. The plaintiff relied upon those terms if it were found that he had not given effective notice under clause 7.3. In that event the plaintiff contended that the defendant's termination of his employment which, on this hypothesis, precluded the plaintiff's giving effective notice under clause 7.3, was a breach of such implied terms. Because I have concluded that the plaintiff did give notice under clause 7.3, these questions do not arise. Redundancy 104 The plaintiff's claim for redundancy payments was made as an alternative to his claim under cl 7.3. That claim therefore does not arise. However, if I am wrong in my conclusion as to clause 7.3 I should say that I would not in any event accept the claim for redundancy payments. The plaintiff alleged that the defendant had a redundancy policy which provided that a person in his position should receive three weeks' severance pay for every year of service with the defendant up to a maximum of 52 weeks of severance pay if he became redundant. The plaintiff pleaded that this term was incorporated into the Service Agreement by reference, or was to be implied. The rules by which the alleged policy was said to have been incorporated into the Service Agreement were those in clause 3.2(d) which required the plaintiff to "observe and comply with the provisions set out in any written policy, practice or procedure circulated by the Company from time to time". 105 This clause was inapplicable. The alleged redundancy policy was not in writing. Nor did clause 3.2(d) impose an obligation on the defendant. Nor is such a term to be implied. I do not accept that it should be implied that if the provisions of a policy, practice or procedure were binding on the plaintiff they should also be binding on the defendant. The agreement does not say so. Such implication would be inconsistent with clause 16 of the Service Agreement that provided that the agreement contained the entire agreement of the parties with respect to its subject matter. If such policies, practices or procedures were contractually binding on the defendant issues would arise as to whether or how they could be amended. The Service Agreement covered the field in relation to the plaintiff's entitlement to remuneration during his employment and on termination of it. 106 In any event, I do not accept that the defendant had such a redundancy policy as the plaintiff alleged. I accept Mr Jackman's evidence that there was no such policy in relation to senior employees in the position of the plaintiff. Mr Jackman deposed that each senior executive employed by Coates Hire was employed pursuant to a written Service Agreement and that only senior executives had a "change of control" clause in those agreements. Although one former senior employee was provided with a redundancy payment, that was done in conjunction with his signing a deed of release and did not establish any policy. Accordingly the plaintiff would not have been entitled to additional payment by way of redundancy had he not succeeded on his claim under clause 7.3. No reduction of damages 107 The defendant argued that damages should be reduced in respect of earnings made by the plaintiff in the 12 months after 10 January 2008. Between 14 March 2008 and 1 February 2009 the plaintiff earned $199,541. In addition, the trustee of his family trust invoiced certain parties for his services a total of $201,275 for work done between 1 September 2008 and 2 February 2009. 108 The earnings the plaintiff derived in this period are not by way of "mitigation" of damages, nor do they reduce his damages. Had the defendant complied with the Service Agreement it would have paid the plaintiff an additional $456,750 on 18 January 2008. The plaintiff is entitled to be put in the same position as he would have been had the contract been performed. Had the contract been performed the plaintiff would not have been required to account to the defendant for subsequent earnings. He is entitled to damages for $456,750 without deduction. 109 There is no dispute on questions of quantum. It was common ground that if the plaintiff were entitled to relief, he was entitled to relief calculated on a gross basis, presumably because the award of damages will be liable to taxation. For these reasons the plaintiff is entitled to judgment for the sum of $216,956.25 and $456,750, namely $673,706.25. He is also entitled to interest pursuant to s 100 of the Civil Procedure Act on that sum from 18 January 2008 to the date of judgment. That interest is to be calculated at the rates prescribed in schedule 5 to the Uniform Civil Procedure Rules. That interest totals $145,474.25. 110 I give verdict and direct entry of judgment for the plaintiff in the sum of $819,180.50. I will hear the parties on costs. 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