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NSW Crest

Court of Appeal
Supreme Court
New South Wales

Medium Neutral Citation:
O'Sullivan Partners (Advisory) Pty Ltd v Foggo [2012] NSWCA 40
Hearing dates:
7 February 2012
Decision date:
19 March 2012
Before:
Campbell JA at [1]
Macfarlan JA at [101]
Young JA at [102]
Decision:

Appeal dismissed with costs.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:
CONTRACTS - construction and interpretation of - contractual right to have discretions exercised - extent of discretion - where contract provided for payment of bonus at the discretion of the Remuneration Committee - discretion held to constitute a discretion to allocate bonus and a discretion to pay the bonus - appellant informed respondent in writing that he would be 'paid' bonus of $300,000 - appellant argued that bonus had only been allocated, and discretion to pay reserved - held, on evidence, that both discretions had been exercised in favour of the respondent

CONTRACTS - construction and interpretation of - contractual right to have discretions exercised - extent of discretion - where contract provided for payment of bonus at the discretion of the Remuneration Committee - bonus allocated on certain conditions, including provision for claw back - discretionary nature of contractual right extended to allocating bonuses conditionally

CONTRACTS - disclaimer - availability - where contract provided for payment of bonus at the discretion of the Remuneration Committee - bonus allocated on certain conditions, including provision for claw back - respondent communicated his dissatisfaction with conditions attaching to bonus - appellant did not pay bonus - appellant argued that the respondent had disclaimed an entitlement to the bonus - held that no disclaimer of individual rights under a contract not by deed, in circumstances not amounting to variation of contract, estoppel, election or waiver

CONTRACTS - offer and acceptance - purported exercise of contractual rights not an offer - attempted variation of contractual rights not accepted - no variation of contract

EQUITY - assignments - voluntary - disclaimer - principles of effecting disclaimer generally where one party is equitably assigned undesirable property

EQUITY - equitable personal obligation attached to a transfer of property - enforceability

WORDS AND PHRASES - "disclaimer", "abandonment", "renunciation", "waiver"
Legislation Cited:
Bankruptcy Act 1966 (Cth)
Corporations Act 2001 (Cth)
Cases Cited:
Agricultural and Rural Finance v Gardiner [2008] HCA 57; (2008) 238 CLR 570
Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175
Bluebottle UK Limited v Deputy Commissioner of Taxation [2007] HCA 54; (2007) 232 CLR 598
Brejwo v Public Trustee of New South Wales [2002] NSWCA 115
Burns Philp Hardware Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642
Commissioner of Inland Revenue v Smythe [1981] 1 NZLR 673
Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394
Electronic Industries Ltd v David Jones Ltd [1954] HCA 69; (1954) 91 CLR 288
Federal Commissioner of Taxation v Cornell (1946) 73 CLR 394
Federal Commissioner of Taxation v Ramsden [2005] FCAFC 39; 2005 ATC 4136
Foggo v O'Sullivan Partners (Advisory) Pty Limited [2011] NSWSC 501
Gill v Gill (1921) 21 SR (NSW) 400
In re Paradise Motor Co Ltd [1968] 1 WLR 1125
Koompahtoo Aboriginal Land Council v Sanpine Pty Limited [2007] HCA 61; (2007) 233 CLR 115
Lagunas Nitrate Company Limited v Schroeder and Co (1901) 85 LT 22
MSP Nominees Pty Limited v Commissioner of Stamps (South Australia) [1999] HCA 51; (1999) 198 CLR 494
MSP Nominees Pty Limited v Commissioner of Stamps (South Australia) [1999] HCA 51; (1999) 198 CLR 494
Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583
Re Boyd (deceased) v Commissioner of Inland Revenue [1966] NZLR 1109
Silverbrook Research Pty Ltd v Lindley [2010] NSWCA 357
Tantau v MacFarlane [2010] NSWSC 224
Texts Cited:
Heydon and Leeming, Jacobs Law of Trusts in Australia, 7th ed (2006) LexisNexis Butterworths
Meagher, Heydon and Leeming, Meagher Gummow and Lehane's Equity Doctrines and Remedies, 4th ed (2002) LexisNexis Butterworths
Neville Crago, "Principles of Disclaimer of Gifts" The University of Western Australia Law Review, vol 28 (1999)
Young, Croft and Smith, On Equity (2009) Thomson Reuters
Category:
Principal judgment
Parties:
O'Sullivan Partners (Advisory) Pty Limited (Appellant)
Daniel Foggo (Respondent)
Representation:
Counsel
SG Finch SC; AB Gotting (Appellant)
JJE Fernon SC; D Chin (Respondent)
Solicitors
Watson Mangioni Lawyers Pty Limited (Appellant)
Baker & McKenzie (Respondent)
File Number(s):
2010/226636
Decision under appeal
Citation:
Foggo v O'Sullivan Partners (Advisory) Pty Limited [2011] NSWSC 501
Date of Decision:
2011-06-01 00:00:00
Before:
Schmidt J
File Number(s):
2010/226636

Judgment

Nature of the Appeal

1CAMPBELL JA : The Appellant operates a corporate advisory business. The Respondent was employed by the Appellant on terms whereby he might in some circumstances receive a bonus. He was informed that he would be paid a bonus of $300,000, by two instalments. The primary judge accepted that the notification of the bonus was subject to a condition requiring the Respondent to repay the first instalment if the Respondent resigned and sought employment with a competitor before the time for payment of the second instalment arrived. The Respondent made clear that he was dissatisfied about that condition.

2The date on which the Respondent had been told that the first instalment of any bonus would be paid passed without a bonus being paid to the Respondent. The Appellant then stated that it would not pay the bonus at all. The Respondent contended that the behaviour of the Appellant constituted a repudiation of his contract of employment, which he accepted. The Appellant, for its part, denied that it had repudiated the contract. It said that it regarded the Respondent as having resigned.

3The primary judge held that the Appellant had been entitled to impose the conditions it did on payment of a bonus, but that the only condition that was applicable to payment of the first instalment of the bonus was satisfied. Her Honour held that the Appellant's failure to pay the first instalment of the bonus was a repudiation of the contract of employment, entitling the Respondent to damages: Foggo v O'Sullivan Partners (Advisory) Pty Limited [2011] NSWSC 501.

4On the appeal the Appellant was represented by Mr S Finch SC and Mr AB Gotting. The Respondent was represented by Mr J Fernon SC and Mr DWM Chin.

5The Appellant challenges only the judge's finding on liability, not the assessment of damages if liability is established. The Appellant contends that the judge overlooked an argument that it put, that on the true construction of the contract of employment the Appellant had a discretion whether to allocate a bonus to the Respondent, and a separate discretion whether to pay any bonus that had been allocated. The Appellant contends that because of the discretion concerning payment it had no obligation to pay a bonus to the Respondent, even if the conditions that it notified were met.

6Additionally, the Appellant contends that the judge should have concluded that the Respondent disclaimed or rejected the bonus, because he rejected the conditions on which it was offered. It contends that in consequence of that disclaimer or rejection it had no obligation to pay a bonus.

7By a Notice of Contention, the Respondent submits an additional reason why the primary judge's conclusion was correct. It contends that the provision whereby the Respondent would be required to repay the first instalment of the bonus if he resigned from his employment before the second instalment fell due did not constitute a condition that the Respondent was required to accept prior to payment of either instalment of the bonus.

8I have concluded that the challenges to the finding of liability fail.

Facts

9On 5 March 2009 the Appellant wrote a letter to the Respondent offering him employment as a Senior Vice President. The Respondent accepted the offer on the same day. The contract provided for a total remuneration package, including base salary and superannuation, of $220,000 per annum. Remuneration would be reviewed annually, with the first review occurring in July 2009. There was provision that:

"Your salary will be payable monthly on the 16 th day of each month by direct deposit to your nominated bank account."

10The contract also stated:

" Performance Incentive

You will be eligible to receive a performance incentive payment (ie cash bonus), in addition to the total remuneration package, the amount of which will be subject to both the Firm's performance and also to your successful achievement of agreed objectives and performance targets.

Specific objectives and performance targets and the mechanisms by which these will be measured will be agreed with you in writing within 60 days from the date of commencement of employment. The timing of payment for successful achievement will also be agreed in writing at this time.

The Firm operates a more traditional bonus regime, whereby all staff are eligible to participate in the bonus pool which is determined annually for the year ending 30 June. The bonus pool is generally limited to 50% of the Firm's EBIT (before bonus allocations) and may involve vesting for up to 3 years for cash allocations over $250,000. An individual's performance during the period will be assessed against their peers and a discretionary amount allocated by the Remuneration Committee. Payment of any performance incentive will be at the sole discretion of the Firm's Remuneration Committee.

...

Performance Reviews

An annual review of your performance will be conducted by the Firm's Remuneration Committee. The review will take into account both qualitative and quantitative performance during the preceding period. The first such review will be in July 2009 for the period ended 30 June 2009.

These performance reviews will provide the basis for future remuneration adjustments and any discretionary annual bonus. A review of your total remuneration package and incentive arrangements will take place each year, having regard to your overall performance and external market movements in the compensation payable to similar positions in comparable organisations. There are no automatic remuneration increases and any increase is at the absolute discretion of the Firm's Remuneration Committee. The Firm reserves the right to the change the timing and structure of these annual reviews at its absolute discretion."

11The Remuneration Committee of the Appellant consisted of Mr Tony O'Sullivan and Mr Garren Cronin. After April 2010, they were (directly or indirectly) the only shareholders in the holding company of the Appellant. Mr O'Sullivan had the title of Managing Partner. Mr Cronin had the title of Partner. No one else in the organisation had a title that included "Partner" .

12It is common ground that the part headed "Performance Incentive" in the letter of 5 March 2009 made provisions for two separate types of bonus. The first two paragraphs in that part of the letter made provision for a bonus payable to an individual employee dependent upon that employee achieving agreed objectives and performance targets. No objectives and performance targets were ever agreed concerning the Respondent, so those paragraphs of the letter cannot apply to him.

13The third paragraph of that part of the letter provides for an employee to participate, along with other staff, in a bonus pool. The Respondent contends that his entitlement to a bonus arose under that third paragraph.

14The events relating to payment of a bonus to the Respondent took place against a background of some disruption within the Appellant. In April 2010 Mr O'Sullivan and Mr Cronin ceased a connection with a Melbourne office that the Appellant had established. Around this time, three of the Appellant's employees left to join investment banking competitors of the Appellant. The Respondent held the third-most senior position in the Appellant after the Partners. However, Mr O'Sullivan and Mr Cronin were disappointed with some aspects of his performance during the year.

15In the course of the Respondent's performance review in April 2010, Mr Cronin commented to him that he had heard that the Respondent was interviewing with competitors. The Respondent told them he had been interviewing with Deutsche Bank, and realised "after a few rounds of interviews, it was not the place for me" . He said he was "not presently interviewing with any other investment banks" . The judge found that this answer was not frank, and that the Respondent:

"... had become increasingly concerned about his job security; ... he had also met with Goldman Sachs; and had engaged a recruitment firm to send his CV to other employers. In April he was also approached by Merryl Lynch." [18]

16One of the topics that Mr O'Sullivan and Mr Cronin discussed with the Respondent in April 2010 was "the payment of a bonus that year, on a conditional basis" [17].

17At a meeting between Mr O'Sullivan, Mr Cronin and the Respondent on 3 May 2010, Mr Cronin and Mr O'Sullivan told the Respondent that they understood that the market level for his bonus was between $500,000 to $750,000, but that he would not be paid at that level. At [21]-[22], the judge found, concerning the meeting on 3 May 2010:

"Whether Mr Foggo intended to remain with the defendant was again discussed. Mr Foggo advised that his bonus would need to be at a level that 'it remained economically rational for me to stay at the firm'. He did not then reveal that he had still been actively pursuing employment opportunities with others in the industry. While deferred bonuses and the reasons for such an approach being adopted were discussed at the meeting, Mr Foggo asked that the defendant make him an upfront cash payment of his bonus.

Mr Foggo's evidence was that he also told Mr O'Sullivan and Mr Cronin that he had been making contingency plans for a redundancy, but that it then remained his preference to stay with the defendant.

While the contract expressly envisaged the deferral of any bonus payments, which were entirely within the discretion of the remuneration committee, it did not deal with the imposition of any other conditions on the payment of bonuses. Both Mr Cronin and Mr O'Sullivan understood, however, that the contract gave the defendant the discretion to impose such conditions. In the circumstances, neither considered it responsible to make an upfront cash bonus payment to Mr Foggo, as he had sought. They regarded him to be a 'flight risk' and wanted to structure a bonus payment which would help the defendant to retain his services."

18There was a further meeting on 24 May 2010 between the three men. There was some difference between the evidence of the various participants in this meeting, so I confine myself to repeating the judge's findings concerning it. The judge found, at [24]-[26], that Mr Cronin and Mr O'Sullivan:

"... advised him of the conditions which they had determined to impose on his bonus payment, given their views that he was a flight risk. They were a deferral of two thirds of the bonus for one year and a clawback, if he left within a year. The deferral condition had also been imposed on other employees that year, but not the clawback provision. No one other than Mr Foggo was then perceived to be a flight risk.

Mr Foggo objected to both the deferral structure, which he did not consider reflected market practice, and the clawback condition. He claimed that his contract required 'the first $150,000 of the bonus to be paid in cash in the year that it is awarded'; that he had made his decision to join the firm 'upon the cash bonus threshold'; and that it was not fair for the defendant to 'shift the posts', after he had worked for over a year. As was accepted for Mr Foggo at the hearing, those views and complaints had no foundation in his contract, given its express terms.

During this discussion on 24 May, Mr Foggo asked that consideration be given to a 50/50 split of his bonus, given that he had his first child on the way and had just purchased a new Audi Q7. He also complained that it was unreasonable to impose the proposed clawback provision. Mr Foggo said that it was not his current intention to leave the firm, but he could not foresee the future. He also raised the possibility that he might leave, but not to join a competitor, in which case he proposed that the clawback should not operate.

19In later discussion between themselves, Mr O'Sullivan and Mr Cronin accepted some, but not all of the Respondent's views. The judge found that in that discussion:

"Mr Foggo's views about his contractual entitlements were not accepted; the clawback was regarded as non-negotiable, given what was known of his pursuit of other employment with a competitor; but it was determined that a 50/50 split could be accepted and that there would be no clawback if Mr Foggo left, but not to join a competitor."

20Mr O'Sullivan and Mr Cronin wrote to the Respondent on 28 May 2010, as follows:

"Having regards to the performance of the Firm and your achievements for the year ending 30 June 2010, we have pleasure in advising that you will be paid a cash bonus of $300,000 (the Bonus).

You will receive half of the Bonus in the June 2010 payroll and the balance in the June 2011 payroll, conditional upon you remaining in employment with O'Sullivan Partners (OP) at the time the Bonus is due to be paid (and having not given notice of resignation).

Should you resign from employment with OP and seek employment with a competitor before June 2011, you will be required to repay the gross upfront amount of any bonuses paid to you.

Furthermore, your new Total Remuneration Package (inclusive of superannuation) will increase to $270,000 from 1 July 2010 and your new title will be Director.

...

Enclosed are a Fair Work Information Statement and a new employment agreement designed to homogenise the Firm's employment agreements and address the latest Fair Work Act requirements. Please review and return a signed copy of the employment agreement to Dan Buchanan prior to the June payroll."

Mr Dan Buchanan was the Office Manager of the Appellant.

21In the May-June period of 2010 the Appellant was in the process of introducing a new standard form employment agreement for its staff. The draft contract enclosed with the letter of 28 May 2010 was expressed as applying from 1 July 2010. The draft contract made provision for the Respondent having a base salary and superannuation totalling $270,000 per annum. One of the provisions of the standard form of that contract was that there was a Bonus Scheme, payments under which were at the discretion of the Company. The draft provided:

"The Bonus Scheme may include conditions such as a 'clawback' should the Employee voluntarily terminate his or her employment with the Company before the expiry of the nominated period and join a competitor. Under such circumstances the Employee is required to repay the full gross amount of any payment under the Bonus Scheme subject to the clawback."

22On 4 June 2010 Mr Buchanan sent an email relating to the new employment contracts to the Respondent and three other employees. It stated:

"Please ensure these are signed and returned to me at your earliest convenience to facilitate payment of bonuses in the June payroll.

Alternatively, if you have any issues please raise them with Tony, Garren and me as soon as possible."

That email, and a follow-up email on 8 June 2010, produced no immediate response from the Respondent.

23There was a further meeting between Mr O'Sullivan, Mr Cronin and the Respondent on Friday, 11 June 2010. The Respondent intimated that he was not prepared to sign the new contract, as he believed it was inferior in some respects to his current contract. The judge found the Respondent also told them:

"... that he needed to review what was proposed about bonuses over the weekend. His view was that only bonus moneys above $250,000 could be deferred under his current contract and that accordingly, he should immediately be paid that amount. Mr Cronin and Mr O'Sullivan did not accept Mr Foggo's views as to the defendant's contractual obligations in relation to their existing contractual rights. They told him that given the basis on which the bonus payments were to be made, he was being treated more generously than other employees, who were having two thirds of their bonus payment deferred."

24Some agreement in principle was reached on the Respondent's desired amendments to the employment contract. Concerning, it seems, both the terms of the employment contract, and the proposed basis for payment of a bonus for the then-current financial year, the judge found:

"Mr Cronin and Mr O'Sullivan agreed to consider some amendments to the defendant's decisions, while insisting that the clawback condition was not fundamentally negotiable."

25After the meeting, Mr Cronin emailed the Respondent an amended version of the employment contract. The email said "Please confirm acceptance and then we shall re-issue" . The Respondent did not reply to that email that day.

26The Respondent took an extended long-weekend, in consequence of which he was not at the office on Monday, 14 or Tuesday, 15 June 2010.

27It was usual for employees' pay to be credited to their bank accounts at midday on the 16 th of a month. The payment due on 16 June 2010 is what Mr Buchanan had been referring to in his e-mails as "the June payroll" . After midday on 16 June the Respondent checked his account, and found that no bonus had been credited to it.

28On Wednesday 16 June at 2:42 pm, the Respondent sent an email to Mr O'Sullivan and Mr Cronin stating:

"I was advised in writing on 28 May 2010 that I would be paid a cash bonus of $300,000 and that I would receive half of this payment in the June 2010 payroll. This did not occur. Please advise me by close of business today as to why this payment has been withheld."

29The response from Mr O'Sullivan, some 12 minutes later, was:

"Daniel, I believe that it's because we are waiting for your return of the signed contract (which includes the provision regarding a claw-back if you were to move to a competitor)."

30The judge recorded, and evidently accepted, Mr O'Sullivan's evidence:

"... that he viewed Mr Foggo's email to be somewhat disingenuous, given their ongoing discussions and Mr Foggo's understanding from what he and Mr Cronin had told him on 11 June, that the clawback condition to which he objected was fundamental to the defendant's decision to pay him a bonus, at a time when it was known that he had been actively seeking other employment."

31One provision of the Respondent's terms of employment set out in the letter of 5 March 2009 was:

"The Firm has a range of policies and procedures as issued and varied from time to time and you are obliged to comply with them."

32On 11 June 2010 all staff had been notified of certain new policies and procedures. The email giving the notification said:

"These Policies form an explicit part of your employment agreement and come into effect on Monday 14 June 2010, as such it is essential you take time to review and familiarise yourself with the contents of all Policies."

33One of the policies related to resolution of complaints and grievances.

34On 16 June 2010 the Respondent hand delivered a notification of grievance. It identified his grievance as being:

"2. On 16 June 2010, OP [O'Sullivan Partners] in breach of my contract of employment failed to make a bonus payment to me as promised in a letter dated 28 May 2010.

3. On Friday, 11 June 2010, I was the subject of duress in relation to my decision not to execute a new contract of employment. This included the threat of my bonus entitlements being altered to my detriment.

4. My grievance is that I have been improperly denied my bonus payment, in accordance with my existing contract of employment dated 9 March 2009, and the letter of 28 May 2010. An additional grievance is that I have been subjected to inappropriate duress and intimidation in relation to my refusal to execute the new contract of employment. The third grievance relates what appears to be a unilateral attempt to vary my bonus arrangements and in particular, the withholding of the payment which was due and payable today."

35The notification sought that that grievance be dealt with in accordance with the newly announced Resolution of Complaints and Grievances Policy. It concluded:

"In notifying this grievance pursuant to the Policy I reserve all rights that I may have in relation to my contract of employment.

I will by separate correspondence raise the issue of the potential repudiation of my contract of employment and provide OP with an opportunity to rectify the alleged repudiation promptly."

36About 15 minutes after the grievance notification was delivered, the Respondent was called to a meeting with Mr O'Sullivan and Mr Cronin. There was some difference between the evidence of the three participants in that meeting. The judge accepted the account given by Mr Cronin and Mr O'Sullivan [60].

37Mr Cronin's evidence was:

"Cronin: 'This is all very strange behaviour for someone supposedly committed to the firm. Have you now decided to leave the firm?"'

Foggo: 'That all depends on how this bonus issue is now handled.

I told you before that I considered the proposed new employment agreement inferior to my existing contract. You cannot make me sign it and I won't sign it.'

Cronin: 'Frankly, we don't care if you don't sign the new employment agreement; the central issue at play is you have continued to express your unwillingness to accept the key conditions attaching to your bonus, namely the operation of the clawback. As you know, we consider you a 'flight risk' and hence when setting our bonus specified several key conditions one of the which was the clawback condition with remains paramount, particularly now you've clearly demonstrated an aggressive unwillingness to accept this concept.'

Foggo: 'I've never heard of a clawback applying in corporate finance. As far as I am concerned you cannot place any conditions on the bonus as my existing employment agreement makes no reference to clawback conditions.'

Cronin: 'Well Daniel, Tony and I have gone out of our way to try and accommodate you and I now have zero tolerance for your constant complaining. I hope you are getting good legal advice, because you do not seem to appreciate that we have absolute discretion in setting your bonus and applying conditions thereto. There is nothing new to this concept in the investment banking world. I suggest you once again read your existing employment agreement.'"

38Mr O'Sullivan's evidence on the conversation at the meeting was:

"Cronin: 'Do you think that this sort of behaviour is normal? What(sic) are you acting in this way? Perhaps you have now decided to leave the firm.'

Foggo: 'That all depends on how this bonus issue is handled.'

Cronin: 'Let's be very clear about something. Daniel, this is not about you signing up the firm's new employment contract, which by the way has been agreed to by ever other member of staff. This is about you refusing to understand that your bonus payment is strictly conditional upon you agreeing to the one year clawback, not you signing the new contract employment. You are interviewing outside with our competitors - how reckless would we be to pay you without protecting the firm?'

Foggo: 'Again, I reiterate, my legal advice is that you cannot introduce a clawback provision into my employment contract.'

O'Sullivan: 'Daniel, let's be clear, this is not about your employment contract. This is about you understanding that the clawback condition is inseparable from the bonus payment. Without the clawback, there is no bonus. We have absolute discretion as to whether or not to award you a bonus, as is investment banking industry practice.'

Cronin: 'Tony and I have gone out of our way to accommodate you and I now have zero tolerance for your constant complaining. I hope you are getting good legal advice.'"

39After the meeting on 16 June 2010, Mr O'Sullivan sent the Respondent an email, stating:

"We acknowledge receipt of your hand-delivered notification of grievance dated 16 June 2010.

We have initiated a review of your grievances, to be undertaken by a law firm. We have spoken to the Firm's lawyer. Formal advice will follow upon the lawyer's return to the office next week.

We refer to your employment agreement dated 5 March 2009, which states that 'payment of any performance incentive will be at the sole discretion of the Firm's Remuneration Committee' .

You have now advised us that you refuse to accept the conditions of payment specified in our letter to you dated 28 May 2010, particularly in relation to the claw back and deferral provisions, which are clearly inextricably linked to our proposed payment to you. Please confirm in writing that this is your position."

40On 17 June 2010 the Respondent wrote to Mr O'Sullivan and Mr Cronin. After referring to Mr O'Sullivan's email of 16 June 2010, the letter continued:

"Notwithstanding the written confirmation that my grievance would be reviewed (presumably by an independent external law firm), you then took the curious step in your email of referring me to the clause in my Employment Agreement dated 5 March 2009 which states in part that ' the performance incentives will be at the sole discretion of the Firm's Remuneration Committee.'

I find the above comment to be in breach of your obligations under your Policy. I believe that it is most inappropriate that you would, in the same email, confirm that my grievance would be resolved and then go on to assert the position which had been expressed to me verbally some hours beforehand.

Your email continues to agitate the current issue and you state that I have 'refused to accept the conditions of payment' specified in the letter of 28 May 2010. This comment demonstrates to me that you fail to understand my position. So that there is no confusion, my position is this:

  • We appear to be at one on the fact that I have an Employment Agreement which is, as you note, contained in the letter of 5 March 2009.

  • My Employment Agreement makes provision for the payment of performance incentives. It makes no reference to claw back, a fact that you are well aware of.

  • Consistent with the Firm's obligations to me with respect to my eligibility to receive a performance incentive payment described as a cash bonus, you wrote to me on 28 May 2010, and told me 'with pleasure' that, having regard to the performance of the Firm and my achievements for the year ending 30 June 2010 I would be paid a cash bonus of $300,000.

  • The same letter (presumably invoking the same discretions now relied upon in your email last night) confirmed that I would receive 'half of the bonus in the June 2010 payroll'. As you will no doubt remind me, the same letter stated that I would receive 'the remaining half in June 2011 conditional upon my remaining in employment with O'Sullivan Partners and having not given notice of resignation' .

  • It must follow that at the very least, I should have been paid $150,000 in accordance with my Employment Agreement and the representation made to me in your letter of 28 May 2010. This has not occurred and the reason why it has not been paid, I am told, is a direct result of my reluctance to enter into a new Contract of Employment.

  • I am not obliged to enter into any new Contract of Employment as evidenced by your desire to have me sign the new contract. The terms and conditions in the new contract of employment are, in my view, inferior and you are not in a position to impose those terms and conditions on me.

  • What you have done, in my view, is that you have inappropriately and unlawfully, attempted to modify my existing bonus arrangements and to withhold a payment which you indicated to me would be paid unless I bowed to your demand of entering into a new contract of employment which is, in my opinion, inferior and unacceptable.

As the Grievance Policy was imposed on all staff as 'an explicit part of [my] Employment Agreement effective 14 June 2010', I have attempted to observe the terms and conditions of this Policy in an attempt to resolve my grievance. This has been met with exactly the same unacceptable behaviour which has permeated the recent attempts by management to impose new terms and conditions on me (and possibly others).

I have instituted the grievance without any prejudice to my other legal rights. Please be advised that your failure to make the bonus payment as promised consistent with the terms and conditions of my employment is a repudiation of my Contract of Employment."

The letter went on to state that the Respondent would give them an opportunity to rectify the repudiation.

41On 18 June 2010 Mr O'Sullivan and Mr Cronin wrote to Mr Foggo. That letter included:

" Grievance procedure

The firm has considered the grievance raised in your 16 June letter and your request that it be dealt with in accordance with the firm's Grievance Policy ( the Policy ). Upon reflection, the firm will not be applying the Policy to the matters you have raised. The Policy applies to discrimination and harassment regarding an employee's work or their work environment.

Your complaint relates to your terms and conditions of employment, in particular the issue of your bonus. It would be an abuse of the grievance process to apply to it the matters you have raised.

In any event, the Policy provides that it may be applied, varied or withdrawn at the firm's discretion. The firm rejects that it may be liable for damages if it does not comply with the Policy. The firm has no contractual or other obligation to comply with the Policy. The statement in the covering email when the Policy was issued that it 'forms part of your employment agreement' is entirely consistent with your existing contract of employment dated 5 March 2009. As you would be aware, the contract requires that you comply with the firm's policies.

Accordingly, the firm has decided that your grievance will not be externally reviewed."

42The letter also stated:

" Response to your letters

The firm wants to set the record straight on what has occurred in relation to your bonus.

By letter dated 28 May 2010, you were notified of the 2010 bonus which the firm proposed to pay to you subject to the following conditions (the Conditions ):

1. the bonus of $300,000 would be paid in two equal instalments in June 2010 and June 2011:

2. both instalments would be paid subject to you being employed by the firm (and not having given notice of resignation) when an instalment is due to be paid; and

3. you must repay the first instalment if you resign and seek employment with a competitor prior to June 2011.

A new contract of employment was enclosed with our letter. The letter asked you to review and return a signed copy of the new contract prior to the June payroll date.

On 11 June 2010, you asked to meet with us to discuss the new contract. This was the first time we became aware of your issues following distribution of our letter dated 28 May. You asked for various changes to the new contract which we agreed to make. You agreed to the bonus clause provided that a bonus could only be clawed back if you joined an 'investment banking competitor', not just any 'competitor' as we have previously proposed in our letter dated 28 May. Garren emailed you a mark-up of the amended contract shortly after the meeting. To suggest you were subject to duress and threatened in relation to your bonus at the meeting is totally false.

As all of your changes to the new contract had been verbally agreed, we expected you would confirm acceptance to the amendments and sign the new contract that afternoon. However, you left the office early for the long weekend without responding to Garren's email.

The firm decided to ascertain your intentions regarding the new contract before paying the bonus. You returned to work after an extended long weekend on Wednesday, 16 June and proceeded to send us an email demanding an answer by close of business on why your bonus was not paid.

We met with you on 16 June shortly after receiving your first letter where you told us that:

1. you would not sign the new contract;

2. you did not accept any clawback in relation to your 2010 bonus and that your existing contract of employment overrides the bonus conditions set out in our letter dated 28 May;

3. clawbacks were not common in the industry; and

4. $250,000 of your 2010 bonus should be paid up front in cash and $50,000 deferred.

Tony explained that your refusal to accept the Conditions in relation to the 2010 bonus was the key issue and not necessarily whether you signed the new contract.

By email after the meeting, Tony asked you to confirm in writing your refusal to accept the Conditions attached to your bonus. You did not respond to that email other than sending us your second letter the following day.

The firm is disappointed and surprised with the way you have raised this issue. You have known of the Conditions for a number of weeks. During our meeting on 11 June, you gave no indication that you would not accept the Conditions. In fact, your indication was that you would accept the Conditions, which formed the basis for us agreeing to your requested changes to the new contract which were subsequently emailed to you. The reason for your sudden change of mind has not been explained to us.

Your recollections of the meeting on 16 June are not accurate. You were not repeatedly asked whether you would remain with the firm, nor were you given a deadline of advising whether you wanted to continue with the firm. We admit asking whether you wanted to stay with the firm. By raising these issues in the inflammatory manner in which you have, we hardly consider this to be an unreasonable or surprising question on our behalf.

The firm rejects that your existing contract does not permit the firm to set the Conditions. As you are aware, the contract provides that payment of a bonus is at the 'sole discretion' of the Remuneration Committee. The contract does not impose any limitations on how this discretion may be exercised. The Committee may, when exercising its discretion, determine questions such as:

  • whether any bonus should be paid; and

  • if so, whether the payment should be subject to any conditions. This is an inherent part of the proper exercise of the discretion.

Your point that the contract does not expressly provide for the clawback of any bonus is irrelevant.

Having been made aware that you were interviewing with external competitors to the firm (confirmed as such by yourself), we made it very clear to you that your bonus was structured as a generous retention mechanism affording a degree of risk protection to the firm given your enhanced 'flight risk'.

The issue of whether or not you sign the new contract is a matter for you. If you refuse, your existing contract will continue to apply. The firm is clearly not relying on the new contract to justify the Conditions. Your bonus has not been paid because at our meeting on 16 June, you rejected the Conditions and claimed they were not permitted under your contract of employment. We respect your decision. However, you are not able to select which of the Conditions you are prepared to accept.

Your letter dated 17 June now seeks to disguise your rejection of the Conditions. You now argue that your bonus has not been paid because of your refusal to sign the new contract. However, by saying that the firm has 'inappropriately and unlawfully attempted to modify my existing bonus arrangements', you still clearly reject the Conditions. This leaves the firm with no alternative than to conclude that your position from our meeting on 16 June has not changed.

As you have rejected the Conditions, the firm's offer to pay you a bonus has lapsed. The firm therefore has no obligation to provide the bonus. In these circumstances, your claim that the firm has repudiated your contract of employment is baseless."

43On 24 June 2010 (though the letter was incorrectly dated 24 July 2010) the Respondent wrote to Mr O'Sullivan and Mr Cronin:

"On 28 May 2010 you advised that I would be paid a cash bonus of $300,000. The bonus was to be paid in the June payroll of 2010 and in the June payroll of 2011. I am eligible to receive such a bonus under my contract of employment in addition to the total remuneration package.

However, in breach of my contract of employment you imposed conditions on the payment of the cash bonus. As at today's date, no part of the bonus has been paid.

On 16 June 2010, in breach of my contract of employment, you do did not pay to me the bonus or any part of the bonus.

On 16 June 2010 I advised you in writing of three grievances under the Resolution of Complaints and Grievances Policy. The Policy formed part of my contract of employment.

On 17 June 2010 I advised you that your failure to pay the bonus payment to me was a repudiation of my contract of employment and I invited you to withdraw the repudiation.

On 18 June 2010, in breach of my contract of employment, you advised that you would not apply the Policy to the three grievances that I raised in writing on 16 June 2010.

On 18 June 2010, in breach of my contact of employment, you advised of your decision not to pay the cash bonus of $300,000 at all.

Each breach of my contract of employment referred to above has caused me loss and damage.

Further, each breach constituted a repudiation of my contract of employment. I hereby accept each repudiation. As a result my contract of employment is terminated."

44The Respondent handed that letter to Mr Cronin on the morning of 24 June 2010. At the time of handing it over the Respondent showed Mr Cronin the Blackberry, corporate American Express card and office entry swipe pass that he held. Mr Cronin asked that he hand these items to Mr Buchanan. The Respondent did so, then left the building. He has never returned.

45Mr O'Sullivan and Mr Cronin replied on 25 June 2010. The letter was sent by courier to the Respondent's home address. It was headed "Your resignation" . It said:

"For the reasons set out in our letter dated 18 June 2010, we do not accept that the firm has repudiated your contract of employment dated 5 March 2009. Accordingly, your purported acceptance of the alleged repudiation is mistaken.

We therefore regard your letter dated 24 July, supporting your decision to immediately resign from the firm on 24 June 2010 as a repudiation of your employment contract.

However, we do not accept your repudiation of your employment contract. Accordingly, we require you to comply with your obligations under the contract, including without limitation; confidentiality and your implied duty of good faith and fidelity to the firm."

46Mr Cronin and Mr O'Sullivan gave evidence that denied that the real reason why the Respondent was not paid the bonus was because of his refusal to sign the new contract. The primary judge accepted that evidence.

The Decision Below

47The judge found that the Appellant had a discretion, under the contract, to impose both the proposed claw back condition on the payment of the bonus, and the condition that required that the Respondent be in the Appellant's employment at the time that any deferred payment was due to be paid. She found that there were limits on the scope of the discretion, namely that the Appellant was not permitted to withhold the bonus capriciously or arbitrarily or unreasonably, and the discretion was required to be exercised honestly and conformably with the purposes of the contract (cf Silverbrook Research Pty Ltd v Lindley [2010] NSWCA 357). She held that the conditions that the Appellant decided to impose on payment of the bonus, satisfied those requirements. These aspects of her Honour's decision are not questioned in this appeal.

48The judge also accepted, even if there were implied terms in the contract, that the Appellant would perform its obligations and exercise its rights under the contract in good faith and reasonably, and not conduct itself in a manner likely to seriously destroy or damage the relationship of trust and confidence between itself and the Respondent, that any such terms would not have been breached. That aspect of her Honour's decision is also not questioned in this appeal.

49Her Honour found that the grievance policy had contractual force, but that no express terms of it had been breached. She found that withdrawal of the policy without warning was breach of an implied term, but not such a breach as to warrant termination of the contract (cf, Koompahtoo Aboriginal Land Council v Sanpine Pty Limited [2007] HCA 61; (2007) 233 CLR 115 at [49]-[51]). That aspect of her Honour's decision is also not questioned in this appeal.

50Her Honour found, however, that the Appellant had repudiated the contract by failing to pay $150,000 on 16 June. The basis on which her Honour reached that conclusion was:

"It was not in issue that by its decision conveyed to Mr Foggo by the letter of 28 May, the defendant exercised its contractual rights in relation to payment of a bonus. Thereby it determined that Mr Foggo would be paid $300,000, on the conditions it had specified. That decision bound both it and Mr Foggo. What was in issue was its right to impose the conditions it had specified.

While Mr Foggo disagreed with the defendant's view of its contractual rights and obligations in relation to bonuses, that disagreement was not such as to relieve the defendant of the consequences of the decision it had made and implemented by its 28 May letter. Thereby it was contractually bound to pay him $150,000, if he was in its employment in June 2010.

The bonus was due to be paid on the usual monthly pay day, 16 June. The payment was not made that day, Mr Foggo was advised, because the new contract had not been executed. After discussion, the defendant accepted that this was not a condition of the payment of the bonus and told Mr Foggo so. Still the payment was not made. On 18 June the defendant confirmed that it was not a requirement that he enter the new contract it wanted him to sign, but advised him that it had decided not to make any bonus payment to him at all, in view of his ongoing disagreement over the conditions it had imposed.

The defendant had neither an express or implied right to reconsider the decision it had made as to the payment of a bonus, notwithstanding its characterisation of what it did as withdrawal of an 'offer' to pay Mr Foggo a bonus, an offer which he had not accepted. The defendant had made no such offer, nor had it sought his acceptance of any such offer.

51In the course of considering an argument that she ultimately did not accept, to the effect that the Respondent had engaged in an anticipatory breach of his contract, the primary judge made some findings that appear relevant to her conclusion. They were, that the Respondent "... never advised the defendant that if he were paid the bonus on the conditions specified, that he would not adhere to them" [109]. She held that the Appellant did not have:

"... the right to elect to keep the contract on foot, but on altered terms which it devised. The letter of 18 June established that the defendant did not rescind the contract. What it purported to do was to relieve itself of the obligation to pay the bonus it had determined, thereby avoiding the possibility that Mr Foggo might be paid the $150,000 bonus, that he might thereafter leave its employ to work for a competitor before June 2011 and yet refuse to repay the bonus. That was not a course open to it. Nor was the breach which it feared inevitable. Payment of the bonus after all, would have provided Mr Foggo with a considerable inducement to remain it its employment until June 2011, by which time the entire $300,000 would vest."

52The primary judge held that even if this breach was of a non-essential term of the contract, it was sufficiently serious to justify the Respondent's termination, and that his acceptance of the repudiation on 24 June brought the contract to an end.

A Discretion Not to Pay?

53The primary judge accepted that under the contract of employment of the Appellant had a number of discretions that related to the bonus of the Respondent:

- a discretion whether to allocate a bonus at all;

- a discretion on the amount of the allocated bonus; and

- a discretion whether to impose conditions on the allocation of the bonus.

54The Appellant does not challenge the primary judge's decision that it had those discretions. However, the Appellant contends that it had a further discretion, namely whether to "pay" a bonus that had been allocated. The Appellant submits that the final two sentences of the relevant paragraph in the letter of 5 March 2009 ([10] above) envisages two separate steps - an allocation of a discretionary amount by the Remuneration Committee, and then a further exercise of discretion by the Remuneration Committee concerning payment of any performance incentive. The Appellant submitted to the primary judge that it had a separate discretion concerning whether to pay the bonus. The Appellant submits to us that the primary judge did not deal with that submission in her reasons the judgment.

55I accept that the contract provides for the Appellant to have a discretion whether to pay any bonus. Thus, it might be open for the Remuneration Committee to make a decision that it would allocate a bonus of a particular amount to a particular employee but for the Remuneration Committee to leave for later determination whether it would pay that amount to the employee. There might be commercial sense in the Appellant carrying out a review of the performance of employees and their relative merits for the purpose of allocating, for internal management or planning purposes, a bonus pool, while reserving to a later time a decision about whether the financial position of the company permitted it to become obliged to pay the allocated amount. It might even be possible for the Appellant to inform an employee that it had allocated $X from the bonus pool to him or her but for a decision about payment of that amount to be deferred - though if the decision about whether an allocated bonus would actually be paid was put off for any substantial period of time the very fact that the decision as to payment had yet to be made might mean that the decision to allocate the $X was not a very effective incentive for the employee to stay with the Appellant.

56However, there is no reason why the decision to pay could not be made before, indeed well before, the time at which payment is due to be made. In substance, the decision to pay is a decision that the Appellant would undertake the obligation to pay. Further, what the contract did not permit was for the Remuneration Decision to make a decision that it would pay a particular amount to a particular employee, and then to make a later determination that it would not pay that amount.

57I accept that the primary judge gave no separate consideration in her reasons to whether there was a separate discretion to pay an allocated bonus, or to whether that discretion had been exercised so far as the Respondent was concerned. However, Mr Finch's success in these submissions goes nowhere. That is because the Remuneration Committee had made a decision to pay the bonus to the Respondent. The letter of 28 May 2010 was written in a context where there had been a measure of discussion and exchange of views between the Appellant and the Respondent about the size of the bonus and the conditions on which it might be made, and at a time when the Remuneration Committee had had the chance to consider and take into account his views. The discussion that the judge found that Mr O'Sullivan and Mr Cronin had amongst themselves before the letter of 28 May 2010 was written ([19] above) is the type of discussion appropriate for being a determination of the Remuneration Committee concerning payment of a bonus, and is consistent with the terms of the letter of 28 May 2010. The statement in the letter of 28 May 2010 that "we have pleasure in advising that you will be paid a cash bonus of $300,000" , and its identification of when the Respondent "will receive" each half of the Bonus is clearly indicative of a decision to pay having been made. As is apparent from the passage quoted at [50] above, the primary judge clearly regarded that letter as notification of the decision to pay that the Remuneration Committee had made. She made no error in this respect.

58Mr Finch spoke, on occasions, as though the letter of 28 May 2010 was an offer that the Appellant made to the Respondent, which could become contractually binding only if he accepted it. I do not agree with that analysis. In my view, the terms of his contract of employment gave the Respondent an entitlement to have the Appellant determine the size of any bonus pool for the year ending 30 June, a right to have his performance during the period assessed against the performance of his peers, and a right to have a discretionary amount (which might turn out to be nothing) allocated from the pool by the Remuneration Committee. He also had a right to have the Remuneration Committee decide whether it would pay any performance incentive. It may also be that he was entitled to have those decisions made in accordance with certain standards of decision-making (cf [47] and [48] above), but that is not a matter of present controversy. When, and if, the Remuneration Committee made a decision to pay him a bonus, he had a contractual right to receive it in accordance with any conditions that the Remuneration Committee might have decided to attach to it. Thus, the letter of 28 May 2010 was a notification of a unilateral decision that the Appellant had a contractual power to make, but which, once made, would itself produce contractual consequences.

59The decision of the Remuneration Committee is, in that respect, like the unilateral decision of a certifier under a building contract who creates contractual rights to be paid by his or her unilateral act of certifying that a particular amount is due. It is like the unilateral act of a company whose general meeting passes a resolution declaring a dividend, whereupon the shareholders have a legal right to be paid the dividend that has been declared: Lagunas Nitrate Company Limited v Schroeder and Co (1901) 85 LT 22 at 23; Bluebottle UK Limited v Deputy Commissioner of Taxation [2007] HCA 54; (2007) 232 CLR 598 at [20]. It differs from the situation concerning a company paying an interim dividend that was considered in Lagunas Nitrate , where the relevant clause of the articles of association conferred on the directors a discretion to pay an interim dividend on account of the next forthcoming dividend. In that context "to pay" meant to actually part with the money. No provision of the articles of association stated that any consequence arose from a resolution of directors that an interim dividend would be paid if that resolution had not been acted upon, and hence the directors were free to reconsider any such resolution. By contrast, in the context of the letter that constituted the Respondent's contract of employment, the discretion that the Remuneration Committee had concerning payment of a bonus was a discretion about whether the bonus would be paid .

60An offer to enter a contract has contractual force only when it is accepted. Even if parties are already in a contractual relation, and one of them makes an offer to vary that contractual relationship, the offer itself has no contractual force until accepted. Yet, the decision that was notified by the letter of 28 May 2010 was not an offer. The decision had contractual effect without needing to be accepted. The submission that the Respondent makes in his Notice of Contention (para [7] above) is correct.

61Mr Finch correctly pointed out that discussions about the Respondent's bonus continued between the Respondent, Mr Cronin and Mr O'Sullivan even after 28 May 2010. The terms in which the primary judge described the outcome of the discussions on 11 June 2010 ([23] above) is indicative of Mr Cronin and Mr O'Sullivan agreeing to reconsider a decision that had already been made, but does not detract from there having already been a decision that was notified by the letter of 28 May 2010. No doubt if that reconsideration had resulted in a compromise that was acceptable to both parties, it would have been open to them both to vary accordingly the rights concerning the bonus that arose from the employment contract. But that never happened.

Disclaimer of the Bonus?

62Mr Finch submitted that the Appellant had been free not to pay a bonus to the Respondent because the Respondent had disclaimed the bonus. He submitted that the conditions subject to which the Appellant proposed to pay the bonus were an intrinsic part of it, and that the Respondent made clear that he did not accept the conditions. That, Mr Finch submitted, was in effect rejecting the bonus itself.

63Clearly, the Respondent vigorously disputed (at the time the bonus was under discussion between officers of the Appellant and the Respondent, and at the time of the hearing before the primary judge, though not now) that the Appellant had the power to impose any conditions upon payment to him of the bonus. Mr Finch points out, correctly, that after expressing his views about the Appellant's lack of power to impose conditions on the bonus, the Respondent never communicated a change of position, never accepted the conditions, and never said that if the Appellant was able to impose the conditions, he would accept them. Against that stands the judge's finding, not appealed against, that the Respondent never advised the Appellant that he would not adhere to the conditions specified if he were paid the bonus on those terms.

Is Disclaimer Legally Possible?

64There are some legal difficulties in accepting that the conduct of the Respondent disentitled him to receive the bonus.

65The law concerning disclaimer finds its most familiar fields of application concerning transfers of property, where the transferee is a volunteer. In his illuminating discussion of disclaimer, Professor Crago identified its field of operation as follows:

"There are many circumstances in which a person may wish to reject (or 'disclaim') a proffered gift. This article considers the nature, requirements for, and the legal consequences of an effective disclaimer. It will be seen that these elements vary according to the nature of the gift and the type of property comprising it, and in particular whether the gift operates at common law, in equity by way of trust, or under the provisions of the will."

(Neville Crago, "Principles of Disclaimer of Gifts" The University of Western Australia Law Review , vol 28 (1999) at 65). As well, a liquidator of a company has a power to disclaim certain of the property of a company under s 568 Corporations Act 2001 (Cth). Even in this statutory usage of disclaimer, it is "property of the company" that can be disclaimed. Sub-s ection 568(1)(f) makes clear that the property that can be disclaimed includes " a contract" , but the power to disclaim must be exercised in relation to the whole of the contract, not in relation to specific rights that arise under it. As well a liquidator does not have any entitlement to receive the company's property by virtue of any consideration he has given or any contractual right that he has against the company. Section 133 Bankruptcy Act 1966 (Cth) confers on a trustee in bankruptcy a similar power to disclaim a contract of a bankrupt, but again the power exists in relation only to the whole of the contract, not in relation to specific rights under it. The Full Federal Court (Lee, Merkel and Healy JJ) discussed the general law relating to disclaimer in Federal Commissioner of Taxation v Ramsden [2005] FCAFC 39; 2005 ATC 4136 at [31], but that discussion is all in terms of disclaiming a gift of an item of property. The same can be said of the discussion of disclaimer in In re Paradise Motor Co Ltd [1968] 1 WLR 1125; Re Boyd (deceased) v Commissioner of Inland Revenue [1966] NZLR 1109 and Tantau v MacFarlane [2010] NSWSC 224 at [77]-[121].

66In support of his submission that the Respondent had disclaimed the bonus, Mr Finch relied on the decisions in Federal Commissioner of Taxation v Cornell (1946) 73 CLR 394, MSP Nominees Pty Limited v Commissioner of Stamps (South Australia) [1999] HCA 51; (1999) 198 CLR 494 and the judgment of Mahoney JA in Burns Philp Hardware Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642 at 646. It is necessary to examine those cases in some detail to ascertain what can be drawn from them for present purposes.

67Federal Commissioner of Taxation v Cornell is a decision of Latham CJ sitting as a single judge. Mr Cornell was divorced from his wife. She had remarried, and become Mrs Corfield. He was bound by a deed to pay her a particular monthly payment. For the purpose of reducing his income tax he wanted to establish a trust of certain shares that he held. That trust was to be one whereby the income of those shares would be held for Mrs Corfield, and other rights concerning the shares held for other members of his family. He proposed that the amount of trust income would reduce pro tanto his obligation to make maintenance payments to Mrs Corfield. The shares were actually transferred to the intended trustees. A draft deed of trust was prepared, and submitted to Mrs Corfield's solicitors. However, they wrote saying they objected to the proposal for creating a trust, because it would increase their client's taxation liabilities. Latham CJ held that, in the circumstances, the income of the shares remained part of Mr Cornell's taxable income because no fully constituted trust had come into existence. He continued, at 401-2:

If, however, it were held that a trust had been created by the transfer of the shares with the intention of conferring benefits upon Mrs Corfield and some sufficiently identifiable members of the taxpayer's family, the case for the taxpayer would nevertheless fail because, as Holroyd J in Townson v Tickell (1819) 3 B & Ald 31, at p 38 [106 ER 575, at p 577] said (speaking of a devise):-'I think that an estate cannot be forced on a man. A devise, however, being prima facie for the devisee's benefit, he is supposed to assent to it, until he does some act to show his dissent. The law presumes that he will assent until the contrary be proved; when the contrary, however, is proved, it shows that he never did assent to the devise, and, consequently, that the estate never was in him.' Best J said (1819) 3 B & Ald, at p 39 [106 ER, at p 578]:-'It seems to be contrary to common sense to say, that an estate should vest in a man not assenting to it: there must be the assent of the party, before any interest in the property can pass to him.' The same case shows that the dissent need not be evidenced by disclaimer in a court of record or by deed; any evidence of actual dissent is sufficient. The law was stated with equal definiteness in Standing v Bowring (1885) 31 Ch D 282, at p 288, where it was held that, when there is a transfer of property to a person, it vests in him even before he knows of the transfer, 'subject to his right when informed of it to say, if he pleases, "I will not take it." When informed of it he may repudiate it, but it vests in him until he so repudiates it.' See also London & County Banking Co v London & River Plate Bank (1888) 21 QBD 535; Mallott v Wilson (1903) 2 Ch 494."

68Latham CJ held that the letter from Mrs Corfield's solicitor:

"... was a clear and decisive refusal to agree to the establishment of any fund for the purpose of paying the annuity to Mrs. Corfield. The result, therefore, is that, even if the evidence were sufficient to establish a trust in favour of Mrs. Corfield in the absence of evidence of dissent, the dissent which is proved makes it impossible to hold that a trust in her favour continued to exist."

69Several circumstances distinguish Cornell from the present case. First , the subject matter of the disclaimer in Cornell was an item of property, namely a beneficial interest in the shares. In the present case, the subject matter of the alleged disclaimer is purely a contractual right. While some contractual rights are for some purposes regarded as an item of property, because they are assignable, the right that the Respondent had to receive payment of the bonus was of value not for any reason connected with its being an item of property. (There may be room for argument about whether the conditions attached to the Respondent's right to receive the bonus made it inherently personal and hence not assignable, but as that question was not gone into in argument I shall not rely on it.) Second , in Cornell what was disclaimed was the totality of a benefit that passed to Mrs Corfield under a freestanding legal instrument. In the present case, the right to receive a bonus on particular terms that was conferred on the Respondent were only a part of his rights under the contract of employment. Third , in Cornell the benefit disclaimed was not granted pursuant to any power in any document that set out basis under which legal relations already existed between Mr Cornell and Mrs Corfield. In the present case the decision of the Remuneration Committee was made pursuant to a power to do so in an existing contract of employment. Fourth , in Cornell the document that purported to confer the benefit on Mrs Corfield was a deed, while in this case the right to the bonus arose through an exercise of a contractual power by the making of a decision, not by the entering of a deed. Fifth , in Cornell the creation of the beneficial interest in the shares was unasked for, and in the nature of a gift, while here the bonus was the result of the working through of a contractual procedure for fixing the remuneration of the Respondent for work he had already done. I recognise that Mr Cornell and Mrs Corfield were already in a contractual relationship, by reason of the agreement to pay maintenance, but the intended trust of the shares was not the outcome of that contractual relationship, and indeed Mr Cornell hoped to use the creation of the trust as a means of persuading Mrs Corfield to agree to vary that contractual relationship. Six th , there are principles that govern the manner in which individual rights arising under a contract can come to cease to be enforceable that operate in accordance with principles different from those that govern loss of rights through disclaimer in the law of property. I consider those further at [79] ff below.

70MSP Nominees Pty Limited v Commissioner of Stamps (South Australia) arose when two holders of certain units in a unit trust requested the trustee to redeem their units. Upon such redemption the trust deed entitled them to receive a proportionate part of the value of the trust fund. A provision of the South Australian stamp duties legislation imposed ad valorem duty on certain instruments that effected or recorded a transfer of a beneficial interest in property subject to a trust. A definition in sub-s 71(15) of that legislation extended "transfer" to include "surrender or renounce a beneficial interest or potential beneficial interest in, or in relation to, property" . The High Court (Gleeson CJ, Gaudron, Gummow, Hayne and Callinan JJ) held that the redemption of the units did not fall within the taxing statute. The main argument in the High Court related to whether the redemption was a "surrender" . However, at [35], their Honours made remarks on which Mr Finch relies:

"Paragraph (b) of the definition of 'transfer' in s 71(15) also uses the term 'renounce'. It is not clear to what extent, in the alternative, the Solicitor-General for South Australia relied upon this as a basis for imposing the duties. [The unitholders who requested that their units be redeemed] exercised rather than renounced their rights. 'Renounce' may be used here in the sense of a disclaimer or abandonment which results in either refusal to accept a benefit (see Federal Commissioner of Taxation v Cornell (1946) 73 CLR 394 at 401-402; Crago, 'Principles of Disclaimer of Gifts', University of Western Australia Law Review, vol 28 (1999) 65) or extinguishment, without replacement, of an interest held by one party and which, in either case, has the practical effect of conferring or swelling the value of the interest of another . An example, again from old system conveyancing, is the yielding up by the holder of a rent charge, profit a prendre or easement to the owner of the land subject thereto. This operates by way of an 'extinguishment' of that burden, and is described by Challis ( Challis's Law of Real Property , 3rd ed (1911), p 88) as an instance of 'the annihilation of a collateral thing in the subject out of which it issues, or in respect to which it is enjoyed'. The redemptions by [the two unitholders] involved the cancellation (under cl 35) of their units but they were not renunciations in any of the senses discussed above." (emphasis added)

71The units in the unit trust that were the subject of MSP were clearly items of property. In so far as the judges in MSP recognised that there could be a renunciation consisting of a refusal to accept a benefit, MSP shows a five-member bench of the High Court endorsing the principle stated in Cornell . However, at least in the context of the statute being construed, MSP subjected that principle to a qualification that Latham CJ did not express. It is that the refusal to accept a benefit " has the practical effect of conferring or swelling the value of the interest of another" . That language is apposite only to interests in property. While MSP was concerned with construction of a particular statute, and discussion of a word similar but not identical to "disclaim" in that statute, the extra characteristic of a renunciation that their Honours identified in MSP does seem to be a characteristic of all disclaimers that operate under the general law. (A disclaimer of a contract pursuant to the statutory power of a liquidator or trustee in bankruptcy to do so ([64] above) does not necessarily result in any specific proprietary right of the liquidator or trustee being conferred or swelled in value - it just increases the total distributable assets of the liquidator or trustee. However, the power of a liquidator or trustee to disclaim a contract is a statutory extension of the general law's concept of disclaimer). In Cornell , if the trust had been properly constituted the effect of Mrs Corfield's disclaimer would have been that the right to the income of the shares would have been held on a resulting trust for Mr Cornell. Because of that, it would be appropriate to say that the qualification recognised in MSP was satisfied because Mr Cornell had an " interest " in the shares the subject of the trust " conferred " on him by reason of the disclaimer. In the present case, it could not be said that, even if the Respondent had refused to accept the bonus there was any " conferring or swelling [of] the value of the interest of another" . The Appellant might be richer than it otherwise might have been, by an amount equal to the bonus, but that is not an increase in the value of its interest in any specific property.

72Burns Philp Hardware Ltd v Howard Chia Pty Ltd concerned the construction of a rent review clause in a lease of commercial premises. The reviewer was required to fix the rent by reference to "the then current annual market rent of the premises" . The lease contained a covenant limiting the use of the premises to that of "a hardware department store or such other business as shall be determined by the Lessee and approved by the Lessor (such consent not to be unreasonably withheld)." It also contained a covenant imposing restrictions on the lessee subletting or licensing the property without the consent of the lessor. Conscious that those provisions of the lease had a tendency to depress what would otherwise be the market rental of the premises, the lessor executed and sent to the lessee two deeds poll. In broad terms, by those deeds poll the lessee, through a variety of conveyancing devices, purported to give up its rights under those clauses. The devices included a declaration and covenant that the lessee would not be in breach of the covenants, an irrevocable waiver of any compliance by the lessee with the covenants, and a granting in advance of consent to any change of use or lease or license that there might thereafter be. The dispute that the court decided concerned what use the reviewer was entitled to make of the deed poll in ascertaining the current annual market rental.

73Priestley JA (with whom Glass JA agreed) held that the only effect that the deeds poll achieved was that they provided some evidence of the likelihood of the lessor thereafter consenting to a change of use, or to a sublease or a license. He held, at 659, that they did not operate as an effective waiver by the lessor of a provision inserted for its sole benefit. This was because the covenants in question were not for the lessor's benefit only, as their presence benefited the lessee by depressing the rent. He held, at 659-660, that they were not effective as an irrevocable consent, because they did not fulfil the necessary requirement for a valid deed of having been delivered. That was because delivery of a deed poll required that there be acceptance of, or reliance upon, it by the person to whom it is delivered. He held, at 660, that the deeds did not operate as an effective covenant not to sue, because they had not been delivered. Nor (at 660) did they operate as an estoppel, because the lessee had not acted to its detriment in reliance upon them.

74Notwithstanding that the ratio of the decision is found in the reasons of Priestley JA, Mr Finch relied on the separate reasoning by which Mahoney JA, at 646, reached the same conclusion as Priestley JA:

"In my opinion, the deeds poll, whatever be the effect they had until that time, ceased to have effect following the lessee's letter of 21 November 1985. The lessor, by the deeds poll, sought to confer a right on or undertake obligations in favour of the lessee. To the extent that the deeds would have such an effect, it was open to the lessee to disclaim them and, on its doing so, the rights and obligations ceased, as such, to have effect in favour of the lessee: see Federal Commissioner of Taxation v Cornell (1946) 73 CLR 394 at 401-402; Halsbury's Laws of England , 4th ed, [1975] vol 12, par 1370 at 549, and the cases there referred to.

In the present case, the lessee effectively disclaimed the deeds poll as far as they had such an effect. In the letter of 21 November 1985, it was said for the lessee: 'We regard the relationship as unchanged until both parties have agreed upon a change.' That, in its context, was in my opinion an effective disclaimer. Nothing had occurred which prevented the lessee disclaiming the deeds."

75Burns Philp Hardware was decided before MSP . If one applied the extra qualification introduced by MSP (that a disclaimer will increase another's interest in property) to the fact situation in Burns Philp Hardware , that qualification is not satisfied. In Burns Philp Hardware , it was the lessee that was renouncing or refusing to accept the rights that the deeds poll purported to confer on it. However, the practical effect of it renouncing or refusing to accept those rights was that it increased the value of its own interest in the leased property and diminished the value of the lessor's interest - it was not a renunciation or refusal that had the "practical effect of conferring or swelling the value of the interest of another" . That suggests caution in following the reasoning of Mahoney JA in Burns Philp Hardware .

76As well, the passage in Halsbury to which Mahoney JA refers appears in the portion of that work devoted to deeds, in the part that is headed "avoidance, discharge, alteration and rectification of deeds" (p 542). The particular paragraph to which Mahoney JA referred says (omitting footnotes):

"No person is obliged to accept any assurance made to him or obligation undertaken in his favour without his consent. If, therefore, any such assurance or obligation is so made or undertaken by some deed, he may disclaim the benefit of the deed; and the disclaimer need not be made by matter of record or deed, but may be made orally or by conduct; it can, however, only be made with knowledge of the interest alleged to be disclaimed and with an intention to disclaim it, although for this purpose detailed knowledge is not necessary, and a putative donee may, by sufficiently explicit words, disclaim whatever interest he may have without knowing in detail of what it consists. Upon disclaimer the deed and the act evidenced thereby will become void, and if the deed contained an assurance to the person disclaiming of some estate or interest in property, the same will revest in the party who made the assurance or his representatives. A disclaimer of an attempt inter vivos to make a gift is irrevocable and cannot be withdrawn subsequently.

Where, however, property is conveyed to a person upon trust he may, if he has not accepted the trust, disclaim the property and the trust, and thereupon the conveyance is made void as regards him and the property revests in the settlor, but the settlor will hold the property upon the trusts declared by the deed."

All this clearly relates to disclaimer of rights conferred by a deed. Further, it relates to a disclaimer of all the rights conferred by the deed.

77As Cornell related to disclaimer of a benefit under a draft deed of trust, and Burns Philp Hardware also concerned a right arising under a deed, I do not regard Mahoney JA as stating any principle that applies concerning discrete rights arising under a simple contract.

78In my view, there is no principle of "disclaimer" that can produce the effect that a statement by a person who has rights under a contract that he or she will not exercise one of those rights is sufficient by itself to produce the effect that the right in question thereby become un-exercisable. If the statement is relied upon by the other party to the contract, it might give rise to an estoppel. If the statement is made in circumstances where the person who made the statement was, at the time of making it, confronted by a choice between inconsistent rights, it might give rise to an election. If the statement is made for consideration flowing from some person other than the person who makes the statement, it might give rise to a contractual variation. However, none of those situations apply in the present case. It may well be that if the Respondent had actually been paid the first instalment of the bonus he would have been placed in a situation of being required to make an election between keeping the money on the conditions on which it was paid and rejecting it, but that situation never arose.

79In Agricultural and Rural Finance v Gardiner [2008] HCA 57; (2008) 238 CLR 570 the High Court considered a submission:

"... that the common law has long recognised a doctrine (described as waiver, or forbearance from exercising a contractual right) that is distinct from cases of contractual variation, election between inconsistent rights, estoppel or what the Borrower called 'the unilateral renunciation or abandonment of a right or benefit where a party acts in a manner inconsistent with the maintenance of that right or benefit'." ([68])

In an extended discussion of that submission at [69]-[82], the plurality judges (Gummow, Hayne and Kiefel JJ) were unable to find any scope for operation of such a principle in circumstances that were not covered by contractual variation, election between inconsistent rights, or estoppel. Nor could their Honours find any support in previous decisions for the existence of such a principle.

80Their Honours also considered whether a contractual right could be lost through a waiver arising from "abandonment" or "renunciation" . They pointed out that in the Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394 Toohey and Gaudron JJ had each recognised that the Commonwealth had waived its right to rely on a limitations defence, but that the factors upon which Toohey and Gaudron JJ had relied were all dependent upon the "waiver" in question having occurred within the context of litigation ([60]). Brennan J in Verwayen had recognised that a party to litigation could sometimes abandon a right to plead a limitations defence but held that such an abandonment could happen only when the time came for exercising the right that was abandoned. As the plurality in Gardiner explained at [89]:

"... the notions of abandonment or renunciation of a right of which Brennan J wrote in Verwayen were being examined in the context of the conduct of litigation. Application of these notions was, therefore, overlaid by considerations of the fair and just conduct of the proceedings. Considerations of that kind are not relevant to the identification of the rights and obligations of parties to contracts."

81Further, the plurality in Gardiner explained at [90] that Brennan J had regarded the time for waiving a limitation defence as being the moment before judgment is entered. The correctness of the precise time that Brennan J identified as the time for abandonment of the limitation defence might need reconsideration in the light of current principles of case management and the decision in Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175, but the point remains good that the right to plead a defence is waived, in the sense accepted by Brennan J, only at the last moment when it is open to the litigant to raise the defence. Even if it were legitimate to apply this principle of "waiver" outside the context of the conduct of litigation, in the present case there is no reason to believe that the last moment for the Respondent to decide whether he would accept the bonus on the conditions it was offered (other than its precise time for payment) had arrived by either 18 June 2010 or 24 June 2010.

82Though my opinion on this topic is not essential for my conclusion that there has not been an effective disclaimer, it might be instructive to consider what the situation would have been if the Respondent had said unequivocally on 17 June 2010 that he would not accept the bonus on the conditions it was offered. I see no reason why he could not thereafter change his mind, and state that he would accept it, if nothing had been done in the meantime in reliance on his rejection, and there was no reason to conclude that he was on 17 June required to choose between inconsistent rights, and his refusal was not given for consideration. Such a situation seems to me to be within the words of the plurality in Gardiner at [95]-[96]:

"But if, as is the case here, there was no election between inconsistent rights, there was no variation of the contract, and there was no detrimental reliance upon the representation, no reason is given for holding the party concerned to its earlier expressed attitude beyond the fact that the representation was made. To hold that the making of the representation, without more, suffices to alter the rights and obligations for which the parties stipulated by their contract is a step that should not be taken.

It should not be taken for two reasons. First, to hold that the making of a representation, without more, alters the rights and obligations of parties to a contract would be to supplant accepted principles governing whether an estoppel is established and whether a contract has been varied. It would supplant those principles by dispensing with the need to show detrimental reliance to establish an estoppel and by discarding as irrelevant the need to show consideration for an agreement to vary an existing contract. The second reason, which in a sense is no more than the obverse of the first, is that no reason is proffered to hold the person making the representation to it. The person to whom the representation is made has not relied on it; it is not demonstrated that departure from the representation would be unjust; there was no consideration to support a bargain."

Did Disclaimer Occur on the Facts?

83Even if, contrary to my view, it had been legally possible for the Respondent to disclaim his entitlement to the bonus, there would be factual difficulties in the way of accepting Mr Finch's submission that there had been an effective disclaimer before the time that the contract of employment came to an end. For the purpose of considering these factual difficulties it is necessary, in this section of the judgement, to speak as though disclaimer of a single contractual right such as the Respondent's entitlement to a bonus were possible. It should not be thought that by speaking in that way I am departing from my view that such a disclaimer was not possible in the present case.

84Mr Finch accepted that in the conduct of the case the parties had treated time as being of the essence so far as making payments was concerned (tp 11). Thus, to justify the failure to pay the bonus on 16 June 2010 it would be necessary to identify a disclaimer that had occurred on or prior to that day, or perhaps to show that there was a consensual postponement of the time for payment of the bonus, during the time of which postponement the Respondent disclaimed the bonus. The possibility of there being a consensual postponement of the time for performance of a contractual obligation, which does not result in the obligation to perform the substance of the contractual obligation disappearing has been recognised in Electronic Industries Ltd v David Jones Ltd [1954] HCA 69; (1954) 91 CLR 288, as explained in Gardiner at [84]-[87].

85Crago, op cit at 78-79, says:

"An effective disclaimer must constitute an absolute rejection of the gift. It must evince a final and non-negotiable refusal to accept the property which the donor proffers. It must be 'simple': it must not purport to do anything other than disclaim. ... A gift cannot be disclaimed subject to some qualification sought to be imposed by the donee, such as disclaimer only for a period of time. ... And herein lies the fundamental basis of the principle that a disclaimer must be pre-emptory: any gift is the donor's gift, and must be assented to or disclaimed on the donor's terms. A contract must (at least nominally) be negotiated; a gift, being a transfer of property for nothing, must be assented to or disclaimed. There is, by the fundamental policy of the law, no middle ground. A gift altered by negotiation is a new gift."

86There was no communication between the Appellant and the Respondent that could amount to a disclaimer of the bonus prior to the time its first instalment fell due for payment. The only communication relating to the bonus, between the time of the letter of 28 May 2010 that notified the decision to pay the bonus, and the time when its payment was due, was the meeting on 11 June 2010 ([23] above). Mr O'Sullivan and Mr Cronin would have been well aware at that time that the Respondent was deeply unhappy about the conditions, and disputed their power to impose the conditions, but up to the meeting on 11 June the Respondent had not decisively rejected either the bonus, or the conditions. Further, his position at the meeting on 11 June 2010 was that "he needed to review what was proposed about bonuses over the weekend." In the context of the meeting, "what was proposed about bonuses" related to both what was proposed about bonuses in the new draft employment contract, and what was proposed about bonuses by the letter of 28 May 2010. The Respondent had not communicated any outcome of that review before the time for payment of the first instalment of bonus came and went.

87On and after 16 June 2010, there is no basis for finding that there was any consensual deferring of the time for payment of the bonus. The consistent stance of the Respondent on and after 16 June was that the Appellant had breached its contractual obligation by not paying him in the June payroll on 16 June.

88In any event, even after 16 June 2010 the Respondent did not reject unequivocally either the bonus, or the conditions attached to it. Rather, he sought to have the dispute about the bonus resolved through the grievance procedure.

89The Respondent gave uncontested affidavit evidence that at the time of receipt of the letter of 18 June 2010 "I was prepared to resolve my grievances and to abide by the result of the grievance process conducted on an impartial basis" . As this is purely a statement of his subjective attitude, I leave it out of consideration. What would matter for any disclaimer is an unequivocal communication of rejection, not any subjective attitude towards acceptance or rejection.

90In my view, the Respondent has never disclaimed the bonus. At no time has he conveyed the message that he would refuse to accept the bonus on the conditions on which the Remuneration Committee had decided to pay it to him.

91If the Appellant had paid the first half of the bonus to the Respondent, and the Respondent had thereafter returned the money and made clear that he was doing so because he did not accept the conditions, that may well have been an effective disclaimer. If, before the time for payment of the money had arrived, the Respondent had made clear that he would not accept the bonus on the conditions on which it was proffered, that may likewise have been an effective disclaimer. However, the judge has found that he never advised the Appellant that if he were paid the bonus on the conditions specified he would not adhere to them. I reiterate that my remarks in this paragraph are made on the assumption that, contrary to my view, a disclaimer was in principle possible.

92Though my opinion on this topic is not essential for my conclusion that the Respondent's right to receive the bonus was not lost by "disclaimer" , I am inclined to accept Mr Fernon's submission that if the Appellant had paid the Respondent the part of the bonus that was due on 16 June 2010, and he had not returned the money, he would have been bound by the conditions on which the bonus was paid.

93It may be that the preferable analysis is that in the circumstances the obligation to repay would be a contractual obligation, just as the Appellant's obligation to pay the bonus was contractual. It may be that the failure to return the money in those circumstances gives rise to a variation of the contract of employment, as well as to an election to be bound by the conditions. However, even if that were not so, the Respondent would be subject to an equitable personal obligation to adhere to the condition on which he received the money. Once the Respondent had been paid, he would have received an item of property subject to a condition.

94Such a situation is recognised in Meagher, Heydon and Leeming, Meagher Gummow and Lehane's Equity Doctrines and Remedies , 4 th ed (2002) LexisNexis Butterworths at para [39-015]. The authors there consider a situation:

"... where a testator by his will gave a legacy of $10,000 ... but this was expressed to be on the condition that the legatee give up Blackacre to a third party. The testator has himself not purported to dispose of Blackacre but has made clear that the legatee takes nothing under the will unless he performs the condition attached to the legacy. If the legatee declines the legacy he keeps Blackacre and gets no part of the $10,000. If he accepts the legacy he loses Blackacre in its entirety."

95Many of the cases where an equitable personal obligation to adhere to a condition attached to a transfer of property have been ones where the condition is for the benefit of some third party: see Heydon and Leeming, Jacobs Law of Trusts in Australia , 7 th ed (2006) LexisNexis Butterworths at [234]-[239], Young, Croft and Smith, On Equity (2009) Thomson Reuters at [6.1070]. However, there is no reason of principle why a condition that is attached to a transfer of property and benefits the transferor cannot give rise to an equitable personal obligation. In Gill v Gill (1921) 21 SR (NSW) 400 Harvey J gave an explanation at 406-407, of the basis upon which an equitable personal obligation can attach to a transfer of property that does not depend on who is to benefit from performance of the condition:

"... where property is given to a beneficiary on condition that he should maintain certain persons or pay certain liabilities, it has been held that a quasi contractual relationship is created; in other words that the person taking the property is treated as being liable in the Court of Equity to carry out the obligation in the same way as if he had contracted to do so; the quasi contract would presumably be made with the testator and be enforceable at the suit of the personal representative.

But I see no reason why it should not also be enforceable at the suit of the individual (if any) for whose benefit the obligation is created, provided the personal representative is joined as a party. The obligation seems to me to flow from the equitable doctrine that a person cannot 'approbate and reprobate' under the same instrument. That such an obligation gives rise to a personal liability seems to be established by such cases as Gregg v Coates (23 Beav 33); Re Williames (54 LT 105); Re McMahon ([1901] 1 Ir 489).

...

In some cases the Court may see that what the testator intended was to attach a charge or trust upon the property, in other cases it may conclude that a personal liability alone is intended. The view taken would depend partly on the language used to describe the obligation, partly on the nature of the property given to the obligee, and partly on the nature of the obligation. In cases where the obligation is merely personal in its nature, calling for the personal activity of the obligee it may be the Court could not effectively secure its specific performance; I see no reason why, in such cases, the Court should not mould the remedy so as to give a remedy by way of damages for the breach of the quasi contract. The objection that the Court cannot give damages in lieu of specific performance does not appear to me to raise a real difficulty, because it is only in this Court that the obligation can be given effect to and the remedy may not be specific performance but, as in the analogous case of election, mere compensation."

In this analysis, the obligation to perform the condition is primarily owed to the transferor, and only by extension to the person who is to benefit from the condition.

96In Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583, Brennan and Dawson JJ dissented from the majority judges who imposed a constructive trust on the property of a de facto couple who had separated. The female partner had included the man's name on the title of the house that she had paid for because of his assurances that he would improve the property. Brennan J held, at 605, that the man's acquisition of an interest in the property was on condition that he carry out those improvements. Brennan J said, at 605-6:

"A condition annexed to a gift may be of either of two kinds: a condition involving a forfeiture for non-fulfilment or a condition creating merely a personal obligation to fulfil it. A donee who takes a gift to which a condition of the latter kind is annexed incurs an equitable obligation to perform the condition: Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417, at pp. 418-419. Lindley LJ in In re Williams; Williams v Williams [1897] 2 Ch 12, at p. 19, said:

... there is no difficulty in disposing of one's own property upon condition express or implied that the person who takes it shall do something himself, e.g., shall dispose of his property in a particular way indicated by the owner of the property which he accepts. Moreover, a condition of this kind is enforceable in equity, and need not amount to a common law condition - i.e., a condition involving a forfeiture of the property taken subject to the condition - if that condition is not performed."

A condition which creates a personal obligation may be enforced in equity by an order for compensation or, where appropriate, by a decree of specific performance: Gill v Gill (1921) 21 SR (NSW) 400, at p. 407; Gregg v Coates (1856) 23 Beav 33 [53 ER 13]; In re Hodge; Hodge v Griffiths [1940] Ch 260."

97Similarly, Dawson J at 624-5, said:

"Such a condition, whilst not a condition of forfeiture and falling short of creating a trust or charge, may give rise to a personal equitable obligation analogous to a contractual obligation, enforceable by compensation or, in an appropriate case, by specific performance. The precise basis in principle of this doctrine may be debatable but it is firmly founded in precedent and affords a convenient means of reflecting the equity of the situation: see Messenger v Andrews (1828) 4 Russ 478 [38 ER 885]; Gregg v Coates (1856) 23 Beav 33 [53 ER 13]; Rees v Engelback (1871) LR 12 Eq 225; Gill v Gill (1921) 21 SR (NSW) 400; In re Hodge; Hodge v Griffiths [1940] Ch 260; Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 at 418-420, per Dixon J."

98Though their Honours were in dissent, these passages show that there is no difficulty in principle about an equitable personal obligation arising that requires a transferee of property to perform a condition that benefits the transferor that is imposed upon a transfer of property.

99The scope within which such an equitable personal obligation can arise has been held to extend beyond situations where there is a transfer of property subject to conditions. In Brejwo v Public Trustee of New South Wales [2002] NSWCA 115 a judge had approved the settlement of an action for damages for personal injury brought by a severely injured child. In approving the settlement the judge ordered that so long as the child's father "shall continue to reside with and materially assist in the daily care and management of the plaintiff, the Public Trustee shall pay him the sum of not less than $150 per week" . Handley JA (Stein and Heydon JJA agreeing) held that the father was not a deemed worker employed by the Public Trustee, for the purposes of workers compensation legislation, but also said, at [21]:

"Mr Rayment argued that the husband had a right to recover these payments if he fulfilled the conditions and that must be so. The order was binding on the Public Trustee and in the event of a dispute the Court could have determined whether the conditions in the order had been fulfilled, and in that event would have compelled the Public Trustee to make the payments. However, as Heydon JA said during argument, the order and performance of the conditions created an equitable obligation enforceable at the suit of the husband in accordance with Gill v Gill (1921) 21 SR (NSW) 400, 406-7 which was approved in Muschinski v Dodds (1985) 160 CLR 583, 606-7 and 625."

100I propose that the appeal be dismissed with costs.

101MACFARLAN JA : I agree with Campbell JA.

102YOUNG JA : This appeal is yet another instance of problems caused by the adoption of a bonus plan for senior employees. In the Equity Division, the usual dispute is caused by an employee dissatisfied with his or her bonus leaving the company and working in breach of a restrictive covenant. The present case is a mere claim by an ex employee to be paid a bonus.

103I am indebted to Campbell JA for his recitation of the facts and major documents and the history of this litigation and I will not repeat that material except insofar as it is necessary to understand these reasons.

104The present case is essentially a dispute as to the terms of a contract and whether it has been breached.

105The contract of employment was made on 5 March 2009 and its terms, so far as are relevant, were that there was to be a salary of $220,000 per year payable monthly by bank deposit on the 16 th day of each month plus a performance incentive payment.

106The latter was spelt out in the letter of appointment as follows:

You will be eligible to receive a performance incentive payment (ie cash bonus), in addition to the total remuneration package, the amount of which will be subject to both the Firm's performance and also to your successful achievement of agreed objectives and performance targets.

Specific objectives and performance targets and the mechanisms by which these will be measured will be agreed with you in writing within 60 days from the date of commencement of employment. The timing of payment for successful achievement will also be agreed in writing at this time.

The Firm operates a more traditional bonus regime, whereby all staff are eligible to participate in the bonus pool which is determined annually for the year ending 30 June. The bonus pool is generally limited to 50% of the Firm's EBIT (before bonus allocations) and may involve vesting for up to 3 years for cash allocations over $250,000. An individual's performance during the period will be assessed against their peers and a discretionary amount allocated by the Remuneration Committee. Payment of any performance incentive will be at the sole discretion of the Firm's Remuneration Committee.

107As Campbell JA has pointed out in [12], the bonus concerned in this litigation is that referred to in the third paragraph of the above quotation.

108On 28 May 2010 the directors of the appellant wrote to the respondent as follows:

"Having regards to the performance of the Firm and your achievements for the year ending 30 June 2010, we have pleasure in advising that you will be paid a cash bonus of $300,000 (the Bonus).

You will receive half of the Bonus in the June 2010 payroll and the balance in the June 2011 payroll, conditional upon you remaining in employment with O'Sullivan Partners (OP) at the time the Bonus is due to be paid (and having not given notice of resignation).

Should you resign from employment with OP and seek employment with a competitor before June 2011, you will be required to repay the gross upfront amount of any bonuses paid to you.

109The primary judge said at [105] and [106]:

[105] It was not in issue that by its decision conveyed to Mr Foggo by the letter of 28 May, the defendant exercised its contractual rights in relation to payment of a bonus. Thereby it determined that Mr Foggo would be paid $300,000, on the conditions it had specified. That decision bound both it and Mr Foggo. What was in issue was its right to impose the conditions it had specified.

[106] While Mr Foggo disagreed with the defendant's view of its contractual rights and obligations in relation to bonuses, that disagreement was not such as to relieve the defendant of the consequences of the decision it had made and implemented by its 28 May letter. Thereby it was contractually bound to pay him $150,000, if he was in its employment in June 2010.

110At [108] the primary judge rightly rejected the contention that the letter of 28 May was an offer to pay the bonus which was never accepted. Her Honour repeated that the appellant had no right to reconsider its decision.

111The conclusion that her Honour reached, that the decision to allocate the bonus could not be revoked, has not been challenged. However, it must be pointed out that there may be circumstances where such a decision can be revoked before the recipient acts on it. One is where the contract expressly or impliedly gives that power, another is where the recipient has asked for a benefit for which he or she provides no consideration. An undertaking to provide the benefit can usually be withdrawn before it is acted upon.

112The challenge was that a decision to allocate a bonus is not the same as a decision to pay a bonus, an argument that the appellant says the primary judge did not consider.

113There are some situations where this distinction is real. For instance merely because an association's budget contains an item "replacing the secretary's computer $3,000" does not mean that the secretary is entitled to spend $3,000 on a new computer unless those with authority to purchase make the decision to do so.

114In Lagunas Nitrate Company Ltd v Schroeder & Co (1901) 85 LT 22, the directors had declared an interim dividend, but, because of receipt of an adverse claim, paid the amount needed to meet the dividend into a suspense account at the company's bank. Joyce J declared that the company was not bound to pay the dividend.

115It is a matter of construction of the relevant contract to determine whether there is a distinction between a decision to allocate a bonus and a decision to pay the bonus. Are there one or two stages in the decision process?

116The question of construction is of little moment in the instant case. I respectfully agree with Campbell JA in [58] that despite Mr Finch's protestations, the words in the letter of 28 May, "we have pleasure in advising that you will be paid a cash bonus" were communication of a decision to pay.

117The only other argument of the appellant that might operate to incline me to favour reversing her Honour's decision is the submission that the respondent disclaimed the bonus.

118Whilst the strict meaning of "bonus" is a gift, in modern commercial dealings it may be either a gratuity or something to which the employee is contractually entitled: Commissioner of Inland Revenue v Smythe [1981] 1 NZLR 673, 676.

119The concept of disclaimer does not sit well with a person who is entitled to receive benefits under a contract. I agree with Campbell JA at [78] that a statement by a person who has rights under a contract that he or she will not exercise one of those rights is insufficient by itself to produce the effect that the right in question thereby becomes un-exercisable. I also agree with [90] that, if disclaimer were possible, there was no disclaimer in this case as a matter of fact.

120Accordingly, I agree with the orders proposed by Campbell JA.

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Decision last updated: 19 March 2012