WESTERN AUSTRALIAN INDUSTRIAL RELATIONS COMMISSION CITATION : 2019 WAIRC 00041 CORAM :Senior Commissioner S J Kenner HEARD : Thursday, 20 September 2018, Tuesday, 13 November 2018 DELIVERED : Friday, 8 February 2019 FILE NO. : B 54 OF 2018 BETWEEN : Gavin Smith Applicant AND Silkwood Holdings (WA) Pty Ltd as trustee for the Diablo Discretionary Trust trading as Douglas Jones Financial Services Respondent Catchwords : Industrial Relations Law (WA) - Contractual benefits claim - Claim for bonus entitlement and furniture allowance - Interpretation of vague and uncertain contractual terms - Variation of contract - Principles applied – Claim for bonus entitlement upheld in part – Claim for furniture allowance refused – Order issued Legislation : Industrial Relations Act 1979 (WA) Result : Application upheld in part Representation: Counsel: Applicant : Mr P Mullally as agent Respondent : Mr L Jones Case(s) referred to in reasons: Ahern v AFTPI (1999) 79 WAIG 1867 Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219 Brett Arthur King v Griffin Coal Mining Company Pty Ltd [2017] WAIRC 00102; (2017) 97 WAIG 527 G Scammell & Nephew Ltd v Ouston [1941] AC 251 Hotcopper Australia Ltd v Saab (2001) 81 WAIG 2704 Tallerman & Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd (1957) 98 CLR 93 Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 Case(s) also cited: Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 Astley v Austrust Limited (2000) 197 CLR 1 Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424 === REASONS FOR DECISION === ¶1 Background ¶2 The applicant commenced work as an accountant for the respondent, a financial services provider, on 7 February 2008. It was common ground that the applicant did not provide financial planning advice as it was the respondent who was licenced to do this. During the applicant’s employment, the respondent made four “offers of employment”, each with varied salary packages. Part of the salary package of the latter two employment offers, which are the offers relevant to the applicant’s claim, was a bonus entitlement percentage paid monthly for “upfronts”. The wording of the entitlement to “upfronts” changed in each employment offer. At some point in 2013, the respondent requested that the applicant vacate the business premises and continue working for the respondent from home. There was some discussion between the parties, both in person and by email, regarding purchasing office furniture for the applicant’s home. The applicant began working from home from 1 July 2013 and continued to do so until the final day of his employment on 8 December 2017. ¶3 On 18 December 2017, the applicant sent a letter of demand to the respondent requesting that the respondent pay to the applicant the bonus entitlement of $4,055.03 by 22 December 2017. This was not paid by the respondent. The applicant brings a claim against the respondent for the denied contractual benefit of bonus entitlements between 3 July 2013 and 12 September 2017 totalling $4,055.03, and an amount of $800.00 outstanding from a claimed $1000.00 entitlement to purchase office furniture, when requested by the respondent to work from home. ¶4 The applicant’s original claim was for bonus entitlements, annual leave, long service leave and superannuation contributions. The applicant abandoned his claim for annual leave, long service leave and superannuation contributions. The applicant proceeded with the bonus entitlement aspect of his claim and the claim relating to the office furniture. Offers of employment ¶5 The applicant tendered unsigned copies of the four “offers of employment” and gave evidence that the respondent had possession of the signed contracts (ts 12-14). Each contract established a “salary package” for a period of six months starting from the commencement date, after which it was stated a further salary package would be negotiated based on performance. The respondent did not dispute that the “offers of employment” were signed and agreed to by the parties. ¶6 The third and fourth offers are those relevant to the period of the applicant’s claim for bonus entitlements. The third offer was dated 1 March 2010 and tendered as exhibit A3. The employment offer was for the position of accountant and the salary package read as follows: Cash Component $45 000 (Gross Annual Salary) Superannuation @ 9% $4050 2 Educational Units p.a. up to total value of $1500 Bonus Pd Monthly @ 10% of Upfronts up to $15000 (Estimated) From all upfronts Bonus where FUM p/mth > $500k $2500 Bonus where 2 Insurance Policy’s written p/mnth (requires successful completion of at least 1 Kaplan course p.a.) $2500 Total $70 550.00 p/a ¶7 The fourth offer was dated 20 October 2016 and tendered as exhibit A4. This offer was for the position of office administrator and the salary package read as follows: Cash Component $45 000 (Gross Annual Salary) Superannuation @ 9.5% $4275 **Bonus Pd Monthly @ 20% of insurance upfronts or super entry costs derived from work initiated and placed by you, subject to my review new or existing clients. *Optional reimbursement of education fees paid by you to the value of $2500 per annum **Note any successful clawbacks or client revenue adjustments including insurance claim excess payments, or repayment of client revenues received will affect this bonus. Total $51075.00 p/a Change in offer of employment wording ¶8 The respondent put to the applicant in cross-examination that the reason for the change in wording between the 2010 Contract and the 2016 Contract was that the respondent intended to change the basis on which the commissions or bonus entitlements were to be calculated. A flat-rate 10% bonus applied to all “upfronts” in the 2010 Contract. This was increased to 20% in the 2016 Contract, but only for insurance “upfronts” and super entry costs derived from work initiated and placed by the applicant, so the argument went (ts 28). The applicant gave evidence that there was no operative difference between the 2010 and 2016 bonus entitlement as the words “new or existing clients” in the 2016 Contract had the effect of applying the entitlement to all clients, such as in the 2010 Contract. The purpose of the change, according to the applicant, was to make the application of “upfronts” clearer, and not to change which clients it applied to. ¶9 The respondent maintained that the bonus entitlement in the 2016 Contract only covered work brought to the respondent by the applicant or “new business”. The applicant agreed that he did not bring or initiate any new business or provide financial advice under his own name, however placed emphasis on the fact that he often met with and maintained communication with clients. The applicant gave evidence that his main duties were to liaise directly with clients for the management of their portfolios, report on the performance of portfolios, and to act as the first point of contact for existing clients and for any new applications for investments, superannuation rollovers or insurance (ts 11-12). ¶10 The respondent maintained that the bonus payments to the applicant were not intended to apply to work done by the applicant in just administering clients’ accounts and receiving monies under existing arrangements. Meaning of “upfronts” ¶11 The applicant submitted, and the respondent agreed, that the bonus percentage amounts for “upfronts” are not in dispute. These amounts are express in the Contracts as 10% in the 2010 Contract, and 20% in the 2016 Contract. The parties did however, somewhat disagree on the meaning of “upfronts” and to what scenarios the bonus entitlement would apply, consequently calculating different bonus entitlement amounts. ¶12 The applicant gave evidence that “upfronts” meant new revenue or new business. The respondent contended that “upfronts” in the financial services industry means a payment by a client at the stage of implementation of advice. This might be for the rollover of a superannuation fund balance or the taking out of a new insurance policy for example. It would not apply in the case of regular and ongoing contributions. The respondent put a scenario to the applicant of a superannuation rollover in the following terms, which the applicant agreed with: “so if we rolled some super from one fund to another fund and we charged a fee for doing that based on the initial application that the client does, we would prepare a statement of advice for that client, the client would sign it and they would instruct us to perform certain functions in relation to their financial affairs. Part of that process may be changing super funds and we would charge an upfront fee for doing that…so in that example that money that was rolled over from one super fund to another, would that – would you consider that a new business?”. ¶13 This is an issue in the determination of the applicant’s claim. That is, the meaning of the term “upfronts” in the 2010 and 2016 Contracts must be ascertained. Bonus entitlement amounts ¶14 The applicant relied on a schedule he created during his employment with the respondent when he had access to the respondent’s financial records. The schedule set out the applicant’s account of the bonus entitlements for “upfronts” payable to him under his contract of employment. This schedule was tendered as exhibit A6. The schedule set out the client name, the nature of the transaction, the amount received by the respondent from the licensee and the claimed bonus amount by the applicant. All but a couple of the applicant’s claims were made under the 2010 Contract. ¶15 The respondent relied on a series of reports from the licensee of the respondent, which characterised each client payment made to the respondent into types of transactions, examples being “sales” and “insurance sales”. The licensee reports did not specify which transactions were “upfronts” and this is open to interpretation. On the second day of the hearing, the respondent produced further spreadsheets, including a spreadsheet titled “G Smith Commission Spreadsheet” which was tendered as exhibit R4. The spreadsheet provided the respondent’s reasons for excluding amounts listed on the applicant’s bonus entitlements spreadsheet, which formed part of the applicant’s claim. These reasons included that the amount received was an on-going contribution, a category not covered by the contract of employment or an amount received outside the contract period. This spreadsheet calculated that the respondent owed the applicant $941.58 in bonus entitlements, after accounting for the deduction of 20% tax and an amount already paid to the applicant. The respondent also submitted that the applicant had failed to account for GST in his claims and had incorrectly calculated the amount of bonus entitlements owing as a percentage of the amount paid by the client before GST was deducted, rather than the amount received by the business. Furniture claim ¶16 Relevant to the applicant’s claim for the outstanding amount of $800.00 for furniture, is an email from the respondent to the applicant, dated Saturday 22 June 2013. This email was attached to the applicant’s further and better particulars of claim and read in full as follows: Gavin I can confirm for you today the following Gav in writing what we discussed yesterday in articulating that you will not be out of pocket in working from home. DJ Financial to pay for NBN cost of installation (quoted as free) Phone connection cost Monthly phone & internet cost of $130 per month that includes 500meg data, unlimited local and mobile phone calls Table, Chair, Filing Cabinet to be paid for to the value of $1000 (the above after use remaining the property of G Smith) Additionally we can consider the following Repackaging of existing wage to include M/V Allowance, Study Lease Benefit of reduced travel to the city Reduced hours of work to 4:30pm for the same pay retention of the 10% upfront bonus Gavin I also indicated upon a successful financed acquisition that I’m working on, there would be more scope to increase a cash component. I’d also expect interest rates to reduce to assist you, along with less tax deducted from your wage as a result of the above adjustments to your package. I will redraft your contract on my return Gav. Please let me know your thoughts Gav. Kind regards Lyall Jones – Director CPA FTIA Registered ASIC and Taxation Agent Authorised Representative No 312519 of Professional Investment Services Pty Ltd Licensed Dealer in Securities and Registered Life Broker ABN 11 074 608 558 ¶17 The applicant’s evidence was that the respondent varied the employment contract when it requested that the applicant work from home, and the respondent’s email stating “table, chair, filing cabinet to be paid for to the value of $1000” meant that the applicant was entitled to $1000.00 irrespective of the total amount spent on furniture. The applicant gave evidence that the respondent purchased a $200.00 cabinet for the applicant to store files in, which was deducted from the $1000.00 entitlement in calculating the $800.00 owing. ¶18 The respondent’s position was that the applicant was entitled to be reimbursed for out of pocket expenses incurred by the applicant when purchasing furniture, up to the maximum amount of $1000.00. The respondent put to the applicant that he had seen the desk and chair that the applicant used to work from home and could not understand how these items would have totalled $800.00. The applicant’s position was that this was irrelevant because the entitlement was for $1000.00 “to be paid for”. The applicant gave evidence that he could not remember how much he spent on furniture other than it was a “reasonable amount” (ts 59). The applicant gave evidence that he likely had the receipts, however did not produce them. Denied contractual benefits – general principles ¶19 The principles of denied contractual benefits claims are well settled. The issue to be determined is whether the applicant had a legal right under his employment contract with the respondent, to receive the bonus entitlement and an “allowance” for furniture. The applicant must establish that his claim relates to an industrial matter; that the applicant was an employee; that the benefit claimed is one to which the applicant was entitled under his contract of service; the contract is a contract of service; the benefit claimed is not under an award or order; and the benefit claimed has been denied: Hotcopper Australia Ltd v Saab (2001) 81 WAIG 2704; Ahern v AFTPI (1999) 79 WAIG 1867. The Commission’s task in such matters is to discover and enforce the relevant contract of employment. ¶20 The interpretation of a contract is to be approached objectively in accordance with the ordinary and natural meaning of the words used in it, in the view of a reasonable person in the position of the parties. As to the interpretation of contracts generally, in Brett Arthur King v Griffin Coal Mining Company Pty Ltd [2017] WAIRC 00102; (2017) 97 WAIG 527 I said as follows at par 11: Some rules have been developed in the cases as to the approach to adopt in construing the terms of a contract. A recent summary of the relevant principles to be applied was set out by the Court of Appeal (WA) in Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219. In this case, Newnes and Murphy JJA and Beech J observed at par 42: ¶21 Construction of contracts: general principles ¶22 42 The principles relevant to the proper construction of instruments are well known, and were not in dispute in this case. In summary: ¶23 (1) The process of construction is objective. The meaning of the terms of an instrument is to be determined by what a reasonable person would have understood the terms to mean.50 ¶24 (2) The construction of a contract involves determination of the meaning of the words of the contract by reference to its text, context and purpose.51 ¶25 (3) The commercial purpose or objects sought to be secured by the contract will often be apparent from a consideration of the provisions of the contract read as a whole.52 Extrinsic evidence may nevertheless assist in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding of the genesis of the transaction, its background, the context and the market in which the parties are operating.53 ¶26 (4) Extrinsic evidence may also assist in determining the proper construction where there is a constructional choice, although it is not necessary in this case to determine the question of whether matters external to a contract can be resorted to in order to identify the existence of the constructional choice.54 ¶27 (5) If an expression in a contract is unambiguous and susceptible of only one meaning, evidence of surrounding circumstances cannot be adduced to contradict its plain meaning.55 ¶28 (6) To the extent that a contract, document or statutory provision is referred to, expressly or impliedly, in an instrument, that contract, document or statutory provision can be considered in construing the instrument, without any need for ambiguity or uncertainty of meaning.56 ¶29 (7) There are important limits on the extent to which evidence of surrounding circumstances (when admissible) can influence the proper construction of an instrument. Reliance on surrounding circumstances must be tempered by loyalty to the text of the instrument. Reference to background facts is not a licence to ignore or rewrite the text.57 The search is for the meaning of what the parties said in the instrument, not what the parties meant to say.58 ¶30 (8) There are also limits on the kind of evidence which is admissible as background to the construction of a contract, and the purposes for which it is admissible. Insofar as such evidence establishes objective background facts known to the parties or the genesis, purpose or objective of the relevant transaction, it is admissible. Insofar as it consists of statements and actions of the parties reflecting their actual intentions and expectations it is inadmissible. Such statements reveal the terms of the contract which the parties intended or hoped to make, and which are superseded by, or merged into, the contract.59 ¶31 (9) An instrument should be construed so as to avoid it making commercial nonsense or giving rise to commercial inconvenience.60 However, it must be borne in mind that business common sense may be a topic on which minds may differ.61 ¶32 (10) An instrument should be construed as a whole. A construction that makes the various parts of an instrument harmonious is preferable.62 If possible, each part of an instrument should be construed so as to have some operation.63 ¶33 (11) Definitions do not have substantive effect. A definition is not to be construed in isolation from the operative provision(s) in which the defined term is used. Rather, the operative provision is ordinarily to be read by inserting the definition into it.64 Variation of contract ¶34 The applicant argued that his contract of employment was varied when he commenced working from home in July 2013. A variation of contract occurs when the original contract remains in force and only some of its terms are varied. This may take the form of a partial discharge of obligations, the addition of new obligations or a combination of discharge and addition (Tallerman & Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd (1957) 98 CLR 93, Williams J at 127–128). Variation must be the subject of agreement between the parties and does not significantly alter the substance of the agreement or go to the “root of the contract”. A variation of contractual rights and obligations is however a contract and therefore, the variation must meet the requirements of a binding contract, including the presence of consideration. Vague or uncertain terms ¶35 Uncertain contractual terms should be interpreted broadly and fairly. The term in question should be afforded a reasonable meaning unless it is impossible to do so, and difficulty of interpretation should be distinguished from absence of meaning: Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 at 436 per Barwick CJ. Unless the language of the term is ‘so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention’, the contract cannot be held to be void, uncertain or meaningless: G Scammell & Nephew Ltd v Ouston [1941] AC 251 at 268. ¶36 Provisions in contracts which are apparently vague or uncertain can be given substance if there is an external standard which will give the content of the agreement a more precise definition (See generally J W Carter Contract Law in Australia 6th Ed, LexisNexis p 93). Consideration ¶37 I apply the above principles to the disposition of this matter. ¶38 In relation to the bonus claim, the first issue to determine is the proper meaning of “upfronts” in the Contracts. The second issue to determine is whether, as contended by the respondent, there was a material change in the 2016 Contract, to the effect that a bonus was only payable if the applicant introduced the new business into the firm, in exchange for a higher rate of commission. The third issue to determine is whether on the facts, having regard to the interpretation of the Contracts, the applicant had a bonus entitlement as he claimed. ¶39 Having regard to the terms of the Contracts viewed in their ordinary and natural sense, the phrase “upfronts” must be given a meaning consistent with the commercial objects and purposes of the transaction. In the context of the industry of financial planning, the term should be understood as an initial or first up payment by a client on the implementation of financial advice as provided by the respondent. This is consistent with the ordinary and natural meaning of the phrase. For example, as contended by the respondent, this could be an initial superannuation rollover payment, based on advice from the respondent. It could also be an upfront payment for entry into an insurance product, again based on the implementation of advice to the client. So construed, regular investment contributions on an ongoing basis, such as regular contributions to a superannuation fund for example, or the receipt of trailing commissions, should not be regarded as “upfront” payments. ¶40 Whilst the applicant seemed to refer to “upfronts” as “new business”, this may or may not be the case. For example, the respondent accepted that there may be the situation where an existing client of the respondent may provide new instructions as to a rollover of a further superannuation amount which, although from an existing client, would be regarded as an “upfront” under the Contracts. In my view this should be regarded as “new business” too. The essential element is that the payments, however described, be accompanied by advice of some form. This is to distinguish such payments from, for example, regular and ongoing contributions to a superannuation fund. ¶41 There was a quite complex body of evidence going to this issue, in the form of reports and schedules referred to above. Some of them have been difficult to navigate. As already noted, one problem is that the documents, in particular those from the licensee, do not, mostly at least, refer to payments made to the respondent as “upfronts”. Thus, a degree of interpretation is required. I have carefully examined the documentary evidence in exhibits R1 and R5 being the licensee documents. I consider them to be the most reliable and independent evidence of the relevant transactions over the relevant time periods of the 2010 Contract and the 2016 Contract. ¶42 In the context of the evidence led in these proceedings, the respondent accepted that the content of the applicant’s claims in exhibit A6 and in the respondent’s derivative document, exhibit R4, which is exhibit A6 with notations by the respondent, relate to transactions described as “new business” by the licensee in its materials. An issue raised by the respondent in its evidence was the contention that many of the applicant’s claims were not covered by the 2010 Contract or the 2016 Contract, because the original advice was provided to the client at an earlier time, in some cases as far back as 2005. Thus, the respondent contended that these transactions fell outside of the scope of the applicant’s contractual entitlement. I am not persuaded to this view. ¶43 The evidence of the applicant was that when compiling his claims, set out in exhibit A6, he confirmed that in each case the relevant transaction was accompanied by advice to the client in relation to that transaction. This was based on the applicant’s notations made at the time and the checking of the respondent’s records. The applicant testified that this is borne out by the fact that several transactions contained in exhibit R5, the licensee document, that were characterised as “new business”, were not accompanied by advice and as such, were not the subject of the applicant’s claims. Furthermore, the applicant’s evidence was that each claim made by him was made in respect of the corresponding contract. I accept the applicant’s evidence on these issues. His evidence was not contradicted by the respondent and I found the applicant’s explanation of his claims and the basis for them to be credible. ¶44 Given the voluminous nature of some of the material, especially the licensee spreadsheets, the applicant tendered as exhibit A10, a composite schedule comparing his claims in exhibit A6 with exhibit R5, the licensee schedule of transactions. The entries in respect of each client refer to “new business”, in the main comprising “Investment Initial Commission”, “Insurance Initial Commission”, and “Upfront Advice Fees-Product”. I am satisfied that however described, these transaction fall into the category of “upfronts” for the purposes of the 2010 Contract and the 2016 Contract, if accompanied by some form of advice to the client. Accordingly, I find, subject to what follows, that the applicant has established his claim for bonuses. ¶45 As to whether the applicant was entitled to the bonus claim under the 2016 Contract because, as contended by the respondent, he did not bring this to the respondent himself as “new business”, I am not satisfied that the applicant would be disentitled on this basis. In any event, for reasons that follow, it is not necessary for me to finally decide this matter. ¶46 There are two other matters in relation to the bonus claim. The first relates to the respondent’s contention that under the 2010 Contract, the applicant was required to complete a qualification, being one “Kaplan” course per annum. It was common ground that the applicant did not do this. This matter was only raised by the respondent for the first time in his closing submissions and appeared to be somewhat of an afterthought. The terms of the 2010 Contract, set out above, are not clear in respect of this issue. It is not clear whether this stipulation was intended to apply to all the possible bonus payments set out or, whether it was limited to that applying when the applicant wrote two insurance transaction in one month. In any event, the respondent has a more fundamental problem on this issue. It seemed common ground that the applicant stopped receiving his bonuses in 2013. There was no suggestion they were not paid prior to this under the 2010 Contract. ¶47 Thus, to the extent that this course requirement may have been a condition attached to the payment of bonuses by the respondent, the respondent had waived it. There was no suggestion that the respondent ceased paying bonuses for this reason in 2013. On the contrary, the respondent asserted that this occurred because of a need to undertake a “reconciliation” of how the bonuses were calculated, even though this never appeared in any correspondence from the respondent to the applicant at around the time the applicant’s employment was terminated and only seems to have been raised in the context of these proceedings. There was certainly no written evidence the respondent had ever raised the course completion issue with the applicant when responding to the applicant’s letter in 2017. The 2017 letter from the applicant made the claim that he be paid his bonus entitlements. The second matter relates to a “clawback” of a transaction under the 2016 Contract. This was the only substantive transaction claimed by the applicant over this period. The respondent said, and it seemed not to be contested by the applicant, that payments made by this client were reversed and were ultimately not made. This occurred some six months after the termination of the applicant’s employment and was set out in exhibit R11, in the amount of $3,075. The applicant maintained that as he was entitled to this payment as at the time of the termination of his employment, he should still receive the payment, even though the respondent did not ultimately receive any benefit from the client. I do not consider, as a matter of equity and good conscience, that the applicant should be able to recover this bonus. Under the 2016 Contract it was clear that any “clawbacks” would affect bonus payments. For the applicant to be paid this amount now, considering the evidence, would constitute a windfall in relation to a transaction in respect of which the respondent received no benefit. This would be contrary to the spirit if not the letter of the 2016 Contract. Accordingly, the claimed amount of $950.29 should be deducted from the applicant’s claim. ¶48 I am also not persuaded that the applicant failed to adjust his claimed amounts in exhibit A10 for GST. ¶49 As for the claim for furniture costs, the applicant’s evidence was he was required to set up an office at home from which the respondent’s business was conducted. To do so, he was required to purchase some office furniture, which he did. The terms of the letter to the applicant from the respondent, set out above, are not entirely clear on this issue. However, I do not consider that the letter conferred a benefit of a cash allowance payable to the applicant, irrespective of the nature of the purchases made by him. The term of the contract does not refer to the payment of an amount of $1000. It refers to the purchase of furniture. I note also that any furniture purchased was able to be retained by the applicant as his property. In my view, this term was more in the nature of a reimbursable expense. As the applicant has not produced evidence of the purchase of any furniture for a specified value, this claim is refused. Conclusion ¶50 Accordingly, the Commission will order the respondent to pay to the applicant denied contractual benefits in the sum of $4,037 gross.