Riverwood International Australia Pty Ltd v Mccormick

[2000] FCA 889

---

(Judgment by: North J)

Riverwood International Australia Pty Ltd
vMcCormick

Court:

Judges: Lindgren J

North JMansfield J

Legislative References:
Federal Court of Australia Act 1976 - s 27
Trade Practices Act 1974 - s 52

Case References:
Ryan v Textile Clothing and Footwear Union of Australia - [1996] 2 VR 235
Shirlaw v Southern Foundries - [1939] 2 KB 206
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales - (1982) 149 CLR 337
Scally v Southern Health & Social Services Board - [1992] 1 AC 294
Esso Australia Resources Ltd v Plowman - (1995) 183 CLR 10
Byrne v Australian Airlines Ltd - (1995) 185 CLR 410
Shirlaw v Southern Foundries - [1939] 2 KB 206
Hospital Products Ltd v United States Surgical Corporation - (1984) 156 CLR 41
Byrne v Australian Airlines Ltd - (1995) 185 CLR 410
BP Refinery (Westernport) Pty Ltd v Shire of Hastings - (1977) 180 CLR 266
Hawkins v Clayton - (1988) 164 CLR 539
Codelfa Construction Pty Ltd v State Rail Authority (NSW) - (1982) 149 CLR 337
Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd - [1990] VR 834
Antaios Compania Naviera SA v Salen Rederierna AB - [1985] AC 191
Hawkins v Clayton - (1988) 164 CLR 539
Breen v Williams - (1996) 186 CLR 71
McCormick v Riverwood International (Australia) Pty Ltd - (1999) 167 ALR 689
Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd - (1979) 144 CLR 596
Life Insurance Co of Australia v Phillips - (1925) 36 CLR 60
Smith v South Wales Switchgear Ltd - [1978] 1 WLR 165
News Limited v Australian Rugby Football League Ltd - (1996) 139 ALR 193
Minister for Immigration, Local Government and Ethnic Affairs v Hamsher - (1992) 35 FCR 359
Warren v Coombes - (1979) 143 CLR 531
Duralla Pty Ltd v Plant - (1984) 2 FCR 342
Edwards v Noble - (1971) 125 CLR 296
State Rail Authority of NSW v Earthline Constructions Pty Ltd - (1999) 160 ALR 588
Hospital Products Ltd v United States Surgical Corporation - (1984) 156 CLR 41
Ansett Transport Industries v Commonwealth - (1977) 139 CLR 54
Renard Constructions (ME) Pty Ltd v Minister for Public Works - (1992) 28 NSWLR 234
Byrne v Australian Airlines Ltd - (1995) 185 CLR 410
National Coal Board v Galley - [1958] 1 All ER 91
Spunwill Pty Ltd v Bab Pty Ltd - (1994) 36 NSWLR 290

Hearing date:
Judgment date: 4 July 2000

Sydney

---

Judgment by:
North J

Introduction

[76] Lindgren J has set out the introduction and background facts relevant to this appeal and I need not repeat them. Consistently with his judgment I will also refer to the appellant as Riverwood.

[77] The issue to be determined is whether the respondent, Mr McCormick, was entitled to a redundancy payment as provided by the policies and procedures manual applicable to employees of Riverwood. The answer to this question turns on the meaning of part of the letter of appointment dated 6 October 1993, whereby Mr McCormick was appointed Senior Technician at the Melbourne plant of Riverwood. The relevant term read as follows:

" Company Policies and Practices

You agree to abide by all Company Policies and Practices currently in place, any alterations made to them, and any new ones introduced ."

[78] At the time of the termination of Mr McCormick's employment there was a document applicable to employees of Riverwood entitled Policies and Procedures Manual (the Manual). This Manual contained a section entitled " Employment Redundancies " which provided:

" Where terminations of employment are as a result of redundancy the terms and conditions of the company redundancy policy shall apply . Such situations must be discussed with the General Manager, Human Resources before any action is taken ."

[79] The company redundancy policy was set out in a document included in this section of the Manual behind a page containing the words " Redundancy Agreement ". Clause 6(i) of this document provided:

" 6 . REDUNDANCY PROVISIONS

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

(i)

Unless the particular Award provides a greater benefit, three week's ordinary pay for each completed year of service and pro rata payment for each completed calendar month ."

The reasoning of the trial judge

[80] The trial judge held that the redundancy provision imposed on Riverwood a binding obligation to pay Mr McCormick a redundancy payment in accordance with the terms of clause 6(i). There were two alternative bases for this conclusion: (a) that the redundancy provision was incorporated by reference into the contract of employment; or, (b) that alternatively, the provision was an implied term of the contract of employment. For present purposes it is sufficient to examine his Honour's reasons for concluding that the provision was incorporated by reference. His Honour set out the applicable principles as follows:

"[ 70 ] It is important to note that virtually every document contained in Cartons' manual provides a benefit of some sort to that company's employees . No burden of any kind is imposed, except upon the employer . That is a matter of considerable significance . The obligation purportedly imposed upon the applicant to ' abide' by all company polices and practices must, in my view, be understood in light of this fact .

[ 71 ] I accept that the word ' abide' has, as one of its primary meanings, when combined with the word ' by' , ' to remain faithful to or act upon' . The respondent submitted, not without considerable force, that an obligation couched in such terms could not impose upon Packaging any legal duty which required it to act upon its own policies and practices .

...

[ 74 ] In ascertaining the meaning of an expression contained in a contract such as the requirement that the applicant ' abide' by all ' Company Policies and Practices currently in place, any alterations made to them, and any new ones introduced', the approach to be adopted differs from that taken in statutory interpretation . It must rest on the premise that the contract was made in good faith with the object of at least potential mutual benefit by due performance .

[ 75 ] The court approaches the task of ascertaining the meaning of the parties' expressions from an objective point of view . In the case of a disputed clause in a commercial agreement ' the essential question is what would reasonable business people in the position of the parties have taken the clause to mean' : Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd [ 1990 ] VR 834 at 840 per McGarvie J . In Antaios Compania Naviera SA v Salen Rederierna AB [ 1985 ] AC 191 at 201 Lord Diplock said :

'... if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense. '

[ 76 ] The parties may be bound by the meaning reasonably to be inferred in the circumstances, even if it does not conform to the interpretation advanced by either . It is not necessary that a statement should be subjectively intended to be a term of a contract in order to be one ; it is enough if it can reasonably be so understood .

[ 77 ] In Cheshire & Fifoot's Law of Contract 7th Aust ed. 1997 it is stated (p345) that :

'In interpreting the expressions of the parties, the court will consider them in their context. Except to the extent to which evidence is inadmissible, the court will as a matter of course take into account the objective background of the transaction, that is, its factual matrix, genesis and aim, and the common assumptions of the parties.'

[ 78 ] The actual terms of a contract are those which the parties intended to incorporate in that contract . They comprise the terms expressed by the parties as well as terms which it must be inferred were intended though not expressed . The law may infer such an intention from the nature and context of the transaction . The difference between inferred terms based on actual intention, and implied terms based on presumed intention is not always easy to discern - see Hawkins v Clayton ( 1988) 164 CLR 539 at 570 per Deane J ; Breen v Williams ( 1996) 186 CLR 71 at 91 per Dawson and Toohey JJ . Particular terms will be considered in the light of all of the facts which bear upon their meaning ."

( McCormick v Riverwood International (Australia) Pty Ltd (1999) 167 ALR 689)

[81] His Honour then applied these principles to the circumstances of this case. It was common ground that his Honour correctly identified the applicable principles. Riverwood, however, contended that his Honour erred in applying those principles.

[82] His Honour set out the factors favouring Mr McCormick's contentions and the factors favouring Riverwood's contentions. As a factor in favour of Mr McCormick, his Honour observed that the letter of appointment expressly incorporated the " Company's Policies and Practices ". His Honour found that the policies and procedures of Riverwood were contained in the Manual. He then said (at par 86):

" Although the words of incorporation contained in the written contract purportedly impose upon the applicant alone, and not upon his employer, an obligation to ' abide by all Company Policies and Practices', an obligation expressed in those terms makes no sense given that the manual does little more than set out a series of employees' entitlements ."

[83] He also said that Riverwood and its predecessors had " always made redundancy payments to employees in accordance with the terms of the redundancy agreements negotiated from time to time with relevant unions ."

[84] In favour of Riverwood's contention, his Honour observed that the letter of appointment dealt comprehensively with many aspects of Mr McCormick's entitlements and the absence of reference to redundancy was thus significant, the use of the expression " you agree to abide by " suggested an obligation which related to Mr McCormick and not to Riverwood, and the redundancy agreement alleged to have been incorporated in Mr McCormick's contract of employment did not give rise to any enforceable rights between the stated parties to that agreement.

[85] His Honour described the competing considerations as being " finely balanced ", but concluded after careful consideration that Mr McCormick's contract of employment included the redundancy provision, as well as the other procedures contained in the Manual.

[86] In conclusion his Honour elaborated his reasoning as follows:

"[ 92 ] Professor Treitel also observes that the parties may purport to incorporate one document in another by express reference, though not realising that the terms of the two documents conflict . In such circumstances, he comments, the courts are anxious to make sense, if possible, of loosely and sometimes carelessly drafted commercial documents .

[ 93 ] I consider that to be the approach which should be adopted when construing the obligations which arise from the use of the word ' abide' in the letter of 6 October 1993 . Those obligations are directly linked to the manual and, accordingly, to the third redundancy agreement as well . The manual is concerned principally, if not exclusively, with laying down employees' entitlements . The applicant's agreement to ' abide' by Packaging's ' Policies and Practices' should therefore be construed, in the context of a contract made in good faith, as imposing a like obligation upon the company .

...

[ 97 ] I am influenced in my finding that there has been incorporation by reference ... by the elaborate detail contained in the third redundancy agreement . I am also influenced in coming to these findings by the fact that the terms of this third Redundancy Agreement appear to have been implemented in relation to every other employee, apart from the applicant, made redundant by Cartons and Packaging, in 1995, 1997 and 1998 .

[ 98 ] It is not unimportant to note that the senior management personnel of Packaging appear to have assumed throughout that if the applicant was not offered a position with CHH at the meeting of 27 March 1998, he would be entitled to a redundancy payment . The possibility that he may not have had such an entitlement appears to have been considered for the first time only after the applicant brought these proceedings . That does not mean that the contention that there is no such entitlement so forcefully advanced before me lacks legal merit : only that it runs directly counter to the actual beliefs of those most centrally involved . Those beliefs should, in my opinion, be given appropriate weight .

The appellant's argument on appeal

[87] In relation to the incorporation by reference question Mr Bourke, who appeared as counsel for Riverwood, contended that the requirement in the contract of employment that Mr McCormick abide by the company policies and practices was unambiguous. It created a legal obligation on Mr McCormick to abide by the company's policies and practices, and it did not create any legal obligation on Riverwood to abide by those policies and practices. Mr Bourke contended that his Honour erred in examining the contents of the Manual to explain the meaning of the obligation to abide by its terms. The contract was clear on its face and it permitted no scope for elucidation by recourse to the contents of the Manual. In any event, he submitted that, even if his Honour was correct in having recourse to the Manual, his Honour was wrong in concluding that the Manual only, or mainly, conferred benefits on Mr McCormick and burdens on Riverwood. Consequently, his Honour was wrong in holding that the Manual was incorporated so as to impose a legal obligation on Riverwood to make a payment to Mr McCormick in accordance with the redundancy provision.

Reasoning

[88] The starting point for Riverwood's argument is that there is no basis for examining the terms of the Manual to ascertain the intention of the parties in making the agreement in the terms in which it exists.

[89] In my view there is no warrant for such a restrictive approach to the construction of the term of this contract of employment. The subject matter of the particular term is the policy and procedures recorded in the Manual. The nature of that subject matter is as relevant to the determination of the intention of the parties as the other elements of the term, namely, to whom the term relates and in what way the term relates to the parties. In other words, the expression of the term involves a composite concept. There is no reason to isolate one element of the concept as irrelevant to the process of determining the meaning of the term as a whole. To do so would ignore the plain wording of the term which includes all its elements. Consequently, it is both permissible and necessary to examine the provisions contained in the Manual in order to ascertain the intentions of the parties.

The Manual

[90] The provisions in the Manual can be classified into the following categories and subcategories:

1.

Provisions which are expressed as creating obligations on Riverwood:

(a)

specific obligations.

(b)

specific obligations defined by reference to the provisions of state law or awards.

(c)

general obligations.

2.

Provisions which are expressed as limiting the benefits to be enjoyed by the employee or limiting the conduct in which the employee may engage.

(a)

specific limitations.

(b)

more general limitations.

3.

Provisions principally concerned with setting out matters of process or administration.

[91] The specific obligations which fall into category 1(a) are expressed to oblige Riverwood to:

•

arrange for an annual formal work appraisal process.

•

reimburse expenses incurred by any employee using an approved credit card for company expenses.

•

pay outstanding amounts due to a deceased employee to a near relative rather than to the estate of the employee.

•

treat as continuous service time spent on overseas transfer with related companies.

•

give necessary warnings and notice of the details of any misconduct prior to termination on the ground of misconduct.

•

make redundancy payments.

•

pay removal and relocation expenses for employees required to transfer within Australia.

•

pay annual leave loading of 17.5%.

•

appoint a health, safety and environment coordinator and conduct biannual health, safety and environment audits.

•

pay make-up pay for periods of jury duty.

•

pay accumulated sick leave on redundancy.

•

pay for leave for approved study and attendance at examinations relating to such study.

•

grant unpaid leave for the observance of religious holidays by members of a particular religious faith.

•

grant unpaid maternity leave.

•

supply designated motor vehicles to designated employees and pay for maintenance and petrol for such vehicles.

•

provide specified protective clothing for employees.

•

reimburse reasonable travel expenses incurred by employees on intra- or inter-state business.

•

pay an allowance per kilometre for the use by an employee of their own car for company purposes.

•

reimburse the costs of approved training.

[92] The specific obligations defined by reference to the provisions of state law or awards within category 1(b) require Riverwood to:

•

give particular periods of notice on termination.

•

establish retirement ages.

•

provide long service leave.

•

provide sick leave.

•

grant Christmas and New Year public holidays.

•

set the level of wages and salaries.

[93] The general obligations which fall within category 1(c) require Riverwood to:

•

ensure that employees health and safety are protected.

•

control the supply of liquor at company social functions.

•

act quickly on complaints of sexual harassment.

•

recognise the existence of trade unions and the right of employees to join.

[94] The provisions in the Manual which fall into category 2(a) are expressed as limiting the benefits to be enjoyed by the employee or the conduct in which the employee may engage by providing that there is:

•

no right to accumulate annual leave.

•

no right to leave without pay.

•

no additional shift allowances for monthly employees.

•

the choice of superannuation funds is limited to two funds operated by the employer.

•

a prohibition on an employee giving or receiving a gift in relation to their employment.

•

no re-employment for a period of five years for employees made redundant.

•

no alcohol or illegal drugs to be used on the employer's premises.

•

no loan to be made by the employer to the employee.

•

a pre-employment medical examination for an employee.

[95] The more general limitations on the conduct to be observed by an employee which fall into category 2(b) are expressed in the Manual to require the employee:

•

to act in accordance with the highest standard of corporate conduct.

•

not to engage in discrimination on grounds including age, sex, race, physical impairment, physical features, industrial activity, political belief and/or activity, religious belief and/or activity, marital status, pregnancy, status as a parent or carer, or lawful sexual activity.

[96] The matters of process or administration falling within category 3 involve:

•

the requirement of approval from the relevant manager to hire new employees.

•

the procedure for authorising travel and claiming reimbursement of expenses.

•

the requirement for approval for undertaking training courses.

•

the need to keep the current addresses of employees up to date.

[97] From this analysis it can be seen that the major part of the Manual was devoted to specifying items which made provision for the benefit of the employee by Riverwood.

[98] In the main the provisions are expressed in the language of obligation. A random representative example relates to jury duty and provides as follows:

" When an employee is called for jury duty, the Company will make up the difference between the jury fee and the ordinary rate of pay for the hours or days lost ."

[99] The analysis also shows that there are very few instances in which burdens are placed upon the employee. One example is the obligation on an employee not to discriminate. While doubtless this is a very important obligation, it is expressed in general terms which contrast with the detailed specification concerning benefits to be provided to the employee.

[100] A number of the apparent limitations on the benefits for the employee are, in substance, the conferral of a benefit on the employee. For instance, while there is a provision limiting the right to accumulate annual leave entitlements, the substance of the provision is to provide for a process allowing the employee to seek approval for such accumulation.

[101] A number of the procedural requirements impose minor administrative obligations on the employee. Thus, for instance, in order to obtain reimbursement of travel expenses the employee must first have travel authorised by a travel requisition form, and then make a claim for reimbursement on an expense claim form. While these are matters necessary for the administration of Riverwood, they do not go to the substance of the Manual and do not mark the character of the Manual as a whole.

[102] In my view his Honour was correct in concluding at par 93:

" The manual is concerned principally, if not exclusively, with laying down employees entitlements ."

This conclusion appears at the end of that part of his Honour's judgment which sets out his reasoning process. It reflects the view of the Manual which his Honour applied. His Honour's earlier observation (par 70) that " no burden of any kind is imposed [ in the Manual ] except on the employer " is not completely accurate. However, in the end, his Honour acted upon the proper assessment of the character of the contents of the Manual.

[103] It is clear from the terms of the letter of appointment that it intended to deal with a number of major incidents of the employment relationship. It dealt with the subjects of remuneration, superannuation, annual leave, notice period, commencement date and medical examination under those headings, as well as the subject of company policies and practices. If, in dealing with the last subject, the contract was intended only to legally bind Mr McCormick to observe obligations imposed on him, the contract would in practice have the effect of binding him to comply primarily with administrative procedures such as requirements to apply for accumulation of annual leave, with the generally expressed prohibitions against discriminatory conduct and sexual harassment, and with the requirement to transact business in accordance with the highest standards of corporate conduct. On the interpretation contended for by Riverwood, the major purpose of the Manual, which was to require Riverwood to extend certain employment conditions to the employee, would be irrelevant to the particular employment contract in which the reference to the Manual was found. The question, therefore, arises whether the words " you agree to abide by " in the employment contract compel this construction of the contract?

[104] Riverwood contended that by agreeing to abide by the Manual Mr McCormick agreed to comply with the obligations imposed on him in the Manual and that this was the limit of the operation of the term. That term did not have the effect of binding Riverwood to comply with the provisions of the Manual. While Mr McCormick was legally bound to comply with all aspects of the Manual relating to him, Riverwood was at liberty to choose to apply the terms of the Manual or not, at its discretion.

[105] This result flowed, it was contended by Riverwood, partly by the use of the expression " abide by ". The construction urged by Riverwood was that to " abide by " the company policies and practices involved an acceptance by Mr McCormick of all the burdens contained in the Manual but did not entitle him to receive the benefits referred to in the Manual.

[106] However, the use of the expression " abide by " in relation to the Manual is apt to embrace both compliance with the obligations imposed by the Manual, and acceptance of the benefits conferred by the Manual. This duality of application follows from the primary meaning of the expression " abide by " given in the Macquarie Dictionary , 3rd Edition, 1997, namely, " to accept and to continue to observe [ an agreement ]".

[107] The association of the expression " abide by " with the reference to the Manual, essential characteristics of which have been analysed earlier in these reasons, suggest that the clause was intended to oblige Mr McCormick to comply with his obligations and also to signify that Mr McCormick had accepted an offer from Riverwood to the effect that it would comply with the obligations imposed on it by the Manual. Thus, the clause reflected the parties' intention to offer and accept mutual obligations in accordance with the provisions of the Manual. The fact that the clause refers only to " You " is consistent with this construction. While Mr McCormick agreed to abide by the Manual, he was in part responding to Riverwood in that he agreed to accept its compliance with its obligations under the Manual. The phraseology of the clause was proffered by Riverwood. Mr McCormick's acceptance carried with it an acceptance of Riverwood's offer to abide by the Manual by conferring the benefits provided in the manual in favour of Mr McCormick.

[108] Thus, in my view the natural meaning of the term under consideration, viewed in the context in which the contract of employment was made, imposed upon Riverwood an obligation to make the redundancy payments in accordance with the provision in the Manual.

[109] The Manual clearly contained the terms of the third Redundancy Agreement including clause 6(i) at the date of termination of employment of Mr McCormick. It is implicit in the reasoning of the primary Judge that the Manual contained the equivalent of Clause 6(i) of the third Redundancy Agreement at the time the contract of employment was made on 6 October 1993. Further, the Manual contained essentially the same other terms at the time of contract and the time of termination. It is, therefore, not necessary to determine the effect of the inclusion of new policies or practices in the Manual after the date of the initial agreement.

[110] However, Riverwood contended that the fact that the contents of the Manual could change rendered the contents of the Manual an unacceptable guide to the meaning of the expression " You agreed to abide by all Company Policies and Practices ...". It submitted that the meaning of the expression could not change depending on the contents of the Manual. I am not persuaded by this submission. The evidence did not disclose any change in the essential character of the Manual. At all times it dealt overwhelmingly with matters imposing obligations on Riverwood. Thus, if there were any alterations or changes to the policies and practices of Riverwood they were not alterations or additions which, in the context of this case, lead to a different meaning of the phrase under consideration.

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

[112] In my view his Honour was correct in concluding that the redundancy provision was incorporated by reference into the contract of employment. It is therefore unnecessary to consider whether the provision was an implied term in the contract of employment, and it is also unnecessary to consider a number of the other arguments raised by Riverwood on the appeal concerning the ability to take into account post contractual conduct in determining the terms of a contract of employment.

[113] In the result the appeal should be dismissed with costs.