Foster's Group Ltd v David Kou Tien Wing

[2005] VSCA 322

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(Decision by: Habersberger AJA)

Foster's Group Ltd
vDavid Kou Tien Wing

Court:

Judges: Maxwell P
Nettle JA
Habersberger AJA

Subject References:
Employment
Employment agreement terminated by employer prior to expiry of term
Whether employee entitled to redundancy payment
Meaning of redundancy
Reorganisation both before and after employee's departure reduced responsibilities of his former role as General Manager of the appellant's business in China
Employee's position as General Manager filled in acting capacity for 17 months and then permanently
Role still retained important functions and duties
Held no redundancy

Legislative References:
Income Tax Assessment Act 1936 - section 27F

Hearing date: 17 November 2005
Judgment date: 23 December 2005

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Decision by:
Habersberger AJA

[3] This is an appeal from a judgment in the County Court of Victoria in which the learned trial judge found that the plaintiff's employment with the defendant, Foster's Group Ltd ("Foster's"), had been terminated because his position as General Manager, Shanghai Foster's Brewing Limited ("SFBL") had become redundant. His Honour found that under his contract of employment the redundancy entitled the plaintiff to payment of the sum of $89,984.21, to which interest of $22,443.66 was added. The defendant appealed against this finding. The plaintiff, Mr Kou, cross-appealed against the learned trial judge's calculation of the amount of the redundancy payment on the basis that the plaintiff's years of service with Foster's and entities related to Foster's prior to the commencement of his employment under his contract should have been taken into account.

The Factual Background

[4] On 12 March 1995, the respondent commenced employment with Carlton and United Breweries Ltd, a subsidiary of the appellant, as Deputy General Manager, Finance, at Tianjin Foster's Brewing Ltd in the People's Republic of China. On 18 January 1999 the respondent was appointed by Foster's to the position of Deputy General Manager, Finance, SFBL. In neither of those positions did the plaintiff have any redundancy entitlement.

[5] By a letter dated 25 February 2000, Foster's offered the respondent the position of General Manager, SFBL on a salary of HK$1,700,000.00 (approximatelyA$340,000) for a period of three years commencing on 1 July 2000. Mr Kou accepted the offer on 1 March 2000. Clause 1 of the employment contract under the sub-heading "Duties" described the duties of Mr Kou in the following terms:

The General Manager shall manage the affairs of the Company, subject to the supervision and control of the Board of Directors, reporting to the Managing Director Foster's Asia.

[6] Six months' notice in writing was required for termination of the contract by Foster's or resignation by the respondent. Clause 4 of the letter of offer, which was headed "Redundancy", provided as follows:

Should circumstances dictate that through no fault of your own your position is made redundant, you will be offered a redundancy package consistent with FBG's Australian company policy.

At all material times Foster's policy on employment separation stated that:

This policy applies to all salaried employees of Foster's Group Limited and its subsidiaries (together 'the Group') in Australia and outlines the Group's separation policy.

Part of cl 90.3 of the policy provided as follows:

What is redundancy?

•

A redundancy arises when an employee's role no longer exists or the duties of the role have changed that for all practical purposes the original role no longer exists.

•

Redundancy differs from 'retrenchment' which describes the act of terminating an employee because the employee's role is redundant.

•

There cannot be any replacement to fill the role following the retrenchment of an employee because of redundancy.

•

It is the Group's policy that alternative suitable roles would be sought within the Group (redeployment) for an employee whose role is redundant. The Group will only retrench an employee whose role is redundant and no suitable alternative employment within the Group is available.

[7] As General Manager, SFBL, the respondent was responsible for the supervision of some 256 permanent employees and 126 temporary employees in a business which, by 2002, had a turnover of approximately $22 million. The role was known as a "country manager" role for China. Similar positions existed in India, Vietnam, Fiji and Samoa. Such a position had existed in China since 1993. It did not include any responsibility for the Hong Kong operations. The role description of the General Manager's position dated 9 April 2001 described the "Primary Purpose of Role" as being:

Responsible for planning, organising, addressing and managing all the activities of the organisation. Identifies and recommends the short, medium and long-term business strategies. Prepares and is accountable for the organisation's plans and budgets. Directs the organisation's material, human and economic resources. Identifies and develops business opportunities.

[8] On 15 August 2001 Foster's received an anonymous letter alleging that Mr Kou was engaging in corrupt activities, including the manner in which he used company funds for his own private or business purposes. Later that month, the respondent's immediate superior, Mr Gary Bett, who held the position of Vice President Asia Operations, was in Shanghai and he met with Mr David Dong, the Sales Manager of SFBL, who made a number of serious allegations against Mr Kou. Mr Bett then arranged for PricewaterhouseCoopers ("PWC") to commence an investigation into the allegations raised against the respondent. Further complaints about Mr Kou were subsequently received by Foster's.

[9] Mr Bett telephoned Mr Kou in November 2001 in response to information provided by PWC that Mr Kou had moved to a more expensive apartment in contravention of the employment contract and that Foster's rental payments for his accommodation were being paid in respect of this apartment that he had in fact purchased. Mr Kou told Mr Bett that he had not purchased the apartment as the paperwork had not come through yet. Mr Bett requested a written response from Mr Kou in respect of these matters.

[10] On 13 December 2001 Mr Kou forwarded an email to Mr Bett explaining the circumstances of his purchase of the apartment. In the email Mr Kou conceded that in the first week in November he had legally taken possession of the property, "not December as I stated over the phone." On reviewing this email, Mr Bett formed the view that Mr Kou had not been candid with him about this issue in their earlier telephone conversation.

[11] In January 2002 Mr William Chan, who was General Manager, Foster's International in Hong Kong, was given responsibility for the sales and distribution of Foster's premium brands in Southern China. This task had previously been performed by sales managers who reported to Mr Kou. Mr Kou gave evidence that it was intended that Mr Chan's role would be expanded to all of China in six months' time.

[12] In early 2002 Foster's received another anonymous letter making further allegations about Mr Kou.

[13] Mr Bett received a draft report from PWC in respect of Mr Kou's conduct in February 2002. Mr Bett discussed the matters raised in that report with Mr Kou in Melbourne and later that month in Vietnam.

[14] On 6 March 2002 Mr Bett forwarded an email to Mr Kou identifying a number of serious breaches of delegated authority identified by the PWC audit, including:

(a)

entering into large contracts without prerequisite approval;

(b)

extending loans to employees without approval;

(c)

refurbishing a company apartment without approval;

(d)

purchasing household furnishings without approval;

(e)

payment of a government fine without bringing such matter to the notice of the Managing Director;

(f)

opening and closing bank accounts without approval.

Mr Bett proposed a number of action points to be implemented immediately, including "written signed off confirmation" from Mr Kou and his direct reports that the FBI Operating Manual had been "read, understood and will be complied with."

[15] PWC delivered its final report to Foster's concerning the allegations against Mr Kou on 2 May 2002. The report found "a number of serious breaches" by Mr Kou of "delegated authority levels as specified in Foster's Asia Operating Manual". Mr Bett said in evidence that after reading the report his faith and trust in Mr Kou was "very low".

[16] In a memorandum dated 16 May 2002 from Mr Bett to Mr Kou, Mr Bett set out six of "the more serious breaches" of the operating manual identified by PWC and offered Mr Kou the opportunity "to comment if you believe there are any errors of fact in the key findings of this report." There was no response by Mr Kou.

[17] On 27 May 2002 Mr Bett consulted the appellant's General Manager, Human Resources, Ms Melanie Huson, about his wish to terminate Mr Kou. Mr Bett told Ms Huson that the PWC audit had disclosed that Mr Kou had been exceeding his authority limits. Mr Bett said to Ms Huson that although Mr Kou had given reasonable explanations for what had been done, he was still concerned that Mr Kou had breached the operating manual.

[18] Mr Bett telephoned Mr Kou on 29 May 2002 to raise allegations that Mr Kou had engaged in irregularities in "pre-invoicing" for sales of beer when such beer had not actually been delivered to the customer. Mr Kou denied this had occurred. In later correspondence it was confirmed that "pre-invoicing" had taken place and Mr Kou explained why it was done. Mr Bett said in evidence that he was "furious" that Mr Kou was again not following the operating manual and had concluded that Mr Kou had "basically lied to me on the phone" about the pre-invoicing. He formed the view that he did not want Mr Kou "in the business".

[19] On 31 May 2002 Mr Bett again consulted Ms Huson. He told her that he wanted to terminate Mr Kou's employment summarily as he had lost trust in him. Ms Huson advised Mr Bett that there was not a sufficient basis to terminate Mr Kou summarily but that Foster's could terminate his contract by paying him money in lieu of notice. Mr Bett said that he would have preferred to have Mr Kou "out the door straight away" but because there were "handover issues" in terms of registrations and the "changing of nominal legal representatives" they needed Mr Kou to be there "for a month to make sure that went smoothly."

[20] Mr Bett and Ms Huson both gave evidence that they decided that the best thing would be to give Mr Kou one month's notice and five months' salary in lieu of notice and, if necessary, to explain to Mr Kou that the decision to terminate his employment was in order to save costs. Mr Bett said that he was concerned that to raise misconduct issues with Mr Kou could affect both the reputation of the business in China, by creating bad blood with Mr Kou, and Mr Kou's dignity on leaving the organisation. Mr Bett and Ms Huson also agreed that he would act in the role of General Manager, SFBL whilst they conducted a search for a replacement.

[21] On 5 June 2002 Mr Bett forwarded an email to Mr Harry King, Vice-President Finance and Administration of Foster's, advising of the need to revise the 2003 budget to reflect Mr Kou's departure. He thought that three line items would need to be modified:

1)

Shanghai Foster's Administration Overhead -- Savings of 3 months salary & benefits of the GM's position. Until we have finalised the SFBL restructure, I believe we should leave in 9 months of DK's salary and benefits in case we have to fill this position at the same cost -- candidates with a sales/marketing background are very expensive in Shanghai.

2)

Asia Ops Divisional Overhead/Travel & Entertainment -- this will need to be increased by AUD 40k to cover my anticipated increased travel and stay in Shanghai. My T & A budget for next year is very lean.

3)

Greater Asia -- Business Development/Salary & Benefits/T & A. An additional allowance will have to be made for Dinesh in terms of his accommodation in Shanghai, and any overseas allowances due to him under Foster's Group policy -- Melanie would be able to confirm the quantum of these.

Mr Bett stated that his reference to the finalisation of the SFBL restructure was a reference to the fact that Foster's was going to examine the allocation of responsibilities amongst the direct reports when he took on the role of General Manager in an acting capacity.

[22] Ms Huson met with Foster's Industrial Relations Manager, Mr Brendan Richardson on 25 June 2002, and advised him of the intention to terminate Mr Kou's services. Ms Huson said that the "public" position would be that it was a cost-cutting measure but in actual fact there had been "some serious allegations made against Mr Kou and the business no longer trusted him to perform his duties."

[23] On 2 July 2002 Mr Bett met Mr Kou in Shanghai and told him he was being terminated on one month's notice and five months' pay in lieu of notice and that the reason for the termination was to save costs. Mr Kou asked if this was a redundancy. Mr Bett told him it was not a redundancy and that there would always be a need for a General Manager in Shanghai. The termination arrangements were confirmed by a letter from Mr Bett to Mr Kou later that day. Foster's acknowledged that Mr Bett and Ms Huson had lied to Mr Kou in relation to giving as the reason for his termination that it was to save costs. Mr Bett gave evidence that the sole reason was because of a loss of trust. Ms Huson conceded that cost savings was a small factor in Mr Kou's termination, although it was not the factor. In its subsequent correspondence Foster's never disclosed that the real reason for Mr Kou's termination was because of loss of trust but it consistently maintained, in response to Mr Kou's claim, that there was no redundancy.

[24] Mr Bett announced on 22 July 2002 that Mr Kou would be leaving Foster's on 1 August 2002. In his circular email Mr Bett thanked Mr Kou "for his contribution over the 8 years that he has been part of the Foster's Group", and wished him "ongoing success". Mr Bett's announcement also stated:

Until a new General Manager is appointed to this role I will assume the position of General Manager. Mr Chen, DGM Production will report directly to me and joining Mr Chen on the senior management team will be Pricilla Chu as Acting DGM Finance (to replace Jim Zheng until a Finance DGM is appointed) and Dinesh D'sa as Acting GM Sales and Marketing. Pricilla will continue to lead the Hong Kong Finance and Administration team.

We will be conducting both an internal and external recruitment search to replace David and Jim but in the interim I will ask each of the direct reports to work closely with me to ensure the ongoing success of SFBL.

[25] On the same day there was a further organisational announcement by Foster's of the appointment of Mr Chan to the position of General Manager, Greater China International Brands. This announcement stated that Mr Chan would be responsible for all international brands sold and distributed in China and Hong Kong by Foster's Brewing International. Mr Chan was to report not to Mr Bett, as Mr Kou had, but to Mr Mark Prechett, the Vice President Greater Asia Business Development. Mr Chan's expanded role involved a further diminution of Mr Kou's role.

[26] Mr Kou ceased his employment with Foster's on 31 July 2002. Mr Bett, in addition to his own role, became Acting General Manager, SFBL. He was not paid any extra salary for acting in this role.

[27] On 26 September 2002 there was a further organisational announcement concerning the management structure for China. This announcement repeated the July announcements concerning the roles of Mr Bett and Mr Chan. It then went on to state that the China business (Greater China) was to have two divisions:

(i)

Shanghai Foster's Brewery responsible for all production, finance, administration, human resources, other support departments and the sales and distribution of local Chinese beers; and

(ii)

Greater China International Brands responsible for the sales, marketing and distribution of "International" brands in China and Hong Kong.

[28] At various times after 1 August 2002 Mr Bett and Ms Huson considered possible internal candidates for the position of General Manager, SFBL, or, alternatively, the position of Managing Director, Vietnam to possibly "free up" the holder of that position for the country manager role in China. Persons considered internally included Dinesh D'Sa and Chen Zheng, who were both in China, Paul Robson and Robin McMillan in Australia, and some of the Vice-Presidents within Foster's Brewing International, including Adele Latamy, Andrew Bonner, Andy Hull and Peter Reesky. Persons from outside the organisation who were considered, however briefly, were Armando Dutuin and Vince Kelly. For various reasons none of the above were considered to be the right person for the position. Ms Huson gave evidence that the aim was to appoint someone by October 2002, which was leading up to the quiet season in terms of beer sales.

[29] In August 2002 Ms Huson also engaged an external recruitment company, Protron International Consultants ("Protron") to undertake an executive search for the General Manager, SFBL role. On 3 November 2002, in response to a request from Protron for a job description and organisational chart concerning the management profile of the General Manager's position in China, Foster's forwarded Mr Kou's role description. Mr Bett gave evidence that he had been consulted by Ms Huson's offsider and that he had considered that it was an appropriate document to send to Protron to assist in its search for a replacement. However, on 11 November 2002 Ms Huson terminated the arrangement with Protron because of the high cost of its proposed placement fee of $80,000.

[30] After the termination of Foster's arrangement with Protron, Foster's continued to consider the possibility of an internal candidate being given the position of General Manager, SFBL. Evidence was given that the outbreak of SARS in the first half of 2003 made it difficult for candidates to visit China to examine the business.

[31] For some seventeen months Mr Bett continued in his role of Acting General Manager, SFBL. He gave evidence that he spent anywhere between three and seven working days each month or about on average 25% of his time each month in Shanghai carrying out this role. In addition, whilst in Australia, Mr Bett, in his acting capacity, was required to deal day to day with issues either by email or telephone. Mr Bett said that he found carrying out the Acting General Manager role, in addition to his primary role as Vice-President, Asia Operations for Foster's, was "very demanding".

[32] On 1 December 2003 Foster's appointed Mr Patrice Calmes (who was then General Director of Foster's operations in Vietnam) to the position of Managing Director, Greater China, including the position of General Manager, SFBL, reporting to Mr Bett. Mr Calmes' salary was higher than Mr Kou's had been. Mr Calmes commenced in this role on 1 January 2004. A draft role description prepared by Mr Bett for Mr Calmes' consideration in October 2003 was virtually identical with Mr Kou's role description. The change in title to "Managing Director" was an attempt to unify titles across Asia. Mr Kou agreed that in some countries the General Manager was called a Managing Director or General Director. The "Greater China" title was a reference to the inclusion of Hong Kong. Foster's had by this time closed its office in Hong Kong and transferred all responsibilities to a distributor. As a consequence, there was no Foster's office and no Foster's staff in Hong Kong. The role in relation to the Hong Kong distribution was only supervisory. With Mr Calmes' appointment the two divisions were merged back into one.

The Meaning of Redundancy

[33] A clear guide to the meaning of redundancy is to be found in the judgment of the Full Court of the Supreme Court of South Australia in R v Industrial Commission of South Australia; ex parte Adelaide Milk Supply Co-operative Ltd. ^[1] In that case Bray CJ said that:

... the concept of redundancy in the context we are discussing seems to be simply this, that a job becomes redundant when the employer no longer desires to have it performed by anyone. A dismissal for redundancy seems to be a dismissal, not on account of any personal act or default of the employee dismissed or any consideration peculiar to him but because the employer no longer wishes the job the employee has been doing to be done by anyone. ^[2]

Bright J expressed a similar view:

The word 'redundant' does not occur in the Act. In its industrial sense it is not defined in the Oxford Dictionary. The application which I have already set out attempts a definition for the purpose of the proposed award. A consideration of the cases leads me to think that the question of the redundancy of an employee is linked to the question of the continued utility of the job which he is performing. In other words it does not relate to the personal competence of the employee in the job which he is performing. If I am right in this, then in its widest form the concept of redundancy connotes that an employee becomes redundant whenever (and for whatever reason) his employer no longer desires to have performed the job which that employee was doing. ^[3]

[34] The meaning of redundancy was recently considered by the Full Court of the Federal Court of Australia in Dibb v Commissioner of Taxation ^[4] . That case arose out of a private ruling by the Commissioner concerning the tax liability of Mr Dibb in respect of a lump sum settlement received by him following the termination of his employment as a district manager with a finance company. One of the issues was whether Mr Dibb's dismissal was by reason of his bona fide redundancy within the meaning of s 27F of the Income Tax Assessment Act 1936 (Cwlth). In a joint judgment, Spender, Dowsett and Allsop JJ referred to Adelaide Milk and continued:

34 We note also the observations of Ryan J in Jones v Department of Energy and Minerals (1995) 60 IR 304 at 308 as follows:

However, it is within the employer's prerogative to rearrange the organisational structure by breaking up the collection of functions, duties and responsibilities attached to single position and distributing them among the holders of other positions, including newly-created positions. It is inappropriate now to attempt an exhaustive description of the methods by which a reorganisation of that kind may be achieved. One illustration of it occurs where the duties of a single, full-time, employee are redistributed to several part-time employees. What is critical for the purpose of identifying a redundancy is whether the holder of the former position has, after the re-organisation, any duties left to discharge. If there is no longer any function or duty to be performed by that person, his or her position becomes redundant in the sense in which the word was used in the Adelaide Milk Co-operative case.

35 Similarly in Quality Bakers of Australia Ltd v Goulding (1995) 60 IR 327, Beazley J said at 332-333:

There was no dispute that the 'operational requirements' of a business may include redundancy. A redundancy will arise where an employer has labour in excess of the requirements of the business; where the employer no longer wishes to have a particular job performed.; or where the employer wishes to amalgamate jobs ... As was said in Bunnetts' case (Bunnett v Henderson's Federal Spring Works Pty Ltd [1989] AILR 354:

Organisational restructuring may result in a position being abolished and the functions or some of them being given to another or split amongst others.

36 The Macquarie Dictionary (3rd ed, 1997) now relevantly defines 'redundant' as meaning:

... denoting or relating to an employee who is or becomes superfluous to the needs of the employer ...

37 In the Oxford English Dictionary (2nd ed, 1991) the word is defined relevantly as:

The condition of having more staff in an organisation than is necessary. Hence, the state or fact of losing a job because there is no further work to be done; a case of unemployment due to reorganisation, mechanization, loss of orders, etc. ^[5]

[35] Their Honours contrasted the position adopted by the Commissioner and the primary judge with the approach espoused by the South Australian Full Court in Adelaide Milk, which necessitated "identification of the 'jobs' in question". ^[6] Their Honours continued:

41 In Jones Ryan J observed that a job involves 'a collection of functions, duties and responsibilities entrusted, as part of the scheme of the employer's organisation, to a particular employee'. We accept that view. Ryan J then observed that where such duties are reassigned, the question is whether any function or duty remains to be performed by the employee. We do not understand his Honour to have meant that if any aspect of the employee's duties is still to be performed by somebody, he or she cannot be redundant. His Honour's meaning appears clearly from the following paragraphs at 308-309:

In this case, the respondent led evidence that of the major changes which were made to the Department between September 1993 and late 1994. According to Mr Downie, the applicant's former position as Director, Mining Inspectorate, was abolished and the duties attached to it were combined with those of the previous Director, Environmental Management. In addition to a number of other, newly-created functions, those pre-existing duties were to be performed by a newly created General Manager, Mineral Operations. Thus it is clear that although some of the tasks previously assigned to Mr Jones still had to be carried out, the employer's rearrangement of its operational structure had the consequence that they be combined with other functions and performed by the holder of a new, more generally-oriented position.

On this basis, it appears that Mr Jones' former position was rendered 'generally redundant'. When it became apparent that he could not be redeployed, Mr Jones was found to be surplus to the respondent's personnel needs. This amounted to a reason for dismissal which was clearly based on his employer's operational requirements.

42 As Beazley J observed in Quality Bakers:

A redundancy will arise where an employer has labour in excess of the requirements of the business; where the employer no longer wishes to have a particular job performed; or where the employer wishes to amalgamate jobs ...

43 The difficulty in this case has been caused by the aphorism which appears in both paras 12 and 42 of TD 94/12 to the effect that the job, not the employee, becomes redundant. However s 27F speaks of the 'bona fide redundancy of the taxpayer'. We consider that it is more accurate to say that an employee becomes redundant when his or her job (described by reference to the duties attached to it) is no longer to be performed by any employee of the employer, though this may not be the only circumstance where it could be said that the employee becomes redundant. Reallocation of duties within an organisation will often lead the employer to consider whether an employee, previously employed to perform specific functions assigned to a particular 'job', will be able to perform any available 'job' existing after such reallocation. Even if the employee's job, defined by reference to its duties, has disappeared, he or she may be able to perform some other available job to the satisfaction of the employer. In that case, no question of redundancy arises. It is only if the employer considers that there is no available job for which the employee is suited, and that he or she must therefore be dismissed, that the question of redundancy arises. If, in good faith, the employer:

•

has reallocated duties;

•

considers that the employee is not suitable to perform any available job, defined by reference to those reallocated duties, existing after the re-allocation; and

•

for that reason, dismisses the employee.

then, for the purposes of s 27F, the employee is dismissed by reason of his or her bona fide redundancy. In the above discussion we have used the word 'available' as meaning 'vacant', and the word 'suitable' as meaning 'within the employee's capacity'. ^[7]

[36] It seems to me that the approach followed in Adelaide Milk has been reflected in the wording of Foster's policy. The critical question is whether through no fault of the employee his or her role no longer exists or the duties have so changed that for all practical purposes the original role no longer exists.

The Judgment Below

[37] The learned trial judge commenced his judgment by stating that he had found the case "very difficult to decide" but that having done so he believed that he could state his reasons "fairly shortly". This his Honour certainly did as the reasons occupied only three pages. On the first page his Honour described the dispute and the opposing positions of the parties. Having referred to the judgment of Bray CJ and Bright J in Adelaide Milk, but without quoting from those judgments, his Honour then set out his understanding of what was involved in a redundancy:

... when talking redundancy we are talking of the position, not the person ... It seems to me that in the situation that we are dealing with here that redundancy applies to the role no longer being required by the employer.

I take the role to include performance of all the duties required to attain the objectives served by the existence of the role in the first place. This includes performance of all those duties by the one person for the price of his services; that is, the job, its responsibilities and its rewards, by and to the employee, are all part of the package. You cannot have for one [sic] without the other, and if it is decided to get the job done for a smaller price by reorganisation, then in my view you bring about a question of redundancy.

[38] His Honour then referred to the deceitful course of conduct adopted by Mr Bett and Ms Huson of "telling lies to Mr Kou and pretending that things were not, as I find them, they were." He acknowledged that both witnesses' intentions were "honourable enough" and continued:

They determined to say that it was a cost-cutting measure, which amounts in my view, as I have explained, what I understand to be the things involved, or some of the threads involved, in redundancy, to be a redundancy that would be created [sic].

[39] Reference was then made by his Honour to Ms Huson's notes of conversations with Mr Bett which he said:

make it plain that redundancy was talked about between them and it was recognised that that situation would have to be dealt with.

[40] Reference was also made to the emails and memoranda circulated by Mr Bett:

at the time that this was going on, speaking of reorganisation, and in fact the reorganisation which took place took place in an anticipation of Mr Kou leaving and subsequent to his leaving.

His Honour then quoted from the email dated 5 June 2002, which is set out in more detail in paragraph 21 above. His Honour stated that this seemed to be:

an explicit acknowledgment that they were dealing with a situation [in] which redundancy was coming about ...

[41] Finally, the trial judge referred to the fact that Mr Bett "discharged the role of general manager himself for a following period of more than a year" and that Mr Bett had told him "that the tasks involved [in] discharging the duties of Shanghai general manager used to occupy about 20 to 25 % of his time." His Honour concluded that:

not only was there talk and correspondence in-house concerning the question of restructuring and thus covering redundancy of the GM's previous role, but also it was put into effect.

Therefore, he held that "there was a redundancy" concerning Mr Kou's position.

The Grounds of Appeal

[42] Although it is not necessary to set out in detail all of the fifteen grounds of appeal, it is appropriate to refer to them briefly in order to understand the nature of attack on the learned trial judge's judgment. They can be summarised under five headings as follows:

(a)

failing to give proper and adequate reasons;

(b)

overlooking or ignoring or failing to sufficiently analyse, or give sufficient weight to, the evidence and the submission of the parties;

(c)

erring in fact and in law in finding that the position of Mr Kou as General Manager, SFBL, was made redundant;

(d)

applying the wrong test as to whether there was a redundancy;

(e)

failing to adequately consider and analyse both the documentary evidence and the oral evidence and misstating the evidence.

[43] Given the view I have reached in this matter it is not necessary for me to consider all of the grounds of appeal. It is sufficient to start by considering whether his Honour did err by applying the wrong test as to whether there was a redundancy.

Was the wrong test of redundancy applied?

[44] Mr Bourke of counsel, who appeared for Foster's, submitted that the learned trial judge had applied the wrong test of redundancy in his reasons for judgment. He submitted that instead of considering whether there had been such a change in the duties of the role of General Manager, SFBL, so that for all practical purposes the role no longer existed, his Honour had approached the question of whether there was a redundancy by assessing the role in terms of "the job, its responsibilities and its rewards" as "all part of the package" and concluding that if there had been any change in "the job, its responsibilities and its rewards" then there had been a redundancy. Mr Bourke also submitted that the learned trial judge had erred in equating a position becoming redundant with Foster's engaging in any form of "reorganisation" or "restructuring".

[45] Mr Tracey, who appeared with Mr Burchardt on behalf of the respondent submitted that the learned trial judge had not actually formulated a test of redundancy but that his Honour's conclusion that there was a redundancy was supported by the evidence before him and by his findings thereon. Mr Tracey submitted that the authorities referred to above established that it was a question of the degree to which the role was changed by the reorganisation and that a finding of redundancy could be correctly made short of the position in question no longer existing.

[46] I accept the appellant's argument that the learned trial judge applied the wrong test of redundancy. With respect, I consider that his Honour erred in holding that redundancy occurred "if it is decided to get the job done for a smaller price by reorganisation" and by describing "a cost-cutting measure" as amounting to "some of the threads involved in redundancy." Although his Honour said that the question was whether the role was no longer required by the employer, I respectfully consider that he fell into error when he ruled that the role included:

performance of all the duties required to attain the objectives served by the existence of the role in the first place. This includes performance of all those duties by the one person for the price of his services; that is, the job, the responsibilities and its rewards, by and to the employee, are all part of the package. ^[8]

This conclusion was contrary to his Honour's earlier correct statement that redundancy involved focusing on "the position, not the person."

[47] I also respectfully consider that statements made by his Honour in his judgment showed that he had misapprehended that any reorganisation or restructuring by the employer coupled with termination of an employee's employment meant that there had been a redundancy. The question which his Honour never addressed when he referred to "the reorganisation which took place ... in an anticipation [sic] of Mr Kou leaving and subsequent to his leaving" was what changes, if any, had been made to the role previously performed by Mr Kou as a result of the reorganisation or restructuring.

[48] The evidence of the impact of the reorganisation on the role of General Manager, SFBL, varied. Mr Kou gave evidence that the reorganisation involving Mr Chan gaining responsibility for the sales, marketing and distribution of all international brands in China and Hong Kong represented 80% of his workload. (It was not clear to me, however, whether Mr Kou was talking about 80% of his overall workload or 80% of the time he spent in sales and marketing and distribution. If the latter, there was no attempt to quantify what part of Mr Kou's time was spent on the other areas of his responsibility.) On the other hand, Mr Bett estimated that the reorganisation would have reduced the General Manager's "overall responsibilities" by "less than 5%", while Ms Huson said that there was "negligible" change.

[49] No finding was made by the learned trial judge about which, if any, of the above evidence of Mr Kou, Mr Bett and Ms Huson he accepted. Further, there was no analysis of the extent of the changes to the general manager's role as a result of the reorganisation carried out before and after Mr Kou's departure. There was not even a reference in the judgment to the increased role of Mr Chan despite the fact that Mr Kou's case had been opened on the basis that his redundancy had been brought about by the changes involving Mr Chan. His Honour simply referred to the fact there was reorganisation both before and after Mr Kou left as though that was sufficient evidence of his redundancy. In my opinion, this demonstrated that his Honour misunderstood the relationship between reorganisation or restructuring on the one hand and redundancy on the other.

[50] The appellant advanced a number of other significant criticisms of the learned trial judge's reasons for finding that Mr Kou had been made redundant. One was that it was quite illogical for his Honour to criticise Mr Bett and Ms Huson for adopting a deceitful course of conduct of lying to Mr Kou by telling him that "it was a cost-cutting measure" when it apparently was his Honour's finding that it was Foster's decision "to get the job done for a smaller price by reorganisation", that is, its "cost-cutting measure" which amounted to a redundancy. If, as his Honour considered to be the case, "cost-cutting" or replacing one employee with another one at a lower cost was redundancy, then telling the employee that he or she is being terminated as a "cost-cutting measure" is not lying to the employee.

[51] The reason why Mr Bett and Ms Huson admitted that they had lied to Mr Kou was that they agreed to tell him it was a "cost-cutting measure" when, in fact, he was being replaced because he had lost the trust of Mr Bett. His Honour appears to have accepted that this was the case because he held that "their intentions were honourable enough in order to preserve their employer's positions [sic] from the threat of adverse reaction of local contacts by Mr Kou's termination." Yet, his Honour did not go on to consider the implications of this finding on the question of whether the termination occurred "through no fault" of Mr Kou. Counsel for the respondent conceded that it could not be denied that Mr Bett had lost confidence in Mr Kou.

[52] This was a critical omission, in my opinion, because there could be no redundancy if the termination was brought about by the fault of Mr Kou. I do not accept the respondent's submission that fault was irrelevant if the employer determined not to act on it by summarily dismissing the employee but instead chose to give the six months' notice in circumstances where it also happened that the employee's role was being abolished a result of a reorganisation or restructure. This submission ignores the relevant wording of Foster's policy and would penalise the employer who genuinely wanted to terminate an employee who was at fault yet was prepared, as here, to give the employee the benefit of the six months' notice or whole or partial payment in lieu.

[53] The learned trial judge said nothing about the substantial body of evidence which could have justified the conclusion that Mr Kou's employment was terminated because, as a result of his deceptive conduct, he had lost the trust of Mr Bett. That evidence showed convincingly that there had been fault on the part of Mr Kou which ruled out any entitlement to redundancy benefits, whatever subsequently happened to his position.

[54] Counsel for the respondent submitted the learned trial judge had dealt with this issue and rejected Mr Bett's claim that Mr Kou's employment was terminated because of his unsatisfactory conduct when his Honour said that Mr Bett and Ms Huson had lied to Mr Kou and pretended:

that things were not, as I find them, they were.

I cannot accept this submission. It is not at all clear, in my opinion, what his Honour was attempting to say in that very confusing passage and I am not prepared to read it as a finding that his Honour did not accept Mr Bett's and Mr Huson's evidence about the reasons for Mr Kou's employment being terminated. In any case, I can see no basis upon which that evidence could reasonably have been rejected.

[55] The appellant also criticised the learned trial judge's statement that if there was any doubt about whether Mr Kou was made redundant:

... a short tour through the extensive notes taken by Ms Hewson [sic] of conversations held by her with Mr Bett, who was the officer in charge of the situation, make it plain that redundancy was talked about between them and it was recognised that that situation would have to be dealt with.

[56] His Honour did not identify which file note or notes he had in mind as proof that Ms Huson and Mr Bett talked about Mr Kou being made redundant. Mr Bourke submitted that there was no such note in evidence. The respondent pointed to two file notes of Ms Huson as supporting his Honour's finding. The first, dated "31 May" does not appear to me to contain any reference to redundancy. The second, dated "B4 25/6" does contain a reference to "redundancy" and to "Retrenchment", but, as the note shows, it was in the context of what the issues might be if Mr Kou sued. Moreover, Ms Huson gave uncontradicted evidence that this was a note of a conversation she had not with Mr Bett but with Brendan Richardson, Foster's Industrial Relations Manager, when she was reporting to him that Mr Kou's employment was being terminated and explaining the circumstances:

I told him that publicly, if anyone asked why Mr Kou was leaving, the agreed words were to say that it was a cost-cutting exercise, but in actual fact that there had been some serious allegations made against Mr Kou and the business no longer trusted him to perform his duties.

[57] In light of the above and the lack of any challenge to the evidence of Mr Bett and Ms Huson that the issue of redundancy was never discussed between them, his Honour's finding to the contrary seems to me to have no factual basis.

[58] The appellant also criticised the learned trial judge's finding that the email from Mr Bett to Mr King set out in full in para 21 above was:

an explicit acknowledgement that they were dealing with a situation [in] which redundancy was coming about ...

[59] Mr Bourke submitted that there was nothing in the email to warrant a conclusion that the termination of Mr Kou's employment was by reason of his position having become redundant. On the contrary, he submitted, the email made it clear that it was intended to fill "this position", that is, the position occupied by Mr Kou, and that it could possibly be "at the same cost" as Mr Kou if the replacement came from "candidates with a sales/marketing background." There was nothing in the judgment to explain how, despite these references, his Honour had concluded that the email dealt with a redundancy situation.

[60] I do not accept the respondent's submission that the reference to "candidates with a sales/marketing background", that is persons with a different skill set from Mr Kou, whose strengths were in accounting and finance, justified his Honour's conclusion that the email was "an explicit acknowledgement" that Mr Kou was being made redundant. Replacing one person with one set of skills with another person with a different set of skills in the same position is not a redundancy. The role or position occupied by the former person has not ceased to exist. It is difficult to see, therefore, how his Honour was able to conclude this email was "an explicit acknowledgment" that there was a redundancy "coming about." It seems to me to be clear that this erroneous conclusion resulted from the learned trial judge's mistaken belief that any reorganisation or restructure involving Mr Kou's position meant that he had been made redundant.

Was Mr Kou's position made redundant?

[61] I turn then to consider whether it is open to this Court to decide the question of whether or not Mr Kou's position was made redundant, without having had the advantage of seeing and assessing the evidence of the three witnesses, Mr Kou, Mr Bett and Ms Huson. Both sides submitted that, if at all possible, this Court should decide the matter. Mr Bourke submitted that on any proper assessment of the evidence the only conclusion reasonably open was that Mr Kou's position had not been made redundant. On the other hand, Mr Tracey submitted that all of his Honour's findings were open to him and that they supported the conclusion that Mr Kou had been made redundant.

[62] It seems to me that the objective facts point inescapably to the conclusion that Mr Kou's position was not made redundant. First, whatever changes were made to the role performed by Mr Kou, after his departure there still existed the position of General Manager, SFBL. Mr Bett performed it in an acting capacity for seventeen months and then Mr Calmes took over.

[63] Mr Bett gave evidence that the general manager's role, or "country manager" role, for China still existed. He described the role as:

basically looking after the entire business ... responsible for the profit and loss of those business [sic]. Managing the human resources of that business. Managing the economic interest. Managing the assets of that business and the brands within the country.

Ms Huson described the general manager's role as follows:

The role was a strategic general management role stretching from all aspects of running a full A to Z business. It included operations, which was production, distribution, warehousing, sales and marketing, finance, administration, security and so forth.

Some, but not all, of those responsibilities were transferred to Mr Chan.

[64] His Honour set out the argument put by Fosters that "a management position as senior as the one which Mr Kou was occupying would always be required in an organisation such as that in which he was working" to take the lead and be responsible for "the day-to-day operations of the brewing company" and to make "provision for forward planning within the objectives and strategies set out by the defendant." This consideration appeared to play no part, however, in his Honour's reasons for his decision. Yet, to my mind, this is a most compelling argument, which the respondent never satisfactorily answered.

[65] Second, although as I have said the evidence on this topic varied, there was no doubt that after the changes there still remained work to be carried out by the occupant of the position of "country manager" for China, whatever the title given to that role. Mr Kou agreed in cross-examination that he was still responsible for the production and marketing of the local beer, together with managing the human resources side and the accounting and finance side of the business in China. He had three senior people reporting directly to him. Further, there was no suggestion that Mr Kou had nothing to do in the month before he departed. In addition, the appellant submitted that even if Mr Kou's evidence that he had lost 80% of his workload was accepted, it had been his choice to devote so much time to products which -- at the time he was appointed -- represented only 4% of sales by volume and 10% by revenue and -- at the time his employment was terminated -- represented 7% of sales by volume and 22% by revenue.

[66] Further, there was Mr Bett's unchallenged evidence that he spent on average 25% of his time each month in Shanghai carrying out the role of Acting General Manager, SFBL, and that whilst in Australia, he was required to deal day to day with issues concerning China either by email or telephone. Mr Bett also said that despite Mr Chan's role, he was whilst acting general manager:

ultimately still responsible for the profit and loss of the Shanghai Fosters business, which included all the mainland sales.

[67] It is not clear to me what part this evidence played in his Honour's judgment. It is possible that he relied upon his view of the evidence that only "about 20 to 25%" of Mr Bett's time was occupied discharging the duties of Shanghai general manager, rather than 100%, as justifying his conclusion that the role was redundant. Such a view is quite unrealistic, in my opinion. As the appellant submitted, it is unremarkable that Mr Bett was not able to devote his entire time to the general manager's role, given that he was at the same time carrying out the duties of his other, more senior, position. The appellant further submitted, and I agree, that the fact that Mr Bett did not devote (according to the judge) more than 20 to 25% of his time to the acting general manager role does not mean that if a person was employed in the role on a full time basis there would not be enough duties to occupy that person in a meaningful and substantial way. I also accept the appellant's submission that, even putting the respondent's case at its highest, if performing the "country manager" role in China would only involve 20 to 25% of a person's working time, it could not be said that the role did not exist. In the respondent's terms, the degree to which the original role would have been changed was not sufficient to conclude that "for all practical purposes it no longer existed."

[68] Third, there was the substantial body of evidence concerning the appellant's efforts to obtain a replacement for Mr Kou. Again, the learned trial judge made no reference to these efforts in his judgment and, yet, it seems to me that this evidence was a substantial impediment to a finding that the position of General Manager, SFBL, had been made redundant. Unless virtually all of this evidence was rejected -- and the respondent did not really advance any reason why it should be -- the only conclusion reasonably open is that Foster's continued to search for a replacement for Mr Kou until Mr Calmes became available.

[69] I do not accept the criticisms made by counsel for the respondent of the appellant's efforts in this regard. It is true that it took some seventeen months to find a replacement for Mr Kou, but there was evidence explaining some of the difficulties involved in filling this overseas position. In any event, Ms Huson gave evidence, which was not challenged, that a search of up to two years to find a suitable replacement for a senior position such as this would not be "unreasonable". I reject the submission that Fosters' termination of Protron's retainer because of the proposed fee of $80,000 showed that it was not serious about finding a replacement for Mr Kou, given the evidence about its continued search for a suitable internal candidate.

[70] It seems to me, therefore, that these objective facts mean that it was not open to the learned trial judge to decide that Mr Kou had been made redundant because Foster's no longer wished to have performed the job which Mr Kou had been doing ^[9] , or to conclude that the holder of the position of General Manager, SFBL, after the re-organisation, no longer had any functions or duties to perform. ^[10] This conclusion is not dependent on any disputed facts, such as whether Mr Bett was telling the truth when he said that Mr Kou's employment was terminated because he had lost trust in him.

The Cross-Appeal

[71] Having reached the conclusion that there was no redundancy, it is neither appropriate nor necessary for me to consider the respondent's cross-appeal against the learned trial judge's calculation of the amount of the redundancy payment.