HOLLOWS v FC of T

Members:
P Gerber DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 30 March 1994

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Dr P Gerber (Deputy President)

The applicant's income tax return for the 1992 year of income included a ``Section 169A(2) Request for the Commissioner's Interpretation of the Law'' [exh A, T3, pp 6 & 7] which stated:

``The taxpayer was employed as the [Western Australian] State Manager of Wreckair Pty Ltd until 29 May 1992.

Due to a `parting of minds' between the company's Board of Directors and the taxpayer as to how the company should be managed, the taxpayer was forced to tender his resignation from the company. The Board of Directors of the company requested the taxpayer's resignation which, if not forthcoming, would have resulted in the termination of the taxpayer's employment by the Board.

The taxpayer, upon cessation of his employment, received three month's pay in lieu of notice plus an `ex-gratia' payment totalling $42,250.

The statement of termination payment prepared by the company shows the $42,250 as a post 30 June 1983 untaxed component.

However, under Section 27F of the Income Tax Assessment Act (1936) as amended (`the Act'), the one test to be satisfied as to the termination of the taxpayer's employment is that the taxpayer was dismissed by reason of his bona fide redundancy.

Dismissal carries with it the concept of the involuntary (on the part of the employee) termination of employment. In the situation where the employer places an employee in a position in which the employee has little option but to tender his resignation, such circumstances would amount to constructive dismissal and satisfy the relevant requirements of Section 27F.

It is considered that the taxpayer's circumstances as outlined above amount to constructive dismissal and, thus, meet the relevant requirements of Section 27F. As such, the $42,250 received by the taxpayer is a bona fide redundancy payment which constitutes the concessional component of an eligible termination payment. 5% of that component has been included in the taxpayer's assessable income for the year ended 30 June 1992.

We request the Commissioner's decision as to whether the payment constitutes the concessional component of an eligible termination payment.''

2. By letter dated 9 November 1992, [exh A, T5] the respondent responded to the applicant thus:

``In your 1992 Income Tax Return you requested the Commissioner's interpretation of the Income Tax Law in relation to your eligible termination payment of $42,250, received on terminating your employment with Wreckair Pty Ltd.

Based on the information provided you are advised that the payment is not considered to be a Section 27F bona fide redundancy payment. The payment is taxable as a post 30 June 1983 untaxed component.

...

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ATC 2034

This advice is in response to your ruling request, and does not represent a notice of assessment. This assessment will issue in due course.''

3. The Notice of Assessment giving effect to that advice was issued on 1 December 1992 [exh A, T6]. The applicant objected against that assessment by a notice of objection dated 27 January 1993 [exh A, T7]. As part of the respondent's consideration of that objection, the respondent sent a letter dated 16 February 1993 [exh A, T8] to the General Manager of Wreckair Pty Ltd in the following terms:

``Dear Sir

INCOME TAX: MR RICHARD MJ HOLLOWS

During the 1992 income year your company employed the above taxpayer as State Manager of the Western Australian operations. On 29 May 1992 Mr Hollows' services were terminated and, as part of that termination, he received the sum of $42,250. In order to assist in determining whether that payment constituted a `bona fide redundancy payment' could you please provide responses to the following.

1. A brief description of the circumstances which caused Mr Hollows' services to be terminated.

2. Was Mr Hollows' termination voluntary, or was he dismissed by the company?

3. Did the termination arise because the position Mr Hollows occupied became redundant?

4. If the position did not become redundant, was Mr Hollows replaced by a person with similar occupational skills?

5. If the position did not become redundant, did the duties of the replacement vary from those of Mr Hollows? If so, to what extent did they vary?

6. How was the amount of $42,250 calculated?

Your assistance in this matter is appreciated.''

4. The applicant's former employer responded by letter dated 19 February 1993 [exh A, T9] in the following terms:

``Thank you for your letter of 16 February and we offer the following responses:-

• 1. Mr Hollows tendered his resignation, by mutual agreement as per attached letter dated 29 May 1992.
• 2. Refer above.
• 3. Refer above - the position was not redundant.
• 4. The position as State Manager was filled by a person with similar and improved skills.
• 5. The duties of the replacement State Manager do not vary whatsoever from the position from which Mr Hollows resigned.
• 6. The payment of $42,250 was calculated as follows - taking into account his Contract of Employment and having regard to his past performance and commitment to the Company for many years.
  • 3 Months Pay in Lieu of Notice $21,125.01
  • Plus an `Ex Gratia' Payment of $21,125.01

Yours faithfully

ME Williams

GENERAL MANAGER''

5. The ``letter of resignation'' of 29 May 1992 referred to in the above correspondence was addressed to Mr M Williams and was in very short terms:

``Dear Max,

Effective from today's date, please accept my resignation from Wreckair Pty Ltd.

Kind regards,

(sgd) RICHARD HOLLOWS''

6. By letter dated 24 February 1993 [exh A, T11] the respondent advised the applicant that his objection had been disallowed for the following reason:

``The payment of $42,250, received on termination from your employment with Wreckair Pty Ltd, is not considered to represent a bona fide redundancy payment in terms of section 27F of the Income Tax Assessment Act 1936, as amended. Section 27F is only applicable to payments arising as a consequence of the dismissal of the

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ATC 2035

taxpayer from employment by reason of the bona fide redundancy of the taxpayer.

Whilst it may be concluded that constructive dismissal had occurred, that dismissal was not by reason of bona fide redundancy. The position vacated was replaced by another employee with similar occupational skills whose duties did not vary from those of the taxpayer.''

7. Being dissatisfied with that decision, the applicant applied to this Tribunal for review of that decision.

8. At the hearing of this application the applicant was represented by Mr GI Brysland and Mr RWF Sceales of Phillips Fox, Perth, and the respondent by Mr MJ Buss of Counsel, instructed by the Australian Government Solicitor. Shortly after its commencement, the hearing was made public at Mr Brysland's request on behalf of the applicant.

9. The Tribunal had before it the following documents:

• • ``T'' documents [exh A];
• • a contract of employment between the applicant and Brambles Australia Limited dated 24 October 1990 [exh B];
• • an unsigned letter dated 16 August 1989 from Wreckair Pty Ltd to the applicant [exh C];
• • a letter dated 30 July 1990 from ME Williams to the applicant [exh D];
• • a letter dated 23 October 1991 from ME Williams to the applicant [lb]exh E];
• • a letter dated 24 October 1991 from ME Williams to the applicant [lb]exh F];
• • ``Wreckair Pty Ltd Inter-Office Memo'' dated 28 May 1992 from ME Williams to State Division Managers, M Conroy, Head Office Department Managers [exh G];
• • ``Wreckair Position Document'' for position of ``State Manager - W.A.'' dated 3 April 1990 [exh 1];
• • ``Wreckair Hire - Western Australia Inter Office Memo'' dated 7 May 1992 from the applicant to Max Williams [exh 2];
• • ``Overview June 1991'' and ``State Performance - June 1992'' [exh 3];
• • ``Wreckair Pty Ltd Position Description'' of ``State Manager - Western Australia'' dated 5 January 1993 [exh 4]; and
• • ``Handwritten company structure prepared by Mr Williams'' [exh 5].

10. The applicant was the only witness called to give evidence as part of his case. Mr Maxwell Williams was the only witness called by the respondent.

11. Mr Hollows has had extensive management experience in the equipment hire industry over a period of some 25 years. In 1979 he left a position as the manager of a hire company in Western Australia to commence his own hire business, which traded as Diamond Hire. Some time after that, he acquired ``another small business'' which traded as Stateside Hire (``Stateside'') in Western Australia. Several years after acquisition of Stateside, he was approached by Wreckair Pty Ltd (``Wreckair'') to sell his hire businesses. After protracted negotiations, those businesses were sold to Wreckair in ``1981 roughly'' and Mr Hollows became manager of the Stateside businesses for a number of years. During that period he was ``seconded'' to manage other businesses controlled by Wreckair.

12. In December 1989 Brambles Australia Ltd (``Brambles'') in turn acquired the businesses of Wreckair including those of Stateside and on 1 June 1990 Mr Williams was appointed General Manager of Wreckair. Some time late in 1990, Mr Williams offered Mr Hollows and he accepted a contract of employment [exh B] with Brambles as Western Australian State Manager of the Wreckair businesses to commence 1 January 1991. Mr Hollows gave evidence that the businesses of Stateside were ``extremely profitable until approximately a year after the acquisition by Brambles'' whereas, under his management, the Western Australian division of Wreckair was, as he put it, ``at a break even point, I would say. No, probably losing money at that stage''. Apparently, prior to Mr Hollows' appointment, there had been two managers of Wreckair businesses within Western Australia, one of the Stateside businesses (Mr Hollows) and another of the Wreckair hire business (a Mr Lockston), but, on becoming General Manager, Mr Williams decided that separate management of those two operations was unnecessary, and so terminated Mr Lockston and made Mr Hollows manager of both.

13. According to Mr Hollows, Mr Williams did not have any criticisms of his performance or conflicts with him during the early period of

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ATC 2036

his employment, although Mr Williams made ``some comments that were certainly meant to be helpful''. Indeed, Mr Hollows' evidence was that, other than immediately prior to his termination from Wreckair, he received no indication that Mr Williams considered his performance to be unsatisfactory, that he was inefficient, or that his position as Western Australian State Manager of Wreckair was ever in question.

14. Several days before Mr Hollows' termination of employment on 29 May 1992, Mr Williams and ``his commercial manager'', a Mr Peter Emmerson, visited Mr Hollows in Western Australia, as they apparently did every month to six weeks, to discuss with Mr Hollows the performance of the Western Australian Division of Wreckair, as they apparently did with all of the managers of the other State Divisions. The ``very poor'' performance of the Western Australia Division was discussed at that meeting as well as other matters, including ``strategic directions''. However, Mr Williams did not indicate to Mr Hollows during that meeting that his performance as State Manager was unsatisfactory, although Mr Williams was not supportive of various strategies put forward by Mr Hollows ``to turn the business around'' and had ``views on the strategic direction of Wreckair and its subsidiary'' which were ``diametrically opposed'' to his own.

15. After that meeting, Mr Hollows drove Mr Williams in his car to a hotel in Perth for dinner. During that journey, Mr Hollows said something to Mr Williams to the effect that ``I felt that he wasn't being as supportive as he might have been, and it would appear to me that [Williams] was looking for my head'', and Williams answered to the effect that ``well, it may come to that''. Mr Hollows' evidence was that that was ``really the first time in 12 years of working with Wreckair that I had ever felt uncomfortable about my security of a position''.

16. The following day Mr Hollows met again with Messrs Williams and Emmerson for ``an analysis of [Stateside's]... performance for the last couple of months'' and to determine ``their strategic objectives for the following months''. According to Mr Hollows, at the end of that meeting Mr Williams said ``that he was happy with what he'd seen and the direction that they [Stateside's management team] were going in... He indicated to the rest of the team that he was very pleased about their performance... and he included me within that overall overview as well.'' Indeed, Mr Williams stated on that occasion that ``Stateside was certainly travelling reasonably well, particularly compared to the Wreckair business. The right management changes had been made and the right people put in place.''

17. After that meeting Mr Hollows drove Messrs Williams and Emmerson to the airport for their departure. During that journey Mr Hollows said to Mr Williams something to the effect - ``have you given more thought to what I was talking to you about yesterday Max... that you were after a head?'', to which Mr Williams replied to the effect - ``yes I have. I have decided that we are going to part company.'' Mr Hollows responded, ``on what grounds?'', to which Mr Williams replied, ``for incompetency''. Mr Williams' evidence was that he had formed the conclusion that Mr Hollows was incompetent:

``just before we came across when Richard [ Hollows] sent his memo across... and I came across with Peter Emmerson to have the meeting to discuss that and with the intent of terminating our arrangements with Richard.''

(tr p 71)

18. Mr Hollows stated that this was the first time that it had been suggested to him that he was incompetent, or that his performance was unsatisfactory. Although the evidence is not entirely clear, I find on balance that it was during that conversation that Mr Williams told Mr Hollows ``he could resign or I would fire him'' and that Mr Hollows replied to Mr Williams that he ``wasn't interested in resigning''. In any event, it is clear that Mr Williams telephoned Mr Hollows the following day and suggested on that occasion that ``it would be in everybody's interest'' if he resigned. Mr Williams stated in evidence that he had, ``in the back of his mind unfair dismissal... because I certainly hadn't given him written letters warning him''. Indeed, Mr Williams acknowledged in cross-examination that he did none of the things which he regarded as correct in terminating an employee and, in hindsight, he ``could have done it much better''. Later that same day, Mr Williams telephoned Mr Hollows again and advised him to the effect that ``the organisation would be able to pay a three months [in lieu of notice] plus another three months termination

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ATC 2037

payment'' if he resigned, which Mr Hollows accepted and ``resigned'' later that day - 29 May 1992 - by the letter mentioned in paragraph 5 above. Mr Williams acknowledged in cross-examination that he did not tell Mr Hollows that he would replace Mr Hollows with a more effective state manager.

19. Exhibit G - ``Wreckair Pty Ltd Inter- Office Memo'' dated 28 May 1992 from ME Williams to ``State Division Managers, M Conroy, Head Office Department Managers'' reads:

``PRIVATE AND CONFIDENTIAL

Effective Friday May 29, 1992 the services of Richard Hollows have been terminated.

As of June 1, 1992, Mark Rich will assume the responsibility of State Manager, Western Australia, for the Wreckair and Stateside activities. Mark will continue his current activities associated with `L' system and the South East Asia development.''

20. Exhibit G is significant because of several handwritten notations on it. Towards its right-hand bottom corner there is the notation:

"To ME Williams,

Max,

Should this note reflect his resignation?

Trevor"

(Mr Hollows was able to identify Trevor as a Mr Bourne - ``Max Williams' executive director'' ``boss''.)

The other notation on the memo is a line drawn through the words ``the services of Richard Hollows have been terminated'', and the words ``R. Hollows resigned'' substituted below. Mr Williams agreed in cross- examination that he had made those changes.

21. Mr Hollows' evidence was that he was not the only person in a senior management position in Wreckair that suffered a similar fate: ``In fact, the whole of the executive of Wreckair at acquisition [by Brambles] with only one, possibly two exceptions, the whole of the executive of the organisation within a two to two-and-a-half year time span left on a resignation basis to go to no new positions in a recession.'' Indeed, Mr Hollows was able to say from his own knowledge gained from attendance at ``national meetings'' that Mr Williams instigated a strategy of ``downsizing'' the Wreckair group. Mr Williams was to put it thus:

``... we had to bring the business in line with the revenue line. We had to make the best possible profits that the organisation could make and that needed - after all, in the hire business you have only got basically two components. That is, people and equipment. The equipment we could sell off and in fact we sold some of the equipment and took a profit on the sale of assets, and secondly, we downsized our people. We probably downsized our people to the order of 25 per cent of where we were at the date of acquisition.''

Mr Williams' explanation as to the reasons for departure of various senior management personnel is different from that of Mr Hollows. Some of the personnel mentioned became superfluous to the needs of the organisation after the takeover by Brambles in the sense that Brambles did not see a need for positions comparable to those which they had occupied. Some were offered lesser positions which they chose not to take but to resign instead, and others simply ``took a redundancy arrangement''. Others who were deemed unsuitable for the position which they occupied, were forced to resign, and were subsequently replaced. Mr Hollows was claimed to have been in this latter category.

22. It became clear from the exhibits that Mr Hollows had been keenly aware for some time that the performance of the Western Australian Division of Wreckair was open to serious criticism. Thus, in exh 2 - ``Wreckair Hire - Western Australia Inter Office Memo'' dated 7 May 1992 from the applicant to Mr Williams, ie some three weeks before his ``dismissal'', he states inter alia:

``We thought it important to structure a report on what we consider is a real cause for concern in Western Australia considering the last two successive months of `unforecasted' losses.

...

We could be fairly criticised in that some aspects of what we have found could have come to our attention prior to this, and I suspect the criticism would be justified. However, although we knew of the problems, we were not aware that greater attention should have been given to reversing them.

...

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As previously discussed, we have been errant on our realisation of the impact of the increased amount of discount in the State and what effect it would have on future forecasting.

...

In summary, l suppose I must apologise once again for reducing our credibility down to minus levels, however these economic times have meant new learning curves for all of us to negotiate and at least we seem to be on an upward swing with revenue in WA.

I'm sure this current set of strategies we have implemented will assist correcting the dismal performance of Wreckair WA.''

Indeed, Mr Williams agreed that whilst he had not given Mr Hollows any express notice that he considered his performance unsatisfactory or that he was inefficient or incompetent, his evidence was that:

``we had had discussions over many months about the problems of Western Australia and indeed my terminology of coaching may not be what Richard might have termed coaching, but we were trying to get Western Australia up to speed, we were trying to help Richard get his team right and we were trying to help Richard identify the key issues and identify the appropriate strategies.''

(tr p 66)

and later:

``There was a very, very strong message and inference that we were dissatisfied with the state performance.''

(tr p 75)

23. Under cross-examination by Mr Buss, Mr Hollows not only agreed that the performance of Wreckair WA (which does not include Stateside) had been ``dismal'' during the 1991 and 1992 financial years, but stated that it had been so since 1985 - ``I inherited a business that was dismal in the first place.'' He did not, however, accept that ``as at the date of the memorandum in early May 1992, your credibility and the credibility generally of the WA division was down to minus levels with your superiors''. He responded - ``I don't, and that is relating to our forecasting ability only. That statement relates to our forecasting ability only.'' However, when one looks at exhibit 3 - ``Overview June 1991'' - Wreckair WA was the only state to make a trading loss rather than profit in the 1991 financial year, although it must be acknowledged that the Stateside businesses did make a not insubstantial trading profit in that period so that the net effect was that Wreckair's Western Australian businesses did have a trading profit for that year. However, Mr Hollows acknowledged in respect of that year that ``they were making a trading profit, but unacceptable in my mind. I would have liked better and so would Max Williams.'' Indeed Mr Williams did not seek to lay the blame for the performance of Wreckair WA in that year on Mr Hollows:

``... there was only one state in all of Australia which was better than budget, which was South Australia. All the other states were below budget, so I don't see a particular relevance, if you like to Richard [ Hollows] in that set of figures, because he wasn't the manager right through that period and indeed, it wouldn't have been his budget that he would've picked up. So there's no real reflection in our mind, from a management point of view, of Richard's competency in relation to that June 91 figure.''

(tr p 57)

24. When one looks at the other part of exhibit 3 - ``State Performance - June 1992'' - a not dissimilar pattern emerges. Wreckair South Australia and Wreckair Western Australia were the only states to make a trading loss rather than profit in the 1992 financial year, and in this year the Stateside businesses also made a relatively small trading loss. Mr Williams was critical of that performance:

``92 reflects a budget that Richard and his executive would've put forward, so it's their budget, their ownership of their budget. And we would look to Richard and his executive, as he terms it, to perform their budget... in West Australia we had a loss of higher $258,000 and a loss of the Stateside Group to $4,000. So the relativity in Stateside from June 91 to June 92, under Richard, we've gone from a profit of $411,000 in June 91 Stateside to a loss of $4,000 in June 92, and I didn't see that as being too competent.''

(tr p 57)

25. When Mr Hollows was questioned as to why the performance of the businesses under his management appeared to be significantly worse than the other states from a trading profit perspective, he gave a lengthy reply, stating in part:

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``There were some fundamentals in Western Australia that had not been addressed by previous management.... there was... very poor amounts of capital being injected into the business over a long period of time... So we had a very poorly rundown fleet of equipment firstly. Secondly, we had very poorly located branches around the State... Without closing numbers of branches, I couldn't get our overheads down to a level that would still be able to service our clients and be profitable at the same time, and that is because Western Australia is so much larger than the other states... that we require more branches here. But... we didn't have as many branches as our competitors had... so our competitors in fact had the major slice of the marketplace... But overall, I took every option possible, in my mind, to bring that business back to reasonable profitability. I increased sales activity. We in fact increased revenue, although revenue was increased at the expense of margin. Our discounting was larger than it had been previously... At the same time I reduced staff numbers to bring our overheads into line with the best possible scenario for our bottom line... I sold off equipment that was excess to our requirements. I constantly said to Max [Williams], `Max, is there anything more that I can do to this business to maximise on turning it around that I am not already doing?' and Max's answer was quite clear, `I have no answers for you, Richard.'... Closing three or four branches... would destroy the business.... if we closed x number of branches there were greater losses... than by keeping them open, because fundamentally the overheads are still there. Although you have... lost the overheads from that branch, you also lose the revenue line... it's the revenue line that supports the Head Office cost... The Head Office cost was in fact the one that was burning me, but I couldn't get it down any lower than it already was... all the branches of Wreckair were profitable. It's after overheads that they were unprofitable... What Max wanted to do was to close more branches, and every P & L that I produced showed that closing of branches has a negative impact on the bottom line, but Max had a vision that... we wouldn't lose clients because we were no longer located there. I totally disagreed and Max and I were diametrically opposed on that issue.''

(tr pp 49-51)

26. That evidence indicates what I consider is clear - Mr Hollows and Mr Williams had very different views as to how Wreckair's Western Australian businesses should be managed and this played a not insignificant part in the events which led to Mr Hollows' forced resignation. Mr Buss put various questions to Mr Hollows in an attempt to establish an inconsistency between his statement in his ``section 169A(2) request'' that there was a ``parting of minds'' between Wreckair's Board of Directors and himself as to how the company should be managed, and his evidence which sought to establish that there was a similar ``parting of the minds'' between himself and Mr Williams. I consider that Mr Hollows rightly disagreed there was any such material inconsistency. As General Manager, Mr Williams, was presumedly acting on behalf of the Board, and therefore any ``parting of the minds'' between himself and Mr Hollows was, by implication, a ``parting of the minds'' between Mr Hollows and that Board. However, the fact that there was such a ``parting of the minds'' is, I consider, quite telling. Indeed, so is Mr Williams' response, which I accept, as to why he forced Mr Hollows to resign:

``Because we were going nowhere in Western Australia... profit-wise we weren't making any targets. We were going backwards. Basically we weren't hitting a profit line and I couldn't see that under his leadership that we would ever be profitable.''

(tr p 56)

and later:

``because I couldn't see that he would achieve the results that were currently required and that we required in the future. (tr p 83)

...

I certainly don't believe it was anything to do with philosophical differences; that is just a degree of action that either one of us would take. The inability of Richard to lead his team to acceptable profitability is the reason for termination .''

(my emphasis) (tr p 85)

27. Mr Williams was able to advise the Tribunal of the position of Wreckair WA and Stateside businesses ``from a profitability viewpoint'' for the 1993 financial year and the

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part of the 1994 year to the time of the hearing. In the 1993 year, ``Stateside was very profitable and had a profit in excess of $½ million. Wreckair was at a loss''. In the 1994 year to the time of the hearing, ``Stateside is above budget and performing very well and Wreckair has a profit of $300,000 for the first quarter and is way in excess of its budget.''

28. As indicated in exhibit G, which is set out in paragraph 19 above, a Mr Mark Rich ``assumed the responsibility of State Manager, Western Australia, for the Wreckair and Stateside activities'' from 1 June 1992. That appointment was on an interim basis, and later that month was replaced by a Mr Peter Lawrence who was approximately 40 years of age at the time of his appointment. Apparently, Mr Williams ``had worked with him [Mr Lawrence] in Sydney during the 70s.... I saw myself as a friend of his and I thought he was pretty good quality.'' Mr Lawrence's starting salary was some $6,500 odd less than the salary of Mr Hollows at the time of his termination. The difference was explained by Mr Williams on the basis that:

``he [Mr Lawrence] was just starting to our company, he hadn't been in the hire industry and Richard certainly had a lot of experience... and secondly, I'm a cheap-skate. I thought if I could get him for [figure], that's better than [higher figure].''

(tr p 59)

29. Mr Williams' evidence, which I accept, is that the position description of Lawrence's position was exactly the same as that for Mr Hollows (except for one minor detail listed as no. 6 on the position description - exhibit 4) and there was no downgrading or material change in the role of the Western Australian state manager after Mr Hollows' departure. Mr Williams simply wanted `` a more professional manager with appropriate skills [who] would do the job better than '' Mr Hollows. (my emphasis)

30. The primary issue in this application is whether, in the circumstances outlined, the payment received by the applicant was made ``in consequence of the dismissal of the taxpayer from... employment... by reason of the bona fide redundancy of the taxpayer'' (my italics) so as to satisfy sub-s 27F(1) of the Income Tax Assessment Act 1936 (as amended) (``the Act'') in that respect. It is useful to set out sub-s 27F(1) in full, together with some of the other provisions relevant to the calculation of the amount to be included in the applicant's assessable income for the 1992 year of income as a result of his receipt of the $42,250 in issue.

``27A(1) In this Subdivision, unless the contrary intention appears-

• ...
• `bona fide redundancy payment' , in relation to a taxpayer, means a bona fide redundancy payment in relation to the taxpayer ascertained under section 27F;
• ...
• `concessional component' , in relation to an eligible termination payment, means so much of the eligible termination payment as consists of or is attributable to a bona fide redundancy payment, an approved early retirement scheme payment or an invalidity payment;
• ...
• `eligible termination payment' , in relation to a taxpayer, means-
  • (a) any payment made in respect of the taxpayer in consequence of the termination of any employment of the taxpayer, other than...
• `ETP' means an eligible termination payment;
• ...

27C(2) If an ETP made in relation to a taxpayer in a year of income includes a concessional component, the assessable income of the taxpayer of the year of income shall include 5% of so much of that component as has not been rolled-over.

...

27F(1) Where-

• (a) an eligible termination payment is made in relation to a taxpayer in consequence of the dismissal of the taxpayer from any employment at any time (in this section referred to as the `termination time') by reason of the bona fide redundancy of the taxpayer;
• (b) the termination time was before-
  • (i) if there was a date before the sixty- fifth anniversary of the birth of the taxpayer on which the termination of the employment of the taxpayer would necessarily have occurred by reason of the taxpayer attaining a particular age or completing a

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    ATC 2041

    particular period of service - that date; or
  • (ii) in any other case - the sixty-fifth anniversary of the birth of the taxpayer;
• (c) if the Commissioner, having regard to any connection between the employer and the taxpayer and to any other relevant circumstances, is satisfied that the employer and the taxpayer were not dealing with each other at arms's length in relation to the termination of the employment of the taxpayer - the amount of the eligible termination payment does not exceed the amount of an eligible termination payment that could reasonably be expected to have been made in relation to the taxpayer if the employer and the taxpayer had been dealing with each other at arm's length in relation to the termination of the employment of the taxpayer; and
• (d) there was, at the termination time, no agreement between the taxpayer and the employer, or the employer and another person, to employ the taxpayer after the termination time,

so much of the eligible termination payment as exceeds the amount (in this section referred to as the `termination amount') of an eligible termination payment that could reasonably be expected to have been made in relation to the taxpayer had he voluntarily retired from that employment at the termination time is a bona fide redundancy payment in relation to the taxpayer.''

31. The cumulative effect of the above provisions is that if sub-s 27F(1) is satisfied in the circumstances, as contended by the applicant, only 5% of the $42,250 amount in issue is to be included in the applicant's assessable income for the 1992 year of income; whereas, if that subsection is not so satisfied, as contended by the respondent, the full amount is to be included in the applicant's assessable income for that year.

32. The only dispute to sub-s 27F(1) applying was whether the dismissal of the applicant (the respondent accepting that Mr Hollows' forced resignation amounted to a constructive dismissal which satisfied the requirement for there to be a ``dismissal of the taxpayer'') was ``by reason of the bona fide redundancy of the taxpayer''. There was also no dispute as to quantum, so that if sub-s 27F(1) applied to the subject payment, the amount of that payment ($42,250) was the amount of the bona fide redundancy payment in relation to the applicant ascertained under sec 27F.

33. At first blush, it may seem odd that, in a subdivision of the Act containing labyrinthine definitions, Parliament has not provided a definition of ``bona fide redundancy'' or ``redundancy''. However, when it is recalled that ``it is a well-known rule of courts of law that words should be taken to be used in their ordinary sense [unless a contrary intention is present]'' (
R v Peters (1886) 16 QBD 636 at 641, per Lord Coleridge CJ), or, put another way, ``the primary rule of construction of words in a statute is that when the words are familiar and are in common or general use they should be given their ordinary and popular meaning''(
R v Dunn & Ors [1973] 2 NZLR 481 at 483), it is, I consider, not so surprising. Indeed, both parties' representatives provided me with dictionary meanings to establish what was the ordinary meaning of ``redundancy''. Understandably, the meaning of ``bona fide'' in this context was not in dispute, meaning simply ``genuine''.

34. Mr Brysland submitted that since the ordinary meaning of ``redundancy'' should be applied in the context of sub-s 27F(1) of the Act, s 15AB of the Acts Interpretation Act 1901, as amended, does not permit me to refer to what was said in the Explanatory Memorandum to the Bill which became Act No. 47 of 1984 which inserted s 27F into the Act. To support that submission he cited the following passage from the joint decision of the Full High Court in
Re Australian Federation of Construction Contractors; Ex parte Billing (1986) 68 ALR 416 at 420:

``Section 15AB of the Acts Interpretation Act 1901 (Cth), as amended, does not permit recourse to that [second-reading] speech for the purpose of departing from the ordinary meaning of the text unless either the meaning of the provision to be construed is ambiguous or obscure or in its ordinary meaning leads to a result that is manifestly absurd or is unreasonable.''

However, as Mr Brysland later correctly pointed out, s 15AB(1)(a) of that Act does, however, permit me to give consideration to the abovementioned explanatory memorandum ``to

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confirm that the meaning of the provision is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act''.

35. The passage (from page 91) of that explanatory memorandum which is directly relevant to the issues here in dispute reads:

``The terms `dismissal' and `redundancy' are not defined in the legislation and, therefore, should be given their ordinary meanings. `Dismissal' carries with it the concept of the involuntary (on the taxpayer's part) termination of his [or her] employment. `Redundancy' carries the concept that the requirements of the employer for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where they were so employed, have ceased or diminished or are expected to cease or diminish. Redundancy, however, would not extend to the dismissal of an employee for personal or disciplinary reasons or for reasons that the employee was inefficient.''

From its opening, that passage indicates that ``redundancy'', as used in sub-s 27F(1), is intended to have its ordinary meaning.

36. But what is the ordinary meaning of ``redundancy''? As noted above, both parties' representatives provided me with dictionary meanings to establish what was the ordinary meaning of ``redundancy'' and ``redundant''. Recourse to dictionaries for assistance in circumstances such as this has long been viewed as appropriate (see for example R v Peters (supra)). The second edition of the Macquarie Dictionary defines ``redundancy'' at p 1477 as ``1. the state of being redundant. 2. a redundant thing, part or amount; a superfluity. 3. the payment made to a redundant employee.'' and ``redundant'' as ``1. being in excess; exceeding what is usual or natural: a redundant part. 2. characterised by or using too many words to express ideas; a redundant style. 3. denoting or pertaining to an employee who is or becomes superfluous to the needs of his employer...''. The seventh edition of the Concise Oxford Dictionary does not define ``redundancy'' separately but defines ``redundant'' as ``1. superfluous; (of industrial worker) liable to dismissal as being no longer needed for any available job. 2. excessive, pleonastic; that can be omitted without loss of significance. 3....''.

37. From those dictionary meanings, Mr Brysland submitted that, on the facts, it could be easily said that Mr Hollows was ``superfluous to the needs of his employer''. However, to embark on the process of substituting a synonymous term, such as ``superfluous'', for ``redundant'', and ``superfluity'' for ``redundancy'', in sub-s 27F(1), and then testing whether the facts fit within that sub-section, is to fail to heed the warning against doing just that which was given by Lord Reid in
Brutus v Cozens [1973] AC 854 at 861:

``... When considering the meaning of a word one often goes to a dictionary. There one finds other words set out. And if one wants to pursue the matter and find the meaning of those other words the dictionary will give the meaning of those other words in still further words which often include the word for whose meaning one is searching.

No doubt the Court could act as a dictionary. It could direct the tribunal to take some word or phrase other than the word in the statute and consider whether that word or phrase applied to or covered the facts proved. But we have been warned time and again not to substitute other words for the words of a statute. And there is very good reason for that. Few words have exact synonyms. The overtones are almost always different.''

38. Further, as Anderson J pointed out in
Falconer v Pedersen [1974] VR 185 at 187:

``One must interpret the phrase as used in its context, assisted as it may be, but not necessarily bound, by one of a variety of dictionary definitions.''

39. Mr Buss referred me to several statements by the Supreme Court of South Australia in
R v The Industrial Commission of South Australia; Ex parte Adelaide Milk Supply Co-operative Limited & Ors (1977) 44 SAIR 1202, concerning the meaning of ``redundancy''. At p 1232 of that decision, Bright J stated:

``The word `redundant' does not occur in the [Industrial Conciliation and Arbitration] Act [1972]. In its industrial sense it is not defined in the Oxford Dictionary.... A consideration of the cases leads me to think

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that the question of the redundancy of an employee is linked to the question of the continued utility of the job which he [or she] is performing. In other words it does not relate to the personal competence of the employee in the job which he [or she] 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 [or her] employer no longer desires to have performed the job which that employee was doing.''

At p 1205 of that decision, Bray CJ stated:

``I agree with Bright J 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 [or her], but because the employer no longer wishes the job the employee has been doing to be done by anyone.''

40. Mr Brysland urged upon me that sub-s 27F(1) of the Act is in terms of the redundancy ``of the taxpayer'', not the job which that taxpayer was doing, and that the abovementioned statements by Bright J and Bray CJ were made in the context of interpretation of industrial legislation not tax legislation. However, I consider that their Honours' observations were not restricted to the legislation with which the Court was dealing, but were made in a general industrial context which is a context not foreign to the spheres in relation to which sec 27F of the Act applies. Further, as Bright J noted, ``the question of the redundancy of an employee is linked to the question of the continued utility of the job which he [or she] is performing''. In any event, I consider that their Honours' abovementioned comments set out what I consider to be the ordinary meaning of ``redundancy'' and the meaning of that term in the context of sec 27F of the Act.

41. Having considered the entire factual background, and in particular that:

• (1) Mr Hollows was immediately, albeit temporarily, replaced by Mr Rich, and then later permanently by Mr Lawrence;
• (2) the position description of those that replaced Mr Hollows was exactly the same (except for one minor detail) as his had been;
• (3) there was no downgrading or material change in the role of the Western Australian state manager after Mr Hollows' departure; and
• (4) Mr Williams simply wanted ``a more professional manager with appropriate skills [who] would do the job better than'' Mr Hollows,

it is clear to me that Mr Hollows was not dismissed from his employment by reason of his ``bona fide redundancy''.

42. Mr Brysland also urged upon me that I should not find that Mr Hollows was dismissed due to inefficiency or incompetency on the basis that there was no evidence on which to base such a finding and what evidence there was suggested that a contrary finding should be made. Although there certainly was evidence from which inefficiency or incompetency could be inferred, l have refrained from making such a finding because I consider any such finding to be unnecessary in the circumstances.

43. For the above reasons, the objection decision is affirmed.