Clark v Local Government Training Authority SA Inc No. Scciv-01-724

CLARK v LOCAL GOVERNMENT TRAINING AUTHORITY SA INCORPORATED
[2001] SASC 273
Magistrates Appeal (Civil)

LANDER J. This is an appeal from a decision of a Magistrate sitting in the civil division of the Magistrates Court.
The appellant’s notice of appeal was filed on 3 May 2001. The appeal is out of time by 14 days. The respondent does not oppose an order extending time to appeal. There will be an order accordingly.
The appeal raises interesting questions of law. I was fortunate that I received considerable assistance from both counsel who presented clear and helpful arguments.
The appellant was the plaintiff in the Court below. I shall refer to the parties as the plaintiff and the defendant.
The defendant is an incorporated association incorporated under the Association Incorporations Act 1985 (SA). It is a non profit organisation. It has as its aims to advise and consult with local government in the education and training field generally and to be an organisation through which local government may act co-operatively to train and develop human resources effectively and efficiently.
Its constitution allows it to raise revenue by contributions, solicitation and acceptance of donations, bequests, fees for services rendered and to apply for and receive grants, guarantees and subsidiaries of any kind from any other person or body. Its constitution allows it to employ any person or agent.
The constitution provides for a board of directors which comprises three representatives of the Local Government Association of South Australia, a representative of the Commonwealth of Australia nominated by the Department of Employment Education and Training, a representative of the Local Government Supervisory Officers Association, a representative of the Australian Workers Union, a representative of the Australian Services Union and a representative of the South Australian Government nominated by the Department of Employment and TAFE.
The constitution provides that any local government authority listed in schedule 1 to the constitution is entitled to avail itself of the services of the authority by becoming a contributor to the defendant in accordance with the provisions of the constitution. Schedule 1 includes all municipalities and district councils within the State. It also includes the pest and plant control boards of a number of the local government authorities, regional organisations and miscellaneous local government authorities.
The board fixes fees for contributors payable annually on a date set by the board.
It is provided in clause 10 of the constitution that the board must keep a complete account of the income and expenditure of the Authority and must ensure that all debts owed by the defendant are duly and properly paid. It provides for other accounting matters which are not relevant.
The directors, representatives, officers and employees are given an indemnity by clause 14 of the constitution which is provided for out of the assets of the defendant against all losses or liabilities which those persons may sustain or occur (sic) in any way while acting in the execution of their duties.
The defendant may be dissolved voluntarily by resolution of the board at a meeting of directors called specifically for that purpose: clause 15.1.
The defendant, whilst a non profit incorporated association, has been established to carry out commercial activities for fees. It is administered by a board of directors constituted by persons with appropriate experience. It must keep its financial records in good order. It must pay its debts when they fall due.
It has all the obligations of any other contractor or employer. Its status as a non profit organisation entitles it to no separate or different treatment than any other organisation.
It can be wound up or enter into voluntary administration like any other body: Part 5 Associations Incorporations Act. Its board and its management are subject to the penalties and consequences of incurring debts which are unlikely to be able to be paid: s 49 AD, Association Incorporations Act.
On 4 April 1998 the defendant advertised in ‘The Australian’ newspaper for applications for the position of general manager of the Authority. It described itself as:
“ — Dynamic Public Sector Environment
— Commercial HR Services Organisation”
The advertisement said that a recent review had shown that the defendant needed to “target and service some niche markets better, increase its innovation and creativity in delivery methods, and broaden its consulting capabilities with an emphasis on integrating organisational development and learning strategies.”
The advertisement concluded:
“An attractive remuneration package will be offered to the successful candidate with a contract of three years.”
The plaintiff applied and was provided with a number of documents which included the advertisement in ‘The Australian’.
On 11 June 1998 the defendant wrote to the plaintiff advising him that his application had been successful and that the then Chair of the defendant would discuss and confirm a remuneration package with him to the value of $78,218. He was told that that package would include salary, use of a motor vehicle and a mobile phone and a provision for professional development and superannuation.
The letter continued:
“The contract period will be three years, with an option to renew based on performance. An annual performance management and development process will be used, once developed by the General Manager.”
On either 17 or 19 June 1998, and it does not matter which, a contract was entered into between the plaintiff and the defendant. The package arrangement was confirmed in the contract. Matters relating to relocation, hours of work, motor vehicle and mobile phone, allowances and leave were also agreed.
The contract confirmed that the plaintiff was to be appointed on a contract basis for a period of three years from the date of commencement “… subject to competent performance as assessed at six and twelve month intervals through an annual performance and development review.”
The contract further provided that both the plaintiff and the defendant had the right to renew the contract for an additional period “… should the position be an ongoing one and the Board deems performance to be competent.”
The contract provided for termination:
“The General Manager is expected to give four weeks of his/her intention to terminate employment.
The board may summarily dismiss the General Manager for dereliction of duty, serious misconduct or proven inefficiency. The Board may also terminate the employment of the General Manager if performance against the agreed annual objectives is seen to be less than competent. In this circumstance, pre-dismissal procedures as outlined in the award must be followed.
In both such circumstances, the General Manager must be informed in writing of the grounds for such dismissal, prior to any action being taken. Two weeks notice or payment in lieu is required.”
The award to which reference is made is the Municipal Officers (SA) Award 1991 as amended.
Mr Blewett, who appeared for the plaintiff, both at trial and on appeal, submitted that the contract provided the only circumstances in which the plaintiff’s services could be terminated within the period of the term of the contract of three years. From the plaintiff’s point of view it could be terminated on giving the notice referred to in that clause. From the defendant’s point of view it could only be terminated in the two circumstances referred to in that clause.
I will return to that submission.
The plaintiff, at the time of his appointment, was a consultant at the Central Queensland University in Rockhampton. He paid his own removal expenses to Adelaide. He was entitled to reimbursement of those expenses pursuant to the contract over the period of the contract. In that regard the contract provided:
“The General Manager shall pay such relocation expenses as may be required and shall be reimbursed one third of these expenses at the completion of each of the three years of the contract period.”
That clause is further evidence of the party’s intention that the contract was to run its term. The clause was no doubt inserted as an inducement to the plaintiff not to exercise his right to give four weeks notice of termination.
After his commencement there was some negotiation between the plaintiff and the defendant as to the components of his salary package. Initially the plaintiffs sought a very substantial contribution to superannuation in lieu of a component for a car. Eventually the parties agreed on the components of the package. The package contained a base salary of $54,214, professional development of $2,000, personal superannuation of $12,000, employer superannuation of $3,977 and a car component of $6,000.
The defendant’s business shrank over the period during which the plaintiff was employed. There was no suggestion that that was due to any fault on the part of the plaintiff. The amalgamations of some Councils, the introduction of substantial amendments to the Local Government Act 1934 (SA) which imposed work obligations on Council employees and the introduction of the GST substantially contributed to the downward trend. There was also a suggestion that the defendant’s courses became less relevant to local government.
For whatever particular reasons the defendant’s business shrank considerably during late 1999 and failed to recover in early 2000.
The plaintiff was entitled to attend but not vote at Board meetings. An extraordinary Board meeting was held on 31 March 2000.
At that meeting the plaintiff highlighted the problems confronting the defendant. He advised the directors that training and consultancy income had dramatically decreased from December 1999 to March 2000, which had given rise to considerable losses in each month. Extra program marketing had had no effect. He said that the organisation in its current form may have become irrelevant. An audit had been carried out and there was something in the order of $7,500 only available to the defendant for outgoings as at the close of business that day. The then chairman, Mr Green, confirmed the plaintiff’s report. He advised the meeting that he had made independent inquiries with local government authorities which had satisfied him that there was little need for the services offered by the defendant.
The directors resolved that the plaintiff should approach the auditor and obtain a statement of current solvency, as at that date. They further resolved that the defendant should cease trading on 30 April 2000 but remain incorporated until 30 June 2000, because it was the legal employer of some of the trainees who were still undergoing training.
The Chair was requested to approach Mr Peter Emery, a former under treasurer for the State, to obtain his advice in relation to obligations under the Associations Incorporation Act and to prepare a simple financial statement to the end of May for the board’s information.
On 19 April 2000 the plaintiff “and staff” forwarded a confidential memo to Board members on the subject “suggestions for the way forward”.
That memo, which certainly represented the views of the plaintiff and, I think it may be inferred, represented the views of all other employees, advised the Board that the defendants’ business was in immediate need of restructuring “as it can no longer meet its debts and liabilities as they fall due”.
The plaintiff and staff recommended major changes which needed to be made immediately. They recommended that redundancy notices be issued on 28 April to all members of the staff including the plaintiff.
Accompanying the memorandum was a schedule setting out the liabilities for wages due to each member of the staff including leave and severance pay. The schedule showed that on payment of the sum said to be due to each member of the staff there would be a deficit of assets of $6,511.
The board met again on 27 April 2000.
Mr Green reported on a meeting which he had had with Mr Emery and a report, apparently authored by Mr Emery, was presented to the board.
The Board carried a series of resolutions to complete the defendant’s business.
Amongst the resolutions carried was a resolution:
“4.Staff are to be issued with redundancy notices as at 28/4/00 and all entitlements to be paid in full. T Clark and H Gurr to work several days within the two week notice period to complete outstanding work.”
I think it is beyond doubt that that resolution was passed on the recommendation of the plaintiff.
In a sense therefore the plaintiff recommended to his employer that the employer issue him with a redundancy notice and pay to him the amounts recommended by the plaintiff in satisfaction of the employer’s liability in respect of the contract of employment.
The plaintiff prepared redundancy notices for all members of the staff including himself. The redundancy notices all had effect as from 28 April 2000.
At or about the same time as the plaintiff received his own redundancy notice which was signed by the Chair, Mr Green, he wrote to Mr Green in a letter dated 27 April 2000, in the following terms:
“As a result of a resolution passed at today’s meeting of the LGTA Board, I was directed to prepare redundancy notices and schedules of entitlements for LGTA staff including myself. In the process of doing this, I have reviewed my Contract of Employment with the LGTA and believe that apart from the general provisions of the Municipal Officers (SA) Award 1998, my contract is silent on the matter of redundancy. I suggest that the redundancy situation that I now face was never contemplated by the LGTA in the preparation of this contract. The term of my employment under this contract is clearly stated to be three years and I accepted the position with the expectation that I would be employed for a minimum of three years. The salary and benefits that that (sic) would accrue to me during the remaining 14 months of my contract are substantially greater than the redundancy provisions provided under the Municipal Officers (SA) Award 1998. As such, I consider that the redundancy payment to be offered as per the schedule of entitlements to be inappropriate and inadequate. In accepting the payment as per the schedule of entitlements, I reserve my right to pursue a breach of contract action against the LGTA.”
It is not entirely clear on the evidence when it was that the plaintiff delivered that letter to Mr Green. It was accepted, however, on both sides, that Mr Green was aware of the contents of that letter prior to the redundancy notice taking effect. That is to say he was aware of the letter before close of business on 28 April 2000.
The defendant did not criticise the plaintiff for his action in writing the letter of 27 April. In my opinion, the plaintiff could not be criticised for claiming his entitlements, especially in circumstances where he made that claim known to the defendant before the redundancy notice took effect.
The plaintiff received the redundancy payments which he had recommended to the board he should receive. This claim, however, is for payments in addition to those redundancy payments.
In the proceedings in the Magistrates Court the plaintiff claimed that he had been employed upon the terms and conditions to which I have already referred for a period of three years. He claimed that the redundancy notice which he received on 28 April 2000 amounted to a breach of the contract of employment on the part of the defendant for which he was entitled to damages.
The damages, he claimed, were for loss of income between the date of his redundancy and his obtaining further employment in Brisbane on 20 July 2000, losses incurred by vacating premises in Adelaide, incidental expenses to return to Queensland, the loss to him of the availability of the car over the unexpired portion of the term of the contract and the loss of use of the mobile phone.
In his Statement of Claim the plaintiff offered to set off against that claim the amount received by way of redundancy payment, an amount earned for casual employment during the period between redundancy and permanent employment and the amount paid by his new employer to assist in relocating him to Queensland.
His total claim in the Statement of Claim amounted to $27,481.16. On this appeal the appellant conceded that there was an understatement of the amount received by way of redundancy and that he had not proved any loss in relation to the mobile phone. He conceded therefore that his claim was limited to $23,896.01. Included in that modified claim was a claim for relocation expenses and a claim for the loss of the use of a motor vehicle.
The plaintiff would not be entitled to his relocation expenses in Brisbane unless his contract of employment provided for such expenses. In this case the contract was silent in that regard and the plaintiff had no entitlement for relocation expenses, by way of breach of the contract. However, I think an allowance would have to be made for those relocation expenses, because they were part of the cost of mitigating the plaintiff’s damages. The plaintiff could not find suitable employment with reasonable remuneration in South Australia. It was therefore appropriate for him to mitigate his damages by going to Brisbane and obtaining employment on the same salary level. In carrying out that act of mitigation he would be entitled to be reimbursed, if he is entitled to damages at all, for the cost of relocation, which was an incidence of his mitigation of damage.
During argument, I think, it fair to say that Mr Blewett conceded that the claim for the loss of motor vehicle was overstated. In my opinion, that claim was overstated by $6,900. The salary package negotiated between the plaintiff and the defendant allowed for contribution towards a motor vehicle of $6,000. That ought to be the sum, if any breach was proved, upon which the plaintiff’s damages for the loss of use of a motor vehicle should be assessed. A figure of $7,500 would reflect the amount agreed to by the parties, in the contract, for the loss of use of a motor vehicle over the term of the period of the contract to run.
In those circumstances if the appellant is to succeed then, in my opinion, his claim would assess in the sum of $16,996.01.
I therefore turn to the issue on appeal which was whether the defendant breached the contract. If it did then the plaintiff’s damages may be assessed at $16,996.01. The plaintiff would also be entitled to interest.
The defendant denied that it was in breach of contract. It pleaded that the redundancy notice terminated, without breach, the contract between the plaintiff and the defendant. It further pleaded that the redundancy payments made on 28 April were adequate in that they reflected payments which were required by the Municipal Officers (SA) Award 1991 as amended.
By that plea it simply put in issue the question of breach.
The defendant also pleaded that the termination was justified on the grounds of serious and wilful misconduct on the part of the plaintiff, although the facts supporting those grounds were not known to the defendant at the time the defendant served the notice of redundancy. It was the defendant’s case that, subsequent to the notice, the defendant ascertained facts which, if known to the defendant prior to the giving of the notice of redundancy, would have given rise to the plaintiff’s summary dismissal on the grounds of serious and wilful misconduct.
I shall deal with that second plea first. The learned Magistrate found that the plaintiff’s conduct did not amount to serious misconduct and therefore could not be relied upon by the defendant to justify summary dismissal. On this appeal the respondent has not sought to challenge that finding. Indeed it has accepted the finding and has not sought to maintain that the defendant could have summarily dismissed the plaintiff. That plea can therefore be ignored on appeal.

On appeal I am only concerned with the question of termination for reasons of redundancy.
It is the plaintiff’s contention on this appeal that, even though the defendant was suffering financial difficulties, it was not entitled to terminate the contract of employment between the plaintiff and the defendant within the term of the contract of three years, because neither of the alternatives referred to in the termination clause to which I have referred had arisen. The defendant, on the other hand, contended that because of its parlous financial position it was entitled to terminate the contract of employment and to pay the plaintiff benefits only under the Municipal Officers (SA) Award 1991 as amended.
On that issue the Magistrate found for the respondent. The Magistrate found that the defendant’s financial circumstances were such that the contract between the plaintiff and the defendant had been frustrated, and the defendant was thereby entitled to treat the contract as at 28 April 2000, at an end. In those circumstances the Magistrate found the defendant was entitled to treat the contract as at an end and to pay the redundancy payments made on 28 April to the plaintiff.
The Magistrate further found that the defendant was also obliged to pay relocation expenses to the plaintiff, apparently treating the clause relating to relocation expenses in the contract as obliging the defendant to pay those expenses at the end of the contract period.
In my opinion the Magistrate could not be right about that last mentioned matter for two reasons. First the relocation expenses referred to in the contract are the relocation expenses incurred by the plaintiff in relocating from Brisbane to Adelaide, not from Adelaide to Queensland. Secondly, however, if the contract had been frustrated, the relocation expenses would not be payable by the defendant. If the Magistrate’s decision was right and the contract had been frustrated, in my opinion, the plaintiff’s action should have been dismissed. At common law frustration discharges the parties from their obligations under the contract: Hirji Mulji v Cheong Yue Steamship Company Limited [1926] AC 497. Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd [1942] AC 154 at 163. The common law rule is subject to the remedial provisions of the Frustrated Contracts Act 1988 (SA). However, the Magistrate did not purport to proceed under that Act.
If the Magistrate was wrong about the contract being frustrated and the contract had been breached then the plaintiff was entitled to damages in the sum of $16,996.01 together with whatever interest was payable.
This appeal is against the finding of the Magistrate that the contract of employment between the plaintiff and the defendant was frustrated by the failure of the defendant’s business.
The finding by the learned Magistrate that the contract had been frustrated does however raise another issue. The defendant did not plead that the contract had been frustrated. It did not open on that basis. It did not address that issue directly. The issue was first raised in addresses by the learned Magistrate. Mr Blewett submitted on this appeal that when the Magistrate raised the matter with him he made a submission to the effect that frustration could never apply in a contract of employment where the employee’s contract was for a fixed term. He said the Magistrate appeared to agree with him. Because he did not understand it to be a live issue he did not argue that the respondent was not entitled to rely upon frustration because it had not been pleaded. Moreover he did not submit to the learned Magistrate that a finding of frustration would prejudice the plaintiff because of the defendant’s failure to give notice of that defence.
Mr Blewett submitted, on this appeal, that if he had been aware that frustration was a live issue he would have examined the plaintiff and cross examined the defendant’s witnesses on other issues. In particular he would have examined in more detail the options available to the defendant as at 27 April 2000. He would have explored any options contained in Mr Emery’s report. He would have sought to ascertain whether the defendant had other financial support.
He submitted that the learned Magistrate should not have decided this case upon frustration not only because it was not pleaded but because to do so was unfair to the plaintiff.
One of the purpose of pleadings up to and during the trial is to give the opposing party fair notice of the party’s claim or defence. Each party to litigation is entitled to know precisely the claims and defences which that party has to meet. It is only by way of the pleadings that each party can receive that information. In that way the parties to the litigation are accorded natural justice.
It often happens during a trial that a party seeks to adduce evidence outside that party’s pleading. If that can be done without taking the opposing party by surprise or by causing prejudice the Court will often allow the evidence to be adduced.
In the alternative, if the evidence which is sought to be adduced is outside of the party’s pleading but is important from the party’s point of view who seeks to adduce it, the Court will often require the party to amend their pleadings and allow the matter to be adjourned so that the party, against whom the evidence is sought to be adduced, can consider their position.
This case is somewhat different. This was a circumstance where the question of frustration was raised, without a plea, in addresses.
The defendant, in my opinion, was not entitled to rely upon a plea of frustration so late in the day unless the defendant applied for and was granted leave to amend its pleadings. Such power existed. Rule 77 of the Magistrates Court (Civil) Rules 1992 gives power to the Court to allow a party to amend that party’s pleadings at any time before final judgment. In my opinion, leave would only be granted in circumstances such as this on terms. Those terms would have to include the right of the plaintiff to reopen the plaintiff’s case and adduce whatever evidence the plaintiff wished to adduce in relation to the plea and to be allowed to further cross examine the defendant’s witnesses in relation to the question of frustration.
An adjournment would necessarily have been an incidental term of allowing such a late plea if the plaintiff was not in a position to proceed immediately.
Whether an adjournment would have been granted would have depended upon the degree of prejudice which might have been suffered by the appellant and whether costs would have been an adequate remedy. It would have been within the exercise of the Magistrate’s discretion to refuse an application for an adjournment, although if he had he could not have done so except for reasons of justice: State Of Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146. The Magistrate would not have been entitled to punish the respondent for its failure to plead frustration or for the lateness of the application. He would not have been entitled to have too much regard to questions of case management. As I have said, if an application had been made, in the end result it would have had to have been decided by determining where the justice of the application lay.
In any event no application was made and the matter was decided without reference to the pleadings.
There is no equivalent to r 46.04 of the Supreme Court Rules in the Magistrates Court (Civil) Rules. However, r 12(4) of the Magistrates Court (Civil) Rules provides that the Court will adopt the appropriate Supreme Court practice and procedure where Magistrates Court (Civil) Rules are silent.
Rule 46.04 of the Supreme Court Rules allows a Court to grant all such relief on any cause of action to which the parties might be entitled on the evidence whether or not the relief granted is expressly requested in the pleadings.
However, that rule cannot be used as an instrument of oppression. That rule does not enable the Court to ignore the pleadings or ignore considerations of justice. Rule 46.04 would not have allowed the matter to be decided in favour of the defendant on that ground when the plaintiff would suffer prejudice and thereby injustice.
In my opinion, for all the reasons I have given, the trial of this matter miscarried when the Magistrate decided this matter on the issue of frustration, in the absence of a plea, in the absence of an opening on that issue and in the absence of reliance by the defendant upon that doctrine.
In my opinion, for that reason the matter would have to be remitted to the learned Magistrate for further consideration in accordance with these reasons.
However, if I am of the opinion that the defence of frustration was not available then there would be no point in remitting the matter to the Magistrate. If the doctrine of frustration has no application to the facts of this case then the plaintiff would be entitled to damages.
It was the plaintiff’s contention that frustration was not available to the defendant in the circumstances of this case and that I should so find and dispose of the matter myself.
In Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 the defendants agreed to build 78 houses for a Local Government Authority within a period of eight months. Attached to the tender was a letter stating that the tender was subject to adequate supplies of labour being available as and when required.
Unforeseen circumstances arose whereby, without the fault of either party, adequate supplies of labour were not available and the work took 22 months to complete. The defendants contended that the contract price was subject to adequate supplies of labour being available and in the alternative that the contract had been frustrated by reason of the absence of adequate supplies of labour.
There were two principle speeches. That of Lord Radcliffe is the one to which reference is usually made.
His Lordship formulated the rule relating to frustration at 728-729:
“So perhaps it would simpler to say at the outset that frustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do.”
His Lordship explained the formulation in relation to the change of circumstances further at 729:
“The Court must act upon a general impression of what its rule requires. It is for that reason that special importance is necessarily attached to the occurrence of any unexpected event that, as it were, changes the face of things. But, even so, it is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.”
Lord Reid, in his speech, makes it clear that frustration does not depend upon the implication of any term in the contract but is a matter of construction of the terms of the contract, which must be read in light of the circumstances existing when the contract was made.
As Lord Reid put it at 723:
“The appellant’s case must rest on frustration, the termination of the contract by operation of law on the emergence of a fundamentally different situation.”
The question of frustration was considered by the High Court in Codelfa Construction Pty Ltd v State Rail Authority Of New South Wales (1982) 149 CLR 337. The approach adopted by Lord Reid and Lord Radcliffe in Davis Contractors Ltd v Fareham Urban District Council was approved as it had been by Stephen J in Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143 at 159.
In particular Mason J at 357 approved the approach of their Lordships resting the doctrine of frustration upon a question of construction rather than implied terms.
Codelfa (supra) raised the question of whether the grant of an injunction frustrated a contract. Mason J said at 360:
“The critical issue then is whether the situation resulting from the grant of the injunction is fundamentally different from the situation contemplated by the contract on its true construction in the light of the surrounding circumstances.”
Mason J favoured the approach of determining the common assumption made by the parties of the circumstances in which the contract would be performed at the time of the entry into the contract. Once that is determined it was necessary to consider whether the changed circumstances made the contract incapable of performance.
I think, from those cases, it can be said that the question of frustration must be approached in this way. First, the terms of the contract must be considered and the proper construction arrived at in the light of the circumstances when the contract was made. Secondly, there must be an inquiry to determine whether a party has been at fault i.e. has breached the terms of the contract. Thirdly, if there is no default on the part of the parties to the contract then it is necessary to determine whether the contractual obligation has become incapable of being performed. The contract will have become incapable of performance if the changed circumstances make performance radically different than that which was contemplated upon the true construction of the contract.
The plaintiff’s counsel, Mr Blewett, submitted that the contract properly construed provided for employment for three years and for earlier determination only in accordance with the terms to which I have referred. The parties had not agreed for termination except for the reasons contained in the contract. It followed, so it was submitted, that any termination for any other reason would be a breach of the contract of employment.
He argued that the defendant was at fault in terminating the contract of employment other than in accordance with its terms. Therefore he said the defendant was in breach.
The defendant argued that it was entitled to terminate for reasons other than provided in the agreement itself because the defendant’s financial position had changed so that it could no longer afford to employ the plaintiff.
Mr Blewett, however, submitted in this case that there had not been such a change in circumstances whereby it might be said that the contract has been frustrated. He accepted that the doctrine could apply to a contract of employment: Simmons Ltd v Hay [1964-5] NSWR 416. There might be circumstances where, through the fault of neither party, the contract of employment could not be performed. He gave as examples death or chronic ill health. In those circumstances he submitted the contract could not be performed by the employer. The circumstances had so radically changed that the contract could be said to have been frustrated.
That would be so in case of death. It might be so in cases of ill health but that would depend upon the nature and severity of the illness and the term of the contract of employment: Simmons Ltd v Hay (supra).
However, he submitted that the financial ill health of an employer could never be a change of circumstances of the kind which would allow the doctrine to apply in contracts of employment in circumstances where the contract of employment was for a certain period and provided, in its terms, for its earlier determination.
Mr Blewett relied upon a decision of the Court of Appeal in England in Fowlerv Commercial Timber Company [1930] 2 KB 1. In that case the plaintiff was appointed the managing director of the defendant company for five years at a certain salary. Before the expiration of the term of the contract of employment a resolution, which was supported by the plaintiff, was passed for the voluntary winding up of the defendant for the reason that he could not continue its business. The plaintiff claimed that the defendant was liable to him for damages for breach of contract in respect of the unexpired term of the contracts of employment.
The Court of Appeal rejected the defendant’s claim that a term could be implied in the contract in that if the company was wound up voluntarily it should be under no further liability to the plaintiff for the unexpired term of the contract of employment.
Scrutton LJ did so because he was of the opinion that the term was not so obvious such that it should be implied. Greer LJ agreed. He said that the order for the winding up of the company put an end to the employment of the managing director whether his engagement was for an indefinite period of time or for a time certain. He said the same result was arrived at in a voluntary winding up. He also rejected the suggestion that a term could be implied.
This case was, as Mr Blewett readily conceded, a decision upon the implication of terms. For the reasons given in Lord Reid’s speech in Davis Contractors Ltd v Fareham Urban District Council (supra) the doctrine of frustration is not based upon implied terms.
However, the decision is a useful example of the reluctance of a court to conclude that the impecuniosity of an employer is an unexpected event which would give rise to legal consequences.
When a company is subject to a compulsory winding up the order appointing the liquidator operates as a notice of dismissal to all the company’s servants: Re Oriental Bank Corporation; McDowall’s Case (1886) 32 ChD 366.
The winding up order and its operation in respect of its employees does not mean that the company can thereby avoid the contracts. It does not relieve the company of its contractual obligations. The winding up order operates as a termination and can at the same time operate as a breach of contract: In re R S Newman Limited [1916] 2 Ch 309. The winding up order may entitle an employee to treat that order as notice of repudiation by the company, accept the repudiation and sue for damages: Re Associated Dominion Assurance Society Pty LtdThe Life Assurance Act (1962) 109 CLR 516 at 518.
A voluntary winding up does not necessarily operate as a notice of dismissal to the corporations employer: Midland Counties District Bank Ltd v Attwood [1905] 1 Ch 357.
Whilst in a voluntary winding up the resolution does not necessarily operate as notice to the employee the fact of winding up may also involve a repudiation of the contract of employment: Reigate v Union Manufacturing Co [1918] 1 KB 592; Fowler v Commercial Timber Co Ltd (supra). It depends upon whether the resolution evinces a repudiation of the contract of employment. In Reigate v Union Manufacturing Co (Ramsbottom) Ltd (supra) the inability of the company to perform its contractual obligations established the repudiation.
The point, however, is that whilst the financial ill health of the company may be evidence of its repudiation of the contract of employment, it is not, in my opinion, a reason for excusing it from performing its contractual obligations.
In my opinion, changed economic conditions and the effect of those changes on an employer are not circumstances which make the contract of employment between a senior officer of the company, who has been employed for a fixed term, a circumstance which renders the performance of the contract radically different.
No doubt changed economic conditions and adverse trading circumstances may make it hard or difficult for a company or an employer to continue to employ persons with whom it has contracted to employ over a certain period. However, that in my opinion, does not give rise to a right on the part of the employer to claim that the contract has been frustrated. That, in my opinion, is no more than the usual incidence of a commercial activity in which the employer is necessary involved. All commercial activity involves some commercial risk.
Because a company becomes unable to continue to trade by reason of its impecuniosity, or even its insolvency, that does not mean that all of its contracts with its various employees, for a certain time or for an uncertain time are thereby frustrated.

That would be inconsistent with an employer’s obligation to its employees.
In my opinion the changed financial circumstances of the defendant did not operate to excuse the defendant from its obligations to continue to employ the plaintiff in the position in which he was engaged and for the term for which he was engaged.
The resolution which was passed by the directors, in the presence of the plaintiff, together with the notice of redundancy which was received by the plaintiff, operated as termination of the contract of employment. The termination amounted to a repudiation of the contract by the defendant. That termination left the defendant, when its repudiation was accepted by the plaintiff, liable in damages to the plaintiff.
In my opinion the doctrine of frustration had no application to the facts of this case.
In my opinion, the plaintiff established the defendant’s breach of contract. In those circumstances the plaintiff was entitled to damages in the sum of $16,966.01.
The plaintiff would also be entitled to interest.
It seems to me that interest ought to run from 1 July 2000 until the date of judgment in the Court below 5 April 2001, say a period of nine months at an ordinary commercial rate.
I would allow a lump sum in lieu of interest of $1,000.
Of course, the appellant would be entitled to post judgment interest since 5 April 2001 in accordance with s 35 of the Magistrates Courts Act 1991 and r 124 of the Magistrates Court (Civil) Rules.
I would make the following orders:
1.     Extend time within which to appeal to 3 May 2001.
2.     Appeal allowed.
3.     The judgment of the learned Magistrate set aside.
4.In lieu thereof there be judgment entered for the plaintiff for the sum of $16,996.01 and interest of $1,000.
I will hear the parties as to costs.

[2001] SASC 273

8 August 2001