Concut Pty Ltd v Worrell

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Brisbane No B85 of 1999

B e t w e e n -
CONCUT PTY LTD
Appellant
and
IVOR WORRELL and MORGAN LANE, Registered Trustees In Bankruptcy
Respondents

GLEESON CJ
GAUDRON J
McHUGH J
GUMMOW J
KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON TUESDAY, 20 JUNE 2000, AT 10.18 AM

MR P.A. KEANE, QC: May it please the Court, I appear with my learned friend, MR A.K. HERBERT, for the appellant. (instructed by Hopgood Ganim)

MR J.S. DOUGLAS, QC: May it please the Court, I appear with my learned friend, MR P.D.T. APPLEGARTH, for the respondent. Our pupil, Ms Dempsey, is at the Bar table with us also. (instructed by Mullins & Mullins)

GLEESON CJ: Yes, Mr Keane.

MR DOUGLAS: Before my learned friend commences, there is a notice of motion at page 131 of the appeal book to change the name of the respondent. The respondent was the Official Trustee in Bankruptcy. His role has been replaced by private trustees ‑ ‑ ‑

GLEESON CJ: Is that opposed Mr Keane?

MR KEANE: No.

GLEESON CJ: Yes, you have that leave.

MR DOUGLAS: Thank you, your Honour.

MR KEANE: If the Court please, it was found at trial, and accepted on appeal, that the conduct of Mr Wells as the appellant’s Queensland manager, in using the appellant’s employees and its materials in building his own home without his employer’s consent, was significant misconduct and, as the trial judge found, conduct sufficient to justify termination of his employment. Your Honours will find the relevant findings at page 87, commencing at the last paragraph on the page and concluding at page 88 in the second‑last paragraph on that page and in the Court of Appeal at page 105 in paragraph 3. The majority of the Court of Appeal held, and your Honours will find this particularly at page 115, commencing in paragraph 28 under the hearing “Conclusion”, that this misconduct, when discovered, did not justify the dismissal of Mr Wells on the footing that it was misconduct in the course of an earlier contract, not the contract under which he was currently employed.

Our first submission is that the conduct which occurred prior to the contract of 1 December 1986, was conduct such as disabled him from commanding the confidence of his employer necessary to his right to continue in employment and so the dismissal was justified. To generalise a little that proposition in terms of principle, the submission is that where an employee in a fiduciary position, a managerial position, demonstrates by his or her conduct that he or she is not trustworthy, that he or she cannot command the employer’s confidence.

GAUDRON J: This is, you say, an implied term, or this is a breach of the express contractual term?

McHUGH J: Or is it a term implied by law?

MR KEANE: Your Honour, I think there are actually three questions.

GAUDRON J: Yes.

MR KEANE: In answer to Justice Gaudron’s questions, the first is, we would submit, that it can be categorised as an implied term but, your Honour, we are dealing here with our first submission. We do make a second submission in relation to the express terms of the contract. The relevant term is clause 7.2 at page 75, and in relation to that, put shortly, our second submission is that the obligation of faithful service in the contract of 1 December 1986 was itself breached by a failure to account for the proceeds of the earlier misconduct. But, your Honour, come back to Justice Gaudron, that is our second submission.

GAUDRON J: Yes. So, your first submission is an implied term. Implied as a matter of necessity or implied by law?

MR KEANE: Applied by law, your Honour, and to come back to your Honour Justice McHugh’s question, could we say with respect that in some of the dicta to which we refer, to which we intend to take the Court, it is sometimes put as an implied term. In other dicta, it is not so described and it may be that it is regarded simply as a rule of law.

McHUGH J: But there are two types of implied terms, as Lord Wilberforce pointed out in Irwin’s Case.

MR KEANE: In terms of that categorisation ‑ ‑ ‑

McHUGH J: Those implied as a matter of fact and those implied as a matter of law.

MR KEANE: In terms of that categorisation, in seeking a conceptual home for the principle, we would submit that it is a term implied by law.

KIRBY J: Why did you limit the principle to fiduciary or managerial positions?

MR KEANE: Your Honour, because sufficient unto the day is the evil thereof, and as Lord Greene, I think it was, said in Hivac v Park Royal, the nature of the obligation may depend upon the nature of the employment. One would demand a higher degree of confidence in one’s manager, the manager of one’s state of affairs, than one would expect of a worker employed on the construction line.

KIRBY J: If it is implied by law, presumably you will take us to the best statements in which the implication of law is expressed so that we can see its parameters.

MR KEANE: Yes, your Honour.

KIRBY J: In Australia it operates, in fact, within a milieu, the award system and all the other provisions that we have under legislation which tends to modify the employment relationship.

MR KEANE: Quite, your Honour. Those intrusions – I am not saying that in any pejorative sense, but they are intrusions upon the core of a relationship ‑ ‑ ‑

KIRBY J: There are no such intrusions, as you put it, in this case.

MR KEANE: No, not relevantly, your Honour, and that is why we sought to generalise the principle. In terms of an employee who we would have thought, with respect, is plainly in a position requiring the trust and confidence of his employer and where, by his or her conduct, the employee demonstrates that he cannot command the employer’s confidence, the employer may terminate that employment.

GUMMOW J: That, it seems to me - that right of termination is a pretty fundamental miscarriage. It would operate concurrently with any express contractual stipulation that might be there.

MR KEANE: That is our submission, your Honour.

KIRBY J: At some stage you are going to have to deal with what Mr Douglas said. He says you sacked him. You exercised your right and, therefore, we are talking not about your right, because you effected it, but what follows in terms of money.

MR KEANE: Well, your Honour, as to that, in our submission, the fundamental question is, was the dismissal justified, and if the employee has, by his or her conduct, disabled himself or herself from commanding the necessary confidence of the employer, then, in our submission, the employer is justified in dismissing the employee ‑ ‑ ‑

McHUGH J: You rely on the Shepherd v Felt and Textiles point.

MR KEANE: We do, your Honour.

McHUGH J: That you can justify the dismissal even though you were not aware of it at the time, if it is a ground upon which you could have terminated.

MR KEANE: That is so, your Honour. To come back to your Honour Justice Kirby’s question, it is our submission that if the dismissal was justified, that is the end of it. The point that Justice Gummow was raising with us, really, I think, goes to the question whether that right of dismissal is impliedly cut down by, rather than operating concurrently with, express provisions.

GUMMOW J: There is a decision in a conveyancing case – there must be millions – called Holland v Wiltshire 90 CLR 409, where the standard form of contract of sale of property had express rights to terminate the various states of affairs. The High Court said, “No, in this case there is a fundamental breach”, and that was it.

MR KEANE: Yes, your Honour. In our submission, if one can analogise the case to a case of repudiation, for example, it could not be suggested, in our respectful submission, that an anticipatory breach or a repudiation of contractual obligation would not have entitled the employer in this case to terminate.

McHUGH J: Well, Shepherd v Felt and Textiles ‑ was it a wrongful dismissal case?

MR KEANE: It was.

McHUGH J: It was, yes, and the employer was not aware of the breach at the time of his dismissal. It was held entitled to rely on it. But how do you deal with the Court of Appeal’s analysis? I have to tell you that when I read your submissions I thought the allowing of this appeal is inevitable. But after I read Mr Douglas’s submission, then I turned to the Full Court’s judgment, it strikes me that you may have some difficulties unless we are going to overrule or refuse to follow Bell v Lever Brothers.

MR KEANE: Your Honour, in our respectful submission, Bell v Lever Brothers is not an obstacle for us. We say a couple of things ‑ ‑ ‑

McHUGH J: There is some dicta in it that might be. In the speech of Lord Blanesburgh, for a start.

MR KEANE: Your Honour, we were thinking more in the speech of Lord Atkin, in respect of which reliance is placed. That dicta, it seems to us, contemplates the possibility of dismissal for past misconduct unknown. What, of course, Bell v Lever Brothers was concerned with was whether a compromise arrangement made in ignorance of a state of affairs could be set aside by reason of mistake.

GUMMOW J: That is not quite the question, actually. Bell v Lever Brothers was an attempt to get the money back.

McHUGH J: Yes.

MR KEANE: Quite.

GUMMOW J: On a common money count.

MR KEANE: On the footing ‑ ‑ ‑

GUMMOW J: An action in fraud not having worked.

MR KEANE: Quite, and that contract, the contract that had been made compromising rights and terminating the employment being, in effect, void for mistake or voidable for mistake so that there was no consideration for the moneys that were paid.

McHUGH J: But the case went off on the basis that the employee was under no obligation to disclose matters which the employer would have acted upon if it had known of them.

MR KEANE: That is so, your Honours, and we do need to develop the submission that we make in both our first outline, our outline in‑chief and our reply, to the effect that this is not a case where the relevant obligation which has been breached, is the obligation to disclose. The question is whether the privilege against self incrimination, when exercised, can render faithful service that which is not faithful service. This is not a case where anyone is seeking to take action against the employee on the basis of incriminatory statements that have been made. It is simply a question of whether the truth having been ascertained, the employee can insist on being retained in employment.

So that, in our respectful submission, bearing in mind that in Bell v Lever Brothers it was accepted on all sides that if the employer had known about the misconduct he could have terminated the plaintiff’s contracts for nothing. As Lord Atkin, himself, recognised, in the passage before the passage that gets on to the ‑ ‑ ‑

McHUGH J: But can he terminate for misconduct during an earlier relationship? How can you carry that across to the new contract?

MR KEANE: Your Honour, we have two submissions in answer to your Honour’s question. The first is that if the first conduct, the conduct under the first contract, if it is such ‑ ‑ ‑

GUMMOW J: Are there two contracts? I do not understand that.

MR KEANE: Well, your Honour, there has been ‑ ‑ ‑

GUMMOW J: Except the written document talks about recording something.

MR KEANE: Your Honour, we lost that contest in the Court of Appeal. Our primary submission is that the distinction is irrelevant.

GUMMOW J: Was the first contract discharged by some accord and satisfaction, was it? I just do not understand what was said.

MR KEANE: I think the analysis is that it is replaced as a charter of the party’s rights.

GUMMOW J: I do not understand that either. What happened to the first contract? Why is it not still alive?

MR KEANE: Certainly, your Honour, the employment relationship that perhaps underlies ‑ ‑ ‑

GUMMOW J: I can understand if the second contract involved a compromising release of rights that might exist under the first contract, and that is where Bell v Lever Brothers would cut in, because it said that in these compromised contracts, there is no obligation to disclose, but it does not – it is not expressed as a contract compromised ‑ ‑ ‑

MR KEANE: Your Honour, it is correct to say, in our respectful submission, that what we call the second contract, the written contract of 1 December 1986, which your Honour ‑ ‑ ‑

GUMMOW J: It is just a written instrument. There is a great fallacy – the fact that something is written down on a piece of paper moves people to say that is a contract in evidence of something and it may exclude any other possibilities of content for a contractual relationship.

McHUGH J: Is there not an express term in this contract which saves certain rights – long leave, and other matters, which would tend to indicate that it was putting it into another ‑ ‑ ‑

MR KEANE: Your Honour, I think there is a provision which preserves ‑ ‑ ‑

McHUGH J: Clause 13 ‑ ‑ ‑

MR KEANE: Preserves such rights. It is clause 13 – I am indebted to my learned friend – at page 80, your Honour, in respect of prior service. On the other hand, there is no express provision that ‑ ‑ ‑

KIRBY J: If there were past breaches, you could have included such a provision.

MR KEANE: Quite, your Honour. In terms of the drafting, that is true, and that is a point that is made against us, is that the employer should be astute to guard themselves in that way.

KIRBY J: You said that he was insisting on being retained. I do not know if that is correct, is it? The dispute is not whether he should be retained. He did not seek any injunction or anything of that kind. It is whether you are entitled to terminate without paying him the provisions that were expressly provided for that circumstance.

MR KEANE: Yes, your Honour. We were not seeking to put it in terms of a contest of fact or a factual contest. What we were putting was, with respect, that an entitlement to be retained is perhaps the other side of the coin of an entitlement to dismiss.

KIRBY J: You did say insist on being retained?

MR KEANE: To insist on being retained, in the sense that the termination was not justified. That an employee who has ‑ ‑ ‑

KIRBY J: I thought this was a dispute about the termination having occurred, what follows from it.

MR KEANE: Yes, your Honour. But in terms of analysing whether there has been a rupture such as entitled ‑ a rupture for which the employee is responsible ‑ such as justifies the employer’s dismissal when the employer finds out about it. We were simply putting it to your Honour as a way of looking at the principle, the principle being that since the employee has, by his or her conduct, disabled him or herself from performing, that is to say from commanding the confidence of the employer, it no longer lies in the mouth of the employee to say that the employer may not discharge that contract and may not justify a purported discharge by reason of that misconduct.

KIRBY J: That is one form of analysis. The other is you having dismissed and having provided this contract with express provisions as to what was to occur in the case of dismissal, and you having failed to foresee this case and expressly so provide, that the terms of the agreement must be carried out or whether, in some way, you can imply into the agreement something which adds a subclause, “Oh, and by the way, if we find out something was done that was fraudulent or dishonest, we can dismiss you without notice for no compensation”. That is basically what you want to do. You want to slip an extra clause into the agreement, either by implication or a fact, or implication of law.

MR KEANE: We would say, with respect, perhaps not. We would say rather the question is whether this case is truly analogous to the case where an employee says, “I do not intend to perform any more”. He does not actually commit a breach of any of the things in clause 6 but he makes it plain that he is not proposing to adhere to the contract according to its tenor. In our respectful submission, by analogy with cases like Holland v Wiltshire, the cases where contracts make provision for termination but that provision is not regarded as excluding the right to terminate for repudiatory breach or breach which goes to the root of the contract, as opposed to contractual provisions that identify certain circumstances in which the right may be exercised, one sees them operating concurrently.

Your Honours, if we may, there was one further element to the proposition that we were seeking to put to your Honours, and that is that the employer may terminate the employment whether or not the conduct occurs under the current contract of employment, and that is where ‑ ‑ ‑

GUMMOW J: I was just focusing on recitals B and C on page 71. That is what I had in mind. On its face, it assumes that ‑ ‑ ‑

MR KEANE: He is an employee.

GUMMOW J: Yes, and it says we are now recording the terms. It does not say, “We are engaging him and this is what his terms are going to be once he is engaged”. He is already in situ.

MR KEANE: And the bygones are bygones. Quite, your Honour. We would, with respect, adopt that.

GUMMOW J: But is that somehow foreclosed by what was done – what was held in the Court of Appeal?

MR KEANE: Well, the Court of Appeal did conclude that issue against us, your Honour, in the majority judgment.

GUMMOW J: This is very different from a service contract, it seems to me.

MR KEANE: Commencing at page 106 in paragraph 5:

Is the contract of 1 December 1986 a new and discrete contract?

and concluding at 108 in ‑ ‑ ‑

KIRBY J: You have accepted these findings, have you? You have not challenged those findings.

MR KEANE: We have not challenged that. The apprehension, perhaps rightly or wrongly, that a contest about that issue might not have attracted a grant of special leave. But the conclusion against us is in the paragraph numbered 9 at page 108. It is probably a little obscured – line 2865.

GAUDRON J: But maybe there is a false dichotomy in what is there said because the majority of the Court of Appeal said it:

did not merely formalise the earlier oral contract…..but was a new contract of employment.

What if there was, at all times, an employment relationship and this merely recorded the new terms and conditions in the new situation?

MR KEANE: In so far as that is the proper approach, your Honour, then we would submit that it is, in our respectful submission, not difficult to say that the employee, who has so conducted himself or herself, as to destroy the possibility of maintaining the confidence essential to that relationship, the employer is entitled to dismiss.

GAUDRON J: But it may be that there is an error in just looking at the situation as a complete either/or, as was done in paragraph 9 at page 108.

KIRBY J: But what are we to do now? You have not challenged that aspect of the appeal. It is not in the grounds of appeal.

MR KEANE: Your Honour, our contentions are, in paragraph ‑ ‑ ‑

KIRBY J: It is not unimportant, I think, to start from where we start from. Was the employment contract wholly expressed, save for any implications of fact or law, at the time of the relevant acts, namely the dismissal, by the written and supplementary, or subsequent, agreement between the parties? If that is the starting point, then you go on to a different analysis than you do if various other possibilities are admitted.

GLEESON CJ: You were about to refer to a paragraph in your written submission.

MR KEANE: We were going to take your Honours to paragraph 16.

McHUGH J: I thought 22 might be the one you were after.

MR KEANE: If your Honours please, paragraph 16 ‑ ‑ ‑

KIRBY J: But that is general as to whatever employment contract was, the duty of faithful service is fundamental to it.

MR KEANE: Yes, quite.

KIRBY J: Whatever it is.

MR KEANE: Yes, that is right.

KIRBY J: It is of the nature of employment.

MR KEANE: Yes, and it is the case that as the passage we have cited from Sir Owen Dixon and Justice McTiernan in Blyth Chemicals v Bushnell at paragraph 19:

“Conduct which in respect of important matters is … destructure of the necessary confidence between employer and employee.”

That, in our respectful submission, is a proposition which focuses on the essentials of the relationship rather than the terms in which it may be recorded from time to time.

KIRBY J: Is that not then your answer to Mr Douglas. You say, “This is not that we have failed to make specific reference in the written agreement to this. We did not need to. This is so fundamental to employment, as such, that it is written in, it hovers over, it is underneath and all about it. It is the nature of the agreement. Therefore, in formal terms, it is implied by law”. But it is an answer to Mr Douglas to say, “Well, it is not there, but we did not have to ‑ ‑ ‑

MR KEANE: That is our submission ‑ ‑ ‑

GUMMOW J: I think your ground 2(c) might be enough for you on this - page 129 – taking up what Justice Kirby has been putting to you.

MR KEANE: Yes, your Honour.

GUMMOW J: Or as an extension of an existing contract.

KIRBY J: I suppose the only question is, when you formalise the arrangement, you make a written agreement and you specifically provide, in express and limited terms, for the particular case of dismissal, whether that can be seen as in some way overwhelming the generalities by the specificity of the particular provision that you make. You could have added a provision. You were in the power to do so. You could have had a provision that said, “If we find out something of the past conduct that makes it impossible for us to work together, we can dismiss you”.

MR KEANE: That is so, as a matter of possibilities. The question, though, is whether it is necessary to have express provision entitling one to dismiss in the circumstance that one discovers that one’s manager has been into the till.

KIRBY J: One argument for saying so is that the way you expressed the principle was very large. Any past breach, any dishonesty, taking the biscuits – well, no, I had a master solicitor who got very upset that I took the biscuits, because I had worked all weekend for him; that anything found, years later, might justify it, and that if you want to do that, then you should put it in writing once you formalise the agreement.

MR KEANE: Your Honour, it may be a question of fact as to whether the conduct in this particular case does strike at the heart of the confidence that an employer is entitled to have in the employee and which the employee must be capable of discharging. That may be a question that – it may depend upon the biscuits being a bit different from using half a dozen employees on the employer’s time, to build your house. But if, in terms of the standards at the time, one comes to a conclusion that the conduct is of such an order that one can say that that is destructive, to use the language of Justices Dixon and McTiernan, that it is “destructive of the necessary confidence between employer and employee”, if one can say that it is of that order, then, in our respectful submission, the consequence of that is that termination on that ground is justified, whether or not that conduct occurred under a contract formally, or an earlier contract, or, indeed, in terms of the authorities, outside the employment altogether. If it has that bearing on the relationship of trust and confidence, conduct outside the employment relationship may have that effect. If it has that effect, then the employer’s termination is justified.

In that regard, can we take your Honours to some of the authorities – we will do that as briefly as we may. The first apropos of the point which was made to your Honours, is in Pearce v Foster (1886-1887) 17 QBD 536. That is a case that your Honours have been provided with it. Your Honours will see from the bottom of page 537 that the defendant employers:

became aware that for many years previously the plaintiff had been engaged in speculative transactions…..upon the Stock Exchange –

outside work hours, as it were. The Court of Appeal held that the effect that that conduct had on the employee’s ability to command the continuing confidence of the employer justified dismissal. If I can take your Honours firstly to the judgment of Lord Esher at page 539 where, in his Lordship’s second sentence on that page:

The rule of law is –

and there his Lordship is putting it in terms of a rule of law. We can read on:

The relation of mast and servant implies necessarily that the servant shall be in a position to perform his duty duly and faithfully, and if by his own act he prevents himself from doing so, the master may dismiss him. It is not that the servant warrants that he will duly and faithfully perform his duty; because, if that were so, upon breach of his duty his master might bring an action against him on the warranty. But the question is, whether the breach of duty is a good ground for dismissal. I have never hitherto heard any doubt that that is the true proposition of law. What circumstances will put a servant into the position of not being able to perform, in a due manner, his duties, or of not being able to perform in a faithful manner, it is impossible to enumerate.

And then his Lordship refers to “innumerable circumstances”. And in the last sentence on the page, it goes on:

But if a servant is guilty of such a crime outside his service as to make it unsafe for a master to keep him in his employ, the servant may be dismissed by his master –

KIRBY J: It seems a rather hard case. I mean, they were general merchants and, according to 537, he had nothing to do with the cash. He had nothing to do with the cheques. He had nothing to do with the financial part of the firm’s business, but he was consulted about the business done by the firm and their customers. I suppose you could say we might not reach the same view on the facts today, but the principle is still a good principle to be applied in accordance with the standards of particular times.

MR KEANE: Possibly, your Honour. In the judgment ‑ ‑ ‑

KIRBY J: And if an employee in that situation was just a general merchant and had Telstra shares, speculating on the market, it would seem hardly a correct principle to say that they could be sacked for that.

MR KEANE: No, we accept what your Honour says. May we say, though, that it does appear that the concern was that the speculations in which he engaged may have put himself in a conflict of interest and duty, vis-à-vis, his employer.

GLEESON CJ: Mr Keane, could I take you back to the words “outside his service” on the third‑last line of page 539. A possible point of view is that if that principle applies to conduct outside his service, then a case relating to conduct within the service, although under a previous contract of employment, would be a fortiori.

MR KEANE: That would be our submission, your Honour, and that is why we submit that whether or not the conduct occurred under the current contract or a previous contract, with the same employer, the employer’s position ought to be at least as good as, and we would say stronger than, the position in Pearce v Foster.

KIRBY J: Could you remind me of what the time interval was here, when the wrongs were done and when the new contract was ‑ ‑ ‑

MR KEANE: Your Honour, it is not clear. The trial judge was not able to find clearly. He found that it probably happened before 1 December 1986. Some of the evidence suggests it was mid to late 1986.

GLEESON CJ: It seems to have been a fairly close run thing.

MR KEANE: Yes, but his Honour was not in a position to say it was after 1 December 1986. And the dismissal occurred on 1 February 1988 but, at that stage, the employer did not know of what had gone on.

GLEESON CJ: Thank you.

KIRBY J: It is very proximate in point of time. We are not talking here of some ancient wrong.

MR KEANE: No, your Honour, we are not ‑ ‑ ‑

KIRBY J: I live in fear of my biscuit episode. This is something only two years before.

MR KEANE: No, your Honour, and it is not a case where there is any suggestion that there was any condonation or awareness involving an affirmation. Your Honours, Pearce v Foster is a case which, though now having more than celebrated its century, has not been, so far as we can discover, disapproved. It has been referred to with approval in Shepherd v Felt and Textiles. We will not read it to your Honours, but it is referred to with approval in the judgment of Justice Starke in (1931) 45 CLR 369 at 372. And it was accepted as correct in a statement in obiter dicta by Sir William Cullen in the Supreme Court of New South Wales sitting in banc in Griffin v London Bank of Australia Limited. I think your Honours have been given both – the Weekly Notes and the State Reports of this. If we could take your Honours to (1919) 19 SR(NSW) 154, the relevant passage which appears in an abbreviated form in the Weekly Notes commences in the second full paragraph of text on the page:

I cannot agree with the further contention that as this was an isolated act it could not amount to a defence under the plea of justification. The principle upon which such issues depend has often been stated. In the case of Pearce v Foster, Lord Esher, said –

and his Honour sets out that passage, and then a reference to Lord Justice Lopes in which his Lordship had said:

That misconduct, according to my view, need not be misconduct in the carrying on of the service or business. There may be conduct quite outside the discharge of duties in the immediate service which would disqualify the servant from claiming to be entitled to be retained until the expiration of a period of notice, or the expiration of a fixed period of service, if that is the kind of his contract.

And your Honours, if I could return to an exchange I had with your Honour Justice Kirby some time ago, it is in the sense there, the reference to “claiming to be entitled to be retained”, that we were speaking of an assertion of an entitlement.

GLEESON CJ: Do you mean by that that if Mr Wells had been employed by another employer altogether as a manager and had used employees and equipment in an unauthorised fashion for his own personal benefit, and that had been discovered by your client, your client could rely on that to justify the 1988 termination?

MR KEANE: Your Honour appreciates that we do not have to go that far. We can actually point ‑ ‑ ‑

GLEESON CJ: No, I was trying to find out whether you do go that far.

MR KEANE: We do not have to go that far, your Honour. We can point to conduct which actually was done to us ‑ ‑ ‑

GLEESON CJ: I understand that. But what is the principle?

MR KEANE: The principle is at least that far, and the passage we have given your Honours seems to take it further.

GLEESON CJ: So you would say, although you do not have to, if necessary, you would say that not only does it not alter the outcome in the present case that this document was signed in December 1986, you would go so far as to say, if necessary, that even if there had been a different employer at the time of the misconduct, that could be relied upon to justify the termination in 1988?

MR KEANE: The dicta go that far, your Honour. We do not resile from them but of course we do not have to go that far because ours is a case where, in the relationship which we had with Mr Wells, Mr Wells did this to us.

GAUDRON J: But the implied term you assert in your submission certainly goes as far as the Chief Justice says, and perhaps even further.

MR KEANE: Well, your Honour, in terms of our contention, the contention we make in paragraph 1(a), or the issue which we say is raised, we have limited to a case where there has been misconduct in the performance of a contract of employment with us.

GLEESON CJ: So that if part of the share buy‑out involved a substitution of a member of the Pyntere Dixon group as employer, that would produce the result that you could not rely on this conduct?

MR KEANE: No, your Honour, it would not. There does seem to be some authority supporting that answer. It is not entirely satisfactory because it was a thing that went off on a pleading point, but it is in Gordon & Gotch v Frederick John Cox (1923) 31 CLR 370. If your Honours have that, that is a case where the Gordon & Gotch group reorganised itself and it was a case where there was misconduct by an employee who, at the time of his employment, was employed by Gordon & Gotch Limited. He was then employed by Gordon & Gotch (Australasia) Limited, and the misconduct was discovered. The question was whether misconduct in the employ of the old company justified dismissal from the employ of the new company. And, as we say, the point seemed to go off as a matter of pleading, as your Honours will see at the bottom of 380 to 381 in the judgment of Justice Isaacs, but it is of relevance. If we can take your Honours back to the judgment of the Full Court of Victoria which is actually excerpted earlier in the report, commencing at the bottom of page 376 where your Honours see in the last paragraph:

The judgment of the Full Court of Victoria on the appeal contained the following passages -

and then there is a reference to the pleading:

The first is the allegation that the plaintiff was guilty of such misconduct as manager of Gordon & Gotch Proprietary Ltd (the old company) as to render him unfit to retain his office as managing director of the defendant company; and the second is that plaintiff had been guilty of such misconduct as managing director of the defendant company as to render him unfit to retain his office of managing director of the defendant company. The second allegation is a mere repetition of an allegation –

and at 377, the Full Court of the Supreme Court of Victoria said:

As to the first allegation the word “unfit” in this paragraph seems to us to be of doubtful meaning. Giving to the word the only meaning which we think would make it relevant, namely, incapable of properly discharging his duties, there is no doubt that misconduct prior to his contract of service may render a servant incapable of performing his duties under his contract of service, and in such a case he may be dismissed. But the real ground for dismissal is not his past misconduct, but his present unfitness to properly discharge his duties, though such unfitness may be caused, either wholly or in part, by his previous misconduct.

Now, in relation to the question your Honour put to us, in relation to the rearrangement of the corporate structure, it is our submission that that approach does rather suggest that the answer is “yes”. If it was a different company within the group, the answer would be that the demonstrated unfitness would be a ground for dismissal.

GLEESON CJ: But does not that indicate that the distinction that these cases draw is a distinction between conduct which amounts to a breach of a contract? And if that is all there is to it, if that contract has come to an end, it cannot be relied on in the way you would seek to rely on it. But if it goes further, and if it is not merely a breach of an earlier contract, perhaps a contract with an earlier employer, but is conduct of such a character that – to use the language of Griffin – it disqualifies the person from claiming to be entitled to be retained in his present position because it manifests unfitness, then it can be relied upon.

MR KEANE: Yes, and it is close ‑ no analogies are perfect, of course ‑ but, in our respectful submission, the close analogy is with the case of the party to a conveyancing contract who cannot seek to enforce the contract if that party is not ready, willing and able to perform. What these dicta are saying is that that party is not able to perform because that party has rendered himself or herself incapable of commanding the essential confidence to be kept in employment.

Your Honours, we have given your Honours reference to Blyth Chemicals v Bushnell and we will not take your Honours to the passage again. We, of course, rely upon it. We might mention that Pearce v Foster is referred to with evident approval in the judgment of Justices Starke and Evatt at the bottom of pages 72 to 73 of (1993) 49 CLR. And of course we rely on the passage in the joint judgment of Justices Dixon and McTiernan at pages 81 to 82.

GLEESON CJ: What is the reference again?

MR KEANE: Your Honour, that is Blyth Chemicals v Bushnell (1933) 49 CLR 66. The first passage is at the bottom of 72 to 73, simply a reference to Pearce v Foster with evident approval; and the second is at page 81, commencing at about point 7 on the page and concluding at about point 2 on page 82.

KIRBY J: Most of these principles developed at a time when employment was in an interpersonal relationship between an employer – the employing person – and a smallish enterprise. Is there any reason to review them in the situation of today with interlocking corporations and, perhaps, global employers, where the relationships are not so personal? But the foundation seems to somehow be based on the trust and empathy between employer and employee. Is that still relevant to employment?

MR KEANE: Your Honour, it is for that reason that we, in putting the case to your Honours, have fixed upon the position of Mr Wells as the general manager of the Queensland business, the point being that that relationship is one in which the employer is necessarily in the hands, and dependent upon, the honesty and ability ‑ ‑ ‑

KIRBY J: But you have posited something which is an implication of law from the employment relationship now. We have to get the principle clear before we can apply it in an instant case.

MR KEANE: Yes, your Honour. And as Sir Wilfred Greene said in Hivac Limited v Park Royal Scientific Instruments (1946) Ch 174, the extent of the fiduciary obligation may depend upon the nature of the employment. I am not trying to be coy about answering your Honour’s question. It is simply that the position may be different, depending upon the level of dependence.

McHUGH J: It seems to me that you have serious difficulties in this case unless you maintain, which you do not appear to, that there was only one contract. Let me tell you why. It seems to me that the basic principle is whether the employee has disregarded the essential conditions of the contract of service. If he has, then it is well established that the employer may justify his dismissal upon grounds on which the employer did not act, and did not know. But when you rely, not on acts during the term of the contract, but on acts outside or proceeding the contract, you are in a different area of discourse. Other conduct, it seems to me – that is, evidence outside the contractual period or outside the contract – is merely evidence of present unfitness during a contract. It does not prove it. It does not entitle you ipso facto to terminate the contract. It merely provides evidence of present unfitness. Now, that seems to me an issue that has never been litigated in this Court. And that point is brought out very clearly in the judgment of Justice Isaacs in Gordon & Gotch. The past misconduct is merely evidence of present unfitness. So there is a weighing up. You weigh up what he is doing under this contract with that past unfitness, and you have to make a value judgment, and it does not seem to me to have the automatic effect that it does when the ‑ ‑ ‑

MR KEANE: As a rule of law.

McHUGH J: Yes.

MR KEANE: Your Honour, there are ‑ ‑ ‑

McHUGH J: Do you accept that analysis?

MR KEANE: Well, in answer, your Honour, we would say two things. Firstly, we say that there is destruction of the necessary relationship of confidence that goes to the heart of the relationship. So, that the distinction between one contract and another does not really matter. And we would say as well that it is a rule of law that where there is conduct of this kind, it might ‑ ‑ ‑

McHUGH J: Well, it might destroy the employer’s confidence, but that is not enough. As Bell v Lever Brothers say, ordinarily you have to show conduct on the part of the employee.

MR KEANE: And, your Honour, that is really, with respect, why we referred your Honours to Griffin, because the way in which it is put there is, the employee has disabled himself from commanding the confidence of the employer. And that is the way it was put in an observation in the Privy Council which we wanted to give your Honours as well, that is Jupiter General Insurance Company ‑ ‑ ‑

McHUGH J: Just before you do, how do you reconcile that with the statement of principle of Justice Isaacs in Gordon & Gotch, because his Honour could never have made the statement he did if Griffin correctly states the law, because the past misconduct would, ipso facto, disqualify the disabled employee.

MR KEANE: Your Honour, it may be there are some circumstances where the passage of time would mean that 50 years of good and faithful service, even if the truth did not emerge, 50 years of good and faithful service after the misconduct would rob the conduct of its quality of demonstrating that the employee could not command the employer’s confidence.

GLEESON CJ: Well, there might be an explanation for the misconduct. It might have occurred during an episode of psychiatric disturbance, for example.

MR KEANE: An episode of depression, or something of similar ‑ ‑ ‑

KIRBY J: Fifty years, you say.

MR KEANE: Something – perhaps a little less, your Honour. It depends how long ago your Honour took the biscuits.

KIRBY J: Your client has a long memory, in fact, in this case it did not have to – two years was the period.

MR KEANE: Quite.

GLEESON CJ: Mr Keane, suppose that a bank manager employed by the Advance Bank in 1997 embezzled some money from the bank; and suppose that in 1998 the Advance Bank was taken over by St George Bank so that thereafter the bank manager was employed by the St George Bank. I take that example simply to take a case where, incontestably, there is a new contract entered into. And suppose that in 1999, the services of the manager are terminated by the St George Bank and then a question arises, when it is later discovered, whether the embezzlement can be relied upon by the St George Bank to terminate the services. Could there be any doubt that it could be relied upon?

MR KEANE: We submit not, your Honour, because we would submit that is precisely the case in which, because of the nature of the employment that the employee has shown, by his or her conduct, that he can no longer command the confidence of that employer. That is the way it was ‑ ‑ ‑

KIRBY J: Is this the reason this very personal relationship that exists between employer and employee that is posited - is this the reason why courts will be very reluctant to order persons to take others into their employment?

MR KEANE: Yes, your Honour.

KIRBY J: There is generally a great reluctance to make affirmative orders to that effect, is there not?

MR KEANE: To require someone to bring someone into the ‑ ‑ ‑

KIRBY J: Has that been said by this Court? Is it worth having a look at why? Because that seems to the germ of the same idea, that it is the nature of employment, that you have to get on – that is the bottom line. And that if you cannot get on and be trusted and work together in the common enterprise, then you cannot expect employment to persist.

MR KEANE: Particularly so where one is very close to the heart or, indeed, the mind of the employer, when one is in the position of manager of the State operation.

McHUGH J: But the principle goes beyond that, does it not?

MR KEANE: It does.

McHUGH J: Take a conflict of interest. A lowly employee on the coalface may be dismissed on conflict of interest grounds, and summarily dismissed on conflict of interest grounds, even though management does not know of the person, other than by name, perhaps.

MR KEANE: It depends, your Honour. Once one gets into the situation where one cay say that it is a case where confidence between employer and employee is necessary to the performance of the contract by the employee, or to the maintenance of the relationship between them, once those factual categories are satisfied, then, we submit, the answer follows as a matter of law.

McHUGH J: But do you accept that – take the Chief Justice’s example – because of the temporal connection between embezzlement and dismissal, it is fairly clear that the conclusion that the employee is disabled follows almost automatically. But is there not a distinction between two classes of case? Embezzlement during the contract always entitles the employer to dismiss without further investigation. Embezzlement before the contract, or outside the contract, is merely a factor in determining present unfitness which may, in a particular case, require an evaluative judgment.

MR KEANE: And absent countervailing factors of the kind that have been discussed, a factor which will be decisive. And your Honour, it has been ‑ ‑ ‑

McHUGH J: But do you accept there is a distinction between the event occurring in the course of employment which brings about summary dismissal, no matter how long before, once the employer finds out about it, and an event before or outside the contract of employment which is merely evidence of present disablement?

MR KEANE: Your Honour, absent some countervailing consideration, demonstrated unfitness is - demonstrated unfitness in the sense we are talking about it justifies dismissal. It is just a question of whether it is demonstrated.

GLEESON CJ: It would not make any difference to the answer in the example I gave, would it, if instead of embezzling from the Advance Bank he had been the honorary secretary of the local golf club and had embezzled from the golf club?

MR KEANE: No. Because once it is apparent that you have a viper, you do not have to continue to clasp it to your bosom.

GLEESON CJ: The example is easy, in a sense, because of the obvious significance of embezzlement to the responsibilities of a bank manager. But if the misconduct did not consist of embezzlement but consisted, for example, of not working from 9 to 5, but working from 10 to 4, or something like that, in other words, a breach of a contract of employment but one about which there could be a good deal of argument as to whether it demonstrated unfitness, then you would have the problem that Justice McHugh is raising.

MR KEANE: That is so.

McHUGH J: Take this very case. Supposing the conduct on which you rely had been done with another firm four or five years previously, would that entitle you to dismiss?

MR KEANE: Your Honour, in our respectful submission, the answer would be “yes”, if there was no ‑ ‑ ‑

KIRBY J: Twenty years earlier.

MR KEANE: Well, your Honour ‑ ‑ ‑

KIRBY J: You have a very long memory, but there must be a point. People are not the same.

MR KEANE: The answer might depend upon whether there was long, good, faithful service with the new employer to demonstrate that there was no question about the employee’s ability to command the confidence. And that is the ultimate question, whether the nature of the conduct is such, explained or unexplained, that it disentitles the employee from being able to say that he can command the confidence of the employer. Your Honours, we said a couple of times we wanted to give your Honours the reference to the Privy Council where that is the language that is used. It is Jupiter General Insurance Company v Shroff (1937) 3 All ER 67, and the relevant language is at page 74 between lines E and F.

McHUGH J: This case is not in the authorised reports?

MR KEANE: It does not seem to be, your Honour, no.

McHUGH J: What does that mean?

GUMMOW J: It may be in the Law Reports Indian Appeals.

McHUGH J: It could be in the Indian Appeals.

MR KEANE: I have not looked in the Indian Appeals, I have to say.

KIRBY J: Maybe they were not very proud of it.

GAUDRON J: Can I take you back to my first question, Mr Keane?

MR KEANE: Yes, your Honour.

GAUDRON J: In a sense what one is talking about is an implied warranty by an employer of his ability to command the confidence, not simply a term.

MR KEANE: Your Honour, the reason I hesitate in responding to your Honour is that Lord Esher in Pearce v Foster actually said it is not in the nature of a warranty, but he seems to have put it more in ‑ ‑ ‑

GAUDRON J: Yes, but it must be, must it not?

MR KEANE: It must be. In our respectful submission, it is in the nature of a condition, a condition of continued employment.

GAUDRON J: A nature of a condition?

MR KEANE: That is to say that it is essential ‑ ‑ ‑

GAUDRON J: Is there a difference?

MR KEANE: Just this, that, in our submission, it is essential to the maintenance of the contract, or at least the employee’s right to insist on his entitlement to continue to be employed. It is a condition of that entitlement. It is, if you like, a concurrent condition. To go back to the analogy with conveyancing contracts, as long as you are able to perform, you can require the employer to keep you on but if there is a radical breach, if your ability to command the confidence of the employer is radically broken ‑ ‑ ‑

GAUDRON J: Yes, but we are talking also in an objective sense rather than actual command of confidence, are we not?

MR KEANE: Yes, your Honour, particularly because it is a situation where something becomes known after a termination had occurred. It is not a matter where people have gone down and said, “Oh, goodness me, we had better get rid of him”.

GLEESON CJ: So, the position for which you contend is that if an employment is terminated and it later appears that the employee has, whether within the employment or in any other context or circumstances, engaged in conduct which if it had been known to the employer would have necessitated a loss of confidence by the employer in the employee’s fitness, then that can be relied upon to justify the termination.

MR KEANE: Yes, your Honour. We submit that is so.

GLEESON CJ: And, in the present case, it would not have made any difference at all if the conduct in which Mr Wells had engaged had involved misusing the property not of Concut but of the local golf club of which he was the honorary secretary.

MR KEANE: As we say, your Honour, we do not need to go that far but it does seem to us that the statements of principle in the cases do.

GAUDRON J: That is really why I asked you are we not talking objectively rather than factually. Do you not have to say something like, “Conduct which a reasonable employer in the position of the particular employer would regard as disabling him”?

MR KEANE: Yes, your Honour.

GAUDRON J: Yes.

MR KEANE: To come back to the question your Honour Justice Gaudron asked us a moment ago, in Boston Deep Sea Fishing and Ice (1888) 39 Ch D 339, which is one of the leading cases in this area, in a judgment of Lord Justice Bowen at 362 in the last paragraph on the page his Lordship refers to:

the condition which is implied in every contract of service or agency such as his – the condition that he will faithfully and truly discharge his duty towards his employer, and that if he does not so discharge it, the employer is to be at liberty to elect whether he will determine the service, or in spite of the fault continue the erring servant in his employ?

Now, it is there referred to as a condition implied in every contract of service or agency, and true it is that it is not talking about conduct which has denied the employee the ability to command the confidence but, in our respectful submission, it does indicate the nature of the obligation that it is an implied condition of every contract that the employee continue to be able to command the confidence of the employer in his faithful service.

KIRBY J: I am still a little troubled by the fact that the conflict between you and the respondent may be in not meeting each other. They say you terminated and therefore the debate is not whether there is justification to terminate but the debate is what consequences flow. In order to find them, unless in some way the contract is modified, you go to the written agreement between the parties and you did not make express provision and therefore you applied the express provision that was provided there. Now, I would just like to have very clear how you answer that proposition.

MR KEANE: The question being whether there was a justification for the dismissal. If there was no justification for the dismissal, it was a wrongful dismissal and the employee is entitled to damages. The dismissal, it is our submission, was justified on the footing that by the employee’s conduct he had disabled himself from ‑ ‑ ‑

KIRBY J: Could you remind me what the contract actually provided in the case of termination. There was an express clause, was there not?

MR KEANE: There was, your Honour. It is clause 6 and I think it is at page 73:

If at any time during his employment by the Company the Employee
(a) Shall be guilty of any serious misconduct which shall include failure by the Employee to devote his whole time and attention…..during normal business hours, absenting himself without leave…..disobedience or neglect to fulfil any of the orders or directions…..any act which causes the Employee to be publicly disgraced…..
(c) Commits any material breach of any provision of this Agreement which is incapable of being remedied –

draws unauthorised bills of exchange -

Shall render the Company liable for any borrowings without the prior consent of the company.

Those two seem to be repeated on the next page:

Shall dispose of or purport to dispose of any of the Company’s property other than in the ordinary course of the business of the company without the written consent of the Company
and in any such event the Company may terminate the Employee’s employment forthwith without any notice or payment in lieu –

Now, our submission is that that is akin to provisions which provide expressly for termination but which do not provide expressly to derogate from an entitlement to terminate for what we have called radical breach or repudiation.

KIRBY J: So that the central question ultimately becomes whether this express provision in this written agreement covers the entire ambit of the circumstances in which you are entitled to terminate without notice and without compensation.

MR KEANE: The argument on the other side is an expressio unius type of argument.

KIRBY J: But you have to say that it is not the entire statement of your entitlement.

MR KEANE: No.

KIRBY J: That notwithstanding the fact that you formalised this agreement, notwithstanding that you reduced it to writing, notwithstanding that you expressed certain circumstances in which only you could terminate without notice and without compensation, that implicit in the relationship were other circumstances which were not expressed which go without saying, in a sense.

MR KEANE: Yes, we submit that this clause which does not, for example, address the case of an avowed intention not to turn up next week, that kind of repudiation is not, and with respect, is not surprisingly not, addressed to radical breaches going to unfitness or ability.

KIRBY J: I am just a little worried about this “radical”, or earlier you used “fundamental”. I can hear the language of Lord Denning here. It is always a pleasure to hear his Lordship’s words but this is an area where I think he was regarded as being unduly political.

MR KEANE: It really is, I think, with respect, a question of whether one applies an expressio unius approach. We would submit one would not because one would not read these provisions as saying, in effect, “And in no other circumstances shall we be entitled to terminate you”. They are positive provisions conferring rights on an employer and, in our respectful submission, one would be slow to read them as excluding any other rights which the employer may have at law, and, in particular, one would be slow to read them as excluding the right of an employer to terminate for repudiation or, as we would say, something very akin to it, unfitness.

It is not surprising, with respect, that the draftsman has not adverted to the possibility that the employer one day finds that the person that is closest in Queensland to the till ‑ ‑ ‑

GLEESON CJ: Puts his hand in it.

MR KEANE: Yes.

KIRBY J: This, of course, was the same company as he was employed ‑ ‑ ‑

MR KEANE: Yes, it was.

KIRBY J: Would one read those words prospectively? In other words, it says, “It at any time during his employment with the company”. Why ‑ ‑ ‑

MR KEANE: Well, his Honour Justice Shepherdson in dissent said one would not. His Honour expressed the view that this is an employment that is a continuing employment and why would one read it ‑ ‑ ‑

KIRBY J: Getting back to Justice Gaudron’s point earlier, in a sense.

MR KEANE: Justice Gummow’s too, I think.

KIRBY J: Yes.

McHUGH J: But, if I might respectfully suggest, is not the discussion that has just taken place between you and Justice Kirby rather irrelevant on this basis that what has happened here is that your client has terminated a contract and what it now seeks to do is to rely on the Shepherd v Felton and Textiles point to say that by his conduct the respondent repudiated the contract and your termination is to be regarded in point of law as an acceptance of his repudiation of the contract. We are not really looking at it in terms of clause 6 a all. You did not purport to exercise any of your powers under clause 6. If you follow Lord Justice Bowen’s analysis through in Boston Deep Sea Fishing at 365 you treat this as a repudiation by the employee of his obligations under the contract which you are now deemed to have accepted in point of law.

MR KEANE: Yes, your Honour.

McHUGH J: That is the way it works out, does it not? I mean, that is a Shepherd v Felt and Textiles point.

MR KEANE: Quite.

McHUGH J: Employer dismisses on some ground, cannot make it out, but afterwards finds out that there was some other ground and so the law treats that as repudiation on the part of the employee or the agent, as the case may be, and says that the employer’s termination of the contract is an acceptance of that repudiation.

MR KEANE: Or, more generally, your Honour, that if there is an entitlement or a right, the fact that one has invoked another entitlement or right does not mean that what one has done is effective.

McHUGH J: I think you get in the area of fiction once you do that.

KIRBY J: But here you did not rely on something you did not know of at the time of termination, you relied on something you had discovered and acted immediately to dismiss on that ground. Is that not correct?

MR KEANE: No, your Honour. No.

KIRBY J: Once you discovered it?

MR KEANE: He was dismissed in February 1988. These defalcations were not known about at that time.

GLEESON CJ: He was just made redundant, was he not?

MR KEANE: Yes.

GLEESON CJ: He was not dismissed for breach of contract.

MR KEANE: That is right.

McHUGH J: No. You just terminated his employment.

MR KEANE: That is right.

McHUGH J: And, therefore, prima facie, you repudiated a contract but you are entitled to say, in point of law, “He was guilty of an anterior repudiation and my actions are simply regarded as an acceptance of his repudiation of putting an end to the contract”.

MR KEANE: Yes, and to put it another way, that he is not entitled to get the benefit of the bargain that he himself was in breach of – in breach of a condition of being entitled to insist on the balance of the term, although we did not know about it at the time.

McHUGH J: But it really means, does it not, that in a case such as the present, from the very beginning there is a continuing repudiation by the employee of the contract, if your argument is correct?

MR KEANE: He is, from the beginning, unable to perform ‑ ‑ ‑

KIRBY J: Even though he might perform it for many years, perform the employment duties.

MR KEANE: At some stage one gets to a point where one can say that time has cured it, perhaps, but we are not ‑ ‑ ‑

McHUGH J: But, I think you have got to go beyond merely saying he is disabled. If you talk about being disabled simpliciter, it either invokes the notion that that gives you a right to terminate but what you have really got to say in this particular context, in the Shepherd v Felt and Textiles context, is that he has repudiated the contract by reason of his disablement and your termination or your action is simply an acceptance of that.

MR KEANE: Yes, that he is not in a position to perform the central aspect of his bargain.

GUMMOW J: That is condition, is it not? I mean, plenty of contracts have rights to terminate upon a condition which may be objective in the sense that it does not involve conduct by either party.

MR KEANE: Yes.

GUMMOW J: This condition happens to involve a state of affairs that does involve the other party.

MR KEANE: And which that party has brought about.

GUMMOW J: Yes.

MR KEANE: To return just for a moment to Boston Deep Sea Fishing v Ansell, because your Honour the Chief Justice has raised the question of the scope of the proposition we are putting. We should draw your Honour’s attention to the observations of Lord Justice Bowen at 363 in Boston Deep Sea Fishing v Ansell where, at the bottom of the page in the last paragraph on that page, His Lordship puts the point in term of conduct vis-a-vis the particular master or the particular employer:

Now, there can be no question that an agent employed by a principal or master to do business with another, who, unknown to that principal or master, takes from that other person a profit arising out of the business which he is employed to transact, is doing a wrongful act inconsistent with his duty towards his master, and the continuance of confidence between them.

So that whether it goes beyond the destruction of confidence by reason of what one has done to one’s master or not, certainly it goes at least that far. In relation to your Honour Justice McHugh’s question as to whether this is justification as a proposition of law, can we refer your Honour to the judgment of Justice Fry in Ansell’s Case at the bottom of 370 where his Lordship says, in response to a suggestion that this was just “an isolated case”, the case of misconduct there before them, his Lordship said:

I do not feel judicially satisfied that it is an isolated case. Suppose it be, is that an excuse? Is a man to commit a gross fraud on his master, to conceal that fraud, and then, when it is discovered, say, “Oh, this is an isolated case, and, therefore, you cannot dismiss me?” That is not, according to my view, the law of the land with regard to the relation of master and servant. I repeat, it seems to me that the company were justified in law, as well as in morality, in discharging Mr Ansell as a man who was not worthy of being trusted by them.

McHUGH J: But the jurisprudential analysis is put by Lord Justice Bowen at 365, is it not? He say at about point 4 on the page:

as I have said, in every contract of service an implied condition that if faithful service is not rendered the master may elect to determine the contract, and the determination takes place on that implied condition; or you may regard it under the more general law…..you may treat it as the wrongful repudiation of the contract by one party, being accepted by the other, and operating as a determination of the contract from that time –

and so on. Now, his Lordship of course is speaking in terms of a case where the master knows about it but, in principle, the Shepherd v Felt and Textiles point allows you to treat the subsequent discovery as an acceptance of the repudiation.

MR KEANE: Yes. We mentioned earlier that sometimes this point is put in terms of implication and other times it is put as a rule of law. It is interesting that in Boston Deep Sea Fishing v Ansell Lord Justice Cotton speaks of it without saying it is an implication, he just seems to speak of it as a rule of law, whereas Lord Justice Bowen speaks of it as a matter of implication, or ‑ ‑ ‑

KIRBY J: If we are talking about fictions, is this not something of a fiction that retrospectively you look back and you say, “Well, though at the time you were merely making him redundant, we will imposed on it a constructive law that says that in fact, in law, you were accepting his repudiation, at that time, even though at the time you did not know he had repudiated it at all”.

MR KEANE: In our respectful submission, it is not unjust to do that, in this sense, that the justice of the case is that the employee contends that he is entitled to have the remuneration for the balance of the term. We would submit, with respect, that there is nothing wrong with a principle of law which denies the employee the benefit of the balance of the bargain in circumstances where he was not, objectively speaking, had the facts been known, entitled to have it.

GAUDRON J: To put it another way, in one sense the employee has to find an implied term that you would not dismiss.

MR KEANE: Yes, it is not a question of pointing to clause 6.

GAUDRON J: Yes.

GLEESON CJ: You are into this area of fitness mainly because you feel some forensic embarrassment about that contract of December 1996.

MR KEANE: Yes.

GLEESON CJ: But, the employment relationship was not disturbed by that contract of December 1996, was it? Your client was the Queensland manager of Concut the day before and the day after that contract was signed.

MR KEANE: Yes, that is correct, your Honour.

GAUDRON J: And the very final clause which preserves existing entitlements would seem to make it clear that there was no severance of the employment relationship at that point.

McHUGH J: I must say, for myself, I would have thought you had a powerful argument, that there was only one employment relationship. The terms of the relationship may have been varied in a number of respects, but ‑ ‑ ‑

MR KEANE: In that regard, we have referred your Honours to Byrne v Australian Airlines and we have done that in paragraph 18 of our outline.

McHUGH J: Yes.

GUMMOW J: I am sorry, which paragraph, Mr Keane?

MR KEANE: Paragraph 18, were we have said that:

the employer is entitled to terminate the contract to which the relationship of trust and confidence is essential.

The point being that the relationship of employment, speaking of it as your Honours did in Byrne v Australian Airlines, is something underlying the contract of employment and upon which the contract works. We would submit, with respect, and accepting your Honour Justice Kirby’s strictures that one should be careful about using the word “fundamental”, if there is one thing that is fundamental of that relationship it is the ability to have confidence in those who are actually running your business.

KIRBY J: I am still not absolutely sure as to whether you have embraced Justice McHugh’s analysis as some lineage because all the language of your written submissions is that you dismissed and you were entitled to dismiss, whereas the theory of the alternative proposition is he terminated and you have merely accepted his termination by his wrongful conduct. Now, there is a difference. One, you are the actor and dismissing, the other, he is the actor and terminating and you are merely accepting.

MR KEANE: I think his Honour put it to us that he was the repudiator and a repudiation that we were entitled to accept. That we did not purport to when we terminated him does not, because of Shepherd v Felt and Textiles, prevent us from relying upon it now.

McHUGH J: The principle stated by Mr Justice Greer in a case called Taylor in 1922 which Sir Owen Dixon cites in Shepherd’s Case. His Lordship said:

“It is a long established rule of law that a contracting party, who, after he has become entitled to refuse performance of his contractual obligations, gives a wrong reason for his refusal, does not thereby deprive himself of a justification which in fact existed, where he was aware of it or not”

MR KEANE: Your Honour Justice Kirby, can I say we unequivocally adopt that.

KIRBY J: Yes, therefore, I am to read everywhere you have used “dismiss” in your written submissions I am to have a mental reservation that you meant “accepted termination” accepted repudiation.

MR KEANE: I think it comes back to looking at it perhaps in terms of, or analysing it in terms of an action for wrongful dismissal. The ultimate question is, “Was the dismissal justified?” and in relation to justified dismissal one can adopt that analysis that has just been put to us. If the employee throws up the contract, then the employer’s acceptance of that is justified.

KIRBY J: One thing is for sure, when he went home that night he said to his family, “I was sacked.” He did not say, “My repudiation of this agreement was accepted by my employer”.

MR KEANE: No, your Honour, I am sure he never said that, but then, perhaps, he did not go home and tell the family that he had been robbing the employer blind during the week, either. Perhaps he kept that to himself.

The other submission we rely upon is in relation to the express provision in 7.2 which, whether or not there were two contracts, at page 75, clause 7.2, obliged the employee:

The Employee…..shall serve the Company faithfully –

This submission we can put, we hope, shortly. That obligation was itself breached, the obligation to serve faithfully was itself breached by a failure to restore or to account for that which had been taken. That failure is a breach of 7.2 and, importantly, it is not excused by the circumstance that to make good that failure, that is to say to account for the benefits that had been wrongly obtained, might have involved a disclosure of past misconduct. This aspect of the case is not about disclosure as an obligation, notwithstanding the view taken in the Court of Appeal and our learned friend’s contention that that is how it should be so characterised. Our submission is that this aspect of the case is about whether a failure to remedy misconduct, once discovered, can be excused. The majority in the Court of Appeal said that this:

is tantamount to the assertion of a duty to confess –

This is at page 114 in the first line. It is our respectful submission that an employee may choose not to incriminate himself by making a disclosure of misconduct of this kind, but if that misconduct is found out the employee cannot claim to be dealt with as if he or she had served faithfully and, on that footing, the failure to account under 7.2 for the benefits wrongly obtained is, in our respectful submission, a contravention of the contract of 1 December 1986 and justified the dismissal.

Unless your Honours have something further for us, those are our submissions.

GLEESON CJ: Thank you, Mr Keane. Yes, Mr Douglas.

MR DOUGLAS: If the Court please. The parties to the 1986 contract made a specific provision about the categories of misconduct which entitled the appellant to terminate the contract without notice and without compensation. Past misconduct, namely, conduct which occurred before this written contract came into existence, was not one of them. The parties, not having bargained for a right to terminate the 1986 contract without compensation on the ground of past misconduct, the principal issue the appeal presents is whether such a right is to be implied.

GUMMOW J: No, no, no.

GAUDRON J: No.

GUMMOW J: The principal issue becomes whether there was a release and discharge of the obligations that had accrued under the first contract. For myself, I would be very slow to characterise what was going on in those terms.

MR DOUGLAS: What we would say in response to that, your Honour, is that ‑ ‑ ‑

GUMMOW J: It is not like Bell v Lever Brothers, it is all about a contract of termination and settlement.

MR DOUGLAS: Yes, but ‑ ‑ ‑

GUMMOW J: There was no stipulated settlement, a dividing up of accounts with a line drawn in time in this case.

MR DOUGLAS: There is a continuation of ‑ ‑ ‑

GUMMOW J: Your client – not your client ‑ this man was general manager at all times.

MR DOUGLAS: Yes, I am not contesting that, and there is a continuation of the employment relationship, too.

GUMMOW J: We are talking about fictions.

MR DOUGLAS: No, what we are saying is there obviously is a continuous employment relationship. He was general manager and he continued to be that but in 1986 they redefined the terms of his employment and they specified circumstances in which he could be dismissed. Now, if the Court is going to say that you can look outside those terms to give a ground as to why he should be dismissed that is not contained in them, it requires such a term to be implied, either under the previous employment relationship or under this contract. And what we are saying is that this contract did define the circumstances in which he could be dismissed, and you then have to examine the proposition ‑ ‑ ‑

GUMMOW J: It is an instrument, it is a written instrument.

MR DOUGLAS: Of course it is, yes.

GUMMOW J: It cannot embody the whole of the contract.

MR DOUGLAS: Yes, and then one has to consider whether ‑ ‑ ‑

GUMMOW J: So it is silly to talk about this instrument as if it is “the” contract. It is just an instrument. What the terms of the contract are, they are partly in writing, they are either not in writing, partly implied by law, and so on.

MR DOUGLAS: Yes, and what our learned friend contends for is an implication by law which we say is inconsistent with this written contract, so one does have to look at it ‑ ‑ ‑

GAUDRON J: To make that submission, though, you would have to take in term 1.1 which is a term of the employment:

unless either party shall give…..to the other at least 3 month’s notice –

you have to go to 1.1 and 6 and read them together to say this was a contract which was terminable immediately only in the circumstances set out in 6.

MR DOUGLAS: Yes, and our learned friend relies upon clause 7.2, and I propose to come to those clauses later.

GAUDRON J: Yes, but I think he relies on 7.2 in this way ‑ ‑ ‑

MR DOUGLAS: He relies on it to say there is a breach of this contract, because we have not made good the previous defalcation.

GAUDRON J: Yes. You see there is no definition of serious misconduct, no exhaustive definition, only an inclusive definition in 6(a). It, for example, does not talk about the situation where the managing director devotes the whole time of his attention to work, but spends his whole time there, for example, drinking scotch.

MR DOUGLAS: I would expect, in due course, that would lead to a certain loss of attention, your Honour.

GAUDRON J: Yes. But it is, nonetheless, an inclusive definition, not an exhaustive one in (a).

MR DOUGLAS: Well, we would submit it is inconsistent with whatever the term is that our learned friend seeks to imply.

GUMMOW J: This is a provision for the benefit of the employer ‑ ‑ ‑

MR DOUGLAS: Yes.

GUMMOW J: ‑ ‑ ‑ that expands or makes clear a certain aspect. It is not a limitation of the rights of the employer. It is the last one….construed to a 6 ‑ ‑ ‑

MR DOUGLAS: Can I come back to that shortly.

Now, in summary, we submit that if an employee engages in conduct which amounts to a breach of the employment contract, then the employer has remedies, including in the case of misconduct the remedy of termination. If the employer wishes to enjoy a right to terminate in respect of what we would say is past misconduct, misconduct occurring before this instrument came into existence, it must obtain such a right by express provision or rely upon rights under the general law, such as rights arising from misrepresentations made in answer to material questions asked when the contract was being negotiated, which is a point made in Bell v Lever Brothers and in the Court of Appeal ‑ ‑ ‑

GUMMOW J: What has Bell v Lever Brothers got to do with this case, by the way?

MR DOUGLAS: Because it talks about ‑ ‑ ‑

GUMMOW J: It talks about things, but ‑ ‑ ‑

MR DOUGLAS: ‑ ‑ ‑ obligations to make disclosure of past misconduct.

GUMMOW J: In what context?

MR DOUGLAS: In the context of an employment contract where such alleged past misconduct has occurred.

GUMMOW J: It is authority for the proposition that where there is an agreement by way of compromise, the compromisers do not have any obligation to put all their cards on the table to one another, that is what it says, is it not? Is that not how it is construed by Mr Justice Lightman in that BCCI Case that is in the list of authorities.

MR DOUGLAS: Yes. I would have thought that he construed it, too, taking into account what the obligations were of people entering into an employment contract.

GLEESON CJ: How would Bell v Lever Brothers stand nowadays with the fashionable interest in importing obligations of good faith into the performance of a contract?

MR DOUGLAS: That was really considered in BCCI v Ali , the decision Justice Gummow just referred to, because there has been such a fashionable decision fairly recently in the House of Lords called Malik v Bank of Credit and Commerce International SA (1998) AC 20 where a duty or an implied term of trust and confidence was implied into the employment relationship with the same bank, which is a bank which went very seriously bad in England and internationally some years ago. The duty was held to apply to create a right in damages of employees who had been affected by the bad reputation developed by the bank. Now, such a term was implied in the relationship there, but Mr Justice Lightman in Ali’s Case said it did not extend to change the effect of Bell v Lever Brothers discussion of obligations on employees to make disclosure when entering into contracts of employment.

GUMMOW J: You see, Ali’s Case was another case of a compromise and release, was it not?

MR DOUGLAS: Yes.

GUMMOW J: That was for contract. The case was a case where it was sought to set that aside, set the compromise aside, as it was in Bell v Lever Brothers.

MR DOUGLAS: Yes.

McHUGH J: But your ship seem seems to be sailing straight past Mr Keane’s. His case is, as I understand it, that your client repudiated the contract by his inability to faithfully serve the employer because he disabled himself, and it has nothing to do with clause 6 of the contract which gives the employer rights of dismissal upon certain conditions. His case is you repudiated the contract by reason of a term implied by law, and he is now to be treated as accepting your repudiation. Now, what is your answer to that? At least, that is the way I see his case, anyway.

MR DOUGLAS: I see his case as two-fold, really. One is that because of the continuing failure to make good the fairly minor use of employees found against him, he was in breach of his obligation to serve faithfully under clause 7.2, and that he describes in his written outline as a breach, not as a repudiation.

McHUGH J: But it is not merely that he does not make good this money, but that he has done this in the past and it shows his unfitness for service with the appellant. His prior conduct, prior to 1986, shows his unfitness, so that he repudiated an essential condition of the contract, from the moment that agreement was signed, if there was a new contract or otherwise. I mean, your case must depend very ‑ ‑ ‑

MR DOUGLAS: It is not pleaded on that basis, of course, but that is the analysis that has been adopted now.

McHUGH J: Yes.

MR DOUGLAS: Now, if one seeks to examine whether that is repudiatory conduct, he seems to put it on the basis of the effect it has on the employer’s loss of confidence in him, or the effect that it has on the ability of the employer to have confidence in him, to be more precise. That comes back to what I have been describing as the “implied term argument”.

McHUGH J: You mention about not pleading it that way, and I think that is right. About the closest he gets to it is paragraph 7A of his defence which really is a denial of breach, rather than ‑ ‑ ‑

MR DOUGLAS: Assertion of repudiation.

McHUGH J: Yes.

GLEESON CJ: You need to have some fairly laborious deeming, do you not, to pursue this repudiation theory. An unaccepted repudiation is said to be a thing writ in water. What would have to be invoked here is some kind of deemed acceptance of an unknown repudiation.

McHUGH J: Yes, and that is the basis of Shepherd v Felt and Textiles.

KIRBY J: Does this put you in any Holcombe v Coulton disadvantage? In other words, is this simply a legal construct that is imposed retrospectively on the facts, which appears to be what Shepherd says, or is it a factual matter that can be explored at trial? Because there would appear to be no evidence that there was, in fact, an acceptance of the repudiation, there was just a dismissal.

MR DOUGLAS: Yes, and there is no real analysis of whether or not this was repudiatory conduct at the time.

I wanted to take the Court very briefly through the factual background to these circumstances, just to make sure that your Honours were clear of what did happen.

McHUGH J: I cannot see how Mr Keane’s case can get off the ground, otherwise than there is an acceptance of a repudiation. I mean, however you look at it, he has never attempted to rely on any misconduct, or he did not attempt to rely on misconduct as at the time.

MR DOUGLAS: No, no, it is a Shepherd v Felt and Textiles argument that they have relied on, and that is the way it has been treated below too.

McHUGH J: Yes, yes.

KIRBY J: But the other way it was put was that you had no right to expect, and certainly none to insist, that you would be maintained in the employment. Therefore, retrospectively, we can see you have no right to come back and claim damages for the termination.

MR DOUGLAS: I suppose that is fairly easy to say now, but when the trial was not run on that basis, it is a difficult situation for us to be put in. The trial actually was run on the basis that this allegedly repudiatory conduct occurred after 1986, or after this instrument of 1986, and that was found factually against the appellant.

KIRBY J: Well, I think that we had better look at the facts.

MR DOUGLAS: Yes.

McHUGH J: You see, the defendant seems to have accepted in its pleadings that the 1986 contract was a completely new contract but that there were implied into that certain matters by reason of the conduct prior to it.

MR DOUGLAS: Yes, and that is really the way the appeal proceeded below and how the Court of Appeal resolved that issue factually by saying, “This is an entirely new contract compared to the previous employment contract, even though the employment relationship we would concede continued”. That was found against them and they did not appeal on that ground.

Can I perhaps take you briefly through the facts, then?

GLEESON CJ: Yes.

MR DOUGLAS: Mr Wells was engaged under the 1986 instrument in the circumstances where the relationship between him and the appellant had changed significantly. There had been a partial management buy-out of the shares in the company, requiring him to assume substantial liabilities for a total of $1.25 million. As part of his entitlement to shares on the management buy-out and to realise the true value of the share, he was required to stay in the position for five years. If he left within that period, he had to transfer his shares and convertible notes in the respondent to the remaining shareholders at their issue price.

When he was dismissed, it was because of an economic downturn ‑ he was laid off, if you like ‑ not for misconduct, and you can see the findings about that in the appeal book and the evidence at page 22, lines 508 to 510. No doubt, it was really coincidental that the price payable for the shares and convertible notes he then had to transfer was a fraction of their real worth. You can see that at page 106 of the appeal book in lines 2810 to 2820. The examination of whether he had engaged in misconduct came after that dismissal.

The trial was not concerned with disclosure of past misconduct, but whether there was any misconduct in the first place, namely whether Mr Wells obtained his employer’s approval for the work done on his house, or was authorised to make use of employees’ time when there was no other work for them to do. The circumstances, if any, which have grounded an obligation to make disclosure at the time the 1986 contract was being negotiated were not explored at the trial. The case was not one in which it was alleged that past misconduct was concealed to give Mr Wells an advantage in negotiating his new contract. You can see that from the reasons of the majority at page 112 of the appeal book in paragraph 19, and pages 115 to 116 of paragraph 28. On the contrary, far from concealing his use of employees on occasions to do work when they had no other work to do, Mr Wells used the prospective son-in-law of a company director called Smith who was in the habit of speaking to his future father-in-law. There was no evidence that Mr Wells asked this employee or any other not to reveal what they were doing, so it is quite wrong to describe the conduct found against him as “robbing his employer blind”.

Finally, the supposed duty to disclose past misconduct was not an issue at trial, principally because the applicant’s case was conducted on the basis that the misconduct by use of the employees’ time occurred principally after this instrument of 1986 was entered into. It failed to make out its case because Mr Wells was able to prove that the house was constructed before that contract was made.

That having been said, in our submission, the case really boils down to whether it is an implied term in every employment contract, even one with an express provision about termination for misconduct, that the employer can terminate where past misconduct has occurred either under an earlier contract, or outside this employment relationship entirely. Our learned friends seem to concede as much when asked that during argument. In respect of that, can we say, first of all, what is the implied term contended for by the appellant? Is it that the employer has a right to terminate without compensation if it in fact loses confidence in the employee? In our submission, this is not a necessary implication because confidence may be lost in fact because, for example, the employee does not perform as expected, even though he or she still carries out their duties.

GUMMOW J: I think Justice Gaudron raised that with Mr Keane, and he does not put it that way.

MR DOUGLAS: Yes. It could also arise out of past misconduct which is not a breach of contract.

GUMMOW J: No, but it is not put subjectively.

MR DOUGLAS: Yes, well, it is a bit hard how it is put.

GUMMOW J: But objectively.

MR DOUGLAS: If the employer, in fact, loses confidence on whatever test may be adopted, the employer may terminate with reasonable notice, in most cases where there is not a fixed term of employment, and then provide compensation in lieu of notice.

McHUGH J: But it all depends ‑ I mean, there was some discussion earlier about the term “fundamental condition”, but the truth is that there are two types of breaches: there is breach of a condition, which will only entitle you to damages; and there is breach of fundamental conditions, which entitle you to terminate the contract. It is discussed by Chief Justice Jordan in Tramways Advertising Pty Ltd v Luna Park, the distinction between the two classes of action.

MR DOUGLAS: Yes.

McHUGH J: So, to justify here, your client has got to be in breach of some fundamental condition or essential condition of employment. If he is, that amounts to repudiation. It does not matter whether you use the term “repudiation”, it is your client being in breach of an essential condition of the employment which entitles the defendant to accept the contract as being at an end. So that is what you are looking for, is it not? I mean, unless Mr Keane can show that, he cannot justify this dismissal.

MR DOUGLAS: Yes, that is right and, really, the case was not run on that basis.

KIRBY J: How do you say it was run, what do you say? I mean, the factual chronology that you have identified indicates pretty clearly that he was terminated because of the run-down of the business, and then later when he started to insist on his contractual rights, they had a good look around and they were fortuitously able to discover this ‑ ‑ ‑

MR DOUGLAS: Use of employees on his own house when they were not otherwise being employed.

KIRBY J: We are not concerned, are we, in the question of whether that was justifiable or not justifiable? That has been found against your client.

MR DOUGLAS: Yes, that is so.

KIRBY J: So we start from a premise that he has acted in a way that was dishonest, unjustifiable and would, if known, have authorised termination, and if it had been during a time in a contract where undoubtedly that was a term.

MR DOUGLAS: Yes. Subsequently there is a new instrument entered into and we say that it was open to the employer to include in that instrument a provision covering the possibility of this having occurred in the past. It set out simply grounds for termination which did not include that, and to ‑ ‑ ‑

GAUDRON J: It was open to, but the question is, was it necessary to?

MR DOUGLAS: We would say that it is necessary to.

GUMMOW J: Why?

MR DOUGLAS: Because once you do define circumstances in which you are entitled to terminate ‑ ‑ ‑

GAUDRON J: This is purely a construction point, is it not, ultimately, and the application of expressio unius?

MR DOUGLAS: That is one possible approach to it, yes.

GAUDRON J: But if this is – I mean, let it be assumed for the moment that 6(a) was not present, only (b), (c), (d) and (e), there is no serious misconduct during the currency of the contract.

MR DOUGLAS: Yes.

GAUDRON J: Now, would you say that it was to be taken that that was the employer had bargained away its right to dismiss for serious misconduct?

MR DOUGLAS: No, I would not say that.

GAUDRON J: No. Why could you not say that?

MR DOUGLAS: Because one would imply in a contract of employment a right to dismiss for serious misconduct.

GAUDRON J: Yes.

McHUGH J: But do you accept that in this contract, including clause 6, that there was an implied term that Mr Wells would carry out his duties in good faith, would faithfully carry out his duties?

MR DOUGLAS: There is an express term in the contract in 7.2 that he will:

serve the Company faithfully and diligently.

That would cover, I think, the question your Honour asked me.

McHUGH J: Let me put an illustration. Supposing at the weekend Mr Wells did a bit of moonlighting with this company’s most serious competitor, would that entitle the employer to terminate the contract? It does not seem to be covered by anything expressly, does it?

MR DOUGLAS: I think there is some express provision about divulging secrets and unfair competition as well.

McHUGH J: No, you are not divulging secrets.

MR DOUGLAS: Clause 10 deals with unfair competition, that might be post-employment, I am not sure.

KIRBY J: It says:

serious misconduct which shall include –

and therefore it is not, as it were, an exclusive definition and ‑ ‑ ‑

MR DOUGLAS: Yes, it is an inclusive definition.

KIRBY J: It says:

failure by the Employee to devote his whole time and attention to the business ‑ ‑ ‑

McHUGH J: But:

during normal business hours –

that is why I said at the weekend, moonlighting.

MR DOUGLAS: Clause 10 might cover your Honour’s next question, 10.1.

McHUGH J: No, that is adult rates after termination of employment.

MR DOUGLAS: No, it says:

during the continuance of his employment hereunder and for a period of two years after termination.

McHUGH J: Yes.

GAUDRON J: Now, the reason I was asking you, Mr Douglas, about the implication of a term like 6(a) is, it seems to me, if there is an implied term of the kind which Mr Keane argues for, it is, if you like, an aspect or it derives from the same principle which would give you an implied term about serious misconduct. It is something about trust and confidence, if you like, between employer and employee.

MR DOUGLAS: That is the way he seems to articulate it.

GAUDRON J: But – that is what I am saying – if he is right, that would also justify the implication of a term with respect to serious misconduct as an implication of law. But you would say, would you, that 6(a), if it had to be applied, would have to be applied to make the contract work?

MR DOUGLAS: It would have to be applied to make the contract work. I mean, it would ‑ ‑ ‑

GAUDRON J: Not as a matter of law?

MR DOUGLAS: I am not sure that I follow your Honour’s question, I am sorry.

GAUDRON J: I want to know why you concede that if 6(a) were not there, there would be a term implied with respect to dismissal for serious misconduct.

MR DOUGLAS: I suppose because the law recognises that employees can be terminated for serious misconduct.

GAUDRON J: But why does the law do that? What is the underlying principle, I am asking?

MR DOUGLAS: It is an implied term on the basis discussed, really, in Byrne v Australian Airlines Limited by Justices McHugh and Gummow at page 449. Once you have the ‑ ‑ ‑

GAUDRON J: But is it implied because of the legal principles which govern the relationship, or is it implied because otherwise the contract would not work?

MR DOUGLAS: It is probably the historical case of employment contracts derived from the common practice of parties to such contracts, and if you look at the foot of page 449 of the decision, you will see the extract from Halsbury on which their Honours rely in, I think, talking about different categories of implied terms such as Justice McHugh was referring to earlier, those implied by rule of law and those implied on the basis of the intention of the parties. The passage is interesting in this context though, that it goes on to say:

This understanding of the matter is consistent with the proposition that terms of this kind, although treated as implied by law, may be excluded by express provision made by the parties and also as a result of inconsistency with terms of the contract.

We would say here there has been express provision made in clause 6 and to some extent in clause 7.

McHUGH J: It is done every day of the week in relation to the Sale of Goods Act, for instance. They are terms implied by law. They are excluding ‑ ‑ ‑

MR DOUGLAS: Yes, they are applied by statute now, of course, but the statute is derived from what the law was at the time.

McHUGH J: Yes.

GAUDRON J: But the principle of law, at best from the cases to which reference has been made, does not seem to be confined to misconduct during the employment relationship, does it?

MR DOUGLAS: We would submit that it should be, and I wanted to seek to distinguish some of those authorities to which my learned friend took you, such as Pearce v Foster and Boston Deep Sea Fishing and Ice and Gordon & Gotch.

McHUGH J: When you do so, you might deal with a passage at the bottom of 109 over to 110, which seems to me ‑ ‑ ‑

MR DOUGLAS: Of Gordon & Gotch?

McHUGH J: ‑ ‑ ‑ in this judgment seems to be an inaccurate statement of the law. Their Honours say:

It is well established that it is no justification for dismissal that the employee in previous employment by another person was guilty of acts of misconduct: see Gordon & Gotch –

I do not think that bears it out. In fact, I think it ‑ ‑ ‑

MR DOUGLAS: They said it was relevant evidence. I wanted to get to that.

McHUGH J: Yes, yes.

MR DOUGLAS: So that is a misstatement, clearly, to that extent, yes.

While I am talking about implied terms, the one that seems to be put up, I suppose, is that the employee shall not conduct himself or herself during the contract so as to destroy this necessary relationship of confidence. Now, our submission on the findings of fact that are not challenged, there was no such conduct by the employee during at least the contract from 1986 onwards, to destroy any necessary relationship of confidence.

KIRBY J: It is only two years before termination, in a very senior employee.

MR DOUGLAS: In fact, to be fair, your Honour, it is within a year of entering into the contract and, as your Honour said, two years before termination.

KIRBY J: In a very senior employee the nature of whose employment would necessitate especially trust. I mean, you cannot say this is somebody very low down on the ranks whose job did not involve anything to do with enjoying and maintaining trust of the employer. It is the nature of a manager that they will have and maintain that relationship.

MR DOUGLAS: Yes, that is so, your Honour.

McHUGH J: But it is serious misconduct. I mean, you take the case of Mr Quinn where circumstances seemed to be different only in the question of costs. He was, what, a managing director, a general manager of Coles, he went to gaol for several years for it. I mean it was several $100,000 worth of money expended on his home, but it was the same sort of thing.

MR DOUGLAS: Yes, yes, I have to concede that. Could I take your Honours then, in respect of one aspect of the decision in Bell v Lever Brothers to the decision and it is a point made by our learned friends in their written submissions that I think I should deal with, at page 228.

KIRBY J: This is 228 of Bell v Lever Brothers?

MR DOUGLAS: That is so, your Honour.

KIRBY J: The Queenslander.

MR DOUGLAS: Well, he was born here, your Honour, up at Sandgate, but by the same token The Courier Mail claimed Justice Hayne is a Queenslander.

GUMMOW J: They both left.

GLEESON CJ: But Justice Callinan arrived.

MR DOUGLAS: This is true and I suppose Sir Samuel Griffith was educated in Sydney and came back. Now, our learned friends draw attention to the passage at about point 4, which is redolent of antique language:

If a man agrees to raise his butler’s wages, must the butler disclose that two years ago he received a secret commission from the wine merchant; and if the master discovers it, can he, without dismissal ‑ ‑ ‑

GUMMOW J: Well, I think you have got to start reading at 227 in fairness.

MR DOUGLAS: You do, your Honour, and we have referred to those passages in the written outline ‑ ‑ ‑

GUMMOW J: Namely what Lord Atkin is addressing himself to:

It now becomes necessary to deal with the second point of the plaintiffs – namely, that the contract of –

settlement, as they call it –

could have been avoided –

et cetera.

MR DOUGLAS: Yes, and their:

claim is based upon the contention that Bell owed a duty to Levers to disclose his misconduct –

et cetera. I am sorry. I had taken that as given and we would refer to ‑ ‑ ‑

GLEESON CJ: Yes, and this is part of a wider principle which is that except in special circumstances the parties to a contract do not have an implied obligation to disclose to each other their breaches of contract.

MR DOUGLAS: Yes.

GLEESON CJ: Now, that was regarded as a well‑established proposition. Lord Atkin said the principal is caveat emptor.

MR DOUGLAS: Yes.

GLEESON CJ: But how does that general principle relate to the notion that there is an implied obligation of good faith in the performance of a contract between parties to a contract, a notion that seems to be gradually gaining some adherence?

MR DOUGLAS: There is a certain tension which is recognised by Mr Justice Lightman in BCCI v Ali and he resolved it in favour of the employee in that case by saying that it did not include a duty to disclose past misconduct, even though he recognised that a duty of trust and confidence had been found to exist.

GUMMOW J: Well, he was saying that a contract of compromise is not a contract in berrima fidae.

MR DOUGLAS: Yes.

GLEESON CJ: In those systems of law which impose an obligation of good faith between parties to a contract in relation to the performance of the contract, do they take that as carrying with it an obligation to disclose breaches of contract to one another?

MR DOUGLAS: I cannot answer that, your Honour. Apropos of what your Honour was saying just previous to that, there is an encapsulation of this issue of the duty of disclosure in BCCI v Ali at page 1015 in paragraph 13 of the decision. I will come back to Bell v Lever Brothers shortly though. So he restates – rely on Bell v Lever Brothers, what is really regarded as normal principle, except in contracts of the utmost good faith, you do not have duties to disclose breaches of contract.

GLEESON CJ: Yes. Sometimes people who talk about the possibility of recognising a duty of good faith distinguish between good faith in relation to negotiations leading up to a contract, which is covered by point one of what Mr Justice Lightman speaks of, and on the other hand duty of good faith in the performance of the contract, which may possibly be covered by point four, but they are two different ideas.

MR DOUGLAS: They are and the authorities seem to be that even in the performance of the contract you are not required to confess, even if there is a duty of good faith to be imported. You are not required to incriminate yourself and to impose such a duty would seem strange, given the general policy of the law about self‑incrimination.

McHUGH J: But there is no inconsistency between being under no duty to disclose and having a duty to serve faithfully, for the breach of which you can be terminated.

MR DOUGLAS: No. The employer can find out what you have done ‑ ‑ ‑

McHUGH J: Yes.

MR DOUGLAS: ‑ ‑ ‑ and terminate you for those reasons.

GUMMOW J: Well, that is this case, is it not?

MR DOUGLAS: Yes, but in a context where I suppose superimposed is this agreement which we say creates circumstances in which termination can occur is prospective in effect and does not include provision for previous defalcations which are not required to be disclosed and that they could have said, “Disclose them.”

GUMMOW J: Yes, but it does all come down to construction.

MR DOUGLAS: Yes.

GUMMOW J: I mean, the relevant facts do not seem to have been found and they do not seem to be any different, depending upon which way you go about constructing a legal picture.

MR DOUGLAS: Yes.

GAUDRON J: And if you come down to construction, why is it not open to read this contract as dealing with an existing employment relationship as specifying – not bringing about a new one, but specifying the terms and conditions of an existing one?

MR DOUGLAS: It uses prospective language.

GAUDRON J: Well, no, it does not. It says (a) that he is the employee and it says (b) that past entitlements are not affected.

MR DOUGLAS: It does and ‑ ‑ ‑

GAUDRON J: And if past entitlements are not affected, that would seem to be because there is no new employment relationship.

MR DOUGLAS: Well, it defines which past entitlements are not affected in clause 13.

GLEESON CJ: Well, there are some aspects of this contract that are new and some aspects that are old.

MR DOUGLAS: Yes.

GLEESON CJ: For example, his duties as Queensland manager presumably remained unchanged.

MR DOUGLAS: One would think that that is probably likely.

GLEESON CJ: They are not spelt out in any detail in this contract.

MR DOUGLAS: Yes.

GLEESON CJ: And one might also have thought that the provision about entitlement to terminate for serious misconduct is unchanged. It is an old feature of the employment relationship.

MR DOUGLAS: Although, interestingly, the passages dealing with dismissal for misconduct are expressed prospectively. They use the word “shall” all the way through it.

GAUDRON J: Yes, but presumably there was the same term at the time Mr Wells became employed – well, became employed as general manager or as Queensland manager.

MR DOUGLAS: Well, similar terms may have been implied.

GAUDRON J: Well, would it not be the same term?

MR DOUGLAS: Not to engage in serious misconduct?

GAUDRON J: Well, that the employer is entitled to dismiss for serious misconduct. Would not that term have been there from day one?

MR DOUGLAS: Yes.

GLEESON CJ: Why should not this document be regarded as a variation of the contract of employment?

MR DOUGLAS: I suppose that path was trodden in the Court of Appeal and we thought we left it behind us.

GLEESON CJ: Well, in fact, the Court of Appeal headed its discussion of this subject by asking a question whether this was a new and discrete contract.

MR DOUGLAS: Yes.

GLEESON CJ: I am not sure exactly what the import of the word “discrete” is in that rhetorical question.

MR DOUGLAS: I suppose setting up a new regime for the relationship between the parties.

GLEESON CJ: Well, we know that, that the regime it set up was partly new and partly old.

MR DOUGLAS: Yes.

GLEESON CJ: Yet you will not get much assistance by looking at this document to find out what his responsibilities were in terms of day‑to‑day duties.

MR DOUGLAS: No. You do see, though, that he has a fixed‑term contract for five years and there is collateral evidence showing that that was important because of the other obligations he took on. That is the main factual difference, I would have thought.

GLEESON CJ: Did his salary change as a result of this contract?

MR DOUGLAS: I am not sure that the evidence discloses that. We will check it, but I do not think the appeal book shows it anyway. I was earlier going to a passage in Bell v Lever Brothers ‑ ‑ ‑

GUMMOW J: You were talking about the butler.

MR DOUGLAS: Talking about the butler, that is so, your Honour, and I think our learned friend has seized on the language that follows immediately after that at about point 5 of the page:

If a man agrees to raise his butler’s wages, must the butler disclose that two years ago he received a secret commission from the wine merchant; and if the master discovers it, can he –

I think this is the emphatic phrase –

without dismissal or after the servant has left, avoid the agreement for the increase in salary and recover back the extra wages paid?

GUMMOW J: Now, no one is avoiding any agreement here and they are not trying to recover any moneys paid.

MR DOUGLAS: No. We are trying to recover money owing under the contract.

GUMMOW J: That is right. That is what Justice McHugh keeps pointing out.

MR DOUGLAS: Yes. I think our learned friend relies upon the phrase “without dismissal” to make the argument that Lord Atkin recognises that you can still dismiss in these circumstances, but the relevant issue from our point of view is that certainly you can terminate an employment relationship, to use the language in Byrne v Australian Airlines, but that is not the same thing as terminating a contract.

GAUDRON J: That is right. Well, you want damages for breach of contract.

MR DOUGLAS: Yes, that is right. We have made that ‑ ‑ ‑

GAUDRON J: And you have got to point to something which says, “You shall be dismissed without notice only in the events specified in 6(a).” You have got to make the contract mean that to start with.

MR DOUGLAS: Well, we have got to make it mean that we ‑ ‑ ‑

GAUDRON J: Which is not what it says.

MR DOUGLAS: ‑ ‑ ‑ that we shall not be dismissed for misconduct before this instrument came into existence. Now, when one looks at the interpretation of the contract, one needs to look at clause 6(c) ‑ ‑ ‑

KIRBY J: As I pointed out earlier, that it talks in terms of “includes” in 6(a).

MR DOUGLAS: Yes, it does, and it also says, in effect, that it is ground for termination if the party – the employee:

Commits any material breach of any provision of this Agreement which is incapable of being remedied –

One of the breaches that our learned friend points to or asserts is a failure to make recompense for the previous use of employees who were not otherwise engaged as an example of a failure to serve faithfully and diligently. Well, if that breach was remedied by the order for the payment $2,816 and as to clause 7, in our submission, Mr Wells did faithfully serve Concut during the term of this 1986 agreement, even if his failure to make good was a breach of it, he still nevertheless faithfully served during its term.

I have said a reasonable amount already about the other point our learned friend makes about this duty of confidence and the loss of it, the loss by the employer of the confidence in the employee, and whether that gives rise to a right to terminate, notwithstanding that the employee dutifully performed the existing contract. Our learned friend has conceded that the necessary implications of what he says, including paragraphs 20 to 23 of his written outline, extends to misconduct during employment with another employer.

This is so because his submissions focus on the destruction of the necessary relationship of confidence between employer and employee. That relationship, we would have thought, should be affected not just by conduct between the particular employer and employee but by conduct outside the employment relationship, but if that were to be the case, then, in our submission, established doctrine would be overthrown. Every prospective employee would be obliged either to disclose past errors and be at risk of either missing out on a position or to conceal those errors and risk future dismissal over an indeterminate period, not from misbehaviour in the new position, but because of the discovery of those past errors.

Most employment cases do not raise these issues, we suspect for two reasons. The relevant misconduct occurs during the subsistence of the contract which is terminated and in other cases where the employer loses confidence in the employee the employee is given notice or paid in lieu of notice. The respondent does not submit that an employer who, in fact, loses confidence and who wishes to terminate the employment relationship cannot do so. The question in such a case is, as we have said, the contractual consequences and where the employee has not breached the contract and the employer does not give reasonable notice then dismissal – can terminate the employment relationship notwithstanding that the contract of employment may continue until the employee accepts the repudiation constituted by the wrongful dismissal and puts an end to the contract.

KIRBY J: Does that mean that you concede that the termination was justifiable or ‑ ‑ ‑

MR DOUGLAS: No, it does not.

KIRBY J: ‑ ‑ ‑ and is warranted at law?

MR DOUGLAS: No, we do not. We concede that there can be a termination of the employment relationship but that can be a breach of contract and we say there has been a breach of contract. We are entitled to the moneys that were awarded in our favour in the Court of Appeal for that breach. We are really using the language, when I said that, from page 427 of Byrne v Australian Airlines in the joint judgment of the Chief Justice and Justices Dawson and Toohey where their Honours recognised there can be a termination of an employment relationship but not a proper termination of a contract, leading to rights for breach of contract.

GAUDRON J: Now, can I take you back to something I asked you before?

MR DOUGLAS: Yes.

GAUDRON J: If one takes the view that up until 1 December 1986 it was a term of the employment relationship that Mr Wells could be dismissed at any time for serious misconduct, and from the first day of December it is a term of the same relationship, although it is now written down, if one takes that view, which seems to me to be the likely practical situation, why is not the legal question for you whether or not this service agreement so‑called effects a release of prior misconduct?

MR DOUGLAS: I approach that by – it can be answered in this way, that employers should be taken to know that on entry into a contract of service, an employment contract, an employee is not obliged to reveal past misconduct.

GAUDRON J: But you are assuming ‑ ‑ ‑

GUMMOW J: That assumes a release, you see. That assumes a contract of release.

GAUDRON J: Yes. You see you are assuming this is the entry into the employment relationship. Patently the service agreement was not the entry into the employment relationship because it is recited as his being an employee.

MR DOUGLAS: Yes.

GAUDRON J: And, in fact, he was an employee.

MR DOUGLAS: Yes.

GAUDRON J: And up until that moment he was an employee who could be dismissed, you concede, for serious misconduct.

MR DOUGLAS: That is so.

GAUDRON J: Yes.

MR DOUGLAS: But the employer should know that on entry into this ‑ ‑ ‑

GAUDRON J: Into this what?

MR DOUGLAS: New agreement.

GLEESON CJ: What was going to happen on entering into it?

MR DOUGLAS: The term of employment was to be defined as a fixed term.

GLEESON CJ: You did not plead this agreement as a defence to the counterclaim for $2,816. Evidently it did not release that.

MR DOUGLAS: No.

KIRBY J: That is pretty inconsistent with your theory, is it not?

MR DOUGLAS: It is, yes, but if I can try to articulate the theory properly, the theory is that employers know, or should be deemed to know, that there is no obligation to expose past misconduct. They should know or should be deemed to know that they can ask about it or import a term to that effect.

GUMMOW J: And if they do not, it is deemed released, even though it does not say it is released.

MR DOUGLAS: That is drawing a long bow, but if they do not, we would submit you should not imply a term that termination for previous breaches can extend into the term of this new arrangement.

GAUDRON J: But this is not a new employment. On any view, it is not a new employment.

MR DOUGLAS: It is a new contract of employment for a pre‑existing employment relationship.

GAUDRON J: It is a new contract which repeats what was a prior term in any event, you concede that, whether it was express or implied?

MR DOUGLAS: Yes, we would have to concede it is a legal incident of a contract of employment that it should be terminable upon reasonable notice or summarily for serious breach. That is some of the language from Byrne v Australian Airlines, so it is not new.

GAUDRON J: And you cannot make this contract work to create a new employment relationship.

MR DOUGLAS: You can make it work to set out prescribed circumstances in which termination can occur, which does include the ones that refer back to prior misconduct. That is it. Can I turn then briefly to Boston Deep Sea Fishing and Ice and Pearce v Foster?

GLEESON CJ: Well, is this a convenient time to break in your argument, Mr Douglas?

MR DOUGLAS: I think I will be finished by quarter to.

GLEESON CJ: All right. How long will you be in reply, Mr Keane?

MR KEANE: I think about five to 10 minutes. More like five.

GLEESON CJ: All right. Well, we will adjourn at a quarter to.

MR DOUGLAS: Thank you. As is well known, Boston Deep Sea Fishing and Ice was a case, in effect, where the employee at the time or during his employment contract received secret commissions and was dismissed for those reasons. Pearce v Foster was a case where there was conduct outside the employment contract but which affected it and was incompatible with a discharge of his duties in the employment contract and it is different from this case because of the contemporaneity of the conduct with the contract that was then in existence.

Gordon & Gotch is also distinguishable, apart from the basis advanced by your Honour Justice McHugh, on the basis that pleadings there contained an allegation of fraudulent concealment, which you can see at pages 374 to 375 of the judgment. The passages from the pleadings are recited there. Finally, can we say in this case Concut, for commercial reasons, in our submission, bargained away its right to terminate upon giving reasonable notice. It defined the conduct which entitled it to terminate the employment without notice in clause 6. Past misconduct was not such a ground. It could have negotiated to include such a term but it did not do so.

KIRBY J: Well, can I just say there that it did not do so because it did not have any reason to address that particular problem and, indeed, it is suggested to us that it is inherent in the notion of the nature of the relationship of employment that it would not speculate upon such a matter because it is so incompatible with that relationship.

MR DOUGLAS: Yes, but it is also something ‑ ‑ ‑

KIRBY J: I mean, who would think, in an ordinary written service agreement, that you have got to make provision in case something is discovered later about a fundamental dishonesty, serious dishonesty? Some people might regard that as very, very insulting to put that in a service agreement.

MR DOUGLAS: Perhaps in that context I should hand up a decision of the Supreme Court of Victoria, not in the list, called Gill v Colonial Mutual Life Assurance Society Limited talking about implications of terms such as that and saying it is open to the employer to make such provision. The submissions are made by Sir Owen Dixon when he was counsel at page 147 about point 5 and Mr Justice Hood I suppose draws attention at page 148 to 149 to the undesirability of implication of terms about an employer:

without due notice, get rid of a servant whose previous conduct renders him undesirable; but it is equally harsh to say that a capable and willing servant may be immediately dismissed on the discovery of some ancient offence – so that no assistance is derived from this consideration.

KIRBY J: This can hardly be called ancient.

MR DOUGLAS: No.

KIRBY J: It is two years before.

MR DOUGLAS: But I suppose the law has been for quite some time that you have not got to disclose information like this, so it is open to a well‑advised employer to make provision for it and that is something which should have been done.

GLEESON CJ: All right. We will adjourn until 2.15.

AT 12.47 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.19 PM:

GLEESON CJ: Yes, Mr Douglas.

MR DOUGLAS: Could I conclude, if the Court please, by addressing some of the comments your Honour Justice Gummow made about Bell v Lever Brothers and BCCI v Ali. In our submission, the passages in those judgments, particularly in the speech of Lord Atkin at pages 227 to 229 and in Mr Justice Lightman’s decision at page 1018 are not limited to cases of compromise or release, they are talking generally about mutual obligations of employer and employee in respect of making disclosure.

GUMMOW J: I do not think they are, but there we are.

MR DOUGLAS: When one considers the position of the employer the employer can protect itself in this case by contractual provisions but when one looks at the employee’s situation it is a different situation highlighted by the passage in Mr Justice Lightman’s decision at page 1018, paragraph 19 between letters e and f where his Lordship says:

A duty on an employee to disclose, eg, that he took a day’s sickness leave when not genuinely ill or used his employer’s telephone or stationery for private use may be thought intolerable. A duty to confess wrongdoing whether on the part of employer or employee may be thought to require standards extravagant and unattainable in the work place.

GUMMOW J: Yes, but a duty to confess when, you see. This is the sort of thing academics do. They take a bit out of a judgment ‑ ‑ ‑

MR DOUGLAS: This is true. We would say there is no duty to confess at any stage and the question is whether there is a duty to disclose on entry into a contract, as we formulate the argument.

GAUDRON J: Yes, but that really is talking about the validity of a contract or the formation of a contract.

MR DOUGLAS: Yes.

GAUDRON J: This is not a case about fact, this is a case ‑ ‑ ‑

MR DOUGLAS: We have submitted that it is and that it was run below on that basis and that it was found by the Court of Appeal which has not been the subject of a ground of appeal which would be a separate and discrete contract.

GUMMOW J: No. The formation of a contract with a view to setting it aside, that is what these cases are about. That is not what this case is about. This case is about form.

MR DOUGLAS: No, but in our submission the dicta in the decisions state general propositions about duties of employees and employers not limited to contracts of that nature. They are our submissions.

GLEESON CJ: Thank you, Mr Douglas. Yes, Mr Keane.

MR KEANE: As to the notion of justification for dismissal as a matter of objective fact, can we refer your Honours to the observations of Justice Starke in Shepherd v Felt and Textiles 45 CLR 359 at 373 where his Honour says at about point 8:

The fact that the appellant’s misconduct was unknown to he respondent at the time of the termination of the agreement is quite immaterial. If there were, in fact, any circumstances in existence at the time of the termination of the agreement which could have justified the respondent in so terminating it, then it may justify the termination by subsequent proof of those circumstances –

Then there is a reference to the decision of Taylor that I think your Honour Justice McHugh was referring to earlier. But, it is, in our respectful submission, a matter of objective fact - if objectively it is the case, then one does not need to get into what might be said to be a lot of heavy deeming of repudiating. In relation to the suggestion that the conduct in question involved the use of the appellant’s employees only when there was not otherwise work for them to do ‑ ‑ ‑

KIRBY J: Can I just pick up that last point you made, there still is a fiction in it, is there not, because although the employee continues in the contract of employment and although the employee continues to offer loyal service, generally, and though that might go on for years, on your theory, the opposition is that the law comes in, superimposes itself upon their relationship and says, “In fact you repudiated the contract and when you terminated you accepted that repudiation”. It is a fiction. It is not in fact what happened in the sense of your accepting, at that time, a repudiation because, by definition, you did not know it. It is a fiction.

MR KEANE: No, that is true. What there is a termination. The question is whether there is justification for the termination.

McHUGH J: I know but it is a bit deeper than that, is it not, because the accepted doctrine is that if the employer wrongfully dismisses the employee, the employment relationship terminates but the contract remains on foot until the employee accepts the repudiation although it has the strange consequence, according to Automatic Fire v Watson, that the employee is not entitled to his wages during the period even though the contract is still on foot. So, there is fiction piled on fiction in this particular area. Pragmatism control the day, really.

KIRBY J: That is why I rather preferred – it may not be the law but I preferred the way you originally came to the Court to express it, which was that you dismissed him and, as it were, ex post facto, retrospectively, we can see that you were justified in dismissing him.

MR KEANE: Yes, your Honour.

KIRBY J: It may not be good legal theory but it seems a much preferable way to rationalise what actually happened in this case.

MR KEANE: There was a termination. That it had one purported legal basis does not deny justification if in fact grounds there were.

KIRBY J: That is right, the law goes back. It looks back and says, “We look back with the knowledge we now have and it may not have been justified on the basis on which it was done but the law says it was justified because, by reason of supervening events, we know that it was justified objectively and in law.

MR KEANE: Yes, your Honour.

KIRBY J: But that does not involve this notion of accepting a proffered repudiation. It just strikes me as a complete negation in fact of what actually occurred.

McHUGH J: Except to this extent that to justify your dismissal you have got to find some ground and it cannot be just a mere breach of contract on the part of the employee, it has to be such a ground that constitutes a repudiation of the contract on the part of the ‑ ‑ ‑

MR KEANE: A breach of condition of the employment.

McHUGH J: Yes.

MR KEANE: Yes, your Honour. A breach of the condition of the employment upon which the entitlement to remain in employment and be paid wages is dependent.

KIRBY J: Have you looked to see whether there are any academic or other analyses of this, any recent commentaries on this area of the law?

MR KEANE: We have looked. The only discussion we have found in the academic commentaries is really the discussion of the views in relation to contract or relationship, but I have to say that we have not given them to your Honours we do not think they are particularly germane.

KIRBY J: I think Mr Douglas might. I know you are very reluctant in Queensland to give courts academic material but, for my own part, I will look for it anyway, so, if you have any, I would be interested to see them. They have more time than practising lawyers and judges to think about ‑ ‑ ‑

GUMMOW J: They do not understand Bell v Lever Brothers though, because they have never been to a court.

MR KEANE: I think my learned friend, Mr Douglas, can help you with some academic material. I would invite him to help your Honour.

MR DOUGLAS: We try to typify focus, as well as other forms of assistance. There are two articles we have found about the right to silence of employees and any implied duty to give information during performance of contracts. Your Honours are welcome to have them. I can hand them up. One is in the Modern Law Review.

KIRBY J: It is more on the termination theory and the repudiation theory.

MR DOUGLAS: I have not found anything about that.

KIRBY J: Perhaps they would be worth – speaking for myself, I would be grateful if ‑ ‑ ‑

McHUGH J: There is nothing novel about this repudiation theory or acceptance of ex post facto justification. The principle applies in every area of contract law. It is not confined to employment law.

MR DOUGLAS: Yes, that is so. I can have them copied and provided to your Honours.

KIRBY J: Yes, if that could be done, I would be grateful.

GUMMOW J: What do you say, Mr Keane, about Gill v The Colonial Mutual? That is that decision relied on of Justice Hood in the Victorian Court (1912) VLR.

MR KEANE: It is not a case where anything is said against the propositions and the principles in the line of authority from Pearce v Foster, Ansell, Griffin ‑ ‑ ‑

GUMMOW J: No, Boston and Pearce v Foster are referred to at the top of page 148.

MR KEANE: Boston and Ansell and ‑ ‑ ‑

GUMMOW J: Then the judge says, well, that is true but you cannot go back into the past.

MR KEANE: In our respectful submission, if that is to be taken as the effect of what his Honour is saying then, in our respectful submission, it is distinctly out of kilter with a long line of unbroken authority to which his Honour does not seem to refer in any way which would justify what his Honour has said without it being characterised as being per incuriam.

GUMMOW J: Thank you.

MR KEANE: We were just going to mention, without making much of it, that in relation to the suggestion that Mr Wells made use of the appellant’s employees only when they were not otherwise gainfully employed, that seems to be inconsistent with some evidence that his Honour evidently accepted, as the trial judge, at page 88, lines 2448 to 2450. Finally, in relation to the manner in which the case was conducted below, at the level of the Court of Appeal the contentions that were advanced on our side are summarised at page 105 in paragraph 4. It goes over to 106. In relation to the plea of an entitlement to terminate your Honours will find at paragraph 9(b) in the defence at page 14 of the book an assertion of an

entitlement to terminate in the premises of all the pleaded conduct that is alleged before.

GUMMOW J: I am sorry, page 14?

MR KEANE: Page 14, paragraph ‑ ‑ ‑

GUMMOW J: Yes, I see.

MR KEANE: Your Honours, those are our submissions.

GLEESON CJ: Thank you, Mr Keane. We will reserve our decision in this matter.

AT 2.32 PM THE MATTER WAS ADJOURNED

[2000] HCATrans 273

Key Legal Topics

Areas of Law

Civil Procedure

Contract Law

Negligence & Tort

Legal Concepts

Appeal

Breach

Damages

Duty of Care

Negligence

Reliance