Crowe Horwath (Aust) Pty Ltd v Loone
[2017] VSCA 181
•7 July 2017
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2017 0038
| CROWE HORWATH (AUST) PTY LTD | Applicant |
| v | |
| ANTHONY LOONE | Respondent |
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| JUDGES: | ASHLEY, PRIEST and BEACH JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 23 May 2017 |
| DATE OF JUDGMENT: | 7 July 2017 |
| MEDIUM NEUTRAL CITATION: | [2017] VSCA 181 |
| JUDGMENT APPEALED FROM: | Crowe Horwath (Aust) Pty Ltd v Loone [2017] VSC 163 (McDonald J) |
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CONTRACT – Application for leave to appeal – Employer and employee – Findings by judge that employer engaged in repudiatory conduct and that repudiation of contract accepted by employee – Whether judge erred by finding that particular conduct of employer breached terms of contract – Whether any ground had real prospect of success – Leave to appeal refused.
CONTRACT – Application for leave to appeal – Employer and employee – Restraint of trade clause – Termination of contract by employee’s acceptance of employer’s repudiatory conduct – Whether judge correct to find that employer not able to rely upon restraint clause in circumstances – Whether grounds had real prospect of success – Leave to appeal granted on all but one ground – Appeal dismissed.
PRACTICE AND PROCEDURE – Appeal – Whether applicant advanced arguments not raised at trial – Whether applicant should be allowed to raise new case on appeal – Whisprun Pty Ltd v Dixon (2003) 77 ALJR 1598 applied.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr A Moses SC with Mr N A T Harrington and Ms F Leoncio | Mills Oakley |
| For the Respondent | Mr J L Bourke QC with Mr A P Rodbard-Bean | Marsh & Maher Lawyers |
ASHLEY JA
PRIEST JA
BEACH JA:
Overview
On 4 April 2017, after a five day trial held some six weeks earlier in a proceeding brought by Crowe Horwath (Aust) Pty Ltd (‘CHA’ or ‘the applicant’) against Anthony Loone (‘Mr Loone’ or ‘the respondent’), a judge in the Trial Division found that —
(1)the respondent (as employee) had accepted the repudiatory conduct of the applicant (as employer) in respect of an employment contract executed under seal on 1 November 2012 (‘the 2012 contract’, or, simply ‘the contract’[1]), whereby the contract was brought to an end; and
(2)a restraint of trade covenant (for convenience, ‘the restraint clause’) in the contract,[2] though intrinsically unobjectionable, in the particular circumstances could not be availed of by the applicant. It is convenient to note, immediately, that the form of the clause which the judge found to be intrinsically unobjectionable, broadly described, precluded the respondent for a period of 12 months after termination of employment from engaging in competition with the applicant in a business situated within five kilometres of the location where the respondent had worked for the applicant, and from soliciting work from clients of the applicant with whom the respondent had had direct dealings.
[1]There were earlier contracts to which the respondent was a party. We will refer to them as ‘the 2000 contract’ and ‘the 2006 contract’.
[2]Clause 3.1 of sch 2.
The judge ordered, inter alia, that an interlocutory injunction which he had granted in favour of the applicant on 26 September 2016 — it related to the restraint clause — be discharged. But his Honour stayed the operation of that order until 7 April 2017. Thereafter, by orders of this Court, the operation of that part of his Honour’s order has continued to be stayed. Presently, it is stayed until 11 July 2017 or further order.
Apart from the applicant’s claim for injunctive relief, both the applicant and the respondent have raised money claims in the proceeding. The hearing and determination of those claims has yet to take place.
The applicant seeks leave to appeal against the judge’s orders, specifically against the order discharging the interlocutory injunction; and seeks, if leave to appeal be granted, that the appeal be allowed and that a permanent injunction be granted, operative until 11 July 2017. The application also seeks disposition of the money claims.
In substance, the applicant contends that the judge erred by finding that the contract was terminated by the respondent’s acceptance of repudiatory conduct by the applicant; and contends that, even if the contract did terminate in those circumstances, nonetheless the restraint clause operated according to its tenor.
The proceeding, commenced on 28 July 2016, has gone forward with commendable speed. It has been the subject of an interlocutory injunction hearing, trial, and now appeal. Nonetheless, the nominal period of operation of the restraint, held to relate to 89 clients of the applicant with whom the respondent had direct dealings,[3] is nearly at an end. The period will end on 11 July this year. Whilst abiding by the strictures of the restraint clause, in the interim the respondent has set up his own business.
[3]This finding as to the ambit of operation of the clause is not now challenged.
The proceeding seems to us to come down to this: if the applicant did not engage in repudiatory conduct, then the respondent’s claim that the contract terminated by his acceptance of such conduct must fall. His money claims would fall with it; and he has not been heard to say that the restraint clause (soon to run its course) would not operate according to its tenor. There would then be a question whether the applicant is entitled to judgment for a money sum of about $30,000. But if this Court holds that the judge did not err in concluding that the contract was terminated by the respondent’s acceptance of repudiatory conduct by the applicant, then, regardless whether the restraint clause survived termination, the respondent will have a money claim against the applicant. If, in addition, this Court holds that the judge did not err in concluding that the applicant was not entitled to rely upon the restraint of trade clause, then the applicant’s undertaking as to damages will come into play. But as McDonald J, the trial judge, in substance observed in his reasons for judgment,[4] a question would then arise about potential doubling up of damages.
[4]Crowe Horwath (Aust) Pty Ltd v Loone [2017] VSC 163, [168]–[169] (‘Reasons’).
Proposed grounds of appeal
By its amended application for leave to appeal, the applicant relies upon the following proposed grounds:
PRIMARY APPEAL GROUND APPEAL [sic]:[5] Repudiation
[5]Probably, the second ‘appeal’ should be ‘1’.
1.Ground 1(a): The trial judge erred in finding that CHA’s exclusion of the DFG acquisition from the assessment of the Launceston bonus pool[6] was a refusal by CHA to comply with its contractual obligations in clause 75 regarding the assessment of Loone’s discretionary bonus entitlement.
[6]Judgment at [84] (citation in original).
2.Ground 1(b): The trial judge erred in finding that CHA proposed a 20% deferral of the 2016 bonus and that such conduct evinced an intention to not be bound by clause 7.5.
3.Ground 1(c): The trial judge erred when, upon finding that Loone had determined to leave employment on 30 June 2016, he permitted Loone to rely on later conduct by CHA (the Roberts 1 July Statement) in asserting repudiation.
4.Ground 1(d): The trial judge erred in concluding that Loone could, on 12 July 2016, in claiming that CHA repudiated the 2012 Contract, rely upon earlier alleged repudiatory conduct by CHA that was not identical[7] to that which was not acted upon prior to the 1 July 2016 repudiation and acceptance of same by Loone.
[7]Judgment at [50] in finding that Mandie J was too narrow in his approach in Marks v CCH Australia Ltd [1999] 3 VR 513 (citation in original).
5.Ground 1(e): The trial judge erred by finding that, for the purposes of clause 1.4 of the 2012 Contract, by 1 July 2016, CHA required Loone to occupy a position other than the position in Item 4 of the Sch 1 to the 2012 Contract, namely the Managing Principal position in the CHA Launceston office.
6.Ground 1(f): The trial judge erred in finding that, in the period to 1 July 2016, CHA breached clause 1.4(a) of the 2012 Contract by failing to consult with Loone about any change to his position (namely the position described in Item 4 of Schedule 1 to the 2012 Contract).
7.Ground 1(g): The trial judge erred in finding that CHA breached clause 1.4(b) of the 2012 Contract by directing Loone to occupy a position that was not equivalent in status to the position identified in Item 4 of Schedule 1 to the 2012 Contract.
PRIMARY APPEAL GROUND 2: The Restrictive Covenant was of no legal effect
8.Ground 2(a): The trial judge erred in his application of principle concerning discharge upon breach.
9.Ground 2(b): The trial judge erred in his construction of clause 19 of the 2012 Contract and clause 1.2(e) in Schedule 2 to the 2012 Contract.
10.Ground 2(c): The trial judge erred in applying the decisions in General Billposting and Kaufman and following those decisions.
11.Ground 2(d): The trial judge erred in concluding the Restrictive Covenant was rescinded ab initio and thereby erred by giving effect to the recission [sic] fallacy.
12.Further Ground: [T]he trial judge erred in invoking equitable considerations to refuse injunctive relief.
Circumstances described
In what follows, except where we indicate otherwise, the circumstances to which we refer emerge either from a summary of facts provided to the Court by the parties,[8] or else from facts found by the judge.[9] In the course of this description of circumstances we will expose some parts, but not all, of his Honour’s reasoning.
The applicant
[8]Which we take to refer to the situation at relevant times.
[9]Either findings of fact to which there is no challenge, or else findings now under challenge. We will indicate the findings where a challenge is raised.
CHA provides financial services, including accounting and financial advice. It operates what is described as a group office structure. It owns all CHA branded businesses. They provide services throughout Australia and New Zealand. CHA operates approximately 112 group offices in Australia and New Zealand. Its head office is in Melbourne. It employs approximately 2,500 persons Australia-wide.
The company operates an office in Launceston. It is a stand-alone group office. As at July 2016, it employed approximately 80 people, and provided services annually to some 2,200 clients, generating gross fee income in the range of $9 million per annum.
In January 2015, CHA was acquired by Findex Group Limited (‘Findex’). It was uncontroversial that, subsequent to this acquisition, Findex sought to rationalise and streamline CHA operations throughout all the CHA offices. The process was given a number of shorthand descriptors. We will mention them later in these reasons.
The respondent
Mr Loone is an accountant by profession.
In the period leading up to 24 November 2000, Mr Loone was a senior accountant, partner and director in a precursor accounting business named Garrotts. At that time, the business was sold to a new owner. Mr Loone both took an equity in the new business and became an employee, entering into a written contract of employment (‘the 2000 contract’) with the new owner. The contract contained a restraint of trade clause.
On 19 December 2006, a new employment agreement (‘the 2006 contract’), executed as a deed, was concluded between the respondent and WHK Business Services Pty Ltd (‘WHK’). WHK was, as we understand it, the entity standing behind CHA. This contract also contained a restraint of trade clause.
On 1 November 2012, the 2012 contract was entered into between Mr Loone and WHK. We will refer to a number of its terms, and to the content of two schedules thereto, later in these reasons. It is common ground that it was this contract which governed the rights and obligations of CHA and Mr Loone in the period 2015 to 2016.
Until his employment ended on 12 July 2016, the respondent was the most senior executive in the Launceston office of CHA.
The 2012 contract
We should refer to provisions of the 2012 contract which are of key importance to the disposition of this matter.
First, as to position:
·By cl 1.1, the contract stated ‘You will be employed in the position set out in Item 4 of Schedule 1’.
·Item 4 described the respondent’s position as ‘Managing Principal’.
·The contract did not, itself, specify the duties to be performed in that position. But the respondent had been provided with a document entitled ‘Managing Principal – Role Profile’ before entering into the contract. It was common ground that the document accurately described the duties which the respondent was to perform in the position of Managing Principal under the 2012 contract. It was a lengthy document. We set it out as Annexure 1 to these reasons.
·Clause 1.4 provided as follows:
The Company may from time to time require you to occupy a position other than the position in Item 4 of Schedule 1, either on a temporary or permanent basis, but only if:
(a)it has consulted with you in relation to the change; and
(b)the other position is at least equivalent in status to, and has a level of remuneration which is at least equivalent to that of, the position in Item 4 of Schedule 1.
·We should refer also to cl 8, which reads as follows:
Your employment by the Company will continue to be subject to the terms of this Agreement, including the termination provision in clause 16, unless varied or replaced by an agreement in writing, despite any change to your position, duties, location of work and/or reporting responsibilities.
Second, as to remuneration:
· By cl 31.19, ‘Remuneration’ was defined to mean —
Your Base Salary, superannuation contributions and, if you are a Principal, any discretionary bonus.
· Clause 7.1 stated that —
The Company will pay you a Base Salary in accordance with Item 8(a) and (b) of Schedule 1 subject to, and in consideration of, you performing your duties under this Agreement.
·Item 8 of sch 1 provided for a base salary of $280,000 per annum inclusive of superannuation.
· The definition of ‘Remuneration’, which we have set out above, referred to bonuses. In that connection, cl 7.5 stated that —
The bonus you may be eligible to get forms a discretionary component of your Remuneration. The Company will determine from time to time, at its absolute discretion, the amount of any bonus payment that may be made to you. This amount will be determined by consideration of various performance parameters including but not limited to your personal performance, the performance of the Group and the broader economic conditions. You will be eligible to receive a bonus in any year if, and only if, you are in the employ of the Company at the time that the bonus is to be paid and you have not, prior to that time, given or been given notice of termination of your employment.
Third, as to termination:
· Clause 16.2 provided that the applicant’s employment might be terminated on the giving of notice by either party to the contract, or by mutual agreement. Detailed provisions with respect to notice were set out in cls 16.3, 16.4 and 16.5. By cl 16.6, CHA retained the right to terminate the applicant’s employment without notice or payment in lieu of notice in circumstances warranting summary dismissal.
Fourth, as to restrictive covenants:
·Clause 19 provided that —
The restrictive covenants in Schedule 2 of this Agreement are applicable to your Employment and form part of this Agreement.
· Clause 31.20 of the contract, which applied inter alia to the Schedules to the contract defined ‘Restraint Period’ to be
the period commencing on the date of cessation of your Employment (however that termination may occur) and for a period of…
and then followed descending periods, beginning with 12 months and ending with 3 months.
· By sch 2 to the contract, the respondent acknowledged a number of matters. They included an acknowledgment by sch 2 cl 1.2(e) that —
The obligations in this Schedule 2 survive the termination of the Employment in all circumstances and for any reason.
· By sch 2 cl 1.2(g) the employee acknowledged that
(ii)it is reasonable for [the employee] to continue to be bound by the obligations set out in this Schedule 2, which survive the termination of the Employment for any reason.
· Sch 2 cl 1.2(i) stated that —
The Company is relying on the acknowledgments in this clause as a matter fundamental to the Employment.
· The restrictions which are pertinent for present purposes were set out in sch 2 cls 3.1(a)–(c):
Having regard to the acknowledgements set out in clause 1 of this Schedule 2, you will not, during the Restraint Period, either directly or indirectly, on your own account, jointly or with any other person or as an employee or otherwise:
(a)canvass, solicit, entice away or interfere with, or endeavour to canvass, solicit, entice away or interfere with, any Client for the purposes of having services of the nature provided by the relevant Group Member provided by anyone other than a Group Member;
(b)undertake or perform for a Client work of a kind which involves the provision of services which are, in whole or in part, the same as or similar to the services provided by the Company or any Group Company;
(c)if you were employed as a Principal, Associate Principal, Managing Principal, Chief Executive, Regional Chief Executive or Executive at the time of, or at any time during the 12 months prior to, the termination of the Employment—Engage in any business, activity or operation which is the same as, substantially similar to or competitive with the Business, or any material part of the Business, and which is based within a 5 kilometre radius of either:
(i)the location at which you were based immediately prior to the termination of the Employment; or
(ii)if you worked out of more than one location—all the locations out of which you regularly worked in the 12 months prior to the termination of the Employment.
A number of the words and terms used in sch 2 cl 3.1 were defined. Thus, for instance, ‘Restraint Period’, ‘Client’, ‘Group Member’, ‘Group Company’ and ‘Business’. Equally, however, a number of terms found in that clause were not defined.[10] Words that were not defined included ‘Principal’, ‘Associate Principal’, ‘Managing Principal’, ‘Chief Executive’, ‘Regional Chief Executive’ and ‘Executive’. As we have earlier noted, however, the applicant was provided with a written ‘job description’ of the term ‘Managing Principal’ before signing the contract.
The respondent’s job activity up until the Findex acquisition of CHA
[10]At least in the contract made between the applicant and respondent.
The judge at trial found that, prior to the acquisition of CHA by Findex in January 2015, Mr Loone exercised ‘full autonomy’ in the running of the Launceston office.[11] He performed his work consonantly with the role profile to which we have previously referred. He was the most senior employee in the Launceston office, and had very close personal relationships with his clients.[12]
[11]Reasons [89].
[12]Reasons [11].
The respondent’s immediate superior was Bruce Roberts, CHA’s Regional Chief Executive. From the time when Findex acquired the CHA business, which was on 1 January 2015, a man named Michael Wilkins, Chief of Advisor Services with Findex, became involved. Of Mr Wilkins, more later.
Acquisition of Davey Financial Group by CHA
As will be seen, one of the serious breaches of contract complained of by the respondent related to bonus payments. There were two aspects to that complaint. One of them related to the acquisition of a Launceston accountancy practice, Davey Financial Group (‘DFG’), by CHA.
In October 2014, the respondent entered into discussions with the principal of DFG with respect to the acquisition of DFG by CHA. The acquisition was finalised in August 2015. CHA purchased DFG for $2.2 million. DFG’s business was thereafter incorporated into the Launceston office. The respondent, as the judge found, spent hundreds of hours of work in the acquisition process.
The acquisition of DFG was budgeted to generate $1.086 million in its first full year of operation. For the financial year ending 30 June 2016, the acquisition in fact contributed approximately $440,000 net profit to the CHA Launceston office. The respondent estimated that the acquisition was worth a minimum of $200,000 to the Launceston bonus pool, that pool being the source of distribution of bonuses to the respondent and other senior persons in CHA’s Launceston office.
Events subsequent to the acquisition of CHA by Findex. The repudiatory conduct upon which the respondent claimed to have relied
We will address, first, the matters raised by proposed grounds (for convenience, ‘grounds’) 1(a)–(g). They relate to the judge’s findings with respect to the conduct of CHA which the respondent claimed constituted its repudiation of the contract, repudiation which he accepted.
Claimed change in employment duties in breach of contract
Following the acquisition of CHA by Findex, a new Chief Executive Officer and Chief Operating Officer were appointed to CHA. Michael Wilkins, to whom we have previously referred, was appointed as Manager with overall responsibility for all of CHA’s offices throughout Australia and New Zealand. The respondent, however, continued to report to Bruce Roberts, CHA’s Regional Chief Executive.
From some time in 2015 — there was dispute between the applicant and the respondent as to when it was — CHA commenced to communicate and implement a program of changes to its business operations across all of its offices. It was the brainchild of the new owner of CHA. Its intended nature and implementation were identified by catchy phrases: ‘one best way (to build the business)’,[13] the ‘family office model’, the ‘family office structure’ and the ‘family office initiative’. Some changes were implemented between late 2015 and mid-2016. Others, including the family office initiative, were to be introduced on 1 August 2016.
[13]Communicated to senior CHA people by the chief executive officer of CHA and Findex, Mr Spiro Paule, at a presentation at Queenstown, New Zealand, in April 2015.
The judge made detailed findings as to the impact and further intended impact of the changes upon the respondent. We detail those findings later in these reasons. His Honour concluded that the respondent had established that the applicant had breached cl 1.4 of the contract, and that such breach was so serious as to constitute repudiatory conduct by the applicant.
Claimed financial matters in breach of contract
The respondent contended that two matters, one of which arose out of the acquisition of CHA by Findex, involved breach by CHA of cl 7.5 of the contract. He asserted that each breach went to the heart of the contract, and so constituted repudiatory conduct by CHA. As the respondent put his case, and as the judge accepted it, the two aspects of that breach were as follows.
First, according to the respondent’s evidence (which we understand to have been uncontradicted in this connection), at a meeting held on 9 June 2016 in Melbourne (‘the 9 June meeting’), in which a presentation was made by senior management of CHA, he and other regional executives were informed that CHA intended to introduce a new incentive model (‘the incentive model’) under which bonus payments would be divided into two components — a cash payment and a deferred incentive. The deferred incentive would be 20 per cent of any annual bonus awarded, and would be deferred for a three-year period.
The judge noted that there was evidence that, in the period between mid and end June 2016, the respondent had discussions with Messrs Roberts and Wilkins during which he expressed ‘ongoing concerns regarding proposed changes which had been outlined during the presentation on 9 June 2016’.[14] There was, inter alia, a meeting with Messrs Roberts and Wilkins on 30 June 2016, in the course of which the respondent stated that he was reserving his position in relation to his employment.[15]
[14]Reasons [83].
[15]Ibid.
In the event, the judge concluded that the effect of CHA’s decision to implement the incentive model, communicated to the respondent, constituted repudiatory conduct by the applicant. That conclusion required resolution of a construction issue with respect to cl 7.5 of the contract.
The second aspect of the breach of cl 7.5 contended for by the respondent turned on evidence given by him of a conversation with Mr Roberts on 1 July 2016. For simplicity, we will call it ‘the bonus decision’. The effect of the respondent’s evidence — the receipt of which for both hearsay and non-hearsay purposes was not the subject of objection — was that Mr Roberts told him that he had been told by Mr Wilkins that the profitability flowing from the DFG acquisition would be excluded from the calculation of the Launceston bonus pool. This was the pool out of which bonus payments were drawn.
Further, said the respondent, Mr Roberts told him that Mr Wilkins had said that the DFG acquisition would be excluded from the bonus pool because Findex had bought the business and should therefore get the benefits of the acquisition. Again, according to the respondent’s evidence, he was told by Mr Roberts that Mr Wilkins had stated there should be no adjustment in the bonus pool in respect of the respondent’s involvement in the acquisition because this was part of his role as Managing Principal of the Launceston office.[16]
[16]Ibid [25].
The gist of the respondent’s argument was that CHA had failed to give consideration to his personal circumstances when exercising its discretion whether to award him a bonus, and if so, in what amount, for 2015–16, this breaching a requirement stated in cl 7.5 of the contract.
Mr Wilkins gave evidence at the trial. We will refer to it in detail later in these reasons. It suffices for present purposes to note that the judge reached unfavourable conclusions as to the reliability of that witness’s evidence.
Having reviewed pertinent evidence, his Honour concluded that — (1) evidence given by the respondent as to things said to him by Mr Roberts on 1 July 2016 represented the fact; (2) the bonus decision breached cl 7.5 of the contract and constituted repudiatory conduct by CHA; and (3) the respondent was entitled to and had relied upon it when he terminated his employment on 12 July 2016.
When and how did the respondent accept the applicant’s allegedly repudiatory conduct? Upon what conduct did he rely?
As we have observed, the respondent alleged both change of position breach and financial matters breach. The change of position breach, as found by the judge, particularly focused upon things said by CHA representatives at the 9 June meeting. The financial matters breach had two independent components — the financial model breach and the bonus decision.
The judge, as we have said, found that the respondent had made out his case with respect to both change of position and financial matters breaches. But his Honour’s reasons proceeded in the following way: he found that financial matters breaches had been established, were repudiatory, and had been accepted by the respondent. But then he went on, for completeness, to deal with change of position breach, which he also found had been established, was repudiatory, and had been accepted.
The judge’s reasons
We have already described factual conclusions reached by the judge, and a little of the legal underpinning for those conclusions. We have not set out the way in which the judge dealt with questions as to the construction of cls 1.4 and 7.5 of the contract, with argument that, in point of law, the respondent was not entitled to rely upon evidence of change of position breach by the applicant before the respondent accepted a part bonus on 7 March 2016, or with his Honour’s analysis why the restraint clause did not have continuing operation after the respondent’s acceptance of the applicant’s repudiatory conduct.[17] We will address those matters when considering individual proposed grounds of appeal.
The issues raised by grounds 1(a)–(g) with respect to repudiation[18]
[17]That is, as the judge found the facts.
[18]As can be seen from the statement of grounds set out at [8] above, all but one of the grounds was identified by the prefix 1 or 2 and then a bracketed letter. But the grounds were also identified by a numbered series 1–12. In what follows in these reasons, we will use the identification of the first kind except in the case of ‘Further Ground’ 12.
Grounds 1(a), (b) and (c) relate to the judge’s conclusion that the applicant repudiated the contract by conduct with respect to what we have called financial matters. Those grounds include the contention that the respondent was not entitled to rely upon the bonus decision because, as the applicant asserted, the respondent had already decided to terminate his employment before 1 July 2016. Ground 1(b) raises an issue of construction of cl 7.5 of the contract; and so, to an extent, does ground 1(a).
Grounds 1(d), (e), (f) and (g) all relate to the judge’s ultimate conclusion that the applicant committed change of position repudiation. Ground 1(d) raises a legal issue.
None of grounds 1(a)–(g) raises an argument that, if the applicant did engage in the conduct complained of, if it was in breach of contract, and if the respondent was entitled to rely upon it, such conduct was not sufficiently serious as to amount to repudiation.
Before addressing grounds 1(a)–(g) discretely, it is necessary to refer to a particular submission advanced by Senior Counsel for the applicant. At the outset of his submissions, counsel said that he wished to emphasise that
at no time prior to 12 July was there an assertion by the respondent that he considered that the applicant was in breach or that the applicant refused to alter its position in the face of an asserted breach because in truth this was an anticipatory breach case.
Ashley JA asked him:
Is that the way it was put below?
to which counsel’s answer was:
We, your Honour, put the position below that there was no repudiation, but at best it was an anticipatory case that was being mounted by the respondent.
Counsel returned to the theme:
On 1 July Mr Roberts communicated an intention as to how the bonus would be calculated and whether the Davey work of the respondent would be taken into account. The applicant said that he regarded that to be unfair. So he made known he was unhappy about it … There was no assertion by the respondent that he regarded that to be in breach of his contractual entitlements …
A contrast was being drawn between the respondent’s case at trial and his contention on the earlier interlocutory injunction application.
Having taken the Court through notes pertaining to the sequence of events on 30 June and 1 July 2016, counsel submitted that:
And you have to query what the hell’s going on here, in relation to this matter. It’s quite clear, at this point, they’re locked in discussion. And that’s quite important when we come to the third issue, your Honours, which is the relevant principles of repudiation in relation to breach or anticipatory breach, or prospective breach. And at the heart of the repudiation doctrine is the ability of a promisee to justify an election to terminate the performance of a contract.
Counsel then went to the decision of this Court in R & A Cab Co Pty Ltd v Kotzman.[19] Counsel submitted that the judgment of Ashley JA succinctly summarised ‘the principles upon which we rely at paragraphs 45 through to 51’; and said, ‘We’d like in particular … to note the passage at paragraph[s] 49 and 50’.
[19][2008] VSCA 68 (‘Kotzman’).
The point of this reference was developed as follows:
Because what we had here was a statement by the applicant concerning the bonus payment under clause 7.5, that was not met with an assertion that there was no entitlement to assess the bonus pool in that manner. The only statement that was made was that it was not fair. There was no contention raised by the respondent, despite being the subject of legal advice during this period, where he asserted to the applicant that they could not do that, because his interpretation of the clause was that it had to be.
And:
‘Where one party to a contract persists in maintaining that it will only perform an obligation of essential importance in accordance with the untenable construction of the obligation, that conduct amounts to repudiation of the contract.’[20] That never happened here. There was no … ‘willy-nilly refusal’ by the applicant to engage with the respondent, in relation to the matter of concern in relation to the bonus.
And:
The respondent did not give the applicant any opportunity to engage with his contention, if it be a contention, as to why it was in breach of the obligation in clause 7.5; he never raised it, not once. And when he did come to raise it before this Court, it was based on a false premise.
[20]Counsel was here quoting Zwanenberg Australia Pty Ltd v Moira Mac’s Poultry and Fine Foods Pty Ltd [ 2014] FCA 1072 [304] (Jessup J) (‘Zwanenberg’), itself quoting Velik v Steingold [2013] NSWCA 303 [86] (Sackville AJA, McColl and Gleeson JJA agreeing).
In essence, the submissions sought to be advanced were that — (1) if the applicant had engaged in what might otherwise have been accounted repudiatory conduct, but that conduct was based upon mere honest misapprehension of pertinent contractual terms, of which the respondent should have, but did not, disabuse it, then the applicant’s conduct should not be accounted repudiatory; and (2) at no stage did the applicant ever maintain (or persist in maintaining) that it would only perform obligations of essential importance in the contract in accordance with an untenable construction of those obligations. The respondent had not given the applicant any opportunity to engage with the contention as to why it was that the applicant was in breach of contract.
Senior counsel for the respondent commenced his argument in this Court with a complaint that the submissions to which we have just referred were never advanced at trial, were no part of the trial, and were not to be found anywhere in the applicant’s written case. Counsel submitted that the arguments now sought to be relied upon by the applicant had been raised for the very first time at the hearing before us. Additionally, counsel noted that neither Kotzman nor Zwanenberg[21] were cited to the trial judge.
[21]A second case to which applicant’s counsel referred in the present connection. See above n 20.
In reply, Senior Counsel for the applicant, while not accepting that the arguments he had advanced in chief were new, accepted that the decisions of Kotzman and Zwanenberg had not been raised at trial. But in an email sent to the Court after the conclusion of argument, the applicant stated that Kotzman had been referred to in a written outline of argument filed by the applicant prior to the commencement of the trial. As a result of that communication, we permitted the parties to provide to us outlines of argument that they had filed in anticipation of the trial.
Having read the written submissions at trial, and the transcript of the arguments put to the judge, we consider it very clear that the respondent was correct in submitting that the arguments sought to be advanced in this Court by the applicant were not advanced at trial.
An examination of the applicant’s written outline before trial discloses that, while Kotzman was footnoted in the document as authority in support of four general propositions about repudiation,[22] it was not cited as authority for the two propositions now sought to be relied upon. Apart from that footnoted reference, neither Kotzman nor Zwanenberg were cited to the trial judge. The two propositions now relied upon by the applicant were never put to the judge.
[22]Of which three were specifically mentioned in Kotzman.
In its written closing submissions at trial, the applicant submitted that employment contracts were not immune from the application of ordinary, and well settled, contractual principles, including those relating to repudiatory conduct. Footnoting the High Court’s decision in Shevill v Builders Licensing Board,[23] the applicant identified two principles as follows:
(a)A party may repudiate a contract by renouncing its liabilities under it whether by evincing an intention no longer to be bound by it or by showing that it intends to fulfil the contract only in a manner substantially inconsistent with its obligations and not in any other way.
(b)Repudiation is a serious matter and is not lightly to be found or inferred. The Court must consider all the circumstances of the case.
Coincidently, these were two of the four propositions for which Kotzman was cited in the applicant’s opening outline of argument at trial.
[23](1982) 149 CLR 620 (‘Shevill’).
Nowhere in those written closing submissions at trial was it contended that, if the applicant had breached any of the relevant clauses of the contract, any such breach of contract did not amount to a repudiation by reason of the two propositions sought to be relied upon in this Court. Rather, it was submitted that what was relevant about the principles concerning repudiatory conduct was that there must be a focus on the objective acts of the parties, and that repudiation was not to be determined by reference to subjective matters, such as perceptions or uncommunicated intentions. Again, coincidently, these were the other two propositions for which Kotzman was cited in the applicant’s written opening outline of argument.
In his oral closing submissions at trial, Senior Counsel for the applicant focused on whether the conduct alleged by the respondent constituted a breach of any of the clauses of the contract upon which the respondent relied. The gist of the applicant’s submissions was that the respondent’s repudiation case rose or fell on cl 7.5 of the contract. That was because the change of position argument must fail. It must do so because — (1) there had been no change of position before 1 July 2016; (2) any future changes would not constitute change of position, but, as with earlier changes, be merely matters of ‘systems, protocols and procedures’ — and were, in any event, still under discussion; and (3) up to the time when he terminated the contract, the respondent had affirmed that contract by continuing to perform it, and by accepting the part bonus on 7 March 2016.
Then it was submitted that, for more than one reason, the respondent’s reliance on repudiation by alleged breach of cl 7.5 must fail. The respondent had determined to leave the applicant’s employment before 1 July 2016 — that being the day on which, according to the respondent’s evidence, Mr Roberts had conveyed to him that the bonus pool would not include an amount attributable to the DFG profits. Further, the evidence did not permit a conclusion that DFG’s profitability would not be brought to account in assessing whether the respondent would receive, in the absolute discretion of the applicant, a bonus for 2015–16. Further again, a distinction was to be drawn between the obligation to consider the respondent’s performance when determining whether to make a discretionary bonus payment, and the inclusion of profits from the DFG business in the Launceston bonus pool.
In the event, as we have already observed, it is very clear that the propositions sought to be relied upon by the applicant before us were not advanced at trial; and neither, for that matter, were they advanced in the applicant’s outline of argument in this Court.
The question that arises in this Court is whether the applicant should now be permitted to advance those arguments. As was observed in Whisprun Pty Ltd v Dixon:[24]
[24](2003) 77 ALJR 1598.
It would be inimical to the due administration of justice if, on appeal, a party could raise a point that was not taken at the trial unless it could not possibly have been met by further evidence at the trial.[25]
[25]Ibid 1608 [51] (Gleeson CJ, McHugh and Gummow JJ).
Again, as was said there:
Nothing is more likely to give rise to a sense of injustice in a litigant than to have a verdict taken away on a point that was not taken at the trial and could or might possibly have been met by rebutting evidence or cross-examination. Even when there is no question of further evidence, it may not be in the interests of justice to allow a new point to be raised on appeal, particularly if it will require a further trial of the action. Not only is the successful party put to expense that may not be recoverable on taxation but a new trial inevitably inflicts on the parties worry, inconvenience and an interference with their personal and business affairs.[26]
Moreover, as has also been observed, a trial is not a dress rehearsal for a rehearing in an appellate court.[27]
[26]Ibid (citations omitted). See, also, McMahon v National Foods Milk Ltd (2009) 25 VR 251, 268–9 [25].
[27]Preston v Harbour Pacific Underwriting Management Pty Ltd [2008] NSWCA 216, [25]; Powell v Chief Executive Officer of Customs (2012) 272 FLR 5, 12 [41]; Levy v Bablis [2013] NSWCA 28 [17].
In our view, the applicant should not now be allowed to advance the arguments that were not run at trial. It cannot be said that the applicant’s new arguments might not have been capable of being met, or dealt with, by the respondent calling further evidence or by further cross-examination of the applicant’s witness, Mr Wilkins. Moreover, because the arguments were not raised below, the respondent could rightly complain if any prospect arose of this Court finally determining the merits of that argument upon potentially incomplete evidence. If the applicant’s new arguments proved persuasive, it would seem inevitable, even if the application for leave to appeal otherwise lacked merit, that there might need to be remitter for a re-trial. In our opinion, it would be contrary to the interests of justice in this hard-fought litigation to require the respondent to undergo another trial on the liability issue by reason of arguments that could have been, but were not, advanced at trial.
We will not permit the applicant to rely upon the arguments to which we have been referring.
Ground 1(a)
We have set out the gist of the respondent’s evidence with respect to the bonus decision at [37]–[38] above. It focused upon a conversation which he had on 1 July 2016 with Mr Roberts, the senior CHA manager.
Reasons
Only Mr Wilkins gave relevant evidence for the applicant. His Honour summarised Mr Wilkins’ cross-examination with respect to the bonus pool, and expressed his conclusion about the witness’s evidence, as follows:
Mr Wilkins was cross-examined regarding the statements attributed to him by Mr Roberts during the conversation with Mr Loone on 1 July 2016. Mr Wilkins stated that he did not recall any conversation with Mr Roberts prior to 1 July 2016 during which he had told Mr Roberts that the DFG acquisition would not be taken into account when fixing Mr Loone’s bonus. Mr Wilkins agreed that the DFG acquisition would need to be taken into account when considering Mr Loone’s personal performance and the performance of CHA as a whole. Mr Wilkins’ evidence was that the DFG acquisition was ultimately taken into account for the purposes of determining the quantum of the Launceston bonus pool when the bonus was paid in late August 2016. However, he also gave evidence that the DFG acquisition was in fact taken into account prior to Mr Loone’s departure on 12 July 2016.
It is impossible to reconcile Mr Wilkins’ evidence with the account given by Mr Loone of his telephone conversation with Mr Roberts on 1 July 2016. That account, together with Mr Loone’s contemporaneous notes, supports a finding that on 1 July 2016 Mr Roberts told Mr Loone that Mr Wilkins had stated that there would be no adjustment to the quantum of the Launceston bonus pool to take account of the profit arising from the DFG acquisition and no adjustment of the pool to reflect Mr Loone’s role in relation to the acquisition.[28]
[28]Reasons [28]–[29] (citations omitted).
We should refer also to the failure of CHA to call Mr Roberts. Respecting that matter, which had a connection with the evidence given by the respondent as to the conversation on 1 July 2016, the judge said this:
CHA had ample opportunity to object to the admissibility of Mr Loone’s evidence on the ground that it was hearsay. Its failure to do so constitutes a waiver of any right to object to the evidence, having been admitted, to be treated as evidence for all purposes. Further, there is the failure of CHA to call Mr Roberts to give direct evidence regarding his conversation with Mr Loone on 1 July 2016. There is a direct inconsistency between the evidence of Mr Wilkins that the DFG acquisition was in fact taken into account in the assessment of the Launceston bonus pool prior to Mr Loone’s departure on 12 July 2016; and the evidence of Mr Loone of his discussion with Mr Roberts on 1 July 2016; ie that Mr Wilkins had told Mr Roberts that the DFG acquisition was to be excluded from the calculation of the Launceston bonus pool. This inconsistency called for an explanation. No explanation was provided for the failure to call Mr Roberts. I infer that had Mr Roberts been called to give evidence regarding the contents of his telephone conversation with Mr Loone on 1 July 2016, that evidence would not have assisted CHA’s case.[29]
[29]Ibid [35] (citations omitted).
In our view, the judge’s conclusion that the respondent was told what he said in evidence that he was told by Mr Roberts on 1 July 2016, and (so far as it was necessary) that it represented the fact, could not be impugned. Indeed, there was no challenge in this Court with respect to what the judge found that Mr Roberts told the respondent on 1 July 2016. The fact, as it seems, that the bonus pool for 2015–16 ultimately included a DFG acquisition component does not tell against acceptance of the respondent’s evidence of the conversation on 12 July 2016. If that circumstance was to be taken into account at all,[30] then, when considered together with what Mr Roberts said on 12 July 2016, it would probably indicate a change in CHA’s position after 12 July 2016. But that would not gainsay the respondent’s reasonable belief as to a decided state of affairs as at 1 or 12 July.
[30]We do not say that it should be.
His Honour analysed the situation with respect to the subject of ground 1(a) as follows:
Clause 7.5 confers upon CHA an absolute discretion as to the quantum of any bonus payment to be made to Mr Loone. However, the exercise of that discretion is subject to a mandatory contractual obligation that ‘[t]his amount will be determined by consideration of various performance parameters including but not limited to your personal performance, the performance of the Group and the broader economic conditions’. Mr Loone’s contention that CHA repudiated the Contract is not based upon the quantum of his bonus. Rather, he contends that in the assessment of his bonus CHA failed to have regard to the mandatory criteria prescribed by cl 7.5.
If CHA failed to undertake the promised contractual process for the assessment of Mr Loone’s bonus, such failure could constitute a breach of contract, notwithstanding the fact that the quantum of any bonus is subject to CHA’s absolute discretion. The fact that cl 7.5 confers an absolute discretion upon CHA does not preclude a finding that a failure by CHA to have regard to the prescribed criteria in determining the quantum of any bonus payment would constitute a breach of cl 7.5.[31]
[31]Reasons [37]–[38] (citations omitted).
His Honour noted the key submission for the applicant as follows:
[Counsel] submitted that Mr Loone’s evidence of his discussion with Mr Roberts on 1 July 2016 does not support a finding that Mr Loone had been told that his bonus assessment would not be in accordance with the terms of the Contract. [Counsel] submitted:
The evidence was— this is what Mr Loone said he was told— that the profitability arising from the Davey tuck-in would be excluded from the pool calculation for Launceston, nothing about his performance, Your Honour. So we’re talking here about chalk and cheese, about the terms of the contract and what he was told. Nothing Your Honour has said at all, with the greatest respect, traverses what is in the contract because the evidence is different from the way it’s been put by our friends. It is apt to mislead. You have got to go back to what he was told.
…
The complaint here is that on 1 July Mr Roberts said, allegedly, that the moneys arising from the profit on the acquisition would not go into the pool calculation for Launceston. That is a different proposition from asserting that his personal performance was not to be taken into account.[32]
[32]Ibid [39] (citations omitted).
His Honour rejected that submission:
Contrary to [counsel’s] submission, Mr Loone’s account of what he was told by Mr Roberts falls squarely within the terms of the criteria prescribed by cl 7.5. Mr Loone’s contemporaneous note of his discussion with Mr Roberts records that he was told that there would be no adjustment to the Launceston bonus pool to take account of his role in the DFG acquisition because this was part of his role as a Managing Principal.
In addition to the express statement which was made by Mr Roberts on 1 July 2016, there is the practical consideration that Mr Loone expended between 300 and 600 hours on the DFG acquisition for the financial year ending 30 June 2016. Mr Loone told Mr Roberts on 1 July 2016:
… if I hadn’t have invested 600 hours of time into the acquisition, I could have been generating revenue which would have then flowed into the bonus pool.
Mr Loone told Mr Roberts on 1 July 2016:
I said that is unfair that my time is not being reflected here because I had the opportunity— I would have done something else because one of the main motivations of the Davey acquisition was to increase the bonus pool for the Launceston principals.
I accept Mr Loone’s evidence that by 30 June 2016 he had expended hundreds of hours of time in relation to the DFG acquisition. I accept his evidence that he was told by Mr Roberts on 1 July 2016 that the work he undertook on the DFG acquisition was not going to be taken into account in the assessment of the Launceston bonus pool of which he was a beneficiary. Clause 7.5 required CHA to have regard to Mr Loone’s personal performance in the assessment of his entitlement to a bonus. Clause 7.5 did not confer upon CHA the right to excise from the assessment of Mr Loone’s personal performance a project on which he had expended hundreds of hours.[33]
[33]Ibid [40]–[43] (citations omitted).
Whilst accepting that any bonus was not to be paid until August 2016, the judge nonetheless concluded that what was said by Mr Roberts for CHA on 1 July 2016 was not an anticipatory breach by the applicant, but was in breach of its contractual obligation at the time when the obligation (that is, the making of a decision whether the respondent was to receive a bonus, and, if so, in what amount) was due to be performed. If that was not so, however, it was an anticipatory breach upon which, viewed objectively, the respondent was entitled to rely.[34]
Submissions
[34]Ibid [44]–[49].
The applicant submitted in this Court, as it did below, that there was no evidence of breach of cl 7.5 of the contract. CHA had in fact considered the respondent’s involvement in the DFG acquisition. Having done so, it had concluded that the Launceston bonus pool should not be increased because of his involvement in that acquisition. It considered that the respondent’s involvement was part of his work as Managing Principal of the Launceston office.
It was submitted for the respondent that there was no evidence that the applicant undertook any of the mandatory considerations imposed upon it by cl 7.5 before it determined the 2015–16 bonus. Mr Wilkins was not involved in fixing the bonuses for staff at Launceston, and his evidence about inclusion or otherwise of profitability referable to the DFG acquisition was inconsistent, and in parts rejected by the judge. CHA had called no evidence as to what was considered in assessing a bonus for the respondent for 2015–16. The position taken by Findex — that as it had paid for the DFG acquisition, it should get all the benefits of the acquisition — was inconsistent with the arguments advanced for the applicant.
Analysis
In our opinion, the judge’s conclusion that the applicant breached cl 7.5 was sound. CHA’s position, via Mr Roberts, that profitability flowing from the DFG acquisition would not be included in calculation of the Launceston bonus pool because, Findex having paid for the acquisition, it should get all the benefits, effectively excluded consideration of the respondent’s personal performance in that connection.
The applicant’s related submission, that in the exercise of the discretion CHA was to consider and/or had considered the respondent’s personal performance, including his performance with respect to the acquisition of DFG, when deciding if he was to be awarded a bonus for 2015–16, but that the amount of any bonus awarded would take no account of the profitability of the acquisition, was, in our opinion, a forensic masterpiece which lacked a firm foothold when construing the proper scope and content of cl 7.5 of the contract. The idea that a large profit derived from the acquisition of another business — the acquisition and the resulting profit being much contributed to by the respondent’s work — should be taken into account in assessment of the applicant’s personal performance in deciding whether he should receive any bonus, but that the profit should be ignored in fixing the amount of any bonus, would amount to disregarding a very important aspect of the respondent’s personal performance. An argument that achieving the acquisition and the resulting profit was all part of the respondent’s work as Managing Principal, and so should not be brought to account in assessing the amount of any bonus, could be extrapolated to almost any aspect of the applicant’s personal performance. Such an approach could not have been within the intention of the parties, objectively considered.
Ground 1(b)
Reasons
Ground 1(b) raises a question as to the construction of cl 7.5 of the contract. The judge accepted the submission for the respondent that, properly construed, cl 7.5 conferred no right on the applicant to withhold any part of a bonus once the applicant determined that a bonus should be awarded for a particular year. The exercise of the discretion was to be understood against the proper scope and content of the contract.[35] The clause showed that eligibility operated by reference to a 12-month period of employment.[36] Reading cl 7.5 in conjunction with the definition of ‘Remuneration’ in cl 31.19 and with item 8 of sch 1 of the contract — headed ‘Annual Remuneration Package’ — it was ‘plain that the discretionary and non-discretionary components of [the respondent’s] remuneration are payable within a 12 month period’.[37] The applicant’s discretion whether to award a bonus, and to determine its amount, did not confer on CHA the right to withhold any portion of the bonus. The presentation made to the respondent and other senior employees at the 9 June meeting ‘was such as to convey to a reasonable person in [the respondent’s] position, renunciation of a fundamental obligation under the contract’.[38] There had been no affirmation of the contract by the fact that the respondent continued in employment between 9 June and 12 July 2016.[39] The repudiatory nature of the breach was emphasised if it was considered together with the bonus decision.[40]
Submissions
[35]Ibid [77].
[36]Ibid [78].
[37]Ibid [79].
[38]Ibid [80].
[39]Ibid [83]. That finding was not challenged in this Court.
[40]Ibid [84].
It was submitted for the applicant that the judge had misconstrued cl 7.5. There was nothing in it ‘to preclude an award of the discretionary bonus in the form of a grant of equity to vest at a future date’.
It was submitted for the respondent that the judge’s reasoning was correct. The point had been made that what was described as a deferral might in fact operate to deprive an employee of the withheld part of an awarded bonus — that is, 20 per cent altogether. That was because the new scheme required an employee to be still in CHA’s employment at the time — three years later — when the deferred amount became payable.
Analysis
We have set out the relevant clauses and schedule item at [20] above.
In our opinion, the judge’s reasoning and conclusions were sound. The concept of remuneration, including any discretionary bonus that was awarded, was based upon an employee’s work, for which payment was to be made, in a particular year. This was emphasised, in the case of a bonus, by cl 7.5 stating that:
You will be eligible to receive a bonus in any year if, and only if, you are in the employ of the Company at the time that the bonus is to be paid and you have not, prior to that time, given or been given notice of termination of your employment.
The clause plainly contemplated that payment be made for a particular year. It required that, at the time of payment for that year, the employee was still to be in employment. Because, as it appears, a bonus for one financial year would not be paid until shortly into the next financial year,[41] it cannot be said that payment of the entire remuneration package (including any bonus) would take place within one financial year. But it would strain the meaning of cl 7.5 beyond breaking point if it was to be read as meaning that payment of part of a bonus might be deferred for years, and that, unless there was a subsisting employment after that period of years, the awarded payment would be lost. Such a reading would tie an employee to CHA for an extended period, a matter having little to do with a bonus awarded in respect of a particular year’s work. Obligated employment for a matter of a month or two could not be compared with obligated employment for a matter of years.
[41]Excepting any part payment in advance.
The judge’s conclusion that the contract had not been affirmed by the respondent’s continuing in employment up to 12 July 2016 after what constituted, as his Honour found, the applicant’s renunciation of a fundamental obligation under the contract,[42] is not challenged in this Court.
[42]Notwithstanding that the new regime was to commence operation on 1 August 2016.
Ground 1(c)
Ground 1(c) is related to ground 1(a). The gist of the ground lies in the contention that the respondent had decided to leave CHA’s employment not later than 30 June 2016, for which reason any repudiatory conduct of CHA, communicated by Mr Roberts on 1 July 2016, was irrelevant to the respondent’s announced termination of employment on 12 July 2016.
Reasons
As noted by the judge, CHA
submitted that ‘the Defendant cannot rely on the 1 July “event” as a trigger point for any assertion of [final] repudiation. It was not a repeated repudiation which was identical’. In support of this submission, CHA refers to the judgment of Mandie J in Marks v CCH Australia Ltd.[43] …[44]
[43][1999] 3 VR 513, [55] (‘Marks’).
[44]Reasons [50].
And
submitted that there was no basis upon which the Court could conclude that Mr Loone accepted CHA’s conduct as bringing the Contract to an end. … [T]he telephone conversation between Mr Loone and Mr Roberts on 1 July 2016 was irrelevant because Mr Loone had already decided by at least 30 June 2016, if not earlier, that he would leave CHA and set up his own accounting business. ... Mr Loone had made up his mind to go by 30 June 2016 and was ‘stonewalling’.[45]
[45]Ibid [51] (citations omitted).
And
relied upon a file note which had been made by Mr Loone of a discussion which he had with Michael Wilkins over dinner on 30 June 2016:
a)MW and I sat together and during dinner I gave him some examples of frustrations – eg
i)lengthy recruiting process had lost new people
ii)marketing over rides, non communication of staff changes
iii)we spoke of Danielle Maxwell and how she seems to have no regard for local leadership – MW said “knowing Patto (nickname?) the way I do, that doesn’t surprise me”
iv)how “blanket policies” and “one size fits all” approach don’t always work – especially when there are differing issues such as capital city vs regional, large vs small, accounting vs financial planning, good managers and not so good managers, etc
v)hence the need for MP’s & P’s to have some discretion to act in the best interests in their known areas
b)I felt I needed to give him some examples so he didn’t feel stonewalled and hence on notice that I would be leaving.[46]
[46]Ibid (citations omitted).
The judge then referred to relevant evidence given by the respondent, and set out a chronology:
[Counsel] put to Mr Loone in cross-examination that his file note was evidence that he had already decided to leave CHA by 30 June 2016. Mr Loone responded:
I had made the decision, Mr Moses, that I couldn’t stay and I had to work out whether I was actually going to implement that decision.
He also gave evidence:
At that stage I’d made a decision that I did not want to stay. I was then intending to take some time with my wife to work out – it’s quite a significant decision – to decide whether I’d actually implement that and, if I did, at what particular time, meaning would it be – would I give it a few months, would I do it straightaway. We discussed quite a number of different options that I was going to consider with my career.
Mr Loone commenced one week’s annual leave on 4 July 2016. He returned to the workplace on 11 July 2016. On the morning of 12 July 2016 he advised Mr Roberts of his decision to leave. He gave the following evidence as to the main factors that caused him to arrive at the decision to leave:
The main factors were they changed my role so significantly, I didn’t have the autonomy that I’d asked for and accepted in 2012 when I became the Managing Principal, and that I just didn’t have the decision-making capabilities to make a difference in the office. In addition to that, obviously my remuneration was also changing very significantly … Because they were excluding the Davey acquisition profitability in the size of the pool.
On the morning of 12 July 2016, Mr Loone sent Mr Roberts an email in the following terms:
Dear Bruce
As per our phone discussion, I wish to confirm my decision to leave Crowe Horwath with immediate effect.
There is nothing personal in my decision, and I greatly value the friendships with you and my work colleagues forged over many years.
As discussed with you, I am leaving because Findex have not fulfilled their obligations to me under my employment contract, and after taking a short break, I will be embarking on a plan to build a new business.
My decision has been made because of the numerous events, especially in regard to the implementation of the Family Office program and the new Remuneration and Equity models.
Findex’s new management and operating models are not what I agreed to when I was offered and signed on as Managing Principal for Launceston in 2012. They have resulted in a fundamental change to the management discretion I sought and was given by WHK at that time, and I believe the calculation of my remuneration is also an unacceptable major change.
I cannot accept what has occurred, and have determined to leave straight away.
I will clear out my office today and ask only that I keep my mobile phone … which is the only number I have used for almost 20 years.
As discussed, I will advise the Principal group at a meeting we had pre-planned for this morning.
Could you please call to discuss any other matters that need to be addressed today.
Kind regards
Anthony.
At the conclusion of Mr Loone’s cross-examination, the following exchange took place between myself and Mr Loone:
His Honour: Thanks. Can I just ask you, Mr Loone, if you hadn’t made the decision before 30 June that you were going to leave, what was the catalyst for you to actually make the decision which you did convey on 12 July?
Mr Loone: This very page we’re looking at, Your Honour. It was like the final straw. It was where they – Mr Wilkins had said to Mr Roberts, and Mr Roberts then said to me, that the Davey acquisition was not going to be included which amounted to a minimum of $200,000 to the Launceston principal group, and I felt that was the last straw. I had been accumulating some intent to think about the future beyond Crowe Horwath, but really I hadn’t made the decision to absolutely leave and to do something about it until I went away with my wife and talked it over, because it had such an impact on our family.[47]
[47]Ibid [52]–[55].
Then his Honour expressed pertinent conclusions:
By leaving on 12 July 2016 rather than waiting another six weeks, Mr Loone passed up the opportunity to receive a bonus of approximately $100,000 which would have been paid at the end of August. As to why Mr Loone did not simply stay in employment until the end of August and receive that bonus, he stated:
This goes back to the timing of – I decided I didn’t want to stay and one of the considerations that I discussed with my wife was do I just hang out for a period of time, get my bonus, but when that meeting occurred on 1 July, I just thought I can’t stay here, I don’t trust them, and I left.
As at 30 June 2016 Mr Loone had made a decision that he would be leaving CHA. However, he had not made a decision as to the exact timing of his departure. This is not surprising given that, as at 30 June 2016, he had a legitimate expectation that he would be receiving a bonus payment. Further, as at 30 June 2016, he was not aware that the size of that bonus payment would not take into account his involvement in the DFG acquisition and/or the contribution of that acquisition to the profitability of the Launceston office.
[Counsel] put to Mr Loone in cross-examination that his evidence that he decided to leave CHA on 12 July 2016 was a lie. [Counsel] put to Mr Loone that he had already made a definite decision that he would be leaving by 30 June 2016. I do not accept [counsel’s] submission that Mr Loone lied when giving evidence that he only made the decision to leave Crowe Horwath upon his return from leave on 11 July 2016. I accept Mr Loone’s evidence that he had made a decision by 30 June 2016 that he would be leaving at some stage in the future but had not made a definite decision as to the timing of his departure. I accept his evidence that the ‘final straw’ which prompted the decision to leave as conveyed to Mr Roberts on 12 July 2016, was his telephone discussion on 1 July 2016 when he was told of the exclusion of the DFG acquisition from the Launceston bonus pool. The fact that Mr Loone had made a decision as at 30 June 2016 that he would be leaving CHA at some point in the future did not preclude Mr Loone from relying upon the advice he received on 1 July 2016 as a basis for terminating the Contract.
Mr Loone telephoned Mr Roberts at about 9.30 am on 12 July 2016:
I said to him that I was ringing to tell him that I was leaving, that I felt Findex and Crowe Horwath had not fulfilled their obligations to me and they’d changed my role, changed my REM, as in my remuneration, and I no longer had the autonomy that I’d signed on for and I couldn’t accept that … Mr Roberts said to me that there were others in the same boat and he accepted that – he said that he agreed that all of those things had changed.
The email which Mr Loone forwarded to Mr Roberts on the morning of 12 July 2016 made specific reference to changes to his remuneration:[48]
My decision has been made because of the numerous events, especially in regard to the implementation of the Family Office program and the new Remuneration and Equity models. … I believe the calculation of my remuneration is also an unacceptable major change.[49]
[48]His Honour considered, but dismissed, a possible argument that, by not resigning until 12 July the respondent had affirmed the contract: Reasons [63]–[72]. That was not a matter agitated in this Court.
[49]Reasons [56]–[60].
It is crystal clear, not only from his Honour’s reasons, but also from cross-examination of the respondent, and from closing submissions made by applicant’s counsel, that the respondent’s credibility was heavily attacked. He was accused, in terms, of having lied about matters which are presently pertinent. But the judge, having heard and seen the respondent give his evidence, accounted him a witness of truth.
Submissions
It was submitted in writing for the applicant that the judge had in fact found that the respondent had decided he would leave CHA as at 30 June 2016. The judge had necessarily erred in finding that the respondent could rely upon what Mr Roberts said on 1 July 2016. Moreover, his Honour had erred in holding that the respondent could rely upon the cumulative effect of the applicant’s conduct before and after 30 June 2016.
Orally, applicant’s counsel submitted that the judge had found that the respondent had made a definite decision to leave CHA’s employment by 30 June 2016. All that remained was a question of timing.
It was submitted in writing for the respondent that it was wrong for the applicant to have submitted that the respondent had decided to terminate his employment on 30 June 2016. Termination by acceptance of repudiation takes place on communication of acceptance to the wrongdoer. The respondent was entitled to consider the bonus decision when accepting CHA’s repudiation on 12 July 2016.
It was further submitted that, according to the respondent’s evidence, his decision to ‘absolutely leave’ was made whilst he was on leave between 4 and 11 July 2016. It was a step which, when communicated, meant loss of a bonus of $100,000 which was due to be paid at the end of August 2016.
Again, it was submitted that, even if the judge had erred in his finding as to when and why the respondent accepted the applicant’s repudiation of the contract, the respondent was entitled to rely, in this proceeding, upon any circumstances supporting a right to repudiate, whether the same was known at the time and whether or not it was actually relied upon. Counsel cited Shepherd v Felt and Textile of Australia.[50] That submission was advanced in reliance upon a notice of contention filed by the respondent.
[50](1931) 45 CLR 319, 378 (Dixon J).
Orally, counsel added a little to his written submissions. He contended that for a person to say that he or she wants to leave a job does not mean that the person is going to leave. People stay in jobs that they hate. But, in any event, the respondent’s decision to leave had been made in the course of detailed discussion with his wife whilst he was on leave.
Counsel referred next to the judge’s acceptance of the respondent as a witness of credit. He submitted that this was a hurdle which the applicant could not get over.
Again, counsel submitted that the ‘stonewalling’ reference in the respondent’s note of 30 June 2016 fell flat. The fact was that the respondent had told both Mr Wilkins and Mr Roberts on 30 June 2016 that he would be re-assessing his position. His evidence had been that he was basically threatening to resign.
Counsel referred also to the respondent’s evidence that the bonus decision was ‘like the last straw’. He submitted that this evidence was credible.
Analysis
In our opinion, on a thorough review of the evidence, but bearing in mind and giving proper weight to the judge’s assessment of the respondent as a witness of truth, his Honour’s conclusion that the respondent was entitled to bring to account the bonus decision when terminating the contract cannot be successfully impugned.
Standing against such a conclusion, the applicant strongly contended, was the respondent’s file note with respect to his conversation with Mr Wilkins on the evening of 30 June 2016. We must therefore address that note, whilst remembering that it was not the only pertinent evidence.
All but one of the matters set out in the note imply that the respondent was a person concerned to ensure that working arrangements should improve. Raising those matters was incompatible with the respondent being a person who no longer had any interest in CHA’s business because he had decided to leave the employment.
The applicant relied upon the note so far as it stated, ‘I felt I needed to give [Mr Wilkins] some examples so he didn’t feel stonewalled and hence on notice that I would be leaving’.
Obviously, that entry could be read as meaning that the respondent had made a firm decision to leave CHA’s employment, but was talking about problems in the business to distract attention away from that decision. But to conclude that the respondent had engaged in such a tactic could be said to make little sense. Only hours earlier, the respondent had told both Mr Wilkins and Mr Roberts that he would be re-assessing his position. He had, as he said in evidence, basically threatened to resign. There would seem to have been little, if any, point in the respondent concealing from Mr Wilkins, in the conversation later on 30 June 2016, an intention, finally reached, to terminate the employment if, indeed, the respondent had that intention. The more likely interpretation is that the respondent had not formed a definite intention to leave CHA as at the evening of 30 June 2016, but was strongly so inclined. One would think that the lure of a bonus payment in a considerable amount, due to be paid to the respondent in August 2016, would have been a brake on both reaching and implementing a decision to leave the employment forthwith.
Such an interpretation fits in, we think, with the respondent’s description of the bonus decision as ‘like the last straw’. Within a fortnight thereafter, the respondent was gone. Except for the part payment in March 2016, the 2015–16 bonus was lost. Further, in terminating the employment, by his email of 12 July 2016, the respondent referred, inter alia, to financial matters.
The interpretation of that part of the 30 June 2016 file note upon which the applicant relied, which we consider to be the preferable one, when taken together with the evidence which the respondent gave as noted in the judge’s reasons, is not contrary to the overall thrust of the respondent’s evidence, in cross-examination, that he had made a decision that he could not stay at CHA, but had to work out whether he was actually going to implement that decision.
This also needs to be remembered. The respondent accepted the applicant’s repudiatory conduct on, not before, 12 July 2016. By then, that conduct included the bonus decision.
We should finally refer to the applicant’s submission that the judge erred in holding that the respondent could rely upon the cumulative effect of the respondent’s conduct before and after 30 June 2016. There is nothing to the point. The judge dealt with it at [50] in his reasons. He made it clear that the bonus decision was repudiatory conduct on a standalone basis. His observation that, alternatively, the conduct was cumulative with the proposed changes to the remuneration model — that is, what we have called the incentive model — was beside the point.
Ground 1(d)
Ground 1(d) is curiously expressed. Although we have set it out earlier, we should do so again:
Ground 1(d): The trial judge erred in concluding that Loone could, on 12 July 2016, in claiming that CHA repudiated the 2012 Contract, rely upon earlier alleged repudiatory conduct by CHA that was not identical to that which was not acted upon prior to the 1 July 2016 repudiation and acceptance of same by Loone.
The question of ‘repeated repudiation which was identical’, as we have already noted when considering ground 1(c), was of no relevance to the judge’s conclusion that the bonus decision was standalone repudiatory conduct, upon which the respondent was entitled to rely. But his Honour did deal with the applicant’s submission with respect to ‘repeated repudiation which was identical’ later in his reasons. He did so when addressing the respondent’s change of position case.
Submissions
By the applicant’s written outline, it was submitted that the judge should have followed the decision of Mandie J (as his Honour then was) in Marks.[51] It was submitted that the trial judge had refused to do so at [50] and [112] in his reasons. It was further submitted that a party should not be permitted to exhume earlier conduct for the later purpose of asserting repudiation.
[51][1999] 3 VR 513, [55].
Orally, counsel said nothing about the judge’s non-reliance on earlier breaching conduct when considering the character of the bonus decision on 1 July 2016. Rather, he concentrated his submissions on what the judge had said with respect to change of position breach.
It was submitted in writing for the respondent that the judge’s conclusions at [110]–[112] of his reasons were correct.
Orally, counsel added that, as the applicant would have it, an employer, in deciding whether to dismiss an employee, could bring the employee’s past conduct to account in the event of further misconduct. There was no need for the misconduct to be identical. But it was said to be otherwise if the misconduct was that of the employer. There was no basis for such a distinction.
Interesting as the submissions were, in our opinion it is unnecessary to address this ground of appeal. That is so for three reasons.
First, as drafted, ground 1(d) seems to fix on the significance of the bonus decision and CHA’s earlier breaching conduct. But the judge decided that the bonus decision was standalone repudiatory conduct, unaffected by any past breaching conduct.
Second, the judge decided that breaching conduct sufficient to justify acceptance of repudiation by the respondent was constituted, independently, by communication of the incentive model to the respondent, and the bonus decision. His Honour only dealt with the respondent’s change of position case for completeness’ sake.
Third, his Honour decided that the respondent made out his change of position case in reliance on CHA’s presentation on 9 June 2016. Earlier breaching conduct there had been. But it was brought to account simply as providing context in which to consider the significance of the so-called family office initiative; and then only on the footing that the breaching conduct was relevantly identical.
In the event, his Honour’s opinion as to the true limit of Marks was unnecessary to his determination of breaching conduct of the two kinds upon which the respondent relied.
Ground 1(e)
The question raised by ground 1(e) is whether the judge erred in finding that by 1 July 2016[52] the applicant required the respondent to occupy a position other than that of Managing Principal, and so breached cl 1.4 of the contract — that is, putting to one side for the moment the possible application of sub-pars (a) and (b) of that clause.
[52]Or should it be 12 July 2016, when the respondent, on his case, accepted the applicant’s repudiatory conduct?
The applicant submitted, as we have earlier noted, that the judge’s reliance upon the first passage in the judgment of Stephen J in Geraghty which we have cited was mistaken, because it referred to an argument unsuccessfully advanced by the appellants. There is force to that submission. But public policy considerations may nonetheless be relevant to the question whether injunctive relief, based upon a restraint clause, should be granted in favour of an employer whose repudiatory conduct is accepted by an employee. Further, even if the judge misunderstood what Stephen J said in Geraghty, it does not mean that his Honour’s reasoning was otherwise put in doubt.
Re Dingjan; ex parte Wagner:[128]
[128](1995) 183 CLR 323.
The main questions in this case were (1) whether provisions of the Industrial Relations Act 1988 (Cth) which empowered the Australian Industrial Relations Commission to review a contract on the grounds that it was unfair, harsh or against the public interest purported to confer judicial power on the Commission; and (2) whether the provisions were laws with respect to constitutional corporations within s 51(xx) of the Constitution. The answer to the first question was, by majority, no; and to the second question, no, for which reason the laws were invalid.
A subsidiary question, which did not need to be answered, was whether the power given to the Commission to set aside or vary the terms of the contract could be exercised in relation to a contract that had been discharged. Brennan J, who dissented on that question, very briefly referred to a matter which is pertinent in the present case. He stated that, when a contract is terminated, one or more of the parties may have a cause of action against the other party or parties, but, ‘generally speaking, no contractual right or obligation survives termination so as to be enforceable as such’.[129]
[129]Ibid 341 (citations omitted).
His Honour footnoted to the words ‘generally speaking’ the following:
That is, leaving aside contracts which contain clauses intended to survive termination of the substantive provisions of a contract — for example, clauses relating to arbitration … confidential information … and restraint of trade …[130]
[130]Ibid n 57.
In this last connection, his Honour referred to Home Counties Dairies Ltd v Stilton.[131] That was a case about the reasonableness of a restraint clause. It had nothing to do with a situation of an accepted repudiation of contract by another party.
[131][1970] 1 WLR 526; [1970] 1 All ER 1227.
In all, nothing which Brennan J said puts in doubt the general proposition enunciated in Kaufman, taken up by Gibbs J in Geraghty.
Rock Refrigeration Ltd v Jones:[132]
[132][1997] 1 All ER 1.
The plaintiff company employed the first defendant (conveniently, ‘the defendant’) under a contract which contained restraint clauses variously expressed to take effect after termination of the contract ‘howsoever arising’ or ‘howsoever occasioned’. The employee gave notice, left the employment and went to work for a competitor. The employer commenced proceedings, claiming damages and an injunction. The trial judge held that the restrictive covenants were necessarily unreasonable since, by their terms, they could apply even if the employer repudiated the contract.
The plaintiff’s appeal was upheld in the Court of Appeal.
In Rock Refrigeration, the employee had to argue that insertion of the words into the restraint clause ‘howsoever occasioned’ rendered it necessarily unreasonable. That was because his employment had been terminated in a regular way, no question of repudiation by the employer arising.
In rejecting the employee’s argument, the gist of the reasons of Simon Brown and Morritt LJJ was that, in the event of an employer’s repudiatory conduct, the phrasing of a restraint clause — whether containing words such as ‘howsoever caused’ or ‘for any reason whatsoever’ or ‘for whatever reason’ or ‘whether lawful or unlawful’ — would be beside the point. The clause would be unenforceable because of the GeneralBillposting principle, which was explained by Simon Brown LJ this way:
The whole point about the General Billposting principle is that, in cases of repudiatory breach by the employer, the employee is on that account released from his obligations under the contract and restrictive covenants, otherwise valid against him, accordingly cannot be enforced. Once that principle was decided, its future application necessarily postulated that such restrictive covenants upon their true construction would otherwise be enforceable against employees.[133]
And
logically it matters not whether covenants include or exclude phrases such as ‘whether lawfully or not’. If they do, then to that extent they are merely writ in water, unenforceable under the General Billposting principle.[134]
[133]Ibid 8e.
[134]Ibid 8g.
Morritt LJ also referred to General Billposting, as an application of basic propositions to contracts of employment. Referring to the argument in the instant case, his Lordship said this:
Counsel for the employee accepted that, however expressed, the post-employment restrictions were unenforceable in the event of the employment terminating because of the employer’s repudiation accepted by the employee. He accepted that in those circumstances the employee would be discharged from any further performance of the contract. But he contended that the covenants were wholly invalid on the grounds of unreasonable restraint of trade because the claim, implicit in the form of covenants, to be entitled to enforce them in such circumstances, though an empty one, might have an effect on the mind of the employee in deciding whether or not to accept the employer’s repudiation. I acknowledge the ingenuity of the submission but I am unable to accept it.[135]
There, his Lordship was referring to covenants which made use of the terms ‘howsoever arising’ or ‘howsoever occasioned’.
[135]Ibid 13j–14a.
Phillips LJ (as he then was) agreed in the result. But although the case was not one in which repudiatory conduct by the employer was in issue, his Lordship nonetheless concluded that ‘the rule in General Billposting accords neither with current legal principle nor with the requirements of business efficacy’.[136] He explained what he perceived to be the difficulties in applying Lord Diplock’s statement in Photo Production Ltd v Securicor Transport Ltd[137] that upon acceptance of repudiation the unperformed obligations of the party not in fault are discharged, to the negative obligations placed on an employee by a restrictive covenant in relation to the period after the employment has ceased.[138]
[136]Ibid 18.
[137][1980] AC 827, 849 (Lord Diplock) (‘Photo Production’).
[138]Rock Refrigeration [1997] 1 All ER 1, 19c–h.
His Lordship took as an example of problems which might arise the situation in which an employer exercised a right of summary dismissal. Was it then to be suggested that the employee was discharged from his obligation to observe negative restrictions imposed under the contract of employment? This, his Lordship said, ‘would seem to follow if one applies the principles underlying General Billposting to such obligations, yet such a result borders on the absurd’.[139]
[139]Ibid.
Pausing, the result bordering on absurdity about which his Lordship expressed concern does not appear to be grounded in any decision that an ‘innocent’ employer who accepts an employee’s repudiation is unable to rely upon a restraint clause; or upon any case in which such an argument, reliant on General Billposting, has been advanced.
His Lordship went on to say:
I do not accept that it is unreasonable for an employer to seek to impose restraints on his employees that will subsist, even should the employment come to an end as a consequence of a repudiation by the employer. On the contrary, it seems to me commercially desirable that it should be possible to achieve this end …[140]
[140]Ibid 19j.
As we have said, Phillips LJ considered an issue which did not squarely arise in the case before him. There is nothing to indicate that any submission was advanced in that case as to why General Billposting might not dictate the result to which his Lordship referred. Moreover, his Lordship evidently did not accept that it was unreasonable for an employer to seek to impose restraints on an employee that would subsist even should the employment come to an end as a consequence of repudiation by the employer, its continued operation being commercially desirable from the employer’s standpoint. Notwithstanding that such a clause is designed, in an employment context, to work to the employer’s benefit, there are two parties to such a contract, and each is potentially affected. The position postulated was, arguably, an essentially one-sided way of looking at the issue. His Lordship’s analysis has been criticised in a well-known text.[141]
[141]See Heydon, above n 104, 313 n 293.
In all, the judgments of Simon Brown and Morritt LJJ in Rock Refrigeration, representing the majority view with respect to the reach of General Billposting, strongly endorse what we have described at [199] as being at the heart of the latter decision. Rock Refrigeration also stands strongly for the proposition that words such as those used in sch 2 cl 1.2(e) — ‘in all circumstances and for any reason’ — will not preserve a restraint clause in the event of an employer’s repudiatory conduct which is accepted by the employee.[142]
[142]In Canada, the majority opinion in Globex stands for the same proposition.
This also may be said. Despite changes in legal understanding of the effect of termination of a contract since General Billposting was decided — McDonald in Australia; Photo Production in England — decisions in England, Australia and Canada have continued to follow at least the result in General Billposting. Rock Refrigeration is an instance of this.
Globex Foreign Exchange Corporation v Kelcher:[143]
[143](2011) 37 DLR (4th) 207.
The employment of the three men came to an end in different circumstances. For present purposes, we focus upon the wrongful dismissal of one of the men. By majority, the Court of Appeal of Alberta[144] held that the employee was discharged from having to comply with a restraint clause. The majority opinion was given by Hunt J. Her Honour exhaustively reviewed Canadian authorities and texts, when showing that General Billposting had been applied for many years in the Dominion. She considered whether Photo Production and the decision of the Canadian Supreme Court in Tercon Contractors Ltd v British Columbia (Transportation and Highways)[145] dictated a different result. She concluded that they did not do so.
[144]Hunt and Martin JJ, Slatter J dissenting on the point.
[145][2010] 1 SCR 69 (‘Tercon’).
Slatter J, dissenting, observed that whilst General Billposting was still treated as binding authority in England, and had been followed in some Canadian cases, it appeared to be inconsistent with Photo Production and Tercon.
Bond v Rees Corporation Advisory Pty Ltd:[146]
[146][2013] VSCA 13.
There was a sale of business. Part of the arrangement was that a key man in the vendor should be engaged as a consultant by the purchaser. The consultancy agreement, renewed more than once, contained a restraint clause. Bond, the key man, purported to terminate the contract. The purchaser accepted the notice of termination. The purchaser brought a proceeding alleging breach of the restraint clause, claiming damages and an injunction. It succeeded at first instance, and again on appeal.
Although the proceeding at first instance had not been argued by Bond (who appeared unrepresented both at trial and on appeal) on the footing that the employer had repudiated the contract, that he had accepted the repudiation, and that therefore the restraint clause was not enforceable against him, he applied on the appeal to amend his grounds to raise such a contention. This Court refused the application, and so the observations of Tate JA with respect to the continuance or otherwise of a restraint clause as between employer and employee, in the event of the employer’s repudiatory conduct accepted by the employee, were obiter dicta.
That said, her Honour approached the matter from first principles, referring to the general rule with respect to the consequences of the acceptance of repudiatory conduct stated in Sopov.[147] She observed that to consider otherwise is to commit the ‘rescission fallacy’.[148]
[147](2009) 24 VR 510, 514 [10].
[148]Bond [2013] VSCA 13 [42].
Her Honour noted that it was accepted by the respondents to the appeal that, for sake of argument, an employee might be released from a post-employment restraint of trade obligation if the employment contract was terminated as a result of the employer repudiating the contract and the employee accepting this repudiation. There, the respondents had relied upon General Billposting.[149]
[149]Ibid [44].
Her Honour then considered the decisions in General Billposting and Kaufman before observing that —
The decisions in General Billposting and Kaufman have been interpreted as standing for the proposition that an employee’s post-employment restraint of trade obligations do not survive the termination of the employment contract where termination is effected by the employee accepting the employer’s repudiation of the contract.[150] However, the reason why the general rule does not apply and why these obligations do not survive termination of the employment contract is not clear,[151] particularly given the development of the law since General Billposting and Kaufman with respect to the consequence of the acceptance of a repudiation upon continuing obligations.[152] It may be that the rationale for the proposition for which General Billposting and Kaufman stand is that parties to an employment contract will be presumed to have intended that the employee’s restraint of trade obligations will not survive termination of the contract where termination is effected by the employee accepting the employer’s repudiation of the contract.[153] Alternatively, it may be that the enforcement of a restraint of trade clause in an employment contract following termination, where termination is brought about by the employer’s repudiatory conduct, is contrary to public policy.[154] Further, it may be that the right of one contracting party to restrain the other contracting party from engaging in competitive conduct after the termination of the contract is not unconditionally acquired until the whole of the contract has been performed.[155]
[150]See, eg, Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435, 450 (Latham CJ); Geraghty v Minter (1979) 142 CLR 177, 187 (Gibbs J); Rock Refrigeration Ltd v Jones & Anor [1997] 1 All ER 1, 5–9 (Simon Brown LJ), 10–12 (Morritt LJ); BearingPoint Australia Pty Ltd v Hillard [2008] VSC 115, [142] (Habersberger J (obiter)); Tullett Prebon (Australia) Pty Ltd v Simon Purcell (2008) 175 IR 414, 430 [54] (Brereton J). In Geraghty v Minter, Gibbs J described the principle as one relating to the circumstances in which equitable relief will be granted and stated (at 187) (citing Measures Brothers):
He who comes to equity must do equity, and parties who seek equitable relief by injunction to enforce a covenant in restraint of trade ‘cannot obtain such relief unless they allege and prove that they have performed their part of the bargain hitherto and are ready and able also to perform their part in the future’.
In general, however, the cases considering General Billposting and Kaufman have treated an employee’s acceptance of his or her employer’s repudiation of the employment contract as bringing to an end any post-employment restraint of trade obligations of the employee and not merely as limiting the ability of the employer to seek equitable relief to enforce these obligations.
[151]See JW Carter, Elisabeth Peden and GJ Tolhurst, Contract Law in Australia (LexisNexis Butterworths, 5th ed, 2007) 747.
[152]See, eg, Cavill Business Solutions Pty Ltd v Jackson [2005] WASC 138, [36]–[38] (Hasluck J); Rock Refrigeration Ltd v Jones & Anor [1997] 1 All ER 1, 15 (Phillips LJ who expressed significant reservations about the proposition for which General Billposting stands).
[153]See, eg, Carter, Peden and Tolhurst’s statement that General Billposting and Kaufman ‘would be more compelling if they had been based on the view that the parties must have intended the restraint clause to be enforceable only if the employers were not in breach’: see Carter, Peden and Tolhurst, above n 151, 747.
[154]Carter, Peden and Tolhurst state (at 747): ‘an alternative (and perhaps more compelling) basis for cases such as General Billposting Co Ltd v Atkinson is that it is against public policy to permit an employer to enforce a restraint clause where the employer’s breach has led to termination’.
[155]Bond [2013] VSCA 13 [47] (citations in original).
As can be seen, Tate JA was concerned to explore the juridical basis for the long history of cases denying to an employer the right to rely upon a restraint clause where the employer’s repudiatory conduct had been accepted by the employee — not the correctness of the result in those cases.
Richmond v Moore Stephens Adelaide Pty Ltd:[156]
[156][2015] SASCFC 147.
There was a sale of business by the appellant to the respondent. There was provision for key employees to provide services to the respondent. There were restraint of trade clauses. The appellant alleged breach of the agreement by the respondent amounting to repudiation. In reliance on the restraint clause, the respondent sued the appellant, seeking an injunction. The appellant’s response was that the respondent had repudiated the contract, for which reason the restraint of trade clause could not be relied upon against him.
The Full Court of the Supreme Court of South Australia decided that, although the respondent had breached the contract, there was no breach amounting to repudiation. So the appellant’s argument, founded on what may be called the General Billposting consequences of an employer’s repudiatory conduct accepted by the employee did not arise.
Nonetheless, Blue J, with whom Kourakis CJ and Stanley J agreed, gave consideration to the issue which arises for consideration in the present appeal.
His Honour expressed the general rule with respect to the effects of termination of a contract this way —
The general rule and the corollaries and qualifications identified above can be expressed as a single rule: termination of a contract discharges those obligations of a party that are not contingent upon its subsistence or future events dependent on its subsistence or future obligations discharged by its termination. Whether an obligation is or is not contingent in this sense is to be determined as a matter of construction of the contract.[157]
[157]Ibid [197].
Then he turned to consider General Billposting and later cases, including Kaufman and Geraghty. His Honour did not accept that General Billposting created a rule of law. He said this —
Mr Richmond contends that General Billposting Company Ltd v Atkinson is authority for the proposition that it is a rule of law that a party who has repudiated a contract leading to its termination by the innocent party can never enforce a restraint clause expressed to operate after termination and this was endorsed by the High Court in Kaufman v McGillicuddy. Mr Richmond’s contention should be rejected because the question whether the restraint clause survives must depend on the proper construction of the contract. This was the approach adopted by the Court of Appeal in Measures v Measures Brothers Ltd which was cited with approval by the High Court in Kaufman v McGillicuddy and by Gibbs J, with whom Aickin J agreed, and Stephen J in Geraghty v Minter. To the extent that Lord Collins’ judgment in General Billposting Company Ltd v Atkinson might be read as suggesting that there is a rule of law regardless of the parties’ intention as manifested in the contract that restraint clauses cannot survive termination for repudiation by the party in whose favour they operate, this might be explained by the fact that in 1909 the common law had not yet been clarified that termination for repudiation does not operate by way of rescission ab initio.[158]
[158]Ibid [210] (citations omitted).
But his Honour concluded, on the proper construction of the contract, that the restraint clause did not in fact survive termination.
His Honour, then, proceeded on the basis that the answer to the question whether a restraint clause survives repudiatory conduct by an employer, accepted by an employee, is to be found in the contract itself. It is a question of construction. Although, in our opinion, criticisms advanced by respondent’s counsel as to his Honour’s reliance on Measures, and what was said about that case in Kaufman and by Gibbs J in Geraghty had force, it is enough for us to say that, if viewed as a question of construction, we consider that, in the present case, the restraint clause did not survive.
Single judge decisions
For sake of completeness, we should address two single judge decisions which were referred to in argument: Douglass Automated Laboratories and Allied Services Pty Ltd v Sonic Technology Australia Ltd[159] and Cavill Business Solutions Pty Ltd v Jackson.[160]
[159](Unreported, Supreme Court of New South Wales, Giles J, 8 June 1994) (‘Douglass’).
[160][2005] WASC 138 (‘Cavill’).
In Douglass, there was a sale of business which included a restraint clause. Giles J of the New South Wales Supreme Court held that the respondent, the purchaser, had not repudiated the contract, so that no question of the consequences of acceptance of repudiation arose. Nonetheless, his Honour referred briefly to General Billposting, Measures, Kaufman and Watson. He noted that there was some divergence in the reasoning in those cases, and stated that, ‘It must remembered that it is necessary always to pay regard to the terms of the contract’.[161] He noted also that some obligations remain enforceable by the innocent party after termination for breach, there referring to an arbitration clause, obligations protecting confidential information, and restraint clause. In that last connection, his Honour was referring to the survival of restraint clauses generally.
[161]Douglass (Unreported, Supreme Court of New South Wales, Giles J, 8 June 1994), 53.
In Cavill, Hasluck J, sitting in chambers in the Supreme Court of Western Australia, refused to strike out certain paragraphs in a defence which, in effect, pleaded that the plaintiff had engaged in repudiatory conduct which had been accepted by the employee defendant. His Honour nonetheless referred to there being some problems with General Billposting in that the law in relation to the discharge of contractual obligations by acceptance of a repudiation had been developed and clarified since that case was decided. Nonetheless, his Honour stated that he was ‘compelled to hold’ that the defendant had an arguable line of defence despite the reasoning of Lord Diplock in Photo Production.[162]
Heyman v Darwins Ltd:[163]
[162]Cavill [2005] WASC 138, [47].
[163][1942] AC 356.
We refer to this case out of chronological order because it did not involve a restraint clause.
A manufacturer appointed an agent to sell its product. The agent alleged that the manufacturer had repudiated the contract. It did not, however, allege acceptance of repudiation.
The agent brought a proceeding for damages. There was an arbitration clause in the contract. It was held at first instance, in the Court of Appeal and finally in the House of Lords, that the arbitration clause survived termination of the contract.
It was emphasised by both the Lord Chancellor[164] and Lord Porter[165] that the governing consideration in every case must be the precise terms of the language of the arbitration clause.
[164]Ibid 366.
[165]Ibid 392.
Heyman was relied upon by the applicant to show that contractual obligations can survive termination of a contract. So much is not in doubt. Indeed, in ordinary circumstances, a restraint clause, subject to being reasonable, does survive termination of a contract. But there are passages in the judgments to which we should draw attention.
Lord Macmillan said this —
I venture to think that not enough attention has been directed to the true nature and function of an arbitration clause in a contract. It is quite distinct from the other clauses. The other clauses set out the obligations which the parties undertake towards each other hinc inde; but the arbitration clause does not impose on one of the parties an obligation in favour of the other. It embodies the agreement of both parties that, if any dispute arises with regard to the obligations which the one party has undertaken to the other, such dispute shall be settled by a tribunal of their own constitution. Moreover, there is this very material difference that, whereas in an ordinary contract the obligations of the parties to each other cannot in general be specifically enforced and breach of them results only in damages, the arbitration clause can be specifically enforced by the machinery of the Arbitration Acts.[166]
[166]Ibid 373–4.
Lord Porter said this —
In this, I think, the right to insist upon arbitration differs from the claim to require the further performance of the other terms and conditions of the contract. In respect of these latter the injured party may be excused from further performance after essential breach and acceptance of that breach as a renunciation of the contract: see General Bill Posting [sic] Co., Ld. v. Atkinson, a case in which a servant wrongfully dismissed was held no longer bound by a clause restricting his right to trade after the determination of his service.[167]
[167]Ibid 400 (citations omitted).
The particular nature of an arbitration clause was thus emphasised; whilst Lord Porter’s observation, in the passage just cited, explained why the situation would be different in a case of the present kind.
True it is that the observation of Lord Porter preceded the decision in Photo Production. Nonetheless, his Lordship, in our respectful opinion, gave a rational explanation why it is that clauses of different complexions in a contract ought be given differential treatment following termination of the contract.
Texts
Standard texts on contract law address the issue now under consideration. So did a text and a journal article to which we were specifically referred: J D Heydon, The Restraint of Trade Doctrine,[168] and Francis Dawson, ‘Survival of Restraint of Trade Clauses’.[169]
[168]Heydon, above n 104.
[169]Dawson, above n 103.
J D Heydon treats the line of authority which started with General Billposting as being correct. It seems that he prefers the solution that ‘[a]n injunction will not lie at the suit of covenantees who cannot do equity in the sense that they cannot prove that they have performed their part of the bargain hitherto or are ready and able to do so in the future’.[170] This derives from the judgment of Gibbs J in Geraghty.
[170]Heydon, above n 104, 313–14 and nn 292–3.
The author notes that the law is similar in America.
Francis Dawson’s note focused upon the decisions in Globex and Bond. The author expressed the view that General Billposting could not be regarded as establishing an inflexible rule, that the case was principally about the interpretation of a contract, and that there were ‘obvious challenges’ in rationalising a decision which turned on now largely discarded techniques (involving dependent and independent promises) in modern terms involving the release of primary obligations.
The author’s ultimate conclusion was expressed this way:
The primary focus should however always be on the intention of the parties. One would ordinarily expect that on a repudiation by the grantor (employee) a restraint clause would survive acceptance of the repudiation and would apply notwithstanding termination because that is the purpose of the clause which is intended to apply after termination of the contract. By contrast on a repudiation by the grantee (employer) the presumed intention would ordinarily be that the restraint provision would not survive termination.[171]
[171]Dawson, above n 103, 512.
In summary, the authorities show, as we have previously noted, a consistent trend, though with different juridical explanations — denying to an employer who has repudiated a contract of employment, such repudiation having been accepted by the employee, reliance upon a restraint clause against the employee.
Ground 12
Submissions
The applicant’s submissions with respect to ground 12 were founded on the propositions that CHA did not repudiate the 2012 contract, that the parties had contracted for what might occur — that is, that a restraint clause would operate even in the event of a repudiation by one party — and that there was no basis for a finding that CHA did not have clean hands, because the contract provided for the very circumstances. So, it was submitted, there was no discretionary basis to deny it relief.
Analysis
The fundamental propositions upon which the applicant relied were not made good. For that reason alone, the ground lacks substance.
Further, one of the explanations that has been given why a restraint clause will not be enforced in the circumstances which we have been discussing is that, other considerations apart, equity will refuse relief not only for the reason described by Gibbs J in Geraghty but also on the grounds of hardship or that the ‘unfair’ conduct of the covenantee meant it was coming to equity without doing equity.[172]
[172]Shell UK Ltd v Lostock Garage Ltd [1977] 1 All ER 481, 492 (Ormrod LJ), 490 (Lord Denning MR), cited in Heydon, above n 104, albeit not an employer-employee case.
So, all else apart, we agree with the judge that, in the circumstances, discretionary relief ought to have been denied to CHA.
Summary with respect to grounds 2(a)–(d) and ground 12
We consider that CHA should have leave to appeal in respect of grounds 2(a)–(d), but that the appeal should be dismissed. We consider that leave to appeal on ground 12 should be refused.
Orders
We will order that leave to appeal be refused on grounds 1(a)–(g) and on ground 12. We will grant leave to appeal on grounds 2(a)–(d), but dismiss the appeal.
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