Crowe Horwath (Aust) Pty Ltd v Loone (No 3)
[2017] VSC 548
•15 September 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW
EMPLOYMENT AND INDUSTRIAL LIST
S CI 2016 02982
| CROWE HORWATH (AUST) PTY LTD (ACN 006 466 351) | Plaintiff and Defendant by Counterclaim |
| v | |
| ANTHONY LOONE | Defendant and Plaintiff by Counterclaim |
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JUDGE: | McDonald J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 29 August 2017 |
DATE OF JUDGMENT: | 15 September 2017 |
CASE MAY BE CITED AS: | Crowe Horwath (Aust) Pty Ltd v Loone (No 3) |
MEDIUM NEUTRAL CITATION: | [2017] VSC 548 – First Revision 19 September 2017; para 17. |
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DAMAGES – Termination of contract of employment by reason of employee’s acceptance of employer’s repudiation of contract – Damages assessed by comparing financial position of employee if employer had not engaged in repudiatory conduct with his financial position as consequence of termination of employment.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Moses SC and Mr N Harrington | Mills Oakley |
| For the Defendant | Mr J Bourke QC and Mr A P Rodbard-Bean | Marsh & Maher |
HIS HONOUR:
On 4 April 2017 the Court delivered judgment upholding Mr Loone’s claim that his contract of employment with the plaintiff, Crowe Horwath (Aust) Pty Ltd (‘CHA’), had been repudiated.[1] The Court concluded, inter alia, that CHA engaged in three discrete acts of repudiatory conduct:
[1]Crowe Horwath (Aust) Pty Ltd v Loone [2017] VSC 163.
(i) a breach of cl 7.5 of Mr Loone’s contract of employment by reason of the exclusion of the acquisition of the Davey Financial Group from the calculation of the Launceston bonus pool;
(ii) breach of cl 7.5 by reason of CHA’s proposed introduction of a new incentive model under which payment of 20 per cent of Mr Loone’s annual bonus would be deferred for three years; and
(iii) the significant diminution in Mr Loone’s management responsibilities in respect of administrative and client facing employees, together with a significant winding back of his profit and loss responsibilities, under the Family Office Initiative, as outlined during a presentation on 9 June 2016.
Each of the findings set out above was challenged on appeal by CHA. On 7 July 2017 the Court of Appeal dismissed CHA’s appeal. The Court of Appeal held that CHA had engaged in each of the three categories of repudiatory conduct set out above.[2]
[2]Crowe Horwath (Aust) Pty Ltd v Loone [2017] VSCA 181, [77] in relation to the exclusion of the Davey Financial Group from the Launceston bonus pool, [83] in relation to the new incentive model, and [137], [138], [149] [153] in relation to the diminution in Mr Loone’s management responsibilities arising out of the Family Office Initiative.
This judgment addresses Mr Loone’s entitlement to damages arising from the Court’s finding that CHA repudiated his contract of employment. CHA does not dispute that Mr Loone is entitled to receive damages commensurate with his annual 2015/2016 bonus assessed at one hundred per cent plus a further sum of $50,000 by reason of the successful integration of the Davey Financial Group into CHA Launceston by 30 June 2016.[3] CHA agrees to an order in the sum of $142,778.[4] However, there is an issue, discussed below, as to whether any order of the Court should reflect Mr Loone’s liability to pay tax. There is no dispute between the parties that an amount of $1,000, being Mr Loone’s income during the 12 month period post-12 July 2016, should be deducted from any award of damages to which he is entitled.[5] CHA does not contend that Mr Loone failed to mitigate his loss.
[3]‘CHA Outline of Submissions – Damages on Counterclaim’ dated 22 August 2017, [1](a).
[4]Ibid [1](b).
[5]Transcript of Proceedings, Crowe Horwath (Aust) Pty Ltd v Loone (Supreme Court of Victoria, S CI 2016 02982, McDonald J, 29 August 2017) T7 LL12–14.
Mr Loone’s employment with CHA terminated on 12 July 2016. In the assessment of damages, the primary issue in contention concerns the period post-12 July 2016. Mr Bourke QC, who appeared with Mr Rodbard-Bean on behalf of Mr Loone, submitted that damages should be calculated on the basis that, but for CHA’s repudiatory conduct, Mr Loone would have continued in employment for another 12 months until July 2017.[6] Mr Loone claims an amount of $281,667 for loss of salary and superannuation which he would have earned during this period.[7] Mr Moses SC, who appeared with Mr Harrington for CHA, submits that any assessment of damages referable to the period post-July 2016 must reflect the reality that the Family Office Initiative was implemented in early August 2016.[8] Mr Moses submits that if Mr Loone had still been employed at that time, the implementation of the Family Office Initiative would have resulted in a breakdown in the employment relationship.[9] He submits that in that event, the contract of employment would have come to an end in accordance with its terms which allowed for termination on the provision of six months’ notice or payment in lieu thereof.[10] Mr Moses submits that the ‘more probable outcome’ would have been termination of Mr Loone’s employment in August 2016 with payment to him of six months’ pay in lieu of notice.[11]
[6]Ibid T6 L26 – T7 L1, T16 LL29–31; ‘Anthony Loone’s Amended Submissions in Reply as to Damages’ dated 28 August 2017, [8]–[9], [16].
[7]Affidavit of Anthony Loone sworn 15 August 2017, [2].
[8]Transcript of Proceedings, Crowe Horwath (Aust) Pty Ltd v Loone (Supreme Court of Victoria, S CI 2016 02982, McDonald J, 29 August 2017) T18 L28 – T19 L30.
[9]‘CHA Outline of Submissions – Damages on Counterclaim’ dated 22 August 2017, [14]–[16].
[10]Transcript of Proceedings, Crowe Horwath (Aust) Pty Ltd v Loone (Supreme Court of Victoria, S CI 2016 02982, McDonald J, 29 August 2017) T19 LL25–30.
[11]Ibid T21 LL14–18.
Mr Moses submits that when assessing damages, the Court should look to the facts rather than proceed upon an improbable factual hypothesis.[12] He submits that at the time of the repudiation of Mr Loone’s contract on 12 July 2016, the relevant factual matrix included the pending introduction of the Family Office Initiative in early August 2016. Mr Moses submits that Mr Loone’s invitation to assess damages on the basis of a hypothetical scenario excluding the Family Office Initiative, is a departure from the orthodox application of well-settled principles and is divorced from reality.[13]
[12]‘CHA Outline of Submissions – Damages on Counterclaim’ dated 22 August 2017, [6](e).
[13]‘CHA Reply Submissions on Damages Principles’ dated 31 August 2017, [8].
The principal issue which falls for determination is whether, in assessing damages, the Court should do so by reference to a hypothetical factual scenario which excludes CHA’s repudiatory conduct. In other words, should the period of Mr Loone’s employment post-12 July 2016 be assessed on the assumption that CHA:
(iv) would not have excluded the Davey Financial Group acquisition from the calculation of the Launceston bonus pool;
(v) would not have proposed an amendment to the incentive model whereby payment of 20 per cent of Mr Loone’s bonus would be deferred for a period of three years; and
(vi) would not have introduced the Family Office Initiative in early August 2016 in Launceston?
The ‘ruling principle’[14] for calculating damages for breach of contract is stated in Robinson v Harman:[15]
The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.[16]
[14]Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272, [13].
[15](1848) 154 ER 363 (‘Robinson’).
[16]Ibid 365.
The statement of principle from Robinson was cited with approval by the plurality in Commonwealth v Amann Aviation Pty Ltd:[17]
The general rule of common law, as stated by Parke B. in Robinson v Harman, is ‘that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed’. This statement of principle has been accepted and applied in Australia.[18]
[17](1991) 174 CLR 64 (‘Amann Aviation’).
[18]Ibid 80. See also ibid 98 (Brennan J).
In Amann Aviation, Deane J addressed the approach to the assessment of damages for repudiation of contract:
The general principle governing the assessment of compensatory damages in both contract and tort is that the plaintiff should receive the monetary sum which, so far as money can, represents fair and adequate compensation for the loss or injury sustained by reason of the defendant’s wrongful conduct. The application of that general principle ordinarily involves a comparison, sometimes implicit, between a hypothetical and an actual state of affairs: what relevantly represents the position in which the plaintiff would have been if the wrongful act (ie the repudiation or breach of contract or the tort) had not occurred and what relevantly represents the position in which the plaintiff is or will be after the occurrence of the wrongful act.[19]
[19]Ibid 116.
This passage from Deane J’s judgment has been cited with approval on many occasions.[20] It was also cited with approval by Tracey J in Van Efferen v CMA Corp Ltd.[21]In Van Efferen, the plaintiff was employed as a marine supervisor on a project to demolish a wharf. The plaintiff had a dispute regarding safety procedures with the site’s project manager and was subsequently dismissed. The plaintiff argued that the employer had failed to follow the grievance policy in an applicable Australian Workplace Agreement. He alleged that his employment would have continued had the grievance procedure been followed. Tracey J accepted that the employer’s failure to follow the grievance procedure was the cause of the plaintiff’s loss of employment. His Honour assessed the damages payable to the plaintiff on the basis that he would have continued in employment but for his employer’s failure to follow the grievance procedure. Tracey J stated:
The applicant should be placed in the same situation, as far as money may do it, as if the contract had been performed. In appropriate cases damages could be calculated by reference to what the applicant was entitled to expect by way of performance by the respondent and the losses incurred when the respondent failed to comply with its contractual obligations.[22]
Thus, consistent with the submissions advanced on behalf of Mr Loone, Tracey J assessed damages by comparing the financial position of Mr Van Efferen if CMA Corp Ltd had not repudiated the agreement with his position consequent upon the termination of his employment.
[20]Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Ltd (1993) 176 CLR 332, 341; MLW Technology Pty Ltd v May [2005] VSCA 29, [41]; Keeley v Horton [2017] 1 Qd R 414, [38]; PT Ltdv Spuds Surf Chatswood Pty Ltd [2013] NSWCA 446, [155]; Haviv Holdings Pty Ltd v Howards Storage World Pty Ltd (2009) 254 ALR 273, [27].
[21](2009) 183 IR 319 (‘Van Efferen’).
[22]Ibid [63] (citations omitted).
In Bartlett v Australia & New Zealand Banking Group Ltd,[23] Meagher JA (with whom Simpson JA agreed), in reference to the plaintiff’s claim for damages on the basis that he had lost the benefit of an employment contract which, unless terminated earlier, would have continued until at least August 2022, stated:
In such a case, expressed broadly (see TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 154 (Hope JA) and Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 93; [1991] HCA 54 (Mason CJ and Dawson J)) the relevant inquiry is whether, had the breach or repudiatory conduct not occurred, the party in breach nonetheless would have exercised a right to terminate which depended on its ‘unrestricted volition’. This inquiry directs attention to the circumstances as they existed at the time the breach or repudiatory conduct occurred, but on the hypothesis that such conduct had not occurred.[24]
[23](2016) 92 NSWLR 639.
[24]Ibid [101].
Consistent with the authorities referred to above, damages should be assessed by determining the duration of Mr Loone’s employment post-12 July 2016 if CHA had not repudiated his contract of employment. This requires a comparison between a hypothetical state of affairs in which the Family Office Initiative would not have been introduced, or at least, not introduced in a way which reduced Mr Loone’s management and profit and loss responsibilities, compared to the actual state of affairs whereby his employment came to an end on 12 July 2016. If the Family Office Initiative had not been introduced in August 2016, or had been introduced in a way which did not repudiate his contract of employment, Mr Loone would have continued in employment for at least 12 months post August 2016.
There is no inconsistency between the assessment of damages as set out above and the well-established principle that a court should look to the facts rather than proceeding upon an improbable factual hypothesis. In McDonald v Parnell Laboratories (Aust) Pty Ltd,[25] Buchanan J stated:
Normally a party to a contract is entitled to perform the contract in a way which is open to it. Sometimes damages are assessed by reference to a principle that a defendant would have performed a contract, if not in breach, in the manner least burdensome to it. However, it is clear that such a principle does not operate as an automatic restriction on the quantum of damages (see TCN Channel Nine Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 154 – 156; Amann at 93). Instead a court will look to the facts. It is not obliged, nor entitled, to proceed upon ‘an improbable factual hypothesis’.[26]
[25](2007) 168 IR 375.
[26]Ibid [79].
The principle that a court, when assessing damages, will look to the facts rather than proceeding upon an improbable factual hypothesis, qualifies the ‘least burdensome principle’, ie that a party to a contract is normally entitled to perform a contract in the manner least burdensome to it.[27] However, this principle does not operate automatically, simply because a party has a contractual right which if exercised would reduce the quantum of damages it would otherwise be liable to pay.[28] For example, as in the present case, an employer may have a right to terminate a contract lawfully upon notice or payment in lieu thereof. However, the factual matrix may be such that it would be unlikely that the right would be exercised. TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd,[29] and Walker v Citigroup Global Markets Australia Pty Ltd,[30] are examples of courts assessing damages on the basis that a contractual right of termination would not have been exercised.
[27]See Bostik (Australia) Pty Ltd v Gorgevski [No 1] (1992) 36 FCR 20, 32–33.
[28]Amann Aviation (1991) 174 CLR 64, 93.
[29](1989) 16 NSWLR 130, 154–156 (‘TCN Channel 9’).
[30](2006) 233 ALR 687, [80] (‘Walker’).
In TCN Channel 9 and Walker, the right of a party in breach of contract to terminate on notice did not operate to limit the liability to pay damages because the Court held that it would have been contrary to that party’s interests to exercise the right. Thus, the ‘improbable factual hypothesis’ operated as a bar to the party in breach relying upon its contractual right of termination to reduce the quantum of damages it would otherwise be liable to pay. In other words, the improbable factual hypothesis prevented the party in breach from receiving the benefit of the least burdensome principle. Consequently, the party in breach paid more damages than it would have been liable to pay based on the application of the least burdensome principle. Neither party referred the Court to any authority in which, by reason of an improbable factual hypothesis, the quantum of damages of a party found to be in breach of contract, has been reduced. However, this is the practical effect of CHA’s submission.[31]
[31]See ‘CHA Outline of Submissions – Damages on Counterclaim’ dated 22 August 2017, [6](e).
CHA’s submission must be rejected for a number of reasons. First, although the Family Office Initiative had not been implemented on 12 July 2016, CHA had made plain during a presentation on 9 June 2016 that it intended to do so.[32] The presentation on 9 June 2016 would have conveyed to a reasonable person in Mr Loone’s position renunciation by CHA of a fundamental obligation under his contract.[33] Thus, as at 12 July 2016, CHA repudiated Mr Loone’s contract by reason of the foreshadowed implementation of the Family Office Initiative. The implementation of the Family Office Initiative in August 2016 was simply an extension of the repudiatory conduct which the Court concluded was in existence as at 12 July 2016.
[32]See Exhibit D1: Defendant’s Court Book, 701–760F.
[33]Crowe Horwath (Aust) Pty Ltd v Loone [2017] VSC 163, [122].
Second, if the Court assessed CHA’s liability to pay damages on the basis that in early August 2016 it would have exercised the right to terminate upon six months’ pay in lieu of notice by reason of a breakdown in the employment relationship flowing from the introduction of the Family Office Initiative, this would be tantamount to reducing CHA’s liability by reason of the very same conduct held to be repudiatory.
Third, CHA accepts that damages should be assessed on the basis that Mr Loone would have received a $50,000 bonus payment referable to the acquisition of the Davey Financial Group. This is an admission that damages should be assessed by reference to Mr Loone’s financial position if it had not engaged in the first category of repudiatory conduct referred to in [1](i) of this judgment. There is no rational reason for adopting a different approach in respect of the repudiatory conduct referred to in [1](iii).
Fourth, to accept CHA’s approach to the assessment of damages would be inconsistent with the oft-cited passage from Deane J’s judgment in Amann Aviation.
Mr Loone has not sought damages based on a period of ongoing employment exceeding 12 months. Therefore, he is entitled to damages in the sum of $423,445. This sum comprises his salary and superannuation entitlements of $281,667 for the period 12 July 2016 to 12 July 2017. It also includes the sum of $142,778 in respect of his bonus entitlement for the year 2015/2016. From this amount is deducted the sum of $1,000, being his income during the period 12 July 2016 to 12 July 2017.
I do not propose to reduce the sum of $423,445 to take account of taxation. Whether that sum gives rise to a liability by Mr Loone to pay tax is a matter between Mr Loone and the Australian Taxation Office.[34]
[34]See Stevens v Spotless Management Services Pty Ltd [No 2] [2016] VSCA 311, [12]; Bartlett v Australia & New Zealand Banking Group Ltd (2016) 92 NSWLR 639, [92].
I shall provide the parties with an opportunity to make submissions on the question of interest and costs. The parties are to file written submissions on the question of interest and costs, not exceeding 10 pages in length, by 4.00pm on 29 September 2017.
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