Fishlock v The Campaign Palace Pty Ltd
[2013] NSWSC 531
•09 May 2013
Supreme Court
New South Wales
Medium Neutral Citation: Paul Fishlock v The Campaign Palace Pty Limited [2013] NSWSC 531 Hearing dates: 18, 19, 20, 21 February 2013, oral submissions 20 March 2013, further oral submissions 3 April 2013 Decision date: 09 May 2013 Jurisdiction: Equity Division Before: Sackar J Decision: See paragraph [324].
Catchwords: CONTRACTS - terms of contract - employment contract does not specify the duties of the employee - whether post-contract conduct of the parties can be used to identify the terms, subject matter or scope of application of an employment contract which does not specify the employee's duties.
CONTRACTS - repudiation - whether the extent of alteration to the employee's position or status amounted to a repudiation of the employment contract - whether an employee can rely on after-acquired information to justify termination of the employment contract.
CONTRACTS - assessment of damages - relevance of probable course of events if the contract was not repudiated - mitigation - whether the employee failed to act reasonably to mitigate loss.
EMPLOYMENT LAW - long service leave - no dispute - payable where employer repudiates contract of employment - redundancy payment - whether employee entitled to redundancy payment under the Fair Work Act 2009 (Cth) - whether employment was terminated at the initiative of the employer where the employee accepted the employer's repudiation - whether the employment was terminated because the employer no longer required the employee's job to be done by anyone.
TRADE AND COMMERCE - restraints of trade - relevant principles - non-operation of restraint provisions where employment contract repudiated by employer.Legislation Cited: Long Service Leave Act 1955
Restraints of Trade Act 1976
Fair Work Act 2009 (Cth)
Industrial Relations Act 1988 (Cth)
Workplace Relations Act 1996 (Cth)Cases Cited: Administration of Papua and New Guinea v Daera Guba (1973) 130 CLR 353
Afovos Shipping Co SA v Pagnan [1983] 1 WLR 195
Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570
Barras v Aberdeen Steam Trawling and Fishing Co Ltd [1933] AC 402
Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
Buckley v Tutty (1971) 125 CLR 353
C H Magill v National Australia Bank Ltd [2001] NSWCA 221
Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9
Cameron v Asciano Services Pty Limited [2011] VSC 36
Commonwealth Homes and Investments Co Ltd v MacKellar (1939) 63 CLR 351
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
Concut Pty Ltd v Worrell (2000) 176 ALR 693
County Securities Pty Limited v Challenger Group Holdings Pty Limited [2008] NSWCA 193
Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337
Delaney v Staples [1992] 1 AC 687
Downer EDI Limited v Gillies [2012] NSWCA 333
Easling v Mahoney Insurance Brokers (2001) 78 SASR 489
Electrolux Home Products Pty Ltd v Australian Workers' Union (2004) 221 CLR 309
Ex parte Campbell (1870) LR 5 Ch App 703
Fardell v Coates Hire Operations Pty Ltd [2010] NSWSC 346
Gillies v Downer EDI Ltd [2013] HCATrans 81
Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310
Jardin v Metcash Ltd [2011] NSWCA 409
John Fairfax Publications Ltd v Birt [2006] NSWSC 995
Keays v J P Morgan Administrative Services Australia Ltd [2012] FCAFC 100
Lane v Arrowcrest Group Pty Ltd (1990) 27 FCR 427
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623
Lewis v Motorworld Garages Limited [1986] ICR 157
Malik v Bank of Credit and Commerce International SA [1998] AC 20
McDonald v Parnell Laboratories (Aust) (2007) 168 IR 375
Mohazab v Dick Smith Electronics Pty Ltd (No 2) (1995) 62 IR 200
Nottinghamshire County Council v Meikle [2004] EWCA Civ 859
Orton v Melman [1981] 1 NSWLR 583
Otis Elevator Company Pty Limited v John Nolan [2007] NSWSC 593
Qantas Airways Ltd v Christie (1998) 193 CLR 280
Quinn v Jack Chia (Australia) Limited [1992] 1 VR 567
RDF Media Group Plc v Clements [2008] IRLR 207
Re Alcan Australia Ltd; Ex parte Federation of Industrial, Manufacturing & Engineering Employees (1994) 181 CLR 96
Reilly v Praxa Ltd [2004] ACTSC 41
Robinson v Harman (1848) 1 Ex 850
Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45
Seven Network (Operations) Ltd v Warburton (No 2) [2011] NSWSC 386
Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359
Shevill v Builders Licensing Board (1982) 149 CLR 620
Sidameneo (No 456) Pty Ltd v Alexander [2011] NSWCA 418
Sperandio v Lynch (No 2) [2006] FCA 1838
Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103
Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245
Tasman Capital Pty Ltd v Sinclair (2008) 75 NSWLR 1
Tullet Prebon v BGC Brokers LP [2010] IRLR 648
Visscher v Giudice (2009) 239 CLR 361
Walker v Citigroup Global Markets Australia Pty Ltd (2006) 233 ALR 687
Watts v Rake (1960) 108 CLR 158
Westen v Union des Assurances de Paris (1996) 88 IR 259
Western Excavating Ltd v Sharp [1978] QB 761
White v Australian and New Zealand Theatres Ltd (1943) 67 CLR 266
Woolworths v Olson [2004] NSWCA 372
Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317Texts Cited: G H L Fridman, The Modern Law of Employment, (1963) Stevens and Sons
J W Carter, The Construction of Commercial Contracts, (2013) Hart Publishing
J D Heydon, Cross on Evidence, 9th edition (2013) LexisNexis Butterworths
M Irving, The Contract of Employment, (2012) LexisNexis Butterworths
Sappideen, O'Grady, Riley and Warburton, Macken's Law of Employment, 7th edition (2011) Thomson ReutersCategory: Principal judgment Parties: Paul Fishlock (Plaintiff)
The Campaign Palace Pty Limited (Defendant)Representation: Counsel:
M Kimber SC, A Gotting (Plaintiff)
A Moses SC, Y Shariff (Defendant)
Solicitors:
Watson Mangioni (Plaintiff)
Norton Rose (Defendant)
File Number(s): 2011/84306
Judgment
The proceedings
By his amended statement of claim, the plaintiff, Paul Fishlock, seeks numerous declarations.
The principal declaration sought is that the defendant repudiated the employment agreement between the plaintiff and the defendant by appointing a Mr Reed Collins to the position of National Chief Creative Officer in or about January 2011 with effect from 8 February 2011.
Further, a declaration is sought that by reason of the failure on the part of the defendant to provide a notice of termination to the plaintiff in accordance with clause 6.2 of the employment agreement the restraint contained in clause 7 did not commence to operate and did not operate after the termination of employment of the plaintiff on 15 February 2011.
Alternatively a declaration is sought by reason of the plaintiff''s acceptance of the defendant's repudiation of the employment agreement the restraint in clause 7 ceased to operate again from 15 February 2011.
Declarations are also sought as to the plaintiff's alleged entitlement to a redundancy payment pursuant to s 119 of the Fair Work Act 2009 (Cth) and the Long Service Leave Act 1955. The defendant denies the plaintiff is entitled to any payments pursuant to the Fair Work Act 2009 (Cth) or the Long Service Leave Act 1955.
Other relief was sought concerning various payments said to be owed to the plaintiff which are no longer pressed.
Damages are however claimed together with interest and costs.
The defendant denies any liability as alleged. The defendant further alleges that there were a number of senior executives employed by the defendant performing similar roles to those of the plaintiff and that there was no single head creative role at the Sydney and Melbourne offices of the defendant.
The defendant further asserts that Mr Fishlock's responsibilities were focussed and limited to clients effectively in the government sector. In particular there is a denial that the defendant repudiated Mr Fishlock's employment and the defendant generally denies his entitlement to redundancy payment, payment in relation to long service leave and damages.
The defendant also resists any notion that the restraint clause is inoperative.
The defendant also asserted that the plaintiff, by reason of his possession, custody and control of certain templates and presentations, had taken confidential information or intellectual property belonging to the defendant and by reason thereof engaged in what was described as serious misconduct. It was further alleged that had the defendant known of these matters it would have had a right to summarily terminate the plaintiff's employment. As a result the defendant asserted he was not entitled to any compensation for redundancy or other matters. By reason of his possession of the templates and presentations he had not come to equity with clean hands. Further, the plaintiff's assertion that the contract was repudiated amounted to unconscionable conduct on the part of the plaintiff. However, on the second day of the trial, the defendant abandoned any claim based on an alleged misuse by the plaintiff of templates and presentations belonging to the defendant.
The defendant also asserted that the plaintiff had failed to mitigate his losses and was obliged to bring to account any earnings from other sources which he had made after leaving the employment of the defendant.
Background facts
It is accepted by both parties that up until his employment ended Mr Fishlock's terms and conditions of employment were governed by an employment agreement dated 28 November 2003 (the Agreement). Blackbook Nominees was the original party to the Agreement but it subsequently assigned its rights (with Mr Fishlock's consent) to the defendant from about mid 2005.
There are a number of relevant terms and conditions of the Agreement which it is convenient to set out herein.
Clause 2.1 of the Agreement is in the following terms:
2.1 Engagement
The Company shall employ the Executive from the Commencement Date as "Chairman Executive Creative Director, Campaign Palace" of the Company in respect of the Business reporting to the Chairman and Chief Executive Officer of Young & Rubicam/Wunderman - Australia and New Zealand (who is Hamish McLennan as at the Commencement Date), and the Executive shall serve the Company in accordance with this Agreement during the Term. (My emphasis).
"Business" is defined in clause 1.1 to mean:
"The Campaign Palace" advertising business conducted by the Company in Australia.
Clauses 3.1 and 3.2 were in the following terms:
3.1 Position
The Executive shall perform the duties of "Chairman - Executive Creative Director, Campaign Palace" of the Company in respect of the Business, or any other position that may be agreed in writing between the Company and the Executive from time to time. Unless otherwise agreed, the position and role shall be based in Sydney, Australia.
3.2 Duties of Executive
Subject to Clause 3.3, during the Term, the Executive shall do the following:
(a) faithfully and diligently perform the duties, functions, obligations and responsibilities applicable to the position of "Chairman - Executive Creative Director, Campaign Palace, of the Company in respect of the Business, to the best of his abilities, in compliance with all reasonable instructions and directions given by the Company and in a thorough, lawful, competent, professional and timely manner;
(b) use his best efforts to promote the interests, goodwill and business of the Group, and the Executive shall observe and comply with any applicable laws, rules, regulations, and any applicable professional standards and codes of conduct;
(c) observe and comply with any guidelines, policy, practice or procedure circulated by the Company, any Group Company or the WPP Group from time to time (such as the WPP Group Policy Manual);
(d) not engage in any activity, and not be directly or indirectly involve in any activity, which would or may hinder, prevent or be inconsistent with the performance of his obligations under this Agreement, or which would significantly, materially or adversely detract from the proper performance of his duties under this Agreement;
(e) give the whole of his time, ability and attention in normal business hours, or when reasonably required outside normal business hours, to the business and affairs of the Company and Business, and the Executive shall perform his duties and make himself available to the Company, Business and Group on a full-time and exclusive basis;
(f) always act within the scope of the authority expressly granted to the Executive by the Company; and
(g) protect the property of the Company from theft, loss, damage or neglect and without delay give notice immediately to the Company or its responsible representatives of any theft, loss, damage or neglect of such property which may come to his knowledge.
Clause 3.3(b) was in the following terms:
...
(b) The Company shall have absolute discretion as to whom it wishes to appoint and/or nominate as a director and/or officer of the Company and other Group Company.
Clause 6 of the Agreement dealt with termination. Relevantly clauses 6.1 and 6.2 and 6.3 are in the following terms:
6.1: Termination of Executive
(a) The Executive may at any time and for any reason resign or terminate his employment by giving 9 months written notice to the Company;
(b) If the Executive gives the notice under Clause 6.1(a) the Company may:
(i) direct the Executive to take up to 9 months "Garden Leave" in accordance with Clause 6.6;
(ii) direct the Executive to continue to work in accordance with this Agreement for any period during the 9 months notice period;
(iii) elect to pay the Executive in lieu of the 9 month notice period; and
(iv) the provisions of Clause 7 shall apply to the Executive for the period of 12 months after the Termination Date (subject to Clause 7.5(c)).
6.2 Termination by Company "without cause"
(a) The Company may at any time and for any reason (including without limitation for redundancy or pursuant to a reorganisation of or a change in the business affairs and operations of the Company or Group) terminate the Executive's employment by giving 9 months written notice to the Executive.
(b) If the Company gives the notice under Clause 6.2(a), the Company may:
(i) direct the Executive to take up to 9 months "Garden Leave" in accordance with clause 6.6;
(ii) direct the Executive to continue to work in accordance with this Agreement for any period during the 9 month notice period; or
(iii) elect to pay the Executive in lieu of the 9 month period, and
(iv) the provisions of Clause 7 shall apply to the Executive for the period of 12 months after the Termination Date (subject to Clause 7.5(c)).
6.3 Termination by Company "for cause"
(a) The Company may by giving written notice to the Executive terminate this Agreement immediately if the Executive:
(i) comments any grossly negligent act in the course of the employment, or commits any fraudulent or dishonest act;
(ii) materially breaches any provision of Clause 7;
(iii) commits any serious or persistent breach of this Agreement including, without limitation, serious or persistent intentional disobedience, serious or persistent breach of duty or serious or persistent neglect;
(iv) is seriously incompetent in the performance of his duties;
(v) inappropriately uses alcohol, or uses any narcotics or illicit drugs, while engaged in the performance of his duties;
(vi) misappropriates or misuses any property, facilities, resources, equipment or money of, used by or belonging to the Business any Group Company, including, without limitation in connection with any purpose not related to the proper performance of his duties, or in connection with any business activity, venture or undertaking apart from the Business;
(vii) engages in physical violence, abuse or bad, offensive or inappropriate language or conduct towards any other employee, client, member of the public or other person having dealings with any Group Company;
(viii) engages in or is guilty of any serious misconduct;
(ix) materially breaches this Agreement and does not remedy that breach within 14 days after receiving notice from the Company specifying the breach;
(x) is convicted of a criminal offence punishable by imprisonment which will seriously and detrimentally affect a Group Company;
(xi) becomes prohibited from being a director or officer of any company in Australia (for reasons not related to the insolvency or bankruptcy of the Executive); or
(xii) engages in conduct which brings a Group Company into serious disrepute or conducts himself in a manner which, in the reasonable opinion of the Company, will detrimentally affect any Group Company, or commits an act or omission which could reasonably be expected to have, or has, a material and adverse effect on the interests of any Group Company;
(xiii) commits an act of bankruptcy, is declared bankrupt or enters into any composition or arrangement with or makes any assignment of his property in favour of his creditors generally; or
(xiv) ceases to be of full legal capacity.
(b) If the Executive's employment is terminated under Clause 6.3(a), the provisions of Clause 7 shall apply to the Executive for a period of 12 months after receiving the notice under Clause 6.3(a).
Under clause 7, the restraint clause, clauses 7.3 and 7.4 are in the following terms:
7.3 Restraint
The Executive agrees and undertakes that no Prohibited Person shall directly or indirectly or through interposed entities on any account, pretence or in any capacity including on the Executive's own account or in partnership or joint venture with any other person or as trustee or agent:
(a) carry on, or be concerned or engaged in;
(b) in any way be interested in (whether as a lender, investor, shareholder, unitholder, beneficiary or otherwise); or
(c) provide services in relation to (whether as an employee, consultant, advisor or otherwise),
any Restrained Activities or carry out any preparatory steps in relation to any of the above.
7.4 Restrained Activities
(a) subject to paragraph (b), the following activities are Restrained Activities:
(i) A business or activity of a type similar in any material respect to the Protected Business (or to any material part of it);
(ii) A business or activity of a type which is competitive in any material respect with (or potentially competitive with) the Protected Business (or to any material part of it);
(iii) A business, activity, venture or undertaking owned, managed, controlled, undertaken and/or conducted by or on behalf of any client or customer of the Business or Group involving the provision of services of the type provided by the Company or Business or competitive with those of the Company or Business (Competitive Services). For purposes of this Clause 7, the clients and customers are those entities that were clients and customers of the Business or Group within the 12 month period preceding the Termination Date (the clients);
(iv) to, or attempt to provide Competitive Services to or seek custom from any Client;
(v) to, or attempt to, solicit, entice, persuade, encourage or induce any Client to cease or not commence using, or reduce the client's use of, the services of the Business or Group and/or instead use the services of a Prohibited Person;
(vi) to, or attempt to, solicit, entice, encourage, persuade or induce any employee, executive, consultant, officer, adviser or other staff member or personnel of the Company or the Group (the Personnel) to cease or not commence their employment or engagement, or reduce their level of engagement, by the Company or Group, and/or instead take up employment or engagement with, or provide services on any basis to or from the benefit of, any Prohibited Person. For this purpose, the Personnel shall be those persons that were Personnel within the 12 month period preceding the Termination Date; and
(vii) any interference with a Group Company or Protected Business
(b) The following activities are not Restrained Activities:
(i) the holding by the Executive of shares in any company listed on a recognised stock exchange up to a maximum of 3% of the issued shares in one class only but so that the holder does not have an entitlement to more than such 3%; and
(ii) any activity approved by the Company in writing.
Clause 7.5 provided that the undertakings in clause 7 were given for the duration of the Term and for the period commencing from the Termination Date for 12 months.
Term is defined to mean:
The period from the Commencement Date during which this Agreement and the Executive's employment by the Company continues as provided in clause 2.2.
Clause 2.2 provided:
This Agreement will continue until it is terminated under and in accordance with clause 6.
"Commencement Date" is defined to mean January 2004.
Mr Fishlock, prior to February 2011, had worked in the advertising industry for more than 30 years in Australia and overseas, including the United Kingdom and South Africa. Between the years 1979 and his joining the defendant in 2004 he worked as a copywriter in numerous organisations in London and Johannesburg and Sydney. Between 1991 and 1992 he was the creative director for an agency called Batey Kazoo in Sydney. Between 1993 and 1996 he was senior copywriter for the defendant. Between 1996 and 2003 he was a founding partner and creative director of Brown Melhuish Fishlock in Sydney.
In November 2003 when he signed the Agreement with the then Blackbook Nominees (which was trading as The Campaign Palace) he was appointed as Chairman/Executive Creative Director in respect of the business. As is clear from the above, that business covered the whole of Australia. In addition, his only line of reporting was to the Chairman/Chief Executive Officer at the relevant time.
On 8 July 2009 the then CEO of the defendant was Mr Jacques Burger. It is accepted that Mr Fishlock's contract of employment was varied to permit him to work a four day week with a reduction of $50,000 annually which provided that he otherwise be paid $350,000 per annum.
During the relevant period there were a number of persons employed as Creative Directors. Contracts relating to their employment indicate as follows:
(i) Mr Russell Smyth was employed as Creative Director Sydney from 1 August 2005. His employment contract indicated that the persons to whom he reported were those occupying the office of Chief Executive Officer and Executive Creative Director;
(ii) Ms Georgia Arnott was employed as a Creative Director Sydney from about 7 June 2006. The persons she reported to were the person occupying the position of Executive Creative Director and Lindey Evans or the Board of Directors of the Company;
(iii) Mr Brent Liebenberg was employed as a Joint Creative Director Melbourne from about 4 August 2008. He was to report to the person occupying the position of Managing Director, Melbourne who at the relevant time was Mr Tom Cooper. In what is described as his job description annexed to the contract it is indicated that he had other reporting relationships to Mr Fishlock as National Chairman, Executive Creative Director;
(iv) Mr Gerhard Myburgh was employed as a Joint Creative Director, Melbourne from about 4 August 2008. He was again to report to the Managing Director, Melbourne Mr Cooper and again his job description indicates that he had otherwise to report to Mr Fishlock as National Chairman, Executive Creative Director;
(v) Ms Jacquiline Patterson was employed as a Creative Director, Melbourne from about 11 May 2010. Again she was to report to the Managing Director, Mr Tom Cooper. In addition she was also to report to Mr Jacques Burger the National Chief Executive officer and again Mr Fishlock as National Chairman, Executive Creative Director.
As part of his role as Executive Creative Director, Mr Fishlock participated in a number of presentations to clients.
In October 2005 he participated in a presentation to ING and was therein described as Chairman, Executive Creative Director. His photograph appears alongside Mr Mackay, then the National Chief Executive Officer, Mr Mark Sareff the then National Planning Director and a Ms Lindsay Evans the Managing Director in Sydney.
In February 2009 as part of a presentation to the Department of Health and Ageing he was again described as Executive Creative Director and Chairman.
In April 2010 in what was part of a presentation to Origin he was described as Executive Creative Director and his photograph appeared on the same page adjacent to that of Mr Tom Cooper, the then Managing Director, Mr Ian Sawers described as the Team Lead and Mr Keith Newton described as the National Planning Director.
Again in July 2010 in what was a further presentation to the Department of Health and Ageing he was described, adjacent to his photograph, as Chairman and Executive Creative Director.
There is an organisational chart for the Sydney Office of the defendant which came into existence after July 2010 which has Mr Fishlock as part of senior management and describes him as Chairman/Executive Creative Director. His name is at the same level as that of Mr Mark Mackay, described as Executive Chairman and Mr Jacques Burger, described as Chief Executive Officer.
In an organisational chart for the Melbourne office the senior management is on this occasion described as Mr Jacques Burger, Chief Executive Officer and Mr Tom Cooper Managing Director. Mr Fishlock however is shown at the top of the chart under the heading "Creative" and he is described as the National Creative Director.
During the relevant period Mr Fishlock had business cards. Sometimes they would be created for a particular presentation and the title or status of the executive may change from time to time depending upon the presentation. However there is one business card for the business Palace Plus where Mr Fishlock is described as the National Executive Creative Director/Chairman.
On or about 2 December 2008 a Mr Cameron Hoelter was employed by the defendant. It was indicated in his contract that he was to report to the person occupying the position of "Chairman/Executive Creative Director". It was indicated in that agreement that that was at the relevant time the plaintiff. In the job description which was attached to the contract it was also indicated that he should report to the plaintiff who was again so described.
Mr Hoelter in or about August 2010 gave notice of resignation. The defendant initially decided it wished to replace Mr Hoelter. In or around September 2010 the defendant commenced negotiations with a number of potential candidates to replace Mr Hoelter. The plaintiff had some involvement in the recruitment process.
At the relevant time Mr Mackay who had been employed in other roles including that of National Chief Executive was relevantly the Executive Chairman. One of the candidates who Mr Mackay and others were considering was a person named Mr Reed Collins.
On 11 September 2010 a Ms Michelle Daly sent a message to Mr Mackay. Ms Daly at all materials times was the global head of creative talent at Young and Rubicam of which the defendant was part. The email stated amongst other things:
Reed Collins a potential candidate for TCP, Sydney.
He is from Perth - has spent last several years at Leo Burnett, Chicago.
...
Reed is very talented, fun and at the up-and-coming ECD level, where a small office to run makes a lot of sense as a next step.
Mr Mackay responded on 12 September 2010 providing details of the size of both the Sydney and Melbourne offices and details as to their clients. He gave Ms Daly other information about other aspects of the business. In a further exchange between the two, Mr Mackay stated as follows in an email of 13 September 2010:
ECD Role - both Offices is an Option if "We" find the Right Person. Otherwise happy to focus on Sydney for this role.
Also on 12 September 2010 Ms Daly sent a message to Mr Collins. She gave him information about the Sydney and Melbourne offices of the defendant and their clients. She suggested that Mr Collins be in touch with Mr Mackay. She said:
Far as I can tell, nothing is broken there. Its just not shining as bright as it can. But with the right leadership team in place (importantly including Creative), and with the right global support at the top (Tony and Hamish - who is an Aussie so Palace near and dear to him) there is no reason why not. And its such a manageable size that with a bit more break-through work and biz, it should rather quickly be able to be tops again.
Mark will tell you more about the office and the nitty gritty. Including that he is looking for someone who can bring more 360 thinking and digital prowess into the shop.
On the same day Mr Collins responded to Ms Daly indicating that he had:
checked out their stuff on line...they do need a little resurrecting as you say, creatively definitely. I can do a 12.30 call with Tony if he is still available.
Tony is a reference to a Mr Tony Granger who at all material times was the global creative director at Young and Rubicam.
Again on 12 September 2010 Ms Daly responded again to Mr Collins in the following terms
Ps - Tony will tell you - if the work is not tops yet, that is the best spot for any incoming ECD to walk into.
Ms Daly sent, it seems, her exchanges with Mr Collins through to Mr Granger.
On 22 September 2010, Mr Granger sent an email to Mr Mackay. It was in the following terms:
Hi Mark, I hear the call with Reed went well. I am also talking to his partner about heading up our office in Chicago. Once that breaks it will be difficult to get Reed because they defend hard. I know you are trying to get to Cam to stay longer. My view is that we should move quickly. Need new CD leadership in there ASAP. Reed would be big news. I rather get him over to see you sooner rather than later. The BIG issue we have is Mr Fishlock. He will be a problem for Reed to join.
Take care.
Mr Mackay responded to Mr Granger on 27 September 2010. The email was headed "Palace Creative Lead". It was in the following terms:
I just got confirmation on meeting Reed on October 19th... We probably should book a call on Paul F.... it's a difficult one, with Cam going he obviously provides a degree of stability/continuity. Clients like Panasonic and Dominos are already pissed about the high turnover rates, so I think we need to ease him out after Reed and Michelle have had some time to engage. I accept that he is not the future but if he left at the end of March 2011 this might be workable. Let me know what you think.
Mr Collins came to Sydney in October 2010 for his planned meeting on 19 October 2010. During the course of the meeting he met with a number of persons including the plaintiff.
On 19 October 2010 Mr Collins sent an email to Ms Daly. Amongst other things he said:
...It feels like the team is all on the same page, the only concerns for me that I mentioned to them were the recent losses (could be a blessing), and the awkward around mine v Paul's role and how that will play out. I really respect the guy so I am a little nervous on that one.
Ms Daly forwarded the email she had received from Mr Collins to Mr Mackay, Mr Granger, and a Mr Howcroft. Mr Russell Howcroft from September 2010 was the CEO Australia and New Zealand of Young & Rubicam brands. On 27 September 2010 the plaintiff received an email from Mr Mackay concerning Mr Collins as a potential employee. On the same day the plaintiff responded indicating that he did not know very much about Mr Collins.
On 5 October 2010 the plaintiff received an email from Mr Mackay entitled "Sydney Creative Director". The email stated:
Reed Collins has been put forward by Michelle and Tony. He is currently a CD at Burnett's in Chicago. I have had an initial chat with Reed on the phone and he ticks a lot of boxes. Reed will be passing through Sydney on 19 October (returning to Perth for school reunion) and this presents an opportunity for us to meet him. He will be available from 3pm onwards.
In October 2010 the plaintiff asserts he had a conversation with Mr Mackay about Mr Collins and his candidature for the role of Creative Director in the defendant's Sydney office. The plaintiff asserts Mr Mackay indicated that notwithstanding other possible candidates it was Mr Mackay's view that Mr Granger's recommendation would carry very significant weight.
Independently of any initiatives taken by Mr Mackay the plaintiff was in contact with a Mr Simon Veksner as a possible candidate.
On 24 October 2010 the plaintiff sent an email to Mr Mackay and Ms Michelle Teag. Ms Teag was the Sydney Managing Director of the defendant from mid-2010 to March/April 2011. In that email he made comments on a number of candidates including Mr Collins.
Following his meeting with persons in Sydney, Mr Collins was in email contact with Ms Daly, around 26 October 2010. Ms Daly was in turn in email contact with Mr Mackay to whom she forwarded Mr Collins' email to her. On 26 October 2010 Mr Mackay sent an email to Ms Daly, Mr Howcroft and Mr Elvas Basile. It said in part:
I offered him $325 K hopefully staring January 1 or nearest. I said the title would be national CD and that Paul F would be "managed" so that Reed becomes ECD around April 2011. He seems really up for it so lets hope we can nail it! I said I would liaise with you and sort out full package including relocation offer and stock options (on offer after a pre-determined period)...
On 27 October 2010 Mr Mackay sent an email to Mr Granger and Mr Howcroft in the following terms:
Great chat with Reed this morning. Have made a verbal offer and he seemed to respond well. Details are below. I will keep you updated on progress. Paul F will be an issue just be aware that he has no knowledge that I have gone as far as an offer.
On 27 October 2010 Mr Granger sent an email to Mr Howcroft and Ms Daly. It was in the following terms:
I think we should bring Reed in as national ecd. It will send a signal to the market place that new day is here. Awkward for Reed to enter as CD. I would sort things out for him before he joins.
On the same day Ms Daly sent an email to Mr Granger in the following terms:
They did tell him National CD. So that is good.
Mr Granger responded on 29 October 2010 with an email to Ms Daly in the following terms:
Cool:) My point is Ecd not cd. Fishlock is a problem and has to go.
On or about 2 November 2010 Ms Daly sent an email to Mr Mackay, Mr Howcroft and Mr Basile. Mr Basile at all material times was the director of Human Resources at Young & Rubicam brands. The email is in the following terms:
I have comments to the draft proposal. Overall there is very little here indicative of the ECD - level. With the exception of the high salary it would appear to be the offer of any mid/sr level higher. There is not yet enough perks and enough info for Reed to sign on. (And even though this is not the formal binding contract, we want it to have all the bits in there for his full consideration). Having said all of this I am also all- too familiar with the struggle to get packages approved both internally and then with WPP. So I do understand trying to strike the balance.
...
Please read through below and lets discuss.
...
Title-Nat'l CD vs Nat'l ECD? Tony Feels should be ECD. What is you POV? The national CD title has already been discussed with Reed. Paul Fishlock still holds the ECD title so we need to be mindful of the situation.
Reporting/no mention of who is his local MD/CEO partner, and who is his local report. (Global Report should be mentioned as Tony). Would Partner MD, Michelle Teague, report to chairman, Mark Mackay and have a dotted reporting line to Tony
...
Further, on 2 November 2010 Mr Fishlock received an email from Mr Mackay in response to one from him inquiring what information he had received on potential candidates. The email heading from Mr Mackay is "Sydney CD":
Just came back from out of town
I will call them tomorrow
On 5 November 2010 Mr Mackay sent an email to the plaintiff. In that email he indicated that he had discussed matters with Mr Veksner but "short of you retiring I cannot see that we could afford him or satisfy him with anything but the ECD role".
On 23 November Mr Basile sent a letter to Mr Collins with a proposed form of contract. The letter commenced in the following terms:
We refer to recent discussions and we are absolutely delighted to offer you the role of National Creative Director with The Campaign Palace, reporting to Executive Chairman Mark Mackay.
In a Schedule attached to the proposed agreement the position Mr Collins was intended to fill was described as the "National Creative Director". In his job description also attached it was indicated that he was to report to Mr Mackay, as Executive Chairman.
On 14 December 2010 Mr Mackay sent an email to Mr Howcroft which included a number of statements as follows:
As mentioned on the phone, Reed's request for the national ECD title appears to be a deal breaker. I reminded Reed today of the plan we discussed when we interviewed him. This was to spend 3-4 months as Sydney CD. We could better manage/migrate him across to ECD. Why? Because this afforded us some time for Paul to complete some major new Anti-Tobacco work. It also prevented Paul exiting at a time when the Palace is pretty damaged....
...
In all honesty, I fear that Panasonic and other Government business will see this as the final straw.
...
Beyond this I also fear that we could be in for some legal action from Paul so that we could have used the time to get our house in order.
So our dilemma is: How do we give Reed the title and keep Paul engaged? Options I have are four fold.
1. Exit Paul and hope for the best.
2. Ask Tony G and Michelle D to help us resell the original plan into Reed.
3. Migrate Paul into new Palace Group Company, called Palace G and C (Government and Community).
4. Sell Paul as Chairman relinquishing the National title to Reed...I become CEO again.
I favour 2, 3 and 4 in that order. Something to sleep on. In the meantime I hardly need to remind you that the thought of Reed going cold on us is ever present.
On 14 December 2010 Ms Daly sent an email to Mr Mackay, Mr Howcroft and Mr Granger. It stated:
Reed phoned me. The title issue seems to have led into discussion about Paul's role ETC. This is leading to a big question mark for Reed. He needs to make sure that his own role is 100% defined, internally and externally before he quits his job and uproots his own life. If he is not "The Guy" from Day 1 I don't think he is coming. I sense he is bit surprised that this has not already been resolved and that its come up only/again now.
On 15 December 2010 Mr Granger sent two emails. The first appears to have gone to Ms Daly, Mr Mackay and Mr Howcroft. The subject is "Reed Collins". It reads:
He needs to be the CCO from day 1. Big PR story !!!!! what on earth is going on, why wouldn't he think that? Call me please.
The second email of 15 December 2010 from Mr Granger was to Mr Mackay, Ms Daly, Mr Howcroft and Mr McLennan. Mr Hamish McLennan from 2006 to late 2011 was the Global Chief Executive Officer of Young and Rubicam. In his email Mr Granger said, amongst other things:
But, I have always said we should sort out fishlock before we can bring in anyone of note. Our discussions (certainly Michelle's and mine) with Reed have been joining as ECD or CCO, whatever role would make the biggest PR/new business story. He just would not move for anything else...
Fishlock knows its coming. I would sit him down and let him know and work his exit out (if we can get Reed back on course that is).
Later on 15 December 2010 Mr Mackay sent an email to Mr Howcroft, Mr Granger, Mr McLennan and Ms Daly. It read:
Final update....I have spoken with Reed and confirmed National Creative Lead Position (title probably ECD). He is very pleased! Start date February 1.
All good
On 15 December 2010 Mr Mackay sent an email to Mr Basile in the following terms:
...I am keen to understand our legal position if we give Reed Paul's title.
On 15 December 2010 Mr Mackay sent an email to Messrs Howcroft, Granger, McLennan and Ms Daly. It read in part:
Putting a commercial hat on. I favour option 3. This allows us to move Paul to the sideline without compromising revenue. Russell and I will have the conversation with Reed today confirming ECD title. We cannot get to Paul until Tuesday but this will give us time to get some legal cover. After Tuesday's meeting I would hope we can announce it.
Option 3 was a reference to paragraph 3 in Mr Mackay's previous email of 14 December 2010.
On 16 December 2010 Ms Daly sent an email to Messrs Mackay, Howcroft, Granger and Basile. The email read:
I just spoke with Reed - he is pleased and ready to sign. He referenced new title as Nat'l CCO (rather than Nat'l ECD).
In late December 2010 the plaintiff asserts he had a conversation with a Ms Teague. Ms Teague informed him that a deal had been finalised with Mr Reed and that he would be joining the defendant "in the new year". The plaintiff asserts that at no time during that conversation was the possibility of Mr Collins performing a head creative role or national creative role for the defendant.
In early January 2011 the plaintiff went on annual leave for several weeks and travelled overseas.
On or about 19 January 2011 an article appeared in the Trade Press published in Agency Spy. The story was about Mr Collins leaving his job in Chicago and joining the defendant as the "national CCO". The article suggested he would be starting in February 2011.
At or about that time, unsurprisingly, the news concerning the appointment of Mr Collins became a matter of some discussion amongst all concerned including the plaintiff.
On 21 January 2011 Mr Granger sent an email to Mr Mackay in the following terms:
HI Mark
How did it go with Fishlock?
Lynchie asked a lot about him. He is not a fan at all btw. He really needs to move on so Reed and you can sew your thing. The sooner the better!
Spoke to Hamish who agrees.
On the same day Mr Mackay responded to Mr Granger:
I have just spoken to Paul. He is very concerned about this news and is going to take legal counsel. He will get back to me in due course.
Mr Granger responded:
Agency Spy an Leo burnett really messed us up by leaking the news.
CB knew about the hire before I contacted them and they were going to post the news whether we said anything or not unfortunately.
Mr Mackay responded to Mr Granger:
Well its done now ...lets just hope fishlock does not walk immediately and take another million in revenue with him.
On the same day Mr Collins sent an email in which he said amongst other things:
Lemme know how your conversations with Paul have been, I am hoping positively.
Mr Mackay responded:
Paul did not take it well unfortunately. It was a brief conversation with ended abruptly with him wanting to take legal counsel. There not much more I can say. Lets see what transpires.
Anyway its done so lets get you here and get on with building the future.
On 22 January 2011 the plaintiff sent an email to Mr Granger with a copy to Mr Mackay in the following terms:
When I left to go on leave two weeks it was with the clear understanding that we had hired Reed as Campaign Palace Sydney Creative Director, the role that Cam Hoelter held until December last year. And I was very much looking forward to getting Reed on board and working with him.
I was therefore more than a little surprised to return from leave to see Reed publicly announced as National Chief Creative Officer.
I am obviously curious to understand how this Nat CCO role file with the Nat ECD role that I have held for the past 7 years. Does Reed report to me? Are we both autonomous. Is Nat ECD supposed to report to Nat CCO (C'mon)? Which role hires, fires, has ultimate say on the work? Or indeed does the ECD/chairman role at The Campaign Palace still exist at all?
Other than Mark (Mackay) kindly letting you know that Reed's announcement was about to hit the press. No one has told me anything.
As I am sure you can imagine some clarity on the situation would be very much appreciated at your earliest convenience.
Mr Mackay decided to volunteer a suggested response to Mr Granger. On 23 January 2011 he sent the following email to him and Messrs Howcroft and McLennan:
I suggest you respond saying that Reed is charged with the ultimate creative responsibility over both Palace offices. I would also encourage you to say that we greatly value his contribution and that he should sit down with me and develop a workable plan for the future.... Give me a call if you wish to discuss.
Mr McLennan made a modest contribution by saying in an email to Messrs Mackay, Granger, Howcroft and Foulsham (Mr Adam Foulsham was at all material times the chief financial office of Young and Rubicam).
What a mess. We should take legal advice on how handle.
Further emails passed between Mr Basile, Mr Mackay and others making tentative plans to discuss and address the issue.
On 26 January 2011, Ms Teague issued a press release announcing the appointment of Mr Collins as the National Chief Creative Officer.
Finally on 28 January 2011 Mr Granger responded to the plaintiff's request a copy of which was sent to Mr Mackay in the following terms:
Reed is charged with the ultimate creative responsibility over both Palace offices. You should sit down with Mark and develop a workable plan for the future.
On 30 January 2011 the plaintiff sent an email to Mr Mackay. It read as follows:
This is obviously not good. The contempt is palpable - he could not even be bothered to put my name at the top or punctuate correctly.
It's the appropriate end to a deeply humiliating week of not being able to answer questions from clients, staff, media and others about how the new structure will work. As I am sure you are aware The Campaign Palace isn't looking too clever over this.
As you can imagine there is no way on this earth that as Executive Creative Director/Chairman I will be showing my work to the newcomer for approval; never mind rollover and relinquish a position I have held for the past 7 years.
And I'd thank all concerned not to insult me by suggesting it.
The only basis for any further discussion is that there might be an acceptable division of roles, responsibilities, accounts and possibly even teams between Nat ECD and Nat CCO. But that didn't look like what Tony has in mind.
For the record, I have absolutely nothing against Reed. I was (and still am) looking forward to working with him and would hope to reach a point where I valued his opinion on my work.
But to require his approval on my work? To report to him? Be expected to assume a role of senior copywriter that I last held in 1996? The comedy is nothing short of spiteful.
But I guess first priority right now is to get the next pitch (DEFAT) out of the way and see where we are when you're in town on Thursday.
Mr Mackay responded on 30 January 2011 to the plaintiff in the following terms:
No not good. I agree that the best thing right now is to focus on the pitch. Let's pick it up on Thursday.
In the meantime and on again on 30 January 2011 Mr Mackay sent an email to Mr Howcroft and Mr Basile. It was in the following terms:
Elvas, lets chat tomorrow. I plan to meet Paul on Thursday and need to get the story very clear. I would like to say that TG has made the call and the decision stands. Further that Reed is a good guy and Paul will be treated with respect. This means that he will be given authority on his health/Govt clients. Finally I would like to say that the longer term implications for Paul are not good. That he can fight it or better still manage the outcome via a gradual withdrawal which should reach the conclusion by year end. Let me know if you have any further comments or concerns.
On 2 February 2011 the plaintiff sent an email to Mr Granger with a copy to Mr Mackay in the following terms:
In order for Mark and I to have any further discussions I need to know from you:
Whether the position of National Executive Director of The Campaign Palace still exists under the new structure; and
If it does has the role and responsibilities changed in any way in respect of
(i) overall creative leadership and
(ii) management of the two and a half teams plus CD (open position) in Sydney and the one team plus joint CDs in Melbourne?
Mr Granger never responded to the plaintiff. Instead he sent an email to Mr Mackay in the following terms:
Please deal with this, not sure of what part of "Reed has ultimate creative responsibility of both offices" he didn't understand. Awkward if not resolved by the time Reed gets in. Let me know if I can help.
Mr Mackay responded to Mr Granger indicating that he would deal with the matter "tomorrow" in an email of the same date. This is a reference to a lunch which Mr Mackay arranged to have with the plaintiff.
On 2 February 2011 a document was prepared for a presentation to Allianz on behalf of the defendant. The plaintiff asserts he had no knowledge of the preparation of the document. In any event it showed Mr Reed Collins as Chief Creative Officer, so described under his photograph. Under the photograph of the plaintiff, he is described merely as "Chairman". Those photographs are at the same level in the presentation and Mr Mackay is described as Chief Executive Officer and Ms Michelle Teague is described as Managing Director.
On 3 February 2011 the plaintiff and Mr Mackay had lunch at a Sydney restaurant, Otto. The meeting was the subject of contradictory evidence from Mr Mackay and the plaintiff. I will return to this meeting in some little detail.
On 10 February 2011 Mr Foulsham sent an email to a Mr Law-Gisiko (Mr Peter Law-Gisiko was at all material times the global Chief Financial Officer, Young and Rubicam). Mr Foulsham amongst other things said as follows:
It is our intention to exit Paul however we need to ensure that we manage the clients he was close to and we need to be careful given the effect of the premature announcement of Reed's appointment.
On 15 February 2011 the plaintiff's solicitors sent a lengthy letter to the defendant identifying specific events and asserting the plaintiff had undertaken certain responsibilities and fulfilled various roles within the organisation of the defendant and asserted that the conduct of the company as identified constituted a wrongful repudiation of the plaintiff's Agreement. The letter further indicated that the plaintiff accepted the repudiation and thereby terminated his Agreement with the company.
On 21 February 2011 the defendant's solicitors responded denying any liability.
The issues
The primary issue that arises in these proceeding is whether the conduct of the defendant in the circumstances amounted to a wrongful repudiation of the Agreement the defendant had with the plaintiff. This involves a consideration of the plaintiff's roles and responsibilities and importantly the roles and responsibilities it was intended Mr Collins would have following his entering his contract of employment with the defendant. Depending on how this issue is resolved, it may be necessary to then assess the plaintiff's entitlement to damages, and to determine whether that amount should be reduced on account of alleged failure to mitigate.
Subject to the way in which the repudiation issue is determined the question then arises as to whether the restraint provisions have operation. It will also be necessary to consider whether the plaintiff is entitled to long service leave and redundancy payments.
Legal principles
Identification of the terms of the contract
During closing submissions there was some debate as to the precise terms of Mr Fishlock's employment contract. Identification of the relevant terms of the Agreement is relevant to determining whether there has been a repudiation of the contract by the defendant. Apart from identifying the title of his position, Mr Fishlock's employment contract provides no real detail about his role within the defendant.
In closing submissions, counsel for the plaintiff sought to rely on the case of White v Australian and New Zealand Theatres Ltd (1943) 67 CLR 266 as authority for the proposition that in these circumstances it is permissible to have regard to the parties' post-contractual conduct to assist to determine the terms of the contract. Counsel for the defendant said this was unnecessary because the contract was clear, being one under which Mr Fishlock was simply required to do what the defendant told him to do.
White v Australian and New Zealand Theatres Ltd involved a written contract between two theatrical artists and a company which owned and controlled theatres in Australia. The contract provided that the company engaged the "sole professional services" of the artists "as required and directed" for a stated period on certain terms and conditions as to remuneration. The contract did not specify the nature of those professional services. The court held that extrinsic evidence was admissible to identify the services. In stating the surrounding circumstances admissible in evidence, Williams J listed eight matters, at least two of which were events happening after the contract date (at 281). Latham CJ referred to this evidence as "properly admissible" (at 271), and Rich J agreed with the other members of the court (Latham CJ, Williams and Starke JJ).
However, some years after the decision of White v Australian and New Zealand Theatres Ltd, the High Court indicated in the decision of Administration of Papua and New Guinea v Daera Guba (1973) 130 CLR 353 that it welcomed the principle clearly established in the English authorities that "it is not legitimate to use as an aid in the construction of [a] contract anything which the parties said or did after it was made" (at 446 per Gibbs J; also quoted in Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 at [35] per Gummow, Hayne and Kiefel JJ).
The views expressed by the High Court in White v Australian and New Zealand Theatres Ltd and Administration of Papua and New Guinea v Daera Guba have been described as a "controversy about the admissibility of post-contractual conduct of the parties" and as "differing" (Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45 at [109] per Kirby J in a dissenting judgment) and as seemingly conflicting (Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 315 per Kirby J and at 327-328 per Priestley JA with whom Meagher JA agreed).
On the other hand, a view has been expressed that there is really no tension between the decisions. For example, in Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103 Bryson J said (at 115):
In my respectful view, the inclusion by Williams J of those circumstances [i.e. post-contractual conduct] among the material considered for the purpose of identifying the "sole professional services" referred to in the letter of agreement was entirely orthodox and furnishes no support for any view in which resort may be had to parties' later conduct and behaviour for resolving ambiguities in the text of an agreement or for construction of what the written agreement said.
However, in Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Heydon JA (with whom Mason P and Ipp AJA generally agreed) said (at [26]):
[26] ...the status of the relevant High Court authorities is unclear...
Later that year the Court of Appeal in C H Magill v National Australia Bank Ltd [2001] NSWCA 221 (in the judgment of Ipp JA with which Meagher and Heydon JJA agreed) said (at [50]-[51]):
[50] The admissibility of subsequent conduct as an aid to the construction of a contract remains to be authoritatively resolved. It is sufficient to point to the differing views...
[51] In my respectful opinion the views expressed in Sportsvision Australia Pty Ltd v Tallglen Pty Ltd are to be preferred. Like Bryson J, I consider the reasoning of Lord Reid in James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 at 603 to be unanswerable. His Lordship there said:
"I must say that I had thought that it is now well settled that it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made. Otherwise one might have the result that a contract meant one thing the day it was signed, but by reason of subsequent events meant something different a month or year later."
Having reviewed the case of White v Australian and New Zealand Theatres Ltd and a number of the subsequent authorities considering this case, I respectfully adopt Professor Carter's analysis of White v Australian and New Zealand Theatres Ltd and the proposition for which Professor Carter says it stands (J W Carter, The Construction of Commercial Contracts, (2013) Hart Publishing at [18-26]):
Subsequent conduct cannot be used to construe a contract... But there is a distinction between what a contract means in a linguistic sense and its intended scope of application. In relation to descriptive terms, the distinction may lead to account being taken of the subsequent conduct of the parties, as evidence of how they have applied the contract.
A good illustration is White v Australian and New Zealand Theatres Ltd, the leading Australian case. Two theatrical artists alleged that they were contractually entitled to produce a certain revue, known as "Thumbs Up". The written contract with the theatre company stated that their "sole professional services" had been engaged, on certain terms. Those terms did not include a definition for "sole professional services". Nor did the contract make reference to any role for the artists as producers. Latham CJ said:
"The contract does not specify the nature of the professional services which the company hired and which the plaintiffs undertook to perform. It was therefore not only proper, but, indeed, necessary, to identify such services by means of extrinsic evidence."
Evidence of the status of the artists as well-known performers and producers was legitimately part of the context of the contract. It was therefore impossible to construe the contract on the basis that the artists had contracted to do whatever the theatre company chose to require them to do. Such a construction would, indeed, have entitled the company to provide no work at all. That was not the construction of the contract.
Subsequent conduct was taken into account in deciding the scope of the obligation to provide work and whether it included work as producers of the revue. Reference was made to what had been done under the contract prior to its repudiation by the company, and the course of dealing between the parties under the contract, as well as to the form of the program, in which the artists were advertised as having special qualifications (at 277 and 281). That evidence was used to apply the contract. From one perspective, the concern was simply to determine whether or not the theatre company had complied with its obligations under the contract. But it seems idle to deny that the application of the contract was used in making definite the indefinite description of the subject matter of the contract. The court described the evidence as part of the "surrounding circumstances". But those surrounding circumstances included not only the context in which the contract was agreed, but also evidence of how it had been applied by the parties.
[Footnotes omitted]
Similar views were expressed by Justice Heydon (as he then was) writing extra-judicially (J D Heydon, Cross on Evidence, 9th edition (2013) LexisNexis Butterworths at [39290]):
Evidence of acts of the parties to an agreement in writing, performed in pursuance of the agreement, are, generally speaking, not admissible as an aid to construing the contract.
...
And where there is a dispute as to the existence of a contract, or the contract is oral or there is a question as to how the contract is to be characterised or there is a question of whether a term was incorporated into a contract, or where there is a question of an implied term, the parties' subsequent conduct may be relied upon to establish the existence of that contract, and what the terms of the contract were, but these are not, properly speaking, cases concerning the interpretation of a document.
[Citations omitted]
The plaintiff in the present case does not seek to look to subsequent conduct to assist in the interpretation of the text of the contract. Rather, as in White v Australian and New Zealand Theatres Ltd, the plaintiff here is seeking to refer to subsequent conduct to determine the subject matter of the contract, or, to borrow Professor Carter's words, to determine the "scope of application" of the contract. According to Bryson J, the approach taken in White v Australian and New Zealand Theatres Ltd is "entirely orthodox". Bryson J's comments were approved generally by the Court of Appeal in C H Magill v National Australia Bank Ltd [2001] NSWCA 221.
More recently, in County Securities Pty Limited v Challenger Group Holdings Pty Limited [2008] NSWCA 193, Spigelman CJ said:
[7] A need to identify the particular subject matter of the contract has often arisen, even in the case of a written agreement where there is a form of words to be interpreted. In the present case, the subject matter and the concomitant terms of the contract must be inferred from a combination of surrounding circumstances including conversations, documents and conduct none of which provide a definitive form of words. The issue is not one of interpretation, because there are no words to interpret. The issue is one of fact: what did the parties agree?
...
[13] This case is often characterised as determining when a term is to be implied by law. It is in my opinion, more accurate to characterise it as authority for the identification of what the parties must be regarded, as a matter of necessity, as having agreed, because of what "the nature of the contract itself implicitly requires" having regard to "the inherent nature of [the] contract and of the relationship thereby established".
...
[15] There are numerous examples in which extrinsic evidence has been used to identify the subject matter of a written contract [his Honour cited numerous authorities and texts, including White v Australian and New Zealand Theatres Ltd (1943) 67 CLR 266 at 270-271].
...
[18] ... There is significant debate about the admissibility of post contractual conduct for purposes of interpreting a contract. This Court has maintained the traditional refusal to take such conduct into account, save in certain established respects...
...
[20] Where what is in issue is the identification of the subject matter of the contract, or the identification of necessary terms which were not the subject of express provision in a contract not reduced to writing, then consideration of post contractual conduct does not contravene the reasons underlying the principle.
[21] ... In my opinion, subsequent conduct, especially how a contract for purchase and sale was settled, is relevant, on an objective basis, to the identification of the subject matter of the contract or the determination of necessary terms, as distinct from deciding the meaning of words.
...
[23] A...matter often referred to is the uncertainty that would be introduced into commercial relationships by reliance on post contractual conduct... This consideration, in my opinion, is not material when the issue to be determined arises from uncertainty about the subject matter of the contract or the failure to expressly address necessary terms.
I will return to this question in relation to the facts.
Principles concerning repudiation
The most relevant meaning of "repudiation" is an absence of readiness or willingness to perform satisfying the requirement of seriousness (and therefore giving the other party the right to terminate). However, the word "repudiation" is also used in (at least) three other senses:
(1) to describe a valid termination of the performance of a contract for breach;
(2) to describe any breach which gives rise to a right of termination; and
(3) to describe a statement that no contract is in existence.
Where, prior to the time for performance, it is clear that a party to a contract will not be ready and willing to perform the contract when the time for performance arrives, the other party may treat the absence of readiness or willingness as an anticipatory breach of contract if the requirement of seriousness is satisfied.
At a theoretical level, the concept of repudiation includes the concept of anticipatory breach. Lord Diplock (with whom the other members of the House of Lords agreed) said in Afovos Shipping Co SA v Pagnan [1983] 1 WLR 195 (at 203):
"[T]he doctrine of anticipatory breach is but a species of the genus repudiation."
This reflects the fact that a repudiation of obligation may occur before or after the arrival of the time for performance, whereas anticipatory breach can only occur before the time for performance has passed.
Subjective or objective test?
In Shevill v Builders Licensing Board (1982) 149 CLR 620, Gibbs CJ (with whom Brennan J agreed) said (at 625-627):
...a contract may be repudiated if one party renounces his liabilities under it - if he evinces an intention no longer to be bound by the contract or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way. In such a case the innocent party is entitled to accept the repudiation, thereby discharging himself from further performance, and sue for damages...
[Emphasis added, citations omitted]
In Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623, Brennan J said (at 647-648):
Repudiation is not ascertained by an inquiry into the subjective state of mind of the party in default; it is to be found in the conduct, whether verbal or other, of the party in default which conveys to the other party the defaulting party's inability to perform the contract or promise or his intention not to perform it or to fulfil it only in a manner substantially inconsistent with his obligations and not in any other way.
...
The question whether an inference of repudiation should be drawn merely from continued failure to perform requires an evaluation of the delay from the standpoint of the innocent party. Would a reasonable person in the shoes of the innocent party clearly infer that the other party would not be bound by the contract or would fulfil it only in a manner substantially inconsistent with that party's obligations and in no other way?
[Citations omitted]
In the same case, Deane and Dawson JJ said (at 657-658):
Lord Wright's oft-quoted admonition that "repudiation of a contract is a serious matter, not to be lightly found or inferred" is, no doubt, a wise one. It should not, however, be allowed to cloud the fact that an allegation of repudiation of contract in a civil case does not involve an assertion that the alleged repudiator subjectively intended to repudiate his obligations. Thus, it is of little assistance in the present case to identify reasons why the lessor was unlikely to have subjectively desired to repudiate its agreement to grant a lease. An issue of repudiation turns upon objective acts and omissions and not upon uncommunicated intention. The question is what effect the lessor's conduct "would be reasonably calculated to have upon a reasonable person". It suffices that, viewed objectively, the conduct of the relevant party has been such as to convey to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it.
[Citations omitted]
These principles were recently cited with approval in Keays v J P Morgan Administrative Services Australia Ltd [2012] FCAFC 100 (Gray, North and Besanko JJ).
In Easling v Mahoney Insurance Brokers (2001) 78 SASR 489 the employer proposed changes to the existing duties of the employee. The employee's duties had expanded over time, beyond those specified in his employment contract. His salary had also increased. The changes were proposed by the employer as part of a restructure consequent upon a deteriorating commercial situation. In that context, the employer proposed discussions with the employee to enable a clear understanding of the necessary changes and the consequent effect upon the employee's duties and responsibilities. The employee refused to participate in the discussions. He contended that the proposed changes to his duties and responsibilities constituted a significant departure from his position, thus entitling him to accept the employer's conduct as a repudiation of the contract and sue for damages.
The majority (Doyle CJ and Bleby J) decided the case on a narrow ground. In their view, the proposed changes to the current duties and responsibilities of the employee were within the terms of the original employment contract. The fact that the employee's role had gradually developed into a more responsible role did not bring about any variation to the terms of the employment contract. Accordingly, the employee's claim failed. However, on the hypothesis that this result may be wrong, Doyle CJ and Bleby J rejected the employee's contention that the proposed changes amounted to an imposition of a significant diminution in his status and responsibilities. This was because the employer was doing no more than seeking to negotiate the proposed changes with the employee, and things had not yet reached the stage that any changes were being imposed. These statements were clearly obiter dicta.
In Cameron v Asciano Services Pty Limited [2011] VSC 36, Justice Beach set out, if I may say so, helpfully a somewhat comprehensive catalogue of relevant factors (at [44] to [46]). I respectfully adopt what his Honour therein said as follows:
[44] The principles to be applied concerning repudiation and the repudiation of employment contracts are not in dispute. The question for determination is whether, objectively considered, the defendant's conduct to 6 April 2009 constituted a repudiation of the plaintiff's employment contract. This issue falls for determination at the time the plaintiff elected to treat the defendant's conduct as a repudiation, on 6 April 2009.
[45] The applicable legal principles governing the repudiation of an employment contract were analysed by Ross J in Whittaker v Unisys Australia Pty Ltd. These principles were recently summarised by Hargrave J in Earney v Australian Property Investment Strategic Pty Ltd. I respectfully adopt Hargrave J's summary of Ross J's analysis in the following terms:
The term repudiation is used in a number of senses. Relevantly, the High Court has recently stated that repudiation:
May refer to conduct which evinces an unwillingness or an inability to render substantial performance of the contract. This is sometimes described as conduct of a party which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party's obligations. It be may termed renunciation. The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it.
It is not necessary to prove a subjective intention to repudiate. The test is an objective one.
Whether there has been repudiation is a question of fact.
Repudiation is not to be inferred lightly. It is a serious matter.
Repudiation may be evidenced by a single act or by an accumulation of conduct in circumstances where no individual act on its own constitutes a repudiation.
Repudiation does not bring an end to a contract. It is necessary for the innocent party to elect to accept the repudiation.
Repudiatory conduct may be "cured" by the party in breach, but only prior to the acceptance of the repudiation.30 Accordingly, once the innocent party has elected to terminate the contract for breach, it cannot thereafter be cured.
In the context of employment contracts, a significant diminution in remuneration, status or responsibility may constitute a repudiation. Whether or not this is so is a question of fact in each case.
There may be a significant diminution in status or responsibility, even where the employee retains the same remuneration and title.
However, there are circumstances where a considerable change in the nature of an employee's duties may not amount to a repudiation. Although an employer cannot usually force changes of status and responsibility upon an employee, the circumstances of a particular case may permit a degree of flexibility in approach, with each party being required to provide "some reasonable give and take". In such cases, repudiation may not be inferred in the absence of serious non-consensual intrusions upon the status or responsibilities of the employee.
[46] Before turning to the question of whether the defendant repudiated the plaintiff's employment contract, it is necessary to deal with the principles to be applied in construing the contract.
As is clear from the above discussion a party does not repudiate its contractual obligations simply because it seeks to negotiate with the other party about variation to the contractual terms especially where those discussions may be ongoing.
In the context of employment contracts a degree of flexibility and "give and take" is to be expected. A significant diminution in remuneration, status, or responsibility as is clear again from the above principles may constitute a repudiation. Whether or not this is so is a question of fact in each case.
It is clear that there may well be a significant diminution in status or responsibility, even where an employee retains the same remuneration and title, that could amount to a repudiation. As this issue will turn on the facts of any particular case, it will therefore often be a matter of degree to what extent the person's status or responsibilities have in fact been changed.
In Westen v Union Des Assurances De Paris (1996) 88 IR 259 at 261 Madgwick J made the following comment:
I agree, subject to a gloss, with the learned authors of The Law of Employment (3rd ed, Law Book Company, 1990), Macken, McCarry and Sappideen (at p 188):
"In the absence of a contract allowing it, the employer cannot force changes [of job or regarding] on an employee. An attempt to do so will involve the employer in breach of contract if the [employee] presses her or her requirements..."
The gloss is that this must not be taken to propound undesirable inflexibility: there must be some reasonable give and take. In a rapidly changing world, it would be uncommon for the parties to a contract of employment to envisage no change in aspects of the job. But employers' perceptions as to what are the important aspects of jobs they have promised employees and later wish to change may not coincide with the perceptions of the employees, nor of independent observers, such as courts to which the employees might, in due course repair. Serious, non-consensual intrusions upon the status or responsibilities, as well as upon the remuneration, attaching to a job may well be held to amount to a repudiation of the contract of employment, and their actuality will not be denied merely by the retention of the job's title. That is the drift and the tenor of cases such as Beck v Darling Downs Institute of Advanced Education (unreported, Supreme Court of Queensland, No 3865 of 1988, Dowsett J, 20 April 1990) and Quinn v Jack Chia (Australia) Ltd (1991) 43 IR 91.
Can an employee rely upon after acquired information
The plaintiff seeks to rely upon discovering for the first time after he left his employment that the acronym "ECD" was omitted from his title.
In Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 the court, referring to the English case of Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339, held that the termination of an agreement may be justified by proof of relevant circumstances existing prior to such termination but of which the party terminating the agreement was unaware until some time after their election to terminate.
After citing cases in which it was held that an employee's dismissal may be justified upon grounds on which an employer did not act and of which the employer was unaware at the time of discharge, Dixon J said (at 377):
It is true that the agreement [in the case then before his Honour] does not amount to a contract of service. But the rule is of general application in the discharge of contract by breach, and enables a party to any simple contract who fails or refuses further to observe its stipulations to rely upon a breach of conditions, committed before he so failed or so refused, by the opposite party to the contract as operating to absolve him from the contract as from the time of such breach of condition whether he was aware of it or not when he himself failed or refused to perform the stipulations of the contract. "It is a long established rule of law that a contracting party, who, after he has become entitled to refuse performance of his contractual obligations, gives a wrong reason for his refusal, does not thereby deprive himself of a justification which in fact existed, whether he was aware of it or not" (per Greer J, Taylor v. Oakes Roncoroni & Co.; see, too, per Lord Sumner in British and Beningtons Ltd. v North Western Cachar Tea Co. and per Starke J. in Henry Dean & Sons (Sydney) Ltd. v P. O'Day Pty Ltd).
[See also Rich J at 370-371 and Starke J at 373]
The particular contract in Shepherd v Felt and Textiles of Australia Ltd was not one of employment. However, as Dixon J noted, this is of no significance, as the principle articulated is of general application.
Not long after this decision, the High Court in Commonwealth Homes and Investments Co Ltd v MacKellar (1939) 63 CLR 351 (at 378 Dixon J with whom McTiernan J agreed) considered the English case of Wright's Case (1871) 7 Ch App 55 and said that:
The case can be regarded as an instance of a valid compromise or of the application of the general rule that where a legal justification in fact exists for a course taken, it will suffice to support its validity though the parties or one of them acted for other reasons and in ignorance of its existence [his Honour then cited Shepherd v Felt and Textiles of Australia].
Subsequently, in Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245, Mason CJ said (at 262):
Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 stands as authority for the general proposition that a termination of a contract may be justified by reference to any ground that was valid at the time of termination, even though it was not relied on at the time and even though the ground actually relied on is found to be without substance. This Court applied the principle of Shepherd v Felt & Textiles to a case of anticipatory breach arising from the vendor's inability to complete a contract for the sale of conditional leases: Rawson v Hobbs (1961) 107 CLR 466, at 480, 491. And subsequently the Court treated the principle as capable of having application to anticipatory breach arising from repudiation and renunciation: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at pp 431-433.
But it does not follow that a party who attempts to terminate on an incorrect ground can always support his termination by reference to an anticipatory breach by the other party existing at the time of termination. The circumstances in which the attempted termination takes place may be such as to amount to a repudiation or at least to an absence of readiness and willingness to perform the contract on the part of the party seeking to terminate the contract: see the discussion in DTR Nominees, at 433-434.
In the same case, Gaudron J (at 277) also stated the same principle, but perhaps in even broader terms than Mason CJ:
[T]he principle which underlies the decision in Shepherd v Felt and Textiles...is stated in Taylor and Another v Oakes Roncoroni and Company (1922) 127 LT 267, at 269; 27 Com Cas 261 at 266 thus:
It is a long established rule of law that a contracting party, who, after he has become entitled to refuse performance of his contractual obligations, gives a wrong reason for his refusal, does not thereby deprive himself of a justification which in fact existed, whether he was aware of it or not.
That statement was cited with approval by Dixon J in Shepherd v Felt and Textiles (at 378).
The contract in Sunbird Plaza Pty Ltd v Maloney was for the sale of land, though again in that case the principle was expressed as being of general application.
In Concut Pty Ltd v Worrell (2000) 176 ALR 693, Gleeson CJ, Gaudron and Gummow JJ said (at [29]):
[29] In this court, no attempt was made, and none would have succeeded, to deny the proposition of law expressed in Shepherd. The proposition that the dismissal of an employee may be justified upon grounds on which the employer did not act and of which the employer was unaware when the employee was discharged is but an application of what, in Shepherd, Dixon J identified as a rule of general application with respect to the discharge of contract by breach.
The defendant had placed Mr Fishlock in the role of having ultimate and in effect sole creative responsibility for at least Melbourne and Sydney. Mr Fishlock had, I am satisfied, an unfettered discretion as to how much or how little (subject to particular client requests) he spent on matters. Leaders came and went. Mr Marsh and Mr Burger were perfectly happy to allow Mr Fishlock to work four days a week and clearly to manage his time accordingly. When the plaintiff's contract was changed in 2009, at his own request, from a five-day week to a four-day week, Mr Burger (the CEO) dealt deferentially with Mr Fishlock on significant matters:
... based on our 4 day working week discussion at not a pro-rata reduction of your salary, but say a 50k reduction annually - how would you like to implement this and would you like to announce this as part of the roles and responsibilities meeting?
At least by 2010 it would seem Mr Fishlock was using his energies in relation to the public sector clients. Mr Mackay says he tried to encourage Mr Fishlock to engage actively in relation to Westpac's business to which Mr Fishlock indicated he had little to with it for some considerable time. This would only have fortified in Mr Mackay's mind that Mr Fishlock, it could be said, was not using his talent and seniority on the private sector. Again Mr Mackay was critical of Mr Fishlock when he discovered that Mr Fishlock was in Melbourne to service public sector clients and did not even bother to attend at the Melbourne office.
Mr Mackay was no friend or confidante of Mr Fishlock. He simply wanted to manage Mr Fishlock so as to minimise the amount of commercial damage that would follow as a result of another senior person leaving the organisation. As he said very early in his evidence, Domino's and Westpac left, leading to the substantial collapse of the defendant's business effectively.
I am satisfied that the defendant regarded Mr Fishlock as the ultimate creative head of "both Palace offices", and appointed him as such. Mr Fishlock was entitled to do what he did given the emails to which he was privy and more importantly the ultimate email from Mr Granger of 28 January 2011 conveying a significant diminution in his status and standing amongst the staff of the defendant in both its Sydney and Melbourne offices. In my mind this was a clear act on the part of the defendant to directly signal to Mr Fishlock it no longer intended to have him regarded as having the ultimate creative responsibility for the offices of the defendant, in Sydney and Melbourne. That in my view amounts to a repudiation by the defendant of its previously agreed position. Faced with that reality Mr Fishlock in my view was perfectly entitled to do what he did and accept the repudiation and terminate the contract.
Damages
The plaintiff seeks damages for repudiation. The applicable principles are non-controversial. The plaintiff is to be put in the position, so far as money can do so, that he would have been in had the contract of employment been performed (Robinson v Harman (1848) 1 Ex 850 at 855 per Parke B; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80 per Mason CJ and Dawson J, at 98 per Brennan J, at 117 per Deane J, at 134 per Toohey J at 148 per Gaudron J and at 161 per McHugh J).
In its submissions, the defendant accepted that if the question of repudiation was determined in the plaintiff's favour then it would follow that the plaintiff is entitled to damages by reference to the salary the plaintiff would have received during the 9-month notice period prescribed by clause 6.2(a) under his employment agreement (subject to possible reduction for issues of mitigation). This amounts to $262,500 (being nine months' pay at $350,000 per year). Given my finding on repudiation, the plaintiff is entitled to this amount, namely $262,500.
On 3 April 2013 when the matter was listed for oral submissions, the plaintiff sought and obtained leave to amend and file in court a further amended statement of claim. The effect of the amendment was an increase of $40,384 in the amount of damages claimed by the plaintiff, in light of the unfolding of the evidence during the trial. The plaintiff alleged that the evidence indicated that if there was no repudiation, the plaintiff would probably have continued to be employed until about 31 March 2011, after which his 9-month notice period would have commenced. The claim for the additional amount of $40,384 therefore represents the amount the plaintiff would have earned in the 6 weeks from the date his employment was actually terminated, until the date that his contract would have been terminated had there been no repudiation.
It is a general principle in the assessment of damages for breach of contract that where there are two or more ways in which a defendant might perform the contract, the court, in assessing damages, adopts the mode of performance which is most beneficial to the defendant (Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 92 per Mason CJ and Dawson J). However, this does not prevent the making of an assessment of damages based upon the evidence and the findings of primary fact (Walker v Citigroup Global Markets Australia Pty Ltd (2006) 233 ALR 687 at [79]-[80] and [83] per Gyles, Edmonds and Greenwood JJ). In McDonald v Parnell Laboratories (Aust) (2007) 168 IR 375, Buchanan J said (at [79]):
[79] 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 9 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'.
As I think is apparent from my discussion of the evidence, it is highly unlikely that the plaintiff would have had his employment terminated by the giving of notice any time sooner than 1 April 2011. It was apparent in evidence that Mr Mackay was concerned to avoid damage to the defendant's revenue and he thought it would be important to retain the plaintiff for a little while longer for that purpose. It is also apparent from the evidence that the plaintiff's employment would have remained on foot to provide to Mr Collins time to settle in and develop working relations. In light of the evidence which ultimately emerged, I am satisfied that the plaintiff is also entitled to the amount of $40,384.
The defendant's case on mitigation appears to proceed on the assumption that on every claim of a monetary nature there is an obligation to mitigate. The plaintiff puts an argument, on the other hand (not supported by authorities), to the effect that the obligation does not arise in all circumstances.
Turning to the principles of mitigation, there is imposed on an innocent party a duty to mitigate its loss applies where the innocent party is seeking damages. That rule does not apply where what is owed is a debt, instead of an obligation to pay damages. The decision of the House of Lords in Delaney v Staples [1992] 1 AC 687 shows the difficulty sometimes involved in the application of the principles of mitigation to contracts of employment containing provisions for payment in lieu of notice. In that case, Lord Browne-Wilkinson (with whom the other Law Lords agreed) identified four types of payments in lieu of notice. There is no obligation to mitigate in the first three types, but there is such a duty in the fourth.
The authorities in Australia (which are consistent with English authorities) indicate that in circumstances where an employee becomes contractually entitled to receive payment in lieu of notice, no question of mitigation arises. Such terms often arise when a contract provides, for example, that except in the case of serious breach the employer must provide a certain amount of notice or payment in lieu of notice. In such circumstances, an employee who is terminated without notice would simply be seeking to recover a sum as a liquidated debt, not as damages (as an example, see Fardell v Coates Hire Operations Pty Ltd [2010] NSWSC 346 at [99]-[100] and [108] per White J).
This type of payment is distinguishable from contracts containing a term that provides that an employer may (not must) provide payment in lieu of notice. Under such clauses, an employer who wrongfully dismisses an employee is not required to make payment in lieu of notice but is permitted to do so, and a failure to make payment in lieu gives the employee a right to damages and not a debt. Where the contract gives the employer a choice as to whether or not to provide payment in lieu of notice and the employer actually exercises that right, then the employee is again under no obligation to mitigate their loss, because the amount payable by the employer is by way of debt (for example see Reilly v Praxa Ltd [2004] ACTSC 41 at [32] per Gray J and the cases his Honour cites).
In the present case, the Agreement neither obliges the defendant to provide payment in lieu of notice nor does it confer on the plaintiff a right to demand payment in lieu of notice. It expressly reserves to the defendant the decision of whether or not to make payment in lieu of notice. Clause 6.12 provides:
The Company may at its discretion pay the Executive the equivalent amount of the Cash Salary in lieu of any notice period relating to the termination of the employment under this Agreement. [My emphasis]
Clause 6.2 of the Agreement (which provides for termination of employment by the defendant "without cause") also relevantly provides (at clause 6.2(b)(iii)):
...the Company may...elect to pay the Executive in lieu of the 9 month notice period...
The defendant in this case has not purported to exercise any contractual right to make payment in lieu of notice. In these circumstances, the plaintiff's claim is properly characterised as one for damages, which is consistent with the way in which he has framed the relief he seeks in his further amended statement of claim.
Both the plaintiff and defendant acknowledged that the onus of showing that the plaintiff failed to mitigate his loss rests on the defendant (Watts v Rake (1960) 108 CLR 158 at 159 per Dixon CJ). In Sperandio v Lynch (No 2) [2006] FCA 1838, Jessup J said (at [6]):
[6] ... where an applicant succeeds in an action for damages for breach of contract, the measure of his or her compensation will not include any damages which might have been avoided by the reasonable efforts of the applicant. Although the applicant carries the onus of proving that loss or damage has been suffered, the onus of establishing facts relevant to the question of mitigation lies upon the respondents: see Goldburg v Shell Oil Co of Australia Ltd (1990) 95 ALR 711, at 714-717, and the authorities there referred to. Clearly, the onus will be more easily discharged in a case in which the applicant is shown to have done nothing in the way of mitigation: see Harding v Harding (1928) 29 SR (NSW) 96,106 per Campbell J. However, even in such a case, it remains a matter of evidence on which the respondent at least starts out with the evidentiary onus.
In his affidavit, the plaintiff describes his efforts to obtain employment after ceasing employment with the defendant. In particular, the plaintiff says he sought consultancy work with eight entities and employment opportunities with five entities and he ultimately established his own business. The defendant alleges that the plaintiff's conduct after leaving the employment of the defendant was such as to warrant a reduction in the amount he might be awarded in damages. The defendant relies on the plaintiff's statement in cross-examination that he did not, "in a formal written sense", apply for other jobs, and that he was only speaking to others in the industry to "sound out" employment opportunities, before commencing his own consultancy business. The defendant also points to evidence suggesting that the plaintiff performed some work for no income, and was attempting, from an early stage, to set up his own business. In support of this, the defendant says that the plaintiff only earned about $34,500 during the nine-month period following his cessation of employment with the defendant, which is relatively low in comparison to the amount he would have earned in nine months in the employment of the defendant. The defendant also says that for someone as senior in the industry as the plaintiff, that amount which he actually earned is generally indicative of a poor effort to obtain work.
However, it may be the case that for someone as senior and well-known in the advertising industry as the plaintiff, it would not be inappropriate to seek to make contact with others in the industry rather than preparing written applications. I do not know whether, and if so, the extent to which the availability of employment would have been affected by the global financial crisis which was obviously affecting the labour market generally at that time. Having regard to the evidence, it does seem to me as though the plaintiff might have done more by way of seeking employment after his employment with the defendant ceased. However, the evidence does not disclose what would have been the result of further efforts on his part, nor is it clear that he would have found appropriate employment. Nor do I think that the establishment of a new business is irrelevant for the purposes of mitigation of loss (Quinn v Jack Chia (Australia) Limited [1992] 1 VR 567 at 582 per Ashley J), especially for someone as senior in the industry as the plaintiff. It is unsurprising if the plaintiff decided to perform some work for no fees as part of a start-up plan for his new business. I am not satisfied that the defendant has satisfied its evidentiary onus on the question of mitigation.
In these circumstances, I think it is only appropriate to deduct from the plaintiff's entitlement to damages the amount which he actually received in his new employment or efforts during the nine-month period following his employment with the defendant came to an end. That amount appears to be $34,625.
The plaintiff submits that there should be no deduction whatsoever because the plaintiff would have received a payment in lieu of notice, without deduction, from the date he ceased employment. However, I think it is clear that unless the plaintiff had ceased employment with the defendant, he would not have been able to generate the sum of $34,625. In Tasman Capital Pty Ltd v Sinclair (2008) 75 NSWLR 1, Giles JA (with whom McColl JA and Young CJ in Eq agreed) said (at [55]):
[55] In assessing the damages of a wrongfully dismissed employee there must be brought to account the financial benefit which the employee received, or acting reasonably should have received, from the exercise of earning capacity freed up by the dismissal.
Therefore I would assess the plaintiff's entitlement to damages to be $268,259 (being $262,500 plus $40,384 less $34,625).
Restraint of trade
It is accepted that if the plaintiff is successful in persuading the court that the defendant had repudiated the contract, the restraint of trade would become inoperative. Notwithstanding I come to that view, in the event that I am wrong, I propose to deal with the restraint of trade issue.
The Principles
In Seven Network (Operations) Ltd v Warburton (No 2) [2011] NSWSC 386, Pembroke J laid out the legal context in which the law relating to restraint of trade operates (at [3]-[4]):
[3] One of the abiding principles of a civilised system of law such as ours is that contracts are meant to be observed... The general policy of the law is that people should honour their contracts: Baltic Shipping Co v Dillon (1991) 22 NSWLR 1 at 9 (Gleeson CJ)...
...
[4] There are however qualifications to the general principle that contracts are meant to be observed. Courts will generally not order specific performance of employment contracts. In principle however, they will enforce negative covenants that restrain an employee from competing against an employer: Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 at 346-348. But no matter what the parties have agreed, negative covenants imposing a restraint on an employee's trade will not be enforced if the restraint is not necessary for the reasonable protection of the legitimate interests of the employer or those for whose benefit it was agreed: Buckley v Tutty (1971) 125 CLR 353 at 376; Curro v Beyond Productions Pty Ltd (above) at 344. Further still, even if the restraint is reasonable when considered as at the date of contract, the court always retains a discretion to withhold or limit injunctive relief if a proper basis is established at the hearing: Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852 at [88] and [91] (Brereton J).
The Restraints of Trade Act 1976 provides:
4 Extent to which restraint of trade valid
(1) A restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not.
...
[Further subsections then specify the remedies available for impermissible clauses].
In Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 328 (Gleeson CJ, Kirby P and Samuels JA) and Woolworths v Olson [2004] NSWCA 372 at [42] (Mason P, McColl and Bryson JJA), the Court of Appeal accepted the exposition by McClelland J of the operation of the Restraints of Trade Act 1976 in Orton v Melman [1981] 1 NSWLR 583 (at 587). This approach was recently affirmed in Jardin v Metcash Ltd [2011] NSWCA 409 (at [87]-[88] per Meagher JA with whom Campbell and Young JJA agreed).
The first step is to determine whether the alleged breach (independently of public policy considerations) does or will infringe the terms of the restraint properly construed. This plainly involves a question of construction and making factual findings as to conduct constituting breach. The second step is to determine whether the restraint, so far as it applies to that breach, is contrary to public policy. Finally, if the restraint, so far as it applies to that breach, is not contrary to public policy, then it is valid by force of s 4(1) subject to any order made under s 4(3). This approach is consistent with the authorities (Orton v Melman [1981] 1 NSWLR 583 at 587 per McClelland J; Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9 at [10] per Brereton J; John Fairfax Publications Ltd v Birt [2006] NSWSC 995 at [7] per Brereton J; Austress-Freyssinet Pty Limited and Ors v Kowalski [2007] NSWSC 399 at [12] per Windeyer J).
The difficulty in this exercise is usually in the second step, of determining whether the restraint, insofar as it applies to the relevant breach, is contrary to public policy. Whether restraints in a given contract are against public policy depends on whether they exceed what is reasonably necessary for the protection of the legitimate interests of the ex-employer (Jardin v Metcash Ltd at [88]; Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 at 344 per Meagher, Handley and Cripps JJA; Buckley v Tutty (1971) 125 CLR 353 at 376 per Barwick CJ, McTiernan, Windeyer, Owen and Gibbs JJ; Seven Network (Operations) Ltd v Warburton (No 2) at [4]). This involves determining whether the interest being protected is a legitimate one, and whether the restraint is reasonably necessary for its protection.
A "legitimate interest" has been broadly defined. In Seven v Warburton, Pembroke J noted (at [67]):
[J]udges of this division of the court have adopted a broad approach to the identification of the legitimate interest supporting a restraint of trade.
In Cactus Imaging v Peters, Brereton J said (at [11]):
...An employer is not entitled to be protected against mere competition, and the legitimate interests of an employer which may be the subject of protection by covenant are in the nature of proprietary interests [Vandervell Products Ltd v McLeod [1956] RPC 185 at 192; Tank Lining Corp v Dunlop Industrial Pty Ltd (1982) 140 DLR (3d) 659 at 664], including the employer's trade secrets and confidential information, and the employer's goodwill including customer connection.
Similarly, in Wright v Gasweld Gleeson CJ said (at 329):
An employer is not entitled to protect himself against mere competition by a former employee, and the corollary of that is that the employee is entitled to use skill, experience and know-how acquired in the service of the former employee in legitimate competition... At the same time the law will protect trade secrets and confidential information, and will intervene to prevent their misuse.
In Sidameneo (No 456) Pty Ltd v Alexander [2011] NSWCA 418 (at [30]-[45] and following), Young JA (with whom Beazley and Basten JJA agreed) discussed in some length the types of interests capable of protection by restraint clauses. Notably, his Honour said (at [35], [38]):
[35] ... "proprietary" interests (in the wider meaning of that word) are capable of supporting restrictive covenants, but that there may be cases where other interests may also do so.
...
[38] There are a number of cases where an interest somewhat less than what would ordinarily be termed "proprietary" has been held sufficient to support a restrictive covenant...
[In this particular case, goodwill was held to be a protectable interest.]
As to the reasonableness of the restraint, the onus of establishing reasonableness lies upon the party seeking its enforcement (Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 at 344 per Meagher, Handley and Cripps JJA). The validity and reasonableness of a restraint clause is to be determined as at the time the relevant contract is entered into (Jardin v Metcash at [88]; Woolworths v Olson at [40]) and by reference to what the restraint entitles or requires the parties to do rather than what they intend to do or have actually done (Curro v Beyond at 344; John Fairfax v Birt at [26]). However, as noted by Young JA (at [71]) in Sidameneo (approving of comments by Brereton J in Cactus Imaging at [37]):
Although one judges the covenant at the date of its creation, if the parties should realise that they are dealing with a business that might be expanding, the covenant can be that which is reasonable to protect the contemplated expansion.
The "reasonableness" of a restraint clause usually raises one or more of three questions. The first is whether the nature of the trade restricted by the clause is reasonable. For example, a covenant which restrains an employee from engaging in all businesses or a business different in character from the employer's, may be unreasonable. A second commonly arising question is whether the geographical area or scope of the restraint is reasonable. The third common question is whether the duration of the restraint is reasonable.
Once a court finds that a restraint clause is reasonably necessary for the protection of the legitimate interests of the employer, the court must decide whether to exercise its discretion to grant an injunction enforcing the restraint. In Seven v Warburton Pembroke J noted (at [90]) that:
[t]he discretion to limit or withhold injunctive relief has been frequently recognised in the context of applications to enforce restraints of trade: John Fairfax Publications Ltd v Birt [2006] NSWSC 995 at [45]; Otis Elevator Co Pty Ltd v Nolan [2007] NSWSC 593 at [26]-[29]; Tullettt Prebon (Aust) Pty Ltd v Purcell (above) at [88]-[96]; and Provident Financial Group plc v Hayward [1989] 3 All ER 298 (CA).
In Otis Elevator Company Pty Limited v John Nolan [2007] NSWSC 593 (at [17]-[30]) Brereton J provides a helpful discussion of the authorities relevant to the exercise of this discretion.
Mr Fishlock's employment agreement prohibited him from carrying on, or being concerned or engaged or being interested in or providing services in relation to, any "Restrained Activities" (clause 7.3). The "Restrained Activities" were defined in clause 7.4 as follows:
7.4 Restrained Activities
(a) ... the following activities are Restrained Activities:
(i) A business or activity of a type similar in any material respect to the Protected Business (or to any material part of it);
(ii) A business or activity of a type which is competitive in any material respect with (or potentially competitive with) the Protected Business (or to any material part of it);
(iii) A business, activity, venture or undertaking owned, managed, controlled, undertaken and/or conducted by or on behalf of any client or customer of the Business or Group involving the provision of services of the type provided by the Company or Business or competitive with those of the Company or Business (Competitive Services). For purposes of this Clause 7, the clients and customers are those entities that were clients and customers of the Business or Group within the 12 month period preceding the Termination Date (the Clients);
(iv) to, or attempt to provide Competitive Services to or seek custom from any Client;
(v) to, or attempt to, solicit, entice, persuade, encourage or induce any Client to cease or not commence using, or reduce the client's use of, the services of the Business or Group and/or instead use the services of a Prohibited Person;
(vi) to, or attempt to, solicit, entice, encourage, persuade or induce any employee, executive, consultant, officer, adviser or other staff member or personnel of the Company or the Group (the Personnel) to cease or not commence their employment or engagement, or reduce their level of engagement, by the Company or Group, and/or instead take up employment or engagement with, or provide services on any basis to or from the benefit of, any Prohibited Person. For this purpose, the Personnel shall be those persons that were Personnel within the 12 month period preceding the Termination Date; and
(vii) any interference with a Group Company or Protected Business.
The capitalised terms are defined in clause 1.1, though some terms are defined within the text of clause 7.4 above. "Protected Business" means the "Business" and any other business carried on by TCP on or after 5 January 2004. The "Business" means TCP's advertising business. The "Group" is defined to effectively include extended corporate relatives of TCP.
The restraints continue for the duration of Mr Fishlock's employment and for 12 months following the date of termination (clause 7.5). Geographically, the restraints imposed by clauses 7.4(a)(i), (ii) and/or (iii) apply only if the activity restrained occurs within Australia. The other restraints are applicable anywhere.
In its written closing submissions, the defendant states that it relies primarily on the non-compete restraints in clause 7.4(a)(i) and (ii), and the non-solicitation restraints in clause 7.4(a)(iv) and (v). In his written closing submissions, the plaintiff denied the validity of these restraints and also of the restraint contained in clause 7.4(a)(vii).
Were I otherwise in favour of the defendant on the question of repudiation, on balance I would be inclined to the view that the facts of the case, especially the plaintiff's seniority (as I have accepted), would lead to a conclusion that the restraint provision was reasonable and enforceable in the circumstances.
Long service leave
Under the Long Service Leave Act 1995, an employee who has completed between five and ten years of service is entitled to a pro-rata payment of long service leave, but only if their employment has been terminated by the employer other than for serious or wilful misconduct (s 4(2)(a)(iii)). If the employment was terminated by the employee, a pro rata entitlement is only payable if that termination was on account of illness, incapacity or domestic or other pressing necessity, or by reason of the death of the worker (s 4(2)(iii)).
The plaintiff commenced employment on 1 January 2004 and ceased employment on 15 February 2011. There is no dispute that the plaintiff served between five and ten years. In closing written submissions, the defendant accepted that if the court was to find that the defendant repudiated the contract of employment, the plaintiff is entitled to be paid long service leave. Also, it does not appear controversial that had I found that there was no repudiation and that the plaintiff terminated his contract of employment, he would not be entitled to long service leave because there was no illness, incapacity or domestic or other pressing necessity.
Given my findings as to repudiation, it would follow that the plaintiff is entitled to long service leave. The plaintiff seeks from the court a declaration of his entitlement to long service leave due to the history of the dispute between the parties on this point. In my view it is appropriate to make a declaration in those terms.
Redundancy Payment
The plaintiff claims that he is entitled to the payment of redundancy, and that the source of such entitlement is s 119 of the Fair Work Act 2009 (Cth), which relevantly provides:
119 Redundancy pay
Entitlement to redundancy pay
(1) An employee is entitled to be paid redundancy pay by the employer if the employee's employment is terminated:
(a) at the employer's initiative because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour; or
(b) because of the insolvency or bankruptcy of the employer.
Note: Sections 121, 122 and 123 describe situations in which the employee does not have this entitlement.
Subsection 2 specifies the quantum of redundancy payable to an entitled employee. The particular exclusions specified in sections 121-123 from the obligation to provide redundancy payment are not relevant to the present case.
The plaintiff cited a number of authorities to seek to support his alleged entitlement to redundancy payment. The defendant accepted those authorities as non-controversial, but said that none addresses the meaning of s 119. There are very few authorities dealing with s 119 of the Fair Work Act . In order for the plaintiff to be entitled to redundancy payment under s 119, first, his employment must have been terminated at the defendant's initiative, and secondly, such termination must have been because the defendant no longer requires the plaintiff's job to be done by anyone.
Both the plaintiff and defendant referred to the case of Visscher v Giudice (2009) 239 CLR 361. The plaintiff asserted that it was implicit in the reasons of the High Court in Visscher v Giudice that the acceptance by an employee of a repudiation by an employer is a termination at the initiative of the employer. The defendant cited Visscher v Giudice as support for the contrary proposition. It seems to me that the case supports neither party's position, as the High Court did not come to any view, but simply identified that the Australian Industrial Relations Commission failed to ask the correct questions. There are however decisions in the field of industrial relations law which, though decided in a statutory context different to the present one, consider the meaning of termination of employment "at the initiative of the employer".
In Ex parte Campbell (1870) LR 5 Ch App 703 James LJ said (at 706):
Where once certain words in an Act of Parliament have received a judicial construction in one of the Superior Courts, and the Legislature has repeated them without any alteration in a subsequent statute, I conceive that the Legislature must be taken to have used them according to the meaning which a Court of competent jurisdiction has given to them.
This presumption was approved by the House of Lords in Barras v Aberdeen Steam Trawling and Fishing Co Ltd [1933] AC 402 (at 412 per Viscount Buckmaster, at 435 per Lord Blanesborough, at 438 per Lord Warrington of Clyffe, at 442 per Lord Russell, and at 446 per Lord Macmillan) and has been restated in Australia on numerous occasions (see for example Re Alcan Australia Ltd; Ex parte Federation of Industrial, Manufacturing & Engineering Employees (1994) 181 CLR 96 at 106 consisting of a unanimous High Court of seven justices), but has also been subject to much criticism both in Australia and in the UK.
The Alcan Australia case arose under the Industrial Relations Act 1988 (Cth). Two years after it was decided, the Workplace Relations Act 1996 (Cth) was enacted. In Electrolux Home Products Pty Ltd v Australian Workers' Union (2004) 221 CLR 309 at 346-347 McHugh J noted the similarity between a provision in the earlier Act that had been interpreted in the Alcan Australia case and a provision in the later Act and committed:
The principle that the re-enactment of a rule after judicial consideration is to be regarded as an endorsement of its judicial interpretation has been criticised, and the principle may not apply to provisions re-enacted in ''replacement'' legislation. However, industrial relations is a specialised and politically sensitive field with a designated Minister and Department of State. It is no fiction to attribute to the Minister and his or her Department and, through them, the Parliament, knowledge of court decisions - or at all events decisions of this Court - dealing with that portfolio. Indeed, it would be astonishing if the Department, its officers and those advising on the drafting of the Act would have been unaware of Re Alcan.
In the present case, to the extent that previous decisions in the field of employment law are relevant to identifying the meaning of "terminated at the employer's initiative" in the present statutory context, I think these authorities plainly support the plaintiff's position. The proper construction of the phrase "termination of employment at the initiative of the employer" was considered by the full court of the Industrial Relations Court in Mohazab v Dick Smith Electronics Pty Ltd (No 2) (1995) 62 IR 200 (at 205):
In these proceedings it is unnecessary and undesirable to endeavour to formulate an exhaustive description of what is termination at the initiative of the employer but plainly an important feature is that the act of the employer results directly or consequentially in the termination of the employment and the employment relationship is not voluntarily left by the employee. That is, had the employer not taken the action it did, the employee would have remained in the employment relationship.
This approach was referred to with apparent approval by McHugh J in Qantas Airways Ltd v Christie (1998) 193 CLR 280 at 301.
Putting aside for now the debate between the parties as to whether an acceptance by an employee of a repudiation by the employer may be described as a termination "at the employer's initiative" for the purposes of s 119, it is difficult to see how it could be said that the defendant no longer required the plaintiff's job to be done by anyone. This is because the evidence supports the effective replacement of the plaintiff by Mr Collins and I have found accordingly.
Therefore although the better view is that the plaintiff's employment was terminated at the initiative of the defendant, I do not think that the termination was a result of the employer not requiring the job to be done by anyone. Therefore, in my view the plaintiff is not entitled to redundancy payment.
Conclusion
I would invite the parties to provide short minutes reflecting these reasons. I will hear the parties on costs and interest. An appropriate arrangement can be made with my Associate to fix a time for this purpose.
**********
Decision last updated: 09 May 2013
50
41
5