Grout v Gunnedah Shire Council (No 2)
[1995] IRCA 27
•13 February 1995
CATCHWORDS
INDUSTRIAL LAW - unlawful dismissal - Whether employment relationship terminated as a result of the unlawful dismissal - whether the acts of the respondent constitute a repudiation of the contract - legislative barriers to termination - reasonable notice - factors influencing the quantum of damages
Industrial Relations Act 1988 (Cth), ss170EA, 170EB
Liddell v Lembke, 15 December 1994, Full Court of Industrial
Relations Court of Australia, unreported
Burgundy Royale Pty Ltd v Westpac Banking Corporation (1987)
18 FCR 212
Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435
Baltic Shipping Co. v Dillon (1992) 176 CLR 344
The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
Association of Professional Engineers, Scientists and Managers
Australia v Skilled Engineering Pty Ltd (1994) 122 ALR 471
Siagian v Sanel Pty Ltd (1994) 122 ALR 333
Addis v Gramophone Co Ltd (1909) AC 488
Mount Isa Mines Ltd v Pursey (1970) 125 CLR 383
Campbelltown City Council v Mackay (1989) 15 NSWLR 501
Perry v Sidney Phillips & Son (1982) 1 WLR 1297
Bostik (Australia) Pty Ltd v Gorgevski (1992) 36 FCR 20
Quinn v Jack Chia (Australia) Ltd (1992) 1 VR 567
Walton v Wollondilly Abattoirs Co-op Limited (1993) 50 IR 81
Holt v Muskets Timber Sales Pty Ltd (1994) 54 IR 323
Irons v Merchant Capital Ltd, 17 October 1994, unreported,
Young J, Supreme Court of New South Wales
Kilburn v Enzed Precision Products Pty Ltd (1988) 4 VIR 31
NSW Cancer Council v Sarfaty (1992) 28 NSWLR 68
Bold v Brough Nicholson & Hall Ltd (1964) 1 WLR 201
Dews v National Coal Board (1988) 1 AC 1
Wheeler v Phillip Morris (1989) 97 ALR 282
No. NI 397 of 1994
RAYMOND ERNEST GROUT v GUNNEDAH SHIRE COUNCIL
MOORE J
SYDNEY
13 FEBRUARY 1995
IN THE INDUSTRIAL RELATIONS )
)
COURT OF AUSTRALIA ) No. NI 397 of 1994
)
NEW SOUTH WALES DISTRICT REGISTRY )
BETWEEN: RAYMOND ERNEST GROUT
Applicant
AND: GUNNEDAH SHIRE COUNCIL
Respondent
JUDGE: Moore J
PLACE: Sydney
DATE: 13 February 1995
ORDER OF THE COURT
THE COURT ORDERS THAT:
The application be adjourned to enable the parties to bring in short minutes or make written submissions on the question of taxation of the damages.
Any submissions to be made should be filed and served by 22 February 1995 and any in reply by 1 March 1995.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Industrial Relations Court Rules.
IN THE INDUSTRIAL RELATIONS )
)
COURT OF AUSTRALIA ) No. NI 397 of 1994
)
NEW SOUTH WALES DISTRICT REGISTRY )
BETWEEN: RAYMOND ERNEST GROUT
Applicant
AND: GUNNEDAH SHIRE COUNCIL
Respondent
JUDGE: Moore J
PLACE: Sydney
DATE: 13 February 1995
REASONS FOR JUDGMENT
These reasons for judgment follow reasons for judgment I published on 30 September 1994 in these proceedings and must be read in conjunction with them. I do not repeat all the findings of facts or the conclusions of law I expressed in the earlier judgment though it is necessary to briefly recount the recent history of the litigation in order to understand the issues still remaining.
The applicant commenced these proceedings by application under s170EA of the Industrial Relations Act 1988 ("the Act"). Associated common law contractual claims were made in the Court's accrued jurisdiction. The hearing of the application took place in August and September 1994 and counsel for both parties then informed me that agreement had been reached between them that a number of legal issues should be determined separately. I determined the agreed issues and concluded my reasons for judgement by saying:
"I will adjourn the matter for 14 days and list the matter for further hearing to enable the parties to make submissions as to what orders should be made to give effect to this judgment."
A hearing took place on the morning of 13 October 1994. Counsel for the applicant said he understood that the matter was listed for the settlement of orders and short minutes were handed up. The terms of the orders were agreed and I made them later that morning. They were:
The contract of employment between the applicant and the respondent:
(a)was not brought to an end by the applicant's letter of 18 May 1994;
(b)was not repudiated by the applicant's conduct;
(c)is still on foot.
There was a termination of the applicant's employment by the respondent within the meaning of s170EA of the Industrial Relations Act (the Act).
There is available to the applicant an adequate alternative remedy within the meaning of s170EB of the Act.
Determination of the application made under s170EA of the Act is declined.
The Court has jurisdiction to continue to deal with the claims made by the applicant in the Court's accrued jurisdiction pursuant to s430 of the Act."
There must be some substantial doubt about the conclusion upon which order 3 is based having regard to the recent judgment of the Full Court of this Court in Liddell v Lembke, given on 3 November 1994 (reasons were published on 15 December 1994), though neither party sought to reopen that issue and submit that I should cease to be satisfied that the statutory prohibition found in s170EB on the consideration of an application precludes further consideration of this application.
Counsel for the applicant said on 13 October 1994 that there remained the question of relief and that the applicant sought an order for specific performance of the contract of employment or, in the alternative, damages. Senior counsel for the respondent expressed uncertainty as to what the applicant was then seeking, in that if a declaration was made that the contract was on foot then the benefits under it could be brought to account. He indicated, however, that the respondent did not ever wish the applicant to resume his duties at the abattoir. I was informed by senior counsel for the respondent that it intended to appeal against my earlier judgment. After I had made the orders I was then asked by the respondent to stay them pending the determination of the appeal though that application was not then pursued and was adjourned when an early hearing date was fixed for the hearing of the residue of the matter, namely 27 October 1994. That hearing date later had to be vacated and the hearing continued on 7 and 8 November 1994. At the hearing on those dates there was a material change in the position of the applicant which I will detail shortly. That led me to suggest the matter might be referred to mediation which was a course to which the parties duly consented. On 11 November 1994 I ordered that mediation take place. It did but I was informed in January 1995 that it had not been successful.
Outstanding issues
At the commencement of the hearing on 7 November 1994 counsel for the applicant opened and indicated that his client had elected to accept the repudiation of contract of employment by the respondent and to seek damages for wrongful dismissal. The acts of repudiation relied upon included the statement of senior counsel for the respondent at the hearing on 13 October 1994 in unequivocal terms that the respondent did not wish to have the applicant return to his duties at the abattoir, and the failure of the respondent's solicitors to confirm, as they had been later requested to in writing by the applicant's solicitors, that the respondent would honour the contract of employment.
Senior counsel for the respondent then indicated that the approach of the applicant was misconceived but if not, involved the pursuit of an action not presently before the Court, namely an action for breaches of a contract that had occurred during the currency of the litigation. It was submitted that this was not a matter that could be heard in the Court's accrued jurisdiction in association with the original application under s170EA and was a colourable claim: see Burgundy Royale Pty Ltd v Westpac Banking Corporation (1987) 18 FCR 212 at 219.
Senior counsel for the respondent then outlined its primary submission which was to the effect that notwithstanding the conclusion I reached in my earlier judgment that the contract of employment had not been terminated in May 1994, the conclusion I also reached that there had then been a "termination", as that expression appears in s170EA, meant that the employment relationship was terminated on 23 or 24 May 1994. A distinction was thus being drawn by the respondent between the contract of employment and the employment relationship. He then submitted that any damages to which the applicant might be entitled were damages for wrongful dismissal which would be an amount assessed by reference to the applicant's entitlements notionally arising under the contract during a period of reasonable notice. This submission was said to be founded on the decision of the High Court in Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435. This approach, it was submitted, did not require consideration of any events after May 1994 nor medical evidence which was led on 7 November 1994 concerning the capacity of the applicant to perform his duties as manager of the abattoir.
The applicant's approach to the question of damages was less straightforward. Counsel for the applicant submitted that the respondent repudiated the contract on or about 23 May 1994 or perhaps earlier and has done so on a number of occasions since. Those repudiations were accepted on 7 November 1994 and the contract of employment was determined on that day. The applicant was thus entitled to damages which included salary and other emoluments to 7 November 1994 as well as damages for wrongful dismissal, that is, an amount equal to the salary and other contractual benefits he would have been paid had reasonable notice been given on 7 November 1994. It was submitted that the applicant is also entitled to damages for the distress caused by the repudiation of the contract by the respondent: see Baltic Shipping Co. v Dillon (1992) 176 CLR 344 and that damages are also recoverable for loss of the benefit of a further contract of employment: see The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64.
Expert psychiatric evidence was called by both the applicant and the respondent which concerned the effect of the events in May 1994 on the applicant as well as the ability of the applicant to perform his duties as the abattoir manager since.
Whether the employment relationship was terminated in May 1994
The resolution of the question of how damages should be assessed must initially involve a consideration of whether the judgments of the members of the High Court in Watson, supra, establish the proposition contended for by the respondent.
There is now a well developed line of recent authority in the Federal Court that a distinction should not be drawn between the employment relationship and the contract of employment. Those authorities are referred to by Gray J in Association of Professional Engineers, Scientists and Managers Australia v Skilled Engineering Pty Ltd (1994) 122 ALR 471 at 479. Thus, in the absence of an employee accepting the repudiation of the contract by his or her purported, but unlawful, dismissal the employment relationship continues because the contract of employment continues. While there is, in my opinion, much to commend this approach, it is one that is not universally accepted as correct: see Siagian v Sanel Pty Ltd (1994) 122 ALR 333 at 345-354 per Wilcox CJ and also Automatic v Elective Termination Theory Revisited Australian Journal of Labour Law, Vol 7 No 3, December 1994.
In these proceedings I have been taken in detail through the judgments of the members of the High Court in Watson, supra, and for reasons which will shortly be apparent, I accept that a majority of the members of Court must be taken to have decided that the purported dismissal of an employee can bring to an end the employment relationship at least for the purposes of denying a right to recover salary after the purported dismissal and, if it is brought to an end this way, an action may be brought for damages for wrongful dismissal. This is so even if the purported dismissal had not terminated the contract of employment because the employee has not accepted the repudiation arising from the action of the employer of wrongfully dismissing the employee.
In Watson, supra, the Court was dealing with an appeal from a Full Court of the Supreme Court of New South Wales which had answered certain questions posed by an arbitrator under s9(a) of the Arbitration Act, 1902 (NSW). The arbitrator had made certain findings of fact that formed part of the stated case. Watson had been employed by two companies as general manager as the result of a written agreement entered into in October 1938. On 30 June 1944 he was handed a letter giving three months notice of the termination of his employment in the position of general manager though it did not purport to terminate generally his employment with the companies. The arbitrator found that this was not written notice of the type contemplated by the written agreement. On 29 September 1944 he was given another letter purporting to terminate forthwith the agreement employing him as general manager and giving him one month's salary in lieu of notice. Again it did not purport to terminate generally his employment with the companies and it was intended he would assume the position of New South Wales sales manager. The cheque for one month's salary tendered on 29 September 1944 was not accepted by Watson. From 29 September 1944 to 19 September 1945 Watson attended the offices of the companies and was ready and willing to perform the duties of general manager. The companies maintained the attitude that the employment as general manager had been determined. A salary of £10 per week was offered to Watson in this period but declined. On 19 September 1945 he was excluded from the joint offices of the companies. From 2 April 1942 to 12 September 1945 each of the companies was a protected undertaking within the meaning of the National Security (Man Power) Regulations. Regulation 14(1) prevented the termination of the employment of a person employed in a protected undertaking without the written permission of the Director General of Man Power. No written permission had been obtained in relation to Watson.
The questions of law submitted to the Supreme Court were:
"24.The questions of law for the opinion of the Court are as follows:-
Whether, on the facts as found by me, the purported dismissal of Watson by the companies on 29th September 1944 was ineffectual in law to terminate Watson's employment as general manager, by reason of: (a) reg. 14 of the National Security (Man Power) Regulations, or (b) Watson's non-acceptance of the purported dismissal as termination of his employment.
If question 1 be answered: (a) No, (b) No, whether the measure of the damages to which Watson is entitled by reasons of his wrongful dismissal on 29 September 1944 is limited, having regard to the facts stated in pars. 7 to 16 inclusive of this case, to an amount equal to the remuneration he would have earned by the continuance of his employment for one additional day."
The approach that had been taken by the Full Court of the Supreme Court of New South Wales was summarised by Latham CJ, in Watson, supra, at 449 in the following way:
"In the reasons for judgment of the Full Court emphasis is placed upon the well-established rule that a contract cannot be brought to an end by breach by one party or by unilateral repudiation of its obligations. The contract continues in existence notwithstanding such breach or repudiation unless the other party accepts the breach or repudiation is of such a character as to entitle him to do so. The Full Court has applied this principle in the following way: the contract of employment was not terminated by the wrongful dismissal of Watson on 29 September 1994, which was unilateral repudiation of the contract by the employers; the contract continued in existence unimpaired; the servant, Watson, was always ready and willing to perform his contract, and therefore was entitled to his salary until 19th September 1945, when he claimed damages for wrongful dismissal (to which he was entitled) and so did then (but not before) treat the contract as discharged."
This is, in substance, the approach that has been adopted in the cases more recently decided by the Federal Court to which I earlier referred. Consistent with this approach the Full Court of the Supreme Court had answered the questions posed by the arbitrator in the following way:
In the affirmative on both grounds.
Unnecessary to answer."
This approach was not accepted by four members of the High Court. Latham CJ took the view that if an employee's employment is purportedly terminated by an employer, though not lawfully, it brings to an end the employment relationship even if the employee does not accept the termination. The employee's rights are, relevantly, to sue for damages for wrongful dismissal: see 449-452. The Chief Justice at 450.5 and 450.9-451.3 indicated that a wrongful dismissal does not terminate the contract even though it terminates the employment relationship. A similar view was expressed by Starke J at 463.4 when formulating his answer to the questions. Dixon J said at 469.7:
"... I think there is nothing in the general law preventing the wrongful dismissal of a servant operating to discharge him from service, notwithstanding that he declines to accept the dismissal as absolving him from further performance but keeps the contract open and remains ready and willing to serve."
Williams J expressed the view at 476.4 that if an employee is wrongfully dismissed he can only sue for the damage he suffered and cannot continue to offer his services and sue for the remuneration though his Honour's analysis proceeds on the basis that the wrongful dismissal does not bring the contract of employment to an end: see 476.8.
The first question posed by the arbitrator, in paragraph 1(b), raised the issue: was the purported dismissal of Watson on 29 September 1944 ineffectual in law to terminate Watson's employment as general manager notwithstanding his non-acceptance of the purported dismissal. The Supreme Court answered this part of the question affirmatively, that is, the purported dismissal was ineffectual.
Latham CJ was clearly of the contrary view and said at 453.7 that this question should have been answered in the negative, that is, the purported dismissal was not ineffectual. It is apparent from the answers formulated by Starke J at 463.4 that his Honour was of the same view. Dixon J does not expressly address the answer to the question raised in paragraph 1(b) though much of his Honour's judgment concerning the position at common law is consistent with his view being that the question should be answered in the negative or at least that it should not be answered in the affirmative. Williams J makes clear at 477.1 that the question in paragraph 1(b) should be answered in the negative if it is to be treated as relating to Watson's entitlement to salary between 29 September 1944 and 19 September 1945. His Honour's view was that he was not entitled to salary for that period at common law. Rich J saw that question as being unnecessary to answer as did McTiernan J. In the result the order of the Supreme Court was varied by order of the High Court by substituting for the words "on both grounds" the words "on ground (a)". I take that variation by the High Court of the order which was under appeal to reflect the view of a majority of the High Court that the Supreme Court had erred in answering the question in paragraph 1(b) in the affirmative.
It follows that I accept the submission of the respondent that the judgments of Latham CJ, Starke, Dixon and Williams JJ proceed on the basis that a distinction can be drawn between the employment relationship and the contract of employment and that the repudiation of the contract arising from an employer wrongfully dismissing the employee brings the employment relationship to an end at least for the purpose of permitting an employee to sue for salary or wages on an ongoing basis. It does so even though the contract may continue because the employee does not accept the repudiation. The employee's remedy is to sue for damages for wrongful dismissal arising from the repudiation of the contract.
The acts of the respondent - do they constitute a repudiation of the contract
In my reasons for judgement of 30 September 1994 I set out the terms of a letter of 24 May 1994 from the General Manager of the respondent, Mr Dutton, to the applicant's solicitors refusing to accept the applicant's withdrawal of his letter of resignation. Of that letter I said:
"The letter of the respondent of 24 May may have been a repudiation of the contract though it may have been no more than the respondent acting on an incorrect understanding of its contractual rights not amounting to repudiation: see Green v Sommerville (1979) 141 CLR 594 @ 611 per Mason J. If it did amount to a repudiation it has not been accepted by the applicant."
I later expressed the view that it was the respondent's acceptance of the applicant's letter of resignation coupled with the later insistence, in the letter of 24 May 1994, that it be honoured and the filling of the applicant's position that resulted in the termination or purported termination of the employment as that expression appears in Division 3 of Part VIA of the Act. It appeared to be common ground that this finding, though disputed by the respondent, can be taken to be a finding that the conduct of the respondent should be treated as a repudiation of the contract. Nonetheless I should make some further remarks on that issue for present purposes.
The respondent's letter of 24 May 1994 might be viewed in a number of ways. The first is that Mr Dutton and those he consulted from the Council believed they were bound to accept the effect of the applicant's letter of 18 May 1994 as having terminated the employment of the applicant even though they then considered, apart from the legal effect of the letter, it was desirable and appropriate for the applicant to continue in the employment of the respondent. If this had been their attitude it is likely, in my view, that the letter of 24 May 1994 would have said as much and efforts made to resurrect, in a practical sense, the employment relationship notwithstanding the perceived effect of the letter of 18 May 1994. I do not accept that this is the way the respondent's letter should be viewed.
The second way the letter of 24 May 1994 might be viewed is that Mr Dutton and those with whom he consulted believed they were able to accept the effect of the letter as having terminated the applicant's employment, but because they were indifferent to whether the applicant should continue in employment or actually opposed it, did nothing beyond asserting what they believed was the position they were then legally in. The third way it might be viewed is that there was uncertainty as to the effect of the letter of 18 May 1994 and it subsequent purported withdrawal but there was a desire to ensure the applicant's employment was terminated and the opportunity taken to rely on the letter to bring that about.
Having regard to subsequent events I do not consider that those representing the respondent were, at that time, indifferent to whether the applicant could, in a practical sense, continue in employment. They opposed it. Thus, on either view of the letter, it was the respondent's intention to ensure that the employment relationship was then concluded. This attitude has persisted up to and after my earlier judgment. The contract was on foot on 24 May 1994. The letter of that date from the respondent was intended to ensure that the respondent would not thereafter have to meet it obligations under the contract. This constituted a repudiation of the contract. It was intended to ensure that the employment relationship would not continue and it had this effect. That this was then intended is consistent with the unequivocal and forcefully expressed view later put by the respondent through counsel that "we do not wish Mr Grout to come back to the abattoir, ever" (transcript, 13 October 1994 at page 4).
The letter of 24 May 1994 constituted the wrongful dismissal of the applicant by the respondent which entitles the applicant to damages. This is so, as I have just discussed, notwithstanding that the contract of employment was not then determined because the applicant refused to accept the repudiation.
Legislative barriers to termination
It is necessary to consider how those damages should be assessed, but before doing so I should deal with one matter raised by counsel for the applicant which bears upon whether the employment relationship continued notwithstanding the wrongful dismissal of the applicant.
It was submitted by the applicant that there are a number of statutory provisions that prohibit the termination of the employment of an employee that operated in much the same way as regulation 14 of the National Security (Man Power) Regulations were held by a majority of the High Court to operate in Watson, supra, namely it rendered ineffectual any purported termination of employment which was contrary to it.
The first group of such provisions were ss170DB, s170DC ad s170DF (in particular s170DF (1)(a)(f)) of the Act. Section 170DB says "an employer must not terminate a employees employment" unless a specified period of notice is given other than when the employee is guilty of serious misconduct. Similarly s170DC precludes termination relating to the employee's conduct or performance unless, ordinarily, the employees is given an opportunity to defend himself or herself. Section 170DF precludes termination for a range of reasons including physical or mental disability. The respondent submitted that these provisions, whilst intended to prevent dismissal of an employee in certain circumstances, were not intended to result in the employment relationship enduring if an employer purports to terminate the relationship contrary to one or a number of those provisions. Whether these provisions have the effect contended for by the applicant depends upon Parliament's intention in enacting them.
It is necessary to consider the form of the Act in May 1994, being the time of the termination. It is the provisions introduced by the Industrial Relations Reform Act 1993 that have to be considered and not those resulting from the amendments made by the Industrial Relations Amendment Act (No.2) 1994. In May 1994, s170EE(2) empowered the Court to make an order for re-instatement if there had been a termination in contravention of a provision in Division 3 (other than s170DD). The Court was also empowered to order the payment of compensation: see s170EE(2)(c). It is reasonably clear that compensation might be ordered even if re-instatement was not: see Skilled Engineering, supra, at 483, indeed s170EE(3) precluded an order for re-instatement if the only contravention of a provision in Division 3 was the provision dealing with notice, namely s170DB. The stated purpose of the remedy was to put the employee in the same position, as nearly as could be done, as if the employment had not been terminated: see 170EE(1).
Two features of this scheme indicate that the contention of the applicant that the provisions preclude the termination of the employment relationship, should not be accepted. Firstly, if s170DB had been intended to preclude termination of the employment relationship in contravention of that section, it is difficult to understand why s170EE(3) was in the terms it was. It is reasonably clear that its purpose is to permit the awarding of compensation at least equivalent to the notice that should have been given, whilst not permitting reinstatement. If the contention of the applicant was correct then an employee dismissed in contravention of s170DB would continue in employment and would continue to be entitled, at common law: see Watson, supra, for wages or salary not only for the period of notice prescribed by s170DB but also for any period after that period notionally expired, at least if the employee was ready and willing to work. Yet the Court would not be able to make an order under s170EE which would reflect entirely the legal relationship then existing between the employee and employer as reinstatement could not be ordered. A similar situation would arise if the Court, as a matter of discretion in other situations where there had been a contravention of a provision in Division 3 other than s170DB, refrained from making an order for reinstatement but awarded compensation only. It would again be making an order that failed to reflect the legal relationship then existing between the employer and employee.
These results were, in my opinion, not the intended results of Division 3. The prohibition on the termination of an employee's employment in the relevant provisions of Division 3 were not intended to render void a termination or make the employment relationship legally infrangible, to use the language of Dixon J in Watson, supra, at 471. Rather they were intended to prescribe a standard of conduct for employers in relation to the termination of the employment of an employee in a way that would provide an employee with minimum standards. The contravention of those standards was not intended to have the effect of preserving the employment relationship with corresponding continuing rights to wages or salary, but rather was intended to have the effect of investing in the employee a statutory right to seek a remedy under s170EE.
The applicant has not attempted and has not made out a case that s243 of the Industrial Relations Act 1991 (NSW), s15(2)(c) of the Disability Discrimination Act (1922) (Cth) and s49D of the Anti-Discrimination Act 1977 (NSW) have any application to his dismissal.
Damages for stress flowing from the contractual breach
I now turn to the question of the damages that should be awarded. The view that has historically been adopted as to the damages might be awarded for wrongful dismissal was that they were the entitlements that an employee would have enjoyed under the contract of employment had the employee worked during a period of reasonable notice though subject to the employee's obligation to mitigate the damages. A feature of that approach has been that the employee is not entitled to damages for any humiliation or distress that might be suffered as a result of the wrongful dismissal: see Addis v Gramophone Co. Ltd (1909) AC 488.
As to this last mentioned matter, courts in New Zealand have ceased to adopt what might be thought to be a narrow view of the damages that might be awarded: see Whelan v Waitaki Meats Ltd (1991) 2 NZLR 74, see also Horsburg v NZ Meat Processers Union (1988) 1 NZLR 698 at 701-702, Hetherington v Faudet (1980) 2 NZLR 224 at 227 and it is a matter that is the subject of contemporary legal debate: see Damages for Wrongful Dismissal: Is the Gramophone Record Worn Out, Hon P.R. Gray in Employment Security, 1994, The Federation Press. The applicant submitted that having regard to the judgments of the members of the High Court in Baltic Shipping Company v Dillon (1993) 176 CLR 344 damages could be awarded for the distress caused to the applicant by the respondent's repudiation of the contract. If the applicant was thereby suggesting that damages could be awarded for what might be described as mere distress or disappointment or humiliation, then it is not apparent that the members of the High Court in Dillon, supra, were expressing the view that Addis, supra, is no longer to be accepted as correctly stating the common law position as it concerns damages for wrongful dismissal. This is so even though Mason CJ and McHugh J plainly indicate or imply that the present principles may warrant reconsideration as part of a review of whether damages can be awarded for distress flowing from a breach of contract.
However the general principles reflected in Addis, supra, are subject to accepted exceptions which include an entitlement to damages for distress associated with physical injury resulting from a breach of contract. Physical injury may be taken to include psychiatric illness: see Mount Isa Mines Ltd v Pursey (1970) 125 CLR 383 and Dillon, supra, at 362 per Mason CJ and 405 per McHugh J. There is no authority of which I am aware in which damages have been awarded where wrongful dismissal has caused or has exacerbated a psychiatric illness of a dismissed employee. That may be because such situations may be rare, unlike situations where an employee felt, as could be expected, anxious and distressed at being wrongfully dismissed. Nonetheless the applicant is entitled to damages if they are available on this basis at common law.
The question that then arises is whether the psychiatric illness of the applicant was caused or aggravated by the respondent's repudiation of the contract. Plainly it was not caused by that breach. The evidence led by the applicant from Dr Gordon goes someway towards establishing that the respondent's repudiation exacerbated the applicant's psychiatric illness. Dr Gordon was the treating psychiatrist. In a written report dated 26 October 1994 he expressed the view that:
"In my opinion, Mr Grout's illness would have been both less protracted and less intensive if his employers had acknowledged the actuality of his illness and retained him in their employ at the time of his incapacity through ill health."
He was cross-examined about this opinion and it appears that the factual basis upon which it is expressed is a belief that the respondent failed to accept that the applicant was unfit for work and thus did not give him sick leave. This is plainly wrong as the facts I have recounted in my earlier judgment show. The reference to "if his employers had acknowledged the actuality of his illness and retained him in their employ" is intended by Dr Gordon to be a reference to the failure of the employer to accept that the applicant was unfit for work and continue to employ him, though on sick leave.
Another psychiatrist, Dr Strum, was called by the respondent and was alive to this factual error in Dr Gordon's report. Nonetheless Dr Strum says in a supplementary report dated 27 October 1994 commenting upon Dr Gordon's letter of 26 October 1994:
"The fact that the employers doubts about the wisdom of retaining Mr Grout have caused further stress merely indicates that he is still vulnerable to situations of doubt and uncertainty and further confirm my opinion that this is not the kind of work which he should be doing."
In this passage Dr Strum appears to accept that the refusal of the respondent to entertain the resumption of the employment relationship caused the applicant additional stress.
Dr Strum was cross examined about his views on this matter and he was not prepared to agree that one factor could be separated from a mix of factors and that factor then said to have prolonged or worsened the illness. He nonetheless accepted it was possible that the circumstances Dr Gordon spoke of may have contributed to the extension of the applicant's illness but said that it was impossible to speculate. Dr Strum went on to say that Dr Gordon was being dogmatic and that it was not possible to be dogmatic.
It is likely, in my opinion, that the difference between the views expressed by Dr Gordon and Dr Strum is only one of emphasis. If I am wrong in viewing it this way, I would prefer and accept the evidence of Dr Gordon who was the treating psychiatrist. As I indicated earlier Dr Gordon misunderstood the basis upon which the respondent had manifest its desire that the employment relationship not continue. He understood it to be that the respondent had refused to grant sick leave rather than refused to accept the withdrawal of letter of resignation. However I do not see as material the manner in which the respondent was manifesting its desire that the employment relationship not continue. Common experience would suggest that it was the fact that the respondent was manifesting it that was of relevance. It was the attitude of the respondent in refusing to continue to accept the applicant as an employee that contributed to the aggravation of his psychiatric illness and caused the applicant mental distress. Indeed the uncontradicted evidence of the applicant was that he felt anguish and humiliation as a consequence of the attitude the respondent adopted in relation to his further employment with it.
Accordingly I find that the conduct of the respondent in indicating in its letter of 24 May 1994 that it was treating the employment relationship as concluded and that it was not prepared to have it continue and its conduct in maintaining that attitude, aggravated the psychiatric illness from which the applicant was then suffering and caused the applicant mental distress. The applicant is entitled to damages for this. In the context of discussing the assessment of damages for distress associated with a psychiatric illness flowing from the tortious act of a defendant, Samuels JA (with whom Kirby P agreed) in Campbelltown City Council v Mackay (1989) 15 NSWLR 501 at 505 rejected the suggestion in Perry v Sidney Phillips & Son (1982) 1 WLR 1297 at 1303 and 1305 that damages for, inter alia, distress should be modest and not excessive. In principle I see no reason why the approach discussed by Samuels JA should not be adopted in assessing damages for the distress associated with the physical injury, namely the aggravation of the psychiatric illness, flowing from the repudiation by the respondent of the contract of employment. While it cannot be done with any measure of exactitude I assess those damages as $15,000.
The applicant also seeks to recoup medical and related travel expenses arising from his medical treatment which commenced in late May 1994. Expenses that do not flow from the aggravation caused by the respondent's repudiation of the contract are not recoverable, at least as damages for breach of contract which is all I am presently concerned with. The evidence does not reveal what, if any, additional treatment the applicant received because of the aggravation of this psychiatric condition. Accordingly the claim for medical and travel expenses must fail.
Reasonable notice
I turn to consider the question of what might have been reasonable notice. I have already discussed the question of notice in my reasons for judgment of 30 September 1994 though in the context of considering whether the notice the applicant gave was reasonable. I do not repeat that discussion though what I earlier said is plainly relevant. Some of the factors suggesting a lengthy period would be reasonable are that the applicant was employed in a senior management position at a high salary and that he is fifty-six years old. I accept the evidence of the applicant, that was not put in issue, in an affidavit of 28 October 1994 that it would be extremely difficult for him to secure employment elsewhere. This again suggests a lengthy period of notice would have been appropriate. A factor that might militate against a lengthy period of notice was that there was a measure of uncertainty attending the future employment of the applicant more generally.
What the applicant's employment prospects were with the respondent, appeared to be in issue in the proceedings. In my earlier judgment I noted that in May 1994 the respondent was seeking to directly appoint the applicant as a senior staff member under clause 39(2) of schedule 7 of the Local Government Act 1993 (NSW). Had that occurred then what appears to have been a general hiring of indefinite duration would have become employment for a fixed term: see s338 of that Act. A letter dated 6 April 1994 had been written by Mr Dutton, General Manager of the respondent, to the Minister for Local Government seeking an exemption from advertising to allow "appointment of the existing abattoir manager as a senior staff appointment". The letter later speaks of "the employment of the existing incumbent to the position of Abattoir Manager on a five (5) year performance based contract". The letter itself is in positive terms and contemplates appointment of the applicant to the position for five years, subject to the approval of the Minister on certain procedural matters. Mr Dutton indicated, during cross examination, that the outcome was, both as to procedural matters and the appointment itself, less certain than the letter might suggest. Parts of Mr Dutton's affidavit of 7 November 1994 which had not been read when he was cross examined were later read and it is reasonably clear that the attitude of the respondent to the future employment of the applicant might have been under review at the time the various events occurred in late May 1994. However even if the applicant had not been appointed to the position, it would have been necessary for the respondent to terminate his employment. I was not referred to any legislation or other provision that would suggest that he could then have been dismissed other than on notice. In those circumstances he would not have been redundant or in a position that had been abolished which are situations to which special legislative provisions apply which I discuss shortly.
Counsel for the applicant relies on Amann, supra, to support a submission to the effect that, if it had been more likely than not that the applicant would have been employed on a fixed contract for five years then account can be taken of that in assessing damages for wrongful dismissal. Traditionally a wrongfully dismissed employee who had been employed for a fixed term could recover damages reflecting the salary due for the residue of the term subject to an obligation to mitigate the damages. More recently it has been decided that an employee who is employed under a contract which contains a term that he or she would not be dismissed harshly, unfairly or unreasonably can be treated, for the purposes of assessing damages, as employed on a comparatively secure basis which should be reflected in damages if dismissal occurs in breach of that term: see Bostik (Australia) Pty Ltd v Gorgevski (1992) 36 FCR 20 at 33 per Sheppard and Heerey JJ.
I said in my earlier judgment that the principal purpose of the requirement that the notice be reasonable is to ensure that the employee has, in the circumstances, a reasonable period to seek other employment: see Birrell v Australian National Airlines Commission (1984) 5 FCR 447 at 458. However it has been accepted that in determining what is a reasonable period of notice, regard can be had to the period for which it was likely, apart from the wrongful dismissal, that the employee would have continued in the employment from which he or she was dismissed: see Quinn v Jack Chia (Australia) Ltd (1992) 1 VR 567 at 580.9 and Irons v Merchant Capital Limited, 17 October 1994, unreported, Supreme Court of New South Wales, Young J at 8.
It is a factor I have taken into account in assessing what might have been a reasonable period of notice for the applicant though it has not been a significant factor. It is a matter of either the same or a similar character as the matter that members of the High Court in Amann, supra, thought could be taken into account in assessing damages for breach of contract, namely the prospect that a contract, which has been repudiated, would be renewed after its expiry. As a result of a submission of the respondent which I have accepted, I have generally approached the question of damages on what might be thought to be traditional lines. Had I done otherwise and applied, as the applicant invited me to, common law principles of contract of more general application, then it may have been necessary to more directly address what was decided in Amann, supra.
The approach of the applicant to what might constitute reasonable notice was to refer to Walton v Wollondilly Abattoirs Co-op Limited (1993) 50 IR 81 and suggest that that case was essentially indistinguishable from the present and accordingly twelve months was reasonable notice.
The respondent dealt with the issue of reasonable notice in the following way. It submitted that the circumstances in Wollondilly, supra, should be distinguished in two material respects. The first is that the plaintiff, an abattoir manager, had been employed in the position for 24 years at the time of his dismissal. The second is that the defendant conceded that six months, as had originally been claimed by the plaintiff, would have been reasonable notice. I do not see this second matter as of real significance. The first matter concerned the length of employment of the plaintiff. I have already said that the principal purpose of the requirement that the period be reasonable is to give the recipient of the notice, if an employee, sufficient time to seek other employment. Very lengthy service with one employer in one job may make it considerably more difficult for an employee to obtain other employment which would support a conclusion that a lengthy period of notice was to be implied as reasonable notice. Indeed this was recognised by Bell DCJ in Wollondilly, supra, at 84 when his Honour spoke of the plaintiff's "narrow experience" in the context of him finding other employment. However other factors may have the same effect. The mere fact that one employee has been in employment for a lengthy period and another in comparable employment has not, does not necessarily mean that what is reasonable notice for the former should be a greater period than would be reasonable notice for the latter.
The respondent also drew attention to clause 40 of schedule 7 of the Local Government Act 1993 (NSW) which deals with termination payments to employees who are redundant: clause 40(1), or whose positions have been abolished: clause 40(1A) which, as the respondent put it, would have yielded a payment of 18 weeks pay as some form of payment in lieu of notice. These provisions are, in my view, of limited assistance as they appear to apply to any redundant employee and not only staff in senior positions for whom longer notice might be expected.
The respondent then submitted that what might be treated as reasonable notice is the standard of notice found in 170DB of the Act which would require the giving of five weeks notice. In this context, the respondent referred to the judgment of Northrop J in Holt v Muskets Timber Sales Pty Ltd (1994) 54 IR 323 in which his Honour concluded that a manager of a timber mill located in Tasmania was entitled to one week's notice only. It is clear that this conclusion depended upon the terms of s47 of the Industrial Relations Act 1984 (Tas) which relevantly provided that the employment was "terminable by either party by ... a week's notice". However, s170DB is framed in terms materially different to s47. Section 170DB is in Part VIA of the Act which concerns the minimum entitlements of employees. Section 170DB is expressed to be a prohibition on termination unless the specified notice is given. Unlike s47, it does not invest the employer with a statutory right to terminate irrespective of what are the common law contractual rights of the parties whether express or implied. It thus preserves the operation of those contractual rights as long as they do not fall short of the minimum set by s170DB. In my opinion, if no notice is expressly agreed between an employer and an employee, s170DB does not operate to limit the period of notice that a Court would imply as reasonable notice by reference to the criteria the common law has developed when determining damages for wrongful dismissal.
What then is reasonable notice in the present case. While the evidence discloses that the applicant's future employment may have been under review at the end of May 1994 the evidence does not support a conclusion that he then had limited prospects of being employed for a further 5 years as had been proposed in the letter of April 1994 from the respondent to the Minister. The applicant was employed in a senior position and other employment is likely to be difficult to find. In my opinion the applicant was entitled to nine months notice. While undue reliance should not be placed on other decisions made by reference to other facts, the decision in Wollondilly, supra, would suggest that my conclusion is not at odds with what has been treated as reasonable notice in a broadly analogous situation: see also Quinn, supra, Irons, supra, and Kilburn v Enzed Precision Products Pty Ltd (1988) 4 VIR 31.
Factors influencing the quantum of damages
Having concluded that nine months notice is reasonable, it is necessary to consider some further matters of detail. No submissions were put by the respondent on the question of whether the applicant had failed to mitigate the damages and I do not take that matter into account.
Some adjustment must be made, in my opinion, for the sick leave to which the applicant was entitled at the time of his wrongful dismissal. Had he been given reasonable notice he would have exhausted his sick leave during it. Accordingly the amount representing accumulated sick leave he was paid upon termination has to be set off against the damages that might otherwise be due.
There was an issue about superannuation. The applicant seeks damages reflecting the superannuation contributions the respondent would have made on the applicant's behalf. This issue has been difficult to deal with because of the paucity of the evidence and the limited nature of the submissions. The applicant is a member of the State Authority Superannuation Scheme Fund (SASS) and elected to contribute 9 per cent of his salary to SASS. Up to 23 May 1994 the respondent contributed 1.9 times the applicant's contribution plus a further 2.5 per cent of the applicant's salary. Mr Dutton gave evidence that to the best of his knowledge and belief the applicant has not contributed an amount equivalent to 9 per cent of his salary since May 1994. No evidence was led by the applicant that he had and I find he has not. The point in issue between the parties was whether the respondent should, in a notional sense, be treated as obliged to pay its contributions to the fund during any period of reasonable notice even though the applicant has not. The respondent submits that it obligations to do so is conditional upon the applicant making his contribution.
The applicant asserts in an affidavit sworn on 28 October 1994 that "the respondent has made no indication to me that it has made employer superannuation contributions as required by its contract with me". The assertion that the respondent was contractually obliged to do so was not put in issue in the cross examination of the applicant. In the affidavit sworn on 16 June 1994 at the commencement of these proceedings the applicant said:
"I do not recall my employment at this time being in writing. I recall in conversation with the councillors of the Respondent that my terms of employment were to be as follows:
...., the Respondent to pay for my phone bill, provision of a motor vehicle, of Holden Statesman or Ford Fairlane status, superannuation contributions (now with the State Authority Superannuation Board) ..."
The respondent tendered an internal memorandum of the respondent which identifies as its subject matter, the abattoir manager's salary package, and it refers to a number of matters such as salary, housing, car and telephone. It, however, makes no reference to superannuation.
The applicant bears the burden of establishing the respondent was bound to pay the superannuation contributions under the contract of employment. The contributions that had earlier been paid by the respondent fell into two categories as described by Mr Dutton. The first was a contribution 1.9 times the applicant's contribution. The second was an amount of 2.5 per cent of his salary. The manner in which this second amount was described does not suggest its payment was conditional and having regard to that description and the evidence of the applicant concerning the terms of his employment, I am satisfied that the respondent was obliged under the contract to make this contribution. The damages should reflect an amount equal to 2.5 per cent of the applicant's salary during the notional period of notice of nine months.
Why and on what terms the respondent paid a further contribution equal to 1.9 times the applicant's contribution I do not know. While it may have been obliged to do so under the contract of employment it may have done so for other reasons: see NSW Cancer Council v Sarfaty (1992) 28 NSWLR 68 at 78-79 and 97 and, if obliged to do so under the contract, that obligation may have been conditional. I am not satisfied, on the evidence, that the contract of employment obliged the respondent to make that payment by way of superannuation contribution and I am thus not satisfied it should be reflected in the damages.
The respondent made no submission that superannuation contributions paid to a third party and not the applicant are not recoverable as damages and accordingly I do not consider it independently of what was in issue. It may, however, be an issue of some general importance given the extent to which in Australia, superannuation payments are now made in lieu of wages or salary: see Quinn, supra, at 581, Bold v Brough Nicholson & Hall Ltd (1964) 1 WLR 201 at 213, Dews v National Coal Board (1988) 1 AC 1.
The applicant claims loss of the use of a motor vehicle which the respondent accepts was a benefit it was obliged to provide under the contract. The value to the applicant of the use of the motor car, apart from the use that had been made of it for work related travel, was $6930.00 per annum. I accept this figure and the applicant is entitled to damages that reflect it for the period of notional notice, namely damages in the sum of $5,197.50.
The applicant also claims loss of the use of a telephone which again the respondent accepts was a benefit it was obliged to provide under the contract. The applicant's phone bill for the period May to September 1994 was $823.00 and the applicant estimated his bill for the further period until the hearing on 7 November 1994 would have been $100.00. It is likely the usage of the phone was abnormally high during the period the applicant was in hospital in Sydney. I would assess the benefit lost by the applicant over the notional period of notice of nine months as $1,000.00 against which has to be offset an amount paid by the respondent which appears to have been $542.95.
The applicant claims relocation expenses. He does so on the basis that he was paid $8,000 by the respondent to defray the cost of moving from Townsville, where he was employed immediately before commencing employment with the respondent in Gunnedah. There is no evidence to suggest that the cost of relocating upon termination of employment formed part of the express contractual arrangements between the applicant and the respondent. I do not see why it should be implied. Had the respondent given the applicant reasonable notice, he would have been obliged to relocate himself either at his own expense or at the expense of any future employer who had, like the respondent had, agreed to that course. I am not satisfied that the applicant is entitled to damages reflecting the cost of relocating.
Taxation and the quantification of damages
Neither the applicant nor the respondent addressed the question of how the damages should be quantified having regard to any liability the applicant might have to pay tax on them. On one approach the damages should be calculated by reference to gross earnings: see Wheeler v Phillip Morris (1989) 97 ALR 282 at 313, and Kilburn, supra, at 34 and on another they should be calculated on nett income but some allowance made for tax that might then be payable on the damages themselves: see NSW Cancer Council, supra, at 80 per Gleeson CJ and Handley JA.
I propose to give the parties an opportunity to make the calculations necessary to reflect this judgment and an order can be made to give effect to them. I follow this course, in part, so that consideration can be given to the question of the effect of taxation on the damages that are to be awarded and if agreement is reached I will give effect to that agreement. If there is no agreement on this issue the parties may make further short submissions on the question of taxation and the implications this has on the quantification of the damages.
Unless agreement can be reached between the parties on the form of the orders that should be made, they are to file and serve short written submissions on the question of the effect of tax and how, as a consequence, the damages should be quantified no later than 22 February 1995. Any submissions in reply are to be filed and served no later than 1 March 1995.
I certify that this and the preceding thirty-six (36) pages are a true copy of the Reasons for Decision herein of his Honour Justice Moore.
Associate:
Date:13 February 1995
Counsel for the Applicant: Mr R.E. Dubler
Solicitor for the Applicant: Corrs Chambers Westgarth
Counsel for the Respondent: Mr R.J. Buchanan QC
Mr R.M. Goot
Solicitor for the Respondent: Sly & Weigall
Dates of hearing: 7 and 8 November 1994
Date of judgment: 13 February 1995
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