Heugh v Central Petroleum Ltd [No 3]
[2013] WASC 381
•21 OCTOBER 2013
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: HEUGH -v- CENTRAL PETROLEUM LTD [No 3] [2013] WASC 381
CORAM: LE MIERE J
HEARD: 17 OCTOBER 2013
DELIVERED : 21 OCTOBER 2013
FILE NO/S: CIV 1493 of 2012
BETWEEN: JOHN PHILLIP HEUGH
Plaintiff
AND
CENTRAL PETROLEUM LTD
Defendant
Catchwords:
Practice and procedure - Application to disallow amendments to the statement of claim - No high degree of certainty that plaintiff's claims will fail - Contract of employment - Claim for damages - 'Johnson exclusion zone' - Ulterior purpose plea - Turns on own facts
Legislation:
Rules of the Supreme Court 1971 (WA), O 21 r 3(5)
Result:
Plaintiff to give particulars of [48] of the statement of claim
Application to disallow amendments to the second further amended statement of claim otherwise dismissed
Category: B
Representation:
Counsel:
Plaintiff: Mr M L Bennett
Defendant: Mr R L Hooker
Solicitors:
Plaintiff: Bennett + Co
Defendant: Jarman McKenna
Case(s) referred to in judgment(s):
Addis v Gramophone Co [1909] AC 448
Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82
Commonwealth Bank of Australia v Barker [2013] FCAFC 83
Eastwood v Magnox Electric Plc [2005] 1 AC 503
Edwards v Chesterfield Royal Hospital NHS Foundation Trust (2012) 2 AC 22
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125
Johnson v Unisys Ltd [2003] 1 AC 518
Shaw v State of New South Wales [2012] NSWCA 102
LE MIERE J: The defendant, Central Petroleum, is a listed public company engaged in the business of petroleum, helium and coal exploration. The plaintiff, Mr Heugh, was employed as its managing director from 22 February 2004 until his employment was terminated on 22 March 2012.
The case before amendment of the statement of claim
By his statement of claim before it was amended on 13 September 2013 Mr Heugh claimed a declaration that his contract of employment is and remains on foot and an order that Central Petroleum perform its obligations under the contract by continuing to employ him under and in accordance with the terms of the contract. Mr Heugh also sought a declaration that the resolution of the directors of Central Petroleum made on 18 March 2012 was not made in good faith in the best interests of the company and should be set aside. That resolution determined that Mr Heugh had not remedied certain alleged breaches of his employment contract and authorised the chairman to enter into discussions with Mr Heugh regarding him resigning from his positions with the company and that, subject to the outcome of those discussions, the chairman give Mr Heugh notice of termination of his contract of employment and notice of intention to move a resolution at the general meeting of the company to remove him as a director of the company. Mr Heugh also sought damages for breach of contract or damages for the unlawful termination of the contract.
Central Petroleum has filed a defence in which it says that the contract of employment was lawfully terminated on 22 March 2012 pursuant to cl 14 of the contract for breaches of the contract by Mr Heugh and denies that Mr Heugh is entitled to any relief. Both parties have given discovery. The action has not been listed for trial but the court has reserved four days commencing on 4 November 2013 for the trial of the action.
This application
On 13 September 2013 Mr Heugh amended his statement of claim pursuant to O 21 r 3(1) of the Rules of the Supreme Court 1971 (WA), which permits a party to amend its pleadings, without leave, not later than seven weeks before the date fixed for the start of the trial of the case. Central Petroleum has applied to disallow parts of the statement of claim amended by Mr Heugh.
Disallowance of amendments – legal principles
If, on an application to disallow amendments made without leave, the court is satisfied that, had an application for leave to make the amendment been made, leave to make the amendment or part of the amendment would have been refused, the court must order the amendment or that part of it to be struck out: O 21 r 3(5). The court will disallow an amendment to the statement of claim if it discloses no reasonable cause of action or it may prejudice, embarrass or delay the fair trial of the action. In general, the power to strike out, or disallow, a pleading must be exercised with great care. A court will only strike out a claim if the case of the plaintiff is so clearly untenable that it cannot possibly succeed: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, 129 (Barwick CJ).
The amendments
The amendments which Central Petroleum applies to disallow are summarised by Central Petroleum as follows:
1.at paragraphs 2B, 2C and 2D the Plaintiff pleads the existence of three implied terms (the Implied Terms) said to be applicable to the Plaintiff's Executive Services Agreement with the Defendant (the Contract);
2.paragraph 2E pleads what is said to be the relevant operation of material terms of the Contract in light of the Implied Terms and a 'proper construction' of the Contract otherwise;
3.Paragraphs 18B(b), 34(d), 36(d), 37, 38(c), 40(c), 40A, 41 and 44‑47 assert breaches of the Implied Term in the course of the Defendant's termination of the plaintiff's employment; and
4.Paragraphs 48 ‑ 52 [the] Plaintiff pleads that the Defendant terminated the Contract for an ulterior or improper purpose; and
5.The Prayer for relief, as amended, seeks damages and declaratory relief for the asserted wrongful termination of the Contract and breaches of the Contract's express and Implied Terms.
(the Challenged Amendments)
Central Petroleum says that by the Challenged Amendments Mr Heugh now seeks to import the Implied Terms into the Contract and through the Implied Terms and a 'proper construction' of the Contract assert a significantly expanded operation of cl 14 of the Contract so as to:
(a)add to the procedures said to be required to precede any termination of employment; and
(b)qualify and fetter the discretion conferred by the Contract on Central Petroleum to terminate Mr Heugh's employment.
Secondly, Central Petroleum says that the Challenged Amendments allege a want of good faith and similarly serious breaches of standards of commercial probity by Central Petroleum. Thirdly, the Challenged Amendments introduce a new allegation – an assertion that Central Petroleum's termination of the Contract was an implementation of an ulterior or improper purpose and thus invalid as having effected what was a predetermined and prejudiced outcome. Fourthly, the Challenged Amendments claim damages and ancillary declaratory relief for the asserted wrongful termination now reconceived.
Objections to the Challenged Amendments
In its written submissions Central Petroleum acknowledged the potential for terms of the kind pleaded at pars 2B to 2D to be implied into contracts generally, but submitted that in any given case it is the precise content and practical operation of such implied terms that will be critical. Central Petroleum submitted that the question of relevance to this action is the extent to which the Australian common law recognises the operation of such implied terms in a way that may impact on a termination of employment, and an employer's conduct effecting such a termination.
Central Petroleum acknowledged the relevance of the judgment of the New South Wales Court of Appeal in Shaw v State of New South Wales [2012] NSWCA 102 in which the New South Wales Court of Appeal overturned the primary judge's decision to strike out pleadings similar in nature to the Challenged Amendments. Counsel for Central Petroleum submitted that the decision of the New South Wales Court of Appeal in Shaw is wrong. In support of that submission counsel relied heavily upon the decision of the Full Court of the Federal Court in Commonwealth Bank of Australia v Barker [2013] FCAFC 83. For present purposes it is sufficient to note that in Shaw a bench of five judges of the New South Wales Court of Appeal held that a pleading founded on the implied terms of trust and confidence should be regarded as disclosing a triable issue. In light of the authority of Shaw, Mr Heugh's pleading that a term of mutual trust and confidence and of good faith should be implied into the Contract is a triable issue.
Central Petroleum further submitted that the facts pleaded so as to assert breaches of the implied terms and that Central Petroleum wrongfully terminated the contract on those bases could not fairly justify those conclusions. The court should only strike out the pleading on that basis if the court is satisfied that the claims in question are so obviously untenable or groundless that there is a high degree of certainty that they will fail if allowed to go to trial. I will not regurgitate the arguments for and against Mr Heugh's claim advanced in argument. They will in substance be repeated at the trial of this action. I am not satisfied that the matter is so clear cut that Mr Heugh's claims are bound to fail. This is a developing area of the law. The questions should be determined at trial after all of the evidence has been led.
There is a further question concerning the damages which Mr Heugh may claim. Central Petroleum submits that the plaintiff's claim for damages falls within the 'Johnson exclusion zone' and is untenable. The House of Lords in Johnson v Unisys Ltd [2003] 1 AC 518, affirmed in Eastwood v Magnox Electric Plc [2005] 1 AC 503 and Edwards v Chesterfield Royal Hospital NHS Foundation Trust (2012) 2 AC 22, decided that breach of the common law duty of mutual trust, good faith and fair dealing would not sound in damages if the damages flowed only from the fact of termination of the employment relationship. This is what has become colloquially known as the 'Johnson exclusion zone'. Mr Heugh's answer to that proposition is twofold. First, the principle is not so clearly established in Australia that his claim does not give rise to a triable issue. Indeed, the authority of Addis v Gramophone Co [1909] AC 448 that a wrongfully dismissed employee cannot recover damages for the loss the employee may sustain from the fact of dismissal was questioned. Secondly, there is no bright line rule for determining when damages fall within or outside the Johnson exclusion zone. The law in Australia in relation to these matters is not clearly established. Indeed, the decision of the Full Court of the Federal Court in Barker is testament to that. I decline to strike out the plaintiff's amended case at this interlocutory stage.
The ulterior purpose plea
Central Petroleum mounts a separate attack on Mr Heugh's pleading that Central Petroleum terminated his contract of employment for an ulterior or improper purpose. Central Petroleum submits that the pleading is a serious allegation and should be clearly pleaded and particularised. I accept that the allegation is a serious one and it must be specifically pleaded and Mr Heugh must give proper particulars of the allegation.
Mr Heugh has complied with his obligation to specifically plead the ulterior or improper purpose. Paragraph 48 of the amended statement of claim pleads that Central Petroleum had decided, prior to issuing the notice of default, to terminate the employment relationship, or take steps to so diminish Mr Heugh's position to cause the employment relationship to come to an end. In [49] and [50] it is pleaded that in furtherance of that purpose the directors of Central Petroleum, other than Mr Heugh, made the resolutions of 2 February 2012, issued the letter of 21 February 2012 and terminated Mr Heugh's employment.
Having regard to the rules and the general law, Mr Heugh must give proper particulars of the allegation in [48] of the amended statement of claim that at 2 February 2012 or alternatively 21 February 2012 the directors of Central Petroleum, other than Mr Heugh, had already determined to terminate or cause to be terminated Mr Heugh's employment, or alternatively to take steps to diminish the role of Mr Heugh as an employee and director of Central Petroleum so as to bring to an end the employment relationship between them. The statement of claim does not give particulars of those allegations. In the course of the hearing counsel for Mr Heugh submitted that particulars are not necessary because Mr Heugh has already delivered his witness statements and the witness statement of Niraj Kumar Pande dated 27 May 2013 sets out the evidence from which the ulterior purpose, and that the specific acts were done in furtherance of it, are to be inferred.
The court should bear in mind the function and purpose of particulars. In Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82 Martin CJ referred to the role of pleadings in the context of case management techniques and pre-trial directions. The Chief Justice observed that these processes leave little opportunity for surprise or ambush at trial. The Chief Justice said that particulars:
should be provided, in an appropriate case, where they are necessary to meet the fundamental objectives to which I have referred; that is to say, the true enunciation of the issues that are to be tried and the identification of the case that has to be met. The need to provide particulars must also be assessed in the case management environment to which I have referred; that is to say, an environment in which the parties can be assured that the case will not go to trial before various orders have been made requiring the pre-trial disclosure of all the evidence that will be adduced at trial [16].
Those general principles apply to the plaintiff's pleading of ulterior purpose in [48] of the amended statement of claim. Having regard to the seriousness of the allegation and the nature of the statements in Mr Pande's witness statement, Central Petroleum should give particulars of its allegation that Central Petroleum terminated his employment for the specified ulterior purpose. The relevant statements in Mr Pande's witness statement appear to be statements of what Mr Shortt said to him in a telephone conversation on 15 February 2012, during a meeting on 20 February and a presentation on 21 February 2012 and what Mr Dunmore said to him on or about 17 February 2012. Central Petroleum has objected to most of Mr Pande's witness statement on the grounds of relevance. It may be that Central Petroleum will not pursue all of those objections in light of the amendments to the statement of claim. However, the admissibility of some or all of those statements may be objected to on other grounds. Furthermore, it appears that the plaintiff's case is that inferences should be drawn from what was said, and perhaps done, by Mr Shortt and Mr Dunmore as stated by Mr Pande. Mr Heugh should set out in particulars which statements, or conduct, by Mr Shortt and Mr Dunmore he relies upon and what inferences he says should be drawn from them.
Conclusion
The plaintiff should give particulars of the allegation in [48] of the statement of claim that on 2 February or alternatively 21 February 2012 the board of directors of the defendant had already determined to terminate or cause to be terminated the plaintiff's employment or alternatively to take steps to diminish the role of the plaintiff as an employee and director of the defendant so as to bring to an end the employment relationship between the plaintiff and the defendants. Otherwise, the defendant's application to disallow the amendments to the second further amended statement of claim dated 13 September 2013 should be dismissed.
The plaintiff filed a minute of third further amended statement of claim on 4 October 2013. The minute makes minor, mostly cosmetic, amendments to the second further amended statement of claim of 13 September 2013. The plaintiff should have leave to amend his statement of claim in accordance with the minute of third further amended statement of claim dated 4 October 2013.
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