FEDERAL COURT OF AUSTRALIA
Joseph v Parnell Corporate Services Pty Ltd [2020] FCA 426
File number: NSD 1035 of 2018 Judge: FLICK J Date of judgment: 2 April 2020 Catchwords: INDUSTRIAL LAW – whether wrongful termination of employment contract – misconduct
CONTRACT – notice of termination of employment – reliance upon grounds other than those stated in letter of termination – misconduct included disclosure of confidential information
CONTRACT – damages for settlement of proceedings instituted overseas – whether settlement reasonable
CORPORATIONS LAW – breach of directors duties
Legislation: Fair Work Act2009 (Cth) ss 44, 61, 90, 119, 323, 324, 539
Corporations Act2001 (Cth) ss180, 181, 182
Employees Liability Act1991 (NSW) ss 3, 5
Cases cited: Australian Securities & Investments Commission v Maxwell [2006] NSWSC 1052, (2006) 59 ACSR 373
Australian Securities and Investments Commission v Vocation Ltd [2019] FCA 807, (2019) 371 ALR 155
Avenia v Railway & Transport Health Fund Ltd [2017] FCA 859, (2017) 272 IR 151
Blyth Chemicals Limited v Bushnell (1933) 49 CLR 66
BNP Paribas v Pacific Carriers Limited [2005] NSWCA 72
Bostik (Australia) Pty Ltd v Gorgevski (No 1) (1992) 36 FCR 20
Briginshaw v Briginshaw (1938) 60 CLR 336
Carter v The Dennis Family Corporation [2010] VSC 406
Concut Pty Ltd v Worrell [2000] HCA 64, (2000) 75 ALJR 312
Gooley v Westpac Banking Corporation (1995) 129 ALR 628
JK v State of New South Wales [2014] NSWSC 1084
Rankin v Marine Power International Pty Ltd [2001] VSC 150, (2001) 107 IR 117
Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359
Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245
Termite Resources NL v Meadows [2019] FCA 354, (2019) 370 ALR 191
Unity Insurance Brokers Pty Limited v Rocco Pezzano Pty Limited [1998] HCA 38, (1998) 192 CLR 603
Willis Australia Group Pty Ltd v Mitchell-Innes [2015] NSWCA 381
Date of hearing: 9 - 11, 14 and 16 October 2019 Date of last submissions: 22 October 2019 Registry: New South Wales Division: Fair Work Division National Practice Area: Employment & Industrial Relations Category: Catchwords Number of paragraphs: 191 Counsel for the Applicant: Mr D O’Sullivan Solicitor for the Applicant: McArcle Legal Counsel for the Respondents: Mr D Barnett Counsel for the Respondents: Atanaskovic Hartnell ORDERS
NSD 1035 of 2018 BETWEEN: ROBERT JOSEPH
Applicant
AND: PARNELL CORPORATE SERVICES PTY LTD
(ACN 138 251 617)First Respondent
PARNELL PHARMACEUTICALS HOLDINGS LTD
(ACN 137 904 413)Second Respondent
PARNELL CORPORATE SERVICES U.S. INC. (and another named in the Schedule)
Third Respondent
AND BETWEEN: PARNELL CORPORATE SERVICES PTY LTD
(ACN 138 251 617) (and others named in the Schedule)First Cross-Claimant
AND: ROBERT JOSEPH
Cross-Respondent
JUDGE:
FLICK J
DATE OF ORDER:
2 APRIL 2020
THE COURT ORDERS THAT:
1.The parties are to bring in Short Minutes of Orders to give effect to these reasons within 28 days.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
FLICK J:
In June 2018, the Applicant, Mr Robert Joseph, commenced a proceeding in this Court.
The First Respondent to that proceeding is Parnell Corporate Services Pty Ltd (“Parnell Corporate”). The Second Respondent is Parnell Pharmaceuticals Holdings Ltd (“Parnell Holdings”). The Third Respondent is Parnell Corporate Services U.S. Inc. (“Parnell US”). The Fourth Respondent is Dr Alan Bell, the Executive Chairman of Parnell Holdings.
Mr Joseph claims (inter alia) that his employment with Parnell Corporate was wrongfully terminated.
The First, Second and Third Respondents (together, the “Corporate Respondents”) have filed a Cross-Claim in which declaratory relief is sought, together with a claim for damages. With the leave of the Court, the Cross-Claim was amended on three occasions. The Corporate Respondents ultimately relied on the Third Amended Statement of Cross-Claim (the “Amended Cross-Claim”).
It is concluded that:
·Mr Joseph’s employment was lawfully terminated summarily on 18 December 2017.
In the event that that was the conclusion to be reached, the parties were in agreement that:
·Mr Joseph is entitled to be paid accrued but untaken annual leave.
In respect to the Amended Cross-Claim, it is concluded that:
·the conduct of Mr Joseph occasioned the institution by two employees of Parnell of proceedings in the United States, and that this conduct constituted a breach of his contract of employment; and
·monies paid in settlement of those proceedings, or at least some of those monies, are recoverable as damages in the present proceeding.
THE CONTRACTS OF EMPLOYMENT
Mr Joseph signed both an Australian contract and an American contract in respect to his employment relationship with Parnell.
The Australian contract is dated 1 February 2011.
The February 2012 American contract between Mr Joseph and Parnell US is described as a “contract of employment”, whereby Mr Joseph is “being seconded indefinitely to the related entity Parnell Corporate Services U.S. Inc. (a company domiciled in the United States of America)”. This contract is expressed to be “[f]urther to your current contract of employment”, and seconded Mr Joseph to work as “from February 1, 2012 in Kansas City, Missouri”.
Both contracts are expressed in similar terms. It is sufficient for present purposes to refer to the terms of the Australian contract. That contract provides that Mr Joseph’s employment is “deemed to have commenced on 21 August, 2006”.
Clause 15 provided as follows:
15. Your obligations on Confidentiality
You must:
(a)keep any information secret and confidential, except to the extent that you are required by law to disclose the Information;
(b)take all reasonable and necessary precautions to maintain the secrecy and prevent the disclosure of any Information; and
(c)not disclose Information to any third parties without first obtaining the written consent of the Board except in the ordinary and proper course of employment with the Company.
Clause 9 and 10 provided for the payment of leave and accrued leave. Those clauses provided as follows:
9. Leave Entitlement
You:
(a)are entitled to public holidays, long service leave and annual leave in conformity with statutory entitlements; and
(b)must take annual leave and long service leave at a period or periods agreed between the Company and you and in the absence of agreement, when determined or directed by the Company.
10. Accrued leave
Subject to any statutory provision, the Company may require you to take any significant accrued leave entitlement or may make a payment to your accrued leave pursuant to Section 94 of the [Fair Work Act 2009 (Cth)].
Clause 18 of that contract provides for termination and relevantly provides as follows:
18. Termination
18.1Other than in circumstances provided in 18.3 below, the Company may terminate the employment by giving six (6) months written notice or at its election by making a payment in lieu of the notice period which will bring your employment to an immediate end.
18.2Notice given by you shall be six (6) months from the end of the day upon which notice is given.
18.3Notwithstanding any other clause in this contract the Company may terminate this agreement immediately if you:
(a)commit any act which may detrimentally affects the Company or any Group Company, including but not limited to an Act of fraud, wilful disobedience, or misconduct;
(b)wilfully or persistently or materially breach this agreement; or
(c)become medically incapacitated or become liable to be dealt with under any law relating to mental health.
TERMINATION OF SERVICES – THE OCTOBER & DECEMBER 2017 DECISIONS
Two decisions were taken to terminate the services of Mr Joseph, namely:
·on 14 October 2017 a decision was taken to terminate Mr Joseph’s services as from 14 April 2018 (the “October 2017 Decision”); and
·on 18 December 2017 a decision was taken to terminate Mr Joseph’s services immediately (the “December 2017 Decision”).
It is the latter decision which assumed primary importance during the hearing and in submissions.
Each of the two decisions, however, should be separately considered – the former only briefly.
The October 2017 Decision
On 14 October 2017, the Minutes of a meeting of directors of Parnell Holdings record as follows:
PRESENT: Dr Alan Bell (Chair)
Brad McCarthy (by telephone)1. QUORUM
The Chairman reported that the meeting of directors had been duly convened and that the meeting was quorate.2. PURPOSE
The Chairman explained that the purpose of the meeting was to consider and, if thought fit, to resolve to:(a) Terminate the employment of Robert Joseph.
(b) Issue a letter to Robert Joseph in the form tabled at the meeting.
(c) Relieve Robert Joseph of his position as director of all subsidiaries of the Company.
(c) Delegate to the Chair, Alan Bell, pursuant to s 198D of the Corporations Act 2001 (Cth), the powers of the directors in relation to the employment of Robert Joseph, the termination of his employment, and all matters relating to the letter referred to in resolution (b).
3. PROCEEDINGS
Due to the subject matter of the meeting, Robert Joseph was not permitted to be present at the meeting or vote on the resolutions put to the meeting.
A draft letter to Robert Joseph was tabled.
After due and careful consideration of the proposed resolution and the tabled material,
IT WAS RESOLVED to:
(a) Terminate the employment of Robert Joseph.
(b) Issue a letter to Robert Joseph in the form tabled at the meeting.(c) Relieve Robert Joseph of his position as director of all subsidiaries of the Company.
(d) Delegate to the Chair, Alan Bell, pursuant to s 198D of the Corporations Act 2001 (Cth), the powers of the directors in relation to the employment of Robert Joseph, the termination of his employment, and all matters relating to the letter referred to in resolution (b).
4. CLOSE
There being no further business, the Chairman declared the meeting closed at 10.15am.(header and footer omitted)
On the same day, Dr Alan Bell, as Chairman of Parnell Holdings, wrote to Mr Joseph. That letter stated in part as follows:
Dear Robert
Termination of your employment with Parnell Pharmaceutical Holdings Ltd
We refer to your employment by Parnell Corporate Services Pty Ltd (Parnell CS) pursuant to the written contract of employment dated 1 February 2011 (your Contract) and to your secondment to Parnell Corporate Services U.S. (Parnell CS US) pursuant to the written agreement between you and Parnell CS US effective from 1 February 2012 (your US Contract).
You are employed pursuant to your Contract and your US Contract as the Chief Executive Officer (CEO) of the companies identified in Schedule 1 to your Contract and in Schedule 1 to your US Contract (Parnell Group) and Veterinary Investigative Services, Inc.
Termination of your employment
This letter constitutes notice of the termination of your employment pursuant to clause 18.1 of your Contract and your US Contract.
The Board does not presently elect to make a payment in lieu of the 6 month notice period provided for in clause 18.1. You will therefore be required to continue to perform the duties required of you under your Contract and your US Contract, as detailed below, and will be paid your full salary, until the expiry of your 6 month notice period.
…
(emphasis in original)
Mr Joseph maintained throughout the present proceeding that the October 2017 Decision was invalid. He contended (inter alia) that he was given insufficient notice of the intention to hold the meeting – notice having been given at about 10am and the meeting being held some few minutes later.
Relief in respect to this allegedly wrongful termination of his services was initially sought, including a claim for damages and declaratory relief. The measure of such damages as may have been recoverable would most likely have been confined to the amount payable had appropriate notice of termination been given: cf. Bostik (Australia) Pty Ltd v Gorgevski (No 1) (1992) 36 FCR 20 at 32. Sheppard and Heerey JJ there observed:
In the course of the submissions about the amount of damages to be awarded, there was general discussion about the assessment of damages in a case such as this. The contract in question is a contract of employment which is terminable by either party on giving to the other the applicable period of notice provided for in the award. Where an employee is wrongfully dismissed, he is entitled, subject to mitigation, to damages equivalent to the wages he would have earned under the contract from the date of the dismissal to the end of the contract. The date when the contract would have come to an end, however, must be ascertained on the assumption that the employer would have exercised any power he may have had to bring the contract to an end in the way most beneficial to himself; that is to say, that he would have determined the contract at the earliest date at which he could properly do so: ….
(citations omitted).
Reliance upon the October 2017 Decision, in substance, was overtaken by the December 2017 Decision. There remained a prospect, however, that the December 2017 Decision could be held unlawful, and that the necessity would thereupon arise to determine the lawfulness of the termination sought to be effected in October 2017. But ultimately Counsel for Mr Joseph properly abandoned any claim for relief in respect to the October 2017 Decision, including declaratory relief.
Attention can thus be focussed upon the lawfulness of the December 2017 Decision alone.
The December 2017 Decision
On 18 December 2017, a letter was forwarded to Mr Joseph by Dr Bell on behalf of Parnell Corporate and Parnell US, summarily terminating his employment.
The letter commences as follows:
Immediate termination of your employment
1.We refer to your employment by Parnell Corporate Services Pty Ltd (Parnell CS) pursuant to the written contract of employment dated 1 February 2011 (your Contract) and to your secondment to Parnell Corporate Services U.S. (Parnell CS US) pursuant to the written agreement between you and Parnell CS US effective from 1 February 2012 (your US Contract).
2.This letter constitutes immediate notice of the termination of your employment pursuant to clause 18.3 of your Contract and your US Contract, on the basis that your conduct described in this letter constituted:
a. acts that my detrimentally affect the Parnell group companies; and
b. wilful and material breaches of your contract and your US Contract.
3.This notice supersedes the notice of termination given to you on 14 October 2017 pursuant to clause 18.1 of your Contract and your US Contract. Your employment by Parnell CS and Parnell CS US ends effective immediately upon the giving of this notice.
The letter goes on to identify two reasons for the decision, namely what the letter refers to as:
·Mr Joseph’s “conduct in relation to the US Litigation”; and
·his “conduct in relation to [his] Notice to Shareholders”.
In addition to these two bases expressly identified in the termination letter, the Respondents also seek to rely upon two “Additional Bases”, namely:
·an incident in about December 2015, when Mr Joseph inserted a needle attached to a syringe into the leg of another employee, Ms Jennifer Lindsey (the “Needle Incident”); and
·an offensive remark made by Mr Joseph at a Gala Dinner in January 2016, and the subsequent termination of the employment of an employee (Ms Jennifer Tymeson) who had complained (inter alia) about Mr Joseph’s offensive remark (the “Gala Dinner”).
THE TERMINATION OF EMPLOYMENT – GENERAL PRINCIPLES
Given the fact that the Respondents contend that they were entitled to summarily terminate the employment contract of Mr Joseph on one or other of these bases, it is prudent to address (albeit briefly) two general principles of relevance to the summary termination of Mr Joseph’s employment, namely:
·the circumstances which must be made out if a contract of employment is to be summarily terminated; and
·whether conduct in addition to that specified in a notice of termination may be relied upon.
The relevant principles are well-established and were not in dispute.
Summary dismissal for misconduct
An employer may summarily dismiss an employee for breach of contract if the breach is of a “serious nature, involving a repudiation of the essential obligations under the contract or actual conduct which is repugnant to the relationship of employer-employee”: Rankin v Marine Power International Pty Ltd [2001] VSC 150 at [250], (2001) 107 IR 117 at 142 per Gillard J (“Rankin”). In Rankin, Gillard J summarised the principles to be applied, and the onus resting upon the employer to make out the right to terminate as follows:
Summary dismissal?
[237]The defendant, in its amended defence, pleaded that it was entitled to summarily dismiss the plaintiff from his employment by reason of the plaintiff’s conduct, which was alleged amounted to a breach of the contract of employment.
[238]A breach of the contract of employment by the employee may entitle the employer to terminate the agreement without notice.
[239]The acts or omissions of the employee which constitute the breach may amount to misconduct, disobedience, incompetence or negligence. No doubt, misconduct would cover a multitude of sins. By way of example, conduct which results in a conflict between the employee’s interest and duty to his employer, or impedes the faithful performance of his obligations, or is destructive of the confidence between employer and employee, may ground a right to dismiss without notice. …
[240]There is no rule of law that defines the degree of misconduct which would justify dismissal without notice.
…
[242]The question whether the breach of contract justifies dismissal without notice, is a question of fact.
[243]The onus of proof rests upon the defendant to establish that it had the right to terminate the employment without proper notice: …
…
[250]The authorities do establish that the employee’s breach of contract of employment must be of a serious nature, involving a repudiation of the essential obligations under the contract or actual conduct which is repugnant to the relationship of employer-employee, before an employer may terminate the contract summarily. Isolated conduct usually would not suffice. Each case must be considered in the light of its particular circumstances, but nevertheless, the seriousness of the act of termination and the effect of summary dismissal are factors which place a heavy burden on the employer to justify dismissal without notice. The circumstances do not have to be exceptional, but nevertheless, must establish that the breach was of a serious nature.
(citations omitted).
His Honour continued on as follows to reject the proposition that an employer could only terminate a contract of employment where the conduct of the employee manifested “an intention not to perform the contractual obligations in the future”:
[251]It was also submitted, on behalf of the plaintiff, that the right to terminate for misconduct ‘‘will only arise’’ where the employee has conducted himself in a way to demonstrate a repudiation of the contract, by, in a sense, manifesting an intention not to perform contractual obligations in the future.
[252]I respectfully disagree that that is the only occasion when an employer may terminate summarily.
[253]The contract of employment, of course, is a contract, and the general principles concerning contracts apply. Hence, if the employee breaches an essential term of the contract and thereby repudiates the contract, then the employer, as the other party to the contract, may accept the repudiation and rescind it. But that is not the only basis upon which an employer may bring the contract to an end.
[254]At common law, the authorities do establish that there is an interaction between the principles of contract law justifying rescission of a contract, and the rules established by the authorities over the last 150 years in relation to the type of misconduct justifying the dismissal of an employee without notice. It cannot be denied that in some cases, the courts do speak in terms of the basic principles of contract law … but in my opinion, it would be wrong to say, as was submitted on behalf of the plaintiff, that the right to terminate only exists where the conduct of the employee demonstrates repudiation of the contract, manifesting an intention not to perform the contractual obligations in the future. I do emphasise that many examples of conduct justifying termination would comfortably fit in with those principles. However, the authorities do establish that there are offences which justify dismissal but which would not, in themselves, show that the employee was intending not to perform contractual obligations in the future. There may be an example of a one-off serious act of misconduct which would justify dismissal, even though the probabilities were high that it would not occur again. This may be especially so when the employee is asked to explain his conduct, and shows remorse and gives an undertaking that the conduct will not occur in the future.
See also: Willis Australia Group Pty Ltd v Mitchell-Innes [2015] NSWCA 381 at [92] per Macfarlan JA.
In otherwise applying the decision in Rankin, in Willis Australia Group Services Pty Ltd v Mitchell-Innes [2015] NSWCA 381 Macfarlan JA observed:
[102]It is clear however that something more is required than just serious misconduct. Both under the contract of employment and the general law, the circumstances must justify the employer taking a step that usually has very severe adverse consequences for the employee, both from a financial and reputational viewpoint. As Gillard J said in Rankin v Marine Power International Pty Ltd (see [92] above), the burden on the employer to justify summary dismissal is heavy.
Ward and Leeming JJA agreed with Macfarlan JA. See also: Avenia v Railway & Transport Health Fund Ltd [2017] FCA 859 at [256] to [259], (2017) 272 IR 151 at 213 per Lee J.
In Blyth Chemicals Limited v Bushnell (1933) 49 CLR 66 at 82, Dixon and McTiernan JJ voiced the following words of caution as to the care with which Courts should make such a finding of misconduct:
… But the conduct of the employee must itself involve the incompatibility, conflict, or impediment, or be destructive of confidence. An actual repugnance between his acts and his relationship must be found. It is not enough that ground for uneasiness as to its future conduct arises. …
Conduct in addition to that specified in the notice of termination
Albeit not specified in the December 2017 letter, the Additional Bases may be relied upon by the Respondents with respect to the summary termination: Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359. Starke J there concluded at 373:
… The fact that the appellant's misconduct was unknown to the respondent at the time of the termination of the agreement is quite immaterial. If there were, in fact, any circumstances in existence at the time of the termination of the agreement which could have justified the respondent in so terminating it, then it may justify the termination by subsequent proof of those circumstances...
(citations omitted).
Similarly, Dixon J concluded at 377 to 378:
… It is well established, however, that a servant's dismissal may be justified upon grounds on which his master did not act and of which he was unaware when he discharged him ….. It is true that the agreement between the appellant and the respondent 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.
(citations omitted).
These conclusions were endorsed by Gleeson CJ, Gaudron and Gummow JJ in Concut Pty Ltd v Worrell [2000] HCA 64 at [27], (2000) 75 ALJR 312 at 318. Their Honours further observed:
[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.
(citations omitted).
See also: Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 262 per Mason CJ.
THE WITNESSES
The factual background which gave rise to the December 2017 Decision involved, to some considerable extent, a divergence in the evidence relied upon by Mr Joseph and that relied upon by Parnell.
On behalf of Mr Joseph, the affidavits relied upon were the following:
·three affidavits from himself, being his affidavit dated 9 November 2018 and two affidavits dated 23 May 2019;
·Mr Greg Cotton, being dated 23 May 2019, employed by Parnell US from June 2016 to December 2016 as General Counsel and Vice President of Corporate Affairs;
·Ms Erika Vikor, being dated 23 May 2019, initially employed by Parnell as Executive Assistant to the CEO and CFO, and thereafter as Vice President of Human Resources from 2012 through to January 2017, when she took on the role of Vice President of Corporate Development; and
·Ms Kara Hokamp, being dated 15 May 2019, employed by Parnell US as a Marketing Associate.
Mr Cotton and Ms Hokamp were not required for cross-examination. Mr Joseph and Ms Erika Vikor were cross-examined.
On behalf of the Respondents, affidavits had been filed from:
·Dr Alan Bell, being three affidavits dated 30 November 2018, 22 February 2019 and 16 August 2019;
·Mr Nathan Orr, being dated 19 September 2019; and
·Ms Jennifer Lindsey, being two affidavits dated 9 November 2018 and 30 July 2019.
All of these witness were cross-examined. Mr Orr gave evidence and was cross-examined via video link to Kansas City.
The principal witnesses in the proceeding were Mr Joseph and Dr Bell.
Mr Joseph – an overall assessment of his evidence
Mr Joseph has worked in the pharmaceutical industry for about 20 years and was the Chief Executive Officer of the “Parnell group” of companies. He “established the US operations of Parnell undertaking drug discovery research, clinical trial, regulatory approval process and the successful commercialisation of multiple veterinary pharmaceutical products”.
Mr Joseph, it may be accepted, gave his evidence in what initially appeared to be a straight forward and confident manner.
But reason emerged during his cross-examination to occasion reservation as to the reliability of his evidence. There are, with respect, many reasons to question the reliability of his account of events, and many reasons to question his account (in particular) of the events in December 2015, when it is claimed that he inserted a syringe into the leg of Ms Lindsey. Without being exhaustive, these reasons include the following.
First, irrespective of any divergence in the evidence between Mr Joseph and Ms Lindsey as to what actually happened in respect to the Needle Incident, the approach taken by Mr Joseph to the identification of the issues to be resolved in this Court occasioned disquiet. This incident assumed importance by reason of the fact that it:
·was one of the four reasons relied upon to summarily dismiss Mr Joseph; and
·occasioned Ms Lindsey to commence proceedings in the United States, which were there settled by Parnell and formed part of the Amended Cross-Claim in the proceeding in this Court.
The importance of this incident can thus be assumed. At the outset of the hearing in this Court, an application was made on behalf of Mr Joseph to amend his Defence to the proposed Amended Cross-Claim. One of the amendments proposed to be made to the Defence included a statement that Ms Lindsey had made:
… an admission on oath during [her] deposition… to the effect that a clean needle had been administered with her consent …
Mr Joseph was aware of the substance of the proposed amendment. The deposition being referred to was a deposition given by Ms Lindsey in the proceeding she had commenced in the United States. But where in that deposition Ms Lindsey made any “admission” proved to be elusive. Having been given a copy of the deposition, Mr Joseph was invited overnight to review it and identify those parts which constituted the “admission”. The following morning he identified in excess of 40 pages where he said the “admission” could be found. Even on a very preliminary review of those pages, no such “admission” could be found. How Mr Joseph could endorse an amendment to a Defence being filed in this Court upon such an uncertain and misleading a basis occasioned disquiet and reservation as to the reliability of his evidence.
A second reason to question the reliability of Mr Joseph’s evidence also arose out of the Needle Incident. On many and repeated occasions a comparatively simple question was asked of Mr Joseph in cross‑examination and a response provided which was anything other than an answer to the question. But one instance arose during the cross‑examination as to how the pages he had identified in the deposition constituted “admissions”. Mr Joseph was asked:
And how does that go to an admission that a clean needle had been administered with her consent?
Although perhaps a question which was not susceptible to a short answer, the response provided was more in the nature of an advocate’s plea rather than an answer and occupied some 29 lines of transcript. An exchange then occurred between the Bench and Counsel in the absence of Mr Joseph as to concerns whether Mr Joseph was attempting to answer questions being put and whether he was being deliberately evasive. Counsel for Mr Joseph endorsed an approach whereby Mr Joseph was to be informed of these concerns. Mr Joseph returned to the witness box. The concerns were conveyed to him. Questions were thereafter put in cross‑examination. The approach of Mr Joseph as to the manner in which he responded to questions did not alter. These concerns warrant a conclusion that Mr Joseph’s evidence in many respects should be viewed through the looking glass of an advocate advancing his case in the witness box rather than a witness attempting to provide simple answers to simple questions.
Third, in April 2016, Ms Tymeson commenced a proceeding in the Circuit Court of Jackson County, Missouri at Kansas City (the “Missouri Circuit Court”). The Defendants were named as Parnell US and Mr Joseph. On 1 November 2017, a deposition from Mr Joseph in those proceedings was sought. On 16 November 2017, there was filed in that Court a document titled “Defendants’ Suggestions In Support Of Their Expedited Motion For Protective Order” (the “Defendants’ Suggestions”). In that document, the Attorney for Parnell US asserted that the deposition was sought “because counsel [for Ms Tymeson] heard that Mr. Joseph’s employment with Parnell ended and that Mr. Joseph was permanently moving back to Australia in December”. The document further recited as follows:
… In response, defense counsel informed Ms Tymeson’s counsel that, as confirmed by Mr. Joseph himself, Mr. Joseph’s employment status with Parnell had not changed and that, while Mr. Joseph was planning to travel to Australia in December for the holidays, he did not plan a permanent move to Australia…
Thereafter, on 29 November 2017, a Motion For Sanctions (“Motion”) was filed on behalf of Ms Tymeson. That Motion recited (inter alia) a Notice of a General Meeting and Explanatory Memorandum issued to shareholders of Parnell US containing a statement that “[o]n 14 October 2017 formal notice was given to Mr Joseph terminating his employment as CEO of the Company…”. The Motion went on to state that the Defendants to that proceeding thus “knew about Mr. Joseph’s termination from Parnell, and the immediate suspension of his duties, more than one (1) month prior to the date they moved this Court for a protective order on November 16, 2017”.
Notwithstanding Mr Joseph’s attempts to put a different complexion upon the statement made in the response provided, it is concluded that he was well aware that his statement that his employment status had not changed was a statement being made to a Court having jurisdiction to resolve a claim made against him. Irrespective of whether or not Mr Joseph genuinely held the belief that the Notice of Termination “was invalid because the October Directors’ Meeting was improperly constituted and any resolution purportedly passed at that meeting was… of no effect”, the statement made to the Missouri Circuit Court was at the very least grossly misleading.
It is concluded that Mr Joseph’s evidence must be approached with a great deal of caution. His evidence, with respect, proved to be an unreliable source of information upon which facts could confidently be found.
Dr Bell
Dr Bell’s evidence had the hallmarks of careful attention to the questions being put in cross‑examination and careful attention to the answers provided.
Dr Bell’s evidence was also characterised by a willingness to answer all questions, including those which may well have been perceived as being contrary to his interest.
His evidence is accepted without reservation.
THE REASONS FOR TERMINATION
The reasons for the December 2017 Decision to immediately terminate the employment of Mr Joseph are to be found in:
·the letter of termination dated 18 December 2017; and
·the two further reasons as identified in the Second Amended Defence, being the events surrounding Ms Tymeson (at para [33(b)(i) to (ix)]) and the Notice to Shareholders (at para [33(b)(x) to (xii)] of the Second Amended Defence).
In respect to the two bases upon which the Respondents initially seek to found their entitlement to summarily terminate Mr Joseph’s contract of employment, and as set out in the letter of termination dated 18 December 2017, it is concluded that:
·the conduct of Mr Joseph in respect to the US litigation cannot be relied upon;
but that:
·Mr Joseph’s conduct in relation to the Notice to Shareholders does make out a contractual right to summarily terminate his employment.
Albeit unnecessary to decide, it is nevertheless further concluded that a basis for the summary termination of Mr Joseph’s conduct has been made out in relation to both:
·the Needle Incident concerning Ms Lindsey; and/or
·the Gala Dinner in January 2016 and the subsequent conduct.
Again, each of these conclusions should be briefly addressed.
Conduct in relation to the US litigation
As stated in the December 2017 letter of termination, the conduct in relation to the US Litigation, which was one of the two reasons initially relied upon as the basis for immediately terminating the employment of Mr Joseph, centred upon the “instructions” he had given his American attorneys (Shook Hardy & Bacon) and the “assurances” he had provided in respect to a proceeding then pending in the Missouri Circuit Court. That proceeding was the one that had been commenced by Ms Tymeson against Mr Joseph and “companies in the Parnell group”.
The central focus of attention upon the “instructions” given by Mr Joseph is self-evident from that part of the December 2017 letter addressing his “…conduct in relation to the US litigation”, namely the following:
…
4.We refer to the claims that have been brought against you and against companies in the Parnell group by Jennifer Tymeson in the Missouri Circuit Court (Tymeson claim) and by Jennifer Lindsey in the Kansas Federal District Court (Lindsey claims), in which the firm Shook Hardy & Bacon (SHB) has acted for you and for Parnell.
5. The Board has become aware that:
a.On 1 November 2017, Ms Tymeson’s counsel served a Notice of Videotaped Deposition requiring that you attend to give a deposition on 20 November 2017. The explanation given for the decision to issue the Notice was that they had heard that you had been dismissed from your employment with Parnell and that you planned to leave the country in December.
b.You instructed SHB to assure Ms Tymeson’s counsel and the Court that your employment status had not changed and that the information relied on by Ms Tymeson’s counsel was untrue.
c.On 16 November 2017 SHB filed a Defendants’ Expedited Motion for Protective Order supported by Defendants’ Suggestions in Support of their Expedited Motion for Protective Order, in which they conveyed your assurances that:
(i)the information relied on by Ms Tymeson’s counsel was not accurate;
(ii)your employment status with Parnell had not changed; and
(iii)you had no plans to permanently move back to Australia in December.
6.On 29 November 2017 Ms Tyson’s counsel filed a Plaintiff’s Motion for Sanctions, asserting that you and Parnell CS US had misrepresented your employment status to Ms Tymeson and to the Court in contumacious disregard for the authority of the Court. The motion seeks orders:
a.striking your separate pleadings and entering judgment against you in all respects, and awarding Ms Tymeson certain legal costs; and
b.granting Ms Tymeson an evidentiary hearing to further explore the necessity of taking your deposition immediately.
7.At the time you instructed SHB to convey to Ms Tymeson’s counsel and to the Court your assurances that there had been no change in your employment status, you were aware that notice of the termination of your employment had been given by the Board’s letter dated 14 October 2017. The assurances you instructed SHB to give to Ms Tymeson’s counsel and the Court were therefore each either false or misleading, and you knew this to be the case. Your conduct in this regard was appalling, and amounts to serious misconduct in breach of your Contract and your US Contract.
The letter thereafter went on to state that Mr Joseph’s conduct “…caused serious detriment to Parnell’s interests”.
The basis upon which the December 2017 letter claimed that Mr Joseph had given the law firm Shook Hardy & Bacon the “instructions” referred to in para 5(b) of that letter and the “assurances” referred to in paras 5(c) and 7 of that letter was the statement attributed to Mr Joseph and which has been found to be grossly misleading. It was the statement that:
… In response, defense counsel informed Ms. Tymeson’s counsel that, as confirmed by Mr. Joseph himself, Mr. Joseph’s employment status with Parnell had not changed and that, while Mr. Joseph was planning to travel to Australia in December for the holidays, he did not plan a permanent move to Australia.
Counsel for Mr Joseph sought to resist a finding that his “conduct in relation to the US litigation” constituted misconduct on two principal grounds, namely:
·it was not false or misleading to state that his “employment status with Parnell had not changed”; and/or
·there was no satisfactory evidence that Mr Joseph had in fact given the “instructions” to Shook Hardy & Bacon or provided the “assurances” as stated in the December 2017 letter.
Each limb of the arguments being advanced by Mr Joseph should be separately considered, although the arguments to some extent overlapped.
As to the former basis, the argument advanced on behalf of Mr Joseph was that the October 2017 termination of employment was either invalid or – even if valid – only operated to bring his employment to an end six months thereafter, namely on 14 April 2018. As at November 2017, so the argument ran, Mr Joseph remained “employed” and was an “employee”. Irrespective of how those arguments may be resolved, it remained grossly misleading, to give any instructions that Mr Joseph’s “employment status with Parnell had not changed”. Even if it were to be concluded that the decision was invalid, it would be grossly misleading to state that the employment “status had not changed” in circumstances where an employee unequivocally knows that the employer wishes to bring his employment to an end.
As to the latter argument, considerable hesitation would be experienced in making any finding that the American attorneys representing Mr Joseph deliberately made a false statement to the Missouri Circuit Court. The same hesitation would be experienced in concluding that the American attorneys were not accurately stating to the Missouri Circuit Court the “instructions” they had been given and the “assurances” provided by Mr Joseph. That hesitation is only heightened when reference is made to the statement that “as confirmed by Mr. Joseph himself…”.
The two limbs of the argument overlapped to the extent that much depended upon the instructions being given by Mr Joseph to the American attorneys in respect to his “employment status”. Counsel for Parnell submitted that the Court should approach the resolution of this question upon the basis that what one lawyer was telling another and as recorded in a Court document should be accepted as accurately reflecting the instructions given. In the absence of any reason for doubt, it may readily be accepted that statements made on instructions to a superior court were accurately conveyed.
The lawyer who “confirmed” his instructions from Mr Joseph, however, was not called to give evidence.
And the nature of the instructions given by Mr Joseph to his American attorneys was explored in his cross-examination. That cross-examination exposed Mr Joseph as a person who was certainly “economical with the truth” when it came to providing instructions. Although there remained a question as to what precisely was the nature of the instructions given, what can be gleaned from the evidence is that the instructions provided were grossly misleading. The context in which the instructions were being conveyed was one in which Ms Tymeson believed that Mr Joseph’s employment had been terminated and he was about to leave the country. In that context, what Mr Joseph was instructing his lawyers – on his account – is exposed by the following exchange during his cross‑examination in the present proceeding:
Do you see that? All right. And you gave instructions to Ms Page or, at least, Shook Hardy Bacon to that effect?––I gave some very specific instructions to Ms Page.
And it was to the effect, wasn’t it, that you had not been dismissed from your employment with Parnell?––No. I chose some very specific words in the instructions I gave her.
And what were they?––That my employment had not been terminated because under the advice of my lawyers, I hadn’t been terminated.
All right. So your very specific instructions were your employment had not been terminated. Is that right?––They were the specific instructions that I gave Ms Page that she did not follow.
Mr Joseph was then taken to that part of the Defendants’ Suggestions which recorded that “defense counsel [had] informed Ms. Tymeson’s counsel that, as confirmed by Mr. Joseph himself, Mr. Joseph’s employment status with Parnell had not changed”. The cross‑examination then continued as follows:
And that was your instruction to Shook Hardy Bacon, wasn’t it?––Absolutely not.
Did you see this document before it was filed?––No. I did not.
And you’re suggesting, are you, that they misunderstood your instruction that employment – your employment had not been terminated to state your employment status with Parnell had not changed?––They filed these documents without my consent or review, and they were directly, unfortunately, contradicted the advice that I gave them which was advice I had been given by my lawyers of how to respond to it.
Do you – you seriously assert that, do you?––Absolutely. Yes.
Right. And when you say that you told Shook Hardy Bacon that your employment had not been terminated, did you tell them, “I’ve received notice that my employment is terminated in six months’ time, but I’ve got some advice from my lawyers which suggest that it’s not valid”? Did you tell them that?––No, I didn’t.
…
Mr Joseph, sitting here now, do you agree that you should have told your lawyers that your – you had been given six months’ notice, but that you had had advice from your Australian lawyers that that was not valid?––No.
Do you think that you should have told them that if, for no other reason, than that – they were acting for both you and the company at that time?––I acted upon the advice that I was given by my lawyers.
No. I’m asking a different question. At this time, Shook Hardy Bacon was still acting for you and Parnell, weren’t they?––Yes.
And you hadn’t told them that you were no longer CEO, did you?––I didn’t agree with that statement.
I’m asking you: you had no longer told them that, had you?––Had I told them that I was no longer CEO? No. I had not.
You – and you had not even told them that the company had tried to no longer make you CEO?––No.
…
So when they come to you with this motion for videotaped deposition, and they say, “It’s put on the basis there’s a rumour that your employment is terminated and you’re going back to Australia”, you just tell them, “No. That’s not right. My employment has not been terminated. And I’m not going back to Australia”. Is that right?––No. I think I did more than just that.
Well, you didn’t tell them, did you, “The company has tried to terminate me, and I’m fighting them,” did you?––I didn’t use those words.
Did you convey anything of that nature?––I believe the instructions that I gave Shook Hardy Bacon were relevant to the request of the deposition.
HIS HONOUR: Well, that’s not an answer to the question, Mr Joseph?––My apologies.
Can you put the question again, please.
MR BARNETT: Did you convey to Shook Hardy Bacon the notion – the concept that the company had tried to terminate your position as CEO but that you were resisting that attempt?––No.
All right. And so do you agree with me when I say you let – if you didn’t expressly instruct it, you at least let lawyers for you and the company file a document which made a false assertion in it?––No. I did not.
And it made an assertion which was – if not outright false, was at least incomplete. Do you agree with that, or not?––No.
And do you agree that, in doing that, you exposed the company to a potential for sanctions, whether those sanctions eventuated or not?––No.
This exchange exposes Mr Joseph as giving – at the very least – very incomplete instructions to his lawyers in respect to the proceedings commenced by Ms Tymeson. The exchange, moreover, only further supports the considerable reservation that has been expressed as to the reliability of Mr Joseph’s evidence and his credibility more generally.
But the focus of the 18 December 2017 letter, and as expressly stated at paras 5(b), 5(c) of that letter, was upon the “instructions” that his “employment status with Parnell had not changed…” and the “assurances” being provided. Although an inference may readily and properly be drawn that the American attorneys were competently and honestly stating what they understood their instructions to be, no finding can be made that Mr Joseph in fact gave those “instructions” or provided those “assurances”. And that is so notwithstanding the considerable reservations as have been expressed in respect to Mr Joseph’s evidence. The standard of proof to be applied is that set forth in Briginshaw v Briginshaw (1938) 60 CLR 336 at 362. Dixon J there relevantly concluded:
… But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters “reasonable satisfaction” should not be produced by inexact proofs, indefinite testimony, or indirect inferences…
Whatever other criticism may be directed at the instructions given by Mr Joseph to his American attorneys, it is concluded that the “instructions” and the “assurances” relied upon in the December 2017 termination letter have not been made out. In the absence of the American attorney being called to give evidence as to the instructions in fact given to him by Mr Joseph, and in the face of Mr Joseph’s evidence as to what he maintains were the “instructions” provided, a finding contrary to that made would be one based upon “inexact proofs, indefinite testimony, or indirect inferences…”.
This conclusion, it should further be noted, is one dictated by a fair reading of the basis for termination as expressed in the December 2017 letter. A differently expressed reason for termination, perhaps in terms of Mr Joseph having given incomplete and misleading (as opposed to “false or misleading”) instructions to his American attorneys, was not a reason relied upon for summary termination.
Attention should thus be shifted to the second of the two reasons for summary termination as expressed in that letter.
Conduct in relation to the Notice to Shareholders
The second of the two reasons relied upon in the December 2017 letter arose out of a Notice to Shareholders (the “Notice”) issued by Mr Joseph on 15 December 2017.
Albeit lengthy, it is necessary to set forth the following extracts from that Notice:
Notice to Shareholders of Parnell Pharmaceuticals Holdings, Ltd regarding Extraordinary General Meeting
Sydney, Australia / PR NEWSWIRE / December 15, 2017 / Parnell Pharmaceuticals Holdings Ltd. (OCT PINK:PARNF) company Director, Robert Joseph is providing this Notice to shareholders for consideration in advance of voting at the Extraordinary General Meeting called for Friday, 29th December 2017, at 9:00am (Australian Eastern Standard Time).
1.In the last 12 months, Company executives have pursued multiple deals, the most important, and the most desirable, of which are:
(a)Zydax for human use (being the licensing of the Zydax patent rights to interested human pharmaceutical companies). This deal would result in the Company receiving several million dollars in upfront and milestone payments, and potentially tens of millions of dollars in royalties for a period of up to twenty years if Zydax is approved as a generic of an existing human drug, Elmiron® in the USA.
(b)The second deal involves the Company turning over the commercial distribution for its Reproductive Hormones in the US and other countries to interested multi-national veterinary pharmaceutical companies. The Company in return would receive a multi-million dollar upfront payment, and would continue to manufacture the hormone products thereby generating a gross profit that would be at least equivalent to that currently being earned from this business unit. Most significantly, the deal would enable the Company to eliminate the costs of its US operations, which are presently estimated to be costing $6 million per annum. This deal may also result in the future outright sale of the hormone assets potentially delivering tens of millions of dollars.
2.These two deals have now been negotiated, and are ready for acceptance. In doing so, the Company would essentially become a specialty contract manufacturing company with potential for significant revenue growth. This restructure would also increase profits by millions of dollars each year providing a pathway for the Company to pay out its current debt which starts to amortise in the first quarter of 2019. The Company may then be in a position to commence paying substantial dividends to its shareholders.
Furthermore, given the significant reduction in the size of the company if the two deals are consummated, I have already indicated that if it was in the best interest of shareholders, I would be more than happy to step down as CEO to enable costs savings. I have however also stated my belief that the desired growth of the contract manufacturing business is likely to be beyond the capacity of Brad McCarthy acting as COO of Manufacturing in this pursuit.
3.In September 2017, my fellow directors Alan Bell and Brad McCarthy, abruptly informed me of their preferred strategy which was to leave the Company (and therefore its current shareholders) owning only the Zydax asset, and to split off the Company’s remaining assets (Reproductive Hormones and Manufacturing Facility) to a new company, which would be owned only by them, for virtually no consideration (they suggested their new Company would take on Parnell’s current debt obligations). I firmly rejected their proposal as being clearly detrimental to shareholders’ interests.
4.Since my dispute arose with Mr Bell and Mr McCarthy they are now stating to employees that they wish to take the risk of continuing to commercialise the Company’s products in the USA (requiring an increase in expenditure). However, they have given no indication as to how they would realistically achieve this and have refused to release any financial information to shareholders about the performance of the Company; such releases having been customary practice each quarter since the Company’s IPO. Of equal concern is the fact that they have also continually sought to withhold information from me as Director, and to obstruct me from undertaking my legal obligations.
5.I have sought to resolve this dispute privately, and in the best interests of all stakeholders for two months but to no avail. It has now become a public matter as a result of Mr Bell’s decision to announce a shareholders meeting. I am therefore compelled to provide shareholders with complete information to enable an informed choice when voting at the upcoming meeting.
6.My strategy for the Company involves accepting the two pending deals, closing US Operations to make substantial cost savings, and seeking to grow the Contract Manufacturing Operations.
7.The response from my fellow directors was to attempt to remove me as a director and CEO of the Company. Many of the steps taken by them are likely to be invalid as they have involved breaches of one or more of; the Australian Corporations Act, the Company constitution (the equivalent of US articles of association) and the Bondholders Agreement (which governs the Company’s relation with its debt holders).
8.Mr Bell and Mr McCarthy have articulated no clear alternative strategy for the Company, other than to split it, or continue to invest in the current, loss making business model. I believe that the above mentioned deals are needed to see shareholders rewarded in the short term, and to enable the company to pay off its debts. Also, I see the company split envisaged by Mr Bell and Mr McCarthy as extremely harmful to shareholder interests.
9.I believe urgent change is needed to the Company’s corporate governance structure through the appointment of three or more, fully independent directors to ensure Bell and McCarthy cannot unilaterally act in a manner that is not in the best interests of shareholders.
If you vote AGAINST the resolution and retain me as a director, I shall be in a position to press for the acceptance of the two deals, and call a general meeting to resolve on the removal of Mr Bell as a director, and the appointment of three independent directors.
You received documents in the mail from your brokerage firm that explains how to direct them to vote your shares (For or Against). You can make your election on how to vote your shares online at xxx.xxx.xxx. You will need your Control Number which is specified on the documents you received from your broker. You can vote or change your vote anytime until the day before the meeting.
For further information email: [email protected]
(header, footer and contact details omitted)
It was common ground that the reference in para 1(a) of this Notice to the Zydax “deal” was a reference to the steps taken by Mylan N.V. (“Mylan”) to licence that product; the reference in para 1(b) of the Notice was a reference to steps taken by Boehringer Ingelheim to secure the use of other products.
The 18 December 2017 letter of termination expressly referred to this Notice and went on to provide as follows:
10. In summary, your press release:
a.in breach of clause 15 of your Contract and your US Contract, discloses confidential information of Parnell, of which you have knowledge by reason of your position as a director and employee of Parnell, about the licensing of product rights and IP rights related to Zydax for human use;
b.in breach of clause 15 of your Contract and your US Contract, discloses confidential information of Parnell, of which you have knowledge by reason of your position as a director and employee of Parnell, about the negotiation of commercial distribution rights for Reproductive Hormones;
c.in breach of clause 15 of your Contract and your US Contract, discloses confidential information of Parnell, of which you have knowledge by reason of your position as a director and employee of Parnell, about communications between the Board of Directors and employees;
d.wrongly asserts, in relation to the Zydax patent rights for human use and the commercial distribution rights for Reproductive hormones, that “two deals have now been negotiated, and are ready for acceptance”;
e.wrongly asserts that the desired growth of Parnell’s contract manufacturing business is likely to be beyond the capacity of Brad McCarthy acting as COO of Manufacturing;
f.wrongly asserts that the preferred strategy of Alan Bell and Brad McCarthy as directors of Parnell was to split off all the Company’s assets other than Zydax for virtually no consideration to a new company to be owned solely by them;
g.wrongly asserts that Alan Bell and Brad McCarthy as directors of Parnell have withheld information from shareholders and have sought to withhold information from you as a director;
h.wrongly asserts that Alan Bell and Brad McCarthy as directors of Parnell have sought to obstruct you from undertaking your legal obligations;
i.wrongly asserts that the Board of Parnell has engaged in conduct that involved breaches of the Corporations Act 2001 (Cth) (Corporations Act), the Parnell constitution, and the bondholders agreement; and
j.wrongly asserts that the Board of Parnell has articulated (and impliedly has) no strategy for Parnell except to split off all the Company’s assets (other than Zydax) for virtually no consideration, or alternatively to manage Parnell’s business according to a loss-making model.
11.The disclosures of confidential information referred to in paragraphs 10.a, 10.b and 10.c above are likely to cause significant detriment to Parnell by reason that they relate to commercially sensitive aspects of Parnell’s strategic direction and commercial activities.
12.The assertions identified in paragraphs 10.d to 10.j above:
a. are false and misleading;
b. impute improper motives and unlawful conduct to Mr Bell and Mr McCarthy;
c. are disparaging to the Board and to Parnell; and
d.are likely to cause significant detriment to Parnell, including by undermining shareholder confidence in the integrity of the Board and the soundness of Parnell’s strategic direction.
There can, with respect, be little doubt that the Notice to Shareholders disclosed confidential information and that such disclosure was contrary to cl 15 of the Australian contract. It was also contrary to cl 15 of the American contract, which was in identical terms.
In Gooley v Westpac Banking Corporation (1995) 129 ALR 628 at 637-638 Wilcox CJ sitting as the Chief Justice of the Industrial Relations Court considered whether information was “confidential” as that term had been used in the context of Westpac’s code of practice. In doing so, his Honour observed:
The nature of the disclosed information
It is clear that the three page document was confidential, in the sense that it had never been made public. In the words of Lord Greene MR in Saltman Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3 All ER 413 at 415 it was not “something which is public property and public knowledge”. But was it confidential in the sense used in the relevant passage in Westpac’s code of conduct, as alleged by the bank? That passage reads:
The principle of “confidentiality” underlies all functions of the group’s activities, and employees should treat the business affairs of Westpac, its customers and fellow employees, with absolute secrecy. This principle applies equally to ex-employees in relation to confidential information acquired during employment with Westpac.
Obviously, the principle referred to in this passage is not violated by an employee passing to an outsider a document already in the public domain or intended for public information; for example, a sales brochure or schedule of foreign exchange trading rates. Equally obviously, the converse is not true. The principle of confidentiality is not contravened simply because the relevant document is still within the private arena; that is, it is not “public property and public knowledge”. For example, a Westpac employee does not breach the principle by communicating with a customer about that customer’s own affairs or by revealing information about Westpac’s business affairs to a Westpac adviser or pursuant to a legal obligation. Another example is where it is necessary for the employee to disclose information about Westpac's financial affairs in order to progress negotiations with an outsider for a transaction believed to benefit Westpac. In order to determine whether or not an employee has breached the principle of confidentiality mentioned in the code of conduct, it is necessary to consider, not only the nature of the disclosed information, but also the circumstances of its disclosure.
There can, with respect, be little doubt that the information disclosed was both what the common law would regard as “confidential information” and information which was known by Mr Joseph to not be publicly available.
The state of play as at December 2017 was that on 16 November 2017 Mylan had sent a letter to Ms Vikor. The letter was headed “Strictly Confidential”, and commenced with the statement that Mylan was “pleased to submit a non-binding proposal”. The “proposal” was to enter into a license agreement with Parnell Pharmaceutical Holdings Ltd in respect to a named product. The letter further stated that that the “proposal” was “based on the limited information available to [Mylan] to date” and that “Material Conditions” were the “negotiation, execution and delivery… of a definitive agreement”. A further “Material Condition” was “Mylan’s satisfactory completion of its due diligence investigations with respect to the Proposed Transaction”. The provision with respect to the completion of due diligence was stated to be a “condition precedent to closing as identified in the Definitive Agreements”.
There had been no prior disclosure of the contents of that letter other than to persons within the Parnell Group, including Mr Joseph.
Counsel for Mr Joseph failed to establish a factual foundation for a submission that the information was not confidential. Although as stated by Mr Joseph in an email dated 29 November 2017 that “shareholders best interests will now be served”, his position in the company did not confer any licence to disclose that which his contracts of employment provided should remain confidential.
Suggestions, for example, that Dr Bell had discussions with a shareholder (Mr John Blockie) prior to 15 December 2017 as to “the existence of the Mylan deal and the Boehringer Ingelheim deal” were rejected. Similarly rejected was the proposition that Dr Bell “spoke about the Mylan deal and/or the Boehringer Ingelheim deal” with Mr Gerrett Parker prior to 15 December 2017.
Although Dr Bell accepted in cross-examination that he did not take steps to actively inform Mr Joseph that the deals remained confidential, and took no steps to “disavow Mr Joseph of his view that those two deals were ready for acceptance”, the failure to take such steps did not strip knowledge of the negotiations of its confidentiality.
This, of itself, would be a sufficient basis for concluding that Mr Joseph had engaged in “misconduct” within the meaning of cl 18.3(a) of his contracts. The disclosure of the information involved “a repudiation of … essential obligations under the contract”, was “destructive of the confidence between employer and employee” and “repugnant to the relationship of employer-employee”: cf. Rankin [2001] VSC 150 at [239] and [250], (2001) 107 IR at 141 and 142 per Gillard J.
That conclusion is only reinforced when attention is focussed upon the statements in the Notice that:
·these “two deals have now been negotiated, and are ready for acceptance”;
·Messrs Bell and McCarthy had “[withheld] information from me as Director”; and
·Mr Joseph felt “compelled to provide shareholders with complete information to enable an informed choice when voting at the upcoming meeting”.
These statements are “false and misleading” as stated in para 12(a) of the December 2017 termination letter.
As to the first of these matters, it is misleading (for example) to state that the Mylan deal was “ready for acceptance” given the qualifications expressed in the 16 November 2017 Mylan letter and the express identification of “Material Conditions” and one being “satisfaction of conditions precedent”. As to whether that deal was “ready for acceptance”, there was the following exchange with Mr Joseph during his cross-examination as to what that deal was:
So do you say that – so what is the deal that’s ready for acceptance?––That Mylan was seeking to pursue the licensing of Zydax for human use from Parnell.
So it is the deal that Mylan can do some due diligence and come up with – negotiate with the company and draft a formal document. Is that the deal that’s ready for acceptance?––With respect, I absolutely am referring to that deal being what was stated in Mylan which is a very valuable document.
And is an answer to my question yes or no?––I – sorry. Was it a yes or no question?
Is that the deal? When you say in here there’s a deal …?––Yes.
… that’s being negotiated and ready for acceptance, that deal is a proposal by Mylan to carry out some due diligence, and then if that’s satisfactory, to negotiate with the company a formal document?––I don’t agree with what you’ve just said. I am referring to the entire deal sheet, not just the words that you’ve said.
The entire deal sheet. Is that something different from the letter from Mylan that we saw?––The entire letter.
All right. Well, we went through the entire letter, didn’t we?––No. You – we went through aspects of it.
And you agreed with me at the end of going through that letter that it did not represent an offer which was capable of immediate acceptance, didn’t you?––It did. It represented an offer to enter into due diligence which is a very specific and valuable component of business development deal making.
The “deal” identified in the Notice to Shareholders which was “ready for acceptance” was identified as a deal in respect to “Zydax for human use” and it was “this deal [which] would result in the Company receiving several million dollars up front…”. There was no such “deal”. The attempt to re-characterise the “deal” during cross‑examination as an “offer to enter into due diligence” should be rejected. This attempt on the part of Mr Joseph, moreover, only provides further reason to question the reliability of his evidence more broadly.
There is also difficulty in accepting as anything other than misleading the statement that Messrs Bell and McCarthy had “[withheld] information from me as Director”. The only request for information in evidence was an email request made by Mr Joseph to Dr Bell on 15 November 2017. That e-mail requested 19 categories of information. A response was provided on 24 November 2017 attaching “current [c]ompany information reasonably available at this time”. The information provided was extensive. More importantly, there was in evidence no further request for information or any email suggesting that the information provided was not a satisfactory response to the request made.
Irrespective of whether the information in para [1] of the Notice to Shareholders was confidential information, it was “false and misleading” to make the statement that Messrs Bell and McCarthy had withheld information from Mr Joseph.
It was also false and misleading to make the statement that Mr Joseph felt “compelled to provide shareholders with complete information to enable an informed choice when voting at the upcoming meeting”. What was false and misleading about that statement was the very fact that the information being provided to shareholders in the Notice was itself far from “complete”.
With reference to what was stated in the Notice as being the “preferred strategy” of Dr Bell and Mr McCarthy, the statements in the Notice, for example at para [3], were far from complete. A proposal to “split the company” in two was in fact discussed at a meeting held on 25 September 2017. Indeed, from the content of an email forwarded by Mr Joseph to Ms Vikor on that day it would seem that it was a lively discussion. Mr Joseph referred to it being an “interesting day” with “Brad and Alan dancing around the subject…”. But at least two things should be noted. First, that this was not the “preferred strategy”. When asked about this proposal, Dr Bell explained his position in cross-examination as follows:
Now, I put it to you, Dr Bell, in a meeting on around 25 September 2017, that you, in fact, put a proposal that would involve splitting the company in two and leaving one company only owning the Zydax asset and to split off the company’s remaining assets. That’s what you said, isn’t it? That was the strategy that you put to Mr Joseph and Mr McCarthy on around 25 September 2017; that’s right?––It was not a preferred strategy.
It was a proposal or a strategy, however described, wasn’t it?––It was for consideration.
And that was put forward by you; that’s right?––Yes. Yes.
And Mr Joseph disagreed with that proposal; that’s right?––Yes.
This evidence of Dr Bell is accepted. It was thus simply wrong for Mr Joseph to present to the shareholders the proposal as being the “preferred strategy”. And, second, what was told to shareholders was – in any event – far from complete. An email forwarded from Dr Bell to Mr Joseph and copied in to Mr McCarthy stated:
After deliberating overnight on yesterday’s protracted discussions I have drafted what I believe to be an outline plan that best serves the Company.
Please read through it and form your thoughts so we can discuss today. Let me know when you are ready to get together.
The proposal outlined did not contain any proposal to strip assets out of one company and create another. When asked about his statement at para [3] in the Notice, Mr Joseph gave the following account:
You refer to your fellow directors in September abruptly informing you of their preferred strategy which was to leave the company owning only Zydax and to split off the remaining assets to a new company which would be owned by them for virtually no consideration, and you say in parenthetical they suggested that their new company would take on Parnell’s current debt obligations, close bracket. You see that?––Yes, I can.
And you didn’t say there, “But they put a different proposal the next day which didn’t involve anything along those lines”, did you?––No. I didn’t say that.
You didn’t think that in fairness, at least, you should raise that?––Absolutely not.
Contrary to the denial of Mr Joseph, the Notice as drafted in this respect was intended to “scare” the shareholders.
These further findings in respect to the Notice to Shareholders only reinforce the conclusion that the reliance upon the second of the two bases for termination as identified in the 18 December 2017 letter was well‑founded.
The Notice to Shareholders was also “disparaging to the Board and to Parnell”, as alleged in para 12(c) of the letter of termination. Between February 2011 and December 2017 the Board comprised Mr Joseph, Dr Bell and Mr Brad McCarthy. It was disparaging to Dr Bell and Mr McCarthy to suggest that their “preferred strategy… was to split off all the Company’s assets other than Zydax for virtually no consideration to be owned solely by them”, as stated in para 10(f) of the letter. The disparaging nature of the Notice was only reinforced when regard is had to the further statement in the Notice that the “preferred strategy” would involve setting up a new company “which would be owned only by them, for virtually no consideration…”.
The findings in the December 2017 termination letter that the Notice issued by Mr Joseph disclosed confidential information was:
·“false and misleading”; and
·“disparaging” to the Board
are a sufficient basis upon which to conclude that his conduct in this respect was “misconduct” within the meaning of cl 18.3(a) of his contracts of employment.
The Lindsey syringe
What was self-evident from the outset was that there was a significantly different account of the events in December 2015 as recounted by:
·Ms Lindsey;
and the account put forward by:
·Mr Joseph.
Although it has not proved easy to resolve this difference, it is ultimately concluded that the essential elements of the account given by Ms Lindsey should prevail. Even though her account involved making a serious allegation of what could otherwise be described as an assault, it has been concluded that the Court can be satisfactorily persuaded that the events occurred substantially as recounted by Ms Lindsey: Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-363 per Dixon J.
Ms Lindsey commenced employment with Parnell US in June 2015. She was employed as the Vice President of Global Marketing. She has an elderly Australian Shepherd dog, Yogi.
On her account, in December 2015 she had brought her dog to work. Mr Joseph observed the dog and observed “Oh yeah, he’s got osteoarthritis”. Conversations followed with another employee (Ms Karen Greenwood) about including the dog in a clinical trial for a drug called Zydax. Mr Joseph said to Ms Lindsey words to the effect:
“Jen, don’t do that [being a reference to entering Yogi into the Zydax clinical trial], Yogi could get the placebo, meaning that he may not receive the medication at all. I have some Zydax in my office. Just go to the pharmacy and get some syringes and I will show you how to inject Yogi. I will give him the first injection and you can give him the other three.”
Ms Lindsey went and bought the syringes and brought them to Mr Joseph’s office in December, possibly 18 December, 2015.
On her account, Mr Joseph then loaded one of the syringes with “the contents of a vial” which Ms Lindsey assumed to be Zydax and injected the dog. Mr Joseph then said:
“You just pull the scruff of the neck up and put the needle in, push the plunger and you are done”.
Ms Lindsey then said words to the effect of:
“Oh my gosh he did not even flinch, it did not seem to hurt him at all”.
Mr Joseph responded:
“Well of course not”.
Ms Lindsey then maintains that “Mr Joseph then suddenly, without warning, stabbed me in my upper left thigh, through my jeans, with the same needle he had just used to inject” the dog. Mr Joseph then said:
“See, you did not feel a thing.”
Ms Lindsey then commenced a proceeding in the United States and in April 2018 Parnell US paid US$295,000 in settlement.
Mr Joseph maintains that the “events and words [Ms Lindsay] attributes to me did not occur”. Mr Joseph maintains that he and Ms Lindsey had a conversation in early December 2015 in which he informed her that she was “entitled to the Company’s products for free” and that if she brought the dog in he could show her how to inject the dog at home, or he could inject the dog at work. Relevantly, on Mr Joseph’s account the following exchange took place after he had injected the dog:
Lindsey:
I’m nervous. I wouldn’t know how to do this myself or would hurt Yogi if I tried.
Joseph:
As I told you, the needles are the same as in diabetes syringes. They’re very fine and short and designed not to cause pain on injection. If you’re concerned, you can prick the needle into your leg and so you can see the amount of pressure you need to apply to pierce the skin and also show you that it’s painless.
Lindsey:
I’m too nervous to do it myself.
Joseph:
I can do it
Mr Joseph maintains that he then “swivelled back to face [his] desk and re-sheathed the used syringe”. That syringe was then wrapped in tissue and placed in a rubbish bin. He then took a “new needle from the packet Ms Lindsey had brought”. That process took less than one minute. He then approached Ms Lindsey with the second needle and told her what he was about to do. Mr Joseph maintains that Ms Lindsey did not move away from him. He then maintains that he “used the new needle to gently prick Ms Lindsey through her jeans, possibly in her right thigh as that was closest to me” and said:
“See that didn’t hurt at all.”
She replied:
“Oh no that didn’t hurt at all.”
Mr Joseph then maintains that they “continued to discuss the injection technique and dosing regime for her dog for several more minutes”.
In resisting the Court’s acceptance of the account given by Ms Lindsey, Counsel for Mr Joseph successfully established in cross-examination that Ms Lindsey could not recall much of what happened during the incident in Mr Joseph’s office. Ms Lindsey could thus not recall a number of matters, including (for example) which hand she used to hold the dog or which direction the dog was facing. Her failure to recall such details provided reason for caution before accepting her evidence as to Mr Joseph inserting the syringe into her leg without her consent. Her evidence on this central element of the incident, however, is accepted because:
·Ms Lindsey presented as a witness concerned to give her account of the events without embellishment and as a witness prepared to readily accept those details which she could not recall; and
·whatever other lack of recall she had in respect to some matters, there is every reason to accept that she could clearly recall the significant matter – namely, the syringe being inserted.
Counsel for Mr Joseph also sought to resist the Court accepting Ms Lindsey’s account of the incident by reason of (for example) her failure to make a complaint and her real reason for dissatisfaction with Mr Joseph being a poor performance review he had given her.
Notwithstanding the conflict in the evidence as to the accounts given by Ms Lindsey and Mr Joseph, it is concluded that the account given by Ms Lindsey should prevail. The events as described by her in fact took place as she described. Mr Joseph’s account is rejected.
Albeit a matter which should not assume disproportionate significance was the evidence given by Mr Joseph as to the manner in which Zydax was being marketed in Australia. During his cross-examination, there were the following two exchanges:
If you owned a drug in Australia in December 2015, could you buy Zydax without a prescription from a vet?––An individual could not.
Right. And the drug was marketed by Parnell in Australia in 2015 to be used, injected, by vets. Correct?––To be sold on prescription by a vet. It could be injected by an owner.
You say injected by an owner, do you?––Correct.
That’s not correct, is it?––Yes. It is correct.
It was sold to be injected …?––It …
… by a vet, wasn’t it?––It can only be sold to an individual under a prescription. It was common practice for veterinarians to give the drug to the owner to inject their dogs at home.
A couple of questions later there was also the following exchange:
All right. And you understand I’m not asking you what the common practice was. I’m asking you what Parnell’s marketing was. They marketed the drug on the basis it was for use by vets, didn’t they?––Our sales representatives and our marketing promotional material often referred to the convenience factor of allowing owners to inject their dogs at home. It is not illegal to do that.
The following day an Australian marketing brochure published in September 2015 was shown to Mr Joseph. Part of that brochure was the following:
The cross-examiner took Mr Joseph’s attention back to the earlier evidence he had given and there was the following exchange:
Now, Mr Joseph, do you remember yesterday I was asking you some questions about Parnell’s marketing of Zydax in December of 2015. Do you remember that?––I do.
And I asked you whether Parnell marketed Zydax in Australia because that was the only country it was approved for use in on the basis it would be administered by a vet. Do you recall that?––I do.
And you denied that proposition; correct?––I did.
And do you still deny it?––I do.
The brochure was then shown to Mr Joseph and there was the following exchange:
And if you turn to the second side up the top right-hand side, do you see the statement at the very top:
If Zydax is right for your dog, your veterinarian will administer treatment in a course of weekly injections over four weeks.
Do you see that?––I do.
Do you want to revise your answer about the way in which Zydax was marketed by the company?––You asked me whether it was administered. How it was marketed is a different answer.
I asked you whether Parnell marketed Zydax on the basis it would be administered by a vet, and you denied that proposition. I’m asking you: do you want to revise your answer?––No. I do not. I stand by the answer I gave yesterday.
Perhaps because the brochure assumed only passing relevance, it was not a matter the subject of any re-examination. Its relevance emerged, it was understood, because Mr Joseph wanted to support his account of the incident with Ms Lindsey by reference to a “common practice” of Zydax being administered by dog owners at home. Irrespective of such relevance as the brochure may have had, the adherence by Mr Joseph to his earlier evidence having been shown the Australian advertising brochure at least invites questions. The adherence to the earlier evidence lends some further support for the general reservation expressed as to whether Mr Joseph was more concerned to be his own advocate rather than to properly discharge his duties as a witness and the adhere to the oath, namely to “tell the whole truth”.
The argument advanced on behalf of Mr Joseph that Ms Tymeson’s employment had ceased due to her position becoming redundant as a result of a restructure of Parnell is rejected. There had been no prior decision to do so. Nor had there been any discussions between Mr Joseph, Dr Bell and Mr McCarthy which resulted in any earlier decision having been made.
The letter in mid-February 2016 constituted a termination of the services of Ms Tymeson. And Mr Joseph’s role in the drafting of the letter and misrepresenting in that letter the decisions that had been made constituted a breach of duty on his part.
The Tymeson monies – causation & quantification
A conclusion that the conduct of Mr Joseph in respect to the Gala Dinner and its aftermath constituted a breach by him of the duties owed, leaves open a question as to whether the monies claimed in the Amended Cross-Claim in respect to the settlement of her proceedings:
·were caused by those breaches; and
·whether the quantum of the settlement was reasonable.
Both issues are answered adversely to Mr Joseph.
Following the Gala Dinner in January 2016, Ms Tymeson did not return to work. Thereafter she:
·filed a Charge of Discrimination against Parnell US and Mr Joseph with the Equal Opportunity Commission in February 2016; and
·commenced her proceeding in the Circuit Court of Jackson County by way of Petition in April 2016.
The proceeding in the Circuit Court was commenced against Parnell Corporate Services U.S. Inc. and Mr Joseph. That proceeding alleged (inter alia) sex discrimination in the form of sexual harassment and a failure “to make good faith efforts to establish and enforce policies to prevent unlawful discrimination against its employees” and damages for “retaliatory action against Plaintiff” and the negligent infliction of emotional distress. It was in that proceeding that there was filed in November 2017 the “Defendants’ Suggestions In Support Of Their Expedited Motion For Protective Order”. It was that document that recited that Ms Tymeson was “asserting claims against Parnell for alleged sex discrimination, harassment, and retaliation, and against Mr. Joseph for alleged negligent infliction of emotional distress”. It was in response to that application that Mr Joseph had given misleading instructions to those then representing Parnell and himself.
Of present relevance is the fact that Parnell incurred legal costs in defending the claims made and paid Ms Tymeson settlement monies.
In late October 2018, there was an unsuccessful mediation conference held in respect to the Circuit Court proceeding. The mediator was again Mr Jay Daugherty. The starting point for the mediation exposed somewhat different expectations – Ms Tymeson seeking US$260,000 and Parnell offering US$140,000. The mediator proposed a settlement of that proceeding by the payment of US$180,000. On 27 November 2018, there was executed a Confidential Settlement Agreement and Release. That Agreement contained (inter alia) the following terms:
Dimissal of Lawsuit With Prejudice
1.0 As part of this Agreement, Plaintiff hereby agrees to dismiss the pending Litigation with prejudice, each party to bear her and its respective costs. To accomplish this dismissal, the parties have directed their respective counsel to file a Stipulation of Dismissal, a copy of which is attached hereto and marked Exhibit A, and incorporated herein by this reference. Plaintiff agrees she will file the Stipulation of Dismissal within five (5) business days after payment to plaintiff as provided in Paragraph 2.0.
Consideration
2.0 In consideration for the dismissal of the Litigation with prejudice, Parnell will pay to Plaintiff and her counsel the total sum of One Hundred Eighty Thousand Dollars and No Cents ($180,000.00) (the “Settlement Amount”), to be allocated as follows:
…
The Agreement further provided:
6.3 Plaintiff agrees to provide reasonable assistance and cooperation to the Released Parties (other than Robert Joseph) in the preparation and execution of a written affidavit or sworn declaration in connection with any Joseph Proceedings. Plaintiff understands that by agreeing to provide an affidavit or declaration, she is not required to, but may, provide additional assistance to the Released Parties (other than Robert Joseph), for example, attending to give evidence as a witness at any court hearing in Australia or the United States of America, provided that the parties reach a mutual agreement concerning reimbursement of time and expenses for such assistance.
Counsel on behalf of Mr Joseph sought to resist the recovery of monies paid in respect to the proceedings commenced by Ms Tymeson upon the bases that:
·Ms Tymeson was not called as a witness to give evidence as to her reasons for commencing the proceedings so her credibility could not be assessed, and an inference should be drawn that her evidence would not have assisted Parnell;
and, even in the absence of her not being called:
·there was reason to question why she had commenced proceedings in the face of the facts that she initially had agreed to return to work and make no claims and that she only commenced the proceedings once the “redundancy” letter had been given to her.
There is no difficulty in concluding that the conduct of Mr Joseph in respect to the Gala Dinner and the subsequent events leading to the cessation of the employment of Ms Tymeson was a material cause occasioning the institution of the Circuit Court proceeding. The Petition as filed in the Circuit Court of Jackson County expressly pleaded (inter alia) that it was “[b]ecause of Plaintiff’s complaints, Defendant Parnell retaliated against Plaintiff by failing to remedy concerns and by instead terminating her employment” and that the “retaliation against Plaintiff was committed with malice or reckless disregard of her federally protected rights”.
Any reliance by Mr Joseph upon a failure to call Ms Tymeson was, with respect, misplaced. Although cl 6.3 of the Settlement Agreement provided that Ms Tymeson was “not required to, but may, provide additional assistance”, that clause certainly did not impose any obligation upon her to render Parnell assistance. Nor was Ms Tymeson at the time of hearing “in the camp” of Parnell such that it may have been expected that she would give evidence in support of their case. More importantly, however, is the fact that it remained elusive as to what evidence she could have given in respect to the Settlement Agreement. Whatever may have motivated her to file the Petition with the Equal Opportunity Commission or her reasons for commencing the Circuit Court proceeding, her reasons were not to the point. What was of central relevance was whether Mr Joseph’s conduct was a material cause of the proceeding being instituted and the settlement being reached and whether the settlement was reasonable. Upon those issues, such evidence as Ms Tymeson could have given remained elusive.
The reasonableness of the settlement in fact reached and the payment of the US$180,000 is evidenced by the view of the mediator. Although not conclusive, no other reason was advanced by Mr Joseph to question to reasonableness of the quantum paid.
The legal costs incurred in resisting the Petition and in respect to the Circuit Court proceeding, together with the monies paid by way of settlement of that Court proceeding, are thus recoverable.
Indemnification
The conclusions that the settlement monies paid by Parnell in respect to both the proceedings commenced by Ms Lindsey and Ms Tymeson are recoverable as damages in the Amended Cross-Claim, or at least a significant part of those monies and associated legal costs, raises for resolution Mr Joseph’s contention that he is entitled to be indemnified for the monies he would otherwise have to pay as damages.
Somewhat curiously Mr Joseph in his Third Amended Defence to the Amended Cross-Claim claims that “as a director and executive officer [he] is indemnified by Second Respondent in relation to any and all liability and legal costs arising from the matters pleaded…” in the Amended Cross-Claim. Reliance is placed upon cl 27 of the Constitution of Parnell Pharmaceuticals Holdings Ltd.
Clause 27 provides in part as follows:
27. INDEMNITY AND INSURANCE
27.1 Indemnity in favour of Directors, Secretaries and executive officers
Subject to the Act and rule 27.2, the Company shall indemnify each Director, Secretary and executive officer to the maximum extent permitted by law, against any Liability incurred by them by virtue of their holding office as, and acting in the capacity of, Director, Secretary or executive officer of the Company, other than:
(a) a Liability owed to the Company or a related body corporate of the Company;
(b)a Liability for a pecuniary penalty order under section 1317G of the Act or a compensation order under section 1317H of the Act;
(c)a Liability owed to a person other than the Company that did not arise out of conduct in good faith.
27.2. Indemnity for legal costs
The Company shall indemnify each Director, Secretary and executive officer to the maximum extent permitted by law, against any Liability for legal costs incurred by them in respect of a Liability incurred by them by virtue of their holding office as, and acting in the capacity of, Director, Secretary or executive officer of the Company other than for legal costs incurred:
(a)in defending or resisting proceedings, in which the Director, Secretary or executive officer is found to have a Liability for which they could not be indemnified under rule 27.1;
(b)in defending or resisting criminal proceedings in which the Director, Secretary or executive officer is found guilty;
(c)in defending or resisting proceedings brought by the ASIC or a liquidator for a court order if the grounds for making the order are found by the court to have been established (but this rule 27.2(c) does not apply to costs incurred in responding to actions taken by the ASIC or a liquidator as part of an investigation before commencing proceedings for the court order); or
(d)in connection with proceedings for relief to the Director, Secretary or executive officer under the Act in which the court denies the relief.
The claim for an indemnity by Mr Joseph is, with respect, misplaced.
Clause 27, upon its proper construction, is confined in summary terms to an indemnification of Mr Joseph in respect to liabilities as against third parties; it is not a right to be indemnified in respect of monies that he may be obliged to pay Parnell.
The claim by Mr Joseph for indemnification is rejected.
The Employees Liability Act
In the Third Amended Defence to the Amended Cross-Claim Mr Joseph also seeks to resist liability to pay the settlement monies paid in respect to the United States proceedings by placing reliance on s 3 of the Employees Liability Act1991 (NSW) (the “Employees Liability Act”).
That part of his Defence is somewhat curiously drafted but is expressed as follows:
As to 31 to 33, the Cross Respondent says that the settlement agreement should not have been paid and asserts that it was, according to the apprehension of any reasonable person, paid for the reason of, or reasons that included, the collateral purpose of making this Cross-Claim against the Cross Respondent so as to avoid the lawful obligations of the Cross-Claimants and the Cross Respondent says further that he relies on section 3 of the Employees Liability Act, 1991 (NSW).
Paragraphs [31] and [32] refer to the settlement monies paid in respect to the proceedings commenced by Ms Lindsey.
Section 3 of the Employees Liability Act provides as follows:
Employee not liable where employer also liable
(1) If an employee commits a tort for which his or her employer is also liable:
(a)the employee is not liable to indemnify, or to pay any contribution to, the employer in respect of the liability incurred by the employer; and
(b)the employer is liable to indemnify the employee in respect of liability incurred by the employee for the tort (unless the employee is otherwise entitled to an indemnity in respect of that liability).
(2) Contribution under this section includes contribution as joint tortfeasor or otherwise.
Section 5 further provides as follows:
Act not to apply to serious misconduct of employee or to conduct not related to employment
This Act does not apply to a tort committed by an employee if the conduct constituting the tort:
(a) was serious and wilful misconduct, or
(b)did not occur in the course of, and did not arise out of, the employment of the employee.
Again, with respect, the reliance placed upon s 3 of the Employees Liability Act is misplaced. That section, it is concluded:
·applies in respect to claims for which an employer may be vicariously liable for the conduct of an employee and does not extend to claims for damages arising out of a breach of duty owed by the employee to the employer;
and, even if s 3 be construed differently:
·the conduct of Mr Joseph falls within the exception provided for in s 5, that conduct constituting “serious … misconduct” for the purposes of s 5(a).
There is no necessity to consider s 5(b). See also: JK v State of New South Wales [2014] NSWSC 1084 at [30] per Harrison AsJ.
The reliance placed by Mr Joseph upon s 3 of the Employees Liability Act is thus rejected.
Condonation by Parnell
On behalf of Mr Joseph it was also contended in Closing Submissions that Parnell had “condoned” the conduct of Mr Joseph which was the subject of the Amended Cross-Claim.
Reliance was placed upon the following observations of Gillard J in Rankin [2001] VSC 150, (2001) 107 IR at 155:
[352]An employer who has full knowledge of the misconduct of an employee, and who makes a decision to continue to employ the employee, cannot at a later date, unless of course other facts come to his knowledge, dismiss him summarily on the basis of the employee’s known misconduct. It is said that the employer has waived his right to dismiss the employee summarily, and thereby condones the misconduct.
[353] In Phillips v Foxall (1872) LR 7 QB 666, Blackburn J said, (at 680):
“Now the law gives the master the right to terminate the employment of a service on his discovering that the servant is guilty of fraud. He is not bound to dismiss him, and if he elects, after knowledge of the fraud, to continue him in his service, he cannot at any subsequent time dismiss him on account of that which he has waived or condoned. This right the master may use for his own protection.”
[354]It is noted that his Lordship used the words “elects”, “waive” and “condone” as meaning the same thing. There has been much written in the past 100 years concerning those three expressions in the law, and it is not for me to add to the material, on what each word means and their application. It is clear that no such waiver, condonation or election can take place until the employer has full knowledge of the misconduct. Hence, it must follow that an employer would not be held to have condoned the wrongdoing, where he believed the employee's denial and subsequently found out the truth: See Federal Supply Co v Angehrn (1910) 103 LT 150 (PC).
[355] In that case, the Privy Council said (at 152):
“The word ‘condonation’, though used in some of the authorities cited by most distinguished judges, is not quite happily chosen. In the cases of Phillips v Foxall and Boston Deep Sea Fishing and Ice Co, so much relied upon by the respondents, the word is used as applicable to a case where a master with full knowledge of a servant’s misconduct continues to retain him in his, the master’s, service. It is likened to the case of a man who, knowing he has a legal right to do either of two things, determines or elects to do one of them in preference to the other, and also likened to the case of a man who, knowing that a forfeiture has been worked, and that he has the legal right to take advantage of it, deliberately abandons that right – that is, waives the forfeiture. In these cases, however, to which ‘condonation’ is compared, the burden of proving that the election had been made or the forfeiture was waived would rest upon him who relied upon the one or the other, and so it is with condonation. The master must be fully aware that the servant has by his misconduct forfeited the right to be continued in his master’s service, which is the correlative of the master’s right to dismiss him, before he can be held to have waived that forfeiture.”
(Emphases added).
[356] No effort was made by his Lordship to distinguish between the three concepts.
[357]Consistent with the authorities, the plaintiff, who relies upon condonation in the present proceeding, would have to prove:
(i)that the employer had full knowledge of the employee's misconduct;
(ii)that with that knowledge, the employer retains the employee in his service;
(iii)that having made the election, he deliberately abandons his right to summarily dismiss the employee.
[358] These are questions of fact.
There were at least two difficulties in the path of accepting any submission as to Parnell having “condoned” or “waived” any right to claim damages against Mr Joseph in respect to his conduct which is the subject of the Amended Cross-Claim.
First, a submission that Parnell had “condoned” the conduct of Mr Joseph is in substance a submission that Parnell had waived any entitlement to claim damages for that conduct. And, in that respect:
·the facts relied upon by Mr Joseph to found such a submission should have been expressly pleaded such that (inter alia) the facts of which it is alleged Parnell had “knowledge” must be identified – and there was no such pleading.
Second:
·the onus of proving those facts rested upon Mr Joseph (Rankin [2001] VSC at [355], (2001) 107 IR at 154-155; Carter v The Dennis Family Corporation [2010] VSC 406 at [124] per Habersberger J) and Mr Joseph has failed to discharge that burden.
Mr Joseph failed, with respect, to establish that Parnell had “full knowledge” of the conduct of Mr Joseph. To prove, for example, that Dr Bell was in attendance at the Gala Dinner in Hawaii may establish that he had knowledge of the comments made by Mr Joseph. But Mr Joseph has failed to establish that Dr Bell had knowledge of such further aspects of his conduct in respect to that event as to (for example) the instructions being given to Mr Orr in respect to the termination of Ms Lindsey. Indeed, some important aspects as to the content of the instructions given to Mr Orr only emerged during the course of the present hearing. And, if attention is shifted to Mr Joseph’s conduct in respect to inserting the syringe into Ms Lindsey’s leg, Mr Joseph has obviously failed to establish that Dr Bell had knowledge of the fact that has been established by the present proceeding, or knowledge on the part of Dr Bell that Mr Joseph also inserted a syringe into other employees.
Any reliance by Mr Joseph upon Parnell having condoned his conduct or waived any right to claim damages for his conduct in respect to either the events surrounding Ms Lindsey or Ms Tymeson is rejected.
CONCLUSIONS
It is concluded that Mr Joseph’s claims that his contract of employment had been unlawfully terminated are to be rejected. Grounds for the summary termination of his employment on 18 December 2017 have been made out. Any one or other of the three bases upon which Mr Joseph’s employment could be summarily terminated would have been sufficient to reject the claims made by Mr Joseph. Taken together, the decision becomes – with respect – unassailable.
It is further concluded that much of the claims made in the Amended Cross Claim have been made out. The conduct of Mr Joseph in respect to Ms Lindsey and his conduct at the Gala Dinner in Hawaii in January 2016 and his subsequent conduct leading to the cessation of employment of Ms Tymeson caused those two employees to institute proceedings in the United States. Monies paid in settlement of those proceedings, albeit not all of the monies, are recoverable as damages against Mr Joseph for his breaches of contract.
The Respondents accept that Mr Joseph is entitled to payments due under his contracts of employment. Those monies should be paid to him and are not to be set off as against the damages payable by Mr Joseph. It is understood that the quantum of payments to be paid to Mr Joseph have been, or will be, the subject of agreement.
The claims made under the Fair Work Act have not been resolved. Even had a contravention of that Act been made out, no penalties would have been imposed.
THE COURT ORDERS THAT:
The parties are to bring in Short Minutes of Orders to give effect to these reasons within 28 days.
I certify that the preceding one hundred and ninety-one (191) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Flick. Associate:
Dated: 2 April 2020
SCHEDULE OF PARTIES
NSD 1035 of 2018 Respondents
Fourth Respondent:
ALAN BELL
Cross-Claimants
Second Cross-Claimant:
PARNELL PHAMACEUTICALS HOLDINGS LTD (ACN 137 904 413)
Third Cross-Claimant:
PARNELL CORPORATE SERVICE U.S. INC.
- AGLC
- Joseph v Parnell Corporate Services Pty Ltd [2020] FCA 426
- Case
- [2020] FCA 426
- Decision Date
CaseChat Overview and Summary
The central legal issues involved whether Joseph's dismissal was wrongful, and if so, what damages he could claim. The court also had to determine if the settlement of proceedings in the United States was reasonable and if the termination was justified on grounds other than those stated in the letter of termination. Furthermore, the court considered whether Joseph had breached his director's duties by disclosing confidential information and if such actions constituted misconduct warranting termination.
The court found that Joseph's dismissal was valid and not wrongful. It concluded that the termination was justified on the grounds of misconduct, specifically the disclosure of confidential information and other breaches of contract. The court held that Joseph's actions, including the release of sensitive strategic information, were likely to cause significant detriment to the company. Additionally, the court found that the settlement of the overseas proceedings was reasonable and did not warrant further damages. Consequently, the court dismissed Joseph's claims for wrongful termination and awarded no damages.
The final orders of the court required the parties to bring in short minutes of orders to give effect to these reasons within 28 days, in accordance with Rule 39.32 of the Federal Court Rules 2011.
Orders
Orders of the court
1. The parties are to bring in Short Minutes of Orders to give effect to these reasons within 28 days.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Decision
Reasons for decision
Ratio Decidendi
Legal Principle Established
The 18 December 2017 letter of termination expressly referred to this Notice and went on to provide as follows: 10. In summary, your press release:a.in breach of clause 15 of your Contract and your US Contract, discloses confidential information of Parnell, of which you have knowledge by reason of your position as a director and employee of Parnell, about the licensing of product rights and IP rights related to Zydax for human use;b.in breach of clause 15 of your Contract and your US Contract, discloses confidential information of Parnell, of which you have knowledge by reason of your position as a director and employee of Parnell, about the negotiation of commercial distribution rights for Reproductive Hormones;c.in breach of clause 15 of your Contract and your US Contract, discloses confidential information of Parnell, of which you have knowledge by reason of your position as a director and employee of Parnell, about communications between the Board of Directors and employees;d.wrongly asserts, in relation to the Zydax patent rights for human use and the commercial distribution rights for Reproductive hormones, that “two deals have now been negotiated, and are ready for acceptance”;e.wrongly asserts that the desired growth of Parnell’s contract manufacturing business is likely to be beyond the capacity of Brad McCarthy acting as COO of Manufacturing;f.wrongly asserts that the preferred strategy of Alan Bell and Brad McCarthy as directors of Parnell was to split off all the Company’s assets other than Zydax for virtually no consideration to a new company to be owned solely by them;g.wrongly asserts that Alan Bell and Brad McCarthy as directors of Parnell have withheld information from shareholders and have sought to withhold information from you as a director;h.wrongly asserts that Alan Bell and Brad McCarthy as directors of Parnell have sought to obstruct you from undertaking your legal obligations;i.wrongly asserts that the Board of Parnell has engaged in conduct that involved breaches of the Corporations Act 2001 (Cth) (Corporations Act), the Parnell constitution, and the bondholders agreement; andj.wrongly asserts that the Board of Parnell has articulated (and impliedly has) no strategy for Parnell except to split off all the Company’s assets (other than Zydax) for virtually no consideration, or alternatively to manage Parnell’s business according to a loss-making model.11.The disclosures of confidential information referred to in paragraphs 10.a, 10.b and 10.c above are likely to cause significant detriment to Parnell by reason that they relate to commercially sensitive aspects of Parnell’s strategic direction and commercial activities.12.The assertions identified in paragraphs 10.d to 10.j above:a. are false and misleading;b. impute improper motives and unlawful conduct to Mr Bell and Mr McCarthy;c. are disparaging to the Board and to Parnell; andd.are likely to cause significant detriment to Parnell, including by undermining shareholder confidence in the integrity of the Board and the soundness of Parnell’s strategic direction.