Lennon v State of South Australia
[2010] SASC 272
•2 September 2010
Supreme Court of South Australia
(Civil)
LENNON v THE STATE OF SOUTH AUSTRALIA
[2010] SASC 272
Judgment of The Honourable Justice Layton
2 September 2010
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - IMPLIED TERMS - IMPLICATION OF MUTUAL OBLIGATION
EMPLOYMENT LAW - TERMINATION AND BREACH OF CONTRACT - TERMINATION OR BREACH - WHAT CONSTITUTES
EMPLOYMENT LAW - OTHER RIGHTS AND DUTIES OF PARTIES - DUTY OF MUTUAL TRUST AND CONFIDENCE
DAMAGES - GENERAL PRINCIPLES - OTHER MATTERS
Plaintiff claimed damages for breach of employment contract and constructive dismissal - plaintiff Chief Executive of Government department - Government conducted investigations about the use of Crown Solicitor's Trust Account and accountancy treatment - plaintiff alleged multiple inadequacies but mainly inadequate investigation - whether Government repudiated contract or whether constructive dismissal - plaintiff gave letter of resignation - whether s 5(b) of the Public Sector Management Act 1995 (SA) an express term in contract - whether term of mutual trust and confidence implied in contract in fact and/or law - meaning of carryover policy/cash accounting and accrual accounting - whether plaintiff entitled to damages - if so what type.
Held: Government's conduct did not amount to repudiation of contract or constructive dismissal - term of mutual trust and confidence implied by law into contract and assumed in fact to be implied – no breach of implied term - s 5(b) of the Public Sector Management Act 1995 (SA) not a term of the contract - plaintiff resigned - plaintiff not entitled to damages - damages for distress, humiliation and injury to reputation discussed.
Public Finance and Audit Act 1987 (SA) s 8, s 21; Supply Act 1993 (SA); Public Sector Management Act 1995 (SA) s 5(b), s 8, s 9, s 10, s 11, s 12, s 41, s 58; Sale of Goods Act 1895 (SA) s 13; Education Act 1972 (SA); Subordinate Legislation Act 1978 (SA); State Supply Act 1985 (SA), referred to.
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; Mallinson v Scottish Australian Investment Co Ltd (1920) 28 CLR 66; Baltic Shipping Company v Dillon (1993) 176 CLR 344, applied.
Director-General of Education v Suttling (1987) 162 CLR 427; Nikolich v Goldman Sachs J B Were Services Pty Ltd [2006] FCA 784, distinguished.
State of South Australia v McDonald (2009) 104 SASR 344; Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2007] NSWSC 104; Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney (2008) 72 NSWLR 559; Koehler v Cerebros (Australia) Limited (2005) 222 CLR 44; Abbott v Women's and Children's Hospital [2002] SASC 268; Morton v The Transport Appeal Board (No 1) (2007) 168 IR 403; Western Excavating (ECC) Ltd v Sharp [1978] QB 761; Blaikie v South Australian Superannuation Board (1995) 65 SASR 85; Easling v Mahoney Insurance Brokers Pty Ltd (2001) 78 SASR 489; Advertiser Newspapers Pty Ltd v Industrial Relations Commission of South Australia (1999) 74 SASR 240; McDonald v State of South Australia [2008] SASC 134; Mohazab v Dick Smith Electronics Pty Ltd (No. 2) (1995) 62 IR 200; Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR; Jones v Dunkel (1959) 101 CLR 298; Spence v Demasi (1988) 48 SASR 536; Leslie v Howship Holdings Pty Ltd (1997) ACLC 459; Clayton Robard Management Ltd v Siu (1987) 6 ACLC 57; Ho v Powell (2001) 51 NSWLR 572 ; Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 94; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; Australian National Airlines v Robinson [1977] VR 87; Hadley v Baxendale (1854) 9 Exch 341; Wertheim v Chicoutimi Pulp [1911] AC 301; Wenham v Ella (1972) 27 CLR 454; Macausalin v Fisher [2003] 1 Qd R 503; Flamingo Park v Dolly Dolly (1986) 65 ALR 500, considered.
LENNON v THE STATE OF SOUTH AUSTRALIA
[2010] SASC 272Part 1 Introduction:
Part 2 Pleadings
Part 3 Findings of fact
3.1 General comments on credit
3.2 The budget process and bilateral bids
3.3 The carryover policies
3.4 Accrual accounting and cash accounting
3.5 The audit process
3.6 The history of the CSTA
3.6.1 Multi Function Polis Development
3.6.2 Land Management Corporation3.7 The $7.5 million carryover refusal in October 2002
3.8 The investigation process into the CSTA
Part 4 Terms of the employment contract
4.1 Express terms
4.2 Implication of s 5 of the PSM Act
4.3 Implied term of trust and confidence
Part 5 The role of Chief Executive
Part 6 The use of the CSTA from October 2002 to June 2004
6.1 The Lennon/Pennifold and Kelly discussion
6.2 The Crown Solicitor’s advice
6.3 The early knowledge of the plaintiff
6.4 Whether CSTA deposits were a discretionary fund
6.5 The accountancy treatment
6.6 Reconciliation of the investigation figures
6.7 Reversals
6.8 Materiality
6.9 Role of the plaintiff
6.10 Schedule A Items
Part 7 Causes of action and the alleged repudiatory conduct
7.1 Breach of contract and constructive dismissal
7.2 Alleged failures
Part 8 Failure to investigate
8.1 Failure to interview senior public servants
8.2 Investigations were limited to accountancy
8.3 Investigation did not include “her state of mind” and “guilty knowledge”
Part 9 Failure to take account that the Attorney-General and his Chief of Staff knew of the CSTA
9.1 Knowledge of the Attorney-General
9.2 Knowledge of Mr Lamb
Part 10 Failure to take account that the practice of CSTA use was considered appropriate
Part 11 Failure to take account that the practice was documented, subject to audit and transparent
Part 12 Failure to take into account that Government policies were inconsistent and confusing
12.1 Treasurer’s Instructions
12.2 Treasurer's Minute of 3 September 2002
12.3 Evidence of Mr Pennifold
12.4 Evidence of the plaintiff
12.5 Evidence of Ms Contala
12.6 Evidence of Mr Marsh
12.7 Evidence of Mr McCarthy
12.8 Evidence of Mr Cossey
12.9 Conclusions
Part 13 Failed to take account of pressures of a Chief Executive
Part 14 Failure to take account of the good record of the plaintiff
Part 15 Failure to include the deposit of $445,000 into the CSTA relating to the Department for Families and Communities
Part 16 The Treasurer characterised the plaintiff’s conduct as “deceitful”
Part 17 Failure to placate the plaintiff’s fears and publicly defend her
Part 18 Failure to advise the plaintiff that her position as Chief Executive was not at risk
Part 19 The Commissioner for Public Employment told the plaintiff of the Premier’s intention to terminate her contract
19.1 Meeting with Ministers on 12 October 2004
19.2 Letter of 13 October 2004
19.3 Conversation between Mr Walsh and the plaintiff
Part 20 The cumulative effect of the Government’s conduct
Part 21 Miscellaneous
21.1 The Jones v Dunkel principle
Part 22 The plaintiff’s letter of 15 October 2004
Part 23 Damages
23.1 Damages for distress, humiliation and injury to reputation
23.2 General principles for assessment of damages
LAYTON J:
Part 1 Introduction:
This is a claim in contract seeking damages for the wrongful dismissal of the plaintiff, Ms Kate Lennon, by the defendant, the State of South Australia (“the Government”). The plaintiff claims the Government engaged in conduct which amounts to a breach of contract or constructive dismissal, in the months leading up to the end of her employment.
The plaintiff had been an employee in the South Australian Public Service since 1985. In April 1999 she was appointed Chief Executive of the Attorney-General’s Department and the Department of Justice. On 25 February 2004 she was appointed as Chief Executive of the Department for Families and Communities. For a period between December 2003 and March 2004 she was performing both roles until William Cossey (“Mr Cossey”) was appointed as Acting Chief Executive of the Attorney‑General’s Department and the Department of Justice. Later, on 24 June 2004 Mr Cossey was replaced by Mark Johns (“Mr Johns”) who then became Chief Executive of both of those departments.
Over the period from about 30 October 2002 until 30 June 2004, some $6.7 million of departmental funds was deposited into a bank account called the Crown Solicitor’s Trust Account (“the CSTA”) in relation to some 18 items. A schedule of the 18 items is attached as “Schedule A” to the plaintiff’s initial Statement of Claim.[1]
[1] Schedule A is taken from P66, 22-23. These items are also included in P3.117, 1042.
When the moneys were deposited into the CSTA they were treated in financial records of the Attorney-General’s Department as “expenses”. When the moneys were transferred out of the CSTA, back into the department’s accounts, they were treated as “revenue”. The financial accounting of those transfers is discussed in detail in these reasons. In relation to those deposits, some $2.2 million was transferred out from the CSTA over the same period. The moneys deposited and which were still on hand in the CSTA as at the end of the financial years 2002 ‑ 2003 and 2003 ‑ 2004, were not the subject of any carryover requests pursuant to a Treasurer’s Minute circulated on 3 September 2002 (“the Treasurer’s Minute”).
In August 2004, an investigation as to the use of the CSTA was conducted by Debra Contala (“Ms Contala”) and Roger Emery (“Mr Emery”). Their investigation resulted in a report, dated 24 August 2004, which became known as “the Contala Report”.[2] This report concluded that the use of the CSTA was undertaken to avoid removal of those moneys by the Treasurer without making an application under the carryover policy.
[2] P3.117.
Pending the receipt of that Contala Report and appreciating concerns which had already been raised by Martin McCarthy (“Mr McCarthy”) and Ms Contala about the use of the CSTA, and bearing in mind that 11 August was the final day under the Public Finance and Audit Act 1987 (SA) for the presentation of accounts of the department, Mr Johns approved a reversal of moneys out of the CSTA and the amendment of the financial statements for 2002 ‑ 2003 and 2003 ‑ 2004 so that he could certify the financial accounts for 2003 ‑ 2004 as being correct.
The Auditor-General was apprised of this information. His office, between late August and early October 2004, undertook an audit investigation into the use of the CSTA and the Attorney-General’s Department accounts. The tabling of his report in Parliament was delayed pending their investigation.
The Auditor-General provided his report and it was tabled in Parliament on 11 October 2004.
Following the tabling of that report, the Commissioner for Public Employment delivered a letter, dated 13 October 2004, to the plaintiff. The letter summarised the Auditor-General’s findings. The letter reported that the Auditor-General concluded that the payments were motivated by an intention to avoid disclosure to the Department of Treasury and Finance. The plaintiff was invited to respond to the questions. The plaintiff declined to respond and on 15 October 2004 she sent a letter which was expressed to be resignation which was subsequently accepted by the Government.
The plaintiff issued proceedings in 2008 against the Government alleging that the Government breached express and/or implied terms of her employment contract and that these breaches amounted to a repudiation of her contract. She further claims that her subsequent letter of resignation amounted to an acceptance of this repudiation thereby resulting in a termination of her employment on 15 October 2004. Alternatively, she argues that much the same alleged repudiatory conduct amounted to constructive dismissal from her employment. Either way, she seeks damages for the loss of the chance of the employment contract being completed to its full term; the loss of the chance of the renewal of the contract; the loss of salary and superannuation; and her distress, humiliation and injury to reputation.
The plaintiff alleges, in effect, that the Government failed to undertake a full and proper investigation and that the use of the CSTA was well known and endorsed by others. Other allegations are also made as discussed in these reasons.
Trial Process
The trial took place over the course of 27 days. Oral evidence was given by 18 witnesses most of whose statements were tendered and formed the major part of their evidence in chief. Four other witnesses gave evidence which was related to procedural issues in the trial. There were 91 exhibits, four of them being four large volumes of documents which contained the central documentation in the case. The four volumes were marked Exhibit P1 through to P4. Each contained groups of documents from 1 to 181 and within those documents the pages were numbered. Therefore all references in these reasons will refer to the Exhibit number, the document number and the page.
During the course of the trial, I delivered rulings with written reasons on four questions as to admissibility of evidence. Two of these rulings concerned parliamentary privilege. I also gave a ruling refusing an application by the Government to amend its pleadings on day 18 of the trial.
Persons referred to in reasons
In order to assist with comprehension of the reasons I will set out the names of persons who are referred to and what their position was at the relevant time.
Andrew Lamb Chief of Staff to the Attorney-General 2002 ‑ 2005.
Andrew Swanson Business Manager within Attorney-General’s Department 2003 and later Acting Manager of Business and Financial Services.
David Royle Acting Director of Justice Business Reform Unit.
Debra Contala General Manager of the Strategic Contracts Branch within Strategic Management and Contract Management Unit of the Attorney-General’s Department.
Gianna Gianopoulos Principal Audit Manager within the Auditor-General’s Department.
Jay Weatherill Minister for Families and Communities from March 2004.
Jeffrey Walsh Commissioner for Public Employment 2003 ‑ 2008.
John Roberts Manager IT Support Services – Justice Technology Division.
Kevin Foley State Treasurer and Deputy Premier.
Kym KellyChief Executive of the Attorney-General’s Department 1989 ‑ 1999; Acting Deputy Chief Executive of Attorney-General’s Department 2002 ‑ 2004.
Louise Denley Director of Justice Strategy Division in Attorney‑General’s Department and later Deputy Chief Executive of Department for Families and Communities.
Louise Guest Acting Manager Business and Financial Services.
Mark JohnsChief Executive of Attorney-General’s Department June 2004 ‑ August 2005.
Martin McCarthy Business Manager of Strategic Business and Management Unit from 2001 and later Finance Manager in Crown Solicitor’s Office until December 2004.
Michael Atkinson Attorney-General and Minister for Justice 2002 ‑ 2010.
Mike Walter QC Crown Solicitor until August 2004.
Nicholas Alexandrides Chief of Staff for Premier’s Office.
Paul Grimes Under Treasurer with Department of Treasury and Finance.
Paul NoonManager of Business and Financial Services Unit of Attorney-General’s Department.
Ray Matcham Deputy Crown Solicitor.
Rex Matthews Acting Director of the Strategic and Financial Services Unit in lieu of Mr Pennifold in August 2004.
Roger Emery Manager, Corporate Governance, SA Motor Vehicles Commission and co-author of Contala Report.
Simon Marsh Director of Audits with the Auditor-General’s Department since April 2003.
Tanya Brooks Auditor with the Auditor-General’s Department.
Terry Evans 2003 ‑ 2005 Deputy Chief Executive of Attorney-General’s Department and then Acting Chief Executive of that Department until March 2006.
Terry Roberts Minister for Aboriginal Affairs and Reconciliation until his death on 18 February 2006.
Vaughn Bollen Project Manager within Justice Business Services of the Attorney-General’s Department.
Warren McCann Chief Executive of Premier and Cabinet from 2000 ‑ 2008.
William Cossey Acting Chief Executive of Attorney-General’s Department March 2004 – June 2004.
Paul Bermingham Assistant Crown Solicitor, Commercial Finance Section 2004.
Part 2 Pleadings
The pleadings were a subject of contention between the parties at various points throughout the trial. Both sides alleged lack of clarity, lack of particularity or a failure to properly plead.
The final pleadings of the plaintiff were contained in the “Second Further Amended Statement of Claim” filed on 10 May 2010. For convenience I will refer to this amended claim as the plaintiff’s “Statement of Claim”.
Grouping together the various allegations upon which repudiation or constructive dismissal was based, they assert conduct of the Government towards the plaintiff which is particularised as being failures of the State (“the Government”) in relation to the “impugned practice” which is also defined in the pleading as described hereafter. The plaintiff claims a failure of the Government to:
·have investigating officers interview identified senior public servants as to “the impugned practice” (clause 5.1-5.3A);
·take account of the fact that the then Attorney‑General was aware of the impugned practice (clause 5.6) and also his then Chief of Staff was aware of a practice which avoided the carryover policy (clause 5.11);
·take account that the impugned practice was considered appropriate by a number of senior public officers and, in particular, express advice of legality and appropriateness by the then Crown Solicitor (clauses 5.4 and 5.5);
·take account that the impugned practice was documented, subject to audit, and was transparent (clause 5.7);
·take account of alleged inconsistent government policies namely the carryover policy in the Treasurer’s Minute of 3 September 2002 in comparison with earlier Treasurer’s Instruction 8; the difficulty of prioritising when trying to implement the programs and a failure to inform and instruct the plaintiff on differences between accrual and cash accounting (clauses 5.9, 5.10, 5.12 and 5.15);
·take account of pressures on the plaintiff as a Chief Executive Officer to ensure that one-off proposals and special Government initiatives are funded and implemented and the need to have a “can do” approach (clauses 5.13 and 5.14);
·take account of her good record as a public servant (clause 5.20); and
·include consideration of the deposit of $445,000 into the CSTA when she was Chief Executive of the Department for Families and Communities (clause 5.21).
The consequential further matters pleaded are:
·the Treasurer characterised her conduct as “attempted deceitful conduct” in Parliament (clause 5.22);
·a failure to advise the plaintiff that her position as Chief Executive Officer was not at risk (clause 5.16);
·a failure to publicly defend her when she came under media attack on 9 October 2004 (clause 5.17); and
·on 13 October 2004 the Commissioner for Employment told her expressly that it was the “Premier’s intention to terminate [her] agreement” and that she could not return to her pre-existing substantive position (clause 5.18).
The “impugned practice”, which was articulated in the pleadings and was relevant to each of the failures, was described as “the legality of depositing moneys for specified committed projects to meet Government objectives in the Crown Solicitor’s Trust Account” (clause 5.1).
However, the gravamen of the conduct which was the subject of Government investigations and the subject of the evidence in this case, was not simply the depositing of money in the CSTA for “specified committed projects”, more concerningly it was what lay behind the use of the CSTA which included the reasons behind it’s use and the failure to declare the moneys in the CSTA for carry over in accordance with the Treasurer’s Minute; the accounting treatment of the deposits into and transfers out of the CSTA; the alleged consequential inaccuracy of the financial accounts of the Attorney-General’s Department for the years ending 2002 ‑ 2003 and 2003 ‑ 2004. The combination of these concerns was articulated in the letter from the Commissioner for Public Employment of 13 October 2004 (“the Walsh letter”) which was handed to the plaintiff on that date and in relation to which she was requested to respond.
Therefore the plaintiff’s articulation of the “impugned conduct” in her pleadings is an understatement of the “practice” which was the subject of investigation and was detailed in the Contala Report and then later set out in the Auditor-General’s report tabled in Parliament on 13 October 2004.[3]
[3] At this point I note that the full Auditor-General’s report was not placed before me. Instead I had an excerpt of a draft of a portion of the report, together with a summary set out in the letter from the Commissioner for Public Employment of 13 October 2004. No party suggested that this was not an accurate representation of the report.
Almost all paragraphs of the plaintiff’s Statement of Claim were denied either by implication, because no pleading was made to certain paragraphs, or specifically denied with the addition of specific contrary assertions. In two instances paragraphs of the Statement of Claim were admitted, notably paragraphs [5.7] and [5.8].
These pleadings were:
5.7The State failed to take account of the fact that the monies deposited in the CSTA as evidenced by Schedule A were documented and subject to audit scrutiny by the Auditor-General.
5.8The State failed to take account of the fact that all actions of the Plaintiff in depositing moneys into the CSTA were transparent.
The Government gave a qualified response in each case, namely:
In response to paragraph 5.7 of the Claim [the Government] admits that monies deposited in the Crown Solicitor’s Trust Account were documented and subject to audit scrutiny by the Auditor-General;
In response to paragraph 5.8 of the Claim repeats those matters pleaded in paragraph 4.5;
The plaintiff argued that these admissions indicated that the Government acceded that all of the actions of the plaintiff were “transparent”.
In considering this submission I note that pleadings are not to be interpreted as though they are legislative provisions. In one way it could be argued at a superficial level that documentation was available in respect of the depositing and transfers of money in and out of the CSTA and in that respect there was “transparency”, which the Government did not dispute. Further, the Government did not dispute that the CSTA was subject to audit scrutiny. However at a deeper level the Government’s case was that the accountancy process adopted in recording the deposits and transfers in the financial records, distorted the real use of the CSTA. I therefore reject the plaintiff’s submission that this admission in the pleadings can be used in the manner suggested by the plaintiff.
Another issue which arose with regard to the pleadings, was a submission by the plaintiff that because the Government had failed to plead to paragraph [5.9] and had thereby simply denied it, such a pleading did not permit the Government to lead evidence to suggest that the payments made into the CSTA had not been deposited and spent for a “proper purpose”. I reject the plaintiff’s submission. The plaintiff in [5.9] of her pleadings asserted that the deposits were made for the purpose of making the carryover policy of the Government work consistently with Government programs; or that the funds had been deposited for a specific project which was at the stage of implementation with “outstanding and continuing financial commitments”. This was effectively a positive assertion of proper purpose. In denying the plaintiff’s claim, the Government properly sought to cross-examine the plaintiff and other witnesses, as well as adduce evidence to dispute that the depositing and transferring of moneys into and out of the CSTA was for the alleged proper purpose of “specific committed projects” as contended by the plaintiff. Further the Government sought to cross-examine witnesses and to adduce evidence that the accountancy treatment of the CSTA was not designed to make the carryover policy “work” as contended by the plaintiff, on the contrary it was to frustrate its operation.
On a similar note, the plaintiff sought to challenge evidence adduced by the Government on the topic of whether or not moneys were spent on the projects for which they were initially deposited in the CSTA, either because the moneys were not fully spent or they were transferred to other accounts or allocated to other projects. Notwithstanding the protest made by the plaintiff about this evidence, I consider it was legitimately raised by the Government having regard to the way in which the plaintiff’s case was run. However, I refused leave to the Government to amend its defence half way through the trial to plead that it had the right to terminate her contract.
The manner in which the plaintiff ran her case and the response by the Government, led to vigorous submissions on both sides. The central topic was whether or not the plaintiff was “blameless” in her conduct.
The term “blamelessness” was first encapsulated by the Government when protesting about the content of the plaintiff’s statement which was sought to be tendered as her evidence in chief, in comparison with the way in which the case was pleaded. The Government pointed to the absence of any such assertion in the plaintiff’s Statement of Claim. The Government pointed to the fact that the plaintiff in her evidence in chief had gone through each of the contentious items of deposits made into the CSTA as set out in Schedule A of the Statement of Claim. In paragraphs [71] to [89] of her statement she gave evidence as to the “specific committed projects” which led to the depositing of moneys in the CSTA and to her role in that process. Frequently she indicated that she was not “seeking to hide [the] payment into the CSTA”.[4] Further, counsel for the plaintiff in reply did not demur from the characterisation of the plaintiff’s conduct as being “blameless” and instead endorsed the word and further reinforced it in his final submissions. Her counsel in final submissions stated that she “ran a case that her actions were innocent”.[5]
[4] See, eg, P5 [77] (Statement of plaintiff).
[5] Plaintiff’s Outline of Argument [19].
The consequence of these positive assertions of the plaintiff resulted in the Government seeking to refute her “blamelessness”, by cross-examining her and also eliciting evidence seeking to demonstrate that the CSTA was not used in the way in which she proffered. Instead, evidence was led to suggest that the deposits in the CSTA were used as a discretionary source of funding by the plaintiff, to allocate in any way that she considered appropriate. This was the relevant purpose for which the evidence was adduced. I therefore reject the plaintiff’s submissions that such evidence is irrelevant, however, the weight to be given to such evidence is another issue.
Finally in respect to pleadings, the plaintiff sought to argue, in relation to the pleadings of failure of the Government to properly investigate and failure to obtain views of senior involved public servants, that these pleadings, “might be expanded” to indicate that had such proper investigations occurred it would have established that the plaintiff had “acted in reliance upon advice from senior advisors and the Crown Solicitor or might have genuinely believed she was so acting”.[6] The Government strongly protested that this assertion could not be raised at the end of the case.
[6] Plaintiff’s Outline of Argument [48].
Counsel for the plaintiff sought to refute the Government’s protest by referring to the failure of the Government to object to paragraphs [20], [48] and [53] of the plaintiff’s statement[7] which referred to her “relying” on those persons and also the implication from the particulars in paragraph [5] of her pleadings. It was submitted that the evidence and the pleadings indicated that the plaintiff had always contended that a proper investigation should have included inquiry as to her state of mind, her reliance on the advice of others and whether she had any “guilty knowledge” in relation to the transactions involving the use of the CSTA.[8] Further, the plaintiff said that the Government should have taken into account how she may have viewed the investigation process. Finally, it was submitted that even if that was not the way the matter was pleaded, a judge need not be confined to the manner in which a plaintiff’s case is framed in the pleadings but should do justice in accordance with the facts of the case.
[7] P5 (Statement of plaintiff).
[8] T2365-2374.
In relation to those arguments, I recognise that pleadings should not be matters of pedantry. Their overall purpose, at the most basic level, is to make clear what the plaintiff’s claim against a defendant is so that the defendant knows what it is required to meet. Pleadings are also a means by which the relevance of evidence is to be determined. So far as the judge is concerned, the judge needs to know, through the pleadings, the issues which are required to be determined in the case.
In this case, the matters which have been articulated by the plaintiff in closing submissions have not been pleaded in the Statement of Claim. There was no indication in the pleadings as to what the plaintiff says should have been the subject of investigation by investigating officers, notably the plaintiff’s state of mind. This was a distinct shift of emphasis away from the earlier approach indicated in the pleadings, namely that other people knew and considered the practice appropriate. For reasons which will become apparent, even if I were to accept that these transformed submissions should be regarded as part of her claim against the Government and include them in reaching my conclusion, they do not alter my determination that the plaintiff’s case fails.
Finally, it is important to have regard to the ultimate issue raised in this case, that is whether the Government repudiated her contract of employment or constructively dismissed her, or whether she instead resigned. I conclude for the reasons given, that her claim should be dismissed.
Part 3 Findings of fact
In order to set the scene for the discussion of the major contested issues which follow, I set out my findings of fact on the following discrete but related topics. These findings form a platform from which to discuss the particular issues which are contested. I will cover the following:
·the budget process and bilateral bids;
·the carryover policies;
·accrual accounting and cash accounting;
·the audit process;
·the history of the CSTA;
·the $7.5 million carryover refusal in October 2002; and
·the investigation process into the CSTA.
3.1 General comments on credit
In setting out my findings on these issues I indicate that I have relied substantially upon the evidence of Ms Contala, Simon Marsh (“Mr Marsh”), Mr McCarthy, Mr Johns and Andrew Swanson (“Mr Swanson”). I found their evidence to be credible and comprehensive. Also in making these findings I have accepted various aspects of the evidence of the plaintiff, Mr Pennifold and Kym Kelly (“Mr Kelly”), however, where there is a difference between their evidence and that of the previously mentioned witnesses, particularly with regard to financial matters, I have preferred the former. It is convenient to set out at this point some general observations about the reliability of evidence given by the plaintiff, Mr Pennifold and Mr Kelly, as well as other witnesses.
In relation to the plaintiff, I consider that she was endeavouring to give truthful evidence, but in a number of instances she demonstrated an inability to view events other than from her own perspective. This meant that on some aspects, her evidence was unreliable. In some respects this is understandable. Giving evidence is no easy task and she was cross-examined over a period of five days. She was also endeavouring to recall events which occurred many years ago and some events were clearly emotionally distressing to her. I have not accepted her evidence on all matters.
With regard to Mr Pennifold, generally speaking he was not an impressive witness. I accept again that giving evidence is no easy task; at times he was distressed in the witness box. However as counsel for the plaintiff conceded, Mr Pennifold was “in some respects a frustrating witness” and he was “pedantic and ponderous” when giving evidence. In my view that is an accurate encapsulation. I also found that his explanations as to his interpretation of Government documents and accountancy treatment lack credibility. Mr Pennifold appeared to be a person who was committed to achieving outcomes for the Attorney-General’s Department and for the community in general. This commitment led him to take a distorted approach by trying to circumvent the carryover policy in the Treasurer’s Minute in order to achieve outcomes for the Attorney‑General's Department. Further, he continued to try to justify his approach in spite of accountancy evidence and investigations which revealed its flawed nature. He was also unimpressive when cross-examined about his preparedness to acknowledge guilt in regard to his disciplinary proceedings, but then indicate that he made admissions “as a matter of convenience”. This did not assist me in regarding him as a totally honest and reliable witness.
With regard to Mr Kelly, I consider that he gave his evidence truthfully, but in a number of instances he was somewhat evasive. He gave his evidence very carefully with many long pauses. At times he displayed obstinacy in refusing to accept that transactions in which he was involved could not be justified upon the bases upon which he said he was acting.
Although it does not arise at this point in these reasons it is convenient to deal with some credibility issues with regard to other witnesses. I accept all other witnesses who gave evidence as being truthful. In particular, Jeffrey Walsh (“Mr Walsh”) gave his evidence, both in manner and content, in a way which I found credible. I have therefore preferred his evidence to that given by the plaintiff on the same topic as discussed later in these reasons. I also make observations about Minister Atkinson which are not specifically on credit issues but about his overall approach to budget issues within the department. In addition I make particular observations about the role played by Mr Walter in the use of the CSTA.
3.2 The budget process and bilateral bids
The first step of the appropriation process involves Cabinet setting a budget for the Government on an annual basis.[9] Once it has been set, the overall budget is then tabled in Parliament and debated. It is then passed through the Appropriation Act[10] which is generally prior to the commencement of the financial year.[11] This enactment authorises each Minister and his/her Government agency/department, to appropriate money up to a certain amount from an account under Treasury control.[12] The designated amount is the department’s expenditure authority level, being, in effect, the departmental budget as to what it can spend each year.[13]
[9] T2159.1-5.
[10] See, eg, Supply Act 1993 (SA).
[11] T2102.26-33.
[12] T2161.9-17.
[13] T2159.5
At the time the funds are appropriated to an agency, there is a total discretion by the Chief Executive and the senior executives within that agency to allocate moneys up to the expenditure authority level within the department.[14] How the funds are allocated within each department depends on the nature of the cost structure of the agency.[15] When constructing a departmental budget within this expenditure authority level, the Chief Executive is required to take into account all known cost pressures and obligations, including legal obligations, contractual obligations and known policy priorities.[16] This includes the obligations, pursuant to Treasury Instructions 8 and 11 in operation at the time as discussed hereafter.
[14] T2103.1-5.
[15] T2160.8-10.
[16] T2113.34-2114.5.
The carryover policy is a tool which enables departments to increase their expenditure authority level in the upcoming financial year if they have spent less than their level in the current financial year.[17] This is done through a bilateral bid process which takes place in two “rounds”. “Round one” occurs in March or April of each financial year and involves departments making requests or bids to carry over funding which has been allocated and approved for particular expenditure, for example, on a project, program or asset in a particular financial year, but for which settlement has not occurred or has been delayed in that financial year and is anticipated to occur in a subsequent financial year.[18] “Round two” takes place in September of the following financial year.[19] This is where the actual expenditure which occurred in the previous financial year is known.[20] If, for example, an asset was not in fact purchased in the previous year, and if an application had either not been approved or had not been considered in Round one, it would be necessary to make a Round two application to obtain approval to proceed with the purchase.[21]
3.3 The carryover policies
[17] T2161.2-8.
[18] D79 [4] (Statement of Ms Contala).
[19] D79 [5] (Statement of Ms Contala).
[20] D79 [5] (Statement of Ms Contala).
[21] D79 [5] (Statement of Ms Contala).
Carryover policies have been in place for many years, but are reviewed from time to time as the Treasurer and Cabinet revise the budget process.[22] A new carryover policy was introduced after the change of Government in March 2002[23] and the Treasurer’s Minute in respect of this new policy was sent to all Ministers and the Chief Executives on 3 September 2002, which covered the years 2001 ‑ 2002, 2002 ‑ 2003 and 2003 ‑ 2004.[24] This new policy expressed that Treasury was adopting a “rigorous approach” to carryover requests.[25] The Treasurer and Deputy Premier, Minister Foley, gave evidence that before this new policy was introduced, there were “less than adequate practices that existed within Government in respect of unspent funds within departments at the end of the financial year”.[26] He said that where a department underspent funds in one year and then spent those funds in a subsequent year, it had a negative impact on the budget of the year in which it was subsequently spent.[27] He said that in order to address these issues, the new policy was introduced.[28]
3.4 Accrual accounting and cash accounting
[22] D79 [3] (Statement of Ms Contala).
[23] D79 [3] (Statement of Ms Contala).
[24] D79 [3] (Statement of Ms Contala); P1 36, 392; P2 62, 649; P3 112, 1000; D71 [6] (Statement of Minister Foley).
[25] P1 36, 392.
[26] D71 [3] (Statement of Minister Foley).
[27] D71 [3] (Statement of Minister Foley).
[28] D71 [3] (Statement of Minister Foley).
I accept the evidence of Ms Contala who indicated that, simply expressed, cash accounting means that such an accounting basis only recognises cash inflows and outflows that have actually occurred in the financial year. Ms Contala agreed with a definition of accrual accounting as set out in AASB Framework for the Preparation and Presentation of Financial Statements:[29]
The effects of transactions and other events are recognised when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the financial reports of the periods to which they relate.
[29] P85.
Again expressed in simple terms, accrual accounting means that the financial reporting recognises not only cash inflows and outflows, but also revenue and expenses which are not necessarily cash based, for example depreciation and liabilities which may have been incurred during the relevant financial year.
Ms Contala also gave evidence that the Government made the transition from cash accounting to accrual financial reporting in the mid to late 1990’s. Accrual accounting was therefore well and truly entrenched by the time the contentious conduct in this case took place.
Ms Contala indicated that there were “different concepts” involved in the annual financial reporting of a department in comparison to the annual appropriation and budget process which included the carryover policy.[30] In short, accrual accounting was relevant to the financial reporting of the department in the financial statements required to be provided monthly and also at the end of the financial year. However, accrual accounting had “no bearing” on the carryover process. The carryover process in the Treasurer's Minute was addressing a situation in which a department’s actual expenditure or drawing down for that year was less than had been allocated or approved as the expenditure level for the department for the start of the financial year, resulting in an “under-expenditure” against that approved expenditure authority level. In that situation, the department, if it wishes, may request carryover of the amount of that under-expenditure so that it would be available in the following year, in addition to its annual requirements, in order to meet the contractual obligations that it had already entered into in the previous year. Put another way, the carryover policy expressed in the Treasurer’s Minute applied regardless of whether a department was operating on a cash accounting or an accrual accounting basis.
3.5 The audit process
Object of audit
[30] T2159-2161.
The overall object of the audit is to express an opinion on the accuracy of the financial statements of a department and to express an opinion on the adequacy of financial controls.[31] The audit process considers the ledger balances of a department’s administered financial statements and the controls over the subsidiary ledgers for the transactions processed through that ledger.[32] An audit process involves testing the controls over the accounts and transactions processed during a particular financial year.[33]
Planning
[31] T1594.4-7.
[32] D63 [22] (Statement of Mr Marsh).
[33] D63 [21] (Statement of Mr Marsh).
The audit process would start by essentially building on the outcome of the previous years’ audits. An auditing team would come to an audit for a particular year with knowledge of the department’s financial systems, control arrangements and an understanding of activities in which they engage.[34]
Timing
[34] T1485.29-1486.
The audit is conducted in two phases: the interim audit early in the year – about February or March – and the audit at the end of the financial year.[35]
Audit Personnel
[35] T1189.18-20.
The principal audit manager in the 2003 ‑ 2004 financial year was Gianna Gianopoulos (“Ms Gianopoulos”), who reported to the Director of Audits, Mr Marsh. Ms Gianopoulos was responsible for the detailed planning and the ongoing supervision of the audit. She reported on the planning of the audit and would bring any matters of particular concern to the attention of the director or the Auditor-General. Assigned to her, were three or four staff members who actually conducted the audit procedures.[36]
Controls
[36] T1485.29-36.
The concept of “controls” is fundamental to the audit process. Controls constitute the framework of broad management arrangements, including structure, policies, and procedures, as well as appointments and training of personnel, all of which are in place to help to ensure the proper financial management of an organisation.
Within this framework of controls, an organisation will implement “systems” and checks which help to ensure the appropriate financial control of an organisation.[37] “Systems” are specifically focussed at the lower level to minimise the risk of irregular transactions.[38]
[37] T1489.13-26.
[38] T1498.21-26.
When conducting a current audit, auditors review controls and the outcomes of previous years’ audits in order to understand what could be expected in the current audit. This review of earlier years would give rise to matters which needed to be particularly addressed in the current audit.[39]
Control checking
[39] T1486.16-38.
When a particular control is checked, individuals who performed an activity would be interviewed by the audit team. This process of interview includes asking them to describe and demonstrate the steps taken, manual and automated reconciliation processes as well as asking them to describe instances where the control activity operated in a way contrary to their understanding of how it should operate. These matters are set out in working papers.[40]
[40] For example, P66.
Part of the on-going checking process is also to “freshen up” the documentation that relates to particular controls which have been checked in the past.[41]
Inherent risk assessment
[41] T1520.33-37.
Part of the planning process of an audit process is to review risks which are inherent in the nature of the business of a particular department or in the particular people involved in the business of the department.[42] The general policy in relation to risk assessment is that, unless there was evidence to the contrary, there would be a presumption of a low inherent risk within an organisation. Based on this presumption, a normal level of sub-standard testing of controls would be carried out and no additional assurance was needed beyond this.[43] However, where the audit team was informed about possible inappropriate practices, or where control testing suggested that they could not rely on controls, the risk level would be increased so that an increased level of testing would be required. For this determination, risk was measured on a scale between one and three – where three indicated the highest risk level – and then this was factored into an equation for sample testing.[44]
Sample Testing
[42] T1487.
[43] T1545.
[44] T1545.17-.35.
According to the pre-determined level of risk, a designated level of sample testing would take place as part of the audit.[45] The testing process would involve the audit team listing all of the transactions processed, then selecting a sample and tracing them back to matters within the files within the department.[46]
[45] T1545.
[46] T1595.5-11.
The purpose of sample testing is to assess the integrity of a population of transactions. “Population” refers to an estimation of the value of the receipt transactions that are processed through a particular account in one year, which is somewhat of a rule of thumb.[47]
[47] T1546.36-1547.4; T1598.
When a sample is determined for testing by random selection or by the judgment of the audit officer on examining a financial report, there would always be the risk that it may not identify problem transactions.[48] For this reason, where there is specific knowledge about a problem with certain transactions, the sample would target those types of transactions.[49] Such information would help the auditor in understanding what were and were not problematic transactions.[50]
Administered Item
[48] T1600.2-5.
[49] T1600.11-19.
[50] T1600.24-27.
The CSTA appeared as an “administered item” on the Attorney-General’s financial statements.[51] An “administered item” is a specified activity which the department administers on behalf of the Government.[52] It is normal for the Auditor-General to audit all administered items every year.[53]
[51] T1510.13-38.
[52] T1510.28-30.
[53] T1511.4-18.
In this case, as part of this process, a trust ledger trial balance of the CSTA was routinely sought by the Auditor-General and provided to auditing staff for testing and to reconcile with the balance in the general operating ledger of the Attorney-General’s Department.[54]
Materiality
[54] T1554.11-21.
Materiality is a planning concept[55] and it is used as one of the factors to determine a sample size.[56] The Accounting Standard AASB 1031 which was adopted by Mr Marsh defines materiality as: [57]
Materiality means, in relation to information, that information which if omitted, misstated or not disclosed has the potential to adversely affect decisions about the allocation of scarce resources made by users of the financial report or the discharge of accountability by the management or governing body of the entity.
[55] T1520.
[56] T1490.
[57] D64, 14.
Auditors consider materiality at two levels in relation to an administered item. First, in relation to the balance of the department’s financial statements in which the administered item is disclosed in the balance and secondly, as a stand alone item as it is an account of the Treasurer.[58]
[58] T1519.14-18.
Materiality would be based on the estimated turnover of receipts or the balance of the account. In the situation where the Justice Department has a turnover of $100 million, this figure assists in determining how many transactions they should test.[59] It is included in the formula and is related to MP which stands for “Monetary Precision” and is the level of confidence factor expressed as a dollar value.[60]
[59] T1520.16-17.
[60] T1598.
Materiality is also relevant to the standard which applies to general purpose financial reports[61] and is relevant to making judgments in the preparation and presentation of financial reports.[62] Clause 4 of AASB 1031 provides:[63]
4 Application of Materiality
4.1The standards specified in other Accounting Standards apply to the financial report where information resulting from their application is material. Information is material if its omission, misstatement or non-disclosure has the potential to adversely affect:
(a) decisions about the allocation of scarce resources made by users of the financial report; or
(b) the discharge of accountability by the management of governing body of the entity.
4.1.1The notion of materiality influences whether an item or an aggregate of items is required to be recognised, measured or disclosed in accordance with the requirements of an Accounting Standard. Where an item or an aggregate of items is not material, application of the materiality notion does not mean that those items would not be recognised, measured or disclosed, but rather that the entity would not be required to recognise, measure or disclose those items in accordance with the requirements of an Accounting Standard.
[61] D64, 6.
[62] D64, 7.
[63] D64, 7-8.
This discussion of my findings on materiality is relevant in this case to whether the use of the CSTA and its accounting treatment in the financial accounts was a material omission or misstatement within the meaning of AASB 1031.
Misstatements
Misstatements are an example of information which, when detected by or brought to the attention of the auditor, would trigger a more focused enquiry.[64] In the auditing context, an example of a misstatement is where an accounting standard has been inappropriately applied. It could also arise when something has been inappropriately characterised in terms of account classification or is recorded in the wrong reporting period. It is context specific.[65]
Management letters
[64] T1588.34-1589.6.
[65] T1590.
Where issues arise in relation to control deficiencies at the interim stage, the audit manager would raise the issue with the director and, if required, they would send a “management letter” to the management of the department. The letter would provide a description of the relevant findings and in some instances would call for a response from departmental management.[66] For example, on 27 May 2004, in this case, a management letter was sent to Mr Cossey by the Auditor-General, pursuant to the interim audit of the department, calling for the Chief Executive to establish and document the purpose of the CSTA and to implement arrangements to monitor whether its use was consistent with its purpose.[67] This letter was sent out at the beginning of the process which led to the investigation into the use of the CSTA.
LawMaster
[66] T1485.29-186.4; T1521.37-1521.38.
[67] P2.94, 864.
LawMaster is a computer system which helps the administrative management of Attorney-General’s Department matters and which supports the accounting for the transactions which go through the operating accounts and other bank accounts. LawMaster, was included in the scope of the audit.[68] LawMaster contained individual matters with balances and one aspect of the audit would be to reconcile the aggregate of the balances to the balances in the bank account. [69]
3.6 The history of the CSTA
[68] T1594.24-27.
[69] T1594.30-33.
On 18 December 1957 the then Under Treasurer sent a minute to the then Treasurer recommending that the CSTA be opened.[70] The reasons for the opening of the CSTA were stated in the following terms:[71]
The Crown Solicitor is constantly receiving monies representing amounts due to various Government departments which have been recovered by legal action and which include costs as well as recoveries. He is also required to make settlements in respect of property purchased or sold by various Government Departments.
I consider that the accounting for these monies by the Crown Solicitor would be considerably simplified if all such monies were paid into a special trust account and subsequent disbursements made from that account.
I therefore recommend that you approve the opening of a new trust account at the Treasury entitled ‘Crown Solicitor’s Trust Account’ to be used in accordance with the procedure described herein by the Departmental Auditor.
[70] P1.5, 139.
[71] P1.5, 139.
This minute records two types of payments to be received by the Crown Solicitor. The first being moneys received as a consequence of legal action and the second being moneys received for settlement of property. The common connection for both is that they concern work which involves solicitors within the Crown Solicitor’s Office (“CSO”) or in the Office of the Director of Public Prosecutions.
Mr McCarthy, who was the Finance Manager of the CSO, gave evidence about the use of the CSTA. He provided a common example, being where the Government is purchasing property. In such a case, a cheque for the purchase would be provided to an officer within the Business and Financial Services Division, being a division within the Financial Services Unit of the Attorney-General’s Department for deposit in the CSTA. A code would be allocated for the transaction by the officer in that Division. At the time of settlement a request would be made for the Division to draw a cheque made payable to a relevant third party.[72] In short, the CSO would be responsible for establishing a matter in the CSTA.
[72] D68 [8] and [9] (Statement of Mr McCarthy).
On 1 December 1997 the then Under Treasurer by minute of that date, indicated that the CSTA had become an interest bearing account.[73] The reason for the change is that some agencies required their deposits in the CSTA to earn interest “for contractual and other reasons”.[74] In the minute it was noted that some agencies had inappropriately transferred funds from the CSTA to the Attorney-General’s Department operating account in order to earn that interest. The change in the CSTA to become interest bearing would address this issue.[75]
[73] P1.5, 140.
[74] P1.5, 140.
[75] P1.5, 140.
In my view, the minute from the Under Treasurer of 1 December 1997 essentially reiterated the original purpose of the CSTA:
The Crown Solicitor currently operates a deposit account pursuant to Section 21 of the Public Finance and Audit Act which is non interest bearing.
The purpose of this account is to hold monies in trust as an independent person for the financial settlement of legal transactions between parties.
The Trust Account is used primarily for work done by solicitors within the Crown Solicitor’s Office and the Director [of] Public Prosecutions Office and by the Conveyancing and Debt Recovery Sections of the Attorney-General’s Department. The majority of transactions are short term transactions related to property settlements effected by the Conveyancing Section.
Arguably, the expression in the second sentence standing alone, may suggest a broader purpose than that which was set out in the original minute of 18 December 1957. However, in context, in both the previous minute and the minute of 1 December 1997, the words “financial settlement of legal transactions between parties” would obviously include property transactions. Even standing alone it is quite clearly referring to “legal” transactions which would include contractual obligations. This sentence is not to be read at large.
The CSTA is an account which appears to fall within s 21 of the Public Finance and Audit Act 1987 (SA) as an Administered Item. I agree with the conclusion of Mr Marsh that it best fits that section rather than for example s 8 of the Public Finance and Audit Act 1987 (SA).[76]
[76] See also Treasurer’s Statement G for the financial year 2003 - 04: P3.103, 962.
The history of the CSTA has become relevant because of a particular interpretation placed on the minute of 1 December 1997 by Mr Pennifold and also the reference by Mr Pennifold to two historical examples of the use of the CSTA.
I will deal in further detail with the evidence of Mr Pennifold but at this stage I will set out his evidence in chief which started a much longer saga: [77]
[5]I was not aware of the legal aspects of the use of the CSTA. Some Government agencies had placed funds in the CSTA for long durations of time – in fact for several years. For example, surplus money relating to the Multi Function Polis was placed into the CSTA for years.
[6]There was disagreement between departments regarding who owned those funds because the agency which had deposited the funds into the account had ceased to exist. Another example of this type of deposit into the CSTA concerned the Land Management Corporation, which placed some $1.7 million late in 1996/97 into the CSTA. These funds related to three separate issues concerning RM Williams, Woolworths and Motorola. The funds were held in the CSTA for nearly two years and the Land Management Corporation received interest on the funds.
[7]The minute dated 18 December 1997 (BOD 5) indicated to me that to the knowledge of the then Treasurer, the use of the CSTA went beyond the original intent or purpose as documented in 1957. In my view neither the Treasurer nor the Department for Treasury and Finance in 1997 objected to this wider use of the CSTA.
[77] P43 (Statement of Mr Pennifold).
It can be seen here that Mr Pennifold was indicating that he was relying on two examples of moneys held in relation to the Multi Function Polis Development Corporation (“MFP”) and the Land Management Corporation (“LMC”).
3.6.1 Multi Function Polis Development
In relation to the MFP there was little information before me; simply fragments of evidence from a number of witnesses. What little I can glean from the evidence is that the MFP, which was well known for being a broad ranging controversial project of a large scale to build a technology city, was disbanded sometime in 1998. On 1 May 1998, the activities formerly controlled by the MFP, were taken over by the LMC.[78] The takeover included managing land and other property previously held by the MFP as well as other agencies or instrumentalities of the Crown.
[78] D53.
Mr Pennifold in his evidence referred to there being uncertainties within Government departments as to who was entitled to MFP funds and sometime in about 1995 – 1996 moneys were deposited into the CSTA.
Mr Kelly who subsequently gave evidence adverted to moneys that were paid into the CSTA in relation to the MFP.[79] Further, when Mr Kelly gave evidence he did “not disagree” that there was uncertainty and hence the moneys were deposited into the CSTA at about that time.[80]
[79] P19 [7] (Statement of Mr Kelly).
[80] T755 – T756.
Mike Walter QC (“Mr Walter”), who was at one point the Crown Solicitor, also gave some limited evidence where he referred to remnants of MFP money being deposited and that he understood it to be the “return of Commonwealth land under the Railways Agreement”.[81]
[81] T917.
In relation to the evidence of Mr Pennifold, as I understood it, his use of the MFP moneys was simply to make the point that, as he saw it, moneys were placed in the CSTA for long periods of time, contrary to the minute of 1 December 1997.
3.6.2 Land Management Corporation
The main evidence, which was given in considerable detail, related to the LMC. As indicated above, the assertion made by Mr Pennifold was referring to a sum of $1.7 million in relation to three separate issues concerning RM Williams, Woolworths and Motorola. The funds were kept for nearly two years and the LMC received interest on the funds. The focus in his initial evidence in chief is set out above, and again it concerned the longevity of the funds held as documented back in 1957.
In the course of giving evidence however, Mr Pennifold said that when the $1.7 million, which had been placed in the CSTA prior to it being interest bearing, was transferred out into the Attorney-General’s Department, it was then accounted for as “revenue”. Then, after the CSTA became interest bearing it was then transferred back into the CSTA. When it was transferred back he said it was treated as an “expense”. Further that interest upon that $1.7 million accrued and also was treated as an “expense”. This then led him into treating the CSTA deposits which are the subject of contention, as being “expenses” and “revenue” in a similar way.
At this point I record that with regard to the MFP, Mr Pennifold did not make this same assertion. His evidence as to the MFP was: “I assumed that that money would have been recorded as an expense as well”.[82]
[82] T1041.14-15.
In order to challenge Mr Pennifold’s assertion that the use of the CSTA went beyond the original intent or purpose by reason of the deposit of $1.7 million in the CSTA, the Government tendered a portion of the report of the Auditor-General for the year ended 30 June 1998 in respect of a reference to the LMC and which included the Attorney-General’s Operating Statement for the same period and the notes accompanying it.
This document specifically stated that: [83]
Finalisation of the financial statements for the [LMC] has been delayed to enable the MFP Projects Board and the MFP Development Corporation to obtain independent valuation of certain assets which have been transferred to the [LMC]. The audited financial statements for the [LMC] will be included in a Supplementary Report to Parliament.
[83] D53, 44.
No further financial statements of the Attorney-General’s Department were placed before me that referred to the LMC.
However, MFI D52 which purported to be statements emanating from MFP for the ten months ended 30 April 1998 together with portions of the LMC operating statement, were the subject of extensive cross-examination of Mr Pennifold. MFI D52 was not tendered, but subsequently I requested the parties to indicate what its status was. It was agreed that certain pages were tendered by consent.[84]
[84] Letter from DMAW Lawyers to Judge’s Chambers dated 13 August 2010.
These documents show that within the LMC four of the items, which included RM Williams, Woolworths, Motorola and Banker’s Trust amounted to $1.7 million. This was set out in a note under the heading of “Cash in Trust – Properties”. The total amount for cash in trust properties was a figure of $3,181,173.66, which figure in turn was disclosed in the LMC trial balance under the heading “LMC property account”. Further the document referred to interest earned to 30 June 1998 which included RM Williams, Woolworths and Motorola. Again, it was included as part of cash in trust.
However these documents did not reveal the way in which the moneys had been treated in respect of the CSTA. It only revealed how the properties were treated within the LMC and MFP. These documents did not address the assertion which was made by Mr Pennifold.
Mr Marsh who gave evidence on the topic generally indicated that he had not seen the particular accounting treatment within the Attorney-General’s Department financial statements. He did however give evidence that if it had been recorded as “revenue” when it was received into the Attorney-General’s Department operating account that would have been incorrect. He further said that if it had been recorded as an “expense” when it was paid back into the CSTA that would also be incorrect.[85] However he also added that if it was treated that way, which was incorrect, the two treatments would cancel out if it was all done within the one financial year.
[85] T1560.
More importantly, Mr Marsh said that in his view the depositing of $1.7 million in relation to the LMC was appropriate because it all related to property transactions which were within the purposes expressed in the minutes in relation to the CSTA in 1957 and 1997.
In summary on this point, there was no evidence before me as to how the moneys were treated in relation to the LMC in the CSTA, save the assertion by Mr Pennifold. He said he had viewed the accounts on the internet and that this supported his assertion. At no time did counsel for the plaintiff seek to tender the documents upon which Mr Pennifold was relying in order to verify his assertion. The documents upon which Mr Pennifold was cross-examined essentially went nowhere except to indicate that it was related to land transactions.
I will address further matters regarding the accounting treatment later in these reasons.
3.7 The $7.5 million carryover refusal in October 2002
On 22 April 2002, the plaintiff made a request on behalf of the Justice Portfolio for a carryover of $15 million from the 2001 ‑ 2002 year into the financial year for 2002 ‑ 2003. Soon after the circulation of the Treasurer's Minute of 3 September 2002, the Deputy Under Treasurer sent a minute to the plaintiff dated 24 October 2002 detailing approved bids for the carryover of funds from 2001 ‑ 2002 to 2002 ‑ 2003.[86] The minute confirmed that, of the $15 million of funding the plaintiff had requested to be carried over into 2002 ‑ 2003 on behalf of the Justice Portfolio, only $7.5 million had been approved.[87] In examination in chief, the plaintiff had said she became aware of the refusal in May 2002[88] but later conceded under cross-examination that it must have been in late October 2002.[89]
[86] P1.40, 409.
[87] P1.40, 49; P5, [35]; P43 [13]. In examination in chief, the plaintiff said she became aware of the refusal in May 2002 (at T148.38) but conceded the later date under cross-examination at T204.13.
[88] T148.38.
[89] T204.13.
The plaintiff agreed that the effect of Treasury’s refusal of the carryover application for $15 million was that the $7.5 million in the portfolio bank accounts had to be returned to Treasury in order to comply with Treasury instructions.[90] She alleges that Treasury told her that she had to absorb the loss.[91] Part of the moneys requested to be carried over was $300,000 which had been specifically funded by the Commonwealth.[92]
[90] T190.3-20.
[91] P5 [37] (Statement of plaintiff).
[92] P5 [37] (Statement of plaintiff); T148.4-16.
This refusal led to use of the CSTA which is the subject of the proceedings in this case.
3.8 The investigation process into the CSTA
May 2004
The genesis of the investigation into the CSTA can be traced back to May 2004 when concerns were raised about the use of the CSTA by the Finance Manager of the CSO, Mr McCarthy. It was Mr McCarthy’s role to monitor the CSTA.[93] Each month, an officer within the Business and Financial Services Division of the Attorney‑General’s Department would conduct a reconciliation of the matters in the CSTA and Mr McCarthy would verify that reconciliation. [94]
[93] D68 [10] (Statement of Mr McCarthy).
[94] D68 [10] (Statement of Mr McCarthy).
On 20 May 2004, Mr McCarthy says he received a phone call from a Justice Technology Services Officer. Mr McCarthy alleges that the particular request made by the officer raised his concerns that the CSTA might be being used to avoid the carryover process.[95] On the same day, Mr McCarthy raised this concern with Paul Noon (“Mr Noon”). Mr Noon at that time was the Acting Manager of the Business Development and Improvement Division of the Financial Services Unit, but prior to that he had been the Manager of the Business and Financial Services Division of the Financial Services Unit. Mr Noon did not give evidence.
[95] D68 [19] (Statement of Mr McCarthy).
The next day after speaking with Mr Noon, on 21 May 2004, Mr McCarthy created the document “Paper on CSO Trust Account Issues”.[96] He took this paper to a meeting with Mr Noon and Mr Swanson. Mr Swanson at that time was the Acting Manager of the Business and Finance Services Unit. The Financial Services Unit is the unit within the Attorney‑General’s Department which drives budget monitoring, reporting and finance. The Strategic and Financial Services Unit and the Business and Financial Services Unit are both units within the Financial Services Unit. Later that day, Mr McCarthy took a copy of his paper with him to the Deputy Crown Solicitor, Ray Matcham (“Mr Matcham”)[97] and then to Mr Walter. Mr Matcham was not called to give evidence. Mr McCarthy gave evidence that Mr Walter did not read the notes but said words to the effect “I think the transactions are legal”.[98] Mr Walter did not give evidence about this meeting but in his letter to the Auditor-General dated 12 September 2004,[99] he expressed his view that the payments into the CSTA were “lawful”, and in his evidence in chief[100] the same view is expressed. I accept Mr McCarthy’s evidence that this is what Mr Walter told him.
June 2004
[96] D68 [22] (Statement of Mr McCarthy); P2.88, 847.
[97] D68 [24] (Statement of Mr McCarthy).
[98] D68 [25] (Statement of Mr McCarthy).
[99] P3.131, 1339-1343.
[100] P49 [4] (Statement of Mr Walter).
On 8 June 2004, Mr McCarthy received a request from the plaintiff to deposit money in the CSTA for a project called the School Retention Project.[101] He sought confirmation that Mr Walter was comfortable with the transaction and then approved the transaction himself. Mr Walter responded by email:[102]
It’s OK by me, but sooner or later Treasury will get pissed off with this practice and stop it but it is no skin off ou[r] noses, as it is not something that we ever had to use. It is not contrary to the Public Finance and Audit Act, as the Treasurer has power to direct any moneys in the account to be paid to the Consolidated Account.
[101] D68 [27] (Statement of Mr McCarthy); P3.117, 1218.
[102] D68 [27] (Statement of Mr McCarthy); P3.117, 1217 (Mr Walter’s email giving approval).
However, Mr McCarthy continued to be concerned about its legitimacy. [103]
[103] D68 [29] (Statement of Mr McCarthy).
On 24 June 2004, Mr Johns was appointed Chief Executive of the Attorney‑General’s Department and the Department of Justice and began immediately the process of determining his budget settings for the 2004 – 2005 year. As part of this process, he was provided with a folder of materials entitled, “Summary of 2004 – 2005 cost pressures” by his immediate predecessor, Mr Cossey.[104] Mr Johns requested that two financial experts, Jerome Maguire (“Mr Maguire”) and Ms Contala, report to him on the material in the folder. Mr Maguire and Ms Contala briefed him orally on the contents of the folder and matters related to the CSTA.[105]
[104] D74 [3] (Statement of Mr Johns); D79 [15] (Statement of Ms Contala).
[105] D74 [4] (Statement of Mr Johns).
On 29 June 2004, Ms Contala provided a briefing note to Mr Johns indicating issues requiring further investigation in respect of the budget for the 2003 ‑ 2004 financial year.[106] She recommended that a full financial statement of the CSTA be obtained and she queried whether there were any unspent balances.[107]
July 2004
[106] D79 [17] (Statement of Ms Contala); D74 [4] (Statement of Mr Johns); P2.95, 874.
[107] D79 [17] (Statement of Ms Contala).
Sometime in the first two weeks of July, Mr Johns also instructed his acting deputy Terry Evans (“Mr Evans”) to conduct further enquiries into the matter. [108] At the time Mr Johns was appointed Chief Executive, Mr Pennifold was the director of Strategic and Financial Services for the Attorney-General’s Department and had been in the role for the 2002 ‑ 2003 and 2003 ‑ 2004 years. Mr Pennifold oversaw the financial accounting and day to day management of the flow of funds in the CSO Budget.[109] Not long after Mr Johns’ appointment, Mr Pennifold proposed to brief Mr Johns on the use of the CSTA at an Executive budget meeting scheduled for 15 July 2004.[110] Mr Pennifold said that he created a paper specifically for the meeting entitled “Carryovers and the impact of Treasury Rules”.[111] Mr Johns did not attend that meeting, but Mr Evans and Mr Swanson did.[112]MrPennifold gave evidence that he provided a copy of his paper to Mr Evans at the meeting.[113]The Government cross-examined Mr Pennifold at length about when this document was created and on which computer it was created. The aim was to cast doubt upon Mr Pennifold’s credibility and evidence, suggesting that the document was not provided to Mr Evans at that meeting, but that it was a subsequent reconstruction. Mr Evans was not called to give evidence, which has been the subject of a Jones v Dunkel submission discussed hereafter. Mr Swanson gave evidence that he did not see Mr Evans receive the paper at that meeting.
[108] D74 [6] (Statement of Mr Johns).
[109] D68 [4] (Statement of Mr McCarthy).
[110] P43 [44] (Statement of Mr Pennifold).
[111] P4.168, 1465; Mr Johns gave evidence that “subsequent investigations revealed that the original of the document was created on Mr Pennifold’s computer directory on 16 July at 9.22am.
[112] P43 [44] (Statement of Mr Pennifold).
[113] T1170.
I have concluded that although there are somewhat suspicious circumstances surrounding the time and date of its creation, it is not a matter of great importance in the overall case. I do not draw an adverse conclusion against Mr Pennifold. Therefore I am prepared to assume that he did create and provide the report to Mr Evans at that meeting. Mr Pennifold also gave evidence that he requested that Mr Evans provide Mr Johns with the agenda and papers for the meeting,[114] which I am also prepared to assume.
[114] P43 [44] (Statement of Mr Pennifold).
On 27 July 2004, a meeting took place between Ms Contala and Mr McCarthy at the CSO.[115] The meeting was not for the purpose of discussing the CSTA issue.[116] Nevertheless, Mr McCarthy informed Ms Contala of his concerns about the use of the CSTA.[117] On the same day, Ms Contala raised her concerns with her superior, Mr Maguire.[118]
[115] D68 [25], [30] (Statement of Mr McCarthy); D79 [19] (Statement of Ms Contala).
[116] D68 [30] (Statement of Mr McCarthy); D79 [19] (Statement of Ms Contala).
[117] D68 [31] (Statement of Mr McCarthy); D79 [21] (Statement of Ms Contala).
[118] D79 [22] (Statement of Ms Contala).
On 28 July 2004, Mr Johns became aware of Mr McCarthy’s concerns about this transaction.[119] Mr Johns immediately directed Mr Evans to investigate the matter further with Ms Contala, Mr Maguire and Mr McCarthy.[120]
August 2004
[119] D74 [11] (Statement of Mr Johns).
[120] D74 [12] (Statement of Mr Johns).
On 2 August 2004, Mr McCarthy provided a minute[121] to Mr Johns identifying transactions in the CSTA as at 26 July 2004. The questionable transactions were identified in detail.[122] Mr McCarthy also met Ms Contala and provided her with the same 2 August 2004 minute.[123] Ms Contala then sent a minute to Mr Evans covering Mr McCarthy’s minute and stating that it appeared the CSTA had been used to avoid the removal by Treasury of underspent funds.[124] Mr Evans gave Mr Johns a copy of this minute. Ms Contala advised Mr Evans that the CSO should be formally advised that the practice of transferring Attorney-General’s Department operating funds into and out of the CSTA was to cease immediately.[125]
[121] P3.117, 1093.
[122] D74 [13] (Statement of Mr Johns).
[123] 3.117, 1093: D79 [23] (Statement of Ms Contala).
[124] D79 [24] (Statement of Ms Contala).
[125] D79 [24] (Statement of Ms Contala); P3.117, 1091.
On 4 August 2004, Mr Evans sent a minute to Ms Contala saying that Mr Johns had asked her to undertake a review of the CSTA.[126]
[126] D79 [25] (Statement of Ms Contala); P3.117, 1110.
On 6 August 2004, Mr McCarthy sent a minute to Mr Johns (through Mr Walter), detailing his investigations about the establishment of the CSTA.[127] The minute attached four documents, which included his personal notes of 21 May 2004 and an extract of the Auditor-General’s report for 2003 ‑ 2004 [128]
[127] D68; P3.107, 974.
[128] D68 [33] (Statement of Mr McCarthy).
On 10 August 2004, Mr Swanson, who had concluded that the accounting for transactions within the CSTA was not strictly in accordance with accounting standards, recommended to Ms Contala they be reversed.[129] On the same day, Ms Contala provided Mr Johns with Mr Swanson’s minute. Mr Johns provided a copy of this to Rex Matthews (“Mr Matthews”) and Mr Pennifold. Mr Johns viewed this recommendation for reversals as serious since it would have an impact of several million dollars on the financial statements of the department and it related to some transactions in the 2002 ‑ 2003 year which had already been finalised and signed off.[130] The financial statements for 2003 ‑ 2004 were due be signed off on 11 August 2004. [131] Mr Johns requested assurances from Mr Matthews and Mr Pennifold that reversals were appropriate and called on them to take responsibility for the reversals.[132]
[129] P3.117 ; D74 [16] (Statement of Mr Johns).
[130] D74 [17] (Statement of Mr Johns).
[131] D74 [17] (Statement of Mr Johns).
[132] D74 [18] (Statement of Mr Johns).
On 11 August 2004, Mr Johns received responses from both of them stating that reversals were appropriate.[133] On the same day Mr Johns proceeded to do the following: meet with the Auditor-General, Ken McPherson, who approved the reversals;[134] advise Mr Matthews that he had reversed transactions with approval of the Auditor-General;[135] advise the acting Attorney-General, John Hill and Chief of Staff to the Attorney-General, Andrew Lamb (“Mr Lamb”) of actions he had taken and requested that Mr Lamb inform the Attorney-General who was overseas at the time. [136]
[133] D74 [18]-[19] (Statement of Mr Johns); P3.109.
[134] D74 [20] (Statement of Mr Johns).
[135] D74 [21] (Statement of Mr Johns).
[136] D74 [23] (Statement of Mr Johns).
On 13 August 2004, Mr Johns informed the Treasurer of the reversal by minute[137] copying the letter to the Chief Executive of the Department of Premier and Cabinet, Warren McCann (“Mr McCann”) and the Acting Under Treasurer Dr Paul Grimes (“Dr Grimes”).[138]
[137] P3.11; D 74 [24] (Statement of Mr Johns).
[138] D74 [24] (Statement of Mr Johns).
Also on 13 August 2004, Mr Johns says that the Auditor-General advised that he would report the CSTA matters to Parliament and that the audit of the department would be delayed.[139] In the meantime, Mr Johns sought confirmation from all relevant staff that any inappropriate practices be identified and disclosed.[140]
[139] P3.110, D 74 [25] (Statement of Mr Johns).
[140] D74 [26] (Statement of Mr Johns).
However, these calculations were later subsumed by parties producing a document entitled “ASSESSMENT OF ALLEGED LOSSES”, which was agreed as being a calculation of the salary component and superannuation benefits which would have been received over a period from January 2005 to March 2010 if she had remained in her employment as a Chief Executive until the end of her five year contract and, thereafter, until her planned retirement, being employed at her substantive position at Executive Level E level. This became exhibit P90.
The Government did not accept that the amount set out in P90 should necessarily follow by an award of damages, but it did accept that the calculations showed the salary and superannuation which would have been payable over that period.
23.1 Damages for distress, humiliation and injury to reputation
The plaintiff also claims damages for “distress and humiliation/injury to reputation”. The issue of damages for each of those descriptors is somewhat of a legal minefield. Even the counsel for the plaintiff in his submissions submitted that the question of whether or not damages for those categories were available in Australia was still an open one.[559] A similar conclusion is also drawn by the author in Macken’s Law of Employment.[560]
[559] Plaintiff’s Outline of Submissions [34].
[560] Sappideen et al, Macken’s Law of Employment (6th ed, 2009) 409 [10.110].
Complications arise because the conclusion depends upon the nature of the cause of action whether it be breach of an express contract, breach of an implied term of the contract and if so the type of implied term, or whether it is an action for wrongful dismissal. Further issues arise depending on whether the nature of the damages claimed is for loss of reputation, loss of injured feelings or distress and loss of esteem.
When considering the overall issue of damages in these categories the commencement point is usually Addis v Gramaphone Company Limited..[561] This was a case concerning wrongful dismissal from employment. In that case the House of Lords on appeal concluded that damages for wrongful dismissal could not include damages having regard to the manner of the dismissal, or for injured feelings or any loss that may have arisen because a dismissal would have made it more difficult for the plaintiff to obtain fresh employment.[562]
[561] [1909] AC 488.
[562] [1909] AC 488, 491 (Lord Loreburn LC), 493 (Lord Atkinson), 492 (Lord James of Hereford).
Since that decision, exceptions have been recognised by courts, notably with regard to injury to reputation. In the case of Malik v BCCI,[563] which arose in the context of breach of an implied term of mutual trust and confidence, Lord Nichols of Birkenhead admitted of an exception to the Addis principles. His Lordship indicated that a breach of such an implied term of contract, potentially could give rise to damages for injury to reputation.[564] However in Malik it was not accepted that the mere fact of wrongful dismissal of itself could give rise to such damages. This was an English decision. More recently in Australia, in Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney,[565] Basten JA has given consideration to the issue of damages in the context of wrongful termination of employment. In that case damages were sought for loss of reputation and injury to feelings. The discussion of Basten JA also included reflection on a breach of an implied term. Basten JA gave the following analysis of the case law:[566]
What is meant by the concept of injury to reputation is not entirely clear in these circumstances. This was not a case in which the appellant sued for defamation based upon a statement published by the respondents. Rather, it seems to have fallen into one of two separate categories identifiable from the case-law relating to damages for breach of contract. Thus, on one view it could constitute part of the distress suffered by the appellant as the result of loss of esteem of friends, colleagues and acquaintances. However, damages on that account have been treated as generally unrecoverable for breach of contract: see Fink v Fink (1946) 74 CLR 127 at 144, where Dixon J and McTiernan J stated: ‘Resentment, disappointment and the loss of esteem of friends are not proper elements [of loss, recoverable in an action on contract].’
Alternatively, loss of reputation may be invoked in a commercial sense to include difficulty in obtaining alternative employment, a head of damage which has been accepted as relevant in relation to artists and public performers: see, for example, Herbert Clayton and Jack Waller Ltd v Oliver [1930] AC 209 at 220, per Lord Buckmaster. As his Lordship explained, it was not so much a matter of ‘loss of reputation’, but ‘the equivalent of loss of publicity’. However, subject to exceptions, this head of damage is excluded by the principle stated by Lord Loreburn LC in Addis (at 491), that damages are not recoverable ‘for the injured feelings of the servant, or for the loss he may sustain from the fact that his having been dismissed of itself makes it more difficult for him to obtain fresh employment’. Nevertheless, damages of these kinds are recoverable, the appellant contended, on the basis of the exceptions accepted in Baltic Shipping and by Ashley J in Aldersea v Public Transport Corporation (2001) 3 VR 499 at 509 [56]–[64].
Baltic Shipping undoubtedly recognised exceptions to the general rule, in particular where a breach of contract gives rise to physical injury, psychiatric illness or even physical inconvenience, or where the subject matter of the contract is the provision of pleasure or enjoyment, the expectation of which is disappointed by the breach: see Mason CJ (at 362), Deane J and Dawson J (at 381) and McHugh J (at 394).
The appellant did not seek to establish personal injury of the kind which might give rise to a claim for damages; nor can it be said that the contract was one which provided for pleasure or entertainment. Accordingly, as senior counsel for the appellant conceded, no such claim for damages was tenable, arising purely from the breach constituted by the termination without reasonable notice.
[563] [1998] AC 20.
[564] [1998] AC 20, 39-40 (Lord Nichols of Birkenhead), 52 (Lord Steyn).
[565] (2008) 72 NSWLR 559.
[566] (2008) 72 NSWLR 559, 572 [54]-[57].
Without repeating the points made in this careful analysis, I note that one of the exceptions to the principles enunciated in Addis is in the context of damages for loss of reputation, which may be invoked as a head of damages in respect to artists and public performers. Basten JA also refers to the exception contained in Baltic Shipping Company v Dillon (“Baltic Shipping”)[567] in which the nature of the contract was one which provided for the pleasure or enjoyment of a sea voyage and resultant disappointment caused by the breach. Neither of these examples are this case.
[567] (1993) 176 CLR 344.
In the case of McDonald[568] there was also discussion of damages, this time in the context of an implied term of mutual trust and confidence. The Full Court held that such a breach if it did exist did not entitle the plaintiff to damages for injury to reputation and injured feelings as a result of such a dismissal.[569]
In his oral submissions, counsel for the plaintiff sought to characterise the alleged breach of s 5 of the PSM Act as coming within the Baltic exception, thus opening the way for damages under these heads.[570] Counsel placed heavy reliance on the Federal Court decision of Wilcox J in Nikolich v Goldman Sachs J B Were Services Pty Ltd.[571] In that case, the terms of the appellant’s contract of employment were found to include a document created by the employer entitled Working With Us (“WWU”).[572] WWU set out, in voluminous terms, the employer’s commitment to its employees. Section headings included: “Support for Career Management”, “Support for Ideas and Innovation”, “Support for Personal Time”, “Support for Heath and Well-being”, “Support for Community Involvement”, “Support for Families”, “Support for Parents” and “Support for Personal Issues”.
[568] State of South Australia v McDonald (2009) 104 SASR 344.
[569] State of South Australia v McDonald (2009) 104 SASR 344, 387 [222].
[570] T2375-6.
[571] [2006] FCA 784.
[572] [2006] FCA 784, [214], [247].
Wilcox J found that the respondent had breached three sub-sections of the WWU document. His Honour found that the purpose of these sub-sections was:[573]
to provide assurance to existing and prospective [Goldman Sachs] employees concerning the manner in which they would be treated in their workplace and, in particular, about the support they would be offered by their employer. The ‘very object’ was to provide peace of mind.
[573] [2006] FCA 784, [317].
In these circumstances, Wilcox J found that it was foreseeable that, if the employer broke its promises to a particular employee, it might cause distress.[574] His Honour held that this brought the case within the Baltic exception stated most appositely by Brennan J as: [575]
If a contract contains a promise, express or implied, that the promisor will not cause the promisee, or will protect the promisee from, disappointment of mind, it cannot be said that disappointment of mind resulting from breach of the promise is too remote. Such a promise is expressed or implied in many contracts the object of which is to provide a service or facility conducive to peace of mind, tranquility of environment or ease of living and damages have been awarded accordingly.
(Footnotes omitted.)
[574] [2006] FCA 784, [317].
[575] [2006] FCA 784, [317].
I am not persuaded that s 5 could be applied in the same way as the much more extensive and generous WWU bound Goldman Sachs. The WWU is specifically lavish and exhaustive in the undertakings it makes to its employees.
Counsel for the plaintiff also cited another case of Flamingo Park v Dolly Dolly.[576] In that case, Wilcox J affirmed the general rule preventing damages being awarded in contract for distress and disappointment and its exception, where those elements had been bargained for. In illustrating the exception, His Honour cited a number of “spoiled holiday” cases[577] which preceded Baltic. In respect of the scope of the exception, his Honour commented that at that time it was “not yet clear how far the courts will be prepared to go in this direction”.[578]
[576] (1986) 65 ALR 500.
[577] Stedman v Swans Tours (1951) 95 Sol Jo 727; Jarvis v Swans Tours Ltd [1973] QB 233; Athens-Macdonald Travel Service Pty Ltd v Kazis [1970] SASR 264.
[578] (1986) 65 ALR 500, 524.
In this context, his Honour then considered the specific question of whether damages in contract could be awarded for loss of reputation. He concluded that:[579]
there appears to be no reason why, especially in the light of the recent authorities which depart from what was once thought to be a strict general rule against permitting recovery for non-pecuniary damage, awards of damage should not in all appropriate cases include compensation for loss of reputation; at least in a case where the purpose of the breached term was to enhance or to safeguard reputation.
[579] (1986) 65 ALR 500, 524.
Again in this case there is no basis for regarding the assumed term, to be for the purpose of enhancing or safeguarding reputation.
For these reasons even assuming there was a breach, I consider that the weight of authority in Australia suggests that damages for distress and humiliation or injury to reputation are not recoverable in the circumstances.
23.2 General principles for assessment of damages
In short form the relevant principles which I include and will apply in making my assessment are as follows:
·A plaintiff but for the breach must have been ready and willing to continue to work in accordance with the contract of employment.[580]
·The onus of proof is on a plaintiff to prove the extent of the loss or damage, namely that it was caused by the breach and that it is not too remote.[581]
·The measure of damages is that the injured person should be placed in the same situation, so far as money can do it, as if the contract had been performed.[582] It is accepted that such loss includes superannuation contributions.[583]
·Damages are to be reduced having regard to the duty to mitigate loss and, in this instance, taking account of wages earned in other employment.[584]
·In cases where damages for breach are difficult to quantify, the concept of damages for loss of a chance operates. In the context of this case, the nature of the contract of the plaintiff was for a fixed term of five years, with three months notice on either side, and thereafter a reversion to a substantive position at Executive Level E before retirement.
·In a situation of constructive dismissal, the formulation of Brennan J in Commonwealth of Australia v Amann Aviation Pty Ltd[585] may apply.[586] Namely, that in this case the contract could be interpreted as having intended to include an implied promise to give the plaintiff an opportunity to obtain the benefits set out in D90 as discussed hereafter. However this is subject to other modifications such as mitigation and chance as discussed hereafter.
·In establishing the loss of a chance it is not necessary to establish that the chance would probably have been realised. It is compensable even if its realisation is unlikely on the balance of probabilities. Even a 1 percent chanced is potentially compensable.[587] However the law imposes a threshold requirement of proving it was not merely speculative or negligible.[588]
·In damages assessed either for breach of contract or constructive dismissal, the assessment also takes into account a discount for the vicissitudes.[589] Conceptually in the circumstances of this case it would be a chance that the plaintiff’s employment may be terminated by either side on three months notice; or terminated after its term of five years; or not renewed in any form after five years.
[580] Australian National Airlines v Robinson [1977] VR 87.
[581] Hadley v Baxendale (1854) 9 Exch 341.
[582] Wertheim v Chicoutimi Pulp [1911] AC 301, 307; Wenham v Ella (1972) 27 CLR 454, 471.
[583] Macausalin v Fisher [2003] 1 Qd R 503.
[584] Lucy v The Commonwealth (1923) 33 CLR 229.
[585] (1991) 174 CLR 94, 102.
[586] See discussion in Steward “Damages for Wrongful Dismissal and the Problem of Contingencies” (1993) 6 AJLL 50. See also discussion in Sappideen et al, Macken’s Law of Employment (6th ed, 2009) 397-398.
[587] See discussion in Seddon and Ellinghaus, Cheshire and Fifoot’s Law of Contract (9th ed, Australian Edition) [23.15]; cf the position in negligence: Tabet v Gett (2010) 84 ALJR 292.
[588] Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; and Seddon and Ellinghaus, Cheshire and Fifoot’s Law of Contract (9th ed, Australian Edition) [23.16].
[589] Cheshire and Fifoot, Law of Contract (9th ed, Australian edition) [23.29]; Sappideen et al, Macken’s Law of Employment (6th ed, 2009) [10.95] 397; Lucy v Commonwealth (1923) 33 CLR 229.
In response to the plaintiff’s claim, the Government argues that, in assessing damages, account needs to be taken of the fact that at some time during the balance of the term of her five years, the plaintiff may have been liable for removal under procedures which did meet the necessary legal and contractual requirements. It further argues that the plaintiff’s conduct might have justified removal under cl 10.1(a) of her contract, after she was accorded procedural fairness. It submits that had that occurred, she would only have been entitled to accrued wages and leave. Alternatively, the Government submits that a significant discount to the loss of a chance should be applied in relation to the remaining value of the plaintiff’s contract and a reversion to her substantive position. It submits that had the Government been fully apprised of the plaintiff’s account of herself, as revealed in this case, there would have been a genuine and reasonable basis for the Government to conclude that the plaintiff’s contract should have been terminated either immediately or on the occurrence of three months notice. Another way of putting the argument was that the chance of the contract continuing until its expiry should be greatly discounted.
Exhibit P90
Exhibit P90 sets out losses under two basic category headings of “Salary Benefits” and “Superannuation Benefits” and gives detailed explanations about their calculation. The period covered by the calculations runs from January 2005 until March 2010 when the plaintiff indicated she would have resigned and then taken up part time work. No evidence was adduced about the extent of potential part time work. The calculations represent 4.25 years left to run on the contract which was due to terminate on 9 March 2009. The calculations incorporate that termination of her employment took place in October 2004 and that thereafter she was on paid sick leave until January 2005.
The calculations are based on a yearly salary of $284,000 being the salary of the plaintiff as a Chief Executive at level F.[590] Thus the following calculations for each year arise:
·January 2005 to 30 June 2005, $142,000, but as the contract entered its second year, factoring a 3.5 percent increase, the salary would equate to $293,950);
·1 July 2005 to 30 June 2006, a 3.5 percent increase would equate to $304,227.90;
·1 July 2006 to 30 June 2007, a 3.5 percent increase would equate to $314,875.87;
·1 July 2007 to 30 June 2008 a 3.5 percent increase would equate to $325,896.52;
·1 July 2008 to 30 June 2009, a 3.5 percent increase would equate to $334,043.93.
[590] They incorporate likely yearly increases calculated by reference to five documents each entitled “Executive Remuneration Structure” corresponding to each of the financial years from 2005–06 to 2009–10. Those documents in turn which are annexed to P5 (Statement of plaintiff).
Thus, a total loss of salary from January 2005 to March 2010 has been calculated at $1,332,395.51.
So far as the loss of superannuation benefits are concerned, the calculation commences with the plaintiff’s situation as if she had retired on 27 March 2010. Under the lump sum payment she would have received $696,226 and her membership contribution would have been $36,146. However, upon the termination of her contract she received a gross benefit of $556,225 comprising a lump sum payment of $394,617.67 and a membership contribution of $125,245.47. In calculating the loss of superannuation these latter amounts were deducted. Further, the plaintiff had invested the $556,225 and an amount of $137,849 was deducted after allowing for a 15 per cent contributions tax which would have been payable on the initial investment.
Therefore after adding back in assumed membership contributions up to 27 March 2010 the total loss of superannuation benefits over the period up to 27 March 2010 totalled $283,672.77.
Assuming that the breach is as I have set out earlier [671], the issue which arises is whether but for that repudiation or constructive dismissal, the contract of the plaintiff would have continued as Chief Executive up until that date. In my view it is unlikely for the following reasons. Even if the plaintiff had relied totally on the advice of others, notably Mr Pennifold as well as what she believed to be the advice from the Crown Solicitor to explain her actions, my findings as set out in my reasons indicate that she was not blameless. My findings indicate that she did not use the CSTA, even according to her own understanding of the pre-requisites. She authorised the use of the CSTA, being an account not previously used, and relied on second hand advice about approval by the Crown Solicitor. At no stage did she frame the advice which she sought so as to understand exactly what the Crown Solicitor’s advice was. Mr Walter was not told of the accountancy treatment and he was not asked about the carryover policy. She, with assistance from Mr Pennifold, tried to quarantine moneys which she considered were for the greater good of the Attorney-General’s Department in delivering it policies and projects to benefit the community, rather than have those moneys potentially used by the Government for other projects. The carryover policy which was circumvented was a whole of Government policy and he did not tell her of his belief that the deposits were probably contrary to the carryover policy. The plaintiff turned a blind eye as to how that was achieved and did not even try to get her head around the basic accounting processes which were used. A proper requesting of advice from Treasury or from the Crown Solicitor would have revealed the inappropriateness of the whole process.
From the time when the investigation commenced, throughout the investigation and even during the trial, she has tried to justify her involvement with others, in circumventing the carryover policy. Her continued denial of any wrongdoing revealed not only an obstinate streak but also that she viewed everything from her own perspective and not the Government’s perspective.
I think it highly unlikely that she would have continued on as the Chief Executive Officer for the four and a half remaining years of her contract as a Chief Executive. Further, I consider that it was highly unlikely that the Government would have continued to retain her employment at an Executive Level E until such time as she decided to retire in March 2010. In so concluding I have in mind a specific question which was asked of her in the Walsh letter of 13 October to which she did not respond namely:
D2: Can it be inferred that you continue to hold the belief that you acted appropriately in the approach that you took to the Treasurer’s Instructions?
Looking also from the plaintiffs perspective, given the fact of the inappropriate use of the CSTA as well as the breaches of Government policy and the signing off of inaccurate financial records which had occurred under her leadership, the plaintiff may have decided instead to leave that employment and go to another form of employment sometime prior to January or March 2010.
Bearing in mind all of these factors I consider that the chance of her attaining the monetary loss as set out in P90 should be significantly discounted by 50 per cent.
There should also be a further deduction for the moneys that she in fact has received over that period of time which is also set out in P90 namely:
2007 - $14,671 (net business income)
2008 - $51,732 (net business income)
2009 - $ 2,623 (net business income)Total: $68,436 - this figure also needs to be deducted.
As to any future loss I think that the chance of any future loss of salary after March 2010 in seeking part time work is unlikely to be adversely affected as a result of the assumed breach of contract or constructive dismissal.
In summary, I make the following findings as to damages if breach had been made out:
Salary benefits $1,332,395.51
Net Superannuation cap benefits $ 283,672.77$1,616,068.28
Reduced by 50 per cent $ 808,034.14
Less Salary earned $ 68,436.00)
Total $ 739,598.14
The plaintiff in her Statement of Claim, claimed interest. No argument as addressed to me on this topic by Counsel for the appellant. There was also no submission made on behalf of the Government.
The question of interest of itself raises a number of issues including that this is an action in contract as well as a claim for constructive dismissal; the damages have been assessed up until March 2010 and are based on an incremental loss of wages; and the plaintiff did not commence her action until 2008.
In this situation I consider it appropriate to reserve the question of any interest. This only becomes relevant at the stage of any appeal court and it could be dealt with by that Court in the event that an appeal was to be.
Conclusion
In dismissing the plaintiff’s case for the many reasons which I have set out earlier, I thought it important to make some final observations. The plaintiff for more than a decade worked hard in her role as a Chief Executive in the State Public Sector. She enjoyed a reputation of which she could be justly proud. She was committed to achieving outcomes and always showed initiative. I reiterate what the Treasurer Minister Foley had to say about her:
I thought Kate Lennon was a very, very good chief executive, she was a lateral thinker and she was, you know, prepared to show initiative in terms of looking at ways we could save money that didn't hit the bottom line.
She was working in one of the largest portfolios and it was undoubtedly a tough job. Therefore, the outcome of this case is a very sad ending to what was a very fine career. Unfortunately, circumstances came about where the very strengths which she had as a Chief Executive, in particular loyalty and determination to achieve initiatives within her department, became the very reason for her demise. It was that commitment which led her to use a method, which was suggested to her by her departmental financial advisor, in order to get around a whole of government policy regarding carryovers. The deposits were approved by the then Crown Solicitor Mr Walter, when they should not have been. The practice was devised so that she could continue to fund important initiatives in the Attorney-General’s Department rather than return the moneys to Treasury to be potentially made available for other government projects. The method involved an unusual use of the CSTA (Crown Solicitor’s Trust Account) in a way that she had never used it before and indeed a way in which nobody else had used it. Prior to its use, she did not obtain proper and full advice on all aspects of this use from the Crown Solicitor or seek advice from Treasury about the carryover policy. The then Attorney-General Minister Atkinson was not informed about the practice, however, his overall lack of interest in budgetary matters would not have encouraged the plaintiff to keep him so informed. The result was that more than $6 million was deposited over two years in order to fund initiatives within the Attorney-General’s Department, the accountancy treatment for which enabled the carryover policy of the Treasurer to be avoided and meant that the financial statements in the Attorney-General’s Department were wrong.
Two investigations were carried out in order to find out how the CSTA had been used and what the financial treatment was of the accounts in the department. In urgent circumstances there were reversals to reconcile the 2002 – 2003 and 2003 – 2004 financial accounts. The investigations revealed that the CSTA was used outside the control framework established by the Public Finance and Audit Act 1987 (SA) and that it was not in compliance with the requirements of the Act and the Treasurer’s carryover policy expressed in his Minute.
These investigations took place in the months of July to October 2004 and were not finally completed until the tabling of the Auditor-General’s report on 11 October 2004. This time was very distressing for the plaintiff and her family, particularly given the involvement of the media. At the end of the investigation there was an opportunity given to her to put forward her views as to what she did and why she did it in order for the Premier to consider what effect this would have in relation to her position as a Chief Executive. Instead of taking that opportunity to respond, she resigned.
Although the plaintiff took part in the process of the use of the CSTA and it occurred in the very department of which she was the Chief Executive, at no point did she acknowledge any blame for what had occurred and she continued to deny any “wrongdoing”. This remained her position right up until the time of this case and throughout the trial.
I have rejected each of the allegations which she has made against the Government as to its approach with regard to the investigation and the treatment she was given. This is not how her career in the Public Service should have ended.
I therefore order that the plaintiff’s claim is dismissed.
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