McDonald v The State of South Australia
[2010] HCATrans 25
[2010] HCATrans 025
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Adelaide No A12 of 2009
B e t w e e n -
FRANCIS THOMAS McDONALD
Applicant
and
THE STATE OF SOUTH AUSTRALIA
Respondent
Application for special leave to appeal
FRENCH CJ
KIEFEL J
TRANSCRIPT OF PROCEEDINGS
FROM MELBOURNE BY VIDEO LINK TO ADELAIDE
ON FRIDAY, 12 FEBRUARY 2010, AT 10.50 AM
Copyright in the High Court of Australia
MR I.M. NEIL, SC: If the Court pleases, I appear with my learned friend, MR D.W.M. CHIN, for the applicant. (instructed by Slater and Gordon)
MR M.G. HINTON, QC, Solicitor‑General for the State of South Australia: May it please the Court, I appear with MR T.N. GOLDING for the respondent. (instructed by Crown Solicitor’s Office – Adelaide)
FRENCH CJ: Yes, Mr Neil.
MR NEIL: Our principal submission is that the Full Court’s decision was erroneous in a way that would, on appeal, raise for resolution a significant uncertainty in the common law of employment in Australia, indeed, in our submission, presently the most significant uncertainty. If it please the Court, we would propose first to develop the second part of that submission, then return to what, in our submission, was the fundamental error in the Full Court’s judgment and lastly address some submissions to the question of breach, which on the surface may appear to be the most difficult aspect of the decisions below.
The uncertainty to which we referred a moment ago centres on the contractual obligation of mutual trust and confidence between employee and employer and the related questions of whether and on what basis that term should be applied by law in Australian contracts of employment. As the Full Court acknowledged what we have called the mutual trust and confidence term is entrenched in the law of the United Kingdom and elsewhere in the common law world. It is a reflection of what the House of Lords have said is the close, personal relationship involved in every contract of employment, and inherently so. It is closely related ‑ ‑ ‑
KIEFEL J: Here one of your first difficulties, is it not, is that the findings of the Full Court were made in the context of a particular statutory regime, and it is not really possible to view the contract and whether or not such a term should be implied outside that statutory regime.
MR NEIL: We concede the last proposition, if we may say, with respect, but our submission is that that concession, that fact, poses no particular difficulty. It was accepted below that the relationship between the applicant and the respondent was in part contractual. The statutory and regulatory regime sat alongside the contractual relationship and formed part of the overall relationship between them. To the extent that the contract was inconsistent with any aspect of the statutory and regulatory regime, then the contract had no operation, but inconsistency was disavowed by the Full Court.
KIEFEL J: What I am referring to is the Chief Justice held that the implication of the term of mutual trust and confidence was not necessary in the context of the statutory regime which governed the relationship between the parties.
MR NEIL: That holding was the fundamental error. The question was the wrong question to ask. May we go to that now?
KIEFEL J: Yes.
MR NEIL: The Full Court was asked, as the trial judge had been asked, whether the mutual trust and confidence term should be implied in the applicant’s contract by law. There was no question of an implication as a mater of fact. As this Court held in Byrne, the focus of inquiry should then have been on the class of contract to which the applicant’s contract belonged. The task at that point, in our submission, should have been to identify the necessary incidence of that class of contract as a class, rather than to look at the applicant’s contract as an individual contract within that class.
KIEFEL J: Do you not look at the statutory regime which provides a number of the terms and conditions as providing the outline of the relationship between the parties and the conditions which affect the relationship between the parties? Is not that your starting point?
MR NEIL: In our submission, no. The starting point is to ascertain the class of contract to which the particular contract belongs and then look at the necessary incidence of that class of contract ‑ ‑ ‑
FRENCH CJ: The anterior question is to ask, is it not, what is the class of contract which attracts the implication?
MR NEIL: There will always be such a question ‑ ‑ ‑
FRENCH CJ: For example, if the implication is based upon, as the Full Court seems to have suggested, necessity because of the vulnerability, for example, of the position of employees in relation to the exercise of power by employers and close, personal relationship and so forth, that array of matters referred to at, I think, page 213, then there may be an issue as to whether the class of contracts attracting that implication extends to contracts in which there has been a redress of those issues by statutory provision and awards and so forth, and grievance procedures, and all the rest, which is really what the Full Court was focusing on.
MR NEIL: In our respectful submission, that was not what the Full Court was doing, but in so submitting, we can see that there will always be a question of identifying the class of contract ‑ ‑ ‑
FRENCH CJ: Which attracts the implication?
MR NEIL: Yes. It may not be sufficient in every case to identify the class as being the class of contract between landlord and tenant, or the class of contract between commercial parties, or even the class of contract between employer and employee, but it was in this case appropriate to do so, we submit, for this reason; that the term is not implied by law – where it is so implied – the term is not implied by law because it is needed. It is implied by law because it is a necessary incident of the relationship to which that class relates and trust and confidence. Mutual trust and confidence is a necessary incident of a contract of employment. That has been accepted in this Court since Blyth Chemicals. If you do not have trust and confidence, and that trust and confidence is not mutual, you do not have employment.
KIEFEL J: You are denying much relevance then to the statutory scheme that ‑ ‑ ‑
MR NEIL: We do. We would not be in a position ‑ ‑ ‑
KIEFEL J: You have to do that to raise this special leave question of general importance. You have to take the matter outside any statutory background.
MR NEIL: May we suggest a qualification to that proposition with respect, your Honour?
KIEFEL J: Yes.
MR NEIL: Even if one focuses on a class of contract that is subjected to a statutory and regulatory regime of a kind like one has here, then one is still looking at contracts of employment that apply to a very large number of workers in Australia. There is an important question in relation to them. As a consequence of the provisions of the new federal Fair Work Act, every award and certified agreement in Australia either now, or will shortly, contain a dispute resolution procedure which is very like the procedures that formed part of the statutory and regulatory regime here, indeed, perhaps a little stronger. The same questions will arise in relation to all of those employees as arose in Mr McDonald’s case, and about ‑ ‑ ‑
KIEFEL J: Accepting for the moment that might be the case, your next difficulty is that there were findings that even if there were such a term “were to be implied” there was not a repudiatory breach of that term.
MR NEIL: It is a little more difficult than that, if it please, your Honour. Because the Full Court took the view that the mutual trust and confidence term was not to be implied in this contract, it did not go on to make any findings as such as to whether any of the respondent’s conduct had breached that term. We acknowledge that the Full Court expressed doubt as to whether that would be the case, and our submission is that ‑ ‑ ‑
KIEFEL J: You say there was no concluded finding?
MR NEIL: ‑ ‑ ‑ doubt is misplaced. Our first answer to that proposition, which is put very much against us, is that no such finding was made.
KIEFEL J: What would be the relief you seek from this Court? You would have to have a rehearing, would you?
MR NEIL: No, because the trial judge assessed damages on the basis that the mutual trust and confidence term had been breached along with the implied duty to take reasonable care of the employee’s health and welfare.
KIEFEL J: Had South Australia challenged those findings on appeal?
MR NEIL: No. That is the assessment of damages?
KIEFEL J: No, the breaches. The fact of breach.
MR NEIL: On appeal to the Full Court, yes. The Full Court did make findings. It expressly made findings as to whether any of the respondent’s conduct had breached what we call the safety term, as a shorthand expression.
FRENCH CJ: There was a duty of care issue implied ‑ ‑ ‑
MR NEIL: That is right, there were the two implied ‑ ‑ ‑
FRENCH CJ: You had adverse findings in relation to breach on the duty of care issue ‑ ‑ ‑
MR NEIL: Correct.
FRENCH CJ: And a big question mark over your prospects of success in relation to the implied ‑ ‑ ‑
MR NEIL: We acknowledge a big question mark, but submit that it was misconceived.
FRENCH CJ: The questions asked, I suppose is, does that inform your prospects of success if you were granted special leave and you got up on the implied term argument – it is relevant to our determination whether to grant special leave, whether you would, in any event, have reasonable prospects of success if the matter then went back on the breach issue.
MR NEIL: We submit that we do, and that is because – we put it on two bases: one, no finding against us; two, one cannot properly take findings that related to the duty of care term and whether that had been breached, and translate that into whether the mutual trust and confidence term ‑ ‑ ‑
FRENCH CJ: I am segregating those. I am just looking at the finding in relation to the implied term at 225.
MR NEIL: Yes. What the Full Court does in arriving at its doubt is really to translate the findings in relation to the duty term to the mutual trust and confidence term.
FRENCH CJ: How do you demonstrate that? It is at 225, I am just wondering how.
MR NEIL: Appeal book 225, paragraph 272, if it please, your Honours.
FRENCH CJ: At 273 there is a reference to “the implied contractual duty of care”.
MR NEIL: Yes. Your Honours will see in the last sentence of paragraph 273 the translation to which we referred.
FRENCH CJ: You say that is wrong. They simply say the reasons given for that conclusion also apply here. Why is that wrong?
MR NEIL: We say it is wrong because the mutual trust and confidence term and the duty term are materially different when it comes to considering whether they have been breached. We make that submission acknowledging that in some cases the same conduct may breach both terms.
KIEFEL J: You mean duty of care is the subset of the overarching mutual trust and confidence?
MR NEIL: There are some opinions in the House of Lords which would suggest that that was so. The mutual trust and confidence term is described as a portmanteau obligation, but our argument, while embracing that proposition, does not necessarily depend upon it. Our argument is that even though sometimes the same conduct may breach both terms, that is not necessarily so, because conduct may undermine trust and confidence, and that is really the touchstone; what is it that undermines trust and confidence? Conduct may undermine trust and confidence without necessarily also jeopardising an employee’s health and welfare. In this case, the applicant’s objection was to a course of conduct by his employer that persisted for many years.
Our contention is, as was submitted below, that employees can establish a material breach of the mutual trust and confidence term by accumulating a number of instances of their employer’s conduct which taken individually might not amount to a breach of that term, but which viewed cumulatively or as a whole, do amount to a breach. One cannot take the findings that the Full Court made about particular incidences of the respondent’s conduct that that conduct did not breach the duty term, and translate that to the kind of case that the applicant would wish to make as to the respondent’s breach of the mutual trust and confidence term.
It is the totality of the wrongful course of conduct when looked at objectively which entitled the applicant to say that his employer, the respondent, had evinced an intention no longer to be bound by the most fundamental tenet of their contract and that was the existence of mutual trust and confidence shared between them. That is the approach that was taken by the trial judge, and in our submission, that is the correct approach. That is the answer we make to your Honour, the Chief Justice’s question.
Now, before we leave that question of breach, which we had intended to deal with last, but are addressing now, can we turn to another proposition that is put against us in that area. The respondent points to the Full Court’s findings that much of the conduct of which the applicant had complained had ceased before he accepted the respondent’s repudiation. For example, we remind your Honours that one of the applicant’s complaints was that for many years he had been loaded up with an excessive workload for which he was neither properly trained, nor adequately supported, and the Full Court find that that complaint had been addressed months before the repudiation was accepted. The respondent draws some comfort from that in this area.
We make two points about the significance of those findings. The first is that this realm of discourse – it is now settled – is entirely contractual. A contract of employment is a contract which falls to be considered according to ordinary contractual principles, and those principles include the doctrines of waiver and election and the like, and there is no suggestion, not in the Full Court’s findings, and not in the respondent’s submissions – no suggestion – that any part that the applicant had played in the resolution of any one of his individual complaints, constituted a waiver or election by him not to treat that conduct as having being repudiatory. In fact, the point was made below and expressly excluded by the trial judge at application book 88 and 89, particularly at paragraphs 428 and 429.
The second point we make is that the trial judge had found that it was the applicant’s realisation that he was never going to have his grievances against the respondent resolved that finally led him to accept the respondent’s repudiation. That was continuing conduct existing and being carried on at the point when he accepted the repudiation. There is no doubting the objective seriousness of that matter, it is acknowledged by the Full Court and the trial judge characterised it in very strong terms; a sorry saga of buck passing and neglect.
KIEFEL J: Just in the interests of time; I notice that up to this point you have put your main emphasis upon whether or not this Court should revisit the decision as being incorrect. Do you have any other special leave bases? I noticed that in the reasons advanced you have suggested that there are differences of opinion in the courts, whereas I had taken to you to say in your opening submission that it was generally accepted that these terms ought to be implied, and there is a bit of an inconsistency there in your approach.
MR NEIL: We return now to this question of uncertainty with which we began. Our submission is that the weight of authority in Australia tends to support the implication of the mutual trust and confidence term by law, but it is not universally acknowledged and the most immediate illustration of that ‑ ‑ ‑
KIEFEL J: You mean there are different views as to when it should be implied?
MR NEIL: There are two strands of uncertainty. May we identify them separately. The first is whether it exists as part of the law of Australia at all. Overwhelmingly, the weight of authority favours that proposition, but it is not universally accepted. There are decisions at first instance in the Federal Court and in the Supreme Court of New South Wales which reject that proposition, or at least doubt that proposition, and the most immediate illustration of the uncertainty that surrounds that question presently is that it was still open to the respondent to contend, as it did before the Full Court, that the mutual trust and confidence term is not part of the law of Australia. That contention was advanced below and on appeal.
It is a contention which is routinely, perhaps almost invariably, advanced by employers in suits of this kind. Its existence is still controversial. Then, as your Honour has pointed out, there is another controversy as to the basis of the implication. There are two judgments at first instance in the Federal Court which approached the matter as though the implication should be one of fact, and then there is this judgment, which in our submission does not approach the question of the implication of law correctly. It uses a test of necessity in a way which is not available in a case whereas here there was no inconsistency between the two regimes.
FRENCH CJ: Yes, thank you. Yes, Mr Solicitor.
MR HINTON: If the Court pleases. Whether or not the mutual trust and confidence term is a matter of law should be regarded as implicit in contracts of employment is a question fit for the consideration of this Court. We concede that, but our contention is that this is not a suitable place in which to answer that question.
We submit there are two prime reasons as to why this is not a suitable vehicle, and both of them touched upon in the course of argument already, but the first, of course, in our submission, is that the Full Court’s judgment is not attended by sufficient doubt; the prospects of success are insufficient to warrant a grant of special leave, and the second is that the factual matrix of this case is not one minded of that legislative regime that incorporates aspects of regulations and industrial awards - is not one that would allow this Court to tease out all the issues necessary to answering the questions raised at a very academic and theoretical level with respect to the mutual trust and confidence term.
FRENCH CJ: I suppose implicit in what Mr Neil was putting in that regard was that you would not find many contracts of employment which are not regulated by some form of statutory framework, whether or not it be in relation to awards or otherwise. In other words, to raise a statutory context as an answer to the implication is to itself raise a point of general significance.
MR HINTON: My answer to that is not to disagree, but to point out the exhaustive nature of the statutory regime that applies in this case, a taste of which has been inflicted upon your Honours between pages 281 and 423 of the application book, and that is just an example of the awards and certain conditions that apply under the awards in various industrial instruments. If we go from there, we then look at the policy of the high school, we also look at policies of the Department, and make our way back to the regulations and to the statutory context.
Part of that means that in considering this case we are, in line with what your Honour Justice Kiefel has pointed out, quickly confronted by the symbiotic relationship, to borrow from Chief Justice Gleeson’s judgment in Brodie, of the legislation in the common law, and it is perhaps that relationship that lead Lord Steyn in the House of Lords case of Malik and Mahmud to describe this term as a default rule, and if it operates as a default rule, much as perhaps the Full Court forecast, then inevitably this Court – if it grants special leave – will be bogged down in the construction of the Education Act, of the regulations made pursuant to it, of the content of the industrial awards, and the policies of the Department, and those aspects of this employment contract being so exhaustive, we are a long way from what is required to fully examine the question of the implied term.
It is not a case, in our submission, then that allows the issues arising from the rationales underpinning the implied term, as identified by the Full Court, to be teased out such that it can be said that this Court becomes involved in the consideration of a matter of general public importance. As to the prospects of success, I refer, and the Court has already been to them in some part, to paragraphs 272 at page 225 of the appeal book of the Full Court’s judgment, and that is to be read in the light of paragraph 270, drawing a number of factual conclusions as to the grievance procedure and its application in this case.
I then go back to that paragraph 272 that your Honour the Chief Justice took my learned friend to in the last sentence. My learned friend’s response was that, with respect to the duty of care to protect the health and safety of an employee at work, it does not necessarily cover the same ground, as it were, as the implied term of mutual trust and confidence, and in that bold submission he is right, but on the facts of this case, there was undoubtedly a large overlap, and that can be tested and seen at paragraph 387 of the Full Court’s judgment where their Honours give a wrap‑up, if I may use that expression, of the outcome of their consideration of their duty of care to ensure health and safety at work.
All of those factors at 387 are relevant to mutual trust and confidence, so this is a case where we do have the overlap. When it comes to looking at questions of prospects of success, the finding on the implied contractual duty coupled with that doubt, and it is no small doubt, in my submission supports the submission that this is not a case where the prospects of success are sufficient as to warrant a grant of special leave. If the Court pleases, those are my submissions.
FRENCH CJ: Thank you, Mr Solicitor. Mr Neil.
MR NEIL: The mutual trust and confidence term is a default rule. It is a rule which applies, by operation of the law, to every contract of employment unless it is excluded, either expressly or by necessary implication. The touchstone is inconsistency. As the Full Court found here, there is no inconsistency between the statutory regulatory regime and the mutual trust and confidence term. The one does not preclude the other. That finding is made at application book 224 to 225 at paragraph 271.
FRENCH CJ: Rather they seem to apply the covering the field test, the extended concept of inconsistency.
MR NEIL: With respect, we would not suggest that the Full Court’s judgment went so high. Really all the Full Court did was to say, in the light of the statutory and regulatory regime, there is no work for the mutual trust and confidence term to do, but that is an erroneous process of reasoning, in our submission. The two maybe act to achieve the same result, but their object is different. The object of the mutual trust and confidence term is the preservation of the shared trust and confidence, which is an unavoidable feature of the contract of employment. An analogy is the statutory occupational health and safety regimes that apply in every State. It is not suggested that those regimes exclude an implied duty of care even though both may tend in the same direction.
In Byrne, for example, if this Court held that an award obligation supported by statute, an award requirement not to terminate unreasonably, could sit and live comfortably alongside an implied term to give reasonable notice of termination, so too here. The statutory and regulatory regime complements the implied term; the two live together. The implied term may well reflect on the exercise of some of the discretions that are available under the statutory and regulatory regime.
This is a circumstance that applies in very many contracts of employment in Australia, not just the employees covered by awards and certified agreements; it will apply to all of those, 60 per cent of the workforce, as we pointed out in our submissions in reply, but it also applies to many employees, particularly in the public sector whose employment is regulated directly in a way precisely analogous to that of Mr McDonald, by statute and regulation, like the Education Act (SA).
This case, involving as it does, that regime, far from providing reasons why it is inappropriate for special leave, in our respectful submission, provides additional reasons for special leave. Not only does it provide the occasion to look at the implication generally, but also to this very important class of employee, those to whom statutory and regulatory regimes of a similar kind apply, and also the opportunity to look at the basis of the implication, and finally the opportunity to look at the content of the term, a term which is expressed in normative language and falls to be elaborated by its application to given sets of facts. So that we would rather make a virtue of what is suggested against us as a vice. If it please the Court, those are out submissions.
FRENCH CJ: Thank you, Mr Neil. The Court will adjourn briefly to consider its decision.
AT 11.22 PM SHORT ADJOURNMENT
UPON RESUMING AT 11.22 AM:
FRENCH CJ: The applicant, who was employed by the State of South Australia under the Education Act 1972, seeks special leave to appeal against a decision of the Full Court of the Supreme Court of South Australia. The Full Court allowed an appeal against the decision of a trial judge awarding the applicant damages for breach of the contract of employment. Special leave is sought on the basis that the Full Court wrongly held that the contract of employment did not contain an implied term of mutual trust and confidence.
In our opinion the conclusion of the Full Court related to the particular statutory context in which the applicant was employed. The court also held, on the basis of factual conclusions, that in any event it was doubtful that the implied term, if it existed, had been breached. The context of the court’s decision on the implied term affects the question whether that decision was correct and renders more difficult the identification of a principle of general importance and application.
This matter is not a suitable vehicle for the grant of special leave for those reasons and also because, in our opinion, it does not enjoy sufficient prospects of success. The application for special leave will be refused.
Do you seek costs, Mr Hinton?
MR HINTON: We do, your Honour.
FRENCH CJ: Can you resist that, Mr Neil?
MR NEIL: No, your Honour.
FRENCH CJ: Special leave will be refused with costs.
The Court will adjourn until midday.
AT 11.28 PM THE MATTER WAS CONCLUDED
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