Mcveigh v Auspine Ltd No. DCCIV-99-510

McVEIGH and AUSPINE LTD
[2000] SADC 24

His Honour Judge Bright
Civil

On 15 May 1998 the plaintiff’s contract of employment with the defendant was terminated by the defendant. The plaintiff claims damages.
The plaintiff is now 53. By 1997, he had worked for many years in Victoria in various positions in the timber industry. He had always been in work and had risen to senior positions. In the years prior to the events of this case he had been working in the timber division of C.S.R. as the Victorian State (later re designated Regional) Sales Manager of Softwood Holdings, a major player in the industry. At one stage he had a staff of 50. At the end it was about 35. He was well regarded. He was an active member of various trade associations and was well known to others in the industry. He was with C.S.R. for over 7 years.
Towards the end, it appears that C.S.R. was re-organising itself. It became not unlikely that, if his career was not to stagnate, or even go backwards, the plaintiff would have to seek another position, though there was no immediate pressure on him to do so. He said that there were opportunities within C.S.R. and he was considering a possible move to Sydney to C.S.R’s concrete products division. Obviously he knew about timber, but his strengths were in sales and management. His employment was as secure as anyone’s.
He was also keeping an eye on opportunities that might arise outside C.S.R. He saw an advertisement in the press for a manager of an unidentified timber concern. The position was in Adelaide. The advertisement had been placed by a management consultant. He guessed who the timber concern was and, on enquiring, soon confirmed his belief. It was Auspine Building Centres (ABC), a timber selling and manufacturing division of the defendant. It was common knowledge that ABC had previously been an old established South Australian company, which had now been bought by the defendant. It was believed to be struggling.
The plaintiff applied to the management consultant, Mr. Willis. Mr. Willis evidently had quite a number of applicants. He narrowed the field, by interview, first to 16 and then to 6. The plaintiff was one of the 6. At this stage, Mr. Ryan became involved. He was then the Managing Director Designate of the defendant. The curious title was arrived at because it was expected that the existing Managing Director, Mr. De Bruin, would shortly become Chairman of the defendant, at which time Mr. Ryan would become Managing Director.
Mr. Ryan was a very experienced manager. He knew the plaintiff to some extent. They were both in the same industry and both had interests in the south east of South Australia and in western Victoria. They often ran into each other while travelling to Mt. Gambier. C.S.R. had an entertainment policy which funded visits to races and football. Mr. Ryan had been C.S.R’s. guest on some occasions when the plaintiff had been host. They were business acquaintances, but not otherwise socially involved.
It was Mr. Ryan’s task to interview the last group of applicants, including the plaintiff. There were a couple of meetings which, from the plaintiff’s point of view, appeared to go well. The nature of the job was discussed. It was made plain that ABC was a problem and would need a lot of work. For that reason the appointee would be expected to live in Adelaide (the plaintiff lived in Melbourne). He would be expected to develop a high profile in South Australia with ABC staff, with others in the industry and in the South Australian community generally. A salary package was discussed. The original advertisement had mentioned $140,000.00. In discussion this became $130,000.00, with the possibility of an annual bonus of up to $10,000.00, based on performance. The $130,000.00 included a compulsory deduction for superannuation. The plaintiff could deduct more for superannuation if he so chose. He could have a car, the value of which would also be deducted. The plaintiff was not interested in moving to South Australia unless the job was sufficiently long term. Probably a term of 3 years was discussed. I do not stay to describe these discussions in detail, as the important question will be what was ultimately agreed.
There is no doubt that Mr. Ryan had at least ostensible, and, probably, actual authority to bind the defendant. I put it this way because a question arose whether the final appointment of the plaintiff was subject to the approval of Mr. DeBruin, or whether Mr. Ryan merely advised Mr. DeBruin of it as a courtesy.
Mr. Ryan telephoned the plaintiff at his home in Melbourne on the morning of Saturday, 22 March 1997. He did so to put a firm proposal to the plaintiff, hopefully for his acceptance. Insofar as there is a suggestion that the contract could not have been concluded, simply because Mr. DeBruin had not given his approval, I reject that contention. Whether or not Mr. Ryan should have entered a contract, I am satisfied that he had authority to do so. The defendant does not seek to resile from whatever may have been done by Mr. Ryan. Its position is to dispute the effect of what he did.
Mr. Ryan is no longer with the defendant. He was called as a witness by the plaintiff. He was, in many ways, the best witness. He did not appear to favour either side. He had good recall. Suggestions that he might be anti defendant, because of the circumstances of his leaving the defendant, were not persuasive. He seemed to me to be too busy with his own interests and career to have any concern for either party to this case.
Exhibit P3 is a photocopy of the plaintiff’s diary for 22 March 1997. It shows references to various aspects of the arrangements between the parties. The plaintiff says he made notes of an offer from Mr. Ryan during the conversation. The notes are little more than a list of topics, and by no means even a complete list of them. It was suggested that the list was really one he prepared in anticipation of a telephone call rather than a record of it. Alongside the topics appear ticks - it has been suggested that they showed the plaintiff ticking off the topics he wished to raise as he did so. The plaintiff denies that. Mr. Ryan says that he, Mr. Ryan, put the various terms to the plaintiff. I think it probable that the document is a record made as conversation progressed, rather than in anticipation of it. I reject any suggestion that it is a later fabrication (an allegation implicit in cross‑examination, but never put formally in final addresses).
The plaintiff and Mr. Ryan both say that it was agreed that the defendant would employ the plaintiff on certain terms, most importantly for this case, for a period of 3 years, subject to the plaintiff satisfactorily completing a short period on probation. He was to start on 16 April 1997 and to be on probation until 30 June 1997. Either side was free to pull out during that time. From 30 June, the contract, if not already terminated, was to run for 3 years. Exhibit P3 includes a note:
“To 30/6 1/7
\
3”
I take that to refer to the probation period to 30/6/97, with three years to run from 1/7/97.
Most other significant terms were agreed. Some were not. In particular, while it was agreed that there would be the possibility of a bonus of up to $10,000 per annum, the criteria by which it would be assessed remained to be negotiated.
The defendant now claims that no concluded agreement was reached on 22 March 1997 and that all that occurred was a further stage in a negotiation. That is not the evidence of Mr. Ryan or the plaintiff, who are both very clear that they thought that they had made an agreement.
It is clear that the plaintiff wanted something in writing and Mr. Ryan agreed to write. He prepared a letter (P1) which he faxed to the plaintiff on Monday 24 March 1997, for signature by the plaintiff. The plaintiff signed it and faxed a signed copy back to Mr. Ryan immediately.
Arguably, that document suggests a need for further negotiations before it could be said that there was a contract, at least one for a three year period.   I set it out.
24th March 1997  AUSPINE LIMITED
Mr. W. McVeigh  29 Lee Street  CARLTON VIC 3054
Dear Bill
Re: General Manager of Auspine Building Centres
I am pleased to confirm our verbal agreement with regard to your acceptance of our offer of the position of General Manager, Auspine Building Centres.
DUTIES
n.. You have already received a position description setting out the roles and responsibilities for the position as General Manager of Auspine Building Centres.   A more detailed specification will be agreed between us prior to your commencement.
n.. The position reports directly to the Deputy Managing Director/Managing Director elect of AUSPINE Limited (with interstate and possibly Overseas travel as agreed from time to time).
SALARY PACKAGE
n.. The agreed salary package will be $130,000 per annum.   The package will comprise components of cash remuneration, superannuation (your choice of level of contribution beyond the level of the superannuation guarantee charge), provision of motor vehicle (Fairlane or Fairmont equivalent) and telephone expenses.
n.. The vehicle may be used for limited private use.   Employees are fully responsible for parking and speeding fines etc. and for payment of accident excesses where they have allowed unauthorised non employee use of the vehicle.
n.. Shell card will be issued.
n.. Salaries are paid on the 15th of each calendar month for that month into your nominated bank account. (Please advise bank account details).
SPECIAL BENEFITS
n.. Membership of professional Associations will be paid by the Company.
HOURS OF WORK - LEAVE ENTITLEMENTS
n.. Your position is considered a Senior one within the Company and as such precedent is that overtime is not paid for out of normal hours work (is. the job must be completed on time).   Where continuing abnormal overtime is worked by arrangement with your Supervisor, time off in lieu may be agreed.
n.. Leave conditions are:   Annual Leave of 4 weeks cumulative with maximum accumulation of 6 weeks - Sick Leave - 10 days per annum (cumulative) with accruals not paid out on termination.   Long service leave of 13 weeks after 10 years (pro-rata after 7 years).
n.. Hours of work will be based on a normal working week of 40 hours between 8.00am - 4.30pm Monday - Friday with 30 minutes for lunch.   (These hours are negotiable)
RELOCATION EXPENSES
n.. A one time relocation allowance/rental assistance of $4,000 to cover your expenditure in relocation from Melbourne to Adelaide will be made.
TRAVELLING AND ENTERTAINMENT EXPENSES (BUSINESS EXPENSES INCURRED)
n.. A travel advance of $300 will be advanced for travel expenses and upon termination of employment will be deducted from your final pay.
n.. An entertainment advance of $200 will be advanced for entertainment expenses and upon termination of employment will be deducted from your final pay.
n.. In addition to the above package, where your duties involve authorised travel on behalf of the Company reasonable expenses will be reimbursed.
CONTRACTUAL AGREEMENT
n.. It is intended for us to negotiate a contract of employment for a three year term effective from 1st July 1997.   Within that contractual arrangement, provision will be made for a series of performance indicators, which will measure your personal effectiveness
n.. An incentive arrangement which will provide payments of up to $10,000 per annum upon achievement of the agreed goals will be included.
SHARE AND OPTION PLAN
n.. You will have access to a generous executive and employee share and option plan.   Details are to be provided when available.
COMMENCEMENT DATE
n.. You will commence duties on April 16, 1997 at the Gillman branch located in Adelaide, South Australia.   A period from April 16th to 30th June 1997 will serve as a probationery/assessment period for both parties.
n.. In the intervening period, prior to the take up of your duties, please contact the writer should you require any additional information or assistance regarding the position.
n.. We would be obliged if you would sign one copy of this letter and return it to me, as confirmation of acceptance of your arrangements.
I look forward to working with you on the exciting and challenging undertaking that you will bring to the position.
Yours sincerely,
(Signed) Mr. Peter J Ryan
DEPUTY MANAGING DIRECTOR
I accept your offer of employment based on the conditions set out above.
(Signed) Mr W McVeigh  Dated 24/03/97
The defendant accepts that there was a contract to serve a probationary period as set out under “Commencement Date” but says that the words under “Contractual Agreement” must be construed as meaning that any three year term remained to be negotiated. The defendant accepts that nothing adverse to either party occurred during the probationary period and that the plaintiff continued in the employ of the defendant. However, it argues, the plaintiff was thereafter not employed for any fixed period - no new contract was ever negotiated. He was entitled to reasonable notice or to pay in lieu.
The plaintiff says he was appointed for a fixed term of three years, contingent on successfully completing the period of probation. He says this was agreed in the conversation with Mr. Ryan of 22nd March 1997 and was not varied by the letter of 24th March. That was also Mr. Ryan’s evidence.
It is accepted by the plaintiff that the precise details of how he was to be judged for the potential bonus remained to be defined. They never were negotiated to any finality. Another reason for reference to a future contract was that the defendant was in the throes of having a standard form of employment contract for senior executives prepared by its lawyers. Although a number of drafts were considered by the defendant, the final version had not been decided on by the defendant at the time the plaintiff’s contract was terminated (and still has not been). Thus, no further negotiation about the details of contract were entered into between plaintiff and defendant. No further contract was signed.
A good deal of time was spent on how well the plaintiff performed. In the end, that has not been a particularly important question. The defendant accepts that he was not terminated for any reason which would disentitle him to reasonable notice, or pay in lieu. Unsuprisingly, the plaintiff thought he was better than the defendant thought. For my purposes, I accept the opinion of Mr. Ryan that he was “quite good”.
As a matter of generality, in contract one looks to the words of the parties, rather than to their intentions. Where words do not accurately reflect common intentions, they are normally changed by agreement, or rectified by the court. Here there is an odd situation. Mr. Ryan and the plaintiff, the only individual parties to the negotiation, confirm that there was a common intention to enter into a fixed term, three year, contract and that that was what in fact happened. Insofar as the fax of 22 March 1997 (P1) does not accurately reflect that arrangement, no application was made to rectify it.
If the fax of 24 March 1997 altered what had been agreed in relation to the three year term of the contract, that was not intended or realised by either Mr. Ryan or the plaintiff, who both said that that had been agreed to on 22 March 1997. The fax begins: “I am pleased to confirm our verbal agreement with regard to your acceptance of our offer of .........”. While I expect it is true that the plaintiff wanted confirmation of the agreement in writing before he would terminate his then employment and move to Adelaide, this is not a contract required by law to be in writing.
To the extent that the terms of contract had been agreed on 22 March 1997, it was enforceable by either party. In my opinion, there was agreement on a salary package (other than the bonus), and on there being a period of probation, to be followed, if that was successful, by a term of three years.
The defendant relies on the fax of 24 March 1997 to supplant or vary that. Whether or not it does so, is ambiguous. In the first place it is expressed to confirm an agreement already reached. Then whether the words used under the heading “Contractual Agreement”, strictly construed, mean
It is intended to negotiate a contract, because we do not now have one, or
We now have a contract, but, when the lawyers finish our standard form, we will negotiate to enter a further contract on those terms, or
Not now having a contract, we hope to negotiate terms, one of which we hope you will agree to is for a term of three years, or,
Now having a contract, we hope to negotiate the balance of the terms we expect to agree, such as the details of the bonus, but when that is sorted out, the new contract will be for three years, as is the present, or,
Something else,
is not clear.
I tend to the view that, being followed by reference to the bonus, the words used mean that the terms of contract still to be negotiated relate to the bonus and, perhaps, to the new standard terms, but do not derogate from agreement as to the three year term. Insofar as that is not clear, it is the defendant who relies on the words for the meaning it alleges they have. It is the defendant who puts that meaning forward. It fails to prove it. There is a “contra proferentem” argument.
Another route to the same terminus is to examine how extrinsic evidence may be led to explain ambiguous terms used in a contract. Here there is ambiguity as to whether the letter confirms, varies, or is a substitute for the oral agreement. I cannot look to the intentions of the parties, but I can look to the circumstances preceding the letter to explain, objectively, what it must mean.
Here, both Mr. Ryan and the plaintiff knew that the plaintiff would have to resign from his present position and then move to Adelaide. He would not be permitted to commute. The plaintiff could not be expected to do this without considerable security. No doubt each expected the probation period to be successful. It is improbable that the plaintiff would have been prepared to move without some assurance of a reasonable period of employment. They negotiated a three year period and agreed on it.
In that context it is improbable that the words following “Contractual Agreement” mean that that position was abandoned and an implied term of reasonable notice at common law was substituted. I conclude that the letter, as a matter of construction, confirms the agreement already reached and does not create a new term in relation to tenure.
I find that there was an oral agreement reached on the 22nd, which included the three year term. The fax of the 24th is not a new contract, but confirmation of what had already been agreed. Insofar as fine detail not specifically agreed on the 22nd is added, the fax extends the oral contract, or adds new terms to it. It does not cut the contract of the 22nd back. In particular, it does not replace the agreement to a three year term.
Just as another employee refused to accept a draft of the standard employment contract (a course with which Mr. Ryan agreed), the plaintiff may, or may not have accepted it. That remained to be seen. If nothing were to be agreed about the terms of the bonus scheme, it would not be enforceable. If agreement were to be reached, it would be a further or supplementary agreement.
In fact, no further agreement was reached. I find that there was no enforceable entitlement to be considered for a bonus on any identified basis. As it happens, the evidence is such that I am satisfied that it is most unlikely that the plaintiff would have been awarded a bonus in any event. No one else relevant got a bonus during the period under consideration. Rightly, or wrongly, the defendant was not as impressed with the defendant’s work as he thought it should have been and was not likely to have singled him out.

What is the effect of the three year term? Does it preclude termination before three years? If such a contract be wrongly terminated by the employer, is the employer entitled to the balance of three year’s salary by way of damages, either directly as damages or, alternatively, is notice equal to the unexpired term the only reasonable notice, with pay in lieu being required?
The termination of the contract by the defendant was in breach of it. The measure of loss is that naturally flowing from it. The plaintiff had a contract for three years. He lost it. Subject to what he may earn during the balance of the period, he has lost the income promised for that period. It is not alleged that there was anything about the plaintiff’s performance or honesty that might entitle the defendant to abridge or end either the contract or the period of notice. In my view, whether approached as simple damages, or as a period of notice, the plaintiff is entitle to be paid for the balance of his term.
I pause to note that the defendant appears to have been unaware of the oral agreement effected between Mr. Ryan and the plaintiff. Mr. Ryan is no longer with the defendant. Its only record appears to have been the letter. I can well understand the view, looking at it in isolation, that the letter foreshadowed the making of a contract which was never made. The defendant obviously took advice and paid the plaintiff an amount calculated by reference to what it assessed as a reasonable period of notice. I need not stay to consider whether it selected the correct period, because I have found that there was a contractual period of three years.
Nevertheless, the defendant is entitled to bring to account the amount which it paid. It is also entitled to bring to account amounts actually earned, or to be earned, during the balance of the period by the plaintiff. I note that the onus of establishing any failure to mitigate the plaintiff’s loss is on the defendant, which has not sought to satisfy it. Certain figures have been agreed between the parties, which obviate the need for me to give great detail of the plaintiff’s subsequent employment.
His present employment is as CEO of a company which owns the patents in respect of technology to convert rice waste into sound insulating sheets or tiles. Research and development has already cost about $1M. It is estimated that some $10M may be necessary to bring the invention into marketable production. It is not known whether those backing the project are prepared to provide any further funds. If that does not occur, presumably the activities of the company will cease and the plaintiff will be out of work again. As the period now remaining of his three year term with the defendant is only a couple of months, not a great deal turns on it.
The plaintiff is on a “package” of $100,000 per annum, but, because of the company’s problems, he is only being paid at the rate of $70,000. Rather than lose the job altogether, he has accepted the situation. If the company goes ahead and prospers, he expects to be paid the balance of his pay. If it does not, he believes that his chances of recovering it are slight.
If the company goes ahead and prospers, it may even be the case that he will earn more, in the end, than if he had remained with the defendant. But that is not going to crystallise in the next couple of months. What happens with respect to time outside the three year period is not relevant.
Taking one thing with another, I think it will be fair to assume that the plaintiff will retain his employment for at least the next few months, but that he will not recover much, if any of the unpaid salary. I will round down his damages a little to allow for this chance, but I do not believe it is a very valuable chance.
The calculation agreed between the parties on the basis of the difference between what he would have earned with the defendant, if employed for three years, and what he will earn in his present employment, at the reduced rate, but for the balance of the three years (and after deduction of what the defendant has paid) is $66,779.93.
To allow for his chances of recovering the amounts unpaid by his present employer, which, by the end of the period, will be about $45,000, I round down the damages to $60,000.
In addition to those damages, the plaintiff seeks certain other amounts. On termination he returned to Melbourne, where his partner and children still resided. He claims that, had he seen out three years, he would then have been so established in South Australia that he would not have returned to Victoria. At termination it was necessary and reasonable for him to do so. In my view it is as likely as not that, at the end of the three years, he would have gone back to Victoria. He would not have been entitled to any reimbursement for that. By this judgment he will be paid for three years. I reject the claim for relocation.
The defendant says that, although the precise criteria by which he was to be judged for a bonus of up to $10,000 had not been worked out, he, nevertheless, lost the chance to do that and to be considered for such a bonus. In my view his only entitlement would be by his contract. He had not concluded any contract with regard to a bonus. He had no enforceable entitlement to a bonus. In any event, as I have noted, as things have since worked out, virtually no one else got either a rise or a bonus at any relevant time. It is improbable that he would have been the exception. Whether viewed as a contractual entitlement, or as a loss of a chance, I reject this claim.
The final claim is to what has been called “stigma” damages. After a lengthy period of debate, I think it is now established that such a category of damages exists for certain breaches by an employer of contracts of employment. Malik v Bank of Credit and Commerce International SA (HL) (1998) AC 20 involved a case stated in which it was accepted that the defendant was a notoriously corrupt bank, which collapsed, leaving a very great number of depositors and other creditors in the lurch. Two employees claimed that they were unable to get jobs elsewhere in the banking and finance industry, despite good qualifications, because their reputations were so besmirched by the fact of their having been employed by BCCI. They were not involved in any corruption.
Their lordships held that an aspect of the mutuality of the obligations owed to each other by an employer and an employee was that the employer would not so conduct itself as to cause the employee damage for which there was no legal excuse. On the case stated there was no suggestion of a legal excuse for BCCI to have acted corruptly. In the circumstances, it was held that the employees might maintain a claim for loss of employability because of the stigma of having worked for BCCI. In the end, it seems to have been a pyrrhic victory. When the employees prosecuted actions on the merits, they failed to prove those damages.
The decision has been referred to with apparent approval, but obiter dicta, in Australia in Burazin v Blacktown City Guardian Pty. Ltd. in the Industrial Relations Court of Australia at 142 ALR 144 at 151 FF.
The plaintiff’s counsel pointed out that the strict logic of Malik applied to any breach of contract by an employer. He argued that it should not be limited to such spectacular employers as BCCI. This point was addressed by Lord Nicholls of Birkenhead at page 39, when he said :
“The trust and confidence term is a useful tool, well established now in employment laws. At common law damages are awarded to compensate for wrongful dismissal. Thus, loss which an employee would have suffered even if the dismissal had been after due notice is irrecoverable, because such loss does not derive from the wrongful element in the dismissal. Further, it is difficult to see how the mere fact of wrongful dismissal, rather than dismissal after due notice, could of itself handicap an employee in the labour market. ........but the manner and circumstances of the dismissal, as measured by the standards of conduct now identified in the implied trust and confidence term, may give rise to such a handicap. The law would be blemished if this were not recognised today.”
Their Lordships had held that a term requiring mutual trust and confidence was to be implied by law and they did not specifically limit the damages that could be claimed to breaches of that term - nor was it necessary for them to do so. Thus it is possible that it applies to other breaches.
The breach alleged here is wrongful dismissal. Without excluding the possibility that the circumstances of some other wrongful dismissal might give rise to an actionable stigma, I am content to think that that will be a rare case. On the facts of this case, there is nothing to exacerbate the consequences that would usually follow wrongful dismissal by any employer. There was some evidence that a person terminated on no notice, particularly one who thereafter has a few months of unemployment, may be seen by a potential employer as less desirable than a person without that handicap. Such a person may be less likely to break through the barrier between written application for a job and subsequent interview.
Insofar as that applies to the period covered by the award, there can be no such loss. That takes it out to the full three year period. Insofar as it occurs in the future, I think it is not proved, or, alternatively, it is too remote. Indeed, I suppose that the findings recorded in this judgment should virtually eliminate the possibility of such loss. I reject the claim.
I therefore propose to award the sum of $60,000. I will hear the parties on interest, any tax implications and costs.

[2000] SADC 24

12 May 2000