Murray Irrigation Ltd v Balsdon - [2006] NSWCA 253

No judgment structure available for this case.

Reported Decision: 159 IR 52

Court of Appeal

CITATION: MURRAY IRRIGATION LTD v BALSDON [2006] NSWCA 253

HEARING DATE(S): 01/08/2006

JUDGMENT DATE:
19 September 2006

JUDGMENT OF: Handley JA at 1; Ipp JA at 2; Bryson JA at 3

DECISION: Appeal allowed - see [60]

CATCHWORDS: EMPLOYMENT – termination – non-standard contractual terms dealing with termination and notice - Respondent employed on two-year contract as Manager Maintenance, Deniliquin was dismissed without notice for alleged breach in failing to give information required by employer about its affairs and property - Clause 36.2.8 provided "Termination of employment by MIL shall not be harsh, unjust or unreasonable" – clause 17 provided for payment of three months’ wages in lieu of notice "… except in cases of acts of delinquency or incompetence." - respondent refused to give information because information asked for was relevant to criminal charges which Police had brought against him - held that in the circumstances insisting on information and terminating for breach was harsh, unjust or unreasonable and was in breach of contract - employment was terminated but employer was liable to damages for failing to give three months’ notice - consideration whether respondent entitled to damages for loss of prospects of further employment after expiry of current two-year contract - held that he was not.

LEGISLATION CITED: Constitution s.51(xxix)
Crimes Act 1900 (NSW) s.249
Industrial Relations Act 1996 (NSW) s.84(1)
Industrial Relations Act 1988 (Cth) s.170DE(1) & (2)
Suitors’ Fund Act 1951 (NSW)

CASES CITED: Associated Dominion Assurance Society Pty Ltd v Andrew & Haraldson (1949) 49 SR (NSW) 351
Baker v Commissioner of The Australian Federal Police (2000) 104 FCR 359
Commonwealth Of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64
Hadley v Baxendale (1854) 9 Exchequer 341
In Re Dispute – Board of Fire Commissioners Re Reports [1971] AR (NSW) 615
Kilburn v Enzed Precision Products (Australia) Pty Ltd (1988) 5 VIR 31
Martin v Tasmania Development And Resources [1999] FCA 593
New South Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68
Patty v Commonwealth Bank Of Australia (2000) 179 ALR 57
Re Matthews [2001] WASC 61
Regina v Travers (1957) 58 SR (NSW) 85
Reid v Howard (1995) 184 CLR 1
Ridge v Baldwin [1964] AC 40
State of Victoria v Commonwealth Of Australia (1996) 187 CLR 416
Tasmania Development & Resources v Martin [2000] FCA 414, (2000) 97 IR 66
Walker v Citigroup Global Markets Australia Pty Ltd [2006] FCAFC 101

PARTIES: Murray Irrigation Limited - Appellant
Anthony Balsdon - Respondent

FILE NUMBER(S): CA 40760/2005

COUNSEL: D.J. Fagan SC & R. Moore - Appellant
J.V. Hurley - Respondent

SOLICITORS: Ebsworth & Ebsworth - Appellant
Nicholas W.J. Rolfe & Associates - Respondent

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): DC 159/2004

LOWER COURT JUDICIAL OFFICER: Ashford DCJ

LOWER COURT DATE OF DECISION: 31/08/2004

CA 40760/2005

HANDLEY JA
IPP JA
BRYSON JA

19 SEPTEMBER 2006

MURRAY IRRIGATION LIMITED V ANTHONY BALSDON

Judgment

1 HANDLEY JA: In this matter I have had the benefit of reading the reasons for judgment of Bryson JA in draft. I agree with them and with the orders he has proposed. I adhere to the views that Gleeson CJ and I expressed in New South Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68. With respect to those who have held otherwise I would merely point out that damages for breach of contract must be co-extensive with the breach. The award of reliance damages in the form of wasted expenditure in The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 was not inconsistent with this principle. Expectation damages were not awarded at all, let alone for a period in excess of the legal obligations of the Commonwealth.

2 IPP JA: I agree with Bryson JA and the comments of Handley JA.

3 BRYSON JA: The appellant, defendant in the District Court, appeals from judgment for the respondent, plaintiff in the District Court, given by Her Honour Judge Ashford on 9 December 2005 for reasons published on 31 August 2005. Her Honour awarded the respondent damages of $541,997 and interest of $12,099.59 with costs for breach of a contract of employment. The respondent was born in 1947 and was employed by the Department of Water Resources from 1970 onwards, first as a general maintenance labourer. The appellant continued functions earlier carried on by the Department of Water Resources from March 1995 onwards, and employed the respondent under a series of contracts for periods of two years, the first in March 1995 and eventually the Employment Contract which gave rise to this litigation, dated 6 April 2001.

4 The respondent’s position was designated "Manager Maintenance" and his work centre was at Deniliquin. Annexed to the Employment Contract was a Position Description which shows that the respondent was to report to "Company Secretary/Deputy General Manager" and was to supervise directly five staff who were supervisors with various functions and indirectly 30 staff who were plant operators and weed operators. He was to exercise budget control over approximately $3.6 million. A list of key responsibilities includes many management functions including "Manage contractors and their performance of services”, and very extensive duties the first of which was "Cost-effectively manage the maintenance of the water supply and drainage systems."

5 The Employment Contract deals in detail with matters appropriate for a contract of employment in a management position, including salary, superannuation, use of a private vehicle and leave loading. Express terms which are particularly important in this litigation are (Blue 1/16):

1. Duration – Your employment with MIL has been renegotiated for a further fixed term contract for a period of 2 years. Your contract will expire on 06/04/2003.

16. Notice – Resignation and Retirement – One months notice is required by you in the event that you resign or retire from your employment.

17. Termination and Redundancy Payments – Payment of 3 months ordinary wages in lieu of notice, and any payment on account of redundancy will be made except in cases of acts of delinquency or incompetence. In that case notice would be immediate and payment would be made only for mandatory accrued benefits. The provisions of this clause shall substitute for any other redundancy or similar provisions. The employee shall have no further claims in the event the position held becomes redundant.

Application of Awards etc

6 The Trial Judge found (Red 14): “His employment conditions were also regulated by the Murray Irrigation Limited Enterprise Agreement 2001." The current MIL Enterprise Agreement referred to in cl. 18 of the Employment Contract was in evidence. The Enterprise Agreement deals very generally with employment, in many different categories. The categories of employment and the industrial organisations mentioned in it do not extend to the respondent, but as cl. 18 shows, its provisions are incorporated in the Employment Contract and are subordinate to its terms.

7 Clause 36 of the Enterprise Agreement is entitled "Termination of Employment" and is (Blue 1/41-43):

36. TERMINATION OF EMPLOYMENT
36.1 Notice of Termination by MIL:-

36.1.1 In order to terminate the employment of an employee MIL shall give to the employee two week’s notice.
36.1.2 Payment in lieu of the notice prescribed hereof shall be made if the appropriate notice period is not given by MIL.

36.2 Payment in lieu of notice, shall be at the ordinary time rate.

36.2.1 The period of notice in this Clause shall not apply in the case of dismissal for conduct that justified instant dismissal or in the case of casual employees, employees on probation, apprentices or employees engaged for a specific period of time or for a specific task or tasks. Casuals may have their employment terminated with one hour’s notice, subject to any minimum term of engagement.
36.2.2 For the purpose of this Clause, continuity of service shall be calculated in the manner in which continuous service is calculated for the purposes of Long Service Leave. Previous service will be included in any calculation.
36.2.3 The notice of termination required to be given by an employee shall be the same as that required of MIL.
36.2.4 If an employee fails to give notice MIL shall have the right to withhold moneys due to the employee, with a maximum amount equal to the ordinary time rate of pay for the period of notice. In addition MIL shall have the right to withhold from money due an employee the value of any MIL property which the employee has failed to return, cash advances made etc.
36.2.5 Where MIL has given notice of termination to an employee, an employee shall be allowed up to one day’s time off without loss of pay for the purpose of seeking other employment. Time off shall be at times convenient to both employee and MIL.
36.2.6 MIL shall, for an employee whose employment has been terminated, provide to the employee a written statement specifying the period of his or her employment and the classification or type of work performed by the employee.
36.2.7 Notwithstanding the provisions of this Agreement, MIL shall have the right to dismiss any employee without notice for conduct that justifies instant dismissal, such as misconduct and in such cases the wages and accrued entitlements (leave, etc.), subject to sub-clause 36.2.4, shall be paid up to the time of dismissal only.
36.2.8 Termination of employment by MIL shall not be harsh, unjust or unreasonable.
36.2.9 Subject to the provisions of the Act, any dispute or claim arising should be dealt with by way of the Disputes Settling Procedure contained in this Agreement.
36.2.10 In the event the termination is a result or of redundancy Clause 39 shall apply.

36.3 Exemptions

Severance payments are not payable to an employee with less than one year’s continuous ~~service; an employee~~ service, nor in the case of employees whose employment is summarily terminated as a consequence of ~~misconduct; casual employees,~~ misconduct, casual employees, employees engaged for a specific period of ~~time; and~~ time, or employees retiring.

8 It is clear and I do not regard it to have been disputed that cl. 36.2.8 has effect, but several provisions of cl. 36 are inconsistent with cll. 1, 16 and 17 of the Employment Contract, which prevails where they are inconsistent. Reconciliation of the two provisions was the subject of detailed argument, but it is obvious that the respondent’s employment could not be terminated by two weeks’ notice and that the requirement for Notice of Termination to be given by the appellant was different to the requirement for Notice of Termination to be given by the respondent, notwithstanding cl. 36.2.3.

9 Pleadings establish that there was an implied term to this effect. (Red 3S)

(a) the parties owed each other a duty to act fairly and in good faith in performance of their duties as employee and employer, respectively, and in the exercise of their rights, and performance of their obligations under the contract, as between themselves;

10 It was alleged and disputed that there were several other implied terms; the Trial Judge did not make rulings on these and I do not think that rulings were necessary.

11 The narration that follows is based on findings made by the Trial Judge of events which led to termination of the respondent's employment. In about August 2001 Mr George Warne, the appellant's General Manager, was told by the Chairman of the Board and the Company Secretary that complaints had been received about the respondent and one Mr Gary Wales suggesting that they had engaged in fraudulent dealings against the appellant's interests. Two persons who swore statutory declarations in support of them made these allegations. Mr Warne decided to investigate the allegations and to refer the matter to the police. He spoke to Detective Sergeant Beeche of the Deniliquin police and then saw Detective Sergeant Beeche on 8 August 2001 to discuss the matter and he gave Detective Sergeant Beeche the statutory declarations. Detective Sergeant Beeche advised him to make his own investigations but to keep them confidential. About 13 August 2001 Mr Warne contacted a private investigating company named Secure Corp Risk Management Services and arranged for them to investigate the allegations; he asked them to keep their investigation discreet. Mr Warne kept in contact with the Detective Sergeant Beeche, and was shown police statements which had been taken from a number of people. He had communications with the private investigators and received their reports about 15 October 2001, and he made his own investigations as well. On 23 October 2001 he sent Detective Sergeant Beeche a memorandum advising him that he had received a report from the private investigator. Mr Warne came to the view that the respondent had not favoured the cheapest available contractors, and that there was a possibility that the respondent had received a secret commission in return for favouring a particular company when awarding contract work; he formed the view that there had been some substance in the allegations which had been made. About 6 November 2001 he gave police at Deniliquin a statement setting out the investigations he had undertaken. Mr Warne did not tell the respondent about this information, the investigations or the communications with police; or about Mr Warne's own views. The person to whom the respondent usually reported was the Deputy General Manager Mr Elsbury, and not Mr Warne.

12 The respondent was on annual leave from 5 October to 5 November 2001. On 9 November 2001 Deniliquin police contacted him while he was at work and asked to attend the police station for an interview. There was a long interview between Detective Sergeant Beeche and the respondent, in the presence of another detective; the interview was recorded on tape and a transcript (of 42 pages) is in evidence (Blue 1/59). The respondent thus learnt that he had been accused of taking bribes from two persons named Gary Wales and Mark Shore in exchange for favouritism relating to contracting work. The respondent denied the allegation.

13 After this interview the respondent returned to work on 9 November 2001, and spoke to Mr Elsbury, then to Mr Warne. He returned to work on Monday 12 November 2001 and Mr Warne suggested he take leave without pay. He attended a doctor and obtained a certificate of unfitness for work, and thereafter took sick leave. On 15 November 2001 the respondent was charged with two offences under s.249 of the Crimes Act 1900 (NSW). The charges came before Deniliquin Local Court on 17 December 2001 and were adjourned to 21 January 2002. On 21 January 2002 the respondent, or his solicitor was given the police brief. There was a further adjournment. On 19 April 2002 the prosecutions were withdrawn by the police.

14 On 10 (or 11) December 2001 Mr Warne wrote a letter at length to the respondent and told him that Mr Warne had undertaken some investigations which had revealed (Blue 1/104): "… a number of serious issues relating to the way in which you have carried out your contract. You may be able to give me satisfactory explanations in relation to the matters set out in this letter and I would urge you to do so if you can, because if I am not satisfied by your explanations or if you do not furnish explanations you must appreciate that there must be an impact on your continued employment with Murray Irrigation Limited." There followed lengthy questions on:

15 The respondent was asked to advise why the fourth lowest tender was chosen for the Deniliquin slashing works; to explain why he approved invoices even though on leave; to explain what were said to be anomalies in the records relating to use of plant and equipment, and to explain what use had been made of the large excavating bucket from a 20 tonne Komatsu excavator, and where the bucket was; he was asked whether he was prepared to make various personal records available to the appellant's auditors; and to give information about whether he had met Gary Wales in stated circumstances; and about the use of company assets in the construction of his house. Many matters of detail were asked. There were observations which showed that the information would have a bearing on consideration of his future employment and he was told that he would continue to receive full payment of entitlements by way of sick leave and otherwise "until these matters are dealt with" (Blue 1/107).

16 In reply the respondent’s solicitors by letter of 12 December 2001 (Blue 1/109) made it plain that there would not be a response to the letter of 10 December until the criminal matters were completed. The terms of the solicitors’ response showed a clear understanding that it was possible that the respondent's employment might be terminated. The letter was highly combative in its terms and contained severe, indeed intemperate expressions about the appellant and its conduct.

17 Mr Warne wrote to the respondent’s solicitors on 14 December 2001. He contended that his main concern was the way in which the respondent had carried out his contract of employment, said that that was "a totally separate issue to the police charges" (Blue 1/111) and requested the respondent’s answer to the letter of 10 December 2001. On 18 December 2001 he again wrote to the respondent asking him to meet and discuss the issues by Friday 21 December 2001 (Blue 1/113). The respondent’s solicitors replied on 19 December 2001 and said (Blue 1/115) "Our client is pleading not guilty to the criminal matters and, due to this, he is not in a position to answer your recently raised allegations as they are subject to police investigations … our client will address any allegation raised by yourself upon completion of the criminal matters." Again the solicitors' letter was not expressed in temperate language.

18 Mr Warne wrote to the respondent again on 27 December 2001. He referred to the solicitors’ reply and said (Blue 1/118): "The criminal matters could take some time and I am not prepared to allow the business of Murray Irrigation Limited to operate without a satisfactory Maintenance Manager for any length of time." He went on to say "I now insist that you furnish me with a suitable response to my concerns" and asked the respondent to attend for interview on 4 January 2002. He set out at some length a number of matters and circumstances for which he sought to have explained and said (Blue 1/121) "Any one of the eight individual matters raised, if established, would, in my view, constitute gross misconduct entitling me to terminate your contract forthwith" and "I would like your explanation in relation to each of the allegations made because I want to consider everything that you might wish to put to me before coming to my final conclusions." There was no response and on 14 January 2002 Mr Warne wrote to the respondent and told the respondent that he was satisfied of eight matters any one of which he regarded as constituting gross misconduct entitling him to terminate the respondent's contract forthwith; and he did so "on the grounds of gross misconduct as specified above". Accrued benefits were paid into the respondent's bank account at the same time. The amount paid was $55,138.23 which was the amount of statutory entitlements to long service leave and annual holidays. This did not include any pay in lieu of notice and does not enter into the calculation of damages. The respondent’s evidence was that he found an unexpected large sum in its bank account before he learnt in any other way that his employment had been terminated.

19 At the hearing of the action it was for the appellant to justify its termination of the respondent’s employment by proving whatever circumstances such as misconduct justified termination in accordance with the party’s contractual relationship. The pleadings do not well reflect this onus; the Statement of Claim filed on 19 January 2004 alleged that the appellant purportedly terminated the employment and alleged circumstances in which it was said that the termination was harsh, unjust or unreasonable, and the appellant denied these allegations. The appellant did not at the Trial attempt to prove the instances of misconduct asserted by Mr Warne in his letter terminating the employment. What the appellant claimed justified termination, and what the Trial Judge dealt with was failure by the respondent to attend as called for and to explain his conduct. The matters which Mr Warne called on the respondent to explain and the information which he called on the respondent to give are all things about which, in the ordinary course of their employment relationship, the appellant was entitled to require the respondent to answer and give information. I regard this obligation as obvious, when the respondent's position is considered in the context of the nature of his employment and the wide range of matters to which he was obliged to attend in a management position and in the interest of his employer; assisted by the implied obligation relating to good faith.

20 The following passage from the judgment of Herron J. in Associated Dominion Assurance Society Pty Ltd v Andrew & Haraldson (1949) 49 SR (NSW) 351 at 357 sufficiently illustrates the ordinary position:

… a duty lies upon an employee in general terms to give information to his employer such as is within the scope of his employment and which relates to the mutual interest of employer and employee. If an employee is requested at a proper time and in a reasonable manner to state to his employer facts concerning the employee’s own actions performed as an employee, provided that these relate to the master’s business, the employee is bound, generally speaking, to make such disclosure.

21 In support of the appeal it was contended to the effect that cl. 36.2.8 did not operate in the circumstances: that the appellant was entitled by the Employment Contract particularly cl. 17 to terminate the employment in the manner and in the circumstances indicated by the first sentence of cl. 17, either by giving three months’ notice or payment of three months’ ordinary wages in lieu of notice; but that in cases of acts of delinquency or incompetence the employment could be terminated without notice or payment. Reliance was based on cl. 18 to show that cl. 17 overrode cl. 36.2.8. In the view of the Employment Contract for which the appellant contended, the appellant had a contractual right to terminate the employment without notice and without payment of wages in lieu of notice in cases of acts of delinquency; and the failures to give information were acts of delinquency.

22 Senior counsel for the appellant contended that the appellant has a contractual right, conferred by cl. 17, to terminate the employment on three months’ notice, or by payment of three months’ wages; and further, to terminate the employment without notice in cases of delinquency; and that the conferral of this contractual right has the effect that cl. 36.2.8 has no operation. It may have been an alternative contention that the exercise of the contractual right to terminate conferred by cl. 17 could not ever be said to be harsh, unjust or unreasonable.

23 In my opinion the curious language found in cl. 18 - "the terms of this contract sit over and above the conditions prescribed … by the … Enterprise Agreement" - deprive provisions of the Enterprise Agreement inconsistent with provisions of the Employment Contract of effect. For the appellant to succeed completely it would still be necessary for the appellant to obtain a finding that the failures to furnish information were acts of delinquency (as referred to in cl. 17), and in relation thereto to consider the significance of the criminal prosecution and the interest of the respondent in relation to the actual and also a prospective prosecution.

24 I see three possible outcomes of consideration of the interaction of cll. 17 and 36.2.8.

1. Clause 17 confers on the appellant an entitlement to terminate employment, meaning terminate it forthwith, and as there were acts of delinquency there was no obligation to pay three months’ wages in lieu of notice, or to give notice.

2. If acts of delinquency are not proved, termination forthwith is effective under cl. 17, and carries an obligation of payment of three months’ ordinary wages in lieu of notice; but no other obligation.
3. Clause 36.2.8 has effect, and it is a breach of contract to terminate the employment unless the "harsh, unjust or unreasonable test” is passed.

25 In my opinion cl. 17 does not on its proper construction have the effect for which Senior Counsel contended of conferring on the appellant an entitlement to terminate the employment on payment of three months’ wages in lieu of notice, or on giving three months’ notice; nor does it confer on the appellant an entitlement to terminate employment without making any payment in cases of acts of delinquency or incompetence. The right to terminate employment is elsewhere: cl. 17 deals with consequences of termination. One of the subjects with which cl. 17 deals is payment on termination. Its provisions have a different effect, for the purpose of the Employment Contract between the appellant and the respondent, to the effect which would have been produced by the Enterprise Agreement operating unmodified. Unmodified, cl. 36.1.1 enables termination of employment on two weeks' notice or payment in lieu of notice with a qualification in cl. 36.2.1 dispensing with notice where there was conduct to justify instant dismissal. Clause 17 modifies what these provisions have to say about payment on termination and whether there is to be a payment, and the respondent is to get 3 months’ wages in view of notice, not two weeks’ wages; the circumstances in which he might be dismissed without notice and without payment are restated to be "in cases of acts of delinquency or incompetence" instead of "for conduct that justifies instant dismissal". Otherwise the provisions of the Enterprise Agreement dealing with termination and particularly the “harsh, unjust and unreasonable” test are not modified. In my opinion there is no real difficulty in reading these clauses together with the result that a termination, whether it is without notice, with notice or with pay in lieu of notice has to pass the "harsh, unjust or unreasonable" test.

26 The Trial Judge's reasons show that the appellant contended before her Honour that there is no obligation of this kind, and it should be understood that it was her Honour's view that this test had to be passed, because she concluded that the appellant was not entitled to dismiss the respondent summarily. After reviewing the facts her Honour found that reasonable steps were not taken by the appellant to investigate the claim by speaking to the respondent at a time when Mr Warne could properly have done so, and that it was not reasonable later to expect the respondent to respond at a time when he was unable to do so without affecting his rights in the criminal proceedings. Her Honour was also of this view (Red 28): "It appears to me to be incumbent upon an employer to advise an employee of the explicit grounds upon which employment is being terminated in plain terms and an opportunity given to the employee to respond to those reasons." She concluded that the respondent was not given any opportunity to respond at a time when he was able to do so and said (Red 27-28):

At the time of the termination of his employment he was still subject to criminal investigation and in such circumstances in my view was unable to discuss the matter with his employer. The proper time for him to be able to respond to such allegations was prior to the matter being referred to the police and indeed before any criminal charge had been laid. It is clear the requirements of natural justice and procedural fairness are not prescribed in a fixed body of rules but it is clear parties are entitled to be given an opportunity to present their case. No such opportunity was afforded the plaintiff at a time he was able to respond. Whilst the defendant may have held a suspicion in respect of the plaintiff’s behaviour no facts had established that to be the case and it seems to me to be unreasonable not to afford the plaintiff any opportunity to respond to allegations until a time when the defendant had been informed by the plaintiff’s solicitor because of pending court proceedings he could not respond to the allegations.

27 While these observations did not address the "harsh, unjust or unreasonable" test in an altogether clear way I have no difficulty seeing them as, in a manner, her Honour's application of that test.

28 Submissions on behalf of the appellant to the effect that, even if that test is applied the summary dismissal was not harsh, unjust or unreasonable were dominated by the appellant's contention, which I would not uphold, that the contractual documents taken together conferred on the appellant a contractual right to terminate on giving three months’ notice or paying three months’ pay, meaning of course a right to do so without proving or (I suppose) without having any demonstrable grounds.

29 The test in cl. 36.2.8 is generally similar to tests found in Industrial Relations legislation dealing with unfair dismissal. As a prominent example, s.84(1) of the Industrial Relations Act 1996 (NSW) is in these terms:

30 This provision, and Industrial Relations legislation providing remedies for unfair dismissal generally, confer wider powers of intervention than would be made available simply by enforcing common law entitlements; that is their purpose.

31 Counsel referred us to a number of decisions in which industrial relations legislation containing this or similar tests was applied in conflicts between an employer's entitlement to information and the employee’s privilege against self-incrimination. Facts raising a similar conflict were considered in Patty v Commonwealth Bank of Australia (2000) 179 ALR 57 (Ryan J.), under s.170DE(1) of the Industrial Relations Act 1988 (Cth) which prohibited termination of employment “unless there is a valid reason, or valid reasons, connected with the employee's capacity or conduct or based on the operational requirements of the undertaking …” Ryan J. did not apply s.170DE(2), which created a test using the words “harsh, unjust or unreasonable" but had been held to be invalid in State of Victoria v Commonwealth of Australia (1996) 187 CLR 416 because that test was not provided for in the Termination of Employment Convention (1982) which provided the constitutional basis for s. 170DE, under the External Affairs Power s.51(xxix) Constitution. Justice Ryan.'s disposition do not relate only to the possible incriminatory tendency of the information sought but also to the history of the controversy, in which the employee had given much information earlier.

32 Some of the cases to which we were referred related to police discipline and to legislation which imposes unusually stringent obligations to give information on members of police forces. In Baker v Commissioner of the Australian Federal Police (2000) 104 FCR 359 Gyles J. reviewed case law dealing with interactions between the continuation of civil and disciplinary proceedings before criminal proceedings are complete; see pp364-366. See too Re Matthews [2001] WASC 61. These can be set on one side. Conflict between the privilege against self-incrimination and police discipline is also illustrated by Regina v Travers (1957) 58 SR (NSW) 85.

33 We were referred to In re Dispute – Board of Fire Commissioners Re Reports [1971] AR (NSW) 615 (Sheehy J.) which related to a requirement, in the context of legislation relating to fire brigade discipline, for written reports where goods had been found missing or property damaged after fires. There was no context of dismissal proceedings or of a "harsh, unjust or unreasonable" or similarly expressed test for dismissal; the context was a dispute relating to compliance with the requirement to submit written reports. Justice Sheehy gave no more than brief consideration to the operation of the privilege against self-incrimination but did say, at 618 “… I emphasize that an employee can refuse to make a report in the type of circumstances referred to only where his objection against self-incrimination is taken reasonably."

34 We were also referred to an article “The Shadow of the Right to Silence in the Workplace" by Brianna Harrison (2002) 15 Australian Journal of Labour Law 84 where several New Zealand decisions are discussed.

35 No other case law to which we were referred addressed the application of a test similar to that in cl. 36.2.8.

36 "Harsh, unjust or unreasonable" is a formula of words of no precision, and adopting those words indicates, to my mind, an intention to take the matters for consideration out of the ordinary context, and to bring in a much wider range of relevant matters, including personal circumstances of parties, than would be under consideration in a test related only to performance of contractual obligations. A contractual obligation usually has to be performed whether or not it is fair or just or reasonable to require performance; obligations are measured by what has been contractually undertaken. The formula of words selected conveys to my mind an intention to break this mould. The “harsh, unjust or unreasonable” test has to be considered in the context of the non-compulsory dispute resolution mechanism provided for in the Enterprise Agreement which appears to show contemplation that regard would be paid to a broader range of matters than the parties’ contractual entitlements.

37 In the application of the "harsh, unjust or unreasonable" test it is necessary to come to a view about the context of facts and circumstances which are relevant in the application of that test. If the context is confined by the contractual relationship of the parties and matters bearing directly on it there would I suppose be a strongly arguable case that it was fair, just and reasonable for an employer to terminate summarily the employment of a person in any management position who did not promptly and fully give information in response to Mr Warne’s inquiries of 10 December 2001. All the matters Mr Warne asked about were obviously of interest and concern to the appellant and directly relevant to the performance of employment duties; relationships with contractors, awarding contracts, performance of the appellant's work, disposition of its money and the location of a valuable piece of property, and other important subjects. If the context of relevancy is confined in this way there could in my view only be one answer rationally available and it would be fair, just and reasonable for a manager who did not respond promptly, or refused to respond to be dismissed without notice. If the test is to be applied in any wider context which includes personal circumstances of the employee, particularly the circumstances of the respondent as they were in December 2001 and January 2002, the result of applying the test should be different. The appellant had had some of the information which was the basis for its concerns before it for some months, that is since August 2001, and as time passed and inquiries progressed it obtained more. Mr Warne did not make use of the appellant’s contractual entitlement to obtain information about these parts of its affairs from the respondent during those months. The perception that the information included matters which it was appropriate to report to the police, and the contemplation that there might be prosecutions provide grounds on which it might well have been judged as prudent not to make use of this entitlement; but it is a fact that no use was made of it until 10 December 2001, about a month after Mr Warne knew that the respondent had been interviewed by the police and some weeks after it was known that he had been charged with offences; facts relevant to the offences were part of the subject matter of the inquiry, and other parts of the subject matter of the inquiry at least raised for possible consideration the question whether or not there may be other charges or offences.

38 The privilege against self-incrimination has a very broad operation, stated in Reid v Howard (1995) 184 CLR 1 at 14 (Toohey, Gaudron, McHugh & Gummow JJ) .

Pyneboard Pty Ltd v Trade Practices Commission

39 The high value of the privilege against self-incrimination should be brought to bear in the application of the "harsh, unjust or unreasonable" test.

40 Making the inquiries at the time they were made, and pressing the inquiries against the respondent's refusal to comply, which was made known and explained in a blunt and clear way by his solicitor, presented the respondent with a very acute personal conflict between his employment duties and his interest adverse to exposing himself to criminal punishment, which in the circumstances could conceivably have been quite severe. The appellant had an understandable business need to know what had happened to its interests, its money and its property, and to know whether or not it had and would continue to have a maintenance manager or needed to replace him. On the other hand the respondent was on sick leave, and the competing claim on his attention and interest was obvious enough. His absence from duty was justified by his entitlement to sick leave and a medical certificate which covered his absence until late in January, well after his dismissal. There are powerful elements in the circumstances supporting the pursuit by the appellant of its own interests, but powerful as they are, they have to be weighed with the respondent’s own interest in resisting criminal prosecutions, avoiding furnishing any basis for any further prosecutions and defending his personal liberty against the criminal law. My conclusion is that it was harsh, unjust or unreasonable to press matters to a conclusion in mid-January 2002 and to terminate his employment without notice, notwithstanding that if attention were confined to the contractual relationship there were acts of delinquency on which the appellant was entitled to do so.

41 In my opinion the Trial Judge was correct to conclude that the dismissal of the respondent took place in breach of the prohibition in cl. 36.2.8. For that reason the appellant was in breach of its contractual duties in terminating the employment without notice and without payment, and although the termination was effective and the employment ceased (see Ridge v Baldwin [1964] AC 40 at 65 (Lord Reid)), the appellant incurred liability for damages for breach of contract for having terminated the employment. In my opinion the appellant's breach of contract cannot be seen simply as a failure to give three months’ notice or to pay three months’ wages in lieu of notice, because termination in that way (and the appellant did not proceed in that way) would also have to be justified by reference to the “harsh, unjust or unreasonable” test; and would have failed that test. In my opinion the appellant incurred liability for damages in respect of the loss of employment for the whole of the period for which the Employment Contract ran, that is until 6 April 2003, and as the respondent was unable to obtain other employment during that period, damages should be assessed at the amount of the wages to which he would have been contractually entitled had the employment continued for that period.

42 The Trial Judge awarded damages to the respondent which included (Red 32):

1. Loss of income to April 2003 $107,687

This sum was a result of a calculation which showed the amount of wages to which the respondent would have been entitled if his employment had continued until 6 April 2003 when the Employment Contract expired. These damages are allowed on familiar principles which were restated in Kilburn v Enzed Precision Products (Australia) Pty Ltd (1988) 5 VIR 31 at 33 (O’Bryan J), to which the Trial Judge referred. Before adopting this sum as the damages to be awarded in that respect the parties should in my view be given an opportunity to make written submissions dealing with the incidence of taxation and the allowance of interest.

43 The Trial Judge also awarded damages by reference to the following items (Red 32-33):

2. Loss of opportunity to enter into contracts of employment between 2003 and 2012 $319,677

3. Loss of superannuation benefits on employment to 2012 $ 88,332

4. Loss of long service leave benefits in employment $ 22,675

44 It is possible that items 3 and 4 include some damages in respect of the period to 6 April 2003. I do not understand the items and the Trial Judge's reasons do not explain them. I do not know whether their inclusion in the damages allowed was contentious. The parties should have an opportunity to deal with whether these allowances are appropriate, and to make written submissions dealing with inclusion of any such element in the damages to be allowed.

45 Otherwise Item 2, and part or perhaps all of Items 3 and 4 relate to the loss of opportunity of employment under further Employment Contracts, after 6 April 2003 and until the year 2012, when the respondent will reach 65 years of age.

46 The Trial Judge's explanation for the award of damages in respect of loss of employment after 6 April 2003 must be found on the following passages of the judgment (Red 31):

Of course as I have said the plaintiff had no intention of ceasing employment with the defendant before the age of sixty five years. He has sought other employment without success. His contract had been renewed every two years and he had no reason to doubt the situation would not continue.

Whilst the defendant said it would not have continued to employ the plaintiff as it took a certain view of the plaintiff’s conduct such a course is by no means certain, noting the dismissal of the charges and the plaintiff then being in a situation where he could discuss the entire situation with his employer.

I am satisfied the plaintiff is entitled to damages for breach of contract. The termination letter was at a time he had been in the employ of the defendant and its predecessor for some thirty two years. His actual employment with the defendant had been since 3 March 1995. The contract which was terminated on 14 January 2002 provided for the plaintiff’s employment to 6 April 2003 and the plaintiff claims damages for the sum he would have received under that contract for eleven weeks to 6 April 2002 in the sum of $1,709.30 per week, being in total $18,802 and for fifty two weeks from 6 April 2002 to 6 April 2003 in the sum of $88,885, being a total sum of $107,687.
There appears no reason why the plaintiff would have left this employment of his own volition and I accept he would have chosen to remain in the employ of the respondent until his sixty fifth birthday. He has sought other employment, as I have said, without success. I am satisfied he was entitled to expect renewal of the two yearly contract of employment until 2011.

47 Of course, as cl. 1 in the Employment Contract shows in an altogether distinct way, the respondent had no contractual entitlement to employment after 6 April 2003. Damages as the remedy for breach of a contractual obligation to employ him until then could not be a basis for an award in respect of his prospects of employment after then under renewed contracts.

48 The matters to which the Trial Judge had regard in making this award are not at all clear, but they seem to have included the respondent's intention of continuing in employment with the appellant and there being no apparent reason why he would have left the employment of his own volition until he reached the age of 65, the fact that the Trial Judge regarded it as "by no means certain" that the appellant would not have continued to employ him, and the Trial Judge's view "I am satisfied he [the respondent] was entitled to expect renewal of the two yearly contract of employment until 2011.”

49 In my opinion the entitlement is not to be tested by intention, expectation or the likely future course, but by the existence of a contractual entitlement to employment; damages can only be awarded for failure to conform with what has been contractually promised.

50 The respondent's counsel contended that the ordinary measure of damages, restated in Kilburn v Enzed Precision Products, is an application of the first rule in Hadley v Baxendale (1854) 9 Exchequer 341, 156 ER 145, and the award of damages which the Trial Judge made is an application of the second rule in Hadley v Baxendale. The passage under consideration is at at 354:

Now we think the proper rule in such a case as the present is this:- Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract which they would reasonably contemplate, would be the amount of injury, which would ordinarily follow from a breach of contract under these circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. For, had the special circumstances been known, the parties might have specially provided for the breach of contract by special terms as to the damages in that case; and of this advantage it would be very unjust to deprive them.

51 There is of course no finding and it was not suggested that there was a basis for a finding about what actually was in the contemplation of both parties at the time they made the contract, as a probable result on the respondent's employment after the contract expired, of a breach of it. To my mind, in the absence of some explicit arrangement showing otherwise, it could not reasonably be supposed to have been in the contemplation of both parties at the time they made the contract that the respondent would gain the advantage of employment at any time other than the period for which the contract provided. It would be contrary to the express provisions of cl. 1 to treat the Employment Contract as having imposed on the appellant any responsibility for the respondent's employment outside the period contracted for.

52 Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 is primarily concerned with the award of reliance damages or damages for wasted expenditure. The grounds of decision are complex and the expositions of the law in the judgments are not uniform; and the facts were very remote from a contract of employment. The plaintiff contracted to provide aerial coastal surveillance for three years and spent a large amount in acquiring specially equipped aircraft to enable it to perform the contract. The plaintiff commenced performance: its performance was inadequate and it was in breach of the contract; the Commonwealth repudiated the contract and the plaintiff sued for damages. After a different disposition at first instance, the plaintiff on appeal recovered the net amount expended by it in preparing to perform the contract, and forewent any profits that it would have earned in performance of the contract, which it was unable to quantify. If those profits had been quantifiable, they would have been the measure of damages. The net amount expended in preparing to perform the contract may not have been recovered from profits in carrying out the contract for three years, and the economic justification of the expenditure related also to the expectation that such work would continue to be available. Notwithstanding complexities of expression it should I think be seen that this award of damages was upheld in the High Court on the ground that a plaintiff can seek to recover expenses reasonably incurred in preparing to carry out the contract, referred to as reliance damages, if it is not possible to demonstrate whether or to what extent performance would have resulted in a profit. Reasoning of this kind is simply inapplicable to a contract of employment, for which it is very unlikely that there would be significant reliance damages or damages for wasted expenditure.

53 In New South Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68 the decision of this Court was based on the view of the majority (Gleeson CJ and Handley JA) that, where the plaintiff had been wrongly dismissed without notice although he had a contractual entitlement for employment for a fixed term, he was not entitled to damages for loss of the chance that the defendant would reappoint him. Their Honours said at 80-81:

There remain the issues raised by the plaintiff's cross-appeal. In our opinion the plaintiff is not entitled to damages for the loss of the chance that the defendant would re-appoint him as its medical director after he reached the normal retiring age of sixty-five. Clause 6 of the contract provided that after that date the plaintiff should be eligible for re-appointment up to the age of seventy but he had no right to any further appointment. The relevant principle is that referred to by Mason CJ and Dawson J in The Commonwealth v Amann Aviation Pty Ltd (at 92):

“… where there are two or more ways in which a defendant might perform the contract, the court, in assessing damages, adopts the mode of performance which is most beneficial to the defendant. That rule, which is a manifestation of the principle that damages will not be awarded for not doing that which there is no legal obligation to do, is well supported by authority.”

54 The decision in Sarfaty was based both on the principle referred to by Mason CJ and Dawson J. - the principle that damages will not be awarded for not doing that which there is no legal obligation to do - and on its application to damages for the loss of chance of reappointment after a wrongful dismissal from employment for a fixed term. This Court should not depart from its previous decision unless it is altogether clear that that decision was not correct. Quite otherwise, I am of the view that the decision was correct, and was soundly based on the principle referred to.

55 Counsel referred to later decisions in which different views appear to have been taken. In Martin v Tasmania Development and Resources [1999] FCA 593, 163 ALR 79 Heerey J. at 103 paras [99] – [101] referred to and did not follow the passage in New South Wales Cancer Council v Sarfaty to which I have referred, Heerey J's reason was:

[100] But in fact the High Court in Amann upheld an award of damages which included damages for loss of the prospect that the contract would be renewed, notwithstanding that there was no legal right to renewal. The passage cited by Gleeson CJ and Handley JA comes from a part of the judgment of Mason CJ and Dawson J where the latter are summarising the argument of the Commonwealth, an argument which, as has been noted, did not prevail. The rule that no damages in contract are recoverable for loss of a benefit not the subject of legal obligation was considered to be subject to the more basic Hadley v Baxendale principle.

56 With respect, in the passage cited Mason CJ and Dawson J. went well beyond summarising the argument of counsel for the Commonwealth and expressed as their own view the opinion that the rule referred to is a manifestation of principle and is well supported by authority; they went on to refer to that authority, and did not later in the judgment express any departure from that rule or that principle. Their Honours did not thereafter refer to Hadley v Baxendale which they had referred to earlier on page 92 while considering another submission, and referred to the value of the prospect of renewal of the contract not as a subject the loss of which was to be recompensed, but as a subject to be taken into account in determining whether the plaintiff would or would not have recouped its expenditure, which in turn had a bearing on the availability and extent of an award of reliance damages; see pages 94 and 95. I do not see the disposition of the Commonwealth v Amann Aviation Pty Ltd as an exemplification of the second rule in Hadley v Baxendale or as having any real relation to that rule. In my respectful view the passage cited from Commonwealth v Amann Aviation Pty Ltd gave to the views of Gleeson CJ and Handley JA in Sarfaty the support which their Honours attributed to it, and the view of Heerey J. was incorrect.

57 The decision of Heerey J. was affirmed by the Full Court of the Federal Court: Tasmania Development & Resources v Martin [2000] FCA 414, (2000) 97 IR 66. The leading judgment of Kiefel J. at para [37] appears to have endorsed Heerey J’s view. In my respectful opinion, the law was correctly stated in Sarfaty, and unless it is shown by evidence that there was some relevant contemplation of the parties relating to renewal of the contracts of employment and to loss of renewal as the probable result of a breach, consideration of prospects of renewal cannot be embarked on in a case of wrongful dismissal; certainly it cannot be taken that renewal was in contemplation in the absence of any demonstration by evidence that in fact it was.

58 Counsel drew our attention to Walker v Citigroup Global Markets Australia Pty Ltd [2006] FCAFC 101 and to passages at paras [84] and [85] of the judgment of the Court. While it is difficult to understand the facts relating to the term of the contract of employment there under consideration, it seems in my understanding that the employment was to continue indefinitely and the Full Court's consideration related to the prospects of the exercise by the employer of a right of termination. If and insofar as the decision departs from the decision in Sarfaty (to which it did not refer) I am of the view that I should follow Sarfaty.

59 In my opinion the appeal should be allowed, the award of damages and interest should be set aside and in lieu thereof the Court of Appeal should direct entry of judgment in the District Court for the plaintiff for damages and interest assessed in accordance with my views. The Court of Appeal should determine the amount of damages and interest itself, if it is possible to do so on reading further written submissions which the parties should be directed to make. The parties may be prepared to agree on the varied amount. If questions of disputed fact or other complex questions arise it may become appropriate to remit re-assessment of damages to the District Court. The costs order made in the District Court should stand. The respondent should pay the costs of the appeal, and should have a certificate under the Suitors’ Fund Act 1951 (NSW).

60 In my opinion the Court of Appeal should order:-

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Citations

Murray Irrigation Ltd v Balsdon [2006] NSWCA 253

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CITATION:	MURRAY IRRIGATION LTD v BALSDON [2006] NSWCA 253
HEARING DATE(S):	01/08/2006
JUDGMENT DATE:	19 September 2006
JUDGMENT OF:	Handley JA at 1; Ipp JA at 2; Bryson JA at 3
DECISION:	Appeal allowed - see [60]
CATCHWORDS:	EMPLOYMENT – termination – non-standard contractual terms dealing with termination and notice - Respondent employed on two-year contract as Manager Maintenance, Deniliquin was dismissed without notice for alleged breach in failing to give information required by employer about its affairs and property - Clause 36.2.8 provided "Termination of employment by MIL shall not be harsh, unjust or unreasonable" – clause 17 provided for payment of three months’ wages in lieu of notice "… except in cases of acts of delinquency or incompetence." - respondent refused to give information because information asked for was relevant to criminal charges which Police had brought against him - held that in the circumstances insisting on information and terminating for breach was harsh, unjust or unreasonable and was in breach of contract - employment was terminated but employer was liable to damages for failing to give three months’ notice - consideration whether respondent entitled to damages for loss of prospects of further employment after expiry of current two-year contract - held that he was not.
LEGISLATION CITED:	Constitution s.51(xxix) Crimes Act 1900 (NSW) s.249 Industrial Relations Act 1996 (NSW) s.84(1) Industrial Relations Act 1988 (Cth) s.170DE(1) & (2) Suitors’ Fund Act 1951 (NSW)
CASES CITED:	Associated Dominion Assurance Society Pty Ltd v Andrew & Haraldson (1949) 49 SR (NSW) 351 Baker v Commissioner of The Australian Federal Police (2000) 104 FCR 359 Commonwealth Of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 Hadley v Baxendale (1854) 9 Exchequer 341 In Re Dispute – Board of Fire Commissioners Re Reports [1971] AR (NSW) 615 Kilburn v Enzed Precision Products (Australia) Pty Ltd (1988) 5 VIR 31 Martin v Tasmania Development And Resources [1999] FCA 593 New South Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68 Patty v Commonwealth Bank Of Australia (2000) 179 ALR 57 Re Matthews [2001] WASC 61 Regina v Travers (1957) 58 SR (NSW) 85 Reid v Howard (1995) 184 CLR 1 Ridge v Baldwin [1964] AC 40 State of Victoria v Commonwealth Of Australia (1996) 187 CLR 416 Tasmania Development & Resources v Martin [2000] FCA 414, (2000) 97 IR 66 Walker v Citigroup Global Markets Australia Pty Ltd [2006] FCAFC 101
PARTIES:	Murray Irrigation Limited - Appellant Anthony Balsdon - Respondent
FILE NUMBER(S):	CA 40760/2005
COUNSEL:	D.J. Fagan SC & R. Moore - Appellant J.V. Hurley - Respondent
SOLICITORS:	Ebsworth & Ebsworth - Appellant Nicholas W.J. Rolfe & Associates - Respondent
LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	DC 159/2004
LOWER COURT JUDICIAL OFFICER:	Ashford DCJ
LOWER COURT DATE OF DECISION:	31/08/2004