Official Trustee in Bankruptcy v Concut Pty Ltd
[1999] QCA 3
•5/02/1999
IN THE COURT OF APPEAL 99.3 SUPREME COURT OF QUEENSLAND
Appeal No 4023 of 1997
Brisbane
[Offficial Trustee in Bankruptcy v Concut P/L]
BETWEEN:
OFFICIAL TRUSTEE IN BANKRUPTCY
(Plaintiff) Appellant
AND:
CONCUT PTY LTD
ACN 000 276 193
(Defendant) Respondent McMurdo P
Thomas JA
Shepherdson J
Judgment delivered 5 February 1999
Joint reasons for judgment of McMurdo P and Thomas JA; separate dissenting reasons of
Shepherdson J.APPEAL ALLOWED WITH COSTS OF THE APPEAL AND THE ACTION. JUDGMENT ENTERED FOR THE APPELLANT IN THE SUM OF $383,333. APPELLANT’S APPEAL IN RESPECT OF THE COUNTERCLAIM IS STRUCK OUT
WITH COSTS AND ORDERS MADE BELOW IN RESPECT OF THE
COUNTERCLAIM ARE CONFIRMED.written contract - whether disclosure of prior misconduct is an
implied term of the written contract.
Bell v Lever Bros [1984] 1 Ch 112
Blyth Chemicals v Bushnell (1933) 49 CLR 66
Codelfa Construction Pty Ltd v State Rail Authority of New South
Wales (1982) 149 CLR 337
Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359
Swain v West (Butchers) Ltd [1936] 3 AllER 261
Counsel: Mr P.D.T. Applegarth for the appellant
Mr A.K. Herbert for the respondentSolicitors: Mullins & Mullins for the appellant
Hopgood & Ganim for the respondentHearing Date: 20 October 1998. IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 4023 of 1997
Brisbane
Before McMurdo P
Thomas JA
Shepherdson J[Official Trustee in Bankruptcy v Concut P/L]
BETWEEN:
OFFICIAL TRUSTEE IN BANKRUPTCY
(Plaintiff) Appellant
AND:
CONCUT PTY LTD
ACN 000 276 193
(Defendant) Respondent
JOINT REASONS FOR JUDGMENT - McMURDO P AND THOMAS JA
Judgment delivered 5 February 1999
The interest asserted by the Official Trustee in this litigation derives from the bankrupt
Geoffrey John Wells whose estate he administers. In these reasons references to “the appellant”
should be taken as references to Mr Wells.
The respondent company worked in the building field, largely in the area of concrete cutting,
drilling and grooving. In November 1980, the appellant became the respondent’s Queensland
manager. There was no written contract of employment. In late 1986, the respondent invited the
appellant and other State managers to buy a substantial number of shares held in the respondent by the company, Paynter & Dixon Industries Limited. On 1 December 1986, a new contract was
negotiated between the appellant and respondent, together with a separate contract governing the
appellant’s interests as a shareholder. The appellant’s employment was terminated without notice
on 1 February 1988 and the appellant sought damages for breach of contract.
The learned trial judge found that the appellant had used the respondent’s staff and materials
for his private purposes without the respondent’s permission, knowing he was not entitled to do so;
that this constituted significant misconduct on the part of the appellant and that this misuse of
employees most probably occurred prior to 1 December 1986. The respondent was not aware
of this misconduct at the time the appellant’s employment was terminated, only becoming aware of
it subsequently. His Honour found that the written agreement of 1 December 1986 made no
difference to the respondent’s right to terminate the appellant’s employment because of the earlier
misconduct. Counsel for the appellant, Mr Applegarth, claims the respondent was not entitled to
terminate the appellant’s employment; breach of the oral contract would entitle the respondent to
damages in respect of that contract but not to terminate a later fixed term contract without
compensation.
Counsel for the respondent, Mr Herbert, firstly contends that the contract of 1 December
1986 merely formalised the pre-existing oral contract of employment and was not a separate
contract of employment so that the misconduct of the appellant prior to 1 December 1986 entitled
the respondent to terminate his employment, even though he did not become aware of that
misconduct until after the termination.[1] Secondly, he submits that even if the contract of 1
[1] Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359.
December 1986 is a new and discrete contract, the appellant’s ongoing concealment or nondisclosure of his prior misconduct was a breach of that contract, even though that conduct
occurred in a period prior to 1 December 1986. His third contention is that it was an implied term
of the December 1986 contract that the appellant had not been guilty of serious misconduct or had
not otherwise engaged in conduct which would have constituted a material breach of his contract
of employment with the respondent as at 1 December 1986.
Is the contract of 1 December 1986 a new and discrete contract?
From 1980 until 1986 the appellant had been employed by the respondent as Queensland
manager under an oral agreement. In 1986 the relationship between the appellant and respondent
changed significantly. The appellant assumed substantial joint and several liabilities for a total of
$1.25 million under a personal guarantee to secure the partial management buyout of shares owned
by Paynter Dixon Industries Limited. If the appellant left the company within five years, he was
required to transfer his shares and convertible notes at the lesser amount of either the value
determined by the company’s auditors or 87.5 cents in the case of shares and $1 in the case of
convertible notes. In 1987, the share price was $1 but at the time of the appellant’s termination of
employment the auditor’s valuation per share was between $6.83 and $8.93. After his employment
was terminated, he sold 11,350 shares at 87.5 cents per share ($9,931.25) and his 37,370
convertible notes at $1 per note ($37,370) making a total of $47,301.25.
No doubt in part because of the appellant’s new obligations and to give him additional
security in his employment, a new written employment contract was negotiated (ex. 2) for a fixed
term of five years commencing on 1 December 1986 and renewable thereafter for further
consecutive 12 month periods unless either party gave the other three months’ notice in writing. The
contract noted in the preamble:
“B. The Employee is an employee of and shareholder in the Company. C.
The Company and the Employee have entered into this Agreement to record the terms and conditions of the employees (sic) employment with the Company.”
Clause 6, “Dismissal for Misconduct”, provided:
“If at any time during his employment by the Company the Employee
(a) Shall be guilty of any serious misconduct ...
and in such event the Company may terminate the Employee’s employment forthwith without any notice or payment in lieu of notice or liability for damages or otherwise.”
Clause 7, “Duties of Employee”, provided:
“The Employee ... shall serve the Company faithfully and diligently and use his
utmost endeavours to promote the interests of the Company ... .”
Clause 10, “Unfair Competition”, set out an onerous restraint of trade clause for two years after the
appellant’s termination of employment.
Clause 13, “Prior Service”, provided:
“Nothing contained in this agreement shall in any way limit or restrict the accrued rights of the Employee in respect of prior service with the Company to long service leave, superannuation, holiday pay and other like emoluments.”
Throughout the contract, the obligations of employer and employee are expressed in terms
of what “shall” be done or what “will” be done. Apart from cl 13, which we have set out, there is
no reference to the prior period of employment.
Whether a new contract of employment comes into existence when there is a pre-existing employment relationship is a question of fact in all the circumstances: see Quinn v Jack Chia.[2] Inthe instant case, the learned trial judge made no clear finding on this issue, merely stating:
[2] [1992] 1 VR 569, 575-577.
“The question here is - did the written agreement of 1 December 1986 make a difference. I have come to the view that it did not. The Plaintiff was the Defendant’s manager under an oral agreement. During that period, his misconduct was such that the Defendant had a right to terminate his employment had they known of his misconduct. By Exhibit 1, the service agreement, for reasons stated earlier in this judgment, the parties recorded the terms of employment - and gave the Plaintiff employment for a fixed period. I have been unable to find any authority which supports the Plaintiff’s proposition that this takes away the Defendant’s right to terminate his employment.”[3]
[3] Reasons for judgment, 10.
Although there are arguments to the contrary, because of the changed nature of the
relationship between the respondent and the appellant through the management purchase of shares
and convertible notes and the appellant’s substantial commitments by way of personal guarantees
at the time the written contract of employment was entered into, we are, on balance, persuaded
that the written contract did not merely formalise the earlier oral contract of employment but was
a new contract of employment. It is understandable both parties in these circumstances would want
a clear statement of the new arrangement. This interpretation is largely supported by the contract,
the terms of which, including cl 6 “Dismissal for Misconduct” relate to the future, using “shall” and
“will”, rather than the past, recognising present and future rather than prior employment. The only
mention in the contract of prior service is in cl 13 which preserves accrued rights such as leave and
superannuation. The written contract imposed an onerous restraint of trade upon the appellant
which was obviously not a term of the oral agreement. The term “during his employment” where
used in the contract must refer to the term of employment covered by the contract, that is, on and
from 1 December 1986. All these factors tend to support the conclusion that the objective intention
of the parties was that the written agreement of 1 December 1986 was to be a new and discrete
contract of employment, terminating and replacing the oral agreement.Was the appellant’s prior misconduct and/or the non-disclosure of that conduct a breach of the written contract?
Although non-disclosure was not pleaded and was not an issue at the trial, it was raised on
appeal.
The law implies good faith on the part of an employee as a condition of every contract of
employment. Breach of that condition will give the employer the right to elect to determine the
contract. As the respondent’s manager, the appellant could be dismissed without notice or
compensation if he acted in a manner incompatible with the proper and faithful performance of his
duty or inconsistently with his confidential relationship with the respondent: see Blyth Chemicals
Limited v Bushnell[4] where Dixon J (as the then was) and McTiernan J said:
[4] (1933) 49 CLR 66, 81.
“Conduct which in respect of important matters is incompatible with the fulfilment of an employee’s duty, or involves an opposition, or conflict between his interest and his duty to his employer, or impedes the faithful performance of his obligations, or is destructive of the necessary confidence between employer and employee, is a ground of dismissal.”[5]
[5] (1933) 49 CLR 66, 81.
If the employer is not aware of that breach at the time of the dismissal, but subsequently
becomes aware of the breach, the employer is nonetheless entitled to rely on the breach to justify
the dismissal. See Shepherd v Felt & Textiles of Australia Ltd[6] where Starke J said that an
[6] (1931) 45 CLR 359.
employee is “bound to render faithful and loyal service to the (employer), and not to do anything
inconsistent with the continuance of confidence between them.”[7][7] (1931) 45 CLR 359, 372.
It is well established that it is no justification for dismissal that the employee in previous
employment by another person was guilty of acts of misconduct: see Gordon & Gotch
(Australasia) Limited v Cox,[8] Hands v Simpson Fawcett & Co Ltd[9] and Gill v Colonial
[8] (1923) 31 CLR 370.
[9] (1928) 44 TLR 295.
Mutual Life Assurance Society Limited.[10]
[10] [1912] VLR 146.
In Swain v West (Butchers) Ltd,[11] Swain, as general manager, was directed by the
[11] [1936] 3 All ER 261.
managing director to carry out unlawful orders. The chairman of the board of directors, in an
interview with Swain, told him that if he gave conclusive proof of the managing director’s dishonesty,
Swain would not be dismissed. Swain gave the information and was then dismissed. The Court
of Appeal held that it was Swain’s duty, if he knew of acts which were not in the interests of the
company, to report them to the board. There was therefore no consideration for the verbal
agreement with the company and the company was not prevented from relying upon the information
it received from Swain.
| 15 | There is however no general duty of disclosure upon an employee to disclose the improper conduct of his fellow employees: whether such a duty exists will depend upon the circumstances of |
the case. See Sybron Corp v Rochem Ltd.[12]
[12] (CA) [1984] 1 Ch 112, 127, 129.
Bell v Lever Brothers[13] is strong authority for the proposition that there is no duty on an
[13] [1932] AC 161.
employee to disclose his or her own past faults. Bell and another had misused their positions with
Lever Brothers. Being unaware of those breaches of duty, Lever Brothers paid Bell and Snelling
compensation for termination of their services. Had Lever Brothers been aware of the breaches
of duty it would have terminated the employment agreement without compensation. Once aware
of the breaches, it took action against Bell and Snelling to recover the compensation paid. By a 3-2
majority, the House of Lords held that the action failed as to unilateral mistake on the grounds that
Bell and Snelling under their contract of employment with Lever Brothers owed no duty to disclose
their improper behaviour. Lord Atkin, with whom Lord Blanesburgh agreed, said:
“... Ordinarily the failure to disclose a material fact which might influence the mind of a prudent contractor does not give the right to avoid the contract. The principle of caveat emptor applies outside contracts of sale. There are certain contracts expressed by the law to be contracts of the utmost good faith, where material facts must be disclosed; if not, the contract is voidable. Apart from special fiduciary relationships, contracts for partnership and contracts of insurance are the leading instances. In such cases the duty does not arise out of contract; the duty of a person proposing an insurance arises before a contract is made, so of an intending partner. Unless this contract can be brought within this limited category of contracts uberrimae fidei it appears to me that this ground of defence must fail. I see nothing to differentiate this agreement from the ordinary contract of service; and I am aware of no authority which places contracts of service within the limited category I have mentioned. It seems to me clear that the master and man negotiating for an agreement of service are as unfettered as in any other negotiation. Nor can I find anything in the relation of master and servant, when established, that places agreements between them within the protected category. It is said that there is a contractual duty of the servant to disclose his past faults. I agree that the duty in the servant to protect his master’s property may involve the duty to report a fellow servant whom he knows to be wrongfully dealing with that property. The servant owes a duty not to steal, but, having stolen, is there superadded a duty to confess that he has stolen? I am satisfied that to imply such a duty would be a departure from the well established usage of mankind and would be to create obligations entirely outside the normal contemplation of the parties concerned. If a man agree to raise his butler’s wages, must the butler disclose that two years ago he received a secret commission from the wine merchant; and if the master discovers it, can he, without dismissal or after the servant has left, avoid the agreement for the increase in salary and recover back the extra wage paid? If he gives his cook a month’s wages in lieu of notice can he, on discovering that the cook has been pilfering the tea and sugar, claim the return of the month’s wages? I think not. He takes the risk; if he wishes to protect himself he can question his servant, and will then be protected by the truth or otherwise of the answers.”[14]
[14] [1932] AC 161, 227-228.
| 17 | Lord Thankerton noted: “In the absence of fraud, which the jury has negatived, I am of opinion that neither a servant nor a director of a company is legally bound forthwith to disclose any breach of the obligations arising out of the relationship, so as to give the master or the company the opportunity of dismissal; on subsequent discovery, the master or company will not be entitled to hold the dismissal as operating from the date of the breach, but will be liable for wages or salary earned by the servant during the intervening period.”[15] |
[15] [1932] AC 161, 231.
An employment contract is not generally a contract in the utmost good faith (uberrima fides);
an employee or prospective employee does not have a general duty to disclose adverse information
about himself or herself or even past breaches of the employment contract.[16] There is nothing to
[16] Halsbury’s Laws of Australia, p 310165 [165-255].
suggest the contract of employment between the appellant and respondent was one in the utmost
good faith and therefore the general rule against any duty of self-incrimination applies.
In the end, the extent of the duty of fidelity will depend on the facts of each case: see Hivac
Limited v Park Royal Scientific Instruments Limited & ors.[17] It is clear from Lord Atkin’s
[17] [1946] Ch 169, 174.
comments in Bell v Lever Brothers that ordinarily there is no contractual duty on an employee to
disclose past faults, even under the same contract of employment. Were it otherwise, employers
could avoid their responsibilities under contracts of employment by relying on non-disclosure of
long past indiscretions, followed by years of faithful service. There is no suggestion in this case that
the appellant deliberately withheld his prior misconduct in order to induce the respondent to enter
into the new written contract of employment.The respondent dismissed the appellant unaware of his earlier misconduct during the time
of the oral contract of employment. Under the written contract of employment, the respondent was
obliged to pay damages should it terminate the appellant’s employment without justification under
the contract before the conclusion of the first five year period.
The term implied by law in the written contract, that the employee shall refrain from any
conduct which would be destructive of the necessary confidence between the employer and the
employee, was not breached as the learned trial judge concluded the significant misconduct of the
appellant occurred before 1 December 1986. The oral contract had the same term implied by law
but that contract had been concluded at the time of the appellant’s dismissal by the respondent, the
clear objective intention of the parties being that the written contract would replace the pre-existing
oral contract. The written contract, in the absence of express terms, does not require the appellant
to disclose to the respondent misconduct by the appellant prior to entering into the written contract
of employment: Bell v Lever Brothers. Up until 1 December 1986, the respondent had a right to
terminate the appellant’s services for misconduct under the oral agreement. From 1 December
1986, a new contract of employment was in existence and the misconduct prior to 1 December
1986 or non-disclosure of that misconduct can be no ground for terminating the written contract.
Mr Herbert further submitted that the appellant committed an actual breach of cl 7.2 of the
agreement. That clause required the employee to “devote his entire time and attention during usual
business hours and use his best energies and abilities in the performance of his duties and shall serve
the company faithfully diligently and use his utmost endeavours to promote the interest of the
company. ...” He submitted in reliance upon Swain's case that the employee would commit a breach if he failed to report an employee for a past breach. Therefore, according to the submission,
the appellant was in breach of his duties under this clause by failing to report his own breach. The
submission should be rejected. It is tantamount to the assertion of a duty to confess which is
contrary to authority[18]. The law does not demand self-incrimination of this kind. The appellant's
[18] Bell v Lever Brothers above.
silence did not amount to a breach under cl 7.2.
The learned trial judge therefore erred in concluding that the written agreement of 1
December 1986 made no difference to the obligations of the appellant and respondent.
Was there an implied term in the written agreement that the appellant had not, prior to 1
December 1986, been guilty of serious misconduct as defined in the agreement?The appellant was the State manager of the respondent, not a manual worker employed
from nine to five. Whilst the law does not impose any general duty of disclosure of past misconduct
during the employment contract, should a term, that the appellant had not been guilty of serious
misconduct (as defined in the written agreement) prior to 1 December 1985, be implied in this
contract?
In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales,[19] Mason
[19] (1982) 149 CLR 337.
J (as he then was) said:
“For obvious reasons the courts are slow to imply a term. In many cases, what the parties have actually agreed upon represents the totality of their willingness to agree; each may be prepared to take his chance in relation to an eventuality for which no provision is made. The more detailed and comprehensive the contract the less ground there is for supposing that the parties have failed to address their minds to the question at issue.”[20]
[20] (1982) 149 CLR 337, 346.
And:
“The conditions necessary to ground the implication of a term was summarised by the majority in BP Refinery (Westernport) Pty Ltd v. Hastings Shire Council [(1977) 52 A.L.J.R. 20 at 26]: ‘(i) it must be reasonable and equitable; (ii) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (iii) it must be so obvious that “it goes without saying”; (iv) it must be capable of clear expression; (v) it must not contradict any express term of the contract.’ ... ”[21]
[21] (1982) 149 CLR 337, 347.
The correctness of this approach has been confirmed by the High Court in Byrne v
Australian Airlines Ltd[22] and most recently in Sanders v Snell.[23]
[22] (1995) 185 CLR 410 per Brennan C.J., Dawson and Toohey JJ, 422.
[23] [1998] HCA 64, 8 October 1998, [16].
The written contract of employment is a nine page detailed document containing 13 clauses:
cl 6 includes eight grounds for dismissal for misconduct and cl 7 sets out six specific duties of the
employee. Whilst to imply the term urged upon this Court by Mr Herbert may be reasonable and
equitable, is capable of clear expression and arguably would not contradict any express terms of
the contract, it cannot be said such a term is necessary to give business efficacy to the contract: the
contract is clearly effective without such a term. Further, because the law does not generally require
disclosure of past misconduct, it cannot be said that the implication of such a term is so obvious that
it goes without saying. In these circumstances, no such term should be implied.
ConclusionIt follows that the learned trial judge was in error in finding on the facts of this case that the
respondent had a right to terminate the appellant’s employment on 1 February 1988 because of his
misconduct prior to 1 December 1986. We stress that every case turns on its own facts. There
is no suggestion here that the appellant deliberately concealed his past misconduct and negotiated
new terms of employment to take away the respondent’s rights of termination. As Lord Atkin said
in Bell v Lever Brothers:
“The result is that in the present case servants unfaithful in some of their work retain large compensation which some will think they do not deserve. Nevertheless it is of greater importance that well established principles of contract should be maintained than that a particular hardship should be redressed; and I see no way of giving relief to the plaintiffs in the present circumstances except by confiding to the Courts loose powers of introducing terms into contracts which would only serve to introduce doubt and confusion where certainty is essential.”[24]
[24] [1932] AC 161, 229.
The respondent could have protected itself by including an express condition in the written contract
that past serious misconduct will be grounds for dismissal: those negotiating contracts of employment
at senior management level can be expected to know that the law does not ordinarily require an
employee to disclose past misconduct and that in the absence of specific terms, a new, written
contract of employment will ordinarily replace an earlier oral contract of employment. It may be
that had such an express clause been included in the written contract, the appellant would not have
been prepared to enter into the contract of employment and the share arrangement, bearing in mind
his obligations giving personal security for $1.25 million. The respondent has wrongfully terminated
the appellant’s contract of employment of 1 December 1986.
| 29 | The appellant is therefore entitled to damages for wrongful dismissal under that contract. The quantum of damages, including interest, is agreed at $383,333. On the findings of the learned |
trial judge, the respondent is entitled to an award of $2,816 and the appellant has abandoned his
appeal in respect of the counterclaim.
The orders are that the appeal against the judgment below, whereby it was ordered that the
appellant’s claim be dismissed, is allowed, with costs of the appeal and of the action. Judgment
should be entered for the appellant in the sum of $383,333. The appellant’s appeal in respect of
the counterclaim is struck out with costs and the orders made below in respect of the counterclaim
are confirmed
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 4023 of 1997
Brisbane
Before McMurdo P
Thomas JA
Shepherdson J[Official Trustee in Bankruptcy v. Concut P/L]
BETWEEN:
OFFICIAL TRUSTEE IN BANKRUPTCY
(Plaintiff) Appellant
AND:
CONCUT PTY LTD ACN 000 276 193
(Defendant) Respondent
REASONS FOR JUDGMENT - SHEPHERDSON J
Judgment delivered 5 February 1999
I have read the reasons for judgment prepared by the President and Thomas JA.
The result reached by them depends entirely on their conclusion that the contract of 1
December 1986 (“the service agreement”) (exhibit 1) was a new and discrete agreement and, as
I read paragraph 8 of their reasons, a new contract of employment which terminated and replaced
the pre-existing oral agreement between the parties.
On this basic point I respectfully differ from their Honours. In respect of exhibit 1 I consider
the basic question to be decided is whether by exhibit 1, the parties intended to cover the plaintiff’s
conduct during the whole of his employment by the defendant as Queensland branch manager.
Their Honours have set out in paragraphs 5 and 6 of their reasons a number of extracts from
exhibit 1. I do not propose to repeat all those extracts.
In paragraph 6 their Honours say:-
“Apart from cl 13, which we have set out, there is no reference to the prior period
of employment.”
With the greatest respect, I am unable to agree with this statement although it is true to say
that other than in clause 13 there is no express reference to “prior service”.
Exhibit 1 which was made between the plaintiff (“the employee”) and the defendant (“the
company”) only, discloses also:-
1. Recital B quoted by their Honours in paragraph 5 of their reasons uses the present
tense “is”;
2. Paragraph C, also quoted by their Honours in paragraph 5 shows the intention with
which the parties entered into exhibit 1 - “to record the terms and conditions of the
plaintiff’s employment with the Company”. In my view paragraph C is apt to
include the whole of the plaintiff’s employment and not simply the post 1 December
1986 period.
3. Clauses 8.1 and 8.2 which appear in clause 8 headed “EMPLOYEE NOT TO
DIVULGE SECRETS” relevantly read:-
(a)
“8.1 The Employee acknowledges that all confidential information of the Company which may come into his possession during his employment is and remains the property of the Company ...”
(b)
“8.2 The Employee shall not ... disclose to any person ... any confidential information of or relating to the Company ... or any trade secrets or confidential information of which he may become possessed while in the employ of the Company hereunder or of which he may have been possessed at any time prior to the date hereof ...”
(The underlining is mine)
The phrase “during his employment” in clause 8.1 is, in my view,
also apt to include the whole of the plaintiff’s employment and not simply
the post 1 December 1986 period.
The above quoted extract from clause 8.2 expressly relates to
confidential information of which the plaintiff may become possessed while
in the employ of the company and is apt also to include the whole of the
plaintiff’s employment and not simply the post 1 December 1986 period.
That view is strengthened by the use of the following words in clause 8.2
“at any time prior to the date hereof”.
(c) Clause 9.1. By this clause the plaintiff, as employee, assigned and agreed
to assign to the company “all his rights to and in all inventions processes or
techniques for the time being used or applied by the Company ... which
have been or may be conceived by the Employee (whether solely or jointly
with others) ... during his employment by the Company ...”
In my view the use of the words “which have been” and the phrase “during his employment
by the Company” show an intention of the parties to include the whole of the plaintiff’s employment
by the defendant company and not simply after 1 December 1986.
It is quite true to say that throughout exhibit 1, when the obligations of each of the parties
were expressed, the words “shall” and “will” invariably appear. Nevertheless, despite this use of
these words of the future it is, because of the matters to which I have just referred very far from
clear that exhibit 1 was a new contract of employment intended to terminate and replace the pre-
existing oral agreement. Nor is it clear that exhibit 1 covered the plaintiff’s conduct from 1
December 1986 only.
I am not persuaded that the agreement which brought about a partial management buy out
of shares in the defendant (which shares were owned by Paynter Dixon Industries Limited) can
properly be taken into account in deciding whether the contract of 1 December 1986 was a new
and discrete contract replacing the oral agreement and whether exhibit 1 covered the plaintiff’s
conduct during the whole of his employment by the defendant as Queensland branch manager.
First, that buy out agreement (described as “shareholders agreement” and which is exhibit 2) was
dated 2 December 1986, although no doubt on 1 December 1986 negotiations for the signatures
on exhibit 2 were very well advanced if not concluded. In saying that I recognise that while it is true
to say that the negotiations leading to the buy out agreement were part of the circumstances
surrounding the coming into being of exhibit 1, evidence of those negotiations “is not admissible to
contradict the language of the contract when it has a plain meaning” (per Mason J (as he then was)
in Codelfa Construction Pty Ltd v. State Rail Authority of NSW (1981-82) 149 CLR 337 at
352).
His Honour went on to say:-
“Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties ...”
As I shall shortly point out exhibit 1 does not mention the buy out agreement.
Secondly, although the defendant and Paynter Dixon Industries were parties to that
agreement the remaining parties to that agreement were a number of employee shareholders of
whom the plaintiff was one. Thirdly, the service agreement (exhibit 1) does not mention the buy out
agreement which is exhibit 2. Lastly, I consider that the plain meaning of exhibit 1 is that, despite
the use of the future words “shall” and “will” the parties intended to cover the plaintiff’s conduct
during the whole of the time he was employed by the defendant. In making the above statements
I have borne in mind that the learned trial judge found that exhibit 1 was to give the plaintiff security
of tenure as he had invested money in the partial buy out of Paynter Dixon (T 266). This finding
really does not have any bearing on the question whether exhibit 1 evinced the parties intention that
exhibit 1 should cover the plaintiff’s conduct from 1980 to the time of dismissal. Exhibit 1 did
provide that the plaintiff would be the defendant’s branch manager in Queensland for five years and
it is loss of salary for forty-six months of that five years that forms the bulk of the plaintiff’s assessed
damages.
In paragraph 7 of their reasons the other members of this Court have said that the learned
trial judge made no clear finding on the issue of whether a new contract of employment came into
existence when there is a pre-existing employment relationship. Their Honours then quoted from
his Honour’s reasons and I do not propose to repeat what they have said. However, I think it
important to note that the learned trial judge’s statement set out in paragraph 7 was made in the
context of the learned trial judge having preceded that statement by saying:-
1. That the misuse of the defendant’s staff was misconduct on the part of the plaintiff
and was significant misconduct sufficient to terminate his employment. [That finding
is not challenged];
2. That at the time when the plaintiff’s employment was terminated that misconduct
was not known by the defendant;
3. That misuse of employees most probably occurred prior to 1 December 1986;
4. That the plaintiff had argued in the circumstances that [the misuse] gave the
defendant a claim for damages on the pre-1986 contract of employment and did
not give a right of termination with respect to the written agreement (exhibit 1);
5. His Honour relied on a passage in the speech of Lord Atkin in Bell v. Lever Bros
[1932] AC 161 at 227-8 and said that passage “supports the proposition that past
misdeeds can give a right to dismiss, even after there has been a change in the
conditions of employment” (T 273); and
6. “It does not matter that at the time of dismissal the employer does not know of the
misconduct. See Shepherd v. Felt and Textiles of Australia Ltd (1931) 45 CLR
359 at 377-8”. His Honour then made the statement quoted by their Honours
prefacing that statement with the words:-
“The question is - did the written agreement of 1 December 1986
make a difference?”I would add that at trial the plaintiff admitted some limited use of the defendant’s staff and
material (T 266) but said that two named directors of the defendant were fully aware of this and that
he cleared with one of these directors the use of the defendant’s staff before he used them for work
on his house during normal working hours. This contested issue was resolved against the plaintiff. It was an issue involving the plaintiff’s and the two directors credibility and an issue destructive of
the directors’ confidence in the plaintiff.
In my view, the appeal should be dismissed for the following reasons:-
1. The plaintiff/appellant was at all times the Queensland branch manager of the defendant and during part of that time, mostly before 1 December 1986 he, as such
Queensland branch manager, was guilty of serious misconduct in the respects found
by the learned trial judge. He had, as the learned trial judge said, the responsibility
to set an example to other employees;
2. The service agreement (exhibit 1) was not a new and discrete contract between the
parties with its operation, including its “DISMISSAL FOR MISCONDUCT”
provisions (clause 6 of exhibit 1) being limited to the plaintiff’s misconduct only on
and from 1 December 1986;
3. By exhibit 1 the parties intended to cover the plaintiff’s conduct during the whole
period of his employment as the defendant’s Queensland branch manager;
4. The defendant was entitled to rely on clause 6 of exhibit 1 in respect of conduct
before 1 December 1986 (as it had pleaded); and
5. The findings adverse to the plaintiff/appellant and amounting to serious misconduct
as found by the learned trial judge stand and the plaintiff must fail.
I would add that, if this appeal succeeds this court will be sending to the business community
the wrong message on commercial morality. A successful appeal means that although the appellant
had been employed as Queensland branch manager of the defendant throughout the period late
1980 to early 1988 and during that period had been guilty of serious misconduct, his dismissal in 1988 entitles him to substantial damages. On the appellant’s argument, that entitlement arises
because after he had committed serious misconduct which as the learned trial judge found justified
his dismissal, he entered into a fresh contract of service as Queensland branch manager with the
defendant and that fresh contract in effect removed the right of the defendant to justify dismissal for
misconduct committed before the fresh contract of service began. The appellant’s argument that
the appellant’s misconduct amounting to breaches of the earlier oral contract gave the respondent
a right to claim damages for breach but not a right to terminate the later contract of employment for
a fixed term must, in my view, be rejected because the contract dated 1 December 1986 covered
the plaintiff’s conduct during the whole of the time from late 1980 when he was Queensland branch
manager and the defendant was entitled to rely on that misconduct to justify its dismissal of the
plaintiff (Shepherd v. Felt and Textiles of Australia Ltd (supra) at 377-8).
In Blyth Chemicals Ltd v. Bushnell (1933) 49 CLR 66 at 81, Dixon J (as he then was)
and McTiernan J said:-
“Conduct which in respect of important matters is incompatible with the fulfilment of an employee’s duty, or involves an opposition, or conflict between his interest and his duty to his employer or impedes the faithful performance of his obligations, or is destructive of the necessary confidence between employer and employee, is a ground of dismissal (Boston Deep Sea Fishing and Ice Co v. Ansell (1888) 39 Ch. D. 339 at pp. 357-8 and 362-4; English and Australian Copper v. Johnson (1911) 13 CLR 490; Shepherd v. Felt and Textiles of Australia Ltd (1931) 45 CLR 359.) But the conduct of the employee must itself involve the incompatibility, conflict, or impediment, or be destructive of confidence. An actual repugnance between his acts and his relationship must be found.”
In the present case the appellant’s conduct, as found by the learned trial judge to be serious
misconduct meets the descriptions of the conduct above given and in my view the judgment of the
learned trial judge was correct.
I would dismiss the appeal.
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