R W Jaksch & Associates Pty Ltd v Hawks
[2005] VSCA 307
•16 December 2005
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No. 3727 of 2004
| R.W. JAKSCH & ASSOCIATES PTY. LTD. | |
| Appellants/Defendants | |
| v. | |
| PETER HAWKS | Respondent/Plaintiff |
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JUDGES: | ORMISTON and EAMES, JJ.A. and HOLLINGWORTH, A.J.A. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 7 and 8 September 2005 | |
DATE OF JUDGMENT: | 16 December 2005 | |
MEDIUM NEUTRAL CITATION: | [2005] VSCA 307 | |
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Employment – Employment agreement terminated by employer prior to expiry of term – Employee solicited client exclusivity in breach of express direction not to do so – Employee disparaged employer to employer’s clients – Value of employer’s business lay in goodwill – Held that employee’s conduct was repudiatory and employer entitled to bring employment to an end.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Mr. M.F. Wheelahan, SC Mr. R.P. Dalton Dr. T.J.F. McEvoy | Gary J. McAllester |
For the Respondent | Mr. N.J.D. Green, QC with Mr. P.J. Ginnane | Richmond & Bennison |
ORMISTON, J.A.:
I have had the benefit of reading the judgment Hollingworth, A.J.A. proposes to deliver and, for the reasons she gives, I consider that the appeal should be allowed and that judgment should be given for the defendant.
EAMES, J.A.:
For the reasons given by Hollingworth, A.J.A. I agree that the appeal should be allowed and the judgment entered below be set aside.
HOLLINGWORTH, A.J.A.:
The respondent, Peter Hawks, established a financial planning business through his company, Carrup Nominees Pty Ltd (“Carrup”). In 2001, Carrup sold the business to the appellant for almost $1,000,000. Mr Hawks became an employee of the appellant under an employment agreement, which was expressed to be for three years from 1 March 2001, unless terminated earlier under the agreement.
Frictions developed between Mr Hawks and the owner of the appellant, Rick Jaksch. The relationship continued to deteriorate and matters finally came to a head in August 2002, when Mr Hawks’ employment was terminated. The employment agreement still had another 18 months to run.
Mr Hawks brought proceedings in the County Court seeking damages for wrongful termination of the employment agreement. The trial judge entered judgment for Mr Hawks in the sum of $146,153.36, together with interest and costs.
The appellant appeals against that decision, on the basis that the learned trial judge should have found that the employment agreement came to an end either as a result of Mr Hawks’ wrongful repudiation, or because it was validly terminated by the appellant in accordance with its terms.
The contractual arrangements
The business derived income from the receipt of premiums, fees and commissions on financial products – primarily insurance and superannuation - sold to its clients. By the sale of business agreement[1], Carrup sold to the appellant assets comprised of goodwill, Carrup’s “interest in the clients” named in an attached client list, client telephone numbers and trade debts. In effect, the appellant bought the ability to derive income, including fees and commissions, in respect of the clients.
[1]Dated 17 May 2001, but with an effective date of 1 March 2001.
The business operated in the name of Associated Planners Financial Services, under some sort of licensing, franchise or agency arrangement with a Sydney-based licensed dealer and broker called Associated Planners Financial Services Limited (“APFS”)[2].
[2]The precise nature of the arrangements with APFS was not the subject of evidence and is ultimately not relevant to this dispute.
The purchase price was paid by a deposit of $200,000, the sum of $517,827 on completion in May 2001 and the allotment to Carrup of shares representing 10% of the issued capital of the appellant. Mr Jaksch and his wife were entitled to buy those shares from Carrup at any time between 3 and 5 years from completion, for a price not less than $264,076.
The value of the business lay in the access to the listed client base. There was a claw back provision in relation to the purchase price, which operated if any of the listed clients ceased to be clients of the appellant and became clients of Carrup or Mr Hawks within 2 years after completion. Carrup and Mr Hawks also entered into restrictive covenants for 3 years.
Mr Hawks sold the business because he was approaching retirement and wanted a succession plan to enable him to exit the business before he became too old. The appellant agreed to offer employment to specified former employees of Carrup, including Mr Hawks.
Under the undated employment agreement, Mr Hawks was employed as Senior Marketing Representative and Financial Adviser[3] for three years from 1 March 2001 “or unless terminated earlier in accordance with the provisions of the agreement”[4]. His salary was to be $200,000 in year 1, $150,000 in year 2 and $100,000 in year 3. As his salary reduced, his leave entitlement increased, from 20 days in year 1, to 40 days in year 2 and 60 days in year 3. There was no commission or performance-based component to his salary.
[3]Clauses 2.1, 4.1 and schedule item C.
[4]Clauses 2.1 and 3.1.
His specified duties included the marketing of insurance and financial services to clients “and such other duties as the company may allocate from time to time.”
By clause 4.2 of the employment agreement, Mr Hawks agreed to:
“(a) serve the company faithfully and diligently and exercise all due care;
(b) act in the best interests of the company at all times;
(c) refrain from acting or giving the appearance of acting contrary to the interests of the company;
(d) use his best endeavours to promote and protect the company’s good name and reputation;
(e) perform his duties to the best of his ability.”
Termination of the employment agreement was dealt with in clause 9, which relevantly provided:
“The company may immediately terminate this agreement upon giving written notice to the employee of such termination, upon the happening of any one of the following events:
…
(c) the employee is guilty of any breach or continued neglect of the terms of this agreement or misconduct bringing the employee or the company into serious disrepute; and
(d) the date of expiry without rectification of a notice referred to in this paragraph, that is to say:
(i) if the employee fails duly and punctually to carry out the obligations on his part to be performed or observed pursuant to this agreement; and
(ii) the failure is not rectified with (sic) 14 days after service of written notice on the employee by the company specifying the nature of the failure and directing the employee to rectify the failure within such 14 day period.”
How the termination came about
A number of problems arose in relation to Mr Hawks’ duties and performance, in particular in relation to his role, the allocation of clients and accountability for budgetary performance. At the heart of all of the problems were the very different perceptions that the two main players had of their respective roles. Mr Hawks seems to have been unable or unwilling to grasp that he was now a mere employee, and not the proprietor of or a partner in the business. Mr Jaksch found it difficult to deal with an employee who thought he was entitled to be running the business.
From early 2002 onwards, a series of increasingly heated written communications passed between the two men, some of which will be discussed later. Suffice to say that Mr Jaksch made a number of requests or demands of Mr Hawks, with which Mr Hawks asserted that he was not obliged to comply. For his part, Mr Hawks asserted that he had certain rights or entitlements, with which Mr Jaksch did not agree.
By April 2002, it had become apparent that the relationship had disintegrated to the extent that lawyers were going to become involved. A meeting occurred on 10 April, at which Mr Hawks offered to be bought out of his agreement. Mr Hawks said that they were never going to agree on Mr Hawks’ role and duties and, if Mr Jaksch did not accept his offer, they would “fight in the trenches and the lawyers will get involved and it will be drawn out for years.” By May 2002, both sides’ lawyers had joined the correspondence battle. Various proposals for bringing the employment agreement to an end came to nought.
On 31 July 2002, Mr Jaksch wrote to Mr Hawks in the following relevant terms[5]:
[5]The letter alleged several other breaches which have been omitted here as they are not relied upon by the appellant.
“You have failed to fulfil your duties and obligations under your employment agreement and you are in breach of its terms and conditions in that you have:
·…
·Failed to comply with the company’s direction to desist from contacting clients of the company and requesting that they deal with you exclusively. I refer to my letter of 10 July 2002 and your response of 11 July 2002.
·Refused to comply with the company’s request to provide a report for the benefit of the business and staff arising out of your attendance at the Associated Planners Sydney conference in March 2002.
·Refused to comply with the company’s request to provide a marketing report …
·…
The breaches outlined above which have and continue to have a serious effect on the effective management and running of the office and the morale of other staff are totally unacceptable and accordingly I hereby give you notice pursuant to clause 9(d) of the employment agreement requiring you within fourteen (14) days of the receipt of this notice to take steps to remedy your default by the following:
·You undertake in writing that you will comply with your duties and obligations under the employment agreement and fulfil your role thereunder and as directed by the company;
·You undertake in writing to desist from contacting clients of the company and requesting that they deal with you exclusively;
·You undertake in writing specifically:
(a) …
(b)To comply with the company’s direction to desist from contacting clients of the company and requesting that they deal with you exclusively;
(c)To comply with the company’s request to provide [the conference report];
(d)To comply with the company’s request to provide a marketing report;
(e) …
(f)To adequately fulfil your role as Senior Marketing and Financial Advisor to clients of the company.
·You provide the company with a list of clients whom you have contacted and requested that they deal with you on an exclusive basis;
·You submit to the company in proper form [the conference report] and the marketing report requested on 3 July 2002;
·…
If you fail to give the undertakings referred to and to immediately remedy your defaults and breaches of the employment agreement then your employment agreement shall be terminated forthwith …”
Just before the 14 day deadline expired, Mr Hawks responded by letter dated 13 August 2002. After expressing disappointment at receiving the 31 July letter, he said that he remained ready, willing and able to perform the duties required by the employment agreement. In response to the specific complaints set out above, Mr Hawks said:
“The only intent behind the letters written to clients was to reassure the clients in respect of my position with the company as I had had complaints from some that they were confused and to an extent, concerned, that my position in the company was being undermined. I have built up a significant clientele over the years, as you are well aware, and many of these clients would prefer to deal only with me and I see that as a plus for the company. However, if you think this is a negative, I will desist from such conduct in the future. …
In respect of the request for [the conference report] and a marketing report, I believe I am the only person that has ever been asked to provide such a report and I query the bona fides of the request, however, I will let you have the reports within the next 10 days.
I would also like to add that you have endeavoured to make my position, subject to KPIs imposed on other advisers. This is clearly not within the ambit of the arrangement originally contemplated or within my duties as described in the employment contract. My role is not subject to budgetary performance, but clearly if you believe it is, the system of file allocation and client referral you have now adopted severely prejudices my position in this regard. It is in part the reason I wrote to some of my clients.
…
I note your request for a written undertaking to be bound by the provisions of the agreement. I believe this to be unnecessary as it is an implied term of mutual confidence and trust that comprises a term of all employment relationships and I think it inappropriate to threaten me in the way you have in the event I do not provide such an undertaking.”
Mr Hawks did not provide the appellant with the requested list of clients he had contacted.
On 16 August 2002, after obtaining legal advice, the appellant terminated Mr Hawks’ employment by a letter which relevantly stated:
“I hereby give you notice pursuant to clause 9 of your employment agreement that your employment with the company is terminated effective immediately as a consequence of:
·Your non-compliance with the notice requesting you to rectify breaches of your employment agreement … and/or
·The company’s acceptance of your repudiation of the employment agreement by committing serious and fundamental breaches of the employment agreement.”
The circular letters
By far the most serious conduct alleged against Mr Hawks relates to circular letters which he sent to more than 100 of the appellant’s clients[6]. The appellant argues that Mr Hawks repudiated the employment agreement by:
(a) The sending of the circular letters;
(b) Further or alternatively, sending at least some of the circular letters in defiance of the appellant’s written request of 10 July that he not do so.
[6]Although in evidence in chief Mr Hawks said he only wrote to 80 or 90 clients, in an earlier answer to interrogatories he had named or referred to 102 clients.
The appellant says that the situation was compounded by Mr Hawks’ failure to provide the appellant with the list of clients to whom he had written, as requested in the 31 July letter.
The circular letters consisted of a standard form covering letter and enclosure. The covering letter said as follows:
“Enclosed is a letter for you to sign, indicate name address and date and return to me in the envelope provided should you wish for me to continue to be your advisor as distinct from being allocated to another advisor at Albert Park.
Should you need to discuss this matter with me please do not hesitate to ring.”
The enclosure was in the following terms:
“Mr RW Jaksch RW Jaksch & Assoc P/L PO Box 21 Albert Park Vic 3206
Dear Mr Jaksch
I wish to advise that whilst I am happy to continue to be a client of RW Jaksch & Associates of Associated Planners Financial Services, I expect my adviser to be Mr Peter Hawks whilst he is still a shareholder of your firm and an adviser through Associated Planners Financial Services.
Please ensure that Mr Hawks has immediate access to my file and its contents without any impediment, together with any other information or resource that he may require to provide the service and advice that I need and have enjoyed in the past.
Please confirm by return mail that my instructions will be adhered to.
Yours sincerely,
Name …………………………. Address .………………………… Date ………………………….
cc Mr Guyon Cates Legal Officer Associated Planners Financial Services”
Although the enclosure was addressed to the appellant, Mr Hawks enclosed a stamped envelope addressed to his personal address, not the appellant’s address. Mr Hawks received more than 80 completed letters back from clients; he did not pass any of them on to the appellant.
The significance of the circular letters needs to be considered in the context of previous communications between Mr Hawks and Mr Jaksch about the subject matter of the letters, namely the allocation of clients as between financial advisers.
Some time during late 2001, the appellant decided to introduce key performance indicators (“KPIs”) as a means of measuring the performance of staff. In general terms, this meant that marketing staff such as Mr Hawks had income and new business targets to meet. I accept that there had been no discussion about the use of KPIs before Mr Hawks signed the employment agreement. However, there was nothing in the employment agreement which prevented the appellant from introducing such performance measures, which are a common feature of modern business. Whether it was because he came from an older generation, or because he had been used to being his own boss, or for some other reason, Mr Hawks seems to have taken great umbrage at the suggestion that his performance might be subject to some sort of evaluation. He expressed the opinion that if performance measures were brought in, that would have the potential to turn one adviser against another; he said he would not be part of any such system.
Mr Hawks’ hostility towards performance targets would have been perfectly understandable had his salary or employment entitlements been tied in with his performance. But he was contractually entitled to a substantial fixed salary, irrespective of performance. Nevertheless, he felt that he had certain entitlements to attend conferences and that they would be prejudiced by the introduction of performance-based measures.
Mr Hawks expressed the view that if KPIs were going to be used, then he was not prepared to share what he regarded as “his” clients, being clients who he had originally introduced to the business. In particular, he started to become aggrieved that another of the appellant’s employees, David Williams, was permitted access to “his” clients. Mr Hawks seems to have been unable to accept that the appellant had paid nearly $1,000,000 for the clients to become the appellant’s clients – not Mr Hawks’ clients - for the appellant to allocate amongst its employees as it thought fit.
In a letter dated 12 March, Mr Jaksch told Mr Hawks that the question of which advisers would get access to which of the appellant’s clients was under discussion and “will be responded to in writing as part of the job description you have requested.” Mr Hawks responded the following day that he wanted a meeting of all advisers to clarify the position in relation to the client base.
On 20 March, Mr Jaksch advised Mr Hawks that the process of reviewing the various issues, which included the client allocation issue, was taking longer than expected, as somebody external was advising in relation to the matter. He told Mr Hawks that he would get back to him once the process was completed.
Over the next few months, the appellant continued to permit David Williams to deal with clients who had been originally introduced to the business by Mr Hawks.
By June 2002, Mr Hawks had been told that the appellant would not pay the costs of his and his wife’s attendance at an APFS conference in Bali in the coming September. He was told that the decision was based on several factors. First, there was no contractual entitlement to attend. Secondly, he had been the only employee to attend the last APFS conference, in respect of which he still had not provided a report or any feedback. Finally, tickets were being allocated based on adviser performance.
Mr Hawks’ assertion that the Bali conference tickets were an “agreed benefit” is simply not supported by the evidence. He had no contractual entitlement to attend the conference, even if he had been performing at target level[7]. The fact that he had always attended when his company owned the business did not require the new owner to permit him to attend. The decision as to which members of staff could attend which conference was a matter properly within the discretion of Mr Jaksch.
[7]In fact, it seems that Mr Hawks had not even generated enough income to cover his first year salary, although there is a dispute as to the extent to which he fell short of the target.
In an e-mail dated 20 June 2002 about the Bali conference, Mr Hawks wrote to Mr Jaksch in the following terms:
“Rick, if you require a smooth takeover of my introduced clients to other advisers please do not penalise me if your engineered figures do not meet your criteria, nor seek to penalise me for decisions not agreed upon in the first place.
Your advice would be appreciated. Should you not honour your word you leave me with no alternative but to contact my introduced client base to ensure they continue to deal with me whilst I am at this practice.”…
This was the first and only indication that Mr Hawks intended to contact clients about who they should deal with. His employer did not have a policy of clients dealing exclusively with one adviser. From previous communications, he knew that his concerns about the matter of client allocation were under consideration. Mr Hawks did not wait for a response to this letter, for the “advice” that he said he was seeking from Mr Jaksch. Instead, in early July he went ahead and spoke to a number of clients about the fact that they were dealing with other employees of the appellant instead of dealing exclusively with him.
On 10 July, the appellant wrote to Mr Hawks in the following terms:
“It has been brought to my attention that without reference to me you have made contact with several clients of the company requesting that they deal solely with you in relation to their affairs notwithstanding that their needs are currently being serviced by other advisers in the company.
It is unacceptable that you contact clients in this way, not only because it makes the clients feel anxious as has been demonstrated from the feedback I have received, but also because it undermines the authority of the other advisers in carrying out their duties and has a harmful affect (sic) on staff moral (sic) and the operation and goodwill of the business…
Accordingly, I request that you give me your written undertaking by return that you will:
·continue to perform your obligations under the employment contract, and
·immediately desist from contacting clients of the company requesting them to deal with you on an exclusive basis.”
Mr Jaksch said he sent this letter because David Williams had told him that he had overheard Mr Hawks telling clients only to deal with Mr Hawks.
Even if Mr Hawks had previously been proceeding on an “understanding” that each adviser would service the clients they had introduced to the business, or had simply been awaiting clarification of the appellant’s position in relation to client allocation, after 10 July he should have been under no illusion as to what his employer required of him.
Mr Hawks replied by letter dated 11 July 2002. Far from offering the undertakings sought by his employer, he asserted that he had been “forced to protect [his] rights and privileges by ensuring that in the future no other adviser contacts [his] introduced client base”. He said that he would continue to protect his “rights and privileges and enjoy the same exclusivity as the other advisers.” He persisted in the erroneous assertion that he was a partner in the business and had a right to deal with “his” clients as he wished.
On 17 July, Mr Jaksch sent an e-mail to Mr Hawks and all other advisers reminding them that, as he had stated in the past, “no client is to be considered exclusive to any particular adviser.”
There is a factual dispute as to when the circular letters were sent out. Mr Hawks said in examination-in-chief that he sent the circular letters out in the first week of July 2002. He was challenged on this in cross-examination on the basis that the earliest date on any reply was late July. He also said that it took him “a couple of days” to prepare and send out all the letters.
The trial judge made no express finding as to when all of the circular letters were sent out. Initially, he said[8]:
“First of all, it seems to me to be clear that when Mr Jaksch wrote to Mr Hawks on 10 July there had already been contact between Mr Hawks and a number of his firm’s former clients. So that it is possible, at least, that some, at least, of the letters sent to the clients were in circulation prior to 10 July when the direction was given not to make any further contact.”
[8]At page 118 of the transcript of his reasons for decision.
His Honour was also well aware of the oral communications between Mr Hawks and clients in early July, in which he had requested exclusivity; it is not clear whether the first sentence quoted above is simply a reference to those oral communications.
His Honour then went on to consider whether the content of the circular letters was such as to contravene the appellant’s request, in the 10 July letter, that Mr Hawks immediately desist from contacting clients of the company requesting them to deal with him on an exclusive basis. It seems to be implicit in the fact that his Honour even undertook this exercise, that he was operating on the assumption that at least some of the circular letters were probably sent after 10 July.
The trial judge concluded that the circular letters did not request exclusivity and were therefore not sent in disobedience to the appellant’s 10 July request. With the greatest respect, I disagree with that conclusion as a matter of simple construction of the circular letters and the 10 July letter. I also note that counsel for Mr Hawks conceded in this appeal that Mr Hawks had indeed been seeking exclusivity in the circular letters[9].
[9]Respondent’s outline of submissions at [18].
Because of the approach which the learned trial judge took to construction of the documents, it was not necessary for his Honour to go through the process of analysing all the evidence and making any finding as to how many of the circular letters were sent before and after 10 July.
An examination of the discovered letters shows that 7 of the letters were undated by the recipient. All the others had either been stamped with a date received stamp, or had a date apparently inserted by the client when they signed the enclosure. The earliest recorded date of any client receipt or signature was Monday, 22 July. At least 10 replies were received or signed by the client on each of 23, 24 and 25 July, 9 on 26 July, and the remainder were dated thereafter. One of the circular letters was sent to Mr Hawks’ solicitor, who was also a client, Mr Tim Finemore. Mr Finemore was not called to give evidence to rebut the suggestion that he did not receive the circular letter until 23 July 2002, being the received date stamped on his copy of the letter.
The recipients of most of the letters were located in the Melbourne metropolitan area[10]. There is no evidence of disruption to the mail system in July 2002, such as might explain how so many letters might have taken more than 2 weeks to be delivered, had they indeed been posted in the first week of July[11]. Even if this period covered mid-year school holidays during which some of the clients were away[12] – about which there is simply no evidence – that would not explain the dates for the bulk of the circular letters.
[10]The discovered documents contain 5 circular letters to clients in country Victoria and 4 in Queensland; the remainder of the recipients were in the Melbourne metropolitan area.
[11]Mr Hawks said they were sent in the first week of July, that is, between Monday the 1st and Friday the 5th.
[12]As suggested by Mr Hawks’ counsel in oral submissions.
I am mindful of the fact that appeal courts are generally cautious about making factual findings, particularly where they have not had the benefit of viewing the witnesses. However, in my opinion, this is an appropriate case for this court to make findings as to when the circular letters were sent, for several reasons.
First, such an approach is not inconsistent with the trial judge’s findings as to when they were sent. Reading his Honour’s reasons in the way most favourable to the appellant, the trial judge has implicitly accepted that at least some of the letters were sent after 10 July. Reading them in the way most favourable to Mr Hawks, he has simply left open the question as to when the bulk of the circular letters were sent.
As far as credit findings are concerned, his Honour certainly made no finding that he accepted Mr Hawks’ evidence that all circular letters were sent before 10 July. Indeed, his Honour made no relevant credit findings in his reasons for decision. His only observation as to credit was made in the course of closing addresses, whilst talking generally about the fact that Mr Hawks and Mr Jaksch were, in their own way, trying to advance the company’s interests; he said in passing that his general impression was that neither of them was a dishonest man. His finding that “it is possible, at least, that some, at least, of the letters” were in circulation prior to 10 July, is hardly a ringing endorsement of Mr Hawks’ credit on the timing issue.
Secondly, there is strong objective evidence supporting an irresistible inference that Mr Hawks sent a large number of the circular letters after 10 July 2002. The inference arises in the following manner.
There is no evidence in this case of any interruption to the ordinary postal service in the relevant period. I infer that the overwhelming majority of the circular letters reached their destinations within a few days of posting.
“Whatever criticisms may be made from time to time of Australia Post, it happily remains true that the overwhelming majority of pre-stamped, properly addressed letters reach their destination within a few days.”[13]
[13]Australian Trade Commission v Solarex (1987) 78 A.L.R. 439 at 446 per Wilcox, J.
Had they been posted between 1 and 5 July, as alleged by Mr Hawks, the majority ought to have been received later in the first week or at the beginning of the 2nd week of July. Yet the first date of any recorded receipt or client completion is 22nd July. The fact that 10 letters were dated on each of the 23rd, 24th and 25th of July (and 9 on the 26th), makes it more probable than not that they had been posted no earlier than late in the 2nd week of July.
As Dixon, J. observed in Martin v Osborne[14]:
“The repetition of acts or occurrences is often the very thing which makes it probable that they are accompanied by some further fact. The frequency with which a set of circumstances recurs or the regularity with which a course of conduct is pursued may exclude, as unreasonable, any other explanation or hypothesis than the truth of the fact to be proved.”
[14](1936) 55 C.L.R. 367 at 376.
For these reasons, I would be prepared to find that at least some of the circular letters were posted after 10 July 2002.
Repudiation
The appellant had a right to terminate due to repudiation if Mr Hawks evinced an intention no longer to be bound by the employment agreement. The law looks at his conduct objectively, not according to his actual intentions. I accept that repudiation of a contract is a serious matter and is not to be lightly found or inferred. However, as Deane and Dawson, JJ. observed in Laurinda vCapalaba Park Shopping Centre[15] that fact:
“should not be allowed to cloud the fact that an allegation of repudiation … does not involve an assertion that the alleged repudiator subjectively intended to repudiate his obligations. … An issue of repudiation turns upon objective acts and omissions and not upon uncommunicated intention. The question is what effect the … conduct ‘would be reasonably calculated to have upon a reasonable person’. … It suffices that, viewed objectively, the conduct of the relevant party has been such as to convey to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it.”
[15](1989) 166 C.L.R. 623 at 657-8.
The appellant is entitled to rely on any ground to justify termination, whether or not it was known at the relevant time, namely 16 August[16]. Accordingly, the fact that the appellant was unaware at that time of the full extent of Mr Hawks’ conduct does not affect the appellant’s ability to justify the termination[17].
[16]Shepherd v Felt and Textiles of Australia Ltd (1931) 45 C.L.R. 359; Concut Pty Ltd v Worrell (2000) 75 A.L.J.R. 312, 176 A.L.R. 693; Intico (Vic) Pty Ltd v Walmsley [2004] VSCA 90.
[17] Whilst Mr Jaksch had assumed by the time he wrote the 31 July letter that Mr Hawks had made some written contact with clients, he had no idea of the extent of such communications. On 5 August 2002, a client by the name of John Oswald faxed to David Williams a copy of the circular letter. However, Mr Jaksch had not seen that letter before 16 August. Mr Hawks agreed in cross-examination that he had not told Mr Jaksch that he had sent the circular letters.
As already mentioned, I respectfully disagree with the learned trial judge’s construction of the relevant documents and his consequent conclusion that there had been no repudiatory conduct.
The 10 July letter specifically and unambiguously directed Mr Hawks not to contact the appellant’s clients asking them to deal with him exclusively. In so far as Mr Hawks ignored such a clear, lawful direction from his employer and sent any circular letters after 10 July, his conduct was, in my opinion, clearly repudiatory.
Further, the nature and contents of the circular letters were such that the mere sending of them at any time was repudiatory. That is to say, even if, contrary to my earlier finding, none of the circular letters was sent after 10 July, they were incompatible with the relationship of trust and loyalty which the appellant was entitled to expect and were potentially very damaging to the appellant’s goodwill. The following features of the circular letters are particularly noteworthy.
Although the enclosure letter which the clients were asked to complete was addressed to Mr Jaksch and the appellant, Mr Hawks asked the clients to mail it to him at his home address. He provided them with a stamped, addressed envelope for that very purpose. He never passed on to the appellant any of the letters which he received back. Given these features, I do not accept the submission made on behalf of Mr Hawks that “the contact was in no way surreptitious.”
The covering letter falsely implied that unless the client signed and returned the enclosure, Mr Hawks would no longer be the client’s advisor and the client would simply be allocated to another advisor[18].
[18]“… should you wish for me to continue as your advisor as distinct from being allocated to another advisor…”
The enclosure letter openly disparaged the appellant and drove a wedge between the appellant and Mr Hawks by suggesting:
(a) That the appellant was impeding Mr Hawks’ access to the client’s files;
(b) That the appellant was impeding Mr Hawks in his ability to service clients;
(c) That clients were not enjoying the same level of service that they had in the past;
(d) That there was a risk that the appellant would not comply with the client’s choice of adviser, therefore the client should demand confirmation by return mail that its “instructions” would be adhered to;
(e) That the letter needed to be copied to the legal officer at APFS in order to ensure that the client’s interests were protected or its wishes respected.
The overall effect of the circular letters was that Mr Hawks requested clients to deal with him on an exclusive basis and implied that their interests would not be protected if they used another adviser. Whatever Mr Hawks’ true motivation for sending the circular letters, his conduct clearly risked damaging the goodwill of a business for which the appellant had paid almost $1,000,000 to acquire from Mr Hawks’ company.
Although specifically asked in the appellant’s letter of 31 July to disclose the identity of the clients to whom he had sent the circular letters, he did not do so. Indeed, he did not disclose the full extent of his surreptitious conduct until compelled to do so by compulsory court processes.
Mr Hawks’ conduct in sending the circular letters was in breach of his obligations under clause 4.2 of the employment agreement to such a serious extent that it evinced an intention no longer to be bound by the agreement.
In his letter of 13 August, Mr Hawks had said that he would desist from soliciting exclusivity, if that is what the appellant required. A reasonable employer would have been entitled to view such words with some scepticism, given that Mr Hawks had already flagrantly ignored the earlier direction not to solicit exclusivity. In any event, the repudiatory conduct had already occurred and his statement that he would not breach in the future could not undo that fact. Furthermore, he still had not told the appellant of the extent of his offending conduct, even though specifically asked to do so.
In these circumstances, the appellant was entitled to accept Mr Hawks’ repudiatory conduct and terminate the employment agreement on 16 August 2002.
Termination for breach
As I have concluded that the employment agreement was brought to an end by repudiation, it is not necessary for me to consider the alternative arguments based on termination under clause 9 of the employment agreement.
Conclusion
For these reasons, I would allow the appeal, set aside the judgment below and in lieu thereof order that judgment be entered for the defendant.
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