Redman v Verticon Group Limited (No 2)

[2009] NSWDC 43

CITATION:	Redman v Verticon Group Limited (No 2) [2009] NSWDC 43
HEARING DATE(S):	9 - 13 March 2009
JUDGMENT DATE:	2 April 2009
JURISDICTION:	Civil
JUDGMENT OF:	Goldring DCJ
DECISION:	Verdict for the plaintiff in sum of $133,407
CATCHWORDS:	EMPLOYMENT LAW - summary termination - 'wilful or serious misconduct' - meaning of 'wilful' - EMPLOYMENT LAW - condonation of breach of employment contract by employer - CONTRACT - Employment Contract - duty of employee summarily dismissed to mitigate damages
LEGISLATION CITED:	Insurance Contracts Act 1984 (Cth)
CASES CITED:	Blyth Chemicals v Bushnell (1933) 49 CLR 66 Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 Concut Pty Ltd v Worrell (2000) 75 ALJR 312 Rankin v Marine Power International Pty Ltd [2001] VSC 150 Pastrycooks Employees, Biscuit Makers Employees and Flour and Sugar Goods Workers Union v Gartrell White [No 3] (1990) 35 IR 70 Bigg v NSW Police Service (1998) 80 IR 434 Briginshaw v Briginshaw (1938) 60 CLR 336 R v Galli [2001] NSWCCA 504 McDonald v Parnell Laboratories (Aust) Pty Ltd (2007) 168 IR 375 Cooper v Cooper (1941) 65 CLR 162 Byrne v Australian Airlines (1995) 131 ALR 422 Peter v Aradlay Insurance Brokers Pty Ltd [2005] NSWIRComm 253
PARTIES:	Jason Redman (Plaintiff) Verticon Group Limited (Defendant)
FILE NUMBER(S):	5716 of 2007
COUNSEL:	J Berwick (Plaintiff) T Saunders (Defendant)
SOLICITORS:	Craddock Murray Neumann (Plaintiff) Deacons (Defendant)

JUDGMENT

1 In this action Mr Jason Redman claims damages from the Verticon Group Limited for wages and bonuses, which he says, are due to him after he resigned from his position as General Manager for New South Wales for Verticon Group. Verticon Group says that Mr Redman was summarily dismissed for "serious misconduct", and as a result of that he was not entitled to avail himself of the dispute resolution procedures provided for in his employment agreement, and is not entitled to his wages, bonus and other damages.

2 The issue for decision is, primarily, whether the evidence discloses grounds upon which Verticon Group was entitled to find that there was "serious misconduct" on Mr Redman's part.

Mr Redman's employment agreement

3 Until 2005, Mr Redman, or rather a family trust controlled by him, operated a business through a company, Fire Up Cranes and Rigging Pty Ltd, which hired cranes and hoists. During its short life, the business of Fire Up had increased significantly, in large part as a result of Mr Redman’s efforts. In the middle of that year the then managing director of Verticon Group, Mr Mark Kevin, approached Mr Redman and offered to buy the shares in Fire Up for a price of $4 million. It would be a condition that Mr Redman would remain as managing director. As part of the agreement to transfer the shares, Mr Redman was required to execute an employment agreement. This agreement is in evidence. It is dated 1 September 2005. The agreement was originally between Fire Up and Mr Redman, and it is not in dispute that, at the relevant time, the rights of Fire Up had been taken over by Verticon. The relevant parts of the agreement read:

Duties and responsibilities
As General Manager - New South Wales, you will have responsibility for contributing to the day-to-day management and operation of Fire Up. You will form part of the Verticon Group executive team and as part of your role, you are required to report to the Managing Director of the Verticon Group.

Your duties and responsibilities are as discussed with the Managing Director of Verticon Group prior to your employment under this agreement commencing. In addition, you are required to exercise all such other responsibilities and perform all such other duties to meet the operating needs of the business, including promoting the business, engaging in business development activity, securing new work opportunities and managing staff subject to overview of the Managing Director.

Policies
You agree to abide by all the Verticon Group's policies and procedures as determined by the Verticon Group from time to time. Your employment will be subject to you complying with these policies and procedures on a regular basis.

The Verticon Group may vary, change or terminate existing policies and devise and introduce new policies.

Summary Termination
Fire Up may terminate your employment summarily without the giving or payment in lieu of notice if, within the reasonable opinion of Fire Up, you:
- wilfully disobey or disregard a lawful direction given to you by Fire Up;
- are found guilty of any indictable offence;
- commit any serious act of dishonesty or fraud whether in relation to Fire Up, its employees or otherwise;
- are unable to perform your duties due to the effects of alcohol or drugs or use or are in personal possession of illegal drugs while at work;
- fail to hold, or are disqualified from holding or cease to satisfy any licence, qualification or authorisation required by law to be held by you as a condition of the performance of your duties and responsibilities; and
- commit any act which in the reasonable opinion of Fire Up is likely to seriously injure the good standing, reputation or business of the Verticon Group,
and on termination you will not be entitled to compensation, damages or to any payment other than in accordance with this agreement.

Termination of Mr Redman's employment

4 In August 2007, Mr Redman was experiencing a breakup of his relationship and problems concerning the care of his children. He determined to resign his position with Verticon Group, and as a result of that decision, he sent an e-mail to Mr Alan Torrington, who had become the managing director of Verticon Group, indicating his intention to resign. There was an exchange of e-mails, phone calls, meetings and correspondence, and consequently Mr Torrington agreed that Mr Redman should take what was described as "gardening leave" for a period of six months, during which time he would be paid. However he was not to attend the premises or take any part in the business. The last date upon which he would be paid was 17 March 2008. The results of the negotiations were expressed in the letter from Mr Torrington to Mr Redman dated 26 October 2007. Mr Redman responded to this, accepting much of the content of the letter but differing in some detail. At the end of October he commenced the "gardening" leave.

5 On 28 November 2007, Mr Torrington sent Mr Redman a letter purporting to terminate his contract on the grounds of "serious misconduct". Relevant parts of that letter read:

Verticon Group Limited ( Verticon ) has recently become aware that over the last two months when you undertook duties in your role as General Manager New South Wales (September and October 2007) you engaged in an ongoing process of hiding invoices and costs associated with its New South Wales operations. The result of this misconduct was to falsely report and misrepresent the financial performance of Verticon in New South Wales.

Since your departure on gardening leave, invoices from January to September (totalling approximately $434000) have been found on the desks formerly occupied by you and the New South Wales Accountant.

In your role as general manager New South Wales you had overall responsibility for the conduct of the Verticon business in New South Wales including cost control (management of purchase orders and invoices). You personally signed off on financial information provided to the Verticon Board which falsely reported on the financial results of its New South Wales operations. Clear evidence of that is contained in the financial reports you provided to the Board for September 2007 and prior.

In the opinion of Verticon, your conduct in falsely the reporting on the New South Wales operations and providing false and misleading information to Verticon constitute serious misconduct and justifies a summary termination of your employment contract. In addition, your employment contract with Verticon indicates that your employment may be terminated without notice, if in the company's reasonable opinion, you have:

1. committed a serious act of dishonest or fraud either in relation to Verticon, its employees or otherwise, orl
2. committed any act that is likely to seriously injure the good standing, reputation or business of the Verticon Group.

As a consequence of these matters, and your manifest failure to provide faithful service to Verticon, a decision has been taken to summarily terminate your employment effective immediately .

You will be paid any outstanding leave entitlements accrued as at today's date, but otherwise you are entitled to no further benefits under your contract of employment.

6 A handwritten addition to the letter, which may or may not have been written by Mr Torrington, says that "the sheer volume of costs that have been found since your departure" led to the writing of the letter. In fact, I find that the Verticon group was well aware of these costs on and after 15 September 2007, well before final arrangements were made for Mr Redman to leave the company. It is clear that the primary basis for the letter was an allegation of fraudulent, false and dishonest misrepresentation. This letter was expressly relied on in full in the Defence to the Amended Statement of Claim, so that the plaintiff was obliged to prepare a case that would answer all the allegations contained in the letter. Fraud and dishonesty were not specifically pleaded in that pleading. On the first or second day of the hearing, counsel for the defendant conceded that it was not pressing any allegation of fraud or dishonesty, but said that it relied on other valid grounds for summary dismissal.

7 The evidence is that no attempt was made by anyone on the part of Verticon Group to contact Mr Redman and to give him an opportunity to explain anything concerned with the allegations of serious misconduct, fraud and deception which were made in the letter.

8 Mr Hadley and Mr Hipwell, who gave evidence for the defendant, said that they certainly had not attempted to speak to Mr Redman about the matters alleged against him. Indeed, they both gave evidence that they did not know that he had been dismissed for serious misconduct until some time after the event. It appears that their understanding was that the decision had been made entirely by Mr Torrington. Mr Torrington was not called to give evidence and no explanation was offered for his absence. I am therefore entitled to, and do, draw the inference that any evidence that Mr Torrington might have given would not assist the defendant's case.

9 The defendant submitted that where an employee is dismissed for serious misconduct, that employee is not entitled to the benefit of the provisions in the employment agreement relating to dispute resolution.

10 I have to determine the following issues:

· was the defendant entitled to terminate Mr Redman's employment on the basis of serious misconduct?

· Was the defendant entitled to ignore the dispute resolution provisions in the employment agreement?

· was the defendant entitled to terminate Mr Redman's employment without giving him an opportunity to be heard?

What legal grounds are available to an employer who alleges “serious misconduct”?

11 It is almost trite that some conduct by an employee may be so serious and detrimental to the employer that the employer is entitled to dismiss the employee without notice. This is a common law right. It may be subsumed, to some extent, by a contractual provision, but the principle remains.

12 At common law, the right to dismiss an employee is basically an application of the principle that some conduct amounts to a repudiation of the contract of employment. In Blyth Chemicals v Bushnell (1933) 49 CLR 66 the High Court said (at 81-82):

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 ... 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. It is not sufficient that ground for uneasiness as to its future conduct arises.

See also Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359.

13 In Concut Pty Ltd v Worrell (2000) 75 ALJR 312 Kirby J (at [51]) suggests that summary dismissal is available only in "exceptional circumstances". In Rankin v Marine Power International Pty Ltd [2001] VSC 150, Gillard J (at [250]) said, “"The circumstances do not have to be exceptional but nevertheless, must establish that the breach was of a serious nature." With respect, the decision of Gillard J is not binding on me, and in my view, Kirby J correctly stated the effect of a long line of authority.

14 The contractual rights supplement the common law: Concut Pty Ltd v Worrell (above) at [22] –[24] and [59].

15 The defendant employer bears the onus of proof of establishing that it had grounds that justified summary termination of Mr Redman’s employment: Pastrycooks Employees, Biscuit Makers Employees and Flour and Sugar Goods Workers Union v Gartrell White [No.3] (1990) 35 IR 70, 83-84; Bigg v NSW Police Service (1998) 80 IR 434, 455.

16 I accept the plaintiff’s contention that the court must be satisfied, at least in relation to the common law, that Mr Redman engaged in serious and wilful misconduct. Although the Defence refers to the whole of the matter set out in the letter of 28 November 2006, it did not adduce any evidence in support of fraud or dishonesty. Nevertheless, the allegation of “serious and wilful misconduct” against a senior manager is a serious allegation, and requires a higher degree of proof, though possibly not as high as when what is alleged is actual dishonesty. In Briginshaw v Briginshaw (1938) 60 CLR 336 Dixon J said:

“The seriousness of an allegation made, the unlikelihood of an occurrence of a given description, and the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal."

See also R v Galli [2001] NSWCCA 504 (per Spigelman CJ at [55]). However, in Briginshaw, Dixon J began the paragraph quoted above with the statement that, "When the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found.” (at 361) It follows that this court must be satisfied that there was in fact serious or wilful misconduct, not merely an assertion by the defendant to that effect.

17 There is little law on what constitutes “serious” or “wilful” misconduct. Gillard J in Rankin v Marine Power International Pty Ltd (2001) 107 IR 117, [240] said:

“There is no rule of law that defines the degree of misconduct which would justify dismissal without notice.”

18 In McDonald v Parnell Laboratories (Aust) Pty Ltd (2007) 168 IR 375, Buchanan J, in the Federal Court, made some useful comments. At [46] he said:

“The next questions are whether it was serious misconduct or wilful misconduct. There is doubtless substantial overlap between these two descriptions. Wilful misconduct will more readily be regarded as serious than unintentional or merely careless misconduct.”

19 His Honour went on to quote some judgments from the Supreme Court of Queensland, where the Full Court considered the phrase “serious or wilful misconduct” in the context of the Insurance Contracts Act 1984 (Cth). Thomas J regarded the question as one which should be left to a jury or other tribunal of fact (at 33):

“Derrington J said (at 41):
‘It is accepted by [the respondent] that the reference in the exception to serious or wilful misconduct is clearly in the disjunctive so that it has application if the misconduct is either serious or wilful: Girlock (Sales) Pty Ltd v Hurrell [1982] HCA 15 ; (1982) 149 CLR 155; 40 ALR 45. Wilful misconduct within this meaning is not necessarily serious, and vice versa, for otherwise one of them would be tautologous: Johnson v Marshall Sons and Co Ltd [1906] AC 409 at 416. Serious misconduct is judged on an objective level while wilful misconduct emphasises subjectivity. There is nothing unreasonable about this and indeed there are good reasons discernible for it. It is irrelevant that other statutes with different purposes use these words conjunctively. Accordingly authorities upon the construction of those statutes must be considered with caution.’
Ambrose J (at 51) said:
‘"Wilful" misconduct involves merely the doing of acts in fact amounting to misconduct intentionally, with knowledge that those acts will amount to misconduct.’”

20 Buchanan J then considered a case, which I shall discuss shortly, and concluded that the plaintiff had been untruthful in response to her employer. This was a single foolish and dishonest act. He concluded that while this was not serious and wilful, in the circumstances it justified summary dismissal, (at 395).

21 In Rankin v Marine Power International Pty Limited (2001) 107 IR 117, Gillard J considered the common law, especially as stated in the Blyth Chemicals case (above). He particularly looked at the question of disobedience, and referred to Laws v London Chronicle Ltd (1959) 1 WLR 698, where Lord Evershed MR cited with approval what was said in Halsbury's Laws of England (3rd ed).

“263 The principles may be summarised as follows:

‘(i) Wilfu l disobedience of the lawful and reasonable order of the employer justifies summary dismissal.

(ii) Misconduct, inconsistent with the due and faithful discharge by the employee of the duties for which he was engaged, is good cause for dismissal, but there is no fixed rule of law defining the degree of misconduct which will justify dismissal.

(iii) There is a good ground for the dismissal of an employee if he is habitually neglectful in respect of the duties for which he was engaged.

(iv) That a single instance of insolence would hardly justify dismissal.

(v) The question is whether the conduct complained of is such as to show that the employee has disregarded the essential conditions of the contract of service.

(vi) As a general proposition one act of disobedience or misconduct would not generally justify dismissal, but one such act may justify dismissal, "only if it is of a nature which goes to show (in effect) that the servant is repudiating the contract, or one of its essential conditions; and for that reason therefore, ... that the disobedience must at least have the quality that it is 'wilful': it does (in other words) connote a deliberate flouting of the essential contractual conditions”.’

Gillard J continued, at [264-7]

“264 As a general proposition, it is something more than ill advised conduct or omission to act, as a result of an error of judgment. See Gooley v Westpac Banking Corporation (1995) 59 IR 262 at 276-279.

265 The cases establish that an employee may be dismissed summarily for incompetence in carrying out his duties, and also be dismissed for negligently performing his duties.

267 On the other hand, there is a good ground for the dismissal of an employee if he is negligent in the course of his employment. However, it would indeed be a very grave case of negligence, causing substantial damage, to justify dismissal for a single act of negligence. As a general proposition, the neglect would have to be habitual.”

22 In Cooper v Cooper (1941) 65 CLR 162 Williams J quoted English authority with approval. His Honour said (omitting references):

"The meaning of wilful neglect has been considered in cases decided under the English Act. In Jones v. Jones Lord Merrivale said that the husband ‘must have been guilty of that wilful neglect to maintain that was misconduct to justify such an order’. In Weatherley v. Weatherley he said that ‘what seems requisite before a husband can be found guilty of a wilful breach of his duty to maintain his wife, is that there must be a refusal to maintain, which has no explanation reasonable in common sense and good faith’. These definitions agree in substance with the meaning attributed to the words "wilful neglect and default" in cases relating to alleged breaches of duties by directors and auditors of companies and by trustees ( Gould v. Mount Oxide Mines Ltd. (In Liquidation);In re City Equitable Fire Insurance Co. Ltd ; In re Munton; Munton v. West ; In re Vickery; Vickery v. Stephen ; Dalrymple v. Melville ). These authorities show that wilful neglect imports an intention to act or omit to act in a way which the person charged knows, or ought if he is not recklessly careless to have known, will amount to a breach of duty."

The other members of the Court made similar statements. From these statements I draw the conclusion that the word "wilful" means knowingly and intentionally. In order to prove something was done wilfully, the party making the assertion must prove that the other party both knew what he or she was doing and intended to do it.

What was the conduct relied upon as constituting "serious misconduct"?

23 The allegation against Mr Redman appears to be primarily that he failed to notify the Head Office of the defendant that the New South Wales branch had incurred a significant amount of costs. This, it is alleged, misled Head Office as to the financial position of the whole group and this led it immediate in turn to mislead its sources of finance as to its ability to repay debt.

24 This allegation is alleged to have arisen from the situation where the New South Wales branch was interpreting the requirements placed on it by Head Office as to the way in which the incurring of costs should be reported in a way that seemed to differ from the interpretation of Mr Hipwell, the Chief Financial Officer of the group. Mr Redman, and Mr Sokialis, who was the financial controller of the New South Wales branch at the relevant times, both gave evidence that their understanding was that whenever the New South Wales branch incurred a cost, for example by ordering goods or services, this was to be done by way of the relevant operations manager notifying Mr Sokialis of the order. Mr Sokialis would then raise a purchase order on the current accounting system. This purchase order would be reported to head office in Melbourne, so that the central administration of the company was aware of projected costs, and was able to estimate accurately the financial position of the group. Mr Hipwell, who was appointed financial controller of the defendant in February 2003, and became chief financial officer and company secretary in May of that year, gave evidence that he saw this aspect of the purchase order system as secondary. He said that the main purpose of the requirement that purchase orders be raised was to control costs and to ensure that the senior managers approved any expenditure that was to be incurred. He placed greater weight on the invoices in determining the financial position of the group, because the purchase orders did not always reflect the actual cost incurred. If this was his view, it is not clearly reflected in the accounts payable policy of the company, and there is no evidence that he ever communicated it to Mr Redman or Mr Sokialis. Mr Redman's evidence was that he insisted on the raising of purchase orders where the business it was operating as Fire-up under his ownership, and well before the Timberline accounting system was introduced. He was most emphatic that purchase orders should be raised whenever the business committed itself to an expenditure, and regularly pressed this on his senior managers. Mr Sokialis corroborated this evidence.

25 Suppliers to the company were generally asked to send invoices direct to the Head Office of the Verticon Group in Melbourne, but some did not, rather sending them to the Sydney branch address. Sydney would then send invoices to Melbourne. In all cases, after Melbourne had received the invoices, they would be sent back to Sydney for processing. The invoices would be checked against the purchase order, and then submitted to Mr Redman, as general manager, and Mr Sokialis, as financial controller, for approval. After they had been approved they would be sent back to Melbourne and the account paid.

26 It appears that, in the New South Wales branch, there were times when employees of the branch ordered goods and services without either notifying the relevant operations manager, or without notifying Mr Sokialis. In this case, no purchase order would be raised, as Mr Sokialis was the only person with authority to do so.

27 It appears that there were also cases where there was a dispute or "issue" about a particular invoice. In this case, Mr Sokialis would retain the invoice until the issue was resolved.

28 Mr Hipwell gave evidence that he understood the system to operate differently. He expected invoices to be sent to Head Office as soon as possible.

29 In 2007, for reasons explained in his affidavit by Mr Hipwell, the defendant changed its accounting system. Previously it had employed a system known as ABM, but as from 1 July, the accounting system was a new system called Timberline. Both Mr Sokialis and Mr Hipwell gave evidence that there were problems connected with the introduction of the new system. Both agreed that, for some weeks after the introduction of the new system, it was impossible for regional offices to raise a purchase order using the system. They disagreed as to when the system became fully operational, but it is clear that for all of July and a large part of August there were significant problems with the new system. Mr Hipwell gave evidence that in Head Office, external consultants were employed to assist with the inauguration of the new system, but no such consultants were offered to the regional offices. Instead they were given a hard copy training manual, which Mr Hipwell described as "foolproof". Mr Sokialis, who is an experienced and qualified accountant and financial controller, gave evidence that he personally had problems with the new system, and received no training, because the printed material did not assist him to do certain things that he needed to do. I accept the evidence of Mr Sokialis on this point.

30 Mr Hipwell instructed all regional offices to enter on the Timberline system any purchase orders not recorded on it and still outstanding as at 1 July 2007. There is no dispute that purchase orders could not be raised in the new system until as late, possibly, as the first week in August. Mr Sokialis gave evidence that his workload was such that without additional assistance, which he did not have, he did not have time to review all the outstanding purchase orders that had been entered on the ABM system, so that these projected expenses were not reflected on the Timberline system until much later.

31 There was an exchange of e-mails, and apparently of telephone conversations, between Mr Hipwell and Mr Sokialis during July and August about these matters. On about 23 August, Mr Hipwell went on leave for two weeks. On 15 September, about a week after Mr Hipwell returned from his leave, Mr Sokialis sent Mr Hipwell an e-mail attaching a schedule of all outstanding purchase orders which had been entered on the ABM system, but which had not yet been keyed into the Timberline system. In order to compile this list, Mr Sokialis had apparently reviewed all the outstanding purchase orders, and by this e-mail passed on what he had found to Head Office. It is clear that from this date, Head Office was aware that the New South Wales region had incurred potential expenses of $250,000 or more. However, these projected expenditures were not reflected in the Timberline system. Although they appeared as an "accrual" in the August reports of the group, because Mr Hipwell considers that purchase orders are of less use in financial reporting the older they get, they were automatically "reversed" in the following month, so that the projected expenditures did not appear in subsequent months.

32 However, in the light of Mr Hipwell's evidence about receiving the information from Mr Sokialis on 15 September, it is not open to the defendants to say that they were not aware, after that date, of the outstanding commitments to expenditure, even though they may not have been received in the form in which Mr Hipwell had asked.

33 In evidence there is an e-mail in which Mr Hipwell asked the regional financial controllers to enter outstanding purchase orders on the Timberline system, but it is not clear that this was a directive that had high priority, and there is certainly no evidence that Mr Hipwell directed Mr Sokialis, or anyone else in the New South Wales branch, including Mr Redman, that this was a high priority matter. Both Mr Sokialis and Mr Redman were aware of the requirement that new purchase orders should be raised on the Timberline system, and that, at some stage, old purchase orders should be keyed into the new system. Ultimately, this was done. I find that Mr Sokialis did not do so before this because of lack of resources, want of training, and other problems with the introduction of the Timberline system.

34 There is one glaring gap in the defendant's evidence, which appears to throw doubt on the whole credibility of its case. Mr Hadley gave evidence that he became aware of a folder containing unpaid invoices in Mr Sokialis's office after Mr Redman had left the company at the end of October. He says that he then sent the invoices to Melbourne, but only after he and Mr Jason Hotop, another senior manager, had verified that the invoices reflected a genuine obligation of the company, a process that took Mr Hadley and Mr Hotop about a month to complete. The evidence suggests that the invoices were not sent to Melbourne until late in November. Mr Hipwell's evidence suggests that these invoices were received in Melbourne well before the end of October. I find, on the balance of probabilities, that these items were items described by Mr Sokialis in his e-mail of 15 September, and that the Head Office was fully aware of the outstanding items well before the end of October. It may be that Mr Hadley, who I found in general to be a reliable and credible witness, did what he described in his affidavit, in terms of investigating the outstanding invoices, but I could not be satisfied, on the balance of probabilities, that Head Office became aware of these outstanding matters as a result of Mr Hadley's action. I find that, more probably than not, they became aware of these items because Mr Sokialis had made them aware of it on 15th September. Head Office's awareness of these outstanding matters was not the result of Mr Hadley sending the invoices to Melbourne, but rather of Mr Sokialis's e-mail of 15 September.

35 No matter where the information originated, it is clear that there were a number of outstanding purchase orders which had not been entered into the group books of Verticon. In his affidavits, Mr Sokialis answers Mr Hipwell's analysis of the outstanding purchase orders. In their oral evidence, Mr Sokialis and Mr Redman gave what I find a reasonable person would accept as an explanation for any delay in submitting the information to Head Office – if, in fact, Head Office had not been aware of it, as I have found it was. It is not an answer for Mr Hipwell to say, "a purchase order should have been raised on the Timberline system" in response to an allegation that Head Office was not aware of the purchase order. The evidence is clear that Head Office was aware of the bulk of these purchase orders, although possibly not in the form that Mr Hipwell would have preferred them.

Onus of Proof and Credit

36 In a matter such as this, the onus of proof that there were valid grounds for summary dismissal rests squarely on the employer. I have previously set out the relevant principles of law. The evidence offered in support of the employer's position is the evidence of Mr Hipwell, and to some extent, the evidence of Mr Hadley. I have no reason to doubt Mr Hadley's evidence as to matters of fact. I have already commented on the defendant' s forensic choice not to call evidence from Mr Torrington, and draw the inference that his evidence would not have assisted the defendant, even though, in my view, he was the only person who could give evidence about certain highly relevant matters. I appreciate that Mr Hipwell was placed in a position where he was, to all intents and purposes, the face and voice of the defendant. It was clear from his evidence, both in his affidavit and his oral evidence, that he took a particular view of the defendant's requirements as to accounts payable and other financial matters. It is equally clear to me that he did not always communicate his views to staff in the regions in an adequate way, so that his purpose and his understanding of those requirements were perfectly clear to staff in the regional offices. I also appreciate that Mr Hipwell had particular responsibility for the financial management and accounting records of the defendant, and to the extent that these could be shown to be wrong or inaccurate, these matters would reflect adversely upon Mr Hipwell's competence and efficiency. Nevertheless, I found both the plaintiff and Mr Sokialis to be totally reliable witnesses, and there are a number of aspects of Mr Hipwell's evidence which cause me to doubt the reliability of his evidence as a whole. In particular, I am concerned that his evidence about when the Melbourne office was finally informed of the outstanding invoices, to be in conflict with the evidence of Mr Hadley, and I do not accept Mr Hipwell's evidence that the failure of the New South Wales regional office to send invoices to Melbourne in a timely way meant that the Head Office was totally unaware that there was a backlog of unpaid and outstanding invoices in New South Wales.

37 Indeed, after reconsidering Mr Hipwell's evidence, I considered asking the Registrar to determine whether it should be referred to the prosecuting authorities to examine the question of perjury. While, on the balance of probabilities, it might be possible to establish the elements of an offence, this could not be done beyond reasonable doubt. Therefore, I did not refer it. For the purposes of this action, I do consider that some of Mr Hipwell's evidence was either fabricated or embellished to the extent that his evidence, as a whole, was unreliable. To the extent that it was not consistent with evidence adduced by the plaintiff, it is totally uncorrobrated. In the light of the explanations offered by Mr Redman and Mr Sokialis, which I accept, the documents annexed to Mr Hipwell's affidavits provide little or no corroboration of Mr Hipwell's evidence. The unreliability of Mr Hipwell's evidence totally undermines Verticon's case.

38 I am also concerned, in relation to Mr Hipwell, that he was the officer of the defendant to whom Mr Sokialis had a direct line of reporting, although there was some equivocation in his evidence, when he described the reporting line as "dotted". Mr Redman gave evidence that he was an operational executive, rather than an accountant, although he readily conceded that he had the responsibility to provide proper information to the head office and to the board of the company. Mr Sokialis was an accountant, but his evidence, and as I understand Mr Hipwell's evidence, was that in matters of accounting, he was answerable to Melbourne - that is, to Mr Hipwell. I have already found that when Mr Redman became aware of Mr Sokialis's shortcomings in respect of raising purchase orders, and the backlog of outstanding invoices, he raised this with Mr Sokialis. These matters were resolved in a reasonable way, as I have found, to Mr Redman's satisfaction. If Mr Hipwell had concerns with Mr Sokialis's performance, it was as incumbent upon him to take remedial action as it was upon Mr Redman.

39 All in all, where there is a conflict between the evidence of Mr Redman and Mr Sokialis, and that of Mr Hipwell, I prefer the evidence of Mr Redman and Mr Sokialis. I find that, in respect of the matter of outstanding invoices, which is the primary ground upon which the defendant relies, the defendant has not discharged its evidentiary onus of establishing that the failure of Mr Redman was wilful or serious, or that he wilfully disobeyed any lawful direction given to him in his capacity as General Manager New South Wales.

Findings of fact

40 In so far as the defendant says that Mr Redman's failures, in respect of the outstanding invoices, damaged the reputation of the defendant, again, I find that the defendant has not discharged its evidentiary burden in respect of these matters. Mr Hipwell gave evidence that the information caused the company to mislead its bankers. This is, clearly, hearsay. There is no evidence from the bankers to this effect, or from anybody else, that they were misled as a result of anything that Mr Redmond had done. Mr Torrington may have been able to give some evidence to this effect, but he was not called as a witness.

41 I could not find on the evidence presented by the defendant, who bears the onus of proof, that Mr Redman knowingly and intentionally disobeyed or disregarded any lawful direction of Verticon, or, indeed, any policy of Verticon which had been explained to him in clear terms. At all times, on the evidence that he and Mr Sokialis gave in these proceedings, I find he acted responsibly and diligently. If he did disobey or disregard any lawful direction or policy of Verticon, which had been explained to him in clear terms, about which I would have sufficient doubt to justify a conclusion that he did not, he did so unintentionally. This includes his supervision of Mr Sokialis. On the evidence, I could also not find that there was any serious misconduct on his part.

42 I could not find on the balance of probabilities, even to the high standard required by Briginshaw v Briginshaw (1938) 60 CLR 336, where allegations are of a serious nature, which I take to include allegations of "serious misconduct" as specified in the employment agreement, and, in particular, where such allegations are made in the context where fraud and dishonesty is also alleged, that there was any deliberate attempt, on the part of either Mr Redman or Mr Sokialis to conceal any outstanding expenditures, or to mislead Head Office in any respect as to any expenditure to which the New South Wales region was committed. Nor was there any wilful disobedience or disregard of any lawful direction given by the Verticon Group. In fact, on the balance of probabilities, I find that Mr Sokialis's e-mail of 15 September was more than sufficient to dispel or rebut any suggestion that the New South Wales region, or either Mr Redman or Mr Sokialis, had made any attempt to conceal the expenditure to which the New South Wales region was committed.

43 It may well be that the New South Wales regional office did not comply with Mr Hipwell's request that outstanding purchase orders be re-keyed and entered on the Timberline system in a timely way. I could not find, in the circumstances, that such a failure could amount to "serious misconduct" within the terms of the employment agreement. It might constitute a matter in respect of which a formal warning in writing might have been given, at least to Mr Sokialis, but it would not in my view constitute grounds for dismissal of any person.

44 In July 2007, Mr Redman had issued a formal warning to Mr Sokialis in respect of three matters: failure to complete the assets register; failures in respect of cost control, and "back logging" of purchase orders. Both Mr Redman and Mr Sokialis gave evidence of the steps that were taken to remedy these failures, and Mr Redman said that, within a matter of weeks, he was satisfied that Mr Sokialis had done what was necessary to remedy the matters specified in the warning letter. In fact, when the time came for approving the payment of bonuses to employees, he recommended that Mr Sokialis should be paid a significant bonus. There is no evidence upon which I could find that this approval was unreasonable. Mr Sokialis had acted reasonably and appropriately. Nothing that Mr Redman did, in this respect, could be said to constitute “serious misconduct”.

45 I should say something here about Mr Hipwell's view that Mr Sokialis was, compared to other financial controllers, not of the highest quality. Mr Hipwell was certainly entitled to that view, but it does not indicate that Mr Sokialis was in any way dishonest, or attempted to conceal expenditure. Mr Hadley's observation that Mr Sokialis attitude was hesitant when he was asked about the bundle of invoices, was consistent with my observations of Mr Sokialis when he was giving evidence. I think this may be his general manner of behaviour. It does not suggest that he was dishonest or trying to avoid responsibility for anything.

46 The evidence discloses that relationships between Mr Redman and Mr Torrington were not as cordial as those between Mr Redman and Mr Torrington's predecessors. The evidence is quite clear that Mr Redman was recruited by Verticon, which was prepared to pay him $4 million for his shares, and that he was a very successful businessman in the crane and hoist hiring business. This was borne out by the fact that, during the period of slightly more than two years when Mr Redman was the general manager of the New South Wales branch of Verticon, its size and profit increased significantly. There is unchallenged evidence that Mr Redman also obtained significant business for the group in Queensland, even though Mr Hipwell expressed some reservations as to how profitable that business was. It was Mr Redman's obligation under his employment agreement to help to develop the business of the group and the unchallenged evidence indicates that he did so.

47 Mr Redman was an operations person; Mr Torrington, as was clear from the evidence, had an accounting background, and appears to have been more concerned with matters of financial reporting than the generation of business. There was clearly a clash of approach, and I infer that this was one of the reasons least why Mr Torrington required Mr Redman to take "gardening leave" when he submitted his resignation, rather than taking advantage of the situation where Mr Redman's clear talents and capacity for generating business could have been retained by the defendant for a further six months.

48 There were clearly occasions when Mr Redman did not ensure that the letter of the group policies was implemented instantly. I cannot regard this as wilful disobedience of a lawful instruction, because, as I pointed out, there was no evidence of any urgency or priority in relation to the entering of purchase orders on the Timberline system, and it is also true in relation to the re-entry of ABM purchase orders on the Timberline system. What Mr Redman and Mr Sokialis did was to comply with the directions so far as the computer system and the resources available to Mr Sokialis would allow. It was done eventually, and the delay may have caused some inconvenience to head office. I am not prepared to find that the consequences were as serious as Mr Hipwell suggests in his affidavit. I could not find, on the evidence adduced by the defendant, that there was a wilful disobedience or disregard of a lawful direction. If there were inconveniences, these were, at least in part, due to the activities or inactivity of Head Office itself, the failure of Head Office to provide proper or adequate training and assistance in the implementation of the Timberline system, and its failure to allow for anomalies and errors resulting from the introduction of the new system. Such delays and anomalies are inevitable in the conduct of any business. Allowances must be made for them, and failure to make allowances does not mean that they constitute "serious misconduct".

49 It is clear from the evidence that late in 2007, the defendant was making a significant loss. As Mr Hipwell said in his evidence, "We were concerned to minimise our losses." His evidence was that the decision to dismiss Mr Redman was taken entirely by Mr Torrington. Mr Hipwell said he was not consulted about this, nor asked for his opinion. I draw the inference that Mr Torrington made the decision to purport to dismiss Mr Redman, not on reasonable grounds, but in an effort to avoid paying him the salary to which he was entitled, that is, his full salary up to and including 17 March 2008. This inference could not be put to Mr Torrington, because the defendant chose not to call evidence from him. That course was not taken because there were any grounds on which any reasonable per person could find that there was "serious misconduct" by Mr Redman's part.

50 The only other reasons put forward to justify summary dismissal were those contained in the evidence of Mr Hipwell, and I have considered them.

51 I find that the evidence discloses no grounds which would entitle the defendant, or any other reasonable person, to find that Mr Redman was guilty of any "serious misconduct", within the common law meaning of that term.

52 I could not find, on the evidence, that Mr Redman had acted with any dishonesty, that he had wilfully disobeyed any lawful command or policy of the employer, or, for the reasons I have stated elsewhere, that he did anything which would constitute “any act which in the reasonable opinion of Fire-Up is likely to seriously injured [sic] a good standing, reputation or business of the Verticon Group.” The court has not had the benefit of any evidence of Mr Torrington. I find that nothing else which Mr Redman did, would have led a reasonable person to form such an opinion, if such a person had considered the explanations put forward by Mr Redman and Mr Sokialis.

53 There was, therefore, no breach of the written agreement that would entitle Verticon summarily to dismiss Mr Redman. There was, certainly, no conduct on Mr Redman’s part, which amounted to what a reasonable person would regard as a breach of trust and confidence, as required by Blyth Chemicals.

54 There seems to be ample authority that where an employer purports to dismiss an employee summarily, it is not relevant that the grounds upon which the employer originally states that the summary dismissal is justified are later abandoned, so long as there were, in fact, grounds for summary dismissal at the time. In this case, as I have pointed out, the employer purported to dismiss the plaintiff, on the basis of dishonest concealment of invoices, as set out in the letter of summary dismissal. In the pleadings, fraud or dishonesty was not pleaded, and the employer relied, rather, on gross incompetence and other grounds as constituting serious and wilful misconduct, and conduct, which damaged the defendant's reputation. At this hearing, the allegations of dishonesty were totally abandoned, but the employer still relies on the matters pleaded as constituting good grounds for summary dismissal. If those grounds are made out on the evidence, I accept that it is the law that the existence of those grounds, at the time of summary dismissal, would justify the defendant's action.

55 It was, therefore, not open to the defendant to terminate Mr Redman’s employment summarily. If there was a dispute, Mr Redman was entitled to rely on the dispute resolution procedures set out in the employment agreement, but he was not given any opportunity to do so. He was also entitled to an opportunity to explain what had happened. It is not necessary for me to decide whether the law entitles him to such an opportunity or not.

Condonation

56 If I am wrong, and there were grounds for summary dismissal on 26 November 2007, in my view, the plaintiff's conduct after 15 September 2007 has been condoned by the defendant. On 15 September 2007 the defendant became aware, through Mr Sokialis's e-mail, that there were a significant number of unpaid invoices outstanding in New South Wales. Clearly it did not have the details of these invoices, and they had not been verified by the New South Wales management. Nevertheless, it must have been apparent to the defendant that the matter was serious. I do not accept that the defendant was unaware of the nature and extent of the outstanding invoices, until Mr Hadley and Mr Hotop had verified the outstanding invoices and sent them to Melbourne. The defendant, I find, was well aware of the nature and approximate size of the outstanding liabilities well before that time, even if I did have some doubts about the date upon which the invoices were sent to Melbourne.

57 In Rankin’s case (above), Gillard J considered the law of condonation at [352 ff]. He said:

“352 An employer who has full knowledge of the misconduct of an employee, and who makes a decision to continue to employ the employee, cannot at a later date, unless of course other facts come to his knowledge, dismiss him summarily on the basis of the employee's known misconduct. It is said that the employer has waived his right to dismiss the employee summarily, and thereby condones the misconduct.

353 In Phillips v Foxall (1872) LR 7 QB 666, Blackburn J said (at 680):
‘Now the law gives the master the right to terminate the employment of a service on his discovering that the servant is guilty of fraud. He is not bound to dismiss him, and if he elects, after knowledge of the fraud, to continue him in his service, he cannot at any subsequent time dismiss him on account of that which he has waived or condoned. This right the master may use for his own protection.’

354 It is noted that his Lordship used the words "elects", "waive" and "condone" as meaning the same thing. There has been much written in the past 100 years concerning those three expressions in the law, and it is not for me to add to the material, on what each word means and their application. It is clear that no such waiver, condonation or election can take place until the employer has full knowledge of the misconduct. Hence, it must follow that an employer would not be held to have condoned the wrongdoing, where he believed the employee's denial and subsequently found out the truth. See Federal Supply Co v Angehrn (1910) 103 LT 150 (PC).

355 In that case, the Privy Council said (at 152):
‘The word “condonation”, though used in some of the authorities cited by most distinguished judges, is not quite happily chosen. In the cases of Phillips v Foxall and Boston Deep Sea Fishing and Ice Co , so much relied upon by the respondents, the word is used as applicable to a case where a master with full knowledge of a servant's misconduct continues to retain him in his, the master's, service. It is likened to the case of a man who, knowing he has a legal right to do either of two things, determines or elects to do one of them in preference to the other, and also likened to the case of a man who, knowing that a forfeiture has been worked, and that he has the legal right to take advantage of it, deliberately abandons that right - that is, waives the forfeiture . In these cases, however, to which “ condonation” is compared, the burden of proving that the election had been made or the forfeiture was waived would rest upon him who relied upon the one or the other, and so it is with condonation. The master must be fully aware that the servant has by his misconduct forfeited the right to be continued in his master's service, which is the correlative of the master's right to dismiss him, before he can be held to have waived that forfeiture.’ (Emphasis added)”

58 After 15 September 2007, when the defendant, as I find, became aware that there were serious problems, in relation to outstanding invoices from the New South Wales branch, the defendant negotiated with Mr Redman as to the acceptance of his resignation, and the granting of what was referred to as "gardening leave." The letter of summary dismissal is dated almost exactly a month after Mr Torrington had written setting out the terms, most but not all accepted by Mr Redman, upon which Mr Redman was to leave the company. During this time, I find, even if the defendant did not have full knowledge of the precise extent of the outstanding invoices, it was certainly aware of the problem in sufficient detail. For the defendant not to take action to dismiss the plaintiff summarily at that time, amounts to condonation of his conduct, to the extent that it cannot be heard to justify its conduct. It may have been different, if Mr Redman was in a position where he continued to take part in the management of the New South Wales operations of Verticon, but he was not so engaged.

Mitigation of damages

59 The defendant says that, even if the plaintiff was unlawfully dismissed summarily, he was obliged to mitigate his losses, and was not able to simply rely on the illegality of the dismissal. This much seems quite clear from the cases. In a case where the plaintiffs alleged that they had been dismissed unlawfully, Byrne v Australian Airlines (1995) 131 ALR 422, at 432, Brennan CJ, Dawson and Toohey JJ said, "The employee is also under a duty to mitigate any damage." The defendant referred to other authority, but it is not necessary to say any more.

60 The plaintiff gave evidence that after he was summarily dismissed, he did not actively seek work, although he did make at least two enquiries of people in the crane and hoist hire business. He was offered a position as a rigger, and positions that required him to move his residence, which he did not accept. There is evidence that he originally offered his resignation to the defendant in August 2007, because he needed to care for his children for at least two days each week. His loss as a result of him not working would, therefore, be less than if he had been working full-time. Nevertheless, the law is quite clear that he did have an obligation to seek some sort of employment, provided it was not significantly of less status and remuneration than his former work, and that what he did was only a partial discharge of his obligation. There is no evidence that he did anything active to seek work of any kind. I, therefore, reduce his damages by 20% to reflect the breach of his obligation to mitigate his damages.

61 The plaintiff has referred me to a passage from the decision of the Full Bench of the Industrial Commission of NSW in Peter English v Aradlay Insurance Brokers [2005] NSWIRComm 253, where the Commission said, at [35]:

“In any event, the authorities as to mitigation make clear that while the duty to act reasonably to mitigate damage does not generally require an employee to take employment of a different or inferior kind, that part of the rules of mitigation known as the rule as to avoided loss, or mitigation in fact, means that where an applicant actually avoids loss by obtaining other employment (or earnings), the earnings will reduce the damages or compensation even though the non-acceptance of the other employment would not have constituted a failure to mitigate…”

It does not follow, in my view, that where an employee, as in this case, does nothing active to secure future employment, the situation is the same. It is not as if the employee did receive other employment, and it is clear that he was not required to take employment of an inferior kind. He did, however, have an obligation to do something to seek future employment, and the evidence is that Mr Redman did nothing.

62 I therefore find that the plaintiff is entitled to recover the salary from the date upon which the defendant purported to terminate his employment summarily until 17 March 2008.

63 The question of whether or not Mr Redman is entitled to recover bonuses, depends on whether I can find that he would have been entitled to the bonus, if he had remained in employment until 17 March 2008. The bonus is in respect of a previous financial year, but was not to be paid until the following March. The defendant agreed that this amount was payable to the plaintiff, if his employment was not validly terminated.

Damages

64 The plaintiff is entitled to the following amounts:

a. Unpaid salary at $97.0533 per hour for 3.55 months ($59 721) less 20% = $47,777.

b. Superannuation on lost salary at 9% = $4300.

c. Superannuation on salary paid to 15 November 2007 = $5406.

d. Unpaid car allowance at $2333.33 per month ($8283) less 20% = $6626.

e. Bonus for year to 30 June 2007 = $60,000.

f. Unpaid accumulated annual leave 50 hours @ $97.0533 less 20% = $3882.

g. Unpaid accumulated personal leave less 20% = $5416.

Total $133,407.

65 There will be a verdict for the plaintiff for $133,407.

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