Regional Development Australia Murraylands and Riverland Inc v Smith - [2015] SASCFC 160

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
REGIONAL DEVELOPMENT AUSTRALIA MURRAYLANDS AND RIVERLAND INC v SMITH
[2015] SASCFC 160
Judgment of The Full Court
(The Honourable Justice Gray, The Honourable Justice Sulan and The Honourable Justice Nicholson)
10 November 2015
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - IMPOSSIBILITY OF PERFORMANCE - IN WHAT CASES PERFORMANCE EXCUSED - FRUSTRATION
DAMAGES - GENERAL PRINCIPLES - MITIGATION OF DAMAGES
DAMAGES - GENERAL PRINCIPLES - MITIGATION OF DAMAGES - WHAT MATTERS MAY BE CONSIDERED
Appeal against a District Court Judge’s finding that the respondent was entitled to damages in the amount of $335,574.08 following the repudiation of his Chief Executive Officer employment contract by his employer, the Riverland Development Corporation Inc (RDC). The respondent was employed by the RDC as its Chief Executive Officer under a fixed term contract. Before the respondent’s contract was due to expire, the RDC amalgamated with another organisation, the Murraylands Regional Development Board (MRDB) to form the appellant. The position of CEO of the RDC was abolished. The respondent remained effectively unemployed as at the time of trial, some two years and 18 weeks after the CEO contract had come to an end. The Judge assessed damages on the basis that the respondent should have “lowered his sights” and applied for lower paying positions no later than by the time of trial and his Honour discounted the award accordingly.
The respondent sued the appellant for damages on the basis (ultimately, not contested) that any liability consequent on the repudiation of his employment contract with the RDC had been transferred to the appellant, in accordance with section 22(6) of the Associations Incorporation Act 1985 (SA). The appellant contended that the contract had not been repudiated but, rather, frustrated as the result of a compelled amalgamation consequential on the withdrawal of government funding essential to the continued existence of the RDC. In the alternative, the appellant contended that the respondent had unreasonably failed to mitigate his loss. In particular, the appellant contended that the respondent had unreasonably failed to accept a position as Economic Development Manager of the appellant which, had he done so, would have eliminated the loss as claimed. In the alternative, the appellant contended that the respondent unreasonably failed to “lower his sights” at a time earlier than as found by the Judge and that, if he had done so, his losses would have been mitigated to an extent greater than as found by the Judge.
Held per Nicholson J (Sulan J agreeing, Gray J dissenting):
1. The contract of employment had not been frustrated and the Judge was correct to find a liability for damages following a repudiation of the contract.
Held per Gray and Nicholson JJ (Sulan J agreeing):
1. The respondent acted unreasonably in not accepting the alternative position of Economic Development Manager with the appellant as offered and, as a consequence, failed to mitigate his loss. Had he accepted the alternate position, the loss claimed and awarded by the Judge would have been eliminated.
2. Appeal allowed and the respondent’s claim is dismissed.
Held per Nicholson J (Gray and Sulan JJ agreeing):
1. If the respondent did not act unreasonably in refusing the alternative position, he unreasonably failed to mitigate his loss in that he should have “lowered his sights” at a time earlier than as found by the Judge. Had he done so, he would have obtained a position, albeit at a lower salary, and the loss, as calculated by the Judge, would have been further reduced.
Associations Incorporation Act 1985 (SA) s 22, referred to.
Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696; oOH! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255, discussed.
Calderbank v Calderbank [1975] 3 All ER 333; Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24, (1982) 149 CLR 337; The Super Servant Two [1990] 1 Lloyd’s LR 1; Denny Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51, (1979) 144 CLR 596; Hawkins v Clayton (1988) 164 CLR 539; Thomas v Williams (1834) 100 ER 1369; Re General Rolling Stock Company: Chapman’s case (1866) LR 1 Eq 346; Re Associate Dominion Ass Soc Pty Ltd (1962) 109 CLR 156; Re Beveridge Packers (Aust) Pty Ltd (1990) VR 446; Reigate v Union Manufacturing Co Ltd [1918] 1 KB 592; Brace v Calder [1895] 2 QB 253; British Westinghouse Electric and Manufacturing Co v Underground Electric Railways Co of London [1912] AC 673; Dunkirk Colliery Co v Lever (1878) 9 Ch D 20; Payzu Ltd v Saunders [1919] 2 KB 581; Driver v War Service Homes Commissioner (1923) 44 ALT 103; TCN Channel 9 v Hayden Enterprises (1989) 16 NSWLR 130; Whittaker v Unisys Australia Pty Ltd (2010) 192 IR 311(VSC); Yetton v Eastwood Froy Ltd [1967] 1 WLR 104; Shindler v Northern Raincoat Company [1960] 1 WLR 1038; Bostik (Australia) Pty Ltd v Gorgevski (No 1) (1992) 36 FCR 20;,(1992) 41 IR 452; Fox v Percy [2003] HCA 22, (2003) 214 CLR 118; Beck v Darling Downs Institute of Advanced Education [1990] 140 IR 364, considered.

REGIONAL DEVELOPMENT AUSTRALIA MURRAYLANDS AND RIVERLAND INC v SMITH
[2015] SASCFC 160
Full Court: Gray, Sulan and Nicholson JJ
GRAY J.

This is an appeal against a decision of a Judge to award damages in respect of an employment dispute.
Background
Prior to about 2010, the Commonwealth, State and local governments established a network of regional development bodies, including Area Consultative Committees and Regional Development Boards, to promote economic development in rural and regional South Australia. The Consultative Committees, established by the Commonwealth Government, initially provided advice and support for labour market programs but over time became more involved in developing projects to attract government funding. The Regional Development Boards, established by the State Government, provided support services to local businesses and delivered programs on behalf of the State and Commonwealth governments. It may be understood that the activities of the various State and Commonwealth bodies overlapped.
The Riverland Development Corporation Inc. was one of the Regional Development Boards. On 15 March 2007, the plaintiff and respondent, Kenneth Smith, entered into an employment contract to be the Chief Executive Officer of the Corporation from 22 December 2006 to 30 June 2008. He had worked for the Corporation in various roles since 1998, including as Business Manager. The contract provided that the plaintiff would be paid an annual salary of $86,500.00 and be provided with a motor vehicle and a mobile phone. The plaintiff’s employment could be terminated by the Corporation forthwith for cause or with four weeks’ notice for a failure to meet the job requirements, which were set out in the contract as follows:
5      POSITION DESCRIPTION
5.1     The CEO has overall responsibility for all aspects of the Corporation.
5.2     The CEO is accountable to the Board for the direction, management and coordination of all aspects of service delivery by the Corporation.
5.3     The position is a non-Award position and subject to the terms and conditions set out in this Agreement subject only to variation by mutual agreement between the Chairman of the Board and the CEO.
5.4     The CEO shall conform to such hours of work as may from time to time be reasonably required of him including both normal business hours and out of hours involvement on behalf of the Corporation.
5.5     The appointment is subject to a National Police Certificate Clearance.
5.6     The CEO is familiar with the policies and procedures of the Corporation and legislation relevant to operation of the Corporation.
6OBLIGATIONS OF CEO
As Chief Executive Officer of the Corporation, the CEO shall:
6.1     Use his best endeavours to ensure that the Corporation meets all obligations imposed on it by the Resource Agreement.
6.2     Meet the objectives set out in the Job Description provided by the Corporation to the CEO.
6.3     Undertake such duties and exercise such powers in relation to the Corporation and its affairs as the Board shall from time to time assign to or vest in him.
6.4     In the discharge of such duties and in the exercise of such powers conform to, observe and comply with all resolutions, regulations and directions from time to time made or given by the Board.
On 1 August 2008, the Corporation wrote to the plaintiff confirming an agreement to extend his contract until 30 June 2013. The letter provided that the plaintiff’s salary would be increased to $103,000.00 but that his other conditions would remain as set out in his contract. In June 2009, the plaintiff’s salary was increased to $106,090.00.
On 2 February 2010, the Corporation amalgamated with the Murraylands Regional Development Board Inc. to form a new entity, which was another Regional Development Board established by the State Government. The amalgamated entity is the defendant and appellant, Regional Development Australia Murraylands and Riverland Inc. Upon amalgamation, the Corporation and the Board ceased to exist,[1] as did the plaintiff’s position in the Corporation.
[1] Associations Incorporation Act 1985 (SA) section 22(6).
The Corporation and the Board were associations incorporated pursuant to the Associations Incorporation Act 1985 (SA). They were not for profit organisations established to promote economic development in rural South Australia. As noted above, they were funded by the State Government and various local governments. Funding was provided to the Corporation pursuant to a resources agreement executed on 26 June 2008 by the South Australian Minister for Regional Development, the Corporation and local councils. The resources agreement had an expiry date of 30 June 2013. The Commonwealth Government provided funding to the State Government for the purpose of funding the Corporation and other similar bodies. The State Government provided the organisations with about $3.00 for every $1.00 provided by local governments.
The resources agreement provided that the Minister could withhold funding in the following circumstances:
Refusal of Payment
3.3.1 The Minister and/or the Councils may defer or refuse payment of the whole or part of the Funds if the Minister and/or the Councils are of the opinion that the Association has not complied or will not comply with the Agreement.
3.3.2 The Minister may, after consultation with the Association and the Councils, adjust or alter the Term, the Purpose and the Minister's Funding, if the Minister believes it is desirable, as a consequence of changes to relevant Commonwealth Government funding policies and priorities.
In March 2008, the Commonwealth Government announced that it was proposing to restructure the network of regional development bodies. In November 2008, the plaintiff attended a meeting of Regional Development South Australia, a body comprised of representatives from the various State Regional Development Boards. At the meeting, the State Minister announced that the 13 existing Regional Development Boards would be replaced with seven new Regional Development Australia associations. Funding for existing bodies would conclude at the end of the 2009 financial year. In the months following this meeting, Regional Development South Australia continued to meet. There was a degree of resistance from some of the existing Regional Development Boards to the restructuring. Other proposals were rejected out of hand. The Commonwealth and State governments had made clear that, if the existing Regional Development Boards did not amalgamate to facilitate the proposed new structure, they would proceed to create new Regional Development Australia associations to receive all government funding. However, as the plaintiff accepted in his evidence in chief, the Regional Development Boards were so reliant on Commonwealth and State government funding that it was not viable to continue without government support:
There was lots of discussion about what each of the development boards were going to do moving forward, including putting together models for the funding of partners to consider, keeping development boards operating as individual entities but having an overarching body called RDA. There was suggestions that the development boards could operate without State government funding, being reserves, which is not one of the things that I believed because our operations and the major funding or the majority of the funding, if not all the funding, came from Federal or State government and if we were an entity to the side we would not receive any funding regardless of what project we applied for.
[Emphasis added.]
On 29 June 2009, a memorandum of understanding to effect the restructuring of the Regional Development Boards was entered into between Commonwealth, State and local governments. The term of funding to existing bodies would be continued to the earlier of 31 December 2009 or the completion of the transition to the new structure. Between June and December 2009, the plaintiff attended regular meetings at which staffing and transition arrangements were discussed.
A “formation meeting” was held on 15 December 2009 and was attended by members of the defendant’s board, government representatives, the plaintiff and Brenton Lewis, the then Chief Executive Officer of the Board. The meeting resolved to incorporate the defendant and adopt a draft memorandum of understanding, which relevantly provided:
2.1Each organisation must be fair, reasonable, honest and diligent in performing its obligations under this MOU.
2.2[The defendant’s board] agrees to accept the transition of current [Board] and [Corporation] employees as employees of the [the defendant] consistent with their existing contracts of employment. The future employment of staff will be determined by [the Defendant’s Board].
2.3In relation to the future position of the Chief Executive Officer of [the defendant], it is agreed that the current structures (including the respective positions of CEO) of the [Board] and [Corporation] will remain unchanged following the amalgamation until the future structure of the [the defendant] is reviewed and determined by [the defendant’s board] in 2010.
2.4[The defendant’s board] agrees to accept the current assets and current liabilities (to be determined) of the [Board] and [Corporation] as at the amalgamated date to be offset and the balance be placed in the [Board] and [Corporation] Equity accounts (or similar) and that those funds are only to be used in their respective areas.
2.5All other assets and liabilities of the [Board] and [Corporation] will become the assets and liabilities of [the defendant’s board].
2.6[The defendant’s board] supports the consideration of a basic funding arrangement by the local government bodies within the region that as from the 1 July 2010, to provide funding equally to [the defendant’s board] on a $ rate per head of population basis and that any additional contribution to [the defendant’s board] by a local government authority will be spent in that respective authorities area for specific projects or agreed purposes.
At trial, a number of versions of the memorandum of understanding were before the Judge. The Judge was unable to conclude whether the version adopted at the meeting included clause 2.3. At one point during the meeting, Mr Lewis and the plaintiff were asked to leave so that the position of Chief Executive Officer of the defendant could be discussed. It was decided that Mr Lewis and the plaintiff would be invited to apply for the role. The next day, the Corporation held a boarding meeting to discuss the memorandum of understanding. The plaintiff and a representative of the Minister were in attendance. The Minister’s representative advised the Corporation that that funding would cease on 31 January 2010 and that the defendant would inherit the assets, liabilities and staff of the Corporation. The Minister’s representative further advised that both Mr Lewis and the plaintiff would be invited to apply for the position of Chief Executive Officer of the defendant and that the unsuccessful candidate would be offered the position of Business Manager of the defendant, with the same salary and conditions as they enjoyed in their existing roles.
Both Mr Lewis and the plaintiff applied for the position of Chief Executive Officer of the defendant. They were interviewed separately by the defendant’s board on 28 January 2010. The board resolved to appoint Mr Lewis to the position and offer the plaintiff another role on the same remuneration. On 29 January, the plaintiff was advised that his application for the position of Chief Executive Officer had been unsuccessful. He was offered the position of Economic Development Manager for the Riverland sub-region on the same terms and conditions as his existing contract. The plaintiff requested a copy of the proposed employment contract. The job description provided described the primary purpose of the role in the following terms:
The Economic Development Manager is required to provide vision, leadership, managerial and interpersonal skills that ensure the Board functions efficiently and effectively through the processes of good governance and in the long term interests of the Region. Economic development and sustainable growth in the Riverland are key areas that must be addressed, including building relationships and partnerships with relevant stakeholders. The Economic Development Manager will need to create and manage further growth to meet economic expectations. The Economic Development Manager will be responsible for the day to day operations of the Berri office.
The position’s duties and responsibilities were similar to those of the plaintiff’s previous role. However, whereas the plaintiff had previously reported to the Corporation’s board, he would be required to variously carry out his responsibilities in consultation with, in support of and with the approval of the Chief Executive Officer of the defendant. The responsibilities and role of the Economic Development Manager included:
-providing input into the strategic plan;
-providing strong participative leadership and proactive direction;
-pursuing innovative practices designed to achieve competitive and accountable service delivery;
-identifying and pursuing opportunities for sustainable economic development;
-establishing productive relationships with government departments, external agencies and public groups; and
-managing contractual responsibilities and delivering key objectives and targets.
The document was three pages long and had sections dedicated to, inter alia, leadership, business excellence and financial and human resource management. It addressed the purpose, objectives and “accountabilities” of the role. The document set out the skill and knowledge requirements for the position, including “significant experience in a senior management role”.
On 2 February 2010, the plaintiff met with Mr Lewis and expressed concern that, in his proposed new role, he would lose the autonomy he had previously enjoyed. He requested more detailed information about his responsibilities and his performance targets. He was advised that his performance targets would be addressed upon commencing in the new role. He was given until 5 February to decide whether to accept the position and was told that, should he accept the position, he would need to be committed and supportive and that “white-anting” would not be tolerated. The plaintiff’s new contract reflected the job description he had been given for his proposed new role. It was to continue until 20 June 2013 and included all of his existing benefits, except that it provided for a salary of $100,000.00.

The plaintiff was given leave to travel to Adelaide to obtain legal advice. The deadline for accepting the position of Economic Development Manager was extended to 12 February 2010. On 11 February, the plaintiff asked Mr Lewis by email what would happen if he did not accept the new role and what the impact of accepting the new role would be on his existing entitlements. Mr Lewis advised that he would seek advice with respect to the first question and that his entitlements would not be impacted by accepting the new role. On the morning of 12 February, the plaintiff was advised by Mr Lewis that the salary of $100,000.00 had been offered in error and that the plaintiff would remain on his existing salary. That afternoon, the plaintiff sent an email to the Chairman of the defendant’s board, Neil Martinson, expressing his concern at what he considered to be uncertainty surrounding the position of Economic Development Manager and a downgrading in his status and responsibility. The plaintiff complained about Mr Lewis’ warning about white-anting. He considered that the defendant’s offer of the position of Economic Development Manager, in the circumstances, amounted to a repudiation of his contract on 12 February 2010. He purported to accept the repudiation and required the defendant to pay out the balance of his contract.
The plaintiff’s position that he had accepted repudiation of his employment contract as of 12 February 2010 was confirmed by a short email exchange with Mr Martinson and a phone call from Mr Lewis. On 15 February 2010, the plaintiff and his wife met Mr Lewis, who provided them with a letter from Mr Martinson. In his letter, Mr Martinson rejected the plaintiff’s suggestion that the defendant had repudiated the plaintiff’s employment contract. He confirmed the plaintiff’s employment ceased on 12 February 2010 and that the defendant would pay out the plaintiff’s wage and leave entitlements to that date. Mr Martinson, though denying that the defendant had any obligation to do so, suggested that the defendant would pay the plaintiff four weeks’ pay in lieu of notice and seven weeks’ severance pay. No indemnity or release was sought from the plaintiff. Mr Martinson gave the plaintiff a further four days to reconsider his position and offered to personally discuss any concerns the plaintiff had about the role, “reporting lines, position description and where the role sits in our long-term plans”.
Mr Lewis confirmed that the plaintiff had until 9.30 am on 18 February 2010 to accept the position of Economic Development Manager. The plaintiff was then asked to remove his belongings from the building within 20 minutes and return the keys to his motor vehicle. Mr Lewis then escorted the plaintiff and his wife out of the building.
On 16 February 2010, the plaintiff wrote to Mr Martinson accepting the payments offered in his letter of 15 February on the understanding that he reserved all his rights in respect of wrongful dismissal. On 17 February, Mr Martinson wrote to the plaintiff denying repudiation of the contract by the defendant and denying that the role of Economic Development Manager was a severe downgrading of the plaintiff’s current position. In his letter, Mr Martinson noted that the plaintiff would retain responsibility for the day-to-day operations of the Berri office and would be responsible for developing key performance indicators for the office and its staff.
The plaintiff was subsequently paid the sum of $62,563.75, calculated in accordance with Mr Martinson’s letter of 15 February 2010.
On 27 January 2011, the plaintiff commenced proceedings against the defendant in the District Court seeking damages from the defendant.
The Trial Judge
At trial, the plaintiff argued that the Corporation repudiated his Chief Executive Officer contract by amalgamating with the Board and that the defendant was liable as it took on the Corporation’s liabilities upon incorporation. The plaintiff advanced an alternative argument that, if his contract had been transferred to the defendant following amalgamation, the defendant repudiated the contract by failing to appoint him to the position of its Chief Executive Officer.
The defendant argued that the plaintiff’s Chief Executive Officer contract was frustrated and, in the alternative, that the plaintiff failed to accept repudiation by entering into a new contract of employment with the defendant. In the further alternative, the defendant argued that the plaintiff failed to mitigate his loss.
The Judge considered the relevant statutory provisions as follows:
Part 3, Division 2 [of the Associations Incorporation Act] provides for the amalgamation of incorporated associations. Where two or more associations wish to amalgamate the members of each association must pass a special resolution to this effect (s 22(1)(a)) and apply to the Corporate Affairs Commission (the Commission) for amalgamation as a single incorporated association along with details of the proposed name and constitution of the amalgamated association (s 22(2)). If the material is in a satisfactory form the Commission is empowered to register the rules of the amalgamated association and issue a certificate of incorporation (s 22(4)). There is no dispute that the Defendant was properly incorporated pursuant to these procedures.
Section 22(6) provides:
(6)     Upon incorporation of an association under subsection (4)-
(a)     the association becomes a body corporate-
(i)    with perpetual succession and a common seal; and
(ii)with a corporate name as set out in the certificate of incorporation (in which the word “Incorporated” must appear as part, and at the end, of     the name); and
(b)     any incorporated association that was a party to the application for amalgamation is dissolved; and
(c)     the property of the associations that were parties to the application for amalgamation becomes the property of the incorporated association formed by the amalgamation (subject to any trusts that may affect that property); and
(d)     the rights and liabilities (whether certain or contingent) of the associations that were parties of the application for amalgamation become rights and liabilities of the incorporated association formed by the amalgamation.
The effect of s 22(6)(c) and (d) is that upon incorporation the ‘property’ of each amalgamating association vests automatically in the new amalgamated association and that all ‘rights’ and other ‘liabilities’ of the previous incorporated associations become the ‘rights’ and liabilities of the amalgamated association.
[Emphasis removed.]
At trial, it was accepted that the Chief Executive Officer contract did not become property of the defendant and could not be assigned by the Corporation to the defendant without the plaintiff’s consent. It was further accepted that, if the Corporation repudiated the plaintiff’s contract, the defendant would take on the Corporation’s liability.
Following a review of the authorities on frustration, the Judge turned to consider the issue of self-induced frustration and said:
In the present case, it is clear that RDC’s decision to amalgamate with MRDB was deliberate. But is this sufficient for a finding of self-induced frustration? [Counsel for the defendant] submitted that the answer is ‘No’ because the proposed changes in funding which prompted RDC’s decision to amalgamate were outside RDC’s ‘control’, as RDC’s only other option was going out of existence. Although I have some reservations, I am prepared to assume that amalgamation would have been beyond the control of RDC, for the purpose of the test of self-induced frustration, if RDC’s only other option was extinction.
...
The Resources Agreement further provided that ‘the Minister may, after consultation with [RDC] and the Councils, adjust or alter the Term, the Purpose and the Minister’s Funding, if the Minister believes it is desirable, as a consequence of changes to relevant Commonwealth Government funding policies and priorities’ (cl 3.3.2). It was upon this sub-clause that [counsel for the defendant] based his argument.
In short, he submitted that the Minister’s power to ‘adjust’ or ‘alter’ funding due to changes in Commonwealth funding policies (as happened in the present matter) was broad enough to terminate funding. In other words, the Minister had the power to adjust or alter funding to nil. This submission must be rejected. Clause 3.3.1 expressly empowered the Minister the power to refuse payment of the whole of the funds [for a failure to comply with the terms of the funding agreement], by contrast no such power was expressly included in cl 3.3.2. In my opinion if the parties had wanted to bestow upon the Minister a discretion to terminate funding on grounds of Commonwealth policy change they would have expressly said so as they did in cl 3.3.1.
[Emphasis in original.]
The Judge considered that the word “alter” did not mean “complete replacement or destruction”. The Judge concluded that:
... [The Corporation] was not faced merely with an option to amalgamate with [the Board] or go out of existence but had the further option of seeking to enforce its contractual right for funding to continue. In other words amalgamation and the consequent extinction of the CEO position was a matter within its control. In the circumstances, the alleged frustrating event was self-induced.
The Judge then considered whether, if his conclusion that the Minister did not have the power to terminate funding was incorrect, the termination of funding was “fundamentally or radically different from the situation contemplated by the CEO contract.” The Judge concluded:
In my opinion, the answer to this question is ‘no’. If one accepts the Defendant’s contention that the Plaintiff and [the Corporation] entered into the CEO contract on the common assumption that the government would continue to fund [the Corporation] thereby ensuring the Plaintiff’s employment as CEO of [the Corporation], and that the CEO contract gave the Minister the power to terminate due to policy change, it could not be said that the withdrawal of government funding produced a situation radically different to that contemplated by the parties. The Resource Agreement was for a period of five years. Given the length of the agreement it was always vulnerable to changes in government policy by either the same government or a different government. The parties must have foreseen or ought reasonably to have foreseen that government funding might be terminated.
The CEO contract expressly provided for termination of the Plaintiff’s employment for cause (cl 1.1) and for failure to meet job requirements as set in the Position Description (cl 1.2) but did not expressly provide for termination due to withdrawal of government funding. Furthermore, there is no basis for implying such a term into the CEO contract...
The contract would not be rendered ineffective or unworkable without such a term. In the circumstances, the inference must be drawn that the parties agreed to bear the risk that funding of RDC might be terminated due to a change in government policy.
The Judge considered that each of the resolution to amalgamate and the actual amalgamation constituted acts of repudiation of the plaintiff’s Chief Executive Officer contract by the Corporation, though he preferred to treat them as one act of repudiation. The Judge concluded that the plaintiff had accepted repudiation of the contract and did not enter into a new contract with the defendant.
The Judge considered that the position of Economic Development Manager of the defendant would have “been a significant step backwards for someone with the Plaintiff’s experience and qualifications” – he would have had reduced status, responsibility and a less challenging role than he previously enjoyed. The Judge further considered that it was reasonable for the plaintiff to reject the offer of a position working under Mr Lewis in circumstances where he regarded him as “arrogant and autocratic”, a view which the Judge considered to be somewhat supported by Mr Lewis warning the plaintiff against white-anting and asking him to leave the building with his belongings within 10 to 20 minutes of rejecting the position of Economic Development Manager. The Judge considered it significant that the plaintiff had been asked to accept the position without having first been provided with key performance indicators and would have to develop those indicators subject to the approval of Mr Lewis, rather than the defendant’s board as would have been the case if he had been appointed the Chief Executive Officer of the defendant.
The plaintiff applied for four jobs over a three year period following the cessation of his employment at the Corporation. The Judge concluded that the defendant had not established that the plaintiff had acted unreasonably in deciding not to apply for certain advertised positions having regard to the salary and skill requirements of the various positions. The plaintiff did not wish to move from the region in which he was living. The Judge considered that it was not unreasonable for the plaintiff not to apply for jobs at councils which provided funding to the defendant or were connected with Mr Martinson, given that the plaintiff was at that time engaged in litigation against the defendant. However, the Judge noted that the plaintiff had applied for one position with one such council. The Judge further concluded that, by the time of trial, the plaintiff should have lowered his sights.
The Judge awarded the plaintiff the sum of $304,987.00 in damages, having made a reduction of $70,000.00 for a failure to mitigate his loss by lowering his sights in what would have been the final year of his contract.
The Appeal
On the appeal, the defendant submitted that the Judge erred by finding that the plaintiff’s contract was not frustrated and that any frustration was self-induced by the defendant. It was further submitted that the Judge erred in finding that the plaintiff did not fail to mitigate his loss by rejecting the offer of the position of Economic Development Manger of the defendant. The plaintiff supported the findings and reasoning of the Judge in respect of each complaint advanced by the defendant.
It should be noted that the defendant did not at trial conduct its case on the basis that there was an implied term in the plaintiff’s contract of termination upon reasonable notice upon the cessation of government funding. There would seem, prima facie, to be an arguable case for the implication of such a term given the clear link between the resources agreement and the plaintiff’s Chief Executive Officer contract. However, in the absence of an evidentiary foundation having been laid at trial, this Court is unable to resolve the issue.
Frustration
In oOH! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd, Nettle JA summarised the requirements to establish frustration in the following terms:[2]
I approach this case on that basis. Consistently with Codelfa, I take the law to be that a contract is not frustrated unless a supervening event:
a)      confounds a mistaken common assumption that some particular thing or state of affairs essential to the performance of the contract will continue to exist or be available, neither party undertaking responsibility in that regard; and
b)      in so doing has the effect that, without default of either party, a contractual obligation becomes incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.
On the topic of foreseeability, Nettle JA said:[3]
A number of the single instance decisions to which Stephen J referred in Brisbane City Council were concerned with application of the doctrine of frustration in circumstances where a supervening event was foreseeable or foreseen at the time of entry into the contract. As Lord Wright said in Maritime National Fish Ltd v Ocean Trawlers Ltd, where a supervening event is not only foreseeable but actually foreseen at the time of entry into a contract, it is more difficult to conceive of the parties as having entered into the contract on the basis of a common understanding that the event could not occur during the life of the contract. Where, however, a supervening event, although foreseeable, was not foreseen at the time of entry into the contract, the fact that it was foreseeable may not be of much significance unless the degree of foreseeability is particularly high.
Consequently, as later cases demonstrate, it is important to be precise about the nature and degree of foresight. So far as foreseen events are concerned, the parties to a contract may have foreseen an event but not foreseen the nature or extent of it. In The Sea Angel, Rix LJ gave as an example, based on The Nema, a case where the possibility of an industrial strike was foreseen, and actually provided for in the contract, but lasted so long as to go beyond the risk assumed under the contract. It was held to have frustrated the contract....
[2]    oOH! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255, [70]. See also Codelfa Construction Pty Ltd v State Rail Authority(NSW) (1982) 149 CLR 337.
[3]    oOH! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255, [72]-[73].
The plaintiff’s contract for the position of Chief Executive Officer of the Corporation expressly referred to the meeting of targets under the resources agreement. The Corporation’s continued existence was dependant on State and Commonwealth government funding. This funding was provided pursuant to the resources agreement. The term of the plaintiff’s contract extension was the same as the term of the extension of the resources agreement. Plainly, there was a deliberate and understandable decision to link the plaintiff’s contract with the resources agreement. The contract could not be performed without the resources agreement, which was essential to the functioning of the Corporation. The contract plainly contemplated that there would be a resources agreement to implement.
The parties objectively contemplated that the resources agreement would exist for the term of the contract. The evidence did not establish that the parties foresaw that the Commonwealth Government would drastically restructure the system of regional development entities or that the resources agreement would be shortened so soon after its extension. The degree of foreseeability of either event occurring was not high. Insofar as the parties could be said to have foreseen some change in government policy or funding, they could not be said to have foreseen the extent of the change that in fact occurred and that such changes would occur during the life of the resources agreement. In any event, the fact that the occurrence of an event, lawful or otherwise, was foreseeable does not preclude it from frustrating a contract as a matter of law. The restructuring and the early conclusion of the term of the resources agreement created a radically different situation to that which existed at the time the contract was entered into and to that which the parties contemplated. The Corporation was not only faced with the withdrawal of government funding, on which it relied, but the creation of a competitor organisation with full government backing if it chose not to amalgamate. The Corporation could not in any sense be said to have had a choice about whether to amalgamate. The change in the landscape rendered the plaintiff incapable of performing obligations which were fundamental to the contract of employment. The contract does not disclose that one party assumed the risk of such a significant change occurring. Rather, the contract discloses that the parties did not consider it to be a risk.
The Judge, when considering whether frustration was self-induced, considered that the Minister did not have an entitlement to adjust or alter funding to nil. However, the Judge appears to have overlooked entirely the word “term” in clause 3.3.2 of the resource agreement, as extracted above. The Minister did in fact shorten the term of the agreement. This was plainly permissible under clause 3.3.2. It should be noted that, although the parties may be taken to have been aware of this clause, it does not follow, having regard to the above analysis, that the parties foresaw, or that there was a high degree of foreseeability, that the clause would be used in the manner and at the time at which it was ultimately used by the Minister to end funding under the resources agreement.

It follows that, in my view, the contract was frustrated and the Judge erred in concluding otherwise. The frustration of the contract was not self-induced by the Corporation or the defendant – it was the result of a dramatic change in government policy.
The foregoing analysis makes it unnecessary to conclude whether the Judge was correct in finding that the Corporation had a viable option to bring proceedings to enforce the resources agreement under the other provisions he considered in his reasons. It might be observed, however, that, prospects of success aside, it would seem self-defeating for the Corporation to sue its primary, and dominant, source of funding to enforce an agreement in circumstances where, irrespective of the outcome of that litigation, the Corporation would be completely redundant following the restructuring of the regional development bodies. It is also not apparent that the Corporation had the financial means by which to engage in significant commercial litigation against the State – funds received under the resources agreement were required to be used for contractually defined purposes, which did not include litigating against the State. Further, even if it was successful, it is difficult to determine the damages which the Corporation would be entitled to recover under the resources agreement given the discretionary, project based nature of the funding.
Mitigation of Loss
If, contrary to my earlier conclusion, the contract was not frustrated, it remains to be considered whether the plaintiff took reasonable steps to mitigate his loss. An employee’s damages for wrongful termination may be reduced if they fail to take reasonable steps to mitigate their loss following termination.[4]
[4] See, e.g. Beckham v Drake (1849) 2 HLC 597; British Westinghouse Electric and Manufacturing Co v Underground Electric Railways Co of London [1912] AC 673.
Had the plaintiff accepted the position of Economic Development Manager of the defendant, he would not have suffered any loss. It was accepted that it would not be unreasonable for the plaintiff to refuse to accept a position that involved a substantial diminution in status even if the remuneration remained the same as his previous position. It was further accepted that it was not unreasonable to refuse to accept a position in circumstances where there was a lack of trust between employer and employee. It was contended that, in the present case, the plaintiff acted unreasonably by failing to accept the position offered by the defendant in all the circumstances.[5]
[5] See Yetton v Eastwood Froy Ltd [1967] 1 WLR 104; Bostik (Australia) Pty Ltd v Gorgevski (No 1) (1992) 36 FCR 20.
The plaintiff in his previous role reported directly to the board. In his new role, he would report to a Chief Executive Officer of a substantially larger organisation, who would, in turn, report to the board of that larger organisation. Senior management experience was a requirement for the position of Economic Development Manager. The job description summarised above included numerous detailed references to leadership and the significant duties and responsibilities which would ordinarily be expected of senior management. It is not immediately clear that the position involved a reduction in status or responsibility, as the defendant was a significantly larger organisation than the Corporation. In any event, it could not be described as significant reduction – the position could be properly characterised as being a broadly equivalent position to that which he held at the Corporation with the interposition of only one person between him and the board of a larger amalgamated entity. In my view, the Judge erred by concluding that the defendant had not acted unreasonably in refusing to accept the role solely on the basis of a significant diminution in status and responsibility. More was required.
Upon amalgamation, the position of Chief Executive Officer of the Corporation no longer existed. The Corporation had amalgamated into a significantly larger entity with greater responsibility and operational scope. The position of Chief Executive Officer of the defendant was a different role to the role which the plaintiff held at the Corporation. Importantly, the duties of the Economic Development Manager closely resembled those of the plaintiff’s previous role – his previous job description was used as the template for his new role. The position description provided considerable detail about the role. However, as noted above, the key performance indicators were yet to be determined. It is to be recalled that the plaintiff had applied for the position of Chief Executive Officer of the defendant, notwithstanding that key performance indicators had not been determined for that role. The reason that the key performance indicators had not been determined for either role was that the new funding agreement had not been executed, and key performance indicators under that new agreement had yet to be developed. It is to be expected that there would be a degree of uncertainly involved given the nature of the restructuring and amalgamation – this would have been the case irrespective of the role which the plaintiff had accepted with the defendant.
The key performance indicators for the position of Economic Development Manager would be developed with Mr Lewis, whereas those of the Chief Executive Officer would be developed with the board. The Judge considered this to be a significant matter having regard to the plaintiff’s relationship with Mr Lewis. Mr Lewis and the plaintiff had previously been Chief Executive Officers of comparable organisations. When those organisations amalgamated, they were both invited to apply for the position of Chief Executive Officer of the new entity. They both accepted the invitation and were interviewed for the position. Mr Lewis was the successful applicant. The plaintiff was to become his subordinate. They were to begin a process of running a newly created organisation following a dramatic restructuring of the delivery of development programs to rural and regional areas, which included integrating staff from two separate organisations.
The plaintiff had expressed some concerns about the nature of the position he was being offered, that it represented a demotion and was a role which did not befit his skills or experience. He had, in effect, expressed dissatisfaction with the role. In these circumstances, it was entirely reasonable for Mr Lewis to request an assurance from the plaintiff that, if he were to accept the role, he would be dedicated and supportive, notwithstanding any misgivings he might have about Mr Lewis or the plaintiff’s new role. The evidence did not establish that the manner in which Mr Lewis communicated with the plaintiff was disrespectful or inappropriate. Rather, it established that he communicated in a direct and frank manner. There is nothing unusual about a person being requested to promptly gather their possessions and leave the building after having decided to leave an organisation. In the circumstances, it reflects well on the defendant that it was prepared to leave open the possibility of the plaintiff returning, notwithstanding that he had rejected the offer.
The foregoing analysis must also be considered in the context of the plaintiff’s personal circumstances. The plaintiff did not want to relocate. His wife was employed in the region. There were not many well paying jobs in the region for a person with the plaintiff’s skills and experience. The offer of the position of Economic Development Manager was not conditional on the plaintiff releasing the defendant from any claims against it in respect of his previous contract – he could have accepted the position and assessed whether his concerns were valid without compromising his position and adopted a “wait and see” approach. He chose not to.
It may be accepted that there was a degree of uncertainty and tension involved with the amalgamation, selection of the new Chief Executive Officer and creation of the plaintiff’s new role. However, it was not such as to warrant the plaintiff rejecting the defendant’s offer. In the circumstances, it was unreasonable for the plaintiff to reject the offer of the position of Economic Development Manager of the defendant.
The foregoing analysis makes it unnecessary to decide whether the plaintiff should have “lowered his sights” at an earlier time than that found by the trial Judge. However, since preparing these reasons, I have had the benefit of reading the draft reasons of Nicholson J. I agree with his reasons and conclusion on this topic.
Conclusion
I would allow the appeal and enter judgment in favour of the defendant. I would hear the parties on the application of the Frustrated Contracts Act 1988 (SA).
SULAN J.
I have had the opportunity of considering the draft reasons of both Gray and Nicholson JJ.
I agree with Nicholson J that the contract was not frustrated. I agree with his reasons.
I conclude that the respondent failed to mitigate entirely his loss in refusing to accept the alternative position of Economic Development Manager. I agree with the reasons of Gray and Nicholson JJ.
Although it is unnecessary to deal with the issue of whether the respondent should have sought alternative employment at an earlier time than that allowed by the trial Judge, I agree with Nicholson J that the respondent failed to mitigate his loss by seeking alternate employment at a lower salary at a time earlier than that allowed for by the Judge.
I would allow the appeal.
NICHOLSON J.
Introduction
The respondent to this appeal (plaintiff at trial) Mr Kenneth Smith, until sometime in January 2010, was employed by the Riverland Development Corporation (the RDC) as its Chief Executive Officer (CEO). The RDC was incorporated pursuant to the Associations Incorporation Act 1985 (SA) (the Act).
In January 2010, the RDC amalgamated with the Murraylands Regional Development Board Inc (the MRDB) also incorporated pursuant to the Act, to form the appellant (defendant at trial) with the name Regional Development Australia Murraylands and Riverland Inc, also incorporated pursuant to the Act.
The amalgamation took place in accordance with the provisions of section 22 of the Act. An effect of any such amalgamation is that the new association becomes a body corporate subject to the provisions of the Act and, as a consequence of subsection 22(6),[6] each incorporated association that was a party to the application for amalgamation (in this case, each of RDC and MRDB) is dissolved.
[6] Section 22 deals with amalgamations of incorporations registered under the Act. Subsection (6) provides as follows:
(6) Upon incorporation of an association under subsection (4)—
(a)the association becomes a body corporate—
(i)with perpetual succession and a common seal; and
(ii)with a corporate name as set out in the certificate of incorporation (in which the word "Incorporated" must appear as part, and at the end, of the name); and
(b) any incorporated association that was a party to the application for amalgamation is dissolved; and
(c)the property of the associations that were parties to the application for amalgamation becomes the property of the incorporated association formed by the amalgamation (subject to any trusts that may affect that property); and
(d)the rights and liabilities (whether certain or contingent) of the associations that were parties of [sic] the application for amalgamation become rights and liabilities of (sic) the incorporated association formed by the amalgamation.
As a consequence of the dissolution of the RDC and the MRDB and the coming into existence of the appellant, the respondent’s employment as CEO of the RDC ceased and the employment of Mr Brenton Lewis, the CEO of the MRDB, also ceased. Both men applied for the job as CEO of the appellant. Mr Lewis was successful and assumed the position.
It had been understood that the unsuccessful applicant would be offered a newly created position of Economic Development Manager (EDM) for the appellant. The respondent was offered that position but refused to accept it. He brought proceedings, in effect, for wrongful dismissal. The respondent sought damages calculated by reference to salary and other financial benefits, payable in accordance with his contract of employment as CEO of the RDC, foregone for the balance of the contract term.
The appellant was the defendant to the proceedings notwithstanding that it had not been the respondent’s employer at the time his position with the RDC ceased. In this respect, the respondent relied on the terms of paragraph (d) of subsection 22(6) of the Act.
(d)the rights and liabilities (whether certain or contingent) of the associations that were parties of (sic) the application for amalgamation become rights and liabilities of the incorporated association formed by the amalgamation.
It is not disputed that, in the event that there had been a repudiation of the respondent’s contract of employment and a wrongful dismissal, the appellant is the correct defendant.
Following a trial heard in the District Court during May 2012, a Judge found in favour of the respondent and awarded damages in the sum of $335,574.08 inclusive of interest to the date of judgment.[7] The appellant was ordered to pay the respondent’s costs of the action as from 27 April 2010[8] on a solicitor/client basis.
[7] Smith v Regional Development Australia Murraylands & Riverland Inc [2015] SADC 11 (“Trial Reasons”).
[8] This was the date of the first of three, so called, Calderbank offers to settle made by the respondent, see Calderbank v Calderbank [1975] 3 All ER 333.
The respondent had remained unemployed as at the time of trial. His employment had ceased more than two years earlier (January 2010) but his contract with the RDC would not have expired until 30 June 2013. The Judge assessed damages on the basis, inter alia, that the respondent was entitled to his full contractual entitlements until 30 June 2012 (approximately two years and four and a half months) by which time he should have “lowered his sights” and taken employment with lower remuneration and less status which his Honour found would have been available. For this reason, his Honour discounted the damages award with respect to the remaining 12 months of the contract period (1 July 2012 to 30 June 2013).
The appellant has included a number of grounds in its notice of appeal. However, the appeal raises four main issues.
(i)Did the Judge err in finding that there had been an accepted repudiation of the respondent’s contract of employment giving rise to an entitlement to damages, rather than finding that the contract of employment had been frustrated?
(ii)If the Judge was right to find an accepted repudiation and to award damages, did the Judge err in not finding that the respondent had failed to mitigate his loss when he refused to accept the alternative position of Economic Development Manager?
(iii)In the alternative to (ii), did the Judge err in not further reducing the damages awarded, on the basis that the respondent failed to mitigate his loss by not seeking alternative employment, at a lower salary and of less status, at an even earlier time?
(iv)Did the Judge err in the exercise of his discretion as to the basis upon which costs were ordered?
The respondent has filed a notice of contention raising additional grounds upon which he asserts that the Judge’s finding, that the contract of employment was terminated as a consequence of its repudiation by the RDC rather than as a consequence of frustration, should be upheld. Given the view I take with respect to the question of termination it will not be necessary to consider the notice of contention in any detail.
Background matters, if once, no longer in contest
The RDC and the MRDB were two of 13 Regional Development Boards established to promote economic development in rural South Australia.
The RDC had responsibility for country areas that fell within the purview of the Riverland Councils (the District Councils of Berri-Barmera, Renmark-Paringa and Loxton-Waikerie). Its head office was located in Berri. The MRDB had responsibility for the adjacent Murraylands country areas. Each of the 13 Regional Development Boards was a not for profit organisation and funded (as to 75 per cent) by the State Government and (as to 25 per cent) by the relevant local councils.
According to the Constitution which governed the manner by which the business of the RDC was to be conducted, one of the principal objects of the RDC was the undertaking of obligations imposed upon it by the relevant Resource Agreement. At all material times, the funding of each Regional Development Board, including the RDC, was the subject of a “Resource Agreement” between, in the case of the latter, the RDC, the State Government Minister for Regional Development (“the Minister”) and the Riverland Councils. The Resource Agreement provided that the Minister and the Riverland Councils would make funds available to the RDC in the manner set out in the Resource Agreement. It is common ground that the Commonwealth Government provided funds to the State Government in order to assist it to resource the 13 Regional Development Boards.
The plaintiff, who was 54 at the time of trial, commenced employment with the RDC in 1998 as “Business Adviser”. This position later came to be described as “Business Development Manager”. In 2006, the respondent applied for the position of, and was appointed as, CEO. Initially, this was for a fixed term expiring on 30 June 2008. However, the respondent and the RDC agreed to an extension of the contract for a further five years, expiring 30 June 2013. In June 2009, the respondent’s salary was increased to $106,090 which was the salary applicable at the time his employment ceased. In addition, the contract provided that the respondent was to have use of a motor vehicle and a mobile phone. There was also provision for annual leave, long service leave and sick leave entitlements.
A Resource Agreement for the RDC was also in place for that same five year period, 1 July 2008 until 30 June 2013. This Resource Agreement had been negotiated by the respondent on behalf of the RDC. The Resource Agreement was the means by which the RDC secured funding, from the State Government and the Riverland Councils, for that five year period so as to enable it, inter alia, to extend the respondent’s employment for that same period. The respondent was obliged, pursuant to his employment contract, to use his best endeavours to ensure that the RDC met all of the obligations imposed on it by the Resource Agreement.
The seeds of the problem which ultimately arose lay in the fact that the provisions in the respondent’s contract of employment, governing when and in what circumstances his employment as CEO could be terminated, were not congruent with the provisions in the Resource Agreement, governing when and in what circumstances the funding of the RDC might be reduced or withdrawn.
The respondent’s contract provided that his employment was liable to be terminated by the RDC forthwith for cause or upon the RDC giving four weeks notice in the case of failure to meet the job requirements outlined in the position description. By way of contrast, the respondent had an unfettered right to terminate upon giving four weeks written notice. Clause 11 of the contract was in the following terms.
11    Termination
11.1   This Agreement may be terminated forthwith by the Corporation if the CEO shall:
(a)Commit any serious or persistent breach of any of the provisions herein contained.
(b)Be guilty of any grave misconduct or wilful neglect in the discharge of his duties.
(c)Commit any breach of the confidentiality obligations imposed on him by this Agreement.
(d)Become bankrupt or make any arrangements of composition with his creditors.
(e)Be convicted of any criminal offence.
(f)Fail to hold a valid South Australian Driver’s Licence.
11.2   The Board may terminate the employment of the CEO at any stage:
(a)during the Three (3) month probationary period; or
(b)upon giving Four (4) weeks notice for failure to meet the job requirements as outlined in the Position Description.
11.3   The CEO may terminate this Agreement by giving Four (4) weeks written notice to the Board.

This evidence was given in the context of the respondent explaining the efforts he had made to secure alternative employment once the relationship with the appellant had irretrievably broken down. As it happens, the respondent was markedly unsuccessful in this endeavour and remained, effectively, unemployed for the balance of his contractual term as CEO of the RDC.
Of course, one must not, by looking at what in fact happened in terms of any alternative employment that was or was not available to the respondent, employ hindsight when determining whether or not he acted unreasonably at the time he refused the EDM position. However, it can be inferred that the considerations that informed the respondent’s approach to considering whether or not to apply for or accept alternative positions, once he entered the open job market, would have been considerations to which he was alive and with respect to which he ought to have had regard at the time of deciding whether or not to accept the EDM position.
To put it bluntly, given his circumstances including, in particular, his age, his strongly held intention to remain in the Riverland, his desire only to acquire work commensurate with his experience and qualifications and which came with the same salary level and status he had enjoyed as CEO of the RDC, it must have been apparent to him that positions fulfilling those criteria would be very difficult to come by. It is against this background that the significance of and weight to be accorded to the respondent’s expressed concerns is to be assessed.
In my view, the respondent acted unreasonably in refusing the EDM position that was offered to him. As a consequence, he failed to take steps reasonably open to him to mitigate his losses. Had he done so, the loss as claimed, and ultimately awarded by the Judge, would have been eliminated. I would allow the appeal and order that the plaintiff’s claim be dismissed for this reason.
Did the respondent fail to mitigate his loss by not seeking alternative employment at a lower salary and of a lower status at a time earlier than that allowed for by the Judge?
Given that I would allow the appeal on the basis that the respondent unreasonably failed to take steps that would have mitigated, entirely, his loss, it is not necessary that I deal with this issue in any great detail.
The Judge set out, in his reasons, with some particularity, the evidence given and accepted by his Honour on this topic.[77]
[77] Trial Reasons at [189]-[194].
The respondent first applied for a position on 1 July 2010, some four and a half months after his position as CEO of the RDC came to an end. He was interviewed for the position of Director of the Riverland Futures Taskforce with an annual salary of approximately $130,000. He was unsuccessful. The respondent unsuccessfully applied in October 2010 for the position of Chief Executive Officer of the Renmark-Paringa Council (annual salary approximately $130,000). In January 2011, he was interviewed for the position of TradeStart Adviser with the Department of Trade and Economic Development (SA) which carried a salary of $80,000 subject to negotiation and in April 2011 he applied for a six month contract in Western Australia. This latter position was withdrawn before interviews were scheduled.
These were the only positions for which the respondent made a formal application. The Western Australia position was never a possibility. In effect, the respondent ceased to apply for positions as at early 2011.
The respondent was cross-examined with respect to 30 apparently available positions (advertised in various print media in the Riverland area) and with respect to which the respondent had not applied. The respondent said that he had been aware of some of these positions but not all of them. The reasons he gave for not applying for those he had been aware of or, if he had been made aware of the others, as to why he would not have been interested, have been summarised earlier. The Judge found that these were reasonable grounds for not applying for or expressing interest in the various advertised positions.
The respondent agreed that he chose not to apply for the following advertised Council positions.
(i)Manager of Community Services, Renmark Paringa District Council (advertised on 5 March 2010 – salary range not specified).
(ii)Manager of Environment and Community Services, Loxton Waikerie District Council (advertised on 8 June 2010 – salary range $85,000-$90,000).
(iii)Manager of Development and Community Services, Loxton Waikerie District Council (advertised on 20 July 2010 – salary range $75,000-$80,000).
(iv)Director of Corporate and Community Services, Loxton Waikerie District Council (advertised on 12 October 2010 – salary range not specified).
(v)Accountant, Renmark Paringa District Council (advertised on 12 November 2010 – salary range not specified).
(vi)Coordinator and Program Officer, Renmark Paringa District Council (advertised on 14 January 2011 – 27.5 hours per week, salary range not specified).
(vii)Community Development Officer, Loxton Waikerie District Council (advertised in about July 2011 – salary range not specified).
However, his Honour also found that there was an element of inconsistency in the respondent’s evidence concerning his attitude towards employment with the Riverland Councils. The plaintiff said that he did not believe that he would be successful in applying for any available positions with Riverland Councils because he was engaged in litigation against the appellant in circumstances where the Riverland Councils had contributed to the appellant’s funding.
The respondent said that there was an additional problem with respect to the Renmark Paringa District Council positions because Mr Martinson was both the Mayor of the Council and the Chair of the appellant’s Board.
I interpolate here that any problem that either of these concerns might present would only operate at the level of whether or not an offer would be made, not at the level of whether or not to apply. Further, there was little evidence to suggest that the respondent’s concerns here had any foundation in fact. Indeed, it would have been in the Riverland Councils’ and Mr Martinson’s interests for the respondent to obtain a suitable position, if only to limit the quantum of damages for which the appellant might have become liable.
The Judge found the respondent’s reasons for not applying for Council positions difficult to reconcile with his decision to apply for the position of CEO with the Renmark Paringa Council in late 2010. I agree with his Honour, the lack of consistency here is quite stark. Nevertheless, and despite that “discrepancy” the Judge found that he was not satisfied that the appellant had established that the respondent’s reasons for declining to apply for these particular Riverland Council positions were unreasonable. The Judge, in this respect, noted other considerations: only two of the relevant advertisements specified a salary range and they were well below that which the respondent had received as CEO; and no helpful evidence had been adduced about whether the jobs suited the specific skills and experience of the respondent.
With respect, I do not agree with the Judge’s reasoning on this issue. There was nothing to stop the respondent from applying for any of these positions and, as part of the process of applying, determining what the salary level might have been, what scope there was for negotiation and further advancement and so on. There, ultimately, may have been a reasonable basis for not accepting a position of this type, if offered. However, the fact that the respondent ceased applying for positions of any sort after early 2011, the fact that he “chose not to apply” for the various Council positions just identified and the reasons he gave for not applying for those and other positions all suggest that the respondent lacked enthusiasm, diligence and flexibility as a result of a fixed mindset. He wanted a position in the Riverland equivalent to that which he had lost with the same salary, conditions and status. Until such a position came along he was not seriously interested in anything else.
If I am wrong in finding that the respondent acted unreasonably in not accepting the EDM position, I would agree with the Judge that it would not have been unreasonable for the respondent, initially, to seek a position which required the sort of experience and skills that his job as CEO of the RDC employed and which came with salary and emoluments of a similar level.[78] However, there was to come a time when a person in the position of the respondent should have begun to lower his sights and been prepared to accept employment of a lower status and that was less remunerative.[79] The question of when it would become unreasonable for such a plaintiff to refuse to lower his sights needs to be assessed within the context of the employment prospects facing the respondent and the personal constraints which strongly affected the respondent’s decision making.
[78] Trial Reasons at [196].
[79] See, for example, Yetton v Eastwoods Froy Pty Ltd [1967] 1 WLR 104 at 120, Beck v Darling Downs Institute of Advanced Education [1990] 140 IR 364 at 372-373.
On my reading of the respondent’s evidence and consistently with the Judge’s findings, the respondent at no time was prepared to lower his sights. This has to be viewed in the context of the respondent’s personal circumstances identified earlier. The respondent must have understood his chances of obtaining an equivalent position to have been very limited. This must have been apparent to the respondent at the time he refused the EDM position and, a fortiori, as time went on. It was unreasonable for the respondent to sit by not seeking alternative employment, even at a lower salary and status, for more than two years and four months until the trial in favour of his expectation of a damages award comprising the full amount of his salary as CEO of the RDC foregone for that period and beyond.[80]
[80] The Judge awarded damages at a lesser rate for the additional 12 months the CEO contract had to run after the conclusion of the trial hearing, albeit, at the lesser rate based on a deemed salary of $70,000 per annum that his Honour found should have been earned over that period.
The Judge found that by the time of the trial, that is, some two years and 18 weeks after the position as CEO came to an end, the respondent should have begun to lower his sights.[81] The Judge also found that, had he done so, he would have found employment in the Riverland region within a few months which employment would not have been entirely unsuitable and would have attracted a salary of not less than $70,000 a year. A finding of this nature which addresses a counter-factual or hypothetical situation can only ever be a matter of judgment and degree based on the evidence available. I am satisfied that this finding was open to his Honour. However, the finding, by implication, that the respondent had not acted unreasonably in failing to lower his sights for more than two years and four months, was excessively generous. In my view, the respondent should have begun to lower his sights no later than six months after leaving the position of CEO and, in accordance with his Honour’s finding, more likely than not would have acquired a relatively suitable position at a salary of $70,000 per annum within a further three months or so.
[81] Trial Reasons at [196].
Accordingly, if contrary to my earlier conclusion, the respondent did not act unreasonably in refusing the EDM position, I would adjust the damages award to the effect that he would only be entitled to damages based on full loss of salary, superannuation and other financial benefits for nine months (13 February 2010 - 12 November 2010). His damages thereafter would be assessed on the assumption that the respondent would have earned $70,000 per annum for the balance of his CEO contract term with commensurate superannuation and other financial benefits, in the manner assessed by the Judge.
Were the appeal to be resolved in this manner, I would invite the parties to prepare a fresh calculation of loss and a fresh calculation of prejudgment interest.
The basis upon which costs were ordered by the Judge
Given that I would allow the appeal or, in the alternative, if I am incorrect in that respect, would allow the appeal in part so as to reduce the award of damages payable, the issue of the costs of the trial will need to be revisited in any event. As such, it is not necessary to deal with the parties’ respective contentions as to whether or not the Judge’s costs order was properly arrived at.
Conclusion
I would allow the appeal and order that the respondent’s claim be dismissed.