Rothenberger Australia Pty Ltd v Poulsen

[2003] NSWSC 788

Reported Decision: 58 NSWLR 288
(2003) 12 ANZ Insurance Cases 61-583

Supreme Court

CITATION:	Rothenberger v Lumley General Insurance [2003] NSWSC 788
HEARING DATE(S):	14/08/03
JUDGMENT DATE:	29 August 2003
JURISDICTION:	Equity Division
JUDGMENT OF:	Barrett J
DECISION:	Insurer liable under policy. Quantum to be determined.
CATCHWORDS:	INSURANCE - indemnity insurances - employment practices liaiblity policy - sums recovered by dismissed employee suing for breach of contract - whether "liquidated damages" - whether referable to express payment obligation - whether termination in breach of contract is "wrongful termination"
LEGISLATION CITED:	Industrial Relations Act 1996 (NSW), s.84 Workplace Relations Act 1996 (Cth), s.170CE
CASES CITED:	Alexander v Ajax Insurance Co Ltd [1956] VR 436 Beca Developments Pty Ltd v Idemeneo (No 92) Pty Ltd (1990) 21 NSWLR 459 Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 Gregory v Philip Morris Ltd (1998) 80 ALR 455 Esanda Finance Corporate Ltd v Plessing (1988) 166 CLR 131 Gemini Property Investments Pty Ltd v Woodwards Investments Pty Ltd [2000] SASC 210 Jampco Pty Ltd v Cameron (1985) 3 NSWLR 391 Johnson v American Home Assurance Company (1998) 192 CLR 266 McCann v Switzerland Insurance (2000) 203 CLR 579 O'Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 Official Trustee in Bankruptcy v CS & GJ Handby Pty Ltd (1989) 87 ALR 734 Reynolds v Southcorp Wines Pty Ltd (2002) 115 IR 152 Secretary of State Advances Recovery Office of the Republic of South Africa v Fine (1968) 87 WN (NSW) (Pt1) 445 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 Spain v Union Steamship Co of New Zealand Ltd (1923) 32 CLR 139 The Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (No 2) (1996) 20 ACSR 170 Tiplady v Gold Coast Carlton Pty Ltd (1984) 8 FCR 438
PARTIES :	Rothenberger Australia Pty Limited - Plaintiff Peter Poulsen - First Defendant Lumley General Insurance Limited - Second Defendant
FILE NUMBER(S):	SC 4543/00
COUNSEL:	Mr S.D. Robb QC/Mr J.A. Crisp - Plaintiff Mr J.N. West QC/Mr S.A. Goodman - Second Defendant
SOLICITORS:	Eakin McCaffery Cox - Plaintiff Phillips Fox - Second Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BARRETT J

FRIDAY, 29 AUGUST 2003

4543/00 – ROTHENBERGER AUSTRALIA PTY LIMITED v PETER POULSEN and LUMLEY GENERAL INSURANCE LIMITED

JUDGMENT

Background

1 The central question in this case is whether the second defendant (“Lumley”) is bound by the terms of a particular policy of insurance to indemnify the plaintiff (“Rothenberger”) in respect of a sum paid by Rothenberger to its former managing director, being the first defendant (“Poulsen”), upon the compromise of several related proceedings to which Rothenberger, Poulsen and another former employee of Rothenberger were parties. There is a corresponding question about associated costs.

2 Poulsen sued Rothenberger upon causes of action pleaded in a District Court statement of liquidated claim as follows:

“1. At all material times, the Defendant was a Corporation entitled to sue and be sued in its said name and style.
2. On 19 December 1998 the Plaintiff entered a fixed term Contract of Employment (‘the Contract’) with the Defendant, commencing on 1 January 1999. A true copy of this contract is annexed and marked ‘A’ and is taken to be pleaded in full.
3. It was an implied term of the Contract that the Defendant would make periodic Superannuation contributions on behalf of the Plaintiff in accordance with the Superannuation Guarantee (Administration) Act 1992 (Cth).
4. It was an implied term and condition of the Contract that any reasonable expense incurred by the Plaintiff on the behalf of the Defendant, in the furtherance of the business of the Defendant, would be promptly reimbursed by the Defendant.
5. It was an implied term and condition of the Contract that the Defendant would pay for the Plaintiff’s home telephone bill for the duration of the Contract.
6. At all material times the Plaintiff carried out his duties and obligations in accordance with the Contract.
7. On 20 July 2000 the Defendant terminated the Contract without proper grounds for the termination.
8. As a result of the Defendant’s termination of the Contract, the Plaintiff has suffered damages in the sum of $703,193.39.”

I shall refer later to the way in which the sum of $703,193.39 was particularised. There were also claims as follows:

“9. In breach of the implied term and condition detailed in paragraph 3 the Defendants failed to pay Superannuation on behalf of the Plaintiff into a nominated Superannuation Fund. The Plaintiff claims the sum of $17,468.85 in unpaid Superannuation from 1 January 1999 to 20 July 2000.
10. In breach of the Contract, the Defendant failed to pay the Plaintiff remuneration from 1 July through to the date of termination of the Contract. The Plaintiff therefore claims the sum of $8,743.16.
11. In breach of the implied term and condition detailed in paragraph 4 the Defendants failed to reimburse the Plaintiff for costs reasonably incurred on behalf of the Defendant in the furtherance of the Defendant’s business. The Plaintiff claims the sum of $6,075.09.
12. Consequential to the breach of the Contract the Plaintiff has suffered damages in the sum of $14,400 having to transport all his goods and personal belongings back to his home in Aalborg, Denmark. The Plaintiff claims the sum of $14,400 for the costs of transportation of the Plaintiff’s goods and personal belongings.”

It is conceded, as I understand it, that the sums claimed in paragraphs 9 and 10, which are referable to entitlements that crystallised before termination of employment, are not covered by the policy.

3 The District Court proceedings were afterwards transferred to this court so that they might be heard with both the current proceedings and another transferred District Court action brought against Rothenberger by the other former employee. By a deed made on 13 December 2002 among those three parties and Rothenberger’s German parent company, all proceedings between Rothenberger and the former employees (including the claims of Rothenberger as plaintiff in these proceedings against Poulsen as first defendant) were compromised and it was provided, inter alia, that Rothenberger would pay a specified sum of money to Poulsen (and the German parent company would provide him with a letter of recommendation) “in full and final settlement of all claims Poulsen may have against [Rothenberger] and/or [the German parent] up to and including the date of execution of this deed”.

4 It is, as I understand it, accepted as between Rothenberger and Lumley that, for the purposes of the policy under which Rothenberger was insured by Lumley, the sum paid to Poulsen under the deed should be regarded as being of the character that it would have had if recovered by Poulsen upon the causes of action in the pleading set out above. Putting this another way, matters are to be viewed as if Rothenberger had suffered a judgment in favour of Poulsen equal to the amount paid under the deed.

The insurance policy

5 The policy written by Lumley in favour of Rothenberger was an employment practices liability policy. It is admitted that such a policy was in force at all material times. The “interest insured” was described as: “Legal liability arising out of an Employment Practice in the Insured’s Business first reported during the Period of Insurance”. The policy terms were “Lumley General’s Standard Employment Practices Liability Policy Wording” appearing at pages 2 to 5 of Exhibit A. The central provision is Section II cl.1:

“In consideration of the payment of premium shown on the Schedule and in reliance upon representations by the Named Insured made to Lumley General in applying for this policy and subject to the Limit of Insurance shown in the Schedule and all the exclusions, terms and conditions of this policy and any Co-insurance agreement pursuant to Section V, Lumley General agrees to pay on behalf of the Insured any Damages which the Insured is legally obliged to pay and which exceed the Deductible shown on the Schedule, provided that:
(a) the Damages result from an Employment Practice alleged in a Claim;
(b) the Claim is first made against the Insured and notified to Lumley General during the Period of Insurance;
(c) the Employment Practice occurred in the Coverage Territory;
(d) the Employment Practice is directed after the Retroactive Date shown on the Schedule and before the end of the Period of Insurance; and
(e) the Insured has complied with all of the terms and conditions of this policy.”

6 Section II cl.3 contains certain exclusions. Among these are the following:

“(b) This policy does not cover Claims arising from:
…

(iii) any express obligation to make payments, whether under a statute, award, contract of employment or otherwise. This exclusion does not apply to any liability for Damages that the Insured would have in the absence of the contract or agreement.

(iv) a breach of any express obligation to make payments in the event of termination of employment, whether under a statute, award, contract of employment or otherwise;”

7 Section I of the policy wording contains definitions, of which the following are relevant to this case:

“’ Damages ’ means compensatory monetary amounts to which this policy applies and which the Insured is legally obliged to pay. Damages includes backpay arising from an order of reinstatement or re-employment.
Backpay arising from an order of reinstatement or re-employment is limited to the amount the Insured is legally obliged to pay an Employee for the period between the time of termination of the Employee’s employment and the time the Employee is reinstated or re-employed.
Damages does not include:
(a) any fines or penalties;
(b) any portion of a judgement or award that represents liquidated, punitive or exemplary damages;
(c) any relief or recovery other than monetary amounts;
(d) any payments which the Insured is obliged to pay pursuant to an express obligation, whether under a statute, award, contract of employment or otherwise (except backpay arising from reinstatement or re-employment); or
(e) any payment arising from a breach of any express obligation to make payments in the event of termiation of employment, whether under a statute, award or contract of employment or otherwise.”
“’ Employment Practice(s) ’ means any of the following practices directed against any Employees, Contract Workers, Temporary Workers or any applicant for employment by the Named Insured:
(a) Wrongful refusal to employ an applicant for employment;
(b) Wrongful failure to promote an Employee;
(c) Wrongful demotion, negligent evaluation, negligent reassignment or disciplinary action;
(d) Wrongful termination of employment, including constructive dismissal;
(e) sexual harassment;
(f) unlawful discrimination which may include discrimination on the grounds of race, colour, sex, sexual preference, age, physical or mental disability, marital status, family responsibilities, pregnancy, religion, political opinion, national extraction or social origin; and
(g) oral or written publication of material that slanders, defames or libels an Employee or violates or invades an Employee’s right of privacy.”

The issues

8 In the light of these provisions, the questions for determination are:

1. Was the sum paid by Rothenberger to Poulsen under the deed (which, as I have said, is accepted as being of the same character as the sums that Poulsen would have recovered had he obtained judgment on his District Court statement of liquidated claim) within the policy’s definition of “Damages”, disregarding, for the moment, the elements mention in 3(a) and (b) below?

2. If so, did those Damages “result from” an “Employment Practice” as defined?

3. If so, is Rothenberger’s claim under the policy in respect of the sum paid to Poulsen properly regarded as

(a) “arising from” a breach of the kind referred to in paragraph (e) of the definition of “Damages” and Section II cl.3(b)(iv); or
(b) the product of (or “arising from”) an “express obligation” of the kind referred to in paragraph (d) of the Damages definition and Section II cl.3(b)(iii)?

9 If all those questions are answered favourably to Rothenberger, an issue of quantification will arise. The proceedings have been approached by the parties and, with their concurrence, by the court on the footing that that issue will be addressed if and when liability on the part of Lumley has been established.

Construing insurance policies

10 Before the questions I have outlined are addressed, it is as well to recall the general principles that apply to the construction of insurance policies. These are referred to in the judgment of Kirby J in McCann v Switzerland Insurance (2000) 203 CLR 579, a case concerning policies of professional indemnity insurance held by a firm of solicitors. His Honour mentioned five principles as follows (at pp.600-602):

1. “As a species of commercial contract, an insurance policy must be interpreted to give to the words used their ordinary and fair meaning.”

2. “The meaning to be given to an insurance policy must take into account the commercial and social purposes for which it was written.”

3. “Where, especially in an insurance contract written for application in different jurisdictions, language has been used which enjoys a settled meaning, courts will ordinarily endeavour to adhere to such a meaning, particularly in a policy of commercial character upon which the parties might have been expected to obtain expert advice from lawyers or insurance brokers.”

4. “Notwithstanding the primary duty of courts to give meaning to the words in an insurance policy, it has been recognised that, in cases of ambiguity, a ‘liberal approach’ will generally be adopted in the construction of insurance contracts.”

5. “Whilst the meaning of the words in an insurance policy is for the tribunal of fact to determine, if the judge misdirects a jury (or where sitting alone misdirects himself or herself) about the meaning to which the words in question are susceptible, an appellate court may intervene to correct the error.”

11 Kirby J elaborated upon each of these basic propositions. It is appropriate to refer to part of his elaboration in relation to the fourth proposition. The reference there to a “liberal approach” was explained by reference to observations made by his Honour in Johnson v American Home Assurance Company (1998) 192 CLR 266, a decision concerning an injury and sickness policy. Two principles were mentioned there (at p.274): first, that “a fair and reasonable construction should be adopted which would take into account the variety of persons entering into an insurance contract and the entitlement of such persons to know the bargain which they have secured”; and, second, that “insurance policies, containing words that are intractably ambiguous, will be construed so as strongly to favour the resolution of the ambiguity in a way advantageous to the insured”, although this second principle “is now not so much in favour”:

“Courts today accept the duty to endeavour to find the meaning, even of ambiguous expressions, from the language and logic of the document rather than by resort to maxims and other rules of thumb” [a reference to the ‘ contra proferentem ” rule].

12 The aspect of the present controversy to which these observations have particular relevance is the question whether the sum in question is “Damages” as defined. Lumley says that, for either or both of two reasons, it is not. The first reason is that it is “liquidated damages” and therefore caught by exclusionary paragraph (b) of the definition of “Damages”. The second is that it is a sum that Rothenberger was “obliged to pay pursuant to an express obligation” as referred to in exclusionary paragraph (d). Lumley also says that Section II cl.3(b)(iii) operates against Rothenberger.

Analysis of Poulsen’s claims

13 To characterise the sum received by Rothenberger under the settlement deed (agreed, as I have said, to be of the character that it would have had if recovered upon the causes of action pleaded in the terms set out above) it is necessary to examine Poulsen’s pleading. The sum of $703,193.39 referred to in paragraph 8 of the pleading is made up of the following components:

1. $311,232.87 said to be remuneration at the contracted annual rate for the unexpired residue of the fixed term of employment, calculated simply by applying that rate (re-cast as a daily rate) to the number of days between termination and the end of the fixed term.

2. $295,710.00 said to be for “loss of chances of bonus on annual turnover and profit before tax”, calculated by applying the contractual provisions as to bonus (which, as will be seen, refer to percentages of achieved turnover and profit) to projected or budgeted turnover and profit for the periods after termination of employment up to the end of the contracted term.

3. $32,607.11 for “loss of use of automobile” on the basis of an assumed value of the use of a car in accordance with the contract for the unexpired residue of its fixed term.

4. $13,528.00, being the estimated cost of a return trip from Australia to Denmark (Poulsen’s country of origin) for Poulsen and his de facto partner, this also being, it is alleged, a benefit of employment that would have been enjoyed during the unexpired residue of the employment period.

5. $48,555.42 for “loss of superannuation”, being, it seems, the amount that Rothenberger would have paid into a superannuation fund for Poulsen’s benefit over the unexpired residue of the contract period, based on the salary level and contribution percentage prevailing at the time of termination.

6. $1,560.00 designated “telephone bill”, being “average phone bill $65.00 per month” for the unexpired residue of the contract period.

The employment contract

14 This description of the various claims and of the sums attributed to them by Poulsen will be better understood in the context of a description of the contractual terms. Poulsen’s employment was under a written contract dated 19 December 1998. By clause 8(a), the agreement was expressed to be “valid for a duration of three years commencing on 1 January 1999”. Provision for employment beyond the three year period was also made but is irrelevant for present purposes. Clause 8(b) provided for termination of the agreement by the employer “forthwith” on certain events, including if Poulsen should “be guilty of any grave misconduct or wilful neglect in the discharge of his duties under this Agreement”. It was upon this provision that Rothenberger relied when it dismissed Poulsen with effect from 20 July 2000. The annual salary was stated in the contract to be $140,000 payable by equal monthly instalments in arrears. There was also an entitlement to a bonus described as follows:

“AUD40,000 as a guaranteed bonus, payable in equal monthly instalments in arrears. This guaranteed bonus shall be offset against a 3% commission on the annual turnover exceeding the final total sales of 1998 of AUD2.8 million, plus 7% commission on the profit before tax.”

The agreement conferred on Poulsen an entitlement to a “middle-class car, renewable after four years or 150,000 km”, one “home flight” for himself and his family every second year and reimbursement of out of pocket expenses incurred in the discharge of his duties.

“Damages”

15 It is against the background of these contractual provisions and the claims made by Poulsen in his statement of liquidated claim that the question whether the settlement sum was “Damages” as defined by the policy must be addressed.

16 “Damages”, as defined, means “compensatory monetary amounts to which this policy applies and which the Insured is legally obliged to pay”. I read the words “to which this policy applies” as referring to the insuring clause (Section II cl.1) and, in particular, to the requirements of its paragraphs (a) to (e) as to which more will be said presently. The words “which the Insured is legally obliged to pay” would clearly apply to anything recovered by Poulsen through legal proceedings and, having regard to the basis on which the case was argued, must therefore be taken to apply to the sum now in question. That leads to the question whether a sum recovered upon the causes of action pleaded by Poulsen would properly be regarded as “liquidated damages”, being the first of three items excluded from “Damages” by paragraph (b) of the definition.

“Liquidated damages” – exclusionary paragraph (b)

17 Mr Robb QC, with whom Mr Crisp of counsel appeared, submitted on behalf of Rothenberger that “liquidated damages” should be understood in the present context in the sense referred to by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 at 86:

“… the essence of liquidated damages is a genuine covenanted pre-estimate of damage”.

18 Mr Robb also referred to O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 and Esanda Finance Corporate Ltd v Plessing (1988) 166 CLR 131. In those cases, as in Dunlop, the question for determination was whether equity would relieve against a contractual obligation to pay a stated sum upon breach of contract because the sum was penal in character as distinct from a genuine pre-estimate of the loss or damage suffered by the party against whom the breach was committed. References to “liquidated damages” in that kind of context are references to contracted compensatory sums that are not penalties.

19 Mr West QC, with whom Mr Goodman of counsel appeared for Lumley, approached the matter in a different way. In his submission, “liquidated damages” are the fruits of success in an action upon a liquidated claim. He referred to the extensive analysis by Sholl J in Alexander v Ajax Insurance Co Ltd [1956] VLR 436 summarised as follows by Brereton J in Secretary of State Advances Recovery Office of the Republic of South Africa v Fine (1968) 87 WN (NSW) (Pt 1) 445:

“… (Sholl J’s) extensive research led him to the conclusion that the phrase [‘liquidated demand’] included: (a) a claim for which the action in debt would lie; (b) a claim for which an indebitatus count would lie, including those cases formerly covered by the quantum meruit or quantum valebat counts notwithstanding that the only agreement implied between the parties in such cases was for the payment at a reasonable rate: (c) a claim for which an action in covenant or special assumpsit would lie, provided that the claim was for a specific amount, not involving in the calculation thereof elements the selection whereof was dependent upon the opinion of the jury.”

See also Official Trustee in Bankruptcy v C S & G J Handby Pty Ltd (1989) 87 ALR 734; The Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (No 2) (1996) 20 ACSR 170.

20 The three species of claim seen by Sholl J as entailing “liquidated demand” were referred to by him in terms of common law counts. Before the abolition of the forms of action by the Common Law Procedure Act 1852 in England, actions for the recovery of money upon a contract had to be pleaded in debt or in assumpsit. The nature of the former (a descendant of the writ of debt which had existed at least since the reign of Edward III) was stated thus in the third edition (1868) of Bullen and Leake’s “Precedents of Pleading” (at p.35):

“When framed in debt, the declaration stated the debt, and then averred that by reason of the non-payment thereof, an action accrued ( actio accrevit ).”

21 The nature of assumpsit was then described:

“In assumpsit the declaration stated the debt, and then averred a promise by the defendant to pay the debt ( indebitatus assumpsit ), and a breach of the promise, such promise being one which would be implied by law from the debt, and not requiring proof as a fact.”

22 Bullen and Leake went on to note that the action in debt and the action in assumpsit “were attended with different consequences”, the judgment in debt being a final judgment (the claim for damages being generally nominal only), while on a judgment in assumpsit a subsequent inquiry to assess damages was necessary.

23 Bullen and Leake also observed that, after the abolition of the forms of action, actions in debt and indebitatus assumpsit became virtually obsolete and the several common money (or common indebitatus) counts came to be used in the following way:

“The form of indebitatus count applies only in suing for a debt or liquidated demand in money; not for an unliquidated demand or damages … The amount of the debt is deemed to be certain, provided it is capable of being ascertained.”

24 The third category (category (c)) referred to in the description of Sholl J’s conclusion concerns “a claim for which an action in covenant or special assumpsit would lie” – subject, however, to an important qualification: “provided that the claim was for a specific amount, not involving in the calculation thereof elements the selection whereof was dependent upon the opinion of the jury”.

25 An action in covenant lay, according to Bullen and Leake (at p.58), where “the contract is by deed, and the covenant is to do anything else than to pay a sum of money”. This is one of the cases in which “the declaration must be special”. Another is where “the contract broken is a simple contract or promise, whether express or implied, to do anything else than to pay money”. In that case, “the action will be in Assumpsit”; and, since “the declaration must be special”, it is termed “special assumpsit”.

26 In the light of this historical analysis, it cannot be correct to say that anything recovered upon a “liquidated demand” is “liquidated damages”. Probably the most commonly encountered form of recovery upon a “liquidated demand” is recovery of a debt. By no stretch of the imagination can recovery of a debt be said to entail recovery of any form of damages. But it may be correct to say that anything other than a debt recovered upon a “liquidated demand” is “liquidated damages”, whether recovered upon an indebitatus count or upon a claim formerly classified as a claim in covenant or special assumpsit where, in Sholl J’s words, “the claim was for a specific amount, not involving in the calculation thereof elements the selection whereof was dependent upon the opinion of the jury”. And it is certainly correct to say that a sum recovered in circumstances where a contract actually provides for the payment of that sum by way of compensation for breach is “liquidated damages”.

27 The relevant distinction, in my view, is that between agreed compensation calculated and quantified in a way specified in or ascertainable from the contract itself and damages to be assessed according to the ordinary principles for determining damages for breach of contract. The distinction is illustrated by cases in which the purchaser under a contract for the sale of land defaults and the vendor, as a result, may sue for damages for breach of contract in the ordinary way or, if he or she prefers, take advantage of a provision of the contract permitting the vendor to resell and to recover from the purchaser any deficiency on resale together with expenses of resale. A sum recovered by a vendor who pursues the latter course is properly regarded as involving the recovery of a “liquidated sum” (see Tiplady v Gold Coast Carlton Pty Ltd (1984) 8 FCR 438), while the damages recovered by a vendor who takes the former course are “unliquidated damages” or, in the words of Young J in Jampco Pty Ltd v Cameron (1985) 3 NSWLR 391, “breach of contract damages”. The difference between the two is that “liquidated damages” are recoverable in satisfaction of a right of recovery created by the contract itself and accruing by reason of breach, while “unliquidated damages” are compensation as assessed by the court for loss occasioned by breach. I certainly agree with Mr Robb that the choice of a particular form of originating process can have no bearing on the nature of the award made to a successful plaintiff. Even if a plaintiff who frames as a liquidated demand a claim which in truth is not of that kind manages to obtain judgment by default for the whole amount claimed, the judgment will be regarded as irregularly obtained and will be set aside: Gemini Property Investments Pty Ltd v Woodards Investments Pty Ltd [2000] SASC 210.

The true nature of Poulsen’s claims

28 With some exceptions to which I shall refer presently, the claims made by Poulsen in his originating process are clearly unliquidated in character, even though framed in such a way as to create a false impression that they are claims for amounts not only required by the employment contract to be paid but also calculated in accordance with contractual terms providing for the payment of certain sums in certain events. The falsity of the impression becomes obvious when the fundamental nature of Poulsen’s complaint is examined. This is an important point. The question is not what Poulsen would have recovered had the way he pleaded his case been accepted without question. Rather, it is what he would have recovered by reference to the complaints asserted, upon a proper treatment of his claims according to their true nature.

29 The several items making up the total of $703,193.39 referred to in paragraph 8 of Poulsen’s originating process must be examined. It has been submitted on behalf of Lumley that the first item of $311,232.87 is “liquidated damages” because, upon termination of employment, he became entitled to a calculated sum, being remuneration for the unexpired residue of the fixed term at the contracted rate. This, in my opinion, is a misstatement of the position, even assuming that the termination entailed a breach of contract. It is sufficient to quote the following passage found at page 229 of “The Law of Employment” by Macken, O’Gray, Sappideen and Warburton (2002):

“If the employment is for a fixed term not subject to termination by notice, damages will be equivalent to the salary or wages over the remainder of the period of contract – subject, however, to reduction for likelihood of re-employment within the remaining contractual period, and the possibility of the termination of the contract before the expiry of the period without fault on the part of the employer. Thus the court is entitled to take into account the risk of ill health, premature death, and the possibility of termination by reason of fraud or misconduct in determining the quantum of damages payable.
It is uncertain whether, in assessing damages for wrongful termination of a fixed-term contract, a court can take into account the lost opportunity to have the contract renewed for a further term. …”

This passage was quoted with approval by Hely J in Reynolds v Southcorp Wines Pty Ltd (2002) 115 IR 152.

30 As is made clear by the observations I have just set out, remuneration at the contracted rate for the balance of the fixed term is, in a case of the present kind, not recoverable under the contract and is no more than a starting point in the assessment of damages in the ordinary way. The claim is therefore of an unliquidated nature, as are any damages awarded.

31 The second item in the total of $703,193.39 in paragraph 8, said to be a liquidated sum of $295,710, is for “loss of chances” to obtain bonuses under the contract. The stated sum is based on projected or budgeted turnover and profit figures. That alone is sufficient to show that the claim is not a liquidated claim. If damages including such a component were to be awarded, the court would have to come to a view of its own as to the future turnover and profit figures, assuming that it considered them capable of meaningful determination. But even then, the very description of the claim as being for “loss of chances” makes it clear that it involves an estimate by the court as to the likelihood of Poulsen’s obtaining the benefits at all. The matter is governed by principles referred to in the following passage in the judgment of Mason CJ, Dawson, Toohey and Gaudron JJ in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 349:

“In the realm of contract law, the loss of a chance to win a prize in a competition resulting from breach of a contract to provide the chance is compensable, notwithstanding that, on the balance of probabilities, it is more likely than not that the plaintiff would not win the competition.”

32 In addition, considerations similar to those relevant to the claim for future salary arise in relation to the second item concerning future bonuses. As with that claim, there are questions about the possibility that Poulsen would not have continued in his employment to the point at which the entitlements to bonus crystallised, quite apart from the questions about the likely state of the business and its profitability. In this case too, the claim is obviously a claim for unliquidated damages.

33 The third, fourth, fifth and sixth items ($32,607.11 for “loss of use of automobile”, $13,528.00 for travel to Denmark and return, $48,555.42 for “loss of superannuation” and $1,560.00 “telephone bill”) are, in concept, the same as the second. There is, in each case, an attempt to assign a fixed value to an element of remuneration or perquisite by reference to not only an assumption as to quantum but also the assumption that the employment would have continued to the end of the contracted term or, in the case of the travel claim, until the qualifying period had expired. These too are really claims for loss of the chance to obtain future benefits and are accordingly of an unliquidated character.

34 It is not necessary to consider the claims in paragraphs 9 and 10 of Poulsen’s originating process. These, as I have said, represent entitlements that crystallised before termination of employment and are agreed to be outside the insurance policy.

35 Poulsen’s claim in paragraph 11 of his originating process was for failure to reimburse expenses actually and reasonably incurred in the course of employment. As with the items in paragraphs 9 and 10, this, although of a liquidated nature (Spain v Union Steamship Co of New Zealand Ltd (1923) 32 CLR 139), relates to an entitlement that crystallised before termination and cannot be regarded as covered by the policy. The claim in paragraph 12, however, is different. It relates to loss of an asserted entitlement to have personal possessions transported to Denmark after termination of employment and, not being based on any provision of the contract, can only be regarded as an element of the overall claim to be compensated, by unliquidated damages, for loss occasioned by breach of contract.

36 For the reasons stated, any recoveries achieved by Poulsen upon the claims in paragraphs 1 to 8 and 12 of his originating process would not have been “liquidated damages” and, as a matter of construction, the exclusion in paragraph (b) of the policy’s definition of “Damages” would not have operated.

Exclusionary paragraphs (d) and (e)

37 The next question is whether the exclusion in paragraph (d) or paragraph (e) of the “Damages” definition would have operated. That question also encompasses the question posed by paragraph (b)(iii) and (iv) of Section II cl.3, in that each turns upon whether payments made to Poulsen upon his assumed success in his action as pleaded would have come from either any express obligation to make payments or a breach of any express obligation to make payments.

38 In the light of what I have already said about the nature of Poulsen’s claims, it will be clear that I do not consider that these questions can be answered favourably to Lumley. The claims in paragraphs 1 to 8 and 12 of Poulsen’s originating process in no sense involve payment obligations or the enforcement of payment obligations. They are claims for breach of contract damages.

“Amounts to which this policy applies”

39 The remaining question is whether recoveries upon Poulsen’s claims would have been “amounts to which this policy applies” (as referred to in the definition of “Damages”) – a question to be answered by reference to paragraphs (a) to (e) of the insuring clause (Section II, cl.1). The only element of this about which there is controversy concerns paragraph (a) and the question whether Poulsen’s recoveries would have been such as to “result from” an “Employment Practice”.

40 Given their nature as claims for damages for breach of the employment contract (by reason of dismissal amounting to breach), the recoveries would be of that character, bearing in mind that “Employment Practice” includes “Wrongful termination of employment”. A contract of employment is, of its nature, capable of being terminated by either party at any time. But if the termination is inconsistent with the terms of the contract itself – that is, amounts to a breach of contract – the party who terminated is exposed to an action for damages. The word “wrongful” generally connotes deliberate infringement of another’s rights: see, for example, Beca Developments Pty Ltd v Idemeneo (No 92) Pty Ltd (1990) 21 NSWLR 459. In the particular context of a contract of employment, an employee whose contract is terminated by the employer otherwise than as the contract allows is accurately described as a “wrongfully dismissed employee” whose remedy is “damages, not wages as such”: Gregory v Philip Morris Ltd (1988) 80 ALR 455 per Wilcox and Ryan JJ at 480.

41 The existence of statutory provisions at both Commonwealth and State levels dealing with dismissal in circumstances that are “harsh, unreasonable or unjust” (eg, s.170CE of the Workplace Relations Act 1996 (Cth) and s.84 of the Industrial Relations Act 1996 (NSW)) and the fact that monetary remedies (such as backpay upon enforced reinstatement) are available through those statutory avenues in no way detracts from the proposition that, as a matter of ordinary language, dismissal in breach of contract is properly regarded as within the description “wrongful termination of employment”. It is the infringement of the employee’s right to due performance and observance of the contract that makes the termination “wrongful”.

42 It was submitted on behalf of Lumley that, consistently with the principles of construction applicable to policies of insurance, the particular terms in issue here should be seen as excluding from the cover sums received in satisfaction of rights under the employment contract and as affording protection only in respect of, in effect, untoward or unanticipated expenditures attributable to termination of employment. It seems to me unnecessary to decide whether that general approach is dictated by some underlying message inherent in the policy, given that I have reached, by construing the terms themselves, a position consistent with it.

Conclusion

43 In view of the way in which the proceedings were approached by the parties, as already mentioned, I consider the appropriate course to be that I record my finding that, had Peter Poulsen been successful in obtaining a money judgment against Rothenberger Australia Pty Limited upon the causes of action pleaded in paragraphs 1 to 8 and 12 of the originating process filed by him on 1 September 2000 in proceedings No 6925 of 2000 in the District Court at Sydney, Lumley General Insurance Limited would have been bound by Section II cl.1 of employment practices liability policy EPL990002 to pay the amount of that judgment on behalf of Rothenberger Australia Pty Limited.

44 It is to be hoped that insurer and insured can agree a regime for determining quantum. I direct that, within fourteen days, agreed short minutes of orders and directions to implement such a regime (and to dispose of the remainder of the proceedings) or, if agreement has not been achieved, written notification to that effect be filed by delivery to my Associate. I shall then deal with the matter of appropriate directions.

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Last Modified: 09/05/2003