Smith v Regional Development Australia Murraylands & Riverland Inc
[2015] SADC 11
•11 November 2014
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
SMITH v REGIONAL DEVELOPMENT AUSTRALIA MURRAYLANDS & RIVERLAND INC
[2015] SADC 11
Judgment of His Honour Judge Millsteed
11 November 2014
CONTRACTS
Plaintiff employed as CEO of Riverland Development Corporation (RDC) under a fixed term contract - later RDC amalgamated with Murraylands Regional Development Board (MRDB) to form the Defendant - Plaintiff's position as CEO, abolished as a consequence of amalgamation - Plaintiff contended that RDC repudiated contract of employment and sought damages from Defendant on the basis that RDC's contractual liability was transferred to Defendant upon its incorporation pursuant to s.22(6) of the Associations Incorporation Act 1985 (SA) - Defendant contended that contract of employment was not repudiated by RDC but was frustrated because RDC and MRDB relied on government funding which was to be withdrawn should they fail to amalgamate - in the alternative Defendant contended that Plaintiff failed to accept repudiation and if he did accept repudiation failed to mitigate his loss - judgment for the Plaintiff.
Associations Incorporation Act 1985 (SA) s 22(6), referred to.
Public Market Co of Portland v City of Portland 171 Or.522, 130P.2d 624, 643, 646; Romero v Auty [2002] VSC 462; McCluskey v Karagiozis (2002) 120 IR 147; Royal Victorian Institute for the Blind Ltd and Others v RBS, RVIC, VAF Ltd (2004) 206 ALR 581; Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014; FA Tamlin Steamship Co Ltd v Anglo Mexican Petroleum Products Co Ltd [1916] 2 AC 397; Scanlan's New Neon Ltd v Tooheys Ltd [1943] 67 CLR 169; Denmark Productions Ltd v Boscobel Productions Ltd [1969] 1 QB 699; Davis Contractors Ltd v Fareham UDC [1956] AC 696; Codelfa Constructions Pty Ltd v State Rail Authority (1982) 149 CLR 337; Paal Wilson and Co A/S v Partendreederei Hannah Blumenthal [1983] 1 AC 854; R v Parkway Chrysler Plymouth Ltd (1976) 32 CCC (2d) 116 (Ont CA); In the Matter of the Trustees of the Church of St Jude, Brighton [1956] SASR 46; Auckland Trotting Club v CIR [1968] NZLR 193; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 241 ALR 88; Collier v Sunday Referee Publishing Company Ltd [1940] 2 KB 647; Burton v Litton Business Systems Pty Ltd and Data Print (Aust) Pty Ltd (1977) 16 SASR 162; Reigate v Union Manufacturing Co Ltd [1918] 1 KB 592; Driver v War Service Homes Commissioner (1923) 44 ALT 103; Whittaker v Unisys Australia Pty Ltd (2010) 192 IR 311 (VSC); Wilding v British Telecommunications [2002] ICR 1079 (CA), considered.
SMITH v REGIONAL DEVELOPMENT AUSTRALIA MURRAYLANDS & RIVERLAND INC
[2015] SADC 11INTRODUCTION
The Plaintiff, Mr Kenneth Smith, was employed in the position of Chief Executive Officer (CEO) of Riverland Development Corporation Inc (RDC) under a contract for a fixed term of five years (the CEO contract). Before the CEO contract was due to expire, RDC amalgamated with Murraylands Regional Development Board Inc (MRDB) to form the Regional Development Australia-Murraylands Riverland Inc (the Defendant), thereby extinguishing the Plaintiff’s position as CEO of RDC.
The Plaintiff contends that RDC repudiated the CEO contract and seeks damages from the Defendant on the basis that RDC’s contractual liability was transferred to the Defendant on the date of its incorporation pursuant to s 22 (6) of the Associations Incorporation Act 1985 (SA) (the Act). The Defendant denies liability and contends that the CEO contract was frustrated because RDC and MRDB were dependent on government funding which was to be withdrawn should they fail to amalgamate. In the alternative, the Defendant contends that the Plaintiff failed to accept repudiation and, if he did accept repudiation, failed to mitigate his loss by declining to accept an offer of employment with the Defendant and by subsequently failing to secure other employment.
FACTS
On the trial the Plaintiff, who was represented by Mr Wells QC, gave evidence and called no other witnesses. The Defendant was represented by Mr Lazarevich of counsel and called Mr Neil Martinson, Mr Brenton Lewis and the Hon. Robert Kerin, former Premier of South Australia. Both parties tendered numerous documentary exhibits. The following is a summary of the facts that I find established by the evidence, except where otherwise stated.
Regional Development Boards
The RDC and the MRDB were associations incorporated in South Australia under the Act. They were two of 13 Regional Development Boards (RDBs) established to promote economic development in rural South Australia. The RDBs were non-profit community based organisations funded by the Government of South Australia (the State Government) and Local Government Bodies (District Councils) on a $3:$1 basis, respectively. Principally they provided ‘shop fronts’ for economic and business development services in regional areas in association with programs set up by the State Government and Commonwealth Government.
RDC
RDC’s region encompassed the areas governed by the District Councils of Berri-Barmera, Renmark-Paringa and Loxton-Waikerie (the Riverland Councils) with its office located in Berri. The business of RDC, in accordance with its ‘Constitution and Rules’ (RDC Constitution),[1] was managed by 10 members (RDC Board), one of whom was Mr Neil Martinson, Mayor of the Renmark-Paringa Council. The Chairman of the RDC Board was Mr Philip Sims. The RDC Constitution defined the principal objects of RDC as including the undertaking of obligations imposed upon the RDC by the ‘Resource Agreement’ (cl.3.1).
[1] RDC Constitution, Exhibit P6 p5, Clause 5.0.
CEO contract
The Plaintiff was 54 years of age at the time of the trial and resided with his wife in the Riverland. The Plaintiff is a qualified accountant with extensive experience in exporting, business development, administration and management.[2] He commenced employment with RDC in 1998 as ‘Business Advisor’, a title that was subsequently changed to ‘Business Development Manager’, and occupied that position for about eight years.
[2] See Plaintiff’s Curriculum Vitae annexed to the Affidavit of David Ey sworn on 23 May 2012, Exhibit P17.
During 2006 the Plaintiff applied for the position of CEO of RDC. For the purposes of the application he was provided with a job description (the CEO Job Description).[3]
[3] Exhibit D7.
The Plaintiff was appointed CEO under a written contract executed on 15 March 2007 (the CEO contract)[4] for a fixed term commencing on 22 December 2006 and ending on 30 June 2008[5] with the Plaintiff to be paid the emoluments set out in the Schedule to the CEO contract.[6] The Schedule specified an annual salary of $86,500.00 per annum, or such other amount as may from time to time be agreed between the parties, and stipulated that the CEO was to be provided with the use of a motor vehicle and a mobile phone. The Schedule also set out annual leave, long service leave and sick leave entitlements.
[4] Exhibit P6 pp81-92.
[5] EO Contract clause 4 Exhibit P6 p85, 91-92.
[6] EO Contract Schedule Exhibit P6 pp91-92.
The Plaintiff and RDC subsequently agreed to extend the CEO contract for five years until 30 June 2013. The agreement was confirmed by letter dated 1 August 2008 from Mr Sims (Chairman of the RDC Board) to the Plaintiff.[7] The letter advised the Plaintiff that his annual salary would be increased to $103,000.00 but otherwise all of the terms of the CEO Contract would remain the same. The Plaintiff’s salary was further increased in June 2009 to $106,090.00, that being his salary at the time of the relevant events.
[7] Exhibit P6 p93.
The CEO contract provided that the Plaintiff’s employment was liable to be terminated by RDC forthwith for cause (cl.11.1) or upon RDC giving the Plaintiff four weeks notice for failure to meet the job requirements outlined in the ‘Position Description’ (cl.11.2), set out below:
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.
The Plaintiff’s ‘obligations’ were defined as follows:
6 OBLIGATIONS 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.
Clause 6.2 stipulated that the Plaintiff was to meet the objectives set out in the ‘Job Description’. This document was provided to the Plaintiff when he initially applied for the CEO position (CEO Job Description) and stated, among other things, that the CEO was required ‘in consultation with the Board [to] identify corporate performance indicators and the means of measurement and evaluation’.[8]
[8] Exhibit D7.
Resources Agreement
As earlier stated, the RDBs were funded by the State Government and local councils. The funding of the RDC during the period relevant to these proceedings was the subject of a ‘Resources Agreement’ between RDC, the Minister for Regional Development (SA) (the Minister) and the Riverland Councils.[9] The Resources Agreement was executed on 26 June 2008 and provided a commencement date of 1 July 2008 and an expiry date of 30 June 2013. As set out above, the Plaintiff was required under the CEO Contract to use his best endeavours to ensure that RDC met all the obligations imposed on it by the Resource Agreement (cl.6.1). It should be observed that the Resources Agreement commenced on the day that the Plaintiff’s extended CEO Contract began to run.
[9] Resources Agreement Exhibit P6 pp 51-71.
The Resources Agreement provided that, in consideration of RDC entering into the agreement, the Minister and the Riverland Councils would make funds available to RDC in the instalments, on the dates and times and in the manner provided in Schedule 1.[10] However, the Minister and the Riverland Councils’ obligation to make all or any funds available were subject to the provisions of the Resources Agreement.[11] There is no dispute that the Commonwealth Government provided funds to the State Government for RDBs.
[10] Resources Agreement Clause 3.2.1 Exhibit P6 p57.
[11] Resources Agreement Clause 3.2.2 Exhibit P6 p57.
The Resources Agreement provided for the refusal to make funds available to RDC:
3.3 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.
The Resources Agreement further provided for the repayment of funds given to RDC:
5 REPAYMENT
5.1 The Association acknowledges and agrees that it is essential to the Agreement that it:
5.1.1 meets the obligations and conditions specified (if any) in Schedule 2;
5.1.2meets the obligations, directions and conditions which may be reasonably applied from time to time to the Purpose by, or with the approval of, the Minister;
5.1.3 uses the Funds for the Purpose or as reasonably directed by the Minister from time to time; and
5.1.4 does not permit a Repayment Event to occur.
5.2 Subject to Subclauses 3 and 4, if a Repayment Event occurs, the Minister and/or the Councils may:
5.2.1require the Association to repay either the whole or a portion of the Funds paid by that Party (whether expended or not) as liquidated damages;
5.2.2withhold all future Funding from the Association;
...
5.3 Upon winding up, the Association will satisfy all other liabilities of the Association prior to repaying the Funds to the Minister and the Councils.
....
6 REPAYMENT EVENTS
The following are repayment events:
6.1 if during the Term the Association is wound up, transfers its activities, is dissolved, or any other matter under Part 5 of the Associations Incorporation Act, 1985 occurs;
6.2 if a mortgagee enters into possession of any of the Association’s assets or property or appoints an agent to enter into possession on its behalf during the Term;
6.3 if there occurs any material adverse change in the condition or stability of the Association which in the reasonable opinion of the Minister could result in the Association being unable to perform its obligations under the Agreement; or
6.4 if the Association commits, permits or suffers any breach or default in the punctual observance or performance of any of the obligations of the Agreement or the conditions specified in the Schedules and such breach or default is not remedied by the Association within the time specified in a written notice from the Minister.
Clause 7.1 provided that RDC was obliged to comply with the obligations and conditions specified in the schedules to the agreement. Further, cl. 8.1 required that RDC be able to demonstrate, to the satisfaction of the Minister, that it had met and continued to meet the ‘Outcomes and Key Performance Indicators’ (KPI’s) set out in Schedule 2.
Schedule 2 relevantly stated:
3 OUTCOMES AND KEY PERFORMANCE INDICATORS
3.1 Outcomes
The primary focus of the Agreement is to build the capacity of the Region to achieve sustainable economic development outcomes, as listed below:
3.1.1 Investment;
3.1.2 Employment;
3.1.3 Skills;
3.1.4 Population;
3.1.5 Infrastructure;
3.1.6 Exports; and
3.1.7 Innovation.
3.2 Key Performance Indicators
3.2.1In addition to the KPIs set out in this Schedule, the Association must develop its own annual key performance indicators that include targets for each financial year of the Term, in consultation with the Minister and the Councils, in a format provided by the Minister.
...
The balance of Schedule 2 comprised a table containing two columns headed ‘Outcomes’ and ‘Key Performance Indicators’, respectively. The first column identified the matters the subject of assessment: ‘Investment’, ‘Employment’, ‘Skills’, ‘Export’, ‘Infrastructure’, ‘Innovation’, ‘Population’, ‘Business Capability Development’, and ‘Regional Leadership’. The second column identified the relevant KPI’s. By way of illustration, the first three entries in the table were:
Outcomes
Key Performance Indicators
Investment · Number of businesses assisted, and the value of investment by businesses assisted
· Number of local businesses assisted to participate in major projects, and the value of local content secured
Employment · Number of jobs (FTE’s) created and retained in businesses assisted Skills · Identification of emerging labour skills issues in the region
· Programs developed with State and Local Government and industry to meet workforce demands
In compliance with cl. 3.2.1 of Schedule 2, RDC developed its own annual which closely followed the format of Schedule 2 but contained a third column with the heading ‘Targets’. Once again by way of illustration the first three entries in the annual KPI table for the financial year 2008-2009 were:[12]
[12] RDC ‘Individual Key Performance and Targets 2008-2009’: Exhibit P1.
Outcomes
(Schedule 2, Clause 3.1)
Individual Board key performance indicators (Schedule 2, clause 3.2.1) Targets
(Refer to definition guidelines)
Investment · Number of businesses assisted to participate in Major Projects · 4 businesses assisted with at least two major projects undertaken · Value of Major Projects · $5 Million · Number of businesses assisted · 500 business contacts through meetings, workshops and forums.
· 200 businesses to receive one on one assistance
· Value of investment · $1 Million of investment in small projects Employment · Number of jobs created ESF · 100 full time equivalent jobs created · Number of jobs retained ESF · 200 jobs retained through assistance provided by ESF Program · Number of people undertaking training for job retention or retaining following retrenchment · 50 people undergoing formal training · Number of businesses assisted ESF · 20 businesses assisted in employing or retaining staff through the ESF Program · Number of jobs created RDC · 10 full time equivalent positions created through RDC initiatives · Number of jobs retained RDC · 20 full time equivalent jobs retained through RDC initiatives · Number of businesses assisted · 12 business assisted in employing or retaining staff through RDC initiatives Skills · Identification of emerging labour skills issues in the region · The RDC works in conjunction with SA Works, Immigration SA, The Response Centre and others to identify employment skills and opportunities in the Riverland region · Number of accredited training hours ESF · 10,900 total hours · Number of program participants ESF · 350 participants in ESF training program · Number of programs LCP · 5 initiatives will be developed and delivered by the RDC LCP program · Number of participants · 100 people will participate in RDC LCP initiatives · Number of workshops IT · 5 workshops will be delivered through the RDC IT program · Number of businesses assisted · 50 business will be assisted through the RDC IT program Summary of links between CEO contract, Resources Agreement and KPI’s
The Plaintiff was obliged by virtue of cl.6.1 of the CEO contract to ensure that RDC met all the obligations imposed on it by the Resources Agreement. RDC’s obligations under the Resources Agreement included that it meet the KPI’s specified in Schedule 2 to the satisfaction of the Minister (cl.7.1 and cl.8.1). The Plaintiff’s performance was also to be measured by the ability of RDC to achieve its annual KPI targets. The annual KPI’s were drafted by the Plaintiff for consideration by the RDC Board in his capacity as CEO.[13] Failure on the part of the Plaintiff to ensure that RDC met its obligations under the Resources Agreement, including failure to meet KPI targets, rendered the Plaintiff’s employment susceptible to termination under cl.11.2 of the CEO contract.
[13] Plaintiff T 52-53; see also CEO Job Description Exhibit D7.
Proposed restructure
In addition to the 13 RDB’s, four Area Consultative Committees (ACCs) established by the Commonwealth operated in country South Australia. They formed part of a national network of ACCs set up in 1994 which had evolved from providing advice and support for Commonwealth labour market programs to working with local communities in their area to develop projects that would be successful in attracting Commonwealth funding.[14]
[14] See historical developments discussed in cl.2 of Memorandum of Understanding between Commonwealth of Australia and Minister for Regional Development for South Australia and Local Government Association of South Australia dated 29 June 2009, Exhibit P2.
On 20 March 2008, the Hon. Anthony Albanese MP, Commonwealth Minister for Infrastructure, Transport, Regional Development and Local Government announced that the ACC network would transition to a Regional Development Australia program (RDA).[15] The Commonwealth proposed aligning the operations of Commonwealth, State and Territory government regional development organisations under RDA and entered into discussions with the State Government and Local Government Association of South Australia (LGASA) in respect of the proposal.
[15] Exhibit P2 cl.2.
In November 2008 the Plaintiff attended a meeting of Regional Development South Australia, a body comprising the CEOs and Chairs of the 13 RDBs. The meeting was attended by the Minister who announced that it was proposed that the existing RDBs in South Australia would be wound up and replaced by a new regional development structure comprising seven RDAs.[16] The Minister further advised that the existing RDBs would not be funded beyond 30 June 2009.[17]
[16] Plaintiff T 65-66.
[17] Plaintiff T 65-68.
On 29 June 2009 the Minister, the LGASA and the Commonwealth entered into a Memorandum of Understanding[18] (Integration MoU) to replace the existing 13 RDBs and 4 ACCs with seven Regional Development Australia bodies (RDA’s) in South Australia (cl.4.1.1). The parties further agreed ‘that the current level of funding provided by the Commonwealth to ACC’s, and provided by the State Government and Local Government Bodies to the RDB’s, would be maintained for the [RDA’s]’ (cl.5.4). Shortly before the Integration MoU was entered into, the State Government advised that funding of the existing RDB’s would continue ‘to 31 December 2009 or up to the transition to the new RDA bodies, whichever [was] sooner’.[19]
[18] Exhibit P2.
[19] Letter from J Lowe (Acting Director Office of Small Business and Regional Development) to Renmark Paringa Council dated 23 June 2009, Exhibit D21. See also Exhibit D22.
Negotiations regarding restructure
The extinction of the existing RDB’s could not occur without their agreement and the consent of the Councils in their regions.[20] The proposal was initially resisted by RDC and MRDB who wished to remain separate entities. Mr Robert Kerin, former Premier of South Australia, was appointed by the Minister to conduct negotiations between the Commonwealth, State Government, Councils and RDB’s to reach a solution.[21]
[20] For example, the RDC Constitution (Exhibit P6 at p8) provided:
[21] Kerin T 333-334.
In June 2009 Mr Kerin met with representatives from MRDB and the mayors of councils in that region. He had a further meeting with representatives of RDC and the mayors of the Riverland Councils on 16 July 2009. Mr Kerin negotiated a proposal that RDC and MRDB continue to separately exist under an over-arching body funded by government.[22] Mr Kerin subsequently put the proposal to the State and Commonwealth governments. The proposal was rejected.[23] Representations were also made to the Minister at a meeting at Parliament House in about July 2009 in relation to an alternative funding model that would allow RDC and MRDB to continue to exist separately under the proposed RDA. The Minister rejected the proposal and indicated that the two bodies would need to amalgamate for funding to be made available.[24]
[22] Kerin T 336-337.
[23] Kerin T 337.
[24] Martinson T 354-355.
Staffing concerns
Between June and December 2009 the Plaintiff attended regular meetings of Regional Development South Australia at which the likelihood of RDC being wound up and alternative funding proposals were discussed.[25] The general view expressed at the meetings was that not enough had been done to sort out ‘funding and staffing issues’ for the RDB’s to consider the option of amalgamation. The Plaintiff conveyed those views to meetings of the RDC Board over a period of months.[26]
[25] Plaintiff T 69-71.
[26] Plaintiff T 83.
In about September 2009 the State Government engaged Morton Philips, a human resources consultancy firm, to review staffing structures in the RDB’s and the possible impact that amalgamation might have on them. As part of their work they interviewed the Plaintiff and reviewed files of all members of RDC staff. Mr Richard Altman a partner of Morton Philips reported:[27]
In the case of the CEO it appears from the file that he has a fixed term contract until 30/6/13 and the only termination provision relates to poor performance. This issue needs to be explored further and a legal view sought. The issue relates to the situation if the employer were to make the position redundant. A determination is needed to establish the exit provisions from the contract. It appears as though it is a fixed term and could lead to a liability of the RDB to pay out the term. It may also be that genuine redundancy may mitigate the liability. It is our view that a legal opinion should be sought about this issue to ensure the RDB and the new RDA understands their liability and can establish a plan.
[27] Exhibit P6 at p96.
There is no evidence as to whether a legal opinion was sought as recommended by Mr Altmann. Be that as it may, as a result of the report from Mr Altmann the State Government and RDC were on notice that if the proposed restructuring proceeded there was a live issue in respect of RDC being contractually liable to the Plaintiff.
Appointment of Board
On 3 November 2009 the Commonwealth Government, State Government and LGASA appointed various persons to be members of the proposed RDA’s in South Australia. Fourteen persons were appointed to a board for the proposed Regional Development Australia Murraylands and Riverland (the Defendant). Mr Martinson was appointed chair of the Defendant’s Board.[28]
[28] Martinson T 360-361 Plaintiff T 75-76.
Final funding arrangements
On 11 December 2009 Mr M Sinkunas[29] on behalf of the State Government emailed the chairman of the RDC Board (Mr Sims) to confirm final funding arrangements in relation to the Defendant. The e-mail advised that amalgamation was considered to be ‘a cleaner, less costly and more transparent process than winding up’.[30] The e-mail went on to say:
Under the amalgamation provision of the Associations Incorporation Act 1985, the property, rights and liabilities of the RDBs should become the property rights and liabilities of [the Defendant].
There should be little or no need to renegotiate contracts, leases or other agreements. This includes staff with current employment contracts. The RDB should continue to make its own enquiries to confirm these transition arrangements.
...
Due to procedural matters, I understand that final transition of the RDB operations to [the Defendant] should occur in January.
On the basis that the RDB amalgamate as recommended, the Minister is prepared to make funding available to the RDB for these few weeks but not to extend beyond 31 January 2010.
[29] Director of the Office of Small Business and Regional Development, Department of Trade and Economic Development.
[30] D23.
Formation meeting
On 15 December 2009 the members of the Defendant’s Board held a ‘formation meeting’ which was also attended by government representatives, the Plaintiff and Mr Lewis.[31] The Defendant’s Board resolved to adopt a draft Memorandum of Understanding between RDC, MRDB and the Defendant (the Amalgamation MoU).[32]
[31] Minutes of Formation Meeting Exhibit P6 p 99.
[32] Exhibit P6 at pp 105-107.
The Amalgamation MoU provided that its purpose was ‘to ensure the smooth transition ... in relation to existing staff, assets and respective liabilities of the respective organisations to be amalgamated’ (cl.1). It further 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 [MRDB] and [RDC] 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 [MRDB] and [RDC] 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 [MRDB] and [RDC]as at the amalgamated date to be offset and the balance be placed in the [MRDB] and [RDC] 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 [MRDB] and [RDC] 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 RDA Board by a local government authority will be spent in that respective authorities area for specific projects or agreed purposes.
It should be observed that at trial another two versions of the Integration MoU were tendered (Exhibits P3 and P27) which did not contain paragraph 2.3 as set out in the above version (Exhibit P6 pp105-107). The Defendant argued that I should find that the version which was accepted by the Defendant’s Board on 15 December 2009 contained paragraph 2.3. The evidence on this topic was so ambiguous that I am unable to say which version was accepted. However, I hasten to add that in my opinion nothing turns on the dispute for reasons discussed later.
The meeting further resolved that the Defendant should be incorporated[33] and that Mr Martinson should prepare and lodge the application for incorporation.[34] At one point the Plaintiff and Mr Lewis were requested to leave the meeting room while the members discussed the selection process for the appointment of a CEO for the new entity. It was decided in their absence that each of them should be invited to apply for the position.[35]
[33] Item 5 Minutes of RDA Board meeting 15 December 2009, Exhibit P6 p 100.
[34] Item 8 Minutes of RDA Board meeting 15 December 2009, Exhibit P6 p 100.
[35] Item 11 Minutes of RDA Board meeting 15 December 2009, Exhibit P6 p 101.
Prior to leaving the room the Plaintiff and Mr Lewis gave presentations in respect of the operations of the RDC and MRDB, respectively. Mr Lewis testified that the Plaintiff had put little effort into his presentation,[36] while Mr Martinson described the Plaintiff’s presentation as casual.[37] This was denied by the Plaintiff.[38] Mr Lazarevich argued that the evidence given by Mr Lewis and Mr Martinson concerning the Plaintiff’s presentation, together with other evidence to which I will refer in a moment, indicate that the Plaintiff was never genuinely interested in becoming an employee of the amalgamated organisation and support an inference that he subsequently failed to negotiate in good faith changes to his employment. I will discuss this ‘lack of good faith argument’ and my factual findings in relation to the Plaintiff’s alleged conduct later.
[36] Lewis T 438-439.
[37] Martinson T 360.
[38] T 172-173.
RDC amalgamation meetings
On 16 December 2009 a meeting of the RDC Board took place to discuss signing the Amalgamation MoU. The meeting was also attended by the Plaintiff and Mr Trevor Bennett, the Minister’s representative.[39] Mr Bennett informed the RDC Board that under the Amalgamation MoU the Defendant would ‘inherit both assets and liabilities and existing staff’ and that amalgamation was ‘the easiest way for staff’.[40] The RDC Board was further informed that RDC and other RDAs would not be funded beyond 31 January 2010.[41]
[39] Minutes of RDC Board meeting 16 December 2009 Exhibit P6 p 108-110.
[40] Item 10, Minutes of RDC Board meeting 16 December 2009, Exhibit P6 p 110.
[41] Item 10, Minutes of RDC Board meeting 16 December 2009, Exhibit P6 p 110.
Mr Martinson informed the meeting that the Plaintiff and Mr Lewis would be invited to apply for the position of CEO of the new entity and that the unsuccessful applicant would be offered the position of ‘Business Manager at the same salary and conditions as their existing role’.[42] The Plaintiff expressed concerns about the proposed amalgamation and pointed out that at the most recent meeting of the Regional Development Association of South Australia there was ‘a strong feeling among [the RDB’s] to sort out staff issues [and] funding before amalgamating’.[43] He urged the RDC Board to resolve all contractual issues, including those pertaining to his CEO contract, before amalgamating.[44]
[42] Item 10, Minutes of RDC Board meeting 16 December 2009 Exhibit P6 p 110.
[43] Item 10, Minutes of RDC Board meeting 16 December 2009 Exhibit P6 p 108-110 Plaintiff T 82-83.
[44] Plaintiff T 82-85, Martinson T 402-403.
At 10am on 14 January 2010 the RDC Board held a Special Meeting which was attended by the Plaintiff and Mr Bennett. The Board passed a Special Resolution that RDC and MRDB amalgamate to form a single incorporated association, namely the Defendant, pursuant to s22 of the Act.[45]
[45] Minutes of Special Meeting of RDC Board meeting 14 January 2010 Exhibit P6 pp 112-113 (on 29 January 2010 MRDB passed a Special Resolution to the same effect).
New CEO position
On 14 January 2010, the day on which the RDC Board had resolved to amalgamate with MRDB, the Plaintiff applied in writing for the new CEO position.[46] Mr Lewis also applied. The new CEO was to be responsible for the combined geographical areas of the RDC and MRDB and would receive a salary $25,000 more than the Plaintiff and Mr Lewis received as CEOs of their respective organisations.[47] The Plaintiff testified that he believed that he still had a fixed term CEO contract with RDC until 30 June 2013 but decided to apply for the new position because he understood that the RDC would cease to exist upon amalgamation.[48] The interviews for the new CEO position were scheduled to take place before the Defendant’s Board on 28 January 2010.
[46] Letter from Plaintiff to Mr Martinson, Exhibit P6 p114 Plaintiff’s evidence T 88.
[47] T 175, D5.
[48] Plaintiff T 88.
On 27 January 2010 the Plaintiff and Mr Lewis were informed by the Defendant’s Board of the matters they needed to address at the interviews. That evening Mr Lewis telephoned the Plaintiff and told him that his presentation would include a power point display. Mr Lewis testified that he rang the Plaintiff as ‘a matter of decency’ to let him know the format of his presentation. He claimed that the Plaintiff stated that he was not sure whether he wanted to go ahead with the interview and asked if Mr Lewis would be kind to him should he become the new CEO.[49] The Plaintiff, in his evidence, denied expressing to Mr Lewis any lack of interest in the interview process and stressed that he went to a lot of trouble preparing his written application for the position and developing his own power-point presentation.[50]
[49] Lewis T 440-441.
[50] Plaintiff T 181-182.
On 28 January 2010 the Defendant’s Board separately interviewed the Plaintiff and Mr Lewis for the new CEO position at the Koorinda Council Chambers.[51] Following the interviews the Board decided to appoint Mr Lewis as the Defendant’s CEO and authorised Mr Martinson to offer the Plaintiff ‘an alternative role’ with the Defendant ‘in line with his current remuneration package’.[52]
[51] Plaintiff T 90.
[52] Minutes of RDA Board meeting, Exhibit P6 pp148-149.
There are two conflicts in the evidence concerning the Plaintiff’s conduct on 28 January 2008. First, Mr Lewis asserted that the Plaintiff expressed a lack of interest in the new CEO position during a conversation they had outside the council chambers prior to being interviewed. According to Mr Lewis, the Plaintiff said that he had received legal advice six months earlier and that he ‘wasn’t that fussed about the role’ and that the Commonwealth’s involvement might result in the creation of ‘a bureaucratic jungle’.[53] The Plaintiff agreed in his evidence that he may have mentioned to Mr Lewis that he had received legal advice but denied making the other alleged statements.[54]
[53] Lewis T 442.
[54] Plaintiff T 181-182.
The second conflict relates to the Plaintiff’s presentation at the interview. Mr Martinson said that the Plaintiff’s presentation was ‘quite casual and not very professional’. This assertion was based on the Plaintiff allegedly ‘leaning back on his chair, hands above his head on a couple of occasions’.[55] In cross examination the Plaintiff denied that his presentation was ‘casual and flippant’ and that he ‘rocked back’ in his chair.[56]
[55] Martinson T 367.
[56] Plaintiff T 173.
Mr Lazarevich argued that the evidence given by Mr Lewis and Mr Martinson concerning the Plaintiff’s alleged statements and conduct on 27 and 28 January 2010 provided further support for his lack of good faith argument. As I have said, I will deal with this argument later.
On the morning of 29 January 2010 Mr Smith was advised by Mr Martinson over the telephone[57] and by email[58] that his application for the new CEO position had been unsuccessful. In the email, Mr Martinson offered the Plaintiff the position of Economic Development Manager (EDM) for the Riverland sub-region purportedly on the same terms and conditions as his existing contract and stated that the Plaintiff’s responsibilities would include the day-to-day operations of the Berri office. The Plaintiff was further advised that a ‘position specification’ would be sent to him.
[57] Plaintiff T 92 Martinson XN T 368.
[58] Plaintiff T 90, email to Plaintiff from Mr Martinson, Exhibit P6 pp 150-151.
On the afternoon of 29 January 2009 the Plaintiff sent an e-mail to Mr Martinson stating that he would require a draft of the proposed EDM contract before he could make a decision.[59]
[59] Email from Plaintiff to Mr Martinson Exhibit P6 p 150.
Amalgamation
On 2 February 2010 RDC and MRDB amalgamated and became a single incorporated association, namely the Defendant, pursuant to s22 of the Act.[60]
[60] Defendant’s Certificate of Incorporation Exhibit P6 p 50A.
EDM Job Description
Following the Plaintiff’s request for a draft EDM contract, Mr Martinson prepared a written job description (EDM Job Description)[61] which was a modification of the Plaintiff’s CEO Job Description.[62] It stipulated that the ‘remuneration and benefits’ would be ‘in accordance with [the Plaintiff’s] existing contract’ and that he would be responsible for the ‘day to day operations of the Berri Office’ which would service the ‘Riverland sub region’, namely, the Riverland Council areas (the same geographical area for which the Plaintiff had been responsible as CEO of RDC). The specified duties and obligations of the EDM largely mirrored those contained in the Plaintiff’s CEO Job Description. However, the EDM Job Description made it clear that the EDM would be under the control of the new CEO. It relevantly stated:
[61] Exhibit P6 pp 153-155.
[62] Martinson T 369.
Objectives of the position
In association with and within the authority invested by the CEO:
Provide input to the Board’s Strategic Plan, which establishes a sound foundation for the future of the Region, giving the Board the capacity to respond in a positive and pro-active manner to economic opportunities.
...
Accountabilities/Competencies
Corporate Management
....
In consultation with the CEO, identify corporate performance indicators and the means of measurement and evaluation.
...
Relationships with the CEO
Support the role of the CEO and Board members in line with the principles of good governance.
Support and represent the CEO in the interests of the Riverland sub-region.
...
Provide timely and accurate information and advice to the CEO, with recommended actions on major issues and concerns impacting on the Boards (sic) operations.
...
Financial and Human Resource Management
...
Monitor overall expenditure against the Riverland sub-region budget, in consultation with the CEO, take corrective action as required and advise the CEO accordingly.
....
Economic Development
...
In consultation with the CEO, identify and seek out specific projects of significance to the Riverland sub-region and prepare persuasive projects briefs and tenders.
...
Extent of Authority
The Economic Development Manager is expected at all times to make judgments and decisions in accordance with established policy of the Board and within legislative requirements and having the approval of the CEO.
In particular, to:
Sign certificates, contracts, agreements, cheques and electronic payments issues relevant to the sub-region
Ensure that Riverland employees, in carrying out their duties, act in accordance with legislative requirements and established policies and delegations.
Spend monies in accordance with approved delegations and budgets of the sub- region.
Administer human relations issues.
Participate in all matters relating to the appointment, remuneration and direction of Riverland staff.
(my italics)
Discussions regarding EDM Job Description
On 2 February 2010 the Plaintiff met Mr Lewis at the Berri Office and received from him a copy of the EDM Job Description which he read.[63] The Plaintiff testified that he was concerned that the Defendant’s Board had given little thought to the EDM position because the EDM Job Description appeared to be a hurriedly prepared modification of his previous job description. He was further concerned that the EDM would be under the control of the CEO and that the level of autonomy he had previously enjoyed as CEO of RDC would be eroded.[64]
[63] Plaintiff T 90-91,113.
[64] Plaintiff T 92-98.
The Plaintiff said that he informed Mr Lewis that he required a clearer definition of the EDM’s role and specification of the KPI’s against which his performance would be measured. Mr Lewis told him that he would ‘get that type of stuff’ after he signed the contract.[65] Mr Lewis testified that he in fact informed the Plaintiff that he would be involved, along with other senior members of staff, in formulating the Defendant’s KPI’s for consideration by the Defendant’s Board.[66] The Plaintiff gave evidence he was told no such thing.[67]
[65] Plaintiff T 98.
[66] Lewis T 457-458.
[67] Plaintiff T 132.
There is no dispute that Mr Lewis told the Plaintiff that he was required to decide by 5 February 2010 whether he would accept the EDM position and that he warned the Plaintiff that if he accepted the position that he ‘would not put up with any “white-anting” [from the Plaintiff] or he would be out of there instantly’ or words to that effect.[68] Mr Lewis said that he made those remarks because he believed that the Plaintiff was not seriously interested in the position.[69]
[68] Plaintiff T 113-114 Lewis T 458-459.
[69] Lewis T 458-459.
EDM contract
Shortly after preparing the EDM Job Description, Mr Martinson prepared a draft EDM contract, which was a modification of the Plaintiff’s CEO contract.
The EDM contract[70] provided that it would ‘continue in effect until 20 June 2013’ (cl.3.1) and that the EDM would receive the emoluments set out in the Schedule to the CEO contract.[71] The Schedule provided that the EDM would be paid a salary of $100,000 per annum and would have the use of a motor vehicle and a mobile phone and set out the annual leave, long service leave and sick leave entitlements. In short, the entitlements matched those provided to the Plaintiff under the CEO contract except the annual salary was $6,090 less than the Plaintiff had received as CEO.
[70] Exhibit P6 at pp 156-168.
[71] CEO Contract Schedule Exhibit P6 pp 91-92.
As with the CEO contract, the EDM contract provided that it could be terminated forthwith for cause (cl.11.1) or upon the Board giving four weeks notice for failure to meet the job requirements as outlined in the Position Description (cl.11.2). The ‘Position Description’ and the ‘Obligations of the EDM’ were similar to the corresponding clauses in the CEO Contract but made it clear that the EDM would not be accountable to the Board but under the control of the new CEO. The EDM contract relevantly stated:
5. POSITION DESCRIPTION
The engagement of the EDM is on the basis that:
5.1 The EDM is responsible for the community economic development of the Riverland Sub-Region and day to day operations of the Berri office.
5.2 The EDM is accountable to the CEO for the direction, management and coordination of all aspects of service delivery in the Riverland Sub-Region.
...
6. OBLIGATIONS OF THE EDM
The EDM shall:-
6.1 Use his best endeavours to ensure that [the Defendant] meets all obligations imposed on it by the Resource Agreement.
6.2 Meet the objectives set out in the Job Description provided by [the Defendant] to the EDM
6.3 Undertake such duties and exercise such powers in relation to [the Defendant] and its affairs as the CEO 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 CEO.
...
(my italics).
Two of the EDM entitlements were made subject to the approval of the CEO, rather than the Board. The EDM was entitled to use a motor vehicle of moderate specification but its purchase was ‘subject to the approval of the CEO’ (cl.1.1) and annual leave was to be taken ‘at times agreed with the CEO’ (cl.4.4).
Discussions regarding EDM contract
On 4 February 2010 Mr Lewis had a further meeting with the Plaintiff at the Berri office and provided him with a copy of the draft EDM Contract which he had received from Mr Martinson. The Plaintiff testified that he was concerned that the proposed contract failed to address the issues that he had raised with Mr Lewis on 2 February 2010 and so he further asked for a definitive description of the EDM position and its KPI’s.[72] When he pointed out that the EDM salary would be less than his CEO salary, Mr Lewis replied, ‘Well that’s Neil’s [Martinson] decision due to the lesser responsibility’.[73] The Plaintiff said that Mr Lewis then enquired whether he would accept a ‘package’ should he not want the EDM position. He replied that he would consider no less than one half of his remaining contract value.[74]
[72] T 116.
[73] T 119.
[74] The Plaintiff said in examination-in-chief that the conversation about the ‘package’ occurred on 2 February 2010 (T 114) but conceded in cross-examination that it may have occurred on 4 February 2010, as Mr Lewis testified (T 218). I am satisfied that the conversation occurred on 4 February 2010.
Mr Lewis disputed aspects of the Plaintiff’s evidence. He denied telling the Plaintiff that Mr Martinson had decided to pay the EDM a salary of $100,000.[75] He said that he told the Plaintiff that he had already sought clarification from Mr Martinson about the salary specified in the EDM Contract and that Mr Martinson had informed him that he would be paid the same salary he had received as CEO of RDC. Mr Martinson gave evidence supportive of Mr Lewis in this point, stating that he had provided this information to Mr Lewis on 2 February 2010 following Mr Lewis’s meeting with Plaintiff earlier that day.[76]
[75] Lewis T 462, 522-526.
[76] T 375.
Mr Lewis also denied that he raised the topic of the Plaintiff receiving a package. According to Mr Lewis, the Plaintiff raised the topic by stating that he was not ‘overly interested’ in the EDM position and that it would be easier for everyone if he was given a ‘payout’. Mr Lewis said that he told the Plaintiff that he would convey his views to Mr Martinson.[77]
[77] Lewis T 462, 522-526.
Subsequent events
It is common ground that at their meeting on 4 February 2010, the Plaintiff informed Mr Lewis that he would not be able to decide whether he would accept the EDM position by 5 February 2010, the deadline earlier given to him by Mr Lewis.
On 10 February 2010 Mr Lewis gave the Plaintiff leave to travel to Adelaide so that he could obtain legal advice and extended the deadline for the EDM decision to 3pm 12 February 2010.[78]
[78] Plaintiff T 119-120, Lewis T 464.
On the morning of 11 February 2010 Mr Lewis telephoned the Plaintiff and asked whether he had decided to accept the EDM position. The Plaintiff reminded him that he had been given until 3pm the following day to make his decision.[79] Later that morning, the Plaintiff sent an email to Mr Lewis stating that he needed answers to the following questions:[80]
1. What happens if I do not sign the new contract, considering I have a current contract still enforceable?
2. If I accept the role, what happens to my accrued long service and annual leave, considering at the moment I am on a higher rate?
[79] Plaintiff T 120.
[80] Exhibit P6 at p169.
By e-mail sent a short while later, Mr Lewis replied:[81]
I will confer with Neil and get the response you request on the first point. As for the second point the RDC will have accrued your previous entitlements and they will be protected for your future benefit. Future accruals from payroll and entitlements will be based on the new salary and conditions offered.
[81] Exhibit P6 at p169.
On the morning of Friday 12 February 2010 Mr Lewis informed the Plaintiff by email that he had been advised by Mr Martinson that the salary offer of $100,000 had been made due to an understanding gained from the Plaintiff that that was his existing salary. Mr Lewis added: ‘As he has been advised by me that your salary...is currently $106k he has instructed me to advise you that the salary offer for the role of [EDM] ... [is] your existing salary’.[82]
[82] Exhibit P6 at p172.
On the afternoon of 12 February 2010 the Plaintiff posted and e-mailed to Mr Martinson a letter purporting to accept repudiation of the CEO contract.[83] The letter stated:
[83] Plaintiff T 107 Exhibit P6 at pp170-171.
Dear Neil
Offer of Position of Economic Development Manager
I am writing in relation to the position of Economic Development Manager (EDM) offered to me …
It is unclear to me exactly what role is being offered. The Job and Person Specifications are almost identical to the …criteria I was asked to address when I applied for the CEO role. I have asked Brenton Lewis for the more specific definition of the role, the level of responsibility, the key performance indicators (against which my performance would be evaluated in the future) and duties. Brenton informed me that this would be worked out if I accept the position. That is not acceptable, and indicates that the proposed position of EDM has not been clearly thought through before being offered to me.
I was assured previously that if I was unsuccessful in winning the CEO role, any alternative position offered would be under the same salary and conditions. However the offer that was made was for substantially less salary. I queried this with Brenton more than a week ago, and he informed me by email this morning that the salary offered is now the same as my current salary.
More importantly though, it is clear from the Job and Person Specification that the position of EDM would represent a severe downgrading from the position I currently hold. This is also made plain by the proposed Agreement which provides that “The EDM is accountable to the CEO...” whereas by contrast my current contract for the position of CEO confers overall responsibility for all aspects of the Corporation, with accountability to the Board.
My experience here in the last two weeks is that almost all decision-making responsibility has been taken from me, and it is evident that the role of EDM would be largely an administrative one under the direction of the CEO.
Furthermore, I have serious doubts about whether the organisation seriously intends that the position of EDM be part of the structure of the RDA in the long term. I do not believe that there is any significant chance of the RDA deciding to offer a continuation of the position beyond 30 June 2013 on the same salary and conditions, if indeed the position is retained until that date. I believe that the proposed position has been hastily constructed and offered in the hope that I will accept it and relieve the RDA of the burden of deciding what to do with me, at least in the short term.
I feel it is also necessary to mention that Brenton informed me that if I decided to accept the position offered, he would not put up with any “white anting” and that I would have to support him 100% or I would be out of here instantly. He said that to me on 2 February, and repeated it on 4 February when he demanded my answer by today. Brenton’s statements about “white anting” were unwarranted, because I have not given him, or anyone else, any reason to think that if I accepted a new position within the RDA I would not carry out the role properly and in the best interests of the organisation. His statements did, however, in my view demonstrate a lack of trust on his part and, frankly, a preference that I not remain with the organisation at all.
Brenton also asked me on 4 February if I would consider taking a package, and indicated that he would support that and discuss with the Chairman.
The downgrading of my status and responsibility, as has already occurred, and the failure to offer me another position of reasonably equivalent status and responsibility represents a repudiation of my contract of employment with RDA. I accept that repudiation and require the payment out of the balance of my contract. This will require payment of my salary, superannuation and leave accruals to which I would be entitled between now and 30 June 2013.
I am willing to discuss a mutually acceptable date for my departure. If a date cannot be agreed upon, it should be as soon as reasonably possible.
Yours sincerely
Ken Smith
The Plaintiff’s decision was confirmed in an exchange of emails between Mr Martinson and the Plaintiff sent late on the afternoon of 12 February.[84] About one hour later Mr Lewis rang the Plaintiff and declared that his employment had been terminated. The Plaintiff agreed to meet Mr Lewis and Mr Martinson at the Berri office on the following Monday.[85]
[84] Exhibit P6 at p173.
[85] Plaintiff T 122.
At about 10am on Monday 15 February 2010 the Plaintiff and his wife, Claire Smith, attended the meeting. Mr Lewis provided the Plaintiff with a letter from Mr Martinson dated 15 February 2010. The letter stated:[86]
[86] Exhibit P6 p176.
I refer to your letter (email) of 12 February 2010 and the subsequent email conversation between Mr Neil Martinson and yourself.
I confirm your position that RDA has repudiated your employment contract and you have accepted that repudiation with effect from 12 February 2010. I note that RDA does not accept that the circumstances referred to in your letter amount to a repudiation of your employment contract.
Therefore, your last day of employment was 12 February 2010. RDC will pay the following amounts to you:
·Unpaid wages (including superannuation and eligible long service leave) to 12 February 2010;
·Accrued annual leave.
Although RDA is under no obligation to do so, RDA will also pay you:
·Four weeks pay in lieu of notice;
·Seven weeks severance pay.
I would like to keep the EDM position offer (at your current salary) open for another four days. I would be happy to talk through any issues or concerns you may have about the role, in particular reporting lines, position description and where the role sits in our long-term plans.
Mr Lewis then confirmed that the EDM position would remain open to the Plaintiff until 9.30am on Thursday 18 February 2010 (shortly before the RDA Board was due to meet on that day). Despite this indication, the Plaintiff was then told by Mr Lewis that he had 10-20 minutes to remove his belongings from his office and that he was required to return the keys to his work motor vehicle. The Plaintiff and his wife were then escorted by Mr Lewis to the front door of the building without the Plaintiff being given an opportunity to farewell staff.[87]
[87] Plaintiff T 125-127.
By letter sent to Mr Martinson on 16 February 2010 the Plaintiff reiterated that he was not interested in the EDM position and had accepted repudiation of the CEO contract. He stressed that he would only accept the payments set out in the letter provided to him the previous day on the following basis:[88]
I will only accept them on the strict understanding that I reserve all of my legal rights, including my right to claim damages from RDA for wrongful dismissal as a result of the repudiation of my contract of employment.
[88] Exhibit P6 p177.
On 17 February 2010 Mr Martinson sent a letter to the Plaintiff reiterating that the RDA denied that it had engaged in conduct amounting to a repudiation of his employment contract.[89] The letter added:
As stated in your letter, the EDM role is very similar to your previous role. I certainly do not accept that it amounts to a severe downgrading of your current position. Your remuneration would remain unchanged and you would still responsible for the day-to-day operations of the Berri office. Further, Brenton Lewis advised that you would be responsible for developing key performance indicators for the Berri office and its staff if you accepted the position.
[89] Exhibit P6 p178.
The Plaintiff subsequently received a payment in the amount of $62,563.75 (gross) calculated in accordance with the letter received from Mr Martinson dated 15 February 2010.[90] The Plaintiff’s attempts to find new employment will be canvassed later when I turn to the issue of mitigation of loss.
[90] Plaintiff T 131, Auditor’s calculations (Exhibit P4).
PLEADINGS
There is no need to canvas the parties’ pleadings. The Plaintiff’s Third Statement of Claim and the Defendant’s Third Defence, both of which were filed in the course of the trial, adequately plead the parties’ cases.
It should be observed that Mr Wells contended that the Defendant had failed to plead one of the alternative arguments upon which it relies, namely, that if RDC repudiated the CEO contract then the Plaintiff by his conduct affirmed the repudiation. While it is true that the Defendant did not expressly plead this contention the Defendant’s reliance upon it can reasonably be inferred from the balance of the Defendant’s pleadings and the manner in which the issues were fought at trial. In my opinion, no relevant unfairness has been visited upon the Plaintiff. In the circumstances, the interests of justice do not require that the Defendant should be precluded from relying upon this particular argument.
THE ISSUES
As earlier stated, the Plaintiff’s primary argument is that RDC repudiated the CEO contract by resolving to amalgamate and then amalgamating with MRDB to become the Defendant thereby extinguishing the Plaintiff’s employment as CEO of RDC. Pursuant to s 22(6) of the Act, RDC’s contractual liability became the Defendant’s upon its incorporation on 2 February 2010. In the alternative, the Plaintiff contends that if the CEO contract was transferred from RDC to the Defendant on 2 February 2010 then it repudiated the CEO contract by failing to appoint him to the position of CEO of the Defendant until at least 30 June 2013. In either case, the Plaintiff says he is entitled to damages from the Defendant for wrongful repudiation of the CEO contract which he accepted in his letter to Mr Martinson on 12 February 2010.
The Defendant denies liability and contends that the CEO contract was frustrated, as a matter of law, because RDC and MRDB were dependent on government funding which was to be withdrawn should they fail to amalgamate. In the alternative, the Defendant contends that if the CEO contract was repudiated the Plaintiff failed to accept the repudiation and entered into a new contract of employment with the Defendant which was repudiated by the Plaintiff on 12 February 2012. The Defendant concedes that if the Plaintiff accepted repudiation then RDC’S liability in that regard would have been transferred to the Defendant, upon its incorporation, pursuant to s 22(6) but says that the Plaintiff failed to mitigate his loss by declining to accept the EDM position and by not obtaining other employment.
The arguments presented by the parties raise the following key questions:
· Was the CEO contract frustrated as a matter of law?
· If the CEO contract was not frustrated, was it repudiated by RDC?
· If the CEO contract was repudiated, did the Plaintiff accept the repudiation?
· If the repudiation was accepted, did the Plaintiff fail to mitigate his loss?
Before canvassing these issues it is appropriate to discuss the relevant provisions of the Act.
THE ACT
Part 3, Division 2 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.
(my bold print)
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.
In the present case, Mr Wells submitted that the CEO contract did not become the ‘property’ of the Defendant by force of s 22(6)(c) and could not be assigned by RDC to the Defendant without the Plaintiff’s consent. He further submitted, that if the CEO contract had been repudiated by RDC then its liability in that regard became the Defendant’s ‘liability’ pursuant to s 22(6)(d). For the reasons expressed below, I am satisfied that both submissions are correct, as Mr Lazarevich conceded.
The Act does not define the expressions ‘property’, ‘rights or liabilities’ and their meaning, in the context of s 22(6), has not been judicially determined, as far as I am aware. However, ‘liability’ is a broad legal term which has been defined to include all character of debts and obligations, and any kind of debt or liability, absolute or contingent, express or implied.[91] There is no reason to believe that Parliament intended to give ‘liability’ a restricted meaning in the context of s 26(6)(d). The provision clearly embraces any form of contractual liability.
[91] Public Market Co of Portland v City of Portland, 171 Or.522,130P.2d 624, 643,646.
As for Mr Wells’ first submission, it is well established at common law that a contract of employment cannot be transferred from one employer to another without the employee’s consent.[92] It is to be observed that s 413(1) of the Corporations Act 2001(Cth), which facilitates the amalgamation of companies and empowers the court to make an order providing for ‘the transfer to the transferee company of the whole or a part of the undertaking and of the property or liabilities if the transferor body’ defines ‘liabilities’ to include ‘...duties that are of a personal character or are incapable under the general law of being assigned or performed vicariously’ and ‘property’ to include ‘...rights and powers that are of a personal character or are incapable under the general law of being assigned or performed vicariously’ (s 413(4)). These definitions overcome the effect of the common law principle and allow for the transfer of rights and obligations under contracts of service with employees.[93] By contrast, the general words used in s 22(6) reflect an intention on the part of Parliament to preserve the common law principle prohibiting the assignment of contracts of employment from one employer to another without the consent of the employee.
[92] [1940] AC 1014; TCFUA v Bellellehic Pty Ltd [1998] FCA 1465 (19 November 1998, Ryan J); Romero v Auty [2002] VSC 462 at [43]; Mc Cluskey v Karagiozis (2002) 120 IR 147.
[93] Royal Victorian Institute for the Blind Ltd and Others v RBS, RVIB, VAF Ltd (2004) 206 ALR 581 (FC) at [18].
This construction of s 22(6) accords with the decision in Nokes v Doncaster Amalgamated Collieries Ltd[94] in which the House of Lords rejected a submission that the common law principle had been abrogated by s 154(1) of the Companies Act 1929 (UK). That provision which is similarly worded to s 22(6) empowered a court upon the amalgamation of two companies to make provision for ‘the transfer to the transferee company of the whole or any part of the undertaking and of the property or liabilities of the transferor company’. The House of Lords held that a contract of service existing at the date of the amalgamation between a workman and the transferor company did not become a contract of service between the workman and the transferee company without the employee’s consent. In other words, the word ‘property’ used in s 154 was not to be construed as including contracts of employment.
[94] [1940] AC 1014.
Viscount Simon LC stated that it was a fundamental principle of the common law that:[95]
…a free citizen, in the exercise of his freedom, is entitled to choose the employer whom he promises to serve, so that the right to his services cannot be transferred from one employer to another without his assent.
[95] [1940] AC 1014 at 1020.
He concluded that:[96]
…after examining s. 154 with close attention and considering the consequences of its application in different cases, I can come to no other conclusion than that an order made under it does not automatically transfer contracts of personal service. The word “contract” does not appear in the section at all, and I do not agree with the view expressed in the Court of Appeal that a right to the service of an employee is the property of the transferor company. Such a right cannot be the subject of gift or bequest; it cannot be bought or sold; it forms no part of the assets of the employer for the purpose of administering his estate. In short, s. 154 when it provides for “transfer” is providing in my opinion for the transfer of those rights which are not incapable of transfer and is not contemplating the transfer of rights which are in their nature incapable of being transferred. I must make it plain that my judgment is limited to contracts of personal service with which the present appeal is concerned.
[96] [1940] AC 1014 at 1023-1024.
Lord Atkin said:[97]
[I]t appears to me astonishing that apart from overriding questions of public welfare power should be given to a court or anyone else to transfer a man without his knowledge and possibly against his will from the service of one person to the service of another. I had fancied that ingrained in the personal status of a citizen under our laws was the right to choose for himself whom he would serve: and that this right of choice constituted the main difference between a servant and a serf. But if Parliament has so enacted the result must be accepted. I venture to think, however, that the effect of the legislation is far different from what it is supposed to be by the six judges who have dealt with the matter in the courts below.
[97] [1940] AC 1014 at 1026.
There is no relevant distinction between s 154(1) of the Companies Act 1929 (UK) and s 22(6) of the Act. I am satisfied that, upon amalgamation, the CEO contract could not be transferred from RDC to the Defendant under s 22(6)(c) or (d).
FRUSTRATION
The arguments
The Defendant’s argument in respect of frustration is summarised in the following passages from the Defendant’s written submissions:
Summary of contentions
1. The CEO contract was frustrated as a matter of law by the change in government policy and funding arrangements requiring a reduction in the number of regional development boards across Australia, such that the RDC, a non profit organisation, would cease to exist. It was replaced with a new entity of wider geographical area (being the amalgamated RDC and RDB entities). The CEO’s role of the RDC was to be responsible for the RDC complying with the Resource Agreement. Once that purpose disappeared there was a frustration by operation of law.
...
Frustration
...
66 The frustrating event in this matter was the change of funding arrangements made by the government. This is not the case of a self-induced frustration because the RDC voted in favour of amalgamation - the changes in funding were entirely outside its control, meaning that amalgamation was the only option (other than going out of existence entirely).
67 Those changes are evidenced by:
67.1 The MOU between the funding entities (P2). That document evidences in clause 2 the background, being the implementation of new policy by the government, resulting in a decision (to which the RDC was not a party) in 4.1.1 to integrate the 13 RDB’s and 4 ACC’s to create 7 new bodies, with the funding provided to the old bodies to be provided to the new RDA bodies (clause 5.4);
67.2 The fact that ongoing funding to the RDC was at the discretion of the Minister (clause 3.2.2 of the Resource Agreement, P6 pages 51-80);
67.3 That funding was to be provided only to 31 December 2009, or the date of transition to the RDA bodies, whatever was the earlier (D21)
67.4 That funding was only ever extended to 31 January 2010 on the basis of amalgamation taking place;
67.5 That the Minister specifically told the RDC (and Smith) that the old entities would be wound up.
68 Although the RDC tried to resist the change, the change was forced upon it.
69 The ongoing existence of the RDC, the ongoing need for funding, and the fulfilment of duties in accordance with the Resource Agreement were all common assumptions found implicitly or explicitly in the contract itself, namely clause 6.1 tying in the work of the CEO with the work under the Resources Agreement.
70 The result was that the old CEO contract was automatically frustrated by operation of law.
Mr Wells submitted that, irrespective of whether or not the Minister had a discretion to terminate RDC’s funding, no issue of frustration arose because RDC had assumed the risk of that event occurring. He further submitted that the alleged frustrating event was ‘self-induced’ because RDC extinguished itself by determining to amalgamate with MRDB. Before canvassing these competing arguments it is necessary to identify the elements of the doctrine of frustration.
Legal principles
For a long time the doctrine was usually expressed as arising from an implied term in the contract that the parties in the circumstances which arose, would have agreed to bring the contract to an end.[98] This approach was criticised because it was difficult to imply that parties would have agreed to discharge a contract due to circumstances neither party foresaw or expected.
[98] FA Tamlin Steamship Co Ltd v Anglo Mexican Petroleum Products Co Ltd [1916] 2 AC 397 at 403-4; Scanlan’s New Neon Ltd v Tooheys Ltd [1943] 67 CLR 169.
The modern concept of frustration was stated by Lord Radcliffe in Davis Contractors Ltd v Fareham UDC[99] as follows:
Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become 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. Non haec in foedera veni. It was not this that I promised.
[99] [1956] AC 696 at 729.
The test expressed by Lord Radcliffe is now the accepted position in Australia.[100]
[100] The test was approved in Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143 Stephen J at 161-2 (Murphy JJ concurring) and in Codelfa Constructions Pty Ltd v State Rail Authority (1982) 149 CLR 337 Mason J at 356-357, Aickin J at 377 (Stephen and Wilson JJ concurring) Brennan J at 408.
In Codelfa Constructions Pty Ltd v State Rail Authority,[101] Codelfa contracted with a railway authority to perform excavations for the construction of a railway within a fixed period of 130 weeks. The parties had entered into the contract on the common assumption that the work would be performed on a three shift continuous basis six days per week without restriction as to Sundays and that no injunction would or could be granted against Codelfa in relation to noise or other nuisance arising out of the work. The latter assumption was based on erroneous legal advice that Codelfa would be statutorily immune from such action. Due to noise and vibrations generated by the work, a resident obtained injunctions restraining Codelfa from working between 10pm and 6am. Codelfa claimed that there was an implied term in the contract that if it was restrained by injunction from carrying out the work by the shifts it had planned, the authority would indemnify it against additional costs incurred; and, alternatively that the contract had been frustrated by the grant of the injunction.
[101] (1982) 149 CLR 337.
The High Court rejected the ‘implied term’ contention. In relation to the issue of frustration, all members of the Court agreed that the issue for determination was whether the situation created by the grant of the injunction was fundamentally or radically different from the situation contemplated by the contract.[102] By a 4:1 majority (Brennan J dissenting) the Court concluded that the contract had been frustrated because the injunction situation imposed on Codelfa a fundamentally or radically different obligation to that contemplated by the contract.[103]
[102] (1982) 149 CLR 337 Mason J at 360 Aickin J at 380 (Stephen and Wilson JJ concurring).
[103] (1982) 145 CLR 337 Mason J at 362-367 Aickin J at 383, 345 Stephen J, 392 Wilson J.
In relation to the concept of frustration expressed by Lord Radcliffe in Davis Contractors Mason J observed:[104]
[T]o express a preference for this view of frustration as against the theory of the implied condition and other suggested bases is not to cast doubt on the authority of earlier decisions. This is of critical importance because the earlier cases provide many illustrations of the proposition that a contract will be frustrated when the parties enter into it on the common assumption that some particular thing or state of affairs essential to its performance will continue to exist or be available, neither party undertaking responsibility in that regard, and that common assumption proves to be mistaken.
[104] (1982) 145 CLR 337 at 357.
His Honour rejected Codelfa’s implied term argument, stating:[105]
To say that the maintenance of three eight hour shifts a day for six days a week was a matter of common contemplation between the parties is not enough in itself to justify the implication of a term...It must appear that the matter of common contemplation was necessary to give the contract business efficacy and that the term sought to be implied is so obvious that it goes without saying.
In this case the problem, as I see it, lies not so much in saying that the implication of a term is necessary to give business efficacy to the contract, as in concluding that the particular term to be implied is so obvious that it goes without saying.
[105] (1982) 145 CLR 337 at 354-355.
Mason J concluded:[106]
I come back then to the question whether the performance of the contract in the new situation was fundamentally different from performance in the situation contemplated by the contract...[T]he contract work could not be carried out as contemplated by the contract once injunctions were granted the effect of which was to prohibit the continuous three shift a day operation six days a week. Performance by means of a two shift operation, necessitated by the grant of the injunctions was fundamentally different from that contemplated by the contract.
[106] (1982) 145 CLR 337 at 363-364.
It is not possible to define a frustrating event for the purposes of the doctrine. Whether an event frustrates a contract depends upon an application of the test to the particular facts of the case. However, the case law provides numerous examples of where performance of a contract has been prevented or impeded by the legislative, regulatory or executive action of a government or government agency or authority (including court orders).[107] Codelfa is an example of the latter.
[107] Seddon and Ellinghaus, Cheshire and Fifoot’s Law of Contract, 8th Aust. Ed. LexisNexis Butterworths at [19.12].
The following cases provide further examples: FA Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd[108] (charter party vessel requisitioned by government in time of war); Metropolitan Water Board v Dick, Kerr and Co[109] (ministerial order under wartime legislation that construction of dam cease for an indefinite period); Denny, Mott and Dickson Ltd v James B Fraser and Co Ltd[110] (trading agreement between timber merchants prohibited under legislative authority during wartime); C Czarnikow Ltd v Rolimpex[111] (sale of sugar beet from Polish state marketing authority to English company prohibited due to Polish government banning all sugar exports); Brisbane City Council v Group Projects Pty Ltd[112] (compulsory acquisition of land upon which contracted works were to be performed). There is no reason in principle for precluding application of the doctrine to circumstances where an organisation can no longer operate due to the withdrawal of government funding upon which it operates provided the elements of the test of frustration are satisfied.
[108] [1916] 2AC 397.
[109] [1918] AC 119.
[110] [1944] AC 265.
[111] [1979] AC 351.
[112] (1979) 145 CLR 143.
It is well established that where the parties can foresee or ought to have foreseen the risk that circumstances may change so as to interfere with performance, and the contract contains no provision covering the risk, the usual inference is that the parties have decided to bear the risk and the contract will not be frustrated. As Latham CJ stated in Scanlan’s New Neon Ltd v Tooheys Ltd:[113]
Prima facie a promisor takes the risk of an event happening which prevents him from performing his promise.
[113] (1943) 67 CLR 169 at 200.
In Davis Contractors Ltd v Fareham Urban District Council[114] a builder entered into a contract to build a number of houses for a fixed sum within eight months but due to a shortage of labour and materials took 22 months to complete the work. The House of Lords rejected the builder’s contention that the contract had been frustrated and that a quantum meruit should be paid. Lord Radcliffe said:[115]
Two things seem to me to prevent the application of the principle of frustration to this case. One is that the cause of the delay was not any new state of things which the parties could not reasonably be thought to have foreseen. On the contrary, the possibility of enough labour and materials not being available was before their eyes and could have been the subject of special contractual stipulation. It was not made so.
[114] [1956] AC 696.
[115] [1956] AC 696 at 731.
Similarly, in Denmark Productions Ltd v Boscobel Productions Ltd[116] Salmon LJ said:[117]
This was a doctrine evolved by the courts to meet the case in which a contract became impossible of performance through some supervening event, not reasonably foreseeable when the contract was made and for which neither contracting party was in any way responsible
[116] [1969] 1 QB 699.
[117] [1969] 1 QB 699 at 725.
The correctness of this principle was acknowledged by Mason J in Codelfa:[118]
It is not surprising that the cases commonly throw up situations of supervening impossibility caused by a change in the law – they are the more common instances of the unforeseen or unexpected occurrence. But in principle there is no reason why a mutual assumption arising from a mistaken view that an activity is immune from injunctive relief should not attract the principle of frustration. No doubt it is more difficult in such a case to show that the grant of injunctive relief was not foreseen or could not reasonably have been foreseen, but if that can be shown then the doctrine of frustration should apply.
[118] (1982) 145 CLR 337 at 359.
Mr Lazarevich’s contention that the Plaintiff entered into a new contract of employment was based primarily on the Plaintiff having stated in his letter of 12 February 2010 that he had accepted ‘repudiation of [his] contract of employment with RDA’.[175] The argument overlooks that the balance of the letter makes it plain that the contract to which the Plaintiff was referring was the CEO Contract. In particular, the Plaintiff said ‘the position of EDM would represent a severe downgrading from the position I currently hold’.
[175] See also letter from Plaintiff dated 16 February 2010 Exhibit P6 p 78.
The reference in the Plaintiff’s letter to having a contract of employment with the Defendant merely reflects a mistaken belief on his part that the CEO contract had been transferred to the Defendant when, as a matter of law, no such transfer could take place. It should be further noted that there was also confusion from the Defendant’s perspective on this point. In his letter to the Plaintiff dated 15 February 2010, Mr Martinson, though purporting to confirm the Plaintiff’s contention that RDA had repudiated his employment contract, went on to say:
Therefore, your last day of employment was 12 February 2010. RDC will pay the following amounts to you:
· Unpaid wages (including superannuation and eligible long service leave) to 12 February 2010...
(my bold print)
In other words, Mr Martinson was acknowledging that the wages the Plaintiff had received between 31 January 20010 and 12 February were a payout by RDC and not a payment by the Defendant pursuant to some new contract of employment. In any event, the parties’ respective beliefs are irrelevant. The issue of whether the Plaintiff failed to accept repudiation of the CEO contract and entered into a new contract of employment with the Defendant must be determined objectively. The objective facts leave me in no doubt that the Plaintiff affirmed RDC’s repudiation and never entered into a new contract of employment with the Defendant.
Lack of good faith argument
On the issue of whether the Plaintiff accepted repudiation Mr Lazarevich argued that the Plaintiff failed to act in good faith. He submitted that the CEO contract expressly provided that the Plaintiff would undertake such duties as his employer would assign or vest in him, and would comply with all resolutions, regulations and directions from time to time made by the RDC Board (cl 6) and that the CEO contract further contained, by operation of law, an implied term that each party would act in good faith to the other.[176]
[176] Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 266; Hughes Aircraft Systems International v Airservices Australia (1970) 146 ALR 1.
Mr Lazarevich submitted that it was open to infer that the Plaintiff breached those terms by failing to ‘put his best foot forward’ when applying for the new CEO position.[177]As I understood his argument the Plaintiff was never genuinely interested in the new position or working for the new organisation in any way. This contention was founded on the disputed evidence given by Mr Martinson and Mr Lewis in respect of the Plaintiff’s alleged conduct at the meetings held on 15 December 2009 and 28 January 2012.
[177] Submissions by Mr Lazarevich T 365-367.
As previously discussed:
·Mr Martinson and Mr Lewis alleged that the Plaintiff’s presentation at the formation meeting on 15 December was casual and involved little effort (see [37]).
·Mr Lewis alleged that on the evening of 27 January 2012 the Plaintiff said that he was not sure whether he wanted to proceed with the interview for the new CEO position the following day (see [42]).
·Mr Lewis testified that prior to the interviewed on 28 January 2012 the Plaintiff said to him that he was not fussed about the new position (see [44]).
·Mr Martinson said that the Plaintiff’s presentation at the interview on 28 January 2012 was casual and not very professional (see [45]).
On balance I accept the Plaintiff’s evidence on these topics. I am satisfied that he made a genuine attempt to secure the new CEO job. There is no sound reason for the Plaintiff to have done otherwise. The new position commanded a substantially greater salary than he had received as CEO of RDC and involved greater managerial responsibility. Securing the job would have represented a significant advancement in his career.
The evidence given by Mr Martinson and Mr Lewis about the Plaintiff’s so‑called casual presentations at the meetings on 15 December and 28 January was vague in the extreme. They said nothing about the content of the presentations during examination-in-chief. However, in cross-examination Mr Martinson conceded that the Plaintiff answered fully and comprehensively all of the Board’s questions when interviewed for the new position.[178] It should also be observed that the Defendant’s lack of good faith argument is inconsistent with the Defendant’s argument, canvassed earlier, that the Plaintiff elected ‘not to accept repudiation of the contract but to keep the contract on foot [and] go into the new entity … hopefully [from his perspective] as CEO’.
[178] T 408.
The further, and fundamental, difficulty with the Defendant’s lack of good faith argument is that it is entirely irrelevant to the issue of whether the Plaintiff accepted or affirmed repudiation. The obligation to act in good faith to his employer was owed to RDC. I fail to see how any express or implied condition in the CEO contract with RDC required the Plaintiff to negotiate with the Defendant in good faith or how any failure to negotiate in good faith with the Defendant bears on the question of whether the Plaintiff accepted or affirmed repudiation by RDC.
MITIGATION OF LOSS
I now turn to the Defendant’s argument that the Plaintiff failed to mitigate any loss by declining to accept the offer of the EDM position and by subsequently failing to secure other employment.
The general rule is that a plaintiff is not entitled to recover damages for any loss they have in fact avoided or could have avoided by taking reasonable steps.[179] The question of what steps are reasonable is a question of fact to be determined having regard to the particular circumstances.[180] It is sometimes said it is a plaintiff’s ‘duty’ to mitigate damages, but as Irvine CJ explained in Driver v War Service Homes Commissioner:[181]
This expression [duty to mitigate damages]…does not mean that he is under any duty in the ordinary sense, towards the party breaking the contract, but that he cannot be said to have really incurred any loss which might have been avoided by his taking such steps as a reasonably prudent man in his position would have taken to avoid further loss to himself….
[179] Dunkirk Colliery Co v Lever (1878) 9 Ch D 20 at 25.
[180] Payzu Ltd v Saunders [1919] 2 KB 581.
[181] (1923) 44 ALT 103 at 134; referred to with approval in TCN Channel 9 v Hayden Enterprises (1989) 16 NSWLR 130.
It is well established that there is no onus on the plaintiff to show that he or she has taken reasonable steps to mitigate loss; rather, the onus is on the defendant to show that the plaintiff did not take reasonable steps in that regard, and to show the extent of the plaintiff’s failure in that regard.[182]
[182] TCN Channel 9 v Hayden Enterprises (1989) 16 NSWLR 130 at 158.
The principles governing the application of this concept in the context of employment cases were helpfully summarised by Ross J in Whittaker v Unisys Australia Pty Ltd:[183]
In certain circumstances, an innocent party may be required to explore mitigation through a resumption of contractual relations on the initiative of the other party. In the context of contract cases courts are frequently called on to determine the extent to which an injured party is required, on discharge by breach, to enter into a new contract with the contract-breaker. But it is important to bear in mind that mitigation does not require a party to do what is unreasonable – plaintiffs are not required to do things that present serious risks to their interests. They are not required to take unreasonable steps to mitigate their loss.
Whatever be the position in respect of commercial transactions,[184] it is apparent that employment cases may involve different considerations. As Blain J said in Yetton v Eastwood Froy Ltd:[185]
As I see the matter, it is a plain question of fact for the court in any particular case, whether any particular refusal to accept alternative employment which would reduce a plaintiff’s loss is a reasonable or an unreasonable refusal, and factually, even if not as a strict matter of law, personal factors clearly are more likely to be of weight or are likely to be of greater weight in cases of personal services than in what I call (for want of a better word) soul-less cases of sale of goods contracts where money may often be the only important factor. Certainly personal factors do not have to be ignored in the making up of a dismissed servant’s mind when he comes to make a decision reasonable or unreasonable.
In employment cases the question of whether a dismissed employee acted unreasonably in refusing an offer of re-employment depends on the circumstances. It is not unreasonable to refuse such an offer where the level of remuneration[186] or status[187] of the position offered is less than that previously enjoyed by the dismissed employee. But with the passage of time, it may be reasonable for the dismissed employee to lower their sights.[188] Even where re-employment is offered on substantially the same terms and status, it will not be unreasonable to refuse in circumstances where the employee no longer trusts his or her former employer[189] or where there is friction between the two parties.[190]
[183] (2010) 192 IR 311(VSC).
[184] The extent to which the decided cases require an injured party, by discharge of contract or by breach, to enter into a new contract with the contract breaker has been the subject of academic criticism: see Bridge MG, ‘Mitigation of Damages in Contract and the Meaning of Avoidable Loss’ (1989) July 105 The Law Quarterly Review 398-0423.
[185] [1967] 1 WLR 104 at 118-119.
[186] Shindler v Northern Raincoat Company [1960] 1 WLR 1038.
[187] Yetton v Eastwood Froy Ltd [1967] 1 WLR 104.
[188] Supra.
[189] Bostik (Australia) Pty Ltd v Gorgevski (No 1) (1992) 36 FCR 20 at 32; 41 IR 452 at 462-463 per Sheppard and Heery JJ.
[190] Shindler v Northern Raincoat Company [1960] 1 WLR 1038.
EDM position
In determining whether the Plaintiff acted unreasonably in refusing to accept the EDM position it is appropriate to have regard to the Plaintiff’s explanation. The question of whether his conduct was unreasonable must be judged in the light of that explanation and all the surrounding circumstances. As Potter LJ stated in Wilding v British Telecommunications:[191]
Reference to objectivity does no more than emphasise that the duty is to act reasonably. But at the same time, the tribunal must also consider “all the circumstances”. These must inevitably be related to the individual circumstances of the particular claimant when faced with a choice as to whether or not to accept an offer of re-employment. If an offer is made which is on the face suitable to a claimant who has expressed himself anxious to return to work as a means of mitigating his loss, and the offer is then rejected for reasons peculiar to the particular claimant, that is bound to involve investigation by the tribunal of whether, in the context of the claimants circumstances and abilities, his refusal of that offer was reasonable or unreasonable. To this extent at least, the (subjective) reasons of the claimant in refusing the offer will fall to be examined in the light of the explanations which he gives. Indeed, in an appropriate case, they may critically affect the reasonableness or unreasonableness of his decision.
[191] [2002] ICR 1079 (CA) at [38] see also [43].
In his letter to Mr Martinson of 12 February 2010 the Plaintiff essentially gave four reasons for declining to accept the EDM role: (i) the role would involve a diminution in employment status and responsibility; (ii) the new CEO Mr Lewis did not trust him; (iii) the EDM role was not sufficiently defined; and (iv) there had been confusion about the salary the EDM would receive. Mr Wells submitted that the Plaintiff’s decision to reject the EDM offer on these grounds was not unreasonable.
Status and responsibility
Although the Plaintiff’s salary and other financial benefits as EDM would have been were the same as he had enjoyed as CEO of RDC, the new role would have involved a significant reduction in status and responsibility. Under the CEO contract the Plaintiff had overall responsibility for all aspects of RDC’s management and provision of services. He was accountable only to the RDC Board in respect of the discharge of his duties. As EDM, the Plaintiff would have retained responsibility for managing the Riverland as a sub-region but his duties would have been under the direct control of the CEO in all respects.
As earlier set out, the proposed EDM contract provided that he was obliged to ‘conform to, observe and comply with all resolutions, regulations and directions from time to time made or given by CEO’ and to ‘undertake [the] duties’ and ‘exercise [the] powers’ the CEO assigned to or vested in him. Furthermore, the purchase of a motor vehicle for the Plaintiff’s use, and the timing of his annual leave, were also subject to the approval of the CEO.
In my view, the EDM role would have been a significant step backwards for someone with the Plaintiff’s experience and qualifications. The interposition of another person between him and the Board and the control that the new CEO would have had over him would have reduced the status and responsibility he had previously enjoyed and diluted the challenge his employment had provided. These considerations, standing alone, are a sufficient basis for characterising the Plaintiff’s rejection of the EDM offer as reasonable.
The authorities establish that ordinarily it will be unreasonable for an employee to reject an employer’s offer of alternative employment on the same salary[192] but not if there is a significant diminution in responsibility and employment status. Thus it has been held that a skilled worker in the printing business did not act unreasonably in declining to accept an offer to work as a general labourer: Edwards v Society of Graphical and Allied Trades;[193] a manager did not act unreasonably in refusing to accept an offer of a position as a works clerk: Basnett v J & A Jackson; [194] an actor contracted to play an important role in a play reasonably refused a minor role at the same salary: Clayton-Greene v de Courville;[195] a joint managing director of a company acted reasonably in refusing to accept employment as an assistant manager partly because this would have involved a ‘step down’ in status: Yetton v Eastwoods Froy Ltd;[196] following a restructuring of the defendant company a senior manager did not act unreasonably in refusing to accept a newly created position a role that involved a substantial diminution in status and responsibility: Whittaker v Unisys Australia Pty Ltd;[197] nor did the dean of a business school act unreasonably in declining an appointment as dean of a smaller school: Beck v Darling Downs Institute of Advanced Education.[198]
[192] See Payzu v Saunders [1919] 2 KB 581.
[193] [1971] Ch D 354.
[194] [1976] ICR 63.
[195] (1920) 36 TLR 790.
[196] [1967] 1 WLR 104.
[197] (2010) 192 IR 311(VSC).
[198] (1990) 140 IR 364 (QSC).
The question of whether a plaintiff has acted unreasonably must, of course, be decided upon the particular facts of the case. Nevertheless, the cases to which I have referred provide helpful guidance and, indeed, fortify my view that the Defendant has failed to establish that the Plaintiff acted unreasonably in refusing to accept the EDM position due to a significant reduction in responsibility and status.
Lack of trust
As earlier pointed out, there is no dispute that on 2 February 2010 Mr Lewis told the Plaintiff that he was required to decide by 5 February 2010 whether he would accept the EDM position and warned that he would not put up with any ‘white-anting’ if the Plaintiff accepted the position otherwise he would be out of the job instantly. These were strange remarks for Mr Lewis to have made if, as he claimed in evidence, he wanted to work with the Plaintiff in the new organisation.[199]
[199] T 508.
The Plaintiff quite reasonably, in my opinion, interpreted these remarks as reflecting a lack of trust in him though he had done nothing, in my view, to warrant such an attack on his integrity. Indeed, the remarks reflect an unnecessarily belligerent attitude towards the Plaintiff on the part of Mr Lewis. The belligerence surfaced again, on 15 February 2010, when the Plaintiff, after having been told that the EDM position would remain open until 18 February 2010, was directed by Mr Lewis to remove all of his belongings and leave the Berri office building within 10-20 minutes. The events of 15 February occurred after the Plaintiff had refused the EDM offer but, nonetheless, provide an indication of Mr Lewis’s attitude towards the Plaintiff.
Furthermore, the Plaintiff testified that he had known Mr Lewis for a number of years and regarded him, in effect, as an arrogant and autocratic administrator.[200] I am not in a position to say that whether that is a fair characterisation of Mr Lewis though his behaviour on 2 and 15 February, as outlined above, provides some support for the Plaintiff’s view. However, I am satisfied that the Defendant has failed to show that the Plaintiff’s subjective opinion of Mr Lewis was unreasonable. In the circumstances, the nature of the Plaintiff’s relationship with Mr Lewis and the latter’s lack of trust in the Plaintiff added to the reasonableness of his decision to reject the EDM offer.[201]
EDM role not sufficiently defined
[200] See for example T 117-118
[201] cf Bostik (Australia) Pty Ltd v Gorgevski (No.1) (1992) 36 FCR 20 at 32; 41 IR 452 at 462-463 per Sheppard and Heery JJ; Shindler v Northern Raincoat Company [1960] 1 WLR 1038.
In support of this ground, Mr Wells primarily relied upon the Defendant’s failure to provide the Plaintiff with details of the annual KPI’s that he would be required to work towards as EDM.
Under the proposed EDM contract the Plaintiff would have been obliged ‘to use his best endeavours to ensure that [the Defendant] met all obligations imposed on it by the Resource Agreement” (cl 6.1). Failure on the part of the Plaintiff to ensure that the Defendant met its obligations would render his employment susceptible to termination (cl 11.2). These obligations mirrored those imposed on the Plaintiff under the CEO contract (cl 6.1 and cl 11.2 and Schedule 2). As earlier explained, the obligations imposed on the RDC under the then Resources Agreement included compliance with the KPI’s set out in Schedule 2 and the requirement that it develop annual targets in respect of those KPI’s.
At the time the EDM offer was made there was no relevant ‘Resources Agreement’ in existence despite reference to one in the EDM contract. It was not until 2 March 2010 that a similar agreement, called the Funding Agreement, was entered into between the Defendant, the Minister and the relevant District Councils.[202] The Schedule to the Funding Agreement set out the Defendant’s KPI’s (cl 11.2) and provided that the Defendant was required in consultation with the Minister’s Representative[203] and the relevant District Councils to develop annual targets in respect of the KPI’s (cl 11.2.3). The annual targets were not formulated until after the Funding Agreement was signed.
[202] Funding Agreement Ex D10.
[203] The Minister’s Representative was defined in the Funding Agreement as ‘the Director of the Office of Small Business and Regional Development or such other person approved by the Minister or the Director to act as a Minister’s representative for the purpose of the Agreement’ (cl 1.1.22).
There is no dispute that in early February 2010 the Plaintiff had sought from Mr Lewis details of the KPI’s he would be expected to meet if he accepted the position of EDM. None were provided. Mr Lewis claims that he told the Plaintiff that he, and other senior members of staff, would be involved in formulating the relevant KPI’s for consideration by the Defendant’s Board. I accept the Plaintiff’s evidence that he received no such advice from Mr Lewis and that he was merely told that KPI targets would be worked out after he had accepted the EDM position.[204] Having said that, I do not think much turns on this conflict for the reasons set out below.
[204] T 132.
The relevant point is that on both versions of events the Plaintiff was called upon to determine whether to accept the EDM offer without being provided with KPI targets that he had requested. The question is whether it was unreasonable for the Plaintiff to have rejected the EDM offer for this reason.
Mr Lazarevich submitted that the Plaintiff’s request for KPI targets was unreasonable because the Funding Agreement had not been executed and the Defendant’s annual KPI targets had not been formulated. I disagree with that submission. It was no fault of the Plaintiff that the Defendant had placed itself in that situation. The Defendant offered the Plaintiff new employment in the form of a contract that would require him to use his best endeavours to ensure that the Defendant met its KPI obligations. How can it be said that he acted unreasonably when he was seeking to elicit details of an obligation that would be imposed on him? Why should he not know the KPI’s against which the Defendant might measure his performance? The fact that the Defendant made this offer before entering into the Funding Agreement and determining its annual KPI targets for 2010 only serves to illustrate that the proposed EDM contract had been constructed with undue haste and that no consideration had been given to this issue, though I accept that Mr Martinson acted with the best of intentions.
In support the contention that the Plaintiff’s request for KPI’s was unreasonable Mr Lazarevich further pointed to the following matters: (i) that the Plaintiff had entered into the former CEO contract knowing that he would be obliged to formulate annually KPIs for the RDC Board’s consideration; and, (ii) that he agreed in cross-examination that he would have accepted the new CEO position though the KPI’s had not been determined.[205]
[205] T 239.
I do not think that these arguments are of much assistance to the Defendant. When the Plaintiff entered into the CEO contract there would have been existing annual KPI targets against which his performance could be gauged. It is true that RDC’s annual KPI targets may have varied from year to year but the Plaintiff was responsible for formulating the targets for the RDC Board’s consideration. Similarly, if the Plaintiff had accepted the new CEO position he would have been ultimately responsible for formulating the annual KPI’s for consideration by the Defendant’s Board. By contrast any role the Plaintiff were to play in formulating the Defendant’s KPI’s as EDM would have been subject to approval by Mr Lewis.
The Plaintiff had just lost his job as CEO and had an uneasy relationship with Mr Lewis. It was not unreasonable for him to be concerned about his future in the new organisation and for him to know with some degree of precision the KPI’s that he would be required to work towards. I think the uncertainty concerning the KPIs is a further reason why the Defendant has failed to establish that the Plaintiff’s rejection of the EDM offer was unreasonable.
Confusion regarding salary
As earlier set out, the Plaintiff testified that he was told by Mr Lewis on 4 February 2010 that the EDM annual salary would be $100,000 ($6,900 less than he had received as CEO) because ‘that’s Neil’s decision due to the lesser responsibility.’ Mr Lewis agreed that he informed the Plaintiff that his salary would be $100,000, based on advice he had received from Mr Martinson, but denied suggesting that the lower salary was due to reduced responsibility.
I accept the Plaintiff’s evidence that Mr Lewis made remarks to that effect. However, I do not accept that it had ever been determined that the Plaintiff should receive a salary less than he had received as CEO. The minutes of the meeting of the RDC Board on 16 December 2009, which the Plaintiff attended, record that the unsuccessful candidate for the new CEO position should be offered an alternative role on the same salary as their existing salary. Furthermore, on 28 January 2010, the Defendant’s Board authorised Mr Martinson to offer the Plaintiff a new role ‘in line with his current remuneration package’.
In the circumstances there was no sound reason for Mr Martinson to have offered the Plaintiff a salary which he knew was below the salary the Plaintiff had received as CEO. I accept Mr Martinson’s evidence that the initial EDM salary offer was the product of a mistaken belief on his part as to the level of the Plaintiff’s existing CEO salary.[206] I believe that when the Plaintiff challenged Mr Lewis on 4 February as to the reason for the lower salary that Mr Lewis carelessly speculated that it was due to ‘lesser responsibility’.
[206] T 370.
Be that as it may, it seems to me that nothing of significance turns on this point because it is common ground that on the morning of 12 February 2010 Mr Lewis, after having clarified the salary issue with Mr Martinson, informed the Plaintiff by email that as EDM he would be paid the same salary he had received as CEO. The e-mail was received by the Plaintiff before he wrote his letter accepting repudiation of the CEO contract. There is no suggestion that the Plaintiff did not actually believe or would have been objectively justified in not believing what he had been told in the e-mail. For this reason, no reliance can be placed on the initial salary discrepancy as a basis for the Plaintiff rejecting the EDM offer.
Lack of good faith argument
It should be observed that Mr Lazarevich also argued that the Plaintiff was never seriously interested in the EDM position and failed to negotiate the EDM offer in good faith. I reject the suggestion that the implied term in his CEO contract to act in good faith has any application to his dealings with the Defendant for the reasons previously discussed (see [159]). The sole question is whether his rejection of the EDM offer was objectively reasonable. In my view it was.
Other employment
Before examining the Defendant’s contention that the Plaintiff failed to mitigate loss by not subsequently securing other employment, it is necessary to outline the evidence on this topic.
By the time of trial the Plaintiff had secured part-time work at the Renmark Golf Club but otherwise had not succeeded in obtaining paid employment since terminating the CEO contract on 12 February 2010. However, he had made the following unsuccessful applications for employment:
· on 1 July 2010 he applied, and was interviewed, for the position of Director of the Riverland Futures Task Force (annual salary approximately $130,000);[207]
· on 11 October 2010 he applied, and was interviewed, for the position of CEO of the Renmark Paringa Council (annual salary approximately $130,000);[208]
· in January 2011 he applied, and was interviewed for the position of Tradestart Adviser with the Department of Trade and Economic Development (SA) ($80,000 salary to negotiation);[209] and
· in April 2011 he applied for a six month contract as a Senior Project Officer with the Department of Regional Development and Lands (WA) to assist in the management of the East Kimberly Development Project Plans but the position was withdrawn before interviews were scheduled.[210]
[207] T 133-135 Exhibit P6 pp 182-196.
[208] T 136-137 Exhibit P6 pp 197-205.
[209] T 136-137 Exhibit P6 pp 206-215.
[210] T 137 Exhibit P6 pp 216-219.
In addition to these applications the Plaintiff made a number of informal inquiries in relation to the possibility of obtaining employment with organisations in the Riverland region but they came to nothing.[211] He also made inquiries in relation to advertised positions interstate,[212] and with the District Council of Yorke Peninsula,[213] but did not apply for them because, if successful, he would have been required to live away from his wife, Claire, unless she relocated with him. He did not consider the idea of relocating to be a reasonable option because the two of them had lived in the Riverland all of their lives and, more significantly, his wife had a reasonably well paid full-time job in the Human Resources Section, Country Health SA, based in Berri.[214] Since January 2011 she has occupied a more senior managerial role in that organisation.[215]
[211] T 142, 147.
[212] T 143-145.
[213] T 144.
[214] The Plaintiff’s three children were not a relevant consideration. They were adults and living independently of their parents in Adelaide and Melbourne at the time (T 139).
[215] T 138.
The Plaintiff explained in examination-in-chief:[216]
The decision I had to make, Claire was on a reasonable salary level. For me to move away to gain employment either meant me moving away and living on my own and our marriage – I’m not sure how you would describe that, but for Claire to retain her job, otherwise I would need a salary level to compensate for Claire’s wage as well as mine, if we were both to move. So one of you had a career, would we jeopardise that? And other considerations, including the legal proceedings that were occurring. That was taking up a bit of my time and to do that from a remote area would have been much more difficult.
[216] T 146.
The Plaintiff was cross-examined at length in relation to two jobs advertised on the internet in 2012 and in relation to 28 jobs advertised in the Murray Pioneer newspaper during 2010-2012. The Plaintiff gave one or more of the following reasons for not applying for these advertised positions:[217]
· he did not see the relevant advertisement and was otherwise unaware of the vacancy;[218]
· the salary was significantly less than he had received as CEO;[219]
· the job was unsuited for the skills, training and experience he possessed;[220]
· the job would have required him to relocate interstate or to an area of South Australia outside the Riverland;[221] and/or
· the job would have involved working for a Riverland Council.
[217] In relation to three vacancies advertised in the Murray Pioneer Mr Lazarevich took the Plaintiff to the relevant advertisement but failed to ask him why he did not apply for the job: see T 268-269, 271.
[218] T 251, 252,
[219] T 250, 255, 263, 264.
[220] T 250, 251, 252, 253, 261, 265, 266, 267, 268, 271.
[221] T 262, 266.
These were reasonable grounds for not applying for the advertised positions. However, there was an element of inconsistency in the Plaintiff’s evidence concerning his attitude towards employment with the Riverland Councils. He agreed that he chose not to apply for the following advertised positions with those councils:
·Manager of Community Services, Renmark-Paringa District Council (advertised on 5 March 2010 - salary range not specified);[222]
·Manager of Environment and Community Services, Loxton-Waikerie District Council (advertised on 8 June 2010 - salary range $85,000-$90,000);[223]
·Manager of Development and Community Services, Loxton-Waikerie District Council (advertised on 20 July 2010 - salary range $75,000-$80,000);[224]
·Director of Corporate and Community Services, Loxton-Waikerie District Council (advertised on 12 October 2010 - salary range not specified);[225]
·Accountant, Renmark-Paringa District Council (advertised on 12 November 2010 - salary range not specified);[226]
·Co-ordinator and Program Officer, Renmark-Paringa District Council (advertised on 14 January 2011- 27.5 hours per week, salary not specified);[227]
·Community Development Officer, Loxton-Waikerie District Council (advertised in about July 2011, salary not specified).[228]
[222] Exhibit D13, p2; T 261-262.
[223] Exhibit D13, p5; T 252.
[224] Exhibit D13, p 7; T 252.
[225] Exhibit D13, p 11, T 256-257.
[226] Exhibit D14, p 7; T 262.
[227] Exhibit D 15, p 1; T 264.
[228] Exhibit D 15, p 9; T 268.
The Plaintiff said that he did not believe that he would be successful in obtaining any of the above listed positions because he was engaged in litigation against the Defendant and the Riverland Councils contributed to the Defendant’s funding. In relation to the Renmark-Paringa Council positions he believed that the problem was compounded by Mr Martinson being both Mayor of that council and Chair of the Defendant’s Board. I found those reasons difficult to reconcile with his decision to apply for the position of CEO with Renmark-Paringa Council in late 2010.
Despite this discrepancy, I am not satisfied that the Defendant has established that the Plaintiff’s reasons for declining to apply for these particular Riverland Council positions were unreasonable. In addition to the difficulties identified by the Plaintiff, only two of the relevant advertisements specified a salary range and they were well below what the Plaintiff had received as CEO. Furthermore, no helpful evidence has been put before me about whether those jobs suited his specific skills and experience. The Defendant tendered the relevant advertisements but the copying was of such a poor quality that the advertisements were almost impossible to read.
Although it was not unreasonable for the Plaintiff to seek employment which required the sort of experience and skills that his job as CEO required, and which commanded a salary in the order of his CEO salary, I believe that by the time of trial the Plaintiff should have begun to lower his sights.[229] If he had done so I believe that he would have found employment in the Riverland region within a few months which was not entirely unsuitable and which would have attracted a salary not less than $70,000 per year. For what would have been the last year of the CEO contract, the period from 1 July 2012 until 30 June 2013, I would allow the Plaintiff the difference between the salary he would have commanded as CEO ($106,090) and my hypothetical salary of $70,000 per year. This would reduce his loss for that year to $36,090.
[229] Cf 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.
It is also necessary to reduce the Plaintiff’s damages to take into account that on 12 February 2010 the termination payment he received included 11 weeks pay totalling $15,373.20 (a payment of $22,442.20 of which tax in the amount of $7,069.00 was withheld).
Other reductions
In determining the amount of damages to be awarded it is necessary to consider the possibility that if the CEO contract had not been terminated by reason of RDC’s wrongful repudiation that the Plaintiff’s employment may have come to an end before the contract had expired due to lawful dismissal (on grounds which were not harsh, unjust or unreasonable).[230]
[230] See Stewarts Guide to Employment Law 2nd ed., The Federation Press, 2009 at [17.10]; Lucy v Commonwealth (1923) 22 CLR 229; Bostik (Australia) Pty Ltd v Gorvreski (No.1) (1992) 36 FCR 20 at 33.
It is well settled that there is no presumption in favour of discounting for the vicissitudes or ‘adverse contingencies of life’.[231] In the present case I am not prepared to grant a discount because of the possibility of lawful dismissal. The risk of such an occurrence was negligible having regard to the Plaintiff’s history of stable employment with RDC and generally. Furthermore, there was no suggestion at trial that the Plaintiff had ever failed to discharge his obligations to RDC or any other employer, other than in a competent and conscientious manner.
[231] Bresatz v Przibilla (1962) 108 CLR 541 Windeyer J at 543; Campbell v Nangle (1985) 40 SASR 180 King CJ at 186-187; Slattery v Beare [2001] SADC 44 Smith DJ upheld on appeal Beare v Slattery [2002] SASC 76 (Prior ACJ, Martin and Gray JJ).
DAMAGES
Under the CEO contract the Plaintiff’s annual gross salary was $106,090.00 (gross weekly salary - $2040.20). He was further entitled to four weeks (20 days) annual leave (daily rate of $408.04) which attracted a leave loading of 17.5%.[232]
[232] See Termination payment calculations: Exhibit P4.
Because the Plaintiff’s CEO contract was terminated on 12 February 2010 he is entitled to damages for the salary he would have received as CEO for the balance of the contract period less the amount of loss ($70,000) that he failed to mitigate for the period (1 July 2012 - 30 June 2013). On my calculations the salary he would have received for the period from 13 February 2010 until 30 June 2012 (2 years and 18 weeks) amounts to $248,903 before tax.
The Plaintiff is further entitled to $30,090 (CEO annual salary less the amount of $70,000 that he could have mitigated) for the period from 1 July 2012 until 30 June 2013. In addition, the Plaintiff would have received 42.7 days annual leave for the period from 13 February 2010 until 30 June 2012. Accordingly, the leave loading he would have received for that period amounts to $3,049. For the period 1 July 2012 until 30 June 2013 I will allow a nominal leave loading of say $1000. As I earlier observed a reduction of $15,373.20 must be made for the termination pay he received.
The Plaintiff is entitled to pre-judgment interest calculated at, say, 6.5% per annum on his award for past economic loss calculated over the period of the loss but discounted by 50% for its slow accumulation over that period.[233]
[233] s39 of the District Court Act 1991.
I set out a summary of the Plaintiff’s entitlement:
For the period 13 February - 30 June 2012
Loss of salary $248,903.00
Loss of superannuation (10%) 24,903.00
Loss of leave loading 3,049.00
For the period 1 July 2012 - 30 June 2013
Loss of salary 30,000.00
Loss of superannuation (10%) 3,000.00
Loss of leave loading 1,000.00
Less termination payment $15,373 310,855.00
295,482.00
Plus pre-judgment interest (6.5% - but discounted by 50%) 9,505.00
$304,987.00
CONCLUSION
The Plaintiff’s award of damages amounts to $304,987. In calculating damages I have not factored in the amount of salary the Plaintiff received working at the golf shop prior to trial. The Plaintiff was not examined or cross-examined as to the amount he received in that capacity. I will hear the parties on this issue and the extent to which his golf shop salary may affect the calculations I have made. I will also hear the parties as to costs.
13.0 DISSOLUTION
13.1The Riverland Development Corporation may resolve to dissolve the Corporation, only if it at first obtains the consent of the Minister and each of the District Council of Renmark Paringa, the Berri Barmera Council and the District Council of Loxton Waikerie, and only by a Special Resolution.
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