Spartalis v BMD Constructions Pty Ltd

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SUPREME COURT OF SOUTH AUSTRALIA

(Full Court: Civil)

SPARTALIS v BMD CONSTRUCTIONS PTY LTD

[2014] SASCFC 124

Judgment of The Full Court

(The Honourable Justice Peek, The Honourable Justice Blue and The Honourable Justice Parker)

14 November 2014

EMPLOYMENT LAW - CONTRACT OF SERVICE - FORMATION

EMPLOYMENT LAW - TERMINATION AND BREACH OF CONTRACT - EFFECT OF MAKING NEW CONTRACT

EMPLOYMENT LAW - TERMINATION AND BREACH OF CONTRACT - GROUNDS - MISCONDUCT

EMPLOYMENT LAW - TERMINATION AND BREACH OF CONTRACT - REMEDIES - AGAINST EMPLOYER - DAMAGES

DAMAGES - GENERAL PRINCIPLES - MITIGATION OF DAMAGES - WHAT MATTERS MAY BE CONSIDERED

Appeal and cross-appeal against a judgment of the District Court concerning the summary dismissal of the plaintiff from his employment with the defendant.  On appeal, the plaintiff contends that the trial Judge erred in finding that changes in the circumstances of his employment did not give rise to a new employment contract.  The plaintiff contends further that an obligation to give reasonable notice of dismissal should be implied as a term of the new contract in lieu of the period of notice fixed under the original contract.

On the cross-appeal, the defendant contends that the trial Judge erred in finding that:

(1)     summary dismissal was not justified;

(2)     the plaintiff took reasonable steps to mitigate his loss; and 

(3)     payment in lieu of notice of dismissal be calculated by reference to the employee’s total remuneration package rather than base salary.

Consideration of two further grounds of cross-appeal was deferred.

Held (the Court):

Appeal dismissed.  There was no new employment contract.  Accordingly there was no implied obligation to give reasonable notice of dismissal (at [46]-[47]).

Cross-appeal dismissed except insofar as it relates to the two grounds deferred for later consideration. 

(1)     Summary dismissal was not justified.  Negligence without more does not amount to “gross neglect” or “serious misconduct”, notwithstanding that the consequences are serious (at [90]-[93]).

(2)     The employer is to take into account payments made to another person on the employee’s behalf when determining the payment to be made in lieu of notice of dismissal (at [98]).

(3)     The plaintiff made sufficient efforts to find suitable work following his dismissal (at [103]-[105]).

Fair Work Act 2009 (Cth) s 18, s 117(2)(b); Acts Interpretation Act 1901 (Cth) s 15AB, referred to.
Easling v Mahoney Insurance Broker (2001) 78 SASR 489; Quinn v Jack Chia (Aust) Ltd [1992] 1 VR 567; Baster v London and County Printing Works [1899] 1 WB 901; Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66; Rankin v Marine Power International Pty Ltd (2001) 107 IR 117; Red Sea Tankers Ltd v Papachristidis (The Hellespont Ardent) [1997] 2 Lloyd's Rep 547; Carter v Dennis Family Corporation [2010] VSC 406, considered.

WORDS AND PHRASES CONSIDERED/DEFINED

"gross neglect", "serious misconduct", "failure to mitigate"

SPARTALIS v BMD CONSTRUCTIONS PTY LTD
[2014] SASCFC 124

Full Court: Peek, Blue and Parker JJ

  1. THE COURT:      This is an appeal and cross-appeal against a judgment of the District Court…

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Details
Case
[2014] SASCFC 124
Decision Date

CaseChat Overview and Summary

The Full Court of the Supreme Court of Queensland considered an appeal and cross-appeal concerning the dismissal of Mr Spartalis from his employment with BMD Constructions Pty Ltd. Mr Spartalis had commenced employment in 2003 under a written contract, which included a letter of offer and a position description. His dismissal in November 2010 was based on alleged negligence leading to works commencing without necessary approval, which BMD Constructions argued constituted serious misconduct justifying summary dismissal. Mr Spartalis contended that his dismissal was wrongful and sought damages, including payment in lieu of notice.

The primary legal issues before the Court were whether Mr Spartalis's conduct amounted to serious misconduct or gross neglect justifying summary dismissal, whether a new employment contract had been formed through variations to his duties and remuneration, and whether the employer had adequately considered payments made to another person on Mr Spartalis's behalf when calculating damages for wrongful dismissal. The Court also considered whether Mr Spartalis had made sufficient efforts to mitigate his loss by seeking alternative employment.

The Court dismissed the appeal, finding that Mr Spartalis's negligence, while established, did not meet the threshold of "gross neglect" or "serious misconduct" as defined in his contract, even considering the serious consequences. It was held that the significant increases in Mr Spartalis's remuneration and the expansion of his duties over time did not, in themselves, indicate the formation of a new employment contract, but rather fell within the scope of the original contract's provisions for salary reviews and the performance of additional tasks. The Court also found that Mr Spartalis had made sufficient efforts to find suitable alternative employment following his dismissal.

The Court dismissed the cross-appeal, except in relation to deferred matters concerning interest and costs. It was ordered that BMD Constructions must take into account payments made to another person on Mr Spartalis's behalf when determining the payment to be made in lieu of notice.

Orders

Orders of the court

Held (the Court):

Appeal dismissed. There was no new employment contract. Accordingly there was no implied obligation to give reasonable notice of dismissal (at [46]-[47]).

Cross-appeal dismissed except insofar as it relates to the two grounds deferred for later consideration.

(1) Summary dismissal was not justified. Negligence without more does not amount to “gross neglect” or “serious misconduct”, notwithstanding that the consequences are serious (at [90]-[93]).

(2) The employer is to take into account payments made to another person on the employee’s behalf when determining the payment to be made in lieu of notice of dismissal (at [98]).

(3) The plaintiff made sufficient efforts to find suitable work following his dismissal (at [103]-[105]).

Background

Background to the litigation

The parties have agreed that the Court should defer consideration of two further grounds advanced by BMD Constructions in the cross-appeal. Those further grounds relate to the rate of interest payable on the judgment sum and the basis upon which costs have been awarded.Background Mr Spartalis commenced employment with BMD Constructions in January 2003. He entered into a written contract at that time. The contract was formed by his acceptance of a detailed letter of offer dated 2 January 2003 that set out the terms of engagement. The letter of offer was accompanied by a position description. The parties accept that the position description became a term of the contract. Terms of the 2003 contract The letter of offer that became Mr Spartalis’ employment contract was signed by the Chief Executive Officer of the BMD Group and appeared under its letterhead. Clause 1 of the contract stated that Mr Spartalis was to be employed by a new property related subsidiary of BMD Holdings Pty Ltd which was yet to be named. Paragraph 7 of Mr Spartalis’ statement of claim pleaded that he was employed by BMD Constructions. That fact was admitted by BMD Constructions as defendant. Thus, it is apparent that BMD Constructions was the proposed employing entity identified in the letter of offer from the BMD Group and must be taken to have assumed at some point the rights and liabilities arising from the employment of Mr Spartalis. The identity of the employer was not an issue in the proceedings. Clause 2 of the contract provided that Mr Spartalis was to be employed as a business manager in a national BMD development group working out of Adelaide. He was to report to the Chief Executive Officer of the development group and ultimately to the CEO of the BMD Group. Clause 2.3 stated that he may be required to perform other tasks that were not included in his position description. Clause 3 appeared under the heading of “Principal Duties”. However, this clause did not specify the work Mr Spartalis was to do. It only required that he faithfully and diligently perform his duties, comply with all lawful orders and instructions, exercise his powers consistently with his position and use his best endeavours to further the interests of the employer. Clause 7 dealt with remuneration. Mr Spartalis was to receive a base salary of $110,000 per annum together with employer superannuation contributions at the rate of 9% of his base salary. In addition, he was to be provided with the use of a motor vehicle to an annual value of $24,000, a mobile phone and salary continuance insurance. Clause 7.2 provided that the salary of Mr Spartalis was to be reviewed from time to time as determined by the company. The clause stated that, in general, reviews were conducted in June each year but that may vary as required by the circumstances. Whether any review was conducted was in the total discretion of the company and “indeed may not take place at all”. Clause 12.1 provided that the employment of Mr Spartalis may be terminated at any time upon the giving of one month’s notice in writing or by payment of one month’s salary in lieu of notice. Clause 12.3 went on to provide that in the case of serious misconduct his employment may be terminated without notice or payment in lieu of notice. The term “serious misconduct” was defined to include, but not be limited to, gross neglect of his duties, dishonesty, fraud or commission of a crime in the course of or in connection with the performance of his duties and gross insubordination.

Evidence

Evidence Before The Court

The trial Judge accepted Mr Rex’s evidence other than his conclusion that Mr Spartalis had been responsible for the Stage 2B works starting without CFAL approval and his view that Mr Spartalis had lied about not knowing work had started. Her Honour specifically found that Mr Spartalis did not know that the stage 2B works had started until he was told by Mr Rex on about 16 November 2010.Other evidence The trial Judge found that Mr Calandro sought to distance himself from responsibility for commencement of the stage 2B works. His evidence was vague and unhelpful about the stage 2B approval but detailed in relation to other matters. The trial Judge preferred the evidence of Mr Spartalis to that of Mr Calandro on the critical issues. In particular, her Honour found that Mr Spartalis had cautioned Mr Calandro not to commence the Stage 2B works without the approval of CFAL. The trial Judge also drew an adverse inference from the failure of BMD Constructions to call Mr Gallus to give evidence. He was the person who had sought authorisation for construction to commence. On that basis the trial Judge found that the evidence called by BMD Constructions about who had authorised commencement of the works could be more readily rejected. Her Honour was unable to determine from the evidence the source of the authorisation. Her Honour also found that BMD must bear some responsibility for the approach taken by Mr Spartalis. Urbex did not have adequate governance systems in place and its operations required review and rationalisation. That was the precise task Mr Rex had been engaged to perform. The delay of several weeks in dismissing Mr Spartalis after Mr Rex became aware that work had commenced without approval suggested to the trial Judge that grounds for summary dismissal were not made out. Her Honour noted that, according to the evidence of Mr Rex, this delay was caused by the need for the matter to be considered by the decision-makers in the BMD Group. The termination Mr Spartalis was dismissed from his employment on 22 November 2010. The basis for the dismissal was that he was the most senior finance person in Urbex and responsible for the commencement of stage 2B. There had been no prior warning, counselling or other adverse comment prior to the termination. He had not been warned that his employment was at risk. Mr Rex described him as a liar when he denied knowing that work had commenced without CFAL approval. Her Honour found that, given his role and job description, Mr Spartalis ought to have been aware what was happening. He should have supervised Mr Calandro more closely to ensure that the financial approval had been obtained before work started. Thus, his conduct was negligent. However, it did not amount to gross misconduct or serious misconduct.Consideration BMD Constructions as cross-appellant contends that the acts and omissions of Mr Spartalis should be characterised, at least, as a sufficiently serious breach of an intermediate term of his employment contract to justify immediate termination. The grounds advanced in support of that contention are that the circumstances were so serious that the employer should not be bound to continue his employment. The consequences to the employer were significant. Thus, the damage caused by the breach was relevant in assessing its seriousness. In addition, Mr Spartalis had lost the trust and confidence of BMD Constructions.

Decision

Reasons for decision

BMD Constructions also contends that the non-cash benefits provided to Mr Spartalis under his contract were attributable to the performance of his duties. Upon termination those elements could not be taken into account. However, that contention ignores the statutory obligations imposed upon the employer by section 117(2)(b) of the Fair Work Act. In the absence of a more generous contractual provision, that Act specified BMD Constructions’ legal obligation to make payment upon termination by imposing statutory minimum standards.Conclusion The appeal is dismissed. The cross-appeal is dismissed except insofar as it relates to the rate of interest payable on the judgment sum and the basis upon which costs were awarded. The Court will hear the parties on those questions

Ratio Decidendi

Legal Principle Established

Those changes and also those that occurred in June 2007 were well within the scope of the broadly expressed position description without reference to the contractual obligation that Mr Spartalis perform other duties as directed. It was simply the case that Mr Spartalis’ workload and responsibility grew as the business of Urbex expanded. That did not take his duties beyond the scope of those he had been engaged to perform.Increased remuneration When he commenced with BMD Constructions in 2003 Mr Spartalis received a base salary of $110,000 together with use of a motor vehicle valued at up to $24,000 per annum and a 9% superannuation contribution. The PAYG payment summaries issued to Mr Spartalis show that his gross income for the year ending 30 June 2004 was approximately $158,000. On 30 June 2005 the Chairman of the BMD Group Board advised Mr Spartalis that his base salary had been reviewed and was to be increased to $204,000 per annum. The memorandum referred to the record turnover and profit achieved by the BMD Group as did two that followed in 2008 and 2010 dealing with the same issue. There was no suggestion in these documents that the salary review related to a fresh contract. On 1 July 2008 the BMD Group Chairman advised Mr Spartalis that his base salary was to be increased to $220,500 per annum from the next pay period. On 8 February 2010 Mr Spartalis was advised by the Chairman that his base salary was to be increased to $233,000 with effect from the first pay period in February 2010. The PAYG payment summary issued to Mr Spartalis indicated a gross income of about $236,000 for the year ending 30 June 2005. That comprised salary of $176,000 and a bonus of $60,000. His gross income for the 2005/06 financial year was approximately $269,000. In 2006/07 it had increased to $287,000, in 2007/08 it was $299,000, in 2008/09 it was $310,000 and in 2009/10 it was $291,000. The difference between the amounts referred to in the salary review documentation and that disclosed in the PAYG statements is explained by the bonuses. The evidence of Mr Spartalis was that these bonuses were generally in the order of $50,000 to $60,000 but in the 2006/07 year he was paid a bonus of $75,000. Mr Spartalis accepted that the bonus payments were discretionary and dependent upon a decision each year by the Group Chairman that took into account the performance of the BMD Group. Mr Spartalis also said that he had not received bonuses before the change in his title to National Manager. While Mr Spartalis’ total remuneration increased significantly over the seven years that he was employed, that was contemplated by the 2003 contract which provided for periodic reviews of his salary. Leaving aside the commencement of bonus payments from 2005, there was not a sharp increase in remuneration in either 2005 or 2007 that was inconsistent with the overall pattern of annual increases. The increases were not so substantial as to suggest that there must have been a new contract. They were clearly within the scope of the annual review clause.