Spartalis v BMD Constructions Pty Ltd - [2014] SASCFC 124

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

THE COURT: This is an appeal and cross-appeal against a judgment of the District Court dated 13 March 2014 concerning the summary dismissal of the plaintiff, Mr Spartalis, from his employment with BMD Constructions Pty Ltd (“BMD Constructions”) on 22 November 2010.
Mr Spartalis appeals on three grounds. The first is that the trial Judge should have found that he had entered into a new contract of employment with BMD Constructions in either early 2005 or in June 2007. Alternatively, Mr Spartalis contends that the trial Judge should have found that, because his duties when he was dismissed on 22 November 2010 were so greatly different to those he was first engaged to perform in January 2003, it should be inferred that he had entered into a new contract.
The third ground advanced by Mr Spartalis depends upon success of either the first or second ground. His contention is that, if the contract he had entered in January 2003 no longer applied, an obligation for BMD Constructions to give reasonable notice of dismissal should be implied as a term of the new contract.
BMD Constructions raises three principal grounds in its cross-appeal. The first ground is that the trial Judge fell into error by finding that the summary dismissal of Mr Spartalis was not justified. BMD Constructions also contends that the trial Judge wrongly concluded that Mr Spartalis took reasonable steps to mitigate his loss. The third ground is that the payment in lieu of five weeks notice required under the Fair Work Act 2009 (Cth) was wrongly calculated by reference to Mr Spartalis’ total remuneration package rather than his base salary.
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.
Other clauses in the contract dealt in detail with matters commonly found in employment contracts. It is unnecessary to refer to these provisions.
The position description
The position description incorporated into the 2003 contract indicated that Mr Spartalis was to “play an important role, as part of a multi-disciplinary team, in the identification, pursuit and securing of new development projects”. The document also required him to ensure that “all prospects and development proposals are thoroughly analysed and assessed” and to “assist in the planning, structuring and negotiation of new projects”. He was also required to “ensure a smooth transition of projects through the feasibility, financial approval, establishment and operational phases”, to “maintain close financial management and control of established projects” and to “ensure ongoing development activities are supported by processes and information systems that maximise financial performance and control”.
Mr Spartalis’ key responsibilities were described in the position description as including supervision of project intelligence assessments and preparing and presenting financial feasibility and funding submissions. He was also to prepare, supervise and review project budgets and annual plans to ensure that project management processes relevant to financial management were established and maintained and to monitor project benchmarks.
The position description concluded with the statement that Mr Spartalis was required to perform such other duties as may be required from time to time by the Chief Executive Officer.
The corporate structure
BMD Constructions was part of the BMD Group of Companies. Another member of that group was Urbex Pty Ltd. BMD Constructions undertook civil construction and related activities. Urbex was engaged in project development. It secured land, mainly for residential development, and then planned, designed, built, marketed and sold housing. While Mr Spartalis was employed by BMD Constructions, he was responsible for financial oversight of all Urbex operations as part of the BMD Group.
Was there a new employment contract
Mr Spartalis contends that he was promoted in 2005 from the position of General Manager to the more senior role of National Manager Business and Finance and this gave rise to a new contract of employment. He thought that it was probably the Chief Executive who told him of the promotion. There was no written contract, letter of offer or any other documentation prepared to give effect to this suggested promotion and new contract.
Counsel for Mr Spartalis submitted that the revised title recognised the fundamental change in his role. His remuneration was also said to be vastly increased and he had broader national duties, was required to supervise managers and had generally greater responsibilities. He became the most senior finance officer responsible for Urbex activities. These facts were said to indicate that a new employment contract must have been created in 2005.
At the time of the change in title to National Manager Business and Finance in early 2005, Mr Spartalis became responsible for another entity within the BMD Group called BMD Properties. The latter entity had been responsible for some smaller BMD Group projects and joint ventures in which the group was passively involved. The number of projects for which Mr Spartalis was responsible increased from about four or five to “something in the order of twenty to thirty”.
As National Manager, Mr Spartalis was responsible for a senior accounting manager and an accounts payable employee. When he was terminated, four employees reported directly to him. However, when he was first engaged, Mr Spartalis did not have any other employees directly reporting to him.
Mr Spartalis also pleaded that his duties and responsibilities had further increased in or about June 2007 when he became responsible for financial control of the entire Urbex business. That involved some 30 to 40 projects throughout Australia. He contended that these changes indicated that a new contract had been entered at that time. The pleadings and submissions left it open whether it was being contended that this contract had replaced the new contract said to have been entered into in 2005 or, alternatively, whether the original 2003 contract was not replaced until June 2007.
The finding by the trial Judge that there was no new contract
The trial Judge held that she was not satisfied that the work undertaken by Mr Spartalis when his employment was terminated in November 2010 had varied so greatly from the duties undertaken when he commenced employment in 2003 that entry into a new contract should be inferred. At most there was a variation to the existing contract.
Legal principles
Doyle CJ noted in Easling v Mahoney Insurance Broker[1] that it is often difficult to determine whether a change in working arrangements has given rise to a new contract of employment or a variation of an existing contract. Alternatively there may merely have been a change in working arrangements that is authorised by the original contract. The more significant or substantial the change in duties, the more likely it is that a court will conclude that there has been a new contract.[2]
[1] [2001] SASC 22; (2001) 78 SASR 489.
[2] Ibid at [7] (Doyle CJ); see also Bleby J.
A court should not too readily find that a change in working arrangements or in the duties of an employee entails either a variation to an existing contract or the making of a new contract.[3] If the original agreement gives the employer the right to make the changes that have occurred, there will be neither a variation of contract nor a new contract.[4]
[3] Ibid at [8] (Doyle CJ).
[4] Ibid at [9] (Doyle CJ).
In Easling v Mahoney Insurance Brokers[5] Doyle CJ referred with approval to the often cited judgment in Quinn v Jack Chia (Aust) Ltd.[6] In that case Ashley J held that, where an alteration in the duties of the employee is profound, a court should be more ready to hold that a new contract has replaced the old or, at least, that the old contract has been varied. On the facts of that case Ashley J held that the changes made to the plaintiff’s employment arrangements were exceptional and far reaching and not within the original contemplation of the parties nor comprehended by the contract initially made between them. Thus, a new contract had replaced the old contract rather than there being merely a variation of the old contract. His Honour went on to hold that, as the new contract did not specify a notice period, an obligation to give reasonable notice on the part of the employer ought to be implied.
[5] Ibid.
[6] [1992] 1 VR 567.
It is necessary to consider the duties Mr Spartalis was required to perform when first engaged in 2003 and the nature and extent of the subsequent changes. The increases in his remuneration and his change in title are also relevant considerations in determining whether the changes made to his employment arrangements were exceptional and far reaching and outside the contemplation of his original contract.
Change in duties
Clause 2.3 of the 2003 contract stipulated that as Business Manager Mr Spartalis may be required to perform other tasks that were not included in his position description. That document itself stated that he was required to perform such other duties as may be required from time to time by the Chief Executive Officer. The latter statement did not add anything to clause 2.3.
While an “other duties as directed" clause may provide an employer with substantial flexibility, that flexibility is not unlimited. The alternative duties could not be fundamentally incompatible with those the employee had been engaged to perform.
Mr Spartalis has placed reliance upon the greater number and value of the projects for which he became responsible in 2005 or 2007 and their more dispersed location and the additional staff reporting to him. However, the position description did not define his duties by reference to the number, value or location of the projects that came under his responsibility or the number of staff for whom he was responsible. Instead it referred to his responsibilities in broad and general terms.
The work that Mr Spartalis was required to perform from 2005 under the title of National Manager when he assumed responsibility for the work of BMD Properties was not greatly different to that he had previously undertaken as Business Manager albeit additional projects were under his charge and they had a wider geographic spread. It is apparent from his evidence that the additional projects were mostly either small or those where the BMD Group merely had a passive interest.
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.
By far the greater part of the increase in remuneration was attributable to the bonus payments. They were awarded in the absolute discretion of the Group Chairman. It was not contended that Mr Spartalis had any contractual right to require BMD Constructions to consider payment of a bonus. The commencement of bonus payments does not support an inference that a new contract came into operation in 2005.
Revised title
A change in title, of itself, generally carries little weight when determining whether a new contract has been created. There is nothing about the change in nomenclature in 2005 from Business Manager to National Manager that supports an inference that there must have been a new contract. In particular, the revised title was not inconsistent with Mr Spartalis’ duties as specified in the position description.
There was no new contract
For the reasons set out above, the changes made to Mr Spartalis’ employment arrangements in 2005, 2007 or thereafter were not so profound, exceptional or far reaching as to result in a clear inference that the old contract had been brought to an end and a new contract created. The trial Judge correctly concluded that Mr Spartalis and BMD Constructions had not entered into a new employment contract and that his employment was still regulated by the 2003 contract.
There was no duty to give reasonable notice
Because the employment relationship continued to be subject to the contract entered into in 2003, the trial Judge also correctly concluded that there was no basis to imply an obligation for BMD Constructions to give to Mr Spartalis reasonable notice of the termination of his contract. The obligation under clause 12 to provide one month’s notice, or payment in lieu of notice, continued to apply save for the fact that section 117 of the Fair Work Act 2009 (Cth) operated to increase the minimum notice period to 5 weeks.[7]
[7] That was because Mr Spartalis was aged over 45 years and had more than five years service: see s 117(3).
Thus, each of the grounds of appeal advanced by Mr Spartalis should be rejected and his appeal dismissed.
The cross appeal
In essence BMD Constructions contends that the summary dismissal of Mr Spartalis was justified and in the alternative that the payment in lieu of notice was wrongly calculated by the trial Judge and that Mr Spartalis did not take reasonable steps to mitigate his loss. BMD Constructions carries the onus of proof on the latter question. The findings of fact made by the trial Judge have not been challenged.
The Ascot Chase development
A major project undertaken by Urbex was the Ascot Chase development in Melbourne. That project was undertaken in several stages. It was a joint venture development with a merchant bank, Gresham. The project involved the construction of housing and all related civil construction work including roads, water and sewerage services. Urbex in turn engaged BMD Constructions to undertake the construction work.
The Ascot Chase development was funded by borrowings from Capital Finance Australia Ltd (CFAL). CFAL was a subsidiary of BOS International (BOSI). A financial facility to the value of $66 million was provided to a development entity named Ascot Chase Nominees Pty Ltd (ACN). Mr Spartalis was a director of ACN.
The funding arrangements for the Ascot Chase development were managed through facility documents. These documents required the approval of CFAL as financier for the commencement of construction works prior to the actual start.
Management of the Ascot Chase project
A project control group (“PCG”) managed the Ascot Chase development. The PCG included members from all entities involved in the joint venture, including CFAL. The reports of the PCG recorded all relevant actions and financial reports relating to the project.
A group of senior staff within Urbex comprised the Project Executive Control. Their role was apparently to manage reporting by Urbex to the PCG.
Mr Spartalis’ role in relation to the Ascot Chase project primarily involved reporting and accounting issues. He was named in the facility agreement with CFAL as the contact person for some of the entities associated with Urbex. He accepted in evidence that he was responsible for ensuring that Urbex met its obligations under the project deed.
Mr Renato Calandro was a BMD Group employee based in Melbourne who performed work for Urbex. He was a development manager. He effectively acted as the secretary or executive officer to the PCG.
Mr Calandro did not report directly to Mr Spartalis in relation to financial issues. However, they did discuss and consider matters together. Mr Spartalis accepted that he was ultimately responsible for financial matters relating to projects involving Urbex throughout the entire period of his employment.
Mr Calandro managed on behalf of Urbex the oversight of contracts relating to civil works. He was authorised to enter contracts, including construction contracts on behalf of Urbex, after obtaining the approval of the Project Control Group.
Prior commencement without financier approval
In 2009 Mr Spartalis became aware that BMD Constructions had wanted to commence work on stage 2A of the Ascot Chase project prior to receiving the approval of CFAL. The latter declined to give that approval. In May 2010 Mr Spartalis was informed that work on stage 2A had commenced without the contract being approved by CFAL. This had required CFAL to take urgent action to ensure funding.
Mr Spartalis informally counselled Mr Calandro during a car journey some months after he became aware that work had commenced on stage 2A without CFAL approval. The counselling occurred in about September 2010, possibly on either 13 or 28 September.
The evidence of Mr Spartalis was that he counselled Mr Calandro because he was aware that the same issue was emerging in relation to commencement of the stage 2B works. Apart from counselling Mr Calandro, no other action was taken by Mr Spartalis to prevent the problem re-occurring. He said that he did not give Mr Calandro a formal warning as the problem with stage 2A had been resolved fairly quickly with the cooperation of CFAL and he thought that Mr Calandro now understood that work could not commence without the approval of CFAL. He had not introduced any formal system to prevent a recurrence of the problem.
Mr Calandro’s messages
Some weeks before the informal counselling, a crucial email had been sent by Mr Calandro on 24 August 2010 to Mr Spartalis and to Mr Richard Stranger, another senior BMD Constructions employee working on Urbex projects.
The email passed on a message that Mr Calandro had received from Mr Jeff Gallus, the General Manager of BMD Constructions. Mr Gallus had stated that BMD Constructions was keen to commence civil works on stage 2B of the Ascot Chase project so as to maximise program efficiencies.
Mr Calandro stated to Mr Stranger and Mr Spartalis that he was keen to discuss the matter with them. He set out a series of dot point statements which were apparently intended as a proposed response to be discussed with the two recipients of the message. The essence of the dot points was that, while the Project Control Group had given approval, funds would not be available to pay BMD Constructions until the final executed contract had been approved by the financier. The PCG also required the final tender assessment report before work started on stage 2B and also needed to see the BMD program. Mr Calandro suggested that, if both Mr Spartalis and Mr Stranger agreed, approval to commence stage 2B could be given on the basis that BMD Constructions accepted these points as conditions.
Mr Spartalis did not respond in writing to the message from Mr Calandro. However, he said that he discussed the matter during a phone call to Mr Stranger and Mr Calandro on 24 August 2010. He told them that he would not agree to the commencement of work without all the necessary approvals, including that of CFAL as financier.
Another email was sent by Mr Calandro to Mr Gallus later on 24 August 2010. The effect of this further message was that no funds would be available to pay BMD Constructions until the contract had been approved by the financier. Thus, BMD Constructions would be required to absorb the costs until funds were received from the financier. Mr Calandro went on to state that, if this was agreed, BMD Constructions could be provided with an interim "letter of intent" to award the contract for Stage 2B on the basis that these conditions were accepted. He concluded the message by asking whether the issue could be discussed in coming days.
Mr Spartalis gave evidence that the sending by Mr Calandro of this message to Mr Gallus was contrary to his instructions and was done without his authority. A copy of the message was forwarded to Mr Spartalis and to Mr Stranger within minutes of its being sent. However, Mr Spartalis did not take any specific action apart from counselling Mr Calandro during the car journey several weeks later.
Mr Spartalis said that he did not see a letter sent by GHD Pty Ltd (the representative of the project superintendent) to a project manager at BMD Constructions dated 15 September 2010 which authorised the stage 2B works. He also did not recall being provided with copies of two letters dated 29 September 2010 from BMD Constructions to GHD. The first letter stated that BMD Constructions had been unable to commence certain works relating to stage 2B on 16 September 2010 but had commenced on 27 September 2010. The second advised of a delay in practical completion.
Mr Spartalis accepted that it had been made clear at a meeting of the PCG on 14 September 2010 that CFAL approval was necessary before the stage 2B works commenced. However, he had not taken any specific action to ensure CFAL approval was obtained before work started. He sought to explain that on the basis that there was a regular flow of information between CFAL and Mr Calandro and he thought that the latter had the matter under control.
Mr Spartalis said that he first became aware that the stage 2B construction had commenced without approval when he was informed by Wayne Rex (the new General Manager of Urbex) during a teleconference on about 16 November 2010. No explanation was provided as to why work had commenced.
Wayne Rex
Mr Rex had been engaged by the BMD Group Chairman as a consultant to review the operation of Urbex. He became its General Manager on 11 October 2010.
The review commenced on 1 June 2010. Mr Rex found that stage 2B had commenced without CFAL approval. His evidence explained the consequences of that omission.
Mr Rex said that BOSI had experienced financial difficulties and had stopped lending in early 2010. The international financial situation had also caused lenders to adopt a stricter approach to enforcement of obligations. The lack of approval enabled BOSI, and thus CFAL, to refuse to provide funding for stage 2B and would have allowed them to call in the loan. If that had occurred, it would have brought the BMD Group to its knees financially.
Mr Rex said that, while BOSI would not lend to the BMD Group any more money, they had managed to refinance with ANZ. That had required both corporate guarantees and a personal guarantee from the owner of the company and the interest rates and fees were a little higher. The BMD Group had also had to use its own equity and that had slowed down the Ascot Chase project dramatically.
After reviewing the PCG reports which had not disclosed that work had started, Mr Rex concluded that CFAL and Gresham had been misled. He considered that Mr Spartalis was responsible for the commencement of the stage 2B works without the approval of CFAL as he was in control of finance and financial modelling. He did not interview Mr Spartalis, Mr Calandro or anyone else involved in the matter but relied upon the e-mails sent by Mr Calandro on 24 August 2010 to fix responsibility upon Mr Spartalis.
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.
BMD Constructions also contends that, because the delay in effecting the dismissal of Mr Spartalis was explained, the trial Judge erred by regarding the delay as undermining the seriousness of his conduct. However, the only explanation provided was that persons other than Mr Rex had to make the decision. That does not suggest that the employer was approaching the matter with the diligence that might have been expected if it was truly concerned that a senior employee had been guilty of serious misconduct.
The essence of the argument advanced on behalf of BMD is that the gravity of the consequences for the employer must be taken into account in assessing the seriousness of a breach by an employee. Reliance is placed upon Baster v London and County Printing Works,[8] Blyth Chemicals Ltd v Bushnell[9] and Rankin v Marine Power International Pty Ltd.[10]
[8] [1899] 1 QB 901.
[9] (1933) 49 CLR 66 at 81 – 82.
[10] [2001] VSC 150 [267] – [269]; (2001) 107 IR 117 at 144 – 145.
While in some circumstances that proposition may be correct, it is not consistent with clause 12.3 of Mr Spartalis’ contract. The effect of that clause is that his employment could only be terminated without notice if he had engaged in serious misconduct. The latter term was defined to include gross neglect of his duties. The term “neglect” should be taken to have been used synonymously with negligence.
While the term “serious misconduct” is defined in clause 12.3 on an inclusive basis, and thus may cover other matters not specifically identified, the express reference to gross neglect of duty clearly precludes any lesser degree of negligence being regarded as serious misconduct. BMD Constructions did not contend at trial, and does not contend on appeal, that Mr Spartalis was guilty of any form of serious misconduct other than the negligent performance of his duties.
The fact that BMD Constructions said that it had lost confidence in Mr Spartalis is irrelevant to the operation of the right to dismiss summarily under clause 12.3. A loss of confidence would only have justified a dismissal upon notice.
The unchallenged findings of fact made by the trial Judge support her Honour’s conclusion that Mr Spartalis should have more strongly responded to the suggestion by Mr Calandro in his email messages of 24 August 2010 that work might commence on stage 2B without the approval of CFAL. His responsibility for financial matters, combined with the serious consequences of non-compliance and his knowledge that work on stage 2A had previously commenced without approval, required Mr Spartalis to take a more active approach. There was a clear risk that the limited steps he took would prove to be insufficient to guard against the risk faced by his employer. Thus, the conduct of Mr Spartalis could properly be regarded as negligent.
The issue is whether the degree of negligence shown by Mr Spartalis could properly be described as gross neglect of his duties so as to authorise summary dismissal. The qualification of the words "neglect of duty" by the adjective "gross" clearly indicates that the right to dismiss summarily will only arise when the employee has acted in a fashion that goes well beyond what might ordinarily constitute negligence. Thus, for the power to dismiss summarily to arise there must have been a very serious disregard of an obvious risk[11] or a grave departure[12] from the standard of care expected of a reasonable employee in the same circumstances.
[11] Red Sea Tankers Ltd v Papachristidis (The Hellespont Ardent) [1997] 2 Lloyd’s Rep 547 at 586.
[12] Carter v Dennis Family Corporation [2010] VSC 406 at [35].
Mr Spartalis was entitled to place considerable reliance on the fact that Mr Calandro was a senior employee with direct responsibility for the matter who had been specifically told on 24 August 2010 that construction was not to commence without the approval of CFAL. Moreover, Mr Spartalis did not become aware of the commencement until shortly before his dismissal. The evidence did not establish who had actually authorised the start of work.
The latter two facts highlight the inadequacy of the governance systems followed by BMD and the need for its practices to be reviewed and rationalised (being the task Mr Rex was engaged to undertake).
The failure by Mr Spartalis to take additional pro-active steps to prevent a premature commencement of construction cannot properly be regarded as "gross neglect of duty" in the sense explained above. The contention that his conduct justified summary dismissal must be rejected. The trial Judge did not fall into error.
Mitigation of loss

BMD Constructions contends that Mr Spartalis failed to mitigate his loss by taking adequate steps to find appropriate alternative employment. It carried the onus of proof of establishing a failure to mitigate.
Mr Spartalis was dismissed without notice on 22 November 2010. He did not keep a written record of his efforts to find other work until he was required to do so by Centrelink for its purposes. The first written record of an attempt to find work was the sending of his résumé to a recruitment firm on 19 January 2011. Thereafter he sent letters of introduction and his réesumé to firms in the defence, mining, property development and real estate fields, registered with online employment sites and contacted recruitment agencies and used his personal contacts.
While the evidence of Mr Spartalis was not particularly clear in relation to his efforts to find work before 19 January 2011, it seems that he was taking preparatory steps by developing a plan, considering possible options and so forth.
While his initial efforts to find other work were apparently limited, the trial Judge took into account a number of matters before finding that BMD Constructions had not proved a failure by Mr Spartalis to mitigate his loss. Her Honour noted that at the time of the dismissal, the global financial crisis was, as Mr Rex stressed in his evidence, seriously curtailing activity in the construction field (where Mr Spartalis had worked for some 20 years). He had been dismissed summarily without any warning as Christmas approached and, due to the way BMD Constructions had described the circumstances of his dismissal, he had had to resolve difficulties in obtaining Centrelink benefits. As Mr Spartalis noted in his evidence, few employers actively recruit in the lead up to Christmas. He was also, as one might expect, shocked by the dismissal without warning and took some time to adjust.
These considerations were relevant to the assessment of the sufficiency of the efforts by Mr Spartalis to find suitable work. No error has been demonstrated in Her Honour’s conclusion that BMD Constructions failed to establish a failure to mitigate.
Calculation of the payment due in lieu of notice
The trial Judge relied upon the total remuneration package received by Mr Spartalis in determining the damages payable. The value of the total package was $282,665.82 per annum which comprised a base salary of $243,937.68, an employer superannuation contribution of $20,328.14 and the provision of a motor vehicle to the value of $18,400. BMD Constructions contends that the calculations ought to have been fixed by reference to the base salary only.
Mr Spartalis relied upon section 117(2)(b) of the Fair Work Act 2009 (Cth) which provides that:
An employer must not terminate the employee’s employment unless ... the employer has paid to the employee (or to another person on the employee’s behalf) payment in lieu of notice of at least the amount the employer would have been liable to pay to the employee (or to another person on the employee’s behalf) at the full rate of pay for the hours the employee would have worked had the employment continued until the end of the minimum period of notice.
Section 18 relevantly provides that the “full rate of pay” is to include incentive based payments and bonuses, loadings, monetary allowances, overtime or penalty rates and any other separately identifiable amount.
Her Honour also referred to clause 56 of the Supplementary Explanatory Memorandum to the Fair Work Bill 2009. This stated that what is now section 117(2)(b) was intended to put beyond doubt that, when an employer elects to pay an employee in lieu of notice, the payment must include payments made on behalf of the employee such as superannuation contributions. Section 15AB of the Acts Interpretation Act 1901 (Cth) permitted her Honour to have regard to the Explanatory Memorandum to the extent that it was capable of assisting in ascertaining the meaning of section 117(2)(b).
The Explanatory Memorandum reinforces the ordinary meaning of the reference in section 117(2)(b) to the obligation of the employer 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. The employer superannuation contribution was plainly a payment made to another person on behalf of Mr Spartalis.
Clause 7.1 of Mr Spartalis’ employment contract specified that he was to be provided with a motor vehicle. When he entered into the contract, the value of the use of the vehicle was specified as $24,000 but this had reduced to $18,400 per annum at the time of his dismissal. Her Honour concluded that the value of the vehicle was a “separately identifiable amount” within the meaning of section 18. That conclusion was clearly correct.
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