Susan Chahwan v Sutherland Shire Montessori Society Incorporated trading as Sydney Montessori School

[2014] FWC 2060

[2014] FWC 2060 [Note: Appeals pursuant to s.604 (C2014/4083 & C2014/4084) were lodged against this decision - refer to Full Bench decisions dated 13 August 2014 [[2014] FWCFB 5390] and 30 January 2015 [[2015] FWCFB 345] respectively for results of appeal.]

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.394 - Application for unfair dismissal remedy

Susan Chahwan
v
Sutherland Shire Montessori Society Incorporated trading as Sydney Montessori School
(U2013/12694)

Elizabeth Ghali
v
Sutherland Shire Montessori Society Incorporated trading as Sydney Montessori School
(U2013/12744)

COMMISSIONER CAMBRIDGE SYDNEY, 28 MARCH 2014

Unfair dismissal claims - serious misconduct - senior executive positions - allegations of failure to perform crucial duties - allegations of misconduct involving breaches of fiduciary duty to employer - misconduct involving actions inimical to employer’s interest - misconduct involving conflict of interests with and in opposition to employer - local school community conflict - convergence of obligations and interests arising from various relationships - actions which disturb trust and confidence of employment relationship - valid reasons for dismissal - due process followed - no other mitigating factors - dismissals not harsh, unjust and unreasonable - applications dismissed.

[1] This Decision is made in respect of two applications for unfair dismissal remedy made pursuant to section 394 of the Fair Work Act 2009 (the Act). The applications were lodged at Sydney on 19 August 2013. The applications were made by Susan Chahwan and Elizabeth Ghali (the applicants) and in both matters the respondent employer is Sutherland Shire Montessori Society Incorporated trading as Sydney Montessori School(the employer).

[2] The applications indicated that the date that the applicants’ dismissals took effect was 7 August 2013. Consequently, the applications were made within the 21 day time limit prescribed by subsection 394 (2) of the Act.

[3] The matters were not resolved at conciliation and they have proceeded to arbitration before the Fair Work Commission (the Commission) in a Hearing conducted in Sydney on 3, 4, 5, 6 December 2013 and 17 February 2014. There was a third, related application made by Hani Ghali which was discontinued shortly before the commencement of the Hearing of the applications.

[4] At the Hearing, Mr C McArdle, a lawyer, was granted permission to appear for the applicants. Mr S Meehan, also a lawyer, was similarly granted permission to appear on behalf of the employer. The Commission also granted permission for another lawyer, Mr S Benson, to appear on behalf of a witness who had been summoned to appear at the instigation of the employer.

[5] The applicants and one other witness were called to provide evidence in support of the claims. The employer adduced evidence from a total of seven witnesses including evidence from Ms Yates, who is an inspector with the New South Wales Board of Studies (BOS) and for whom Mr Benson appeared.

Factual Background

[6] The applicants were engaged in senior executive positions with the employer. Specifically, Ms Chahwan was employed as the Acting Head of School or Acting School Principal, and Ms Ghali was employed as the Head of School Secondary.

[7] The employer is a not-for-profit incorporated association which, through a Board of Directors (the Board), relevantly conducts the operation of the Sydney Montessori School (the school), which has campuses located in the Sydney suburbs of Gymea and Sutherland. The employer has approximately 42 employees.

[8] Each of the applicants have held senior positions with the employer since at least, about 2008. At different times, each of the applicants participated as members of the Board and concurrently occupied senior educational and administrative roles at the school. The applicants are parents of students who attended the school in 2013 and are members of the incorporated association which forms the entity which is the employer. Hani Ghali, the husband of one of the applicants, Ms Ghali, had been the Principal/Chief Executive Officer of the school since about 2000.

[9] During the later part of 2012, ongoing tensions which had developed between certain members of the Board and, in particular, Mr Ghali, resulted in Mr Ghali resigning as Principal/Chief Executive Officer. In February 2013, the Board appointed Ms Chahwan as Acting Head of School to replace Mr Ghali. However, Mr Ghali continued in employment at the school in what may be described as a transitional and special projects role.

[10] Importantly, the school, as with all non-government schools in New South Wales, operated by virtue of certain registrations and accreditations which were ordinarily granted by the BOS on a reoccurring five yearly basis. Since 2008, the school had expanded to include secondary level educational courses. As this expansion continued toward the school providing its first Higher School Certificate (HSC) course in 2013, the accreditation and registration processes involved annual inspections by the BOS and year by year extensions of accreditation and registration approvals.

[11] Consequently, at the commencement of 2013, the school anticipated some significant challenges, most notably the BOS registration and accreditation process which, for the first time, would encompass the HSC. Further, there were the understandable and predictable transition management issues associated with the change of Principal from the long serving Mr Ghali to Ms Chahwan. In addition, the school had some serious underlying financial difficulties.

[12] Unfortunately, the tensions which had developed between some members the Board and Mr Ghali did not dissipate. The change of Principal and the move of Mr Ghali into a “non-Board” role, where he was to devote his working time almost exclusively to ensuring the BOS registration and accreditation process was successful, did not meet with general approval from the school staff. This disquiet surfaced at an early time in 2013.

[13] In February 2013, almost all members of the school staff signed a form letter which called on the President of the Board to “...dismiss the Board and reappoint two people, in consultation with the Executive Team, to establish an Interim Board...”, with the expectation “...that the transition to a completely independent board, without parents, will be in place by the beginning of Term 3, 2013, if not sooner.” This form letter was dated 13 February 2013, and it further included, “...we would like to hear a decision, in writing, by Friday 15 February.” 1

[14] A further letter dated 18 February 2013, was signed by 10 members of the incorporated association which is the employer entity and referred to as “the Society”. This letter called for a Special General Meeting of the Society to propose a Special Resolution in the following terms:

“To stand down current Members of the Board whom we believe are incapable of the following:

1. acting impartially with regards to governance of the School
2. In accordance with section 15.5(b) of the Objects and Rules
3. In the best interests of both the School and the Society.

The President to immediately set in process a transition to an Independent Corporate Board with a new Constitution as advocated by the AIS and MAF, in full consultation with and with assistance from the AIS and MAF.” 2

[15] It can be readily appreciated from the contents of the form letter of 13 February and the Special General Meeting letter of 18 February, that by late February, there was a concerted endeavour by school staff and certain members of the Society, to have the existing members of the Board removed and replaced with other persons. The situation represented an unambiguous challenge to the members of the Board and an overt move to depose them. It should be noted that the applicants signed both the form letter of 13 February and the Special General Meeting letter of 18 February.

[16] In the months following the February letters, something of a difficult stand-off appeared to occur. A Special General Meeting was not held, the Board continued to meet and at different times Ms Chahwan and Mr Hani Ghali attended Board meetings and provided executive reports which included reference to the BOS registration and accreditation process. These reports indicated that Mr Ghali had been working assiduously on issues related to the BOS registration and accreditation.

[17] The BOS conducted an inspection of the school on 21 and 22 May, as part of the registration and accreditation process. The Board met on Friday 24 May and the minutes of that meeting record that Mr Hani Ghali was in attendance. Further, the minutes make mention of the BOS registration and accreditation process in the following terms: “BOS audit - a number of issues raised. The main one was upgrading IT room. The worst case we have is a 12 month rego and then redo.” 3

[18] In early June 2013, the deterioration of the financial position of the school was identified to have reached crisis point and particular members of the Board met with the applicants and other teachers to discuss cost cutting measures that might assist with the financial difficulties. As a result of comments made during these meetings, the Board President, Mr Attridge, became concerned about issues that may have arisen from the BOS inspection which had occurred a few weeks earlier.

[19] Consequently, the Board President made a telephone inquiry with the BOS inspector who had visited the school on 21 and 22 May. The BOS inspector informed the Board President that the inspection had identified serious concerns involving the school’s non-compliance with various registration and accreditation requirements, including matters that the school had been warned about in the previous year. Further, these concerns had been conveyed to Ms Chahwan in a letter dated 28 May 2013. This news alarmed the Board President as he was unaware of the communication from the BOS.

[20] On 6 June, the BOS inspector sent the Board President copies of the letters which the BOS had earlier sent to Ms Chahwan, including a copy of the letter dated 28 May to which was attached a list of 69 items in respect of which the BOS required documentation or other evidence of compliance. This correspondence deeply concerned the Board President, particularly as it had not been provided to him by any of the executive staff of the school.

[21] The Board President sent copies of the 28 May letter from the BOS and its attachment to the other members of the Board. The Board met and considered the serious concerns which had been raised by the BOS letter of 28 May, including that the executive staff of the school had not provided the Board with any indication of these concerns. The Board considered taking disciplinary action against the executive staff and sought legal advice accordingly.

[22] On 14 June, the Board suspended the applicants (and Mr Ghali) from duty on the basis of alleged serious misconduct, which was particularised in six points contained in letters of suspension. The allegations of serious misconduct were to be the subject of further investigation. The letters of suspension also advised that the suspension from employment and associated matters were to be treated as confidential and any breach of that confidentiality would be treated as serious misconduct.

[23] Further investigation by the Board and solicitors acting on the Board’s behalf was undertaken. These investigations discovered inter alia, other matters which were alleged to involve serious misconduct. One such additional matter involved an application made on behalf of Ms Chahwan to the Australian Securities and Investments Commission (ASIC) for the registration of a Corporation of the name Australian Montessori Education Ltd (AME). The application to ASIC to establish AME was made on 14 June and was considered to be evidence of activity in breach of the applicants’ duty of fidelity to the employer.

[24] A further allegation emerged as a consequence of the applicants, together with their solicitor Mr McArdle, attending a school information meeting on the evening of 21 June. The attendance of the applicants at this meeting was alleged to have breached the confidentiality directives of the letters of suspension. Further, Mr McArdle addressed the meeting and the contents of his speech provided information about the activities of the applicants which was alleged to confirm misconduct involving the potential to cause significant damage to the school.

[25] During July and early August, solicitors for the employer and those for the applicants exchanged numerous documents which broadly involved particulars of allegations against the applicants and responses to those allegations. These communications culminated in letters of dismissal dated 7 August 2013, which advised that the employer was dismissing the applicants on the basis of serious misconduct, established on four particular grounds, which stated that the applicants:

“1.	did not advise the Board about the serious concerns raised by the Board of Studies during the May 2013 inspection;
2.	did not provide the Board with a copy of the letter from the Board of Studies dated 28 May 2013 or advise the Board of the extent of the concerns raised by the Board of Studies and that the School was at real risk of losing its registration and accreditation;
3.	failed to adequately prepare for the Board of Studies inspection in May 2013 and failed to ensure that the School was complying with the Board of Studies requirements with respect to accreditation and registration; and
4.	breached her fiduciary duties to the School.” 4

[26] The letters of dismissal further advised that the applicants were summarily dismissed and their conduct was inconsistent with the continuation of the contract of employment as it had caused serious risk to the reputation, viability and profitability of the school.

The Case for the Applicants

[27] Mr McArdle who appeared for the applicants made verbal submissions in addition to documentary material, which included material filed earlier and what Mr McArdle described as a “talk to” document that he handed up during the Hearing. Mr McArdle commenced his submissions by referring to s.387 of the Act and he referred to various Decisions which he said provided authority for the correct approach to consideration as to whether a dismissal was harsh, unjust or unreasonable.

[28] Mr McArdle further submitted that in respect to the question as to whether there was a valid reason for the dismissal of the applicants, the Commission was required to establish the actual reason and that reason may not be the reason that was stated by the employer. Mr McArdle said that in this instance, the dismissal of the applicants was for reason relating to faction fighting and such a reason could not be sound, defensible or well founded.

[29] Mr McArdle said that in this instance there were undisputed facts that the school community had divided into opposing camps. He said that there was a raucous meeting held on 21 June when a security guard was called and this demonstrated that the actual reason for the dismissal of the applicants involved a community dispute involving fights amongst people.

[30] According to the submissions made by Mr McArdle, the community dispute led to the applicants being put on suspension without being given an opportunity to respond to the issues that had been raised. Mr McArdle said that the issues which had been raised, such as the BOS compliance matters and cash flow issues, were not the real reason for the dismissal of the applicants.

[31] Mr McArdle made further submissions which were highly critical of what he said was the failure of the employer to give the applicants any opportunity to deal with various matters relating to the 69 non-compliance issues that had been identified by the BOS. In this regard, Mr McArdle made particular mention that the applicants were not contacted to provide information about the whereabouts of the child safety register or the fire safety certificate. Instead, the applicants were placed on suspension because particular members of the Board did not like the applicants and did not want them to work there and were engaged in an exercise to remove them.

[32] Mr McArdle made submissions directed in particular to the dismissal of Ms Ghali whom he said had the misfortune to be wedded to Mr Ghali, as there was an element relating to her dismissal of being tarred with a brush due to her marital status.

[33] In respect to the allegations regarding breach of fiduciary duty involving the establishment of the AME Company, Mr McArdle submitted that this Company was not set up in competition to the employer and the applicants’ actions had not done anything to harm anybody. According to the submissions of Mr McArdle, the AME Company was set up as an organisation that would have been available to do something about rescuing the school and it did not represent an undermining of anybody.

[34] Mr McArdle submitted that the applicants had not been given a fair go and they were the victims of a faction fight and therefore there was not a valid reason for the termination of the applicants’ employment. Mr McArdle also submitted that along with many other people, the applicants had signed the petition protesting at the behaviour of the Board and this did not represent a breach of fiduciary duty or a conflict of interest. Instead, according to Mr McArdle, it was a little bit precious to rely upon such behaviour as a reason to terminate the employment of the applicants.

[35] Mr McArdle summarised his submissions by concluding that the dismissals of the applicants were unfair because it was not a valid reason to dismiss as part of the political fallout from the school community faction fight. Further, he said that the applicants had not been given an opportunity to respond to things as they arose. Mr McArdle said that all requirements of the Act had been satisfied and that it was imperative that the Commission provide remedy by way of six months pay.

The Case for the Employer

[36] The employer was represented by Mr Meehan who submitted that the dismissals of the applicants were not unfair. Mr Meehan made submissions which elaborated upon lengthy documentary material that had been filed on behalf of the employer.

[37] Mr Meehan commenced his submissions by acknowledging that in this instance, the dismissals involved terminations for serious misconduct and therefore the respondent bears an onus to prove that misconduct. Mr Meehan constructed his submissions by reference to the four specific findings of misconduct contained in the letters of dismissal dated 7 August 2013.

[38] Mr Meehan made detailed submissions in respect to each of the applicants and their respective conduct, in relation to each of the four findings of misconduct upon which the terminations of the employment was based. Mr Meehan commenced these detailed submissions by analysis of the misconduct found against the applicant Ms Chahwan, noting in particular that she held the most senior position at the school, namely Acting Principal.

[39] Mr Meehan said that within three days of her appointment as Acting Principal Ms Chahwan was trying to get the Board dismissed. In this regard, Mr Meehan noted that the applicants had signed the petition and letter in February 2013. Mr Meehan then made detailed submissions about the absence of information from Ms Chahwan to the Board about the critical issue relating to the BOS registration and accreditation process. Mr Meehan said that this approach was to completely block out any involvement of the school Board with matters like the BOS issues.

[40] According to the submissions made by Mr Meehan, Ms Chahwan had deliberately withheld information from the Board as part of the broader campaign that she was involved with and which sought to depose the existing members of the Board. These were matters of an extremely serious nature which, in the absence of compliance, threatened the operation of the school and to not advise the Board represented a conscious decision to withhold this important information.

[41] Mr Meehan also made submissions about the incorporation of the AME Company. Mr Meehan said that Ms Chahwan was a business person involved in the operation of other Montessori preschools and she had instructed her accountant to set up the AME Company, anticipating that it might represent a vehicle by which the school could operate in the event that a voluntary administration circumstance arose. According to Mr Meehan, these arrangements were all part of a push by those that were opposed to the current Board to have the school go into administration and thus the existing Board would be removed and some alternative arrangements would have to be established. Mr Meehan rejected any suggestion that this was an innocent safety net arrangement because Ms Chahwan and the others involved with it, never disclosed the incorporation of this entity to the school Board.

[42] It was submitted by Mr Meehan that the conduct of Ms Chahwan in relation to these events was a remarkable set of circumstances which revealed a manifest conflict of interest and a serious breach of her fiduciary obligations to the school. The conduct of Ms Chahwan was, according to Mr Meehan,clear evidence of activities associated with the campaign to wrest control of the school away from the existing Board.

[43] Mr Meehan made further submissions which rejected any suggestion that the applicants had been denied procedural fairness. In this regard, Mr Meehan referred to the extensive written communications that had been exchanged between the solicitors representing the respective parties. He said these communications represented a fairly comprehensive articulation by the respondent of the allegations and the written responses from the applicants which led to further deliberation from the respondent and subsequent reply. Consequently, Mr Meehan stated that in respect to Ms Chahwan each of the counts of misconduct as set out in the letter of dismissal, had been made out and the Commission should make findings accordingly.

[44] Mr Meehan then made further submissions in respect of the misconduct that the employer had determined in respect of Ms Ghali.

[45] Mr Meehan submitted that Ms Ghali had been the Head of the Secondary School since 2008 and she would have been aware of the curriculum concerns raised by the BOS following its inspection in 2011. Consequently, according to the submissions made by Mr Meehan, Ms Ghali was on notice that there were serious compliance concerns which needed to be rectified and she had failed to adequately address the serious concerns that arose, particularly in respect to the curriculum regarding years 11 and 12.

[46] In further submissions made by Mr Meehan, emphasis was placed on the fact that Ms Ghali, like Ms Chahwan, had signed the February 2013 petition seeking “the spill of the board”. Mr Meehan said that Ms Ghali had made no attempt to apprise the Board of the concerns in relation to the curriculum which had been raised by the BOS as early as 2011. According to Mr Meehan, this was action consistent with Ms Ghali's desire to get rid of the Board and not inform them of important issues regarding potential non-compliance in respect to curriculum issues.

[47] Mr Meehan made further submissions which examined in detail the evidence that suggested that Ms Ghali had not been at all helpful in respect to compliance requirements, such as the provision of documentation, which although it apparently existed, was not found during the BOS inspection because searches were conducted in the wrong place. Mr Meehan submitted that adverse inferences should be drawn from this particular conduct of Ms Ghali.

[48] Mr Meehan also submitted that Ms Ghali had breached her fiduciary duties towards her employer as she was part of a group which had engaged in a plan to remove the existing Board and have the AME Company assume control of the school. Mr Meehan stressed that Ms Ghali had agreed to become a Director of the AME Company.

[49] It was also submitted that Ms Ghali like Ms Chahwan, attended the 21 June information evening along with their solicitor Mr McArdle and this was in breach of the confidentiality directives which were contained in the letters of suspension.

[50] In summary, Mr Meehan submitted that there was ample evidence upon which to establish that the applicants were dismissed for valid reasons. Mr Meehan submitted that the valid reasons as set out in the letters of dismissal, demonstrated that the applicants had failed to advise the Board of the very serious concerns which were contained in the communication of 28 May 2013 from the BOS.

[51] Mr Meehan said that the applicants had failed to adequately prepare for the BOS inspection and had exposed the school to serious risk of non-compliance with fundamental registration and accreditation requirements. Mr Meehan submitted that these actions, when coupled with activities of the applicants regarding the establishment of the AME Company, amounted to clear breaches of the applicants’ fiduciary duty to their employer.

[52] Further, in respect to procedural issues, Mr Meehan submitted that the applicants had been given every opportunity to respond via their solicitors and had not satisfied the employer that their actions were anything other than serious misconduct. Mr Meehan said that in all circumstances, the employer's actions were reasonable and were open to it and therefore the applications should be dismissed.

Consideration

[53] Section 385 of the Act stipulates that the Commission must be satisfied that four cumulative elements are met in order to establish an unfair dismissal. These elements are:

(a) the person has been dismissed; and

(b) the dismissal was harsh, unjust or unreasonable; and

(c) the dismissal was not consistent with the Small Business Fair Dismissal Code; and

(d) the dismissal was not a case of genuine redundancy.

[54] In this case, there was no dispute that the applications were confined to a determination of that element contained in subsection 385 (b) of the Act, specifically whether the dismissals of the applicants were harsh, unjust or unreasonable. Section 387 of the Act contains criteria that the Commission must take into account in any determination of whether any dismissal is harsh, unjust or unreasonable. These criteria are:

(a) whether there was a valid reason for the dismissal related to the person’s capacity or conduct (including its effect on the safety and welfare of other employees); and

(b) whether the person was notified of that reason; and

(c) whether the person was given an opportunity to respond to any reason related to the capacity or conduct of the person; and

(d) any unreasonable refusal by the employer to allow the person to have a support person present to assist at any discussions relating to dismissal; and

(e) if the dismissal related to unsatisfactory performance by the person—whether the person had been warned about that unsatisfactory performance before the dismissal; and

(f) the degree to which the size of the employer’s enterprise would be likely to impact on the procedures followed in effecting the dismissal; and

(g) the degree to which the absence of dedicated human resource management specialists or expertise in the enterprise would be likely to impact on the procedures followed in effecting the dismissal; and

(h) any other matters that the FWC considers relevant.

387 (a) - Valid Reason for the Dismissal Related to Capacity or Conduct

[55] In this matter, the applicants each received letters of dismissal which contained four identical grounds upon which the employer decided to terminate the employment of each of the applicants. Three of the reasons for dismissal as stated in the letters of 7 August, relate to issues surrounding the BOS registration and accreditation process and the letter from the BOS of 28 May 2013, which included numerous, serious non-compliance concerns. The fourth stated reason for dismissal involved an alleged breach of fiduciary duty to the employer.

BOS Registration and Accreditation

[56] The applicants each occupied senior positions with responsibility for matters such as the BOS registration and accreditation compliance requirements. The employer found that each of the applicants had failed to discharge the fundamental requirements of their positions as a result of the non-compliance concerns identified by the BOS communication of 28 May 2013. In addition, the employer found further complaint in that neither of the applicants had ensured that the communication from the BOS regarding serious non-compliance concerns was drawn to the attention of the Board.

[57] The applicants provided evidence which broadly sought to dispel the level of concern that the Board had attached to the BOS communication of 28 May. Essentially each of the applicants suggested that if they had not been suspended from duty, they would have been able to redress all of the non-compliance concerns raised by the BOS. In addition, the applicants rejected the suggestion that the Board should have been made aware of the BOS communication. The applicants contended that as the members of the Board did not have experience or formal qualifications in any educational discipline, the contents of the BOS communication would not be properly comprehended and be of little practical relevance for Board consideration.

[58] There was evidence provided by the BOS inspector, Ms Yates and by Ms Robert-Smith the educational consultant who was engaged to assist with the BOS registration and accreditation requirements after the applicants had been suspended, which disclosed a much more serious level of non-compliance concerns than either of the applicants had apparently attributed to the BOS communication of 28 May. In particular, the nature and extent of the remedial action that was undertaken by Ms Robert-Smith was reflective of a broadly critical state of the circumstances that the school faced and which had been identified during the BOS inspection of 21 and 22 May.

[59] Upon analysis, the plain and unambiguous contents and language used in the BOS communication of 28 May could not provide for any interpretation other than it conveyed that a series of significant concerns had been identified and that in the absence of rectification of these concerns, the school's application for renewal of registration and accreditation would be refused. The totality of the evidence, when carefully evaluated, confirmed that the BOS communication of 28 May raised issues of such significance and gravity as to jeopardise the ongoing operation of the school. The applicants did not properly recognise or acknowledge the seriousness of these circumstances.

[60] The various non-compliance issues which had been identified by the BOS communication reflected very poorly upon the senior management staff, including the applicants. In February 2013, an overt campaign to depose the existing Board members had commenced and any exposure of the inadequacies reflected by the BOS communication would not assist that campaign. Consequently, it was in the applicants’ interests in pursuit of the campaign to depose the existing Board members, to conceal and or diminish the seriousness of the non-compliance concerns raised in the BOS communication of 28 May.

[61] The information regarding the BOS communication of 28 May was withheld from the Board upon the spurious foundation that the members of the Board would be unable to comprehend the information or they would misinterpret it. The information about the BOS non-compliance concerns was also not disclosed to teaching staff. There was evidence of various examples when the applicants exercised a degree of information control and one notable occasion involved a Teachers meeting held on 4 June, when a Teacher by the name of Simone asked about the outcome of the BOS inspection and Ms Chahwan provided the following evidence to justify her deliberately misleading answer:

“... there were maybe only five people in the room that would have any knowledge or anything to do with the Board of Studies submission so it was not a proper forum to discuss something of that nature so I just said, “Everything is under control and it's fine.” So, yes, I squashed her because I like not to divert. ...” 5

[62] A careful examination of the evidence has conclusively established that the BOS communication of 28 May identified actual and very serious non-compliance concerns which included issues from previous year’s inspections. The applicants occupied senior executive positions and were responsible for such compliance matters. The applicants did not disclose information regarding the non-compliance concerns of the BOS to members of the Board and school staff.

[63] Although Ms Chahwan had only recently been appointed as the Acting School Principal, the former Principal Mr Ghali, had been given a special projects role which clearly focused upon ensuring that the school achieved the BOS registration and accreditation. Consequently, Ms Chahwan as a “new” Acting Principal was not given the unrealistic task of having to herself, ensure satisfactory BOS registration and accreditation, but rather her responsibility amounted to making sure that Mr Ghali completed the primary function for which he had been retained and which he asserted occupied him for an average 50 hours per week during February and March, 2013. 6

Breach of Fiduciary Duty

[64] Although the letters of dismissal did not specify the nature of the breach of fiduciary duty found against the applicants, the extensive correspondence between the respective solicitors which preceded the letters of dismissal, focused upon the applicants’ involvement in the establishment of the AME Company.

[65] On about 5 or 6 June 2013, Ms Chahwan instructed her accountant to lodge an application for registration of an Australian Company and subsequently on 14 June 2013, AME was registered as a corporation under the Corporations Act 2001 (the Corporations Act). The ASIC Company extract produced on 19 June 2013 for Australian Montessori Education Ltd ACN: 164 275 389 7 contained the names of four Directors, two of which were the applicants. One of the other Directors of AME was Mr Sammy Kannis, who gave evidence during the Hearing of these matters.

[66] There was very surprising evidence 8 which established that Mr Kannis became a Director of AME without his knowledge or consent. Ms Chahwan confirmed that she provided her accountant with Mr Kannis’s details including his date of birth, so that he could become a Director of AME. Ms Chahwan gave evidence9 that she took this action on the assumption that Mr Kannis would not object, and she confirmed that there was no requirement to have persons nominated as Directors sign any documentation or otherwise confirm their consent to the nomination10. Further, Ms Chahwan did not tell Mr Kannis that she had made him a Director of AME.

[67] Given the responsibilities and obligations that apply to a person who holds the position of a Director of an Australian Company, it was surprising to discover that a person could become a Company Director without that person's knowledge or consent. As indicated during the Hearing, I believe that this particular issue may be more appropriately investigated by the relevant regulatory authority and I believe that I am obliged to formally refer this Decision and the relevant evidence to the attention of the Investigations and Enforcement Branch of ASIC.

[68] Although the actions of Ms Chahwan in establishing AME without obtaining the explicit consent of one of the persons nominated to be a Director could be generously described as cavalier, the employer considered the matter to involve a direct conflict of interest and breach of her fiduciary duty to her employer. In the context of the overt campaign to depose the existing members of the Board which had commenced in February, the establishment in June of AME without any advice to the Board would understandably be construed as an action clearly inimical to the interests of the employer.

[69] The applicants claimed that the establishment of AME was an action motivated by good intention to provide a means by which the school could continue to function in the event that the employer was placed into voluntary administration. This proposition might be capable of providing justification for the establishment of AME if the action had been openly disclosed to the Board. The secrecy with which AME was established, including that one of the Directors did not even know of its formation and in circumstances where the applicants were part of the overt campaign to depose the existing Board members, has provided compelling support for a finding that the applicants were acting against the interests of their employer and in breach of their fiduciary duty.

Casualties of a Political Battle

[70] Mr McArdle submitted that the stated reasons for dismissal were not the actual reasons which he said involved the applicants being dismissed as victims of a factional fight amongst members of the school community.

[71] There was ample evidence of the protracted disagreement between a number of the members of the Board and the executive staff of the school. The applicants openly displayed their opposition to the Board and were active participants in a campaign to depose the existing Board members. Although the applicants were school parents and part of the school community, as executive staff of the school they had obligations as senior employees to act in the best interests of their employer.

[72] Consequently, by February 2013, it became clear that the applicants had a series of competing interests which arose from the employment relationship on the one hand and on the other hand, those interests and influences which emerged from being a school parent, a Teacher and a member of the school community/society. Employment involves a relationship which is established upon mutual trust and confidence. For the applicants to openly participate in a campaign to depose the particular individuals who were in effect their employer, created an untenable position.

[73] Unfortunately, the applicants were unable to recognise the fundamental conflict that emerged as their obligations under the employment relationship converged and clashed with their interests which arose as members of the school community. An open challenge to an employer from senior employees who occupy positions which inherently require loyalty and allegiance, will usually result in irreparable disturbance to the employment relationship.

[74] There was evidence of one particular event which can provide a convenient example of a regrettable disregard for the reasonable instruction of the employer and which arose from the pursuit of interests arising from the conflict within the broader school community. On 14 June, the applicants were suspended from duty and provided with instruction that the issues surrounding their suspension should be treated as confidential and not be discussed with anyone from the school.

[75] In direct contravention of this reasonable instruction, Ms Ghali immediately disclosed information regarding her suspension to others at the school, including to High School students who then reacted by approaching the President of the Board making representations in respect of the decision which had been taken to suspend Ms Ghali from duty. It would be difficult to imagine how the employment relationship could endure such a direct and immediate flouting of a reasonable instruction.

[76] There was a further regrettable incident which exacerbated the already highly strained employment relationships of the applicants. The Board arranged for a school community information meeting to be held on the evening of Friday 21 June. The applicants attended this meeting in the company of their solicitor Mr McArdle. The applicants’ attendance at this meeting together with their solicitor would, on any realistic, objective assessment, be likely to introduce a level of tension and controversy and provide further indication that the applicants had prioritised the school community contest over and above any obligations arising from their employment relationships.

[77] The predominance that the applicants adopted for their interests in respect of the school community contest was reinforced and heightened when their solicitor Mr McArdle, addressed the meeting whilst standing on a chair and advocated a position in support of the campaign to depose the existing Board members. This unusual involvement created at least an impression if not in reality, the appearance that Mr McArdle had become an active participant in the community contest rather than a legal representative of the applicants.

[78] Although Mr McArdle’s participation in the school community meeting on the evening of 21 June might be benevolently described as “going above and beyond the call of duty”, it operated to entrench the battle lines of the community contest and draw the employment position of the applicants deeper into that contest. Consequently, any potential for untangling the employment relationships of the applicants from the community/society contest became almost impossible.

[79] In summary therefore, the evidence regarding valid reason relating to capacity or conduct has established that both the stated reasons for dismissal, and those which were said to be the actual reasons for dismissal, represented sound, defensible, well founded and clearly valid basis for the dismissal of the applicants. In simple terms, the applicants embarked upon a course of conduct which was incompatible with the inherent duties, trust and confidence necessary to maintain the employment relationship, particularly at a senior executive level.

387 (b) - Notification of Reason for Dismissals

[80] The employer provided written notification of the reason for the dismissal of the applicants. This notification was preceded by extensive written communications between the Parties.

387 (c) - Opportunity to Respond to any Reason Related to Capacity or Conduct

[81] The employer suspended the applicants from duty when it discovered the alarming contents of the BOS communication of 28 May. In the context of the campaign to depose the members of the Board, there would be an understandable belief that the applicants’ ongoing presence at the school would allow further damage.

[82] After the suspensions, there were extensive communications between the respective solicitors. These communications provided opportunity for the applicants to respond to the allegations made against them.

387 (d) - Unreasonable Refusal to Allow a Support Person to Assist

[83] There was no evidence that the employer unreasonably refused any request of either of the applicants to have a support person assist them at any stage of the process that led to the decision to dismiss.

387 (e) - Warning about Unsatisfactory Performance

[84] This factor has no relevance in this instance.

387 (f) - Size of Enterprise Likely to Impact on Procedures

[85] The size of the employer’s operation has had no practical impact in the circumstances of this matter.

387 (g) - Absence of Management Specialists or Expertise Likely to Impact on Procedures

[86] The applicants and the employer engaged legal representatives and the absence of management specialists was not a matter which impacted on the procedures that were adopted in this instance.

387 (h) - Other Relevant Matters

[87] I have considered evidence of the financial impacts that the dismissals had upon the respective applicants. I have also had regard for evidence of the particular personal circumstances of each of the applicants.

[88] Further, I have had cognisance of the emotion, indeed passion that often attaches to debate about educational issues, particularly when parents of students and their Teachers are involved.

[89] My consideration of these other relevant matters has led to a conclusion that they do not have a significant impact when evaluated against the substantive basis upon which the dismissals where based.

Conclusion

[90] The applicants were dismissed for serious misconduct. The serious misconduct involved a number of aspects.

[91] Firstly, the extent and nature of the non-compliance concerns which arose from the May 2013 BOS inspection represented a manifest failure to perform a fundamental aspect of the senior management positions of the applicants. Secondly, a similar fundamental failure of duty arose from the non-disclosure to the Board of the BOS concerns, particularly including the 28 May letter from the BOS. Thirdly, the establishment of a Company (AME), which provided a means for the operation of the school if it was placed into voluntary administration, without advice to the Board, created a breach of fiduciary duty to the employer.

[92] In addition, although not stated by the employer as reasons for dismissal, the applicants were active participants in a campaign to depose the members of the Board. These actions may have been driven by an unfortunate convergence of obligations and interests arising from various relationships. However, a regrettable conflict of interests arose and the applicants’ opposition to the employer involved actions inimical to the employer’s interest and which irreparably disturbed the trust and confidence necessary to maintain the employment relationship.

[93] Upon full analysis, the reasons for the dismissals were valid, sound, well founded and defensible. The reasons constitute serious misconduct which justified the terminations of the employment. Consequently, there were proper and valid reasons for the dismissals of the applicants.

[94] Further, I am satisfied that the dismissals were implemented following due process and that there were no other relevant mitigating factors.

[95] Consequently, for the reasons stated above, I find that the dismissals of the applicants were not harsh, unjust or unreasonable. The applications must therefore be dismissed and Orders [PR549052 and PR549060] are made accordingly and issued separately.

COMMISSIONER

Appearances:

Mr C McArdle,solicitor, on behalf of the applicants;

Mr S Meehan,counsel, on behalf of the employer;

Mr S Benson,counsel, on behalf of Ms Yates.

Hearing details:

2013.

Sydney:

December, 3, 4, 5, 6

2014.

Sydney:

February, 17.

 1   Tab 52 of the respondent’s bundle of documents.

 2   Tab 55 of the respondent’s bundle of documents.

 3   Tab 68A of the respondent’s bundle of documents.

 4   Tab 98 of the respondent’s bundle of documents.

 5   Transcript PN925.

 6   Tab 62 of the respondent’s bundle of documents.

 7   Tab 84 of the respondent’s bundle of documents.

 8   See most notably transcript PN222 to PN227.

 9   Transcript PN1030 to PN1036.

 10   See in particular transcript PN1347.

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<Price code C, PR549051>