Walker v Zurich Australian Insurance Ltd
[2001] QCA 296
•31 July 2001
SUPREME COURT OF QUEENSLAND
CITATION: Walker v Zurich Australian Insurance Ltd & Anor [2001] QCA 296 PARTIES: ADRIAN LEWIS WALKER
(plaintiff/appellant)
v
ZURICH AUSTRALIAN INSURANCE LIMITED
ACN 000 296 640
(first defendant/first respondent)
ZURICH PACIFIC INSURANCE LIMITED
(second defendant/second respondent)FILE NO/S: Appeal No 8951 of 2000
SC No 857 of 1998DIVISION: Court of Appeal PROCEEDING: General civil appeal ORIGINATING COURT: Supreme Court at Townsville
DELIVERED ON: 31 July 2001 DELIVERED AT: Brisbane HEARING DATE: 18 July 2001 JUDGES: de Jersey CJ, Davies and Thomas JJA
Joint reasons for judgment of de Jersey CJ and Davies JA; separate reasons of Thomas JA, concurring as to the order made.ORDER: Appeal dismissed with costs to be assessed. CATCHWORDS: CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – appeal against trial judge’s construction of employment contract – where trial judge found employer was entitled to terminate contract on one month’s notice without cause – construction of relevant contract provisions – whether phrase “Standard disciplinary and warning procedures apply” modified employer’s contractual right to terminate on one month’s notice – relevance of respondent companies’ “Management Procedural Code of Conduct” – where appellant’s pleadings did not identify the source, nature or applicability of any ‘procedures’ so modifying employer’s right to terminate
EMPLOYMENT LAW – THE CONTRACT OF SERVICE AND RIGHTS, DUTIES AND LIABILITIES AS BETWEEN EMPLOYER AND EMPLOYEE – THE CONTRACT OF SERVICE GENERALLY – PARTIES – appeal against trial judge’s finding as to identity of appellant’s employer – trial judge found second respondent alone employed appellant, while appellant asserted it was employed by second respondent jointly with its parent company, the first respondent – consideration of circumstances of application for position and employment conditions
DAMAGES – MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT – GENERAL – consideration of correctness of trial judge’s quantum assessment where appellant argued failure to apply “Standard disciplinary and warning procedures” led to further damages entitlement
Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435, referred to
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, referred to
JC Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282, referred to
Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359, referred toCOUNSEL: CA White for the appellant
GC Martin SC for the respondentsSOLICITORS: Roberts Nehmer McKee (Townsville) for the appellant
Clayton Utz for the respondents
de JERSEY CJ and DAVIES JA: The learned trial judge found that the appellant was employed by the second respondent (“Zurich Pacific”) at its Port Moresby office; that Zurich Pacific terminated the appellant’s employment on 29 April 1998; that Zurich’s reliance, in dismissing the appellant, on alleged “serious misconduct” and “neglect of duty”, was unjustified, so that the appellant was unlawfully dismissed; that Zurich was however determined to terminate the appellant’s employment, and by inference, would have been concerned to proceed in such a way as to minimise its exposure to any damages; and that because the contract of employment entitled the employer lawfully to terminate the appellant’s employment (for no particular cause) on one month’s notice, the appellant’s damages should be assessed as equivalent to the value of one month’s salary and entitlements. Adding interest, that led to judgment in favour of the appellant in the amount of $14,328.
The appellant had sought damages by reference to salary and entitlements for the unexpired portion of the three year term for which the contract primarily provided, and a further period reflecting a contract provision contemplating possible extension after that period of three years “by mutual agreement”. The learned judge held however that each party had an unfettered right to terminate the contract on one month’s notice, so that the specified period of three years would be read as defining the outer limit of its possible operation.
The grounds of appeal challenge his Honour’s conclusions that the employer could terminate on one month’s notice without cause (leading to the limitation of damages to one month’s salary and entitlements), and as to the identity of the appellant’s employer: whereas the learned judge found that Zurich Pacific was the appellant’s employer, the appellant contended that he was employed jointly by Zurich Pacific and its parent company, the first respondent (“Zurich Australian”).
It is convenient to deal first with the question of the identity of the appellant’s employer. Zurich Pacific admitted that it was the employer, whereas Zurich Australian denied that it was an employer. The learned judge relied, for his conclusion that Zurich Pacific was the employer, on the circumstances that the appellant “applied for the position of deputy manager of (Zurich Pacific) and received payment of his salary from (Zurich Pacific)”. Those were plainly compelling considerations.
Mr White, who appeared for the appellant, drew attention to other features, principally: that the appellant’s letter of application, although referring to the position of “Deputy Manager, Zurich Pacific, Port Moresby”, was addressed to the manager of both companies; that the call for expressions of interest in the position was issued under the names of both companies; that Zurich Australian undertook the obligation of paying six percent of the appellant’s salary as superannuation into the Zurich Group Superannuation Fund; and that the appellant’s contract of employment was in the form of a letter on Zurich Australian’s letterhead.
Apart from observing that it is not clear from the terms of the contract of employment that Zurich Australian was obliged to pay the six percent by way of superannuation (clause 8), there is no need to comment on those or the other considerations to which Mr White referred: their aggregation was insufficient to outweigh the significance of the features on which his Honour substantially relied: the appellant’s being employed as deputy manager of Zurich Pacific at Port Moresby, with Zurich Pacific paying at least the vast bulk of his salary. There is no reason to disturb the learned judge’s conclusion that the appellant was employed by Zurich Pacific alone.
Three clauses of the contract of employment are particularly germane to the issue of termination. They are clauses 1 and 2, and part of clause 17:
“1. Commencement
Your contract will commence on Monday, 19 August 1996, and is initially for a period of three (3) years. This may be extended by mutual agreement.
2.Termination
One month’s notice of termination of service shall be given by the Company or the staff member. Standard disciplinary and warning procedures apply.
…
17.Duties
…
The Company may choose to dismiss you at any time with no period of notice and not recompense you in lieu of notice for:
(a) Neglect of Duty
(b) Serious Misconduct
(c)An Indictable Criminal Offence”
Putting for the moment to one side the second sentence of clause 2, the juxtaposition of those provisions would naturally be seen as establishing employment for an outside three year term, subject to termination by either party on one month’s notice, provided that should the employee be guilty of neglect of duty, serious misconduct, or an indictable criminal offence, he might be dismissed summarily without notice.
The appellant relied however on the second sentence of clause 2: “Standard disciplinary and warning procedures apply”, as modifying the employer’s right to terminate on notice, whereas, on the other hand, the employee might nevertheless without qualification terminate on one month’s notice. Faced with the possible significance to construction of the apparent disparity of those positions, Mr White suggested that the contract may have been drawn so as particularly to attract a prospective employee to Port Moresby, through an effectively guaranteed three year term; and he referred also to clause 18, under which an employee terminating within 18 months would become obliged to repay “all costs associated with (his) recruitment and removal to PNG”.
As the case was conducted, the learned judge was left unclear as to the significance of the reference to “standard disciplinary and warning procedures”. Exhibit 11 comprises a ten page segment from the “Zurich Management Procedural Code of Conduct”. It is cast, by and large, in the form of advice to managers of the companies within the Zurich group of companies, concerning the termination of contracts of employment of other employees. It counsels the need for a careful approach, and the author plainly had in mind the prospect of unfair dismissal claims before industrial relations tribunals. The judge made no particular finding that this part of the manual contained the “procedures” to which the second sentence of clause 2 referred.
Mr White sought to rely on appeal on the statement in Exhibit 11 that the procedures it envisaged “typically [take] three months” – as warranting allowing at least three times the one month’s salary and entitlements allowed by the judge. Counsel for the respondents pointed out in response that the appellant led no evidence at the trial in relation to the time which might have been consumed by following those procedures. That was perhaps understandable in that the appellant suggested, even “in the alternative”, no act or omission on his part which could have justified resort to them. But the case was left in an unsatisfactory state, were there to be a focus on Exhibit 11, and particularly because no attempt was made to plead the basis for its materiality. One can therefore readily understand his Honour’s apparent diffidence about according Exhibit 11 any definitive significance.
In the respondent’s defence, they alleged that the contract of employment might be terminated by either party on one month’s notice. In order properly to raise the materiality of Exhibit 11, the appellant should have replied identifying the extract which became Exhibit 11, as the source of the procedures referred to in clause 2 of the contract, and setting out the factual circumstances giving it applicability, such as to fetter the employer’s right to terminate in the particular circumstances of the case. Counsel for the respondents at the trial drew specific attention to the fact that the appellant had not pleaded any restriction on the employer’s right to terminate on notice under clause 2.
It has from time to time been somewhat fashionable to dismiss the utility of pleadings because of their formalistic aspect. But this case well illustrates their potential worth. Had the appellant, by way of reply, come to grips with the possible role of these “procedures” in a precise way, deficiencies in the evidence and vagueness of presentation could have been avoided.
In his reasons for judgment, the learned judge dealt with Exhibit 11 in this way:
“Exhibit 11 was tendered. This deals with a number of subjects, including dismissal. Some of these are dealt with by reference to Australian legislation which, it seemed to be common ground, could not have application here. In part the document deals with employment entitlements under Australian legislation. However Mr Robson saw no reason why procedures in Exhibit 11 could not have been applied in Papua New Guinea in the case of dissatisfaction with the performance of an employee or where the company was contemplating taking steps to dismiss an employee. There was some reference in the evidence to some procedure provided for in the legislation of Papua New Guinea when dismissing an employee. However this matter was taken no further and the Plaintiff did not allege any failure to comply with any legal requirement applicable to the contract which had been entered into in Papua New Guinea.
On the Plaintiff’s approach, the Defendant would have no right to determine the contract under clause 2 until the procedures referred to had been exhausted.
It must be borne in mind that the Defendant may have wished to exercise the right to determine a contract of service for grounds unassociated with any conduct on the part of an employee.
Just what meaning or area of operation should be afforded to the words “Standard disciplinary and warning procedures apply” is problematical. To construe the clause in the way suggested by the Plaintiff would be to alter the language of clause 2 significantly. One possible view that might be taken of this reference is that it is a statement of recognition on the part of the parties of the existence of procedures which the Defendant has in place which can and generally will be followed when any question arises about the performance of an employee before any dismissal occurs. Looked at in this way the words refer to a matter of policy or practice and do not have the effect of conferring rights or imposing an obligation of a contractual nature.
Whatever the import or scope of these words they cannot, in my view, affect the right of the parties under clause 2 to terminate the contract on one month’s notice. The location of the words in clause 2 rather than elsewhere such as perhaps clause 17 is a little curious.”
Assuming for argument that Exhibit 11 was the source of the “procedures” to which clause 2 refers, and that – although cast substantially in the form of advice to the employer’s managers – it could have contractual effect in relation to this contract of employment, it should presumably be read as if its presently cryptic form were enlarged by this addition: “Standard disciplinary and warning procedures apply where appropriate, such as in cases of inadequate performance or misconduct not falling within clause 17.” (It is additionally curious, as mentioned by his Honour, that the “procedures”, referred to in clause 2, are not also referred to in clause 17.)
As mentioned by his Honour, the employer may have wished to terminate the employment for reasons not associated with the quality of the employee's performance or his conduct. In this case, the learned judge found that the appellant had not been guilty of “serious misconduct”, the ground on which Zurich Pacific had relied for the termination. There is no finding of any deficiency in performance or other misconduct. Consequently there was on the case presented no occasion for resort to “standard disciplinary and warning procedures” which, if they be Exhibit 11, posit concern about an employee’s performance or conduct.
The second sentence of clause 2 should not be read as limiting the employer’s right to terminate on one month’s notice to situations of deficient performance or unacceptable conduct. A number of circumstances already mentioned combine amply to justify that, being the approach taken to the issue by the learned judge.
Those circumstances, in summary, are the following: the absence of relevant pleading (to which counsel for the defendants at the trial adverted), vagueness in the relevant evidence, the uneven applicability of the contents of the document to employment in PNG, the way the document is cast (as advice to managers rather than specifying contractually applicable procedures), disparity of its application – on the appellant’s approach – as between employer and employee, and the reasonable prospect of an employer’s ordinarily wishing to be able to terminate other than for “cause”.
There was no challenge to his Honour’s calculating damages as he did, if it be accepted that the employer had such unfettered right to terminate on one month’s notice. See Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64,92-3.
The appeal should be dismissed, with costs to be assessed.
THOMAS JA: I agree with the joint reasons of the Chief Justice and Justice Davies and will add the following comments.
Three issues are raised:-
1. Identity of the appellant’s employer.
2. Proper construction of clauses in the contract dealing with rights to terminate the employment.
3. Quantum of damages.
Identity of employer
The appellant’s position was described as that of Deputy Manager of Zurich Pacific. Counsel for the appellant contended that the learned trial judge should have found that he was the employee of both Zurich Pacific and its parent company Zurich Australia (which was sometimes referred to in correspondence as Zurich International (Australia) or as ZIA). Scant attention seems to have been paid to the identity of the particular parties at the time. However the dominant matters which satisfied the learned trial judge that the employer was Zurich Pacific included the fact that the appellant applied for the position of Deputy Manager of Zurich Pacific and that he received payment of his basic salary from that company. I would add that the internal memorandum which drew the appellant’s attention to a bulletin containing the advertisement for the position contained the heading “Subject: Zurich Pacific”. The advertisement commenced with the ambiguous designation “COMPANY: General – Zurich Pacific – ZIA”. Under the heading “THE JOB” was the statement that “you will be responsible for the overall performance and development of some twenty PNG national staff” and “you and the Manager will be responsible for the overall profitability of this company”. This was followed by a further entry “REPORTING TO: Manager, Zurich Pacific”.
Although there was evidence both ways on this preliminary question I am satisfied that the dominant criteria indicated that the position was that of Deputy Manager of Zurich Pacific and that his Honour made no error in his determination of that fact.
Right of termination
The appellant took up his position at Port Moresby in August 1996. He was given a dismissal notice on 29 April 1998, which purported to dismiss him “as a result of a breach of cl 17 of your contract of employment with Zurich Pacific”. The breach was described as “serious misconduct and neglect of duty”. The clauses of primary relevance are clauses 1, 2 and 17 of the contract. These are set out in the joint reasons of the Chief Justice and Justice Davies and will not be here repeated.
The learned trial judge made comprehensive findings of fact which, if I may say so, are interesting and illuminating. While he was in New Guinea the appellant conducted his personal affairs in a way that caused him to become the target of an influential and vengeful family. This caused his life to be placed under immediate and continuing threat. His Honour’s findings include the fact that the appellant’s manager (Mr Green) was unwittingly drawn into negotiations with the hostile family which apparently exercised considerable influence within the police force. His Honour’s findings continue:
“It is not difficult to understand the alarm which Mr Green would have felt nor is it difficult to understand why he might have concluded that the continuing employment of the Plaintiff with the Defendant – particularly given the Plaintiff’s and Mrs Neville’s determination to continue their relationship – might subject the Defendant and its staff to further hostility or aggression on the part of the Nevilles and that the Defendant’s interests could suffer damage.”
His Honour saw the dismissal of the appellant as “the line of least resistance”. His Honour concluded that the respondent had failed to prove neglect of duty or serious misconduct. The dismissal could therefore not be justified under cl 17 or for that matter under any other clause of the contract. Notwithstanding the failure to invoke cl 2 and give appropriate notice under that clause, the notice remained effective to terminate the employment[1].
[1]JC Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282; Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435, 465-466, 469; cf Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359, 377-378.
The answer to the central question of what was a proper termination depends on whether the contract gave the respondent the right to terminate the appellant’s service in any event upon one month’s notice. If it did so, that would prima facie indicate the level of damages suffered by the appellant by reason of the misconceived notice based upon neglect of duty.
On this question I agree that the proper construction of the contract is that stated by the Chief Justice and Justice Davies. Clause 1 was in my view a recognition that the terms, rates and conditions would need to be re‑negotiated in three years, with provision for their extension by mutual agreement. It was not a guarantee of a minimum of three years’ service. It should be read with the following clause which gives equally to the company and to the appellant the right to terminate the service upon one month’s notice. No cause was necessary if a month’s notice was given by either party. Of course instant dismissal for cause was available under cl 17.
Damages
It was submitted by counsel for the appellant that further damages were obtainable for breach of the statement in cl 2 that “standard disciplinary and warning procedures apply”. Those words are perplexing and unparticularised. The appellant’s submissions on this point, if correct, would increase the damages by allowance of salary and entitlements for approximately a further two months. The net increase (including interest thereon) would be $28,656. However, as I see it, the meaning of this term was not satisfactorily clarified by extrinsic evidence, and there are several reasons why such a claim is not maintainable.
There was evidence that the allegedly relevant exhibit (exhibit 11) was “irrelevant to the Papua New Guinea office” and the learned trial judge did not in the end make any finding that this document was responsive to the words used in cl 2 of the contract. However even assuming that exhibit 11 appropriately proved the “standard disciplinary and warning procedures”, the facts found by the learned trial judge concerning the circumstances leading to the termination do not provide any satisfactory basis for application of the procedures there mentioned.
Such a claim was not pleaded. During the trial when the possible applicability of exhibit 11 arose his Honour asked trial counsel whether this was relevant to his considerations. Counsel for the respondent indicated that he did not believe so. His Honour queried whether there were some restrictions on the ability of an employer to terminate the employment upon which counsel replied “It’s not pleaded against me on that basis.”. His Honour expressed agreement, and no demur was made by counsel to the appellant. In the result no evidence was called as to how long such a process might take, although exhibit 11 asserts that such a procedure “typically takes three months”. Even so it seems clear that the question whether damages for breach of the “standard disciplinary and warning procedures” clause occurred, and if so what damages followed, was never pleaded or litigated.
In this state of affairs, the only damages that could be assessed were those that flowed from the loss of the one month’s salary and entitlements in lieu of the one month’s notice to which the appellant was entitled.
I agree with the orders proposed by the Chief Justice and Justice Davies.
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