FEDERAL COURT OF AUSTRALIA

Melbourne Stadiums Ltd v Sautner [2015] FCAFC 20

THE COURT ORDERS THAT:

1.    The appeal be allowed.

2.    Order 1 of the orders of the County Court of Victoria made on 2 May 2014 be set aside.

3.    Orders 1 to 3 of orders of the County Court of Victoria made on 6 June 2014 be set aside.

4.    In lieu thereof, order that the respondent’s proceedings in the County Court of Victoria be dismissed with no order as to costs.

5.    There be no order as to the costs of this appeal.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

TRACEY, GILMORE, JAGOT AND BEACH jj

ISSUES

1    This matter involves a contract of employment between the appellant, Melbourne Stadiums Limited (“MSL”), and the respondent, Mr Nicholas Sautner as Director, Commercial Business of MSL. The dispute between MSL and Mr Sautner concerns the basis upon which that contract and the employment relationship was terminated. MSL has asserted that it summarily terminated Mr Sautner’s employment for alleged serious misconduct. Mr Sautner sued, and at first instance, succeeded on the basis that his conduct did not justify his summary dismissal (Sautner v Melbourne Stadiums Limited [2014] VCC 476). His Honour Judge Anderson of the County Court of Victoria held that Mr Sautner was instead entitled to six months’ pay in lieu of notice and a further redundancy payment pursuant to s 119(2) of the Fair Work Act 2009 (Cth) (“the Fair Work Act”). MSL appeals in that regard. For his part, Mr Sautner has filed a notice of contention contending that even if grounds of serious misconduct had been made out, the primary judge erred in concluding that MSL was entitled to rely on such grounds of dismissal that were not known to and had not been raised by MSL at the time it purported to terminate his employment. Mr Sautner also contends that the primary judge erred in respect of costs.

MISCONDUCT JUSTIFYING DISMISSAL?

The appeal

2    MSL contended that the primary judge’s process of reasoning miscarried in respect of each of the four classes of Mr Sautner’s misconduct, with the consequence that the primary judge’s conclusions, that Mr Sautner’s misconduct (whether considered separately or cumulatively) did not justify his summary dismissal, were in error.

3    The four classes of misconduct may be identified in the shorthand manner used by MSL in its amended notice of appeal as follows:

    the bartering misconduct, by which Mr Sautner used tickets to the Medallion Club area of the stadium as a form of cash to obtain goods and services for his personal benefit (grounds 1 to 3 of the amended notice of appeal);

    the ARU (Australian Rugby Union) misconduct, by which Mr Sautner used his superior position as Director, Commercial Business of MSL to suborn another employee to issue to him tickets to a rugby match to be played at the stadium in breach of the ARU’s requirements (grounds 4 and 5 of the amended notice of appeal);

    the disparagement misconduct, by which Mr Sautner communicated to the same employee and to a person who was both his friend and a senior employee of the main sponsor of the stadium disparaging, disrespectful and derogatory comments about the Chief Executive Officer (“the CEO”) of MSL and showed to his fellow employee photographs of the CEO taken without the CEO’s knowledge or consent which Mr Sautner used to support his comments (grounds 6 and 7 of the amended notice of appeal); and

    the breach of the CEO’s direction, by which Mr Sautner was directed by the CEO not to be involved with the Perth Stadium project and thereafter arranged two tours of the stadium by the Brookfield consortium, a tenderer for the Perth stadium project, which Mr Sautner and the stadium’s facilities manager conducted (grounds 8 and 9 of the amended notice of appeal).

4    Mr Sautner contended that MSL’s grounds of appeal, which refer to the primary judge’s reasoning miscarrying because he failed to give any or adequate weight to certain facts, were largely misconceived, it being necessary for the appellate court to find error by the primary judge before it may exercise its powers of appellate review. In support of this contention Mr Sautner’s submissions referred to Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at [24]-[25] in which the Full Court said:

“[24] What is error in any given case depends, of course, not only on the evidence, but also on the nature of the findings or conclusions made by the primary judge. The demonstration of error may not be straight-forward where findings or conclusions involve elements of fact, degree, opinion or judgment …

[25] This is not to elevate ordinary factual findings to the protected position of those based on credit, but it is to make clear, first, the advantages of the trial judge and, secondly, the need for demonstration of error. The inability to identify error may arise in part from the unwillingness of the appeal court to be persuaded that it is in as good a position as the trial judge to deal with the issues, because of the kinds of considerations referred to in [24] above. Or, it may be that the nature of the issue is one such that (though not a discretion) there cannot be said to be truly one correct answer. In such cases the availability of a different view, indeed even perhaps the preference of the appeal court for a different view, may not be alone sufficient…In circumstances where, by the nature of the fact or conclusion, only one view is (at least legally) possible (for example, the proper construction of a statute or a clause in a document, where, although, as often said, minds might differ about such matters of construction, there can be but one correct meaning…the preference of the appeal court for one view would carry with it the conclusion of error. However, other findings and conclusions may be far more easily open to legitimate differences of opinion eg valuation questions…”.

5    Branir does not stand for the proposition that questions of the weight to be given to facts as found or not in dispute are within a category separate from the inferences that may be drawn from those facts, and as such are incapable of giving rise to appellable error. While references to the “weight” to be given to facts and the proper “inferences” to be drawn from facts are useful analytical tools in many contexts it would be wrong to assume in this context, of an appeal by way of a rehearing, that the two involve separate categories, the former being a matter exclusively for the primary judge and the latter being amenable to appellate review.

6    First, even where a finding of fact involves an assessment of the credit of a witness, the finding is liable to be set aside by an appellate court if “erroneous by reason of incontrovertible facts” or “glaringly improbable” or “contrary to compelling inferences” (Nemeth v Australia Litigation Funders Pty Ltd [2014] NSWCA 198 at [102] citing Fox v Percy (2003) 214 CLR 118 at [28] and [29]). A conclusion of error of this kind will often involve considerations of weight.

7    Second, the attribution of weight to a fact found or not in dispute is part of the process by which an inference is drawn or not, it being established principle (Warren v Coombes (1979) 142 CLR 531 at 551) that:

“…in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge. In deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusion of the trial judge, but, once having reached its own conclusion, will not shrink from giving effect to it.”

8    Third, it should also be noted that while many of MSL’s grounds of appeal referred to the primary judge having failed to give any or adequate weight to certain findings in his process of reasoning, other grounds relevant to the same conclusions reached by the primary judge involved different kinds of error. Accordingly, grounds relevant to the claims relating to the bartering misconduct include forms of misdirection or asking the wrong question (ground 2(f)), speculation (ground 2(g)), and misconstruction (ground 2(h)-(i)). Similar (and other) grounds are put in respect of the ARU misconduct (grounds 5(e) to 5(j)), the disparagement misconduct (grounds 7(d), (e), (g) and (h)), and the breach of the CEO’s direction (grounds 9(a), (b), (c), (e), (f), (h), (i) and (j)). In other words, MSL’s grounds of appeal are not limited to allegations of the misattribution of weight by the primary judge.

9    It follows that, contrary to the submissions for Mr Sautner, MSL is not bound to fail if it is unable to establish that the findings of the primary judge were not reasonably open. If the primary judge’s conclusions were not reasonably open then, undoubtedly, error will be established. But that is not the only way in which error can be established in the circumstances of this case. The primary judge was not exercising a discretion amenable to appellate review only on the limited grounds explained in House v The King (1936) 55 CLR 499 at 504-505.

The issue for determination

10    It must be accepted that the primary judge correctly identified the question he was required to answer. At [9(b)] he identified the question as:

“…if the Shepherd principle applies, do the ‘additional matters’, either separately or when considered together, justify the summary dismissal of Mr Sautner”

11    The “additional matters” are the four classes of misconduct on which MSL relied to justify its refusal to pay Mr Sautner the remuneration to which he otherwise was entitled under cl 7.1 of the contract on the basis that those matters, had they been known, would have justified Mr Sautner’s summary dismissal.

12    At [159] the primary judge identified the principles relevant to the determination of this question referring in particular to the following observations:

    Summary dismissal is not justified by a mere breach of the contract of employment as what is required is a “radical breach of the relation… inconsistent with its continuance” (Adami v Maison de Luxe Ltd (1924) 35 CLR 143 at 151 per Isaacs ACJ);

    “…the true principle to be deduced from all the cases is that you must ascertain whether the conduct of the party who has broken the contract is such that the other party is entitled to conclude that the party breaking the contract no longer intends to be bound by its provisions” (Adami at 155 per Gavan Duffy and Starke JJ);

    “Conduct which in respect of important matters is incompatible with the fulfilment of an employee’s duty or involves an opposition, or conflict between his interest and his duty to his employer or impedes the faithful performance of his obligations, or is destructive of the necessary confidence between employer and employee, is a ground of dismissal... But the conduct of the employee must itself involve the incompatibility, conflict, or impediment or be destructive of confidence. An actual repugnance between his acts and his relationship must be found. It is not enough that ground for uneasiness as to future conduct arises” (Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 at 81-2 per Dixon and McTiernan JJ);

    “The authorities do establish that the employee’s breach of contract of employment must be of a serious nature, involving a repudiation of the essential obligations under the contract or actual conduct which is repugnant to the relationship of employer-employee, before an employer may terminate the contract summarily… circumstances do not have to be exceptional, but nevertheless, must establish that the breach was of a serious nature” (Rankin v Marine Power International Pty Ltd (2001) 107 IR 117 at 142).

13    It is perhaps not insignificant that the paragraph from Rankin which the primary judge cited is followed by an explanation, not referred to by the primary judge, of why misconduct need not amount to a repudiation of the contract for summary dismissal to be justified. Gillard J said at 142-143:

“The contract of employment, of course, is a contract, and the general principles concerning contracts apply. Hence, if the employee breaches an essential term of the contract and thereby repudiates the contract, then the employer, as the other party to the contract, may accept the repudiation and rescind it. But that is not the only basis upon which an employer may bring the contract to an end.

… in my opinion, it would be wrong to say, as was submitted on behalf of the plaintiff, that the right to terminate only exists where the conduct of the employee demonstrates repudiation of the contract, manifesting an intention not to perform the contractual obligations in the future. I do emphasise that many examples of conduct justifying termination would comfortably fit in with those principles. However, the authorities do establish that there are offences which justify dismissal but which would not, in themselves, show that the employee was intending not to perform contractual obligations in the future. There may be an example of a one-off serious act of misconduct which would justify dismissal, even though the probabilities were high that it would not occur again.”

14    The reason this is not insignificant is that parts of the primary judge’s reasons suggest a focus on conduct amounting to a repudiation of the contract by Mr Sautner. At [210], in his overall conclusion, the primary judge said:

“In all the circumstances, however, I am not satisfied that a basis has been made out, either upon separate consideration of these matters or together, that justifies summary determination of Mr Sautner’s employment. The conduct does not demonstrate a repudiation by Mr Sautner of his obligation to honour the essential terms and conditions of his employment contract.”

15    If this and nothing more had been said, error would be indicated. Mr Sautner’s conduct did not have to amount to a repudiation of his contract of employment to justify his summary dismissal. More, however, was said. The primary judge also drew conclusions about two of the classes of misconduct considered separately, as follows:

    As to the disparagement misconduct, at [205], that certain factors:

“…do not support a finding of serious misconduct.”

    As to the breach of the CEO’s directions, at [175],

“…there is no basis to conclude that any ground of serious misconduct or breach of the employment contract or other obligations of Mr Sautner to MSL has been made out.”

16    These statements disclose that the primary judge had in mind more than conduct amounting to repudiation when dealing with the issue whether MSL would have been justified in summarily dismissing Mr Sautner. The references, although brief, are sufficient to foreclose any argument that the primary judge wrongly confined his consideration to the question whether Mr Sautner’s conduct amounted to a repudiation of the contract.

17    That said, the primary judge’s conclusions about two of the other classes of conduct are suggestive of error, albeit error of a kind not susceptible to a convenient label.

18    Accordingly, in respect of the bartering misconduct the primary judge concluded in these terms at [198]-[199]:

“198. In the absence of clear guidelines and no other areas of complaint against Mr Sautner, the following action would, in my view, have been the appropriate response to Mr Sautner’s actions: to clarify the ticketing policy to put beyond doubt that the sale or bartering of tickets, including with those who had a contractual or a potential contractual arrangement with MSL, would be inappropriate and also regarded as ‘a serious breach of terms of employment’.

199. Further, if Mr Sautner were simply pursuing or enlarging on a practice condoned by the previous CEO, Mr Collins, then a clear policy was required if further restrictions were to be imposed on a ‘process’ recognised as involving a ‘benefit’ to the employee. In the circumstances, the summary determination of employment would not be appropriate without this action first having been taken.”

19    The focus of these paragraphs is not the character of Mr Sautner’s conduct but, rather, what MSL ought to have done to ensure it could summarily dismiss Mr Sautner for such conduct. This focus is misplaced. It tends to distract from the relevant question, being whether Mr Sautner’s conduct in respect of stadium tickets involved a sufficiently serious breach of his obligations to his employer to warrant his summary dismissal.

20    In respect of the ARU misconduct, the primary judge concluded at [186] that:

“In the circumstances, although ARU’s ticketing policies were breached, I do not consider that this issue alone would justify the summary dismissal of Mr Sautner’s employment.”

21    The circumstances which the primary judge had in mind were primarily that the ARU itself, or at the least a representative of the ARU, a Mr Ian Alker, was “prepared to condone Mr Sautner’s actions by considering the reinstatement of all the tickets and by inviting Mr Sautner to a pre-match function” (at [185]). Again, while the position of the ARU is not necessarily irrelevant to the question being answered, the focus ought to have been the characterisation of Mr Sautner’s conduct in respect of his employer, MSL. It is the impact on that relationship which is critical.

22    More detailed consideration of the findings the primary judge made and the conclusions he reached about each class of misconduct, and his assessment of the cumulative significance of the misconduct, also support the conclusion that the primary judge’s process of reasoning miscarried.

The bartering misconduct

23    As the primary judge said (at [1]), Mr Sautner held a senior management position with MSL. In that role, he was the superior of those employees carrying out ticketing functions on behalf of MSL and was responsible “at the stadium for ticketing matters” (at [183]).

24    The undisputed facts were that Mr Sautner had traded tickets for goods and services and had used the tickets “like currency” (at [135]). Mr Sautner obtained such benefits as work by a locksmith on his house (at [132(b)]), the installation of a new car battery (at [132(c)]), “mates rates” for repair work to his house (at [135]), “family and friends” rates for a gym membership (at [133(d)]), passes to the Qantas Club (at [132(d)]), vouchers for Bunnings Warehouse (at [136]), vouchers for supermarket shopping (at [132(f)]), and flowers in exchange for tickets (at [132(g)]).

25    Apart from Mr Sautner saying that it was “not discussed” that staff would not sell tickets or gain goods and services in return for tickets (at [135]), the evidence about staff use of tickets was confined to that of Mr Paul Sergeant and Ms Sadie Wight and MSL’s ticketing policy.

26    The primary judge recorded at [137]-[138] that:

“137. Mr Sergeant said that staff were not allowed to sell, trade or barter tickets and if he had known that Mr Sautner was doing this he would have dismissed him. Mr Sergeant said that it was a company-wide and industry-wide policy that complementary tickets cannot be used for personal profit, although this policy is not laid down in any written document, including MSL’s ticketing policy.

138. Ms Wight said that complementary tickets for staff can be given to family and friends but cannot be sold or traded and that Mr Sautner would have known that. Ms Wight was asked whether she was aware of persons, having been given tickets by a MSL staff member, responding with a gift, for example a bottle of wine. She answered, ‘I’m sure it does happen’.”

27    MSL’s former CEO, Mr Ian Collins, had made the ticketing policy in 2012. The policy stated that:

“For certain events held at Etihad Stadium, tickets will be made available to staff for their personal and business use. Staff should understand that there are significant costs in relation to staff and client ticketing including contributions to venue hirers and FBT implications.

Following are the terms and conditions for ticketing:

…

2    Full-Time staff will be eligible for a maximum of 50 tickets (AFL and other events in total) in the calendar year for their personal use.

…

7    Client and Donation requests should be kept to a minimum and not used as a regular source of ticketing.

8    All client requests must be for bona fide use with a detailed explanation. Client use, client relations, client request, PR etc is not an acceptable reason and will be rejected.

…

10    All ticketing must be obtained as per these items without exception. Any non-compliance will be considered a serious breach of terms of employment.”

28    The primary judge recorded that Mr Sautner said the policy did not apply to him and he had access to an unlimited number of tickets, with other managers being limited to 100 tickets per calendar year (at [110]). The primary judge made no finding that the policy (apart from paragraph two, the number of tickets able to be allocated) did not apply to Mr Sautner. There is nothing on the face of the policy which suggests why it might not apply. To the contrary, there is good reason to conclude that, in accordance with the generality of its terms, the policy applied to all MSL employees of which Mr Sautner was one. It is apparent also that Mr Sautner was aware of the terms of the policy and had complied with it in respect of at least one request for tickets (at [110]). Mr Sautner was also responsible for ticketing at the stadium (at [183]) and thus had more reason than most to know of and ensure he complied with the terms of the policy.

29    It may be accepted that the policy did not define “personal use”. Despite this, it clearly disclosed that staff access to tickets was not at large. The “business use” contemplated by the policy was not any such use, but a “bona-fide business use with a detailed explanation”. The business in question was plainly the business of MSL. In other words, where an employee could provide a detailed explanation of why the allocation of tickets to a client of MSL would advance the business interests of MSL then the request for tickets would be considered. Perfunctory requests such as those indicated in paragraph 8 of the policy would be rejected. Detail of this kind casts light on the scope of “personal use”.

30    If a business use must be “bona-fide” as specified in paragraph 8 of the policy, then so too must a “personal use”. While tickets allocated to staff for “personal use” could undoubtedly be given to friends, family and acquaintances as the staff member saw fit, it is inconceivable that MSL contemplated that by “personal use” a staff member would treat the tickets as the equivalent of cash and use them to barter for goods and services from third parties. The flagrant incompatibility of such a use with the concept of a bona fide “personal use” is obvious irrespective of the fact that in permitting staff to access tickets MSL recognised that the staff member would have for themselves the full value of the ticket. It is one thing to be able to access tickets for personal use as a perk of the job. The concept of “use” in that context connotes use to attend the event rather than to use the ticket as a liquid asset or equivalent to cash. It is another thing altogether to use that capacity to access tickets, in effect, to provide a supplementary source of income by treating the tickets as a form of cash.

31    The primary judge said at [190] that there were “no clear guidelines in relation to the use that might be made of free tickets, including the bartering of tickets in exchange for goods and services or for some other financial advantage”, this being a factor said to be exculpatory of Mr Sautner. The problem with this reasoning is that the proper inference on the undisputed evidence of Mr Sergeant and Ms Wight, supported by the terms of the policy itself, is that the policy did not expressly prohibit the trading or bartering of tickets for personal benefits because the impropriety of that conduct was so obvious it went without saying.

32    Moreover, the primary judge made other findings which are irreconcilable with his (unstated) conclusion that Mr Sautner’s misconduct in this regard would not have justified summary dismissal.

33    The primary judge found that although the text messages revealing Mr Sautner’s conduct were confined to a period of nine months it was “likely, that similar conduct would be revealed at other times” (at [189]). In other words, Mr Sautner had not engaged in such conduct on isolated occasions.

34    The primary judge found that it was “likely that Mr Sautner was aware that his bartering of tickets was not ‘acceptable’ practice” (at [194]). In other words, Mr Sautner, the person responsible for ticketing at the stadium, knew what he was doing was not in accordance with his obligations to MSL under his contract of employment. He was not acting in ignorance of his obligations. The only proper inference that could be drawn from this was that, in common with Mr Sergeant and Ms Wight, Mr Sautner knew what he was doing was wrong but continued to do it anyway, despite the fact that he was responsible for ticketing. He did so in the face of an express policy that said in paragraph 10 that any non-compliance with the policy would be “considered a serious breach of terms of employment”.

35    Despite this, the primary judge concluded that before MSL would have been justified in summarily dismissing Mr Sautner for this conduct, it would have needed to “clarify the ticketing policy to put beyond doubt that the sale or bartering of tickets, including with those who had a contractual or a potential contractual arrangement with MSL, would be inappropriate and also regarded as ‘a serious breach of terms of employment’” (at [198]).

36    Leaving aside the inappropriate focus on what MSL should have done, the conclusion is irreconcilable with the primary judge’s finding that Mr Sautner was aware that his bartering of tickets was “unacceptable practice” and the inference which ought to have been drawn from that finding, that Mr Sautner well knew that what he was doing was contrary to MSL and industry policy as explained by Mr Sergeant and Ms Wight. Given that Mr Sautner knew what he was doing was “unacceptable practice” (which is another way of saying that he knew what he was doing was wrong), why would it have been incumbent on MSL to clarify its policy before his conduct would have justified summary dismissal? Such clarification would have functioned as nothing more than a statement of what Mr Sautner, the person responsible for ticketing, must have already known.

37    The other circumstances referred to by the primary judge, that the operation of the stadium involves elements of reciprocity (at [192]), that the allocation of tickets to staff bestows the commercial value of the ticket on the staff member being a perk of the job (at [193]), and the desire to maximise attendance at events (at [195]) also do not have the exculpatory effect which the primary judge appears to have given them.

38    The examples of reciprocity are either for the benefit of the business of MSL (a business use which would be within the scope of the policy) or are for the benefit of Mr Sautner personally by his bartering of tickets (which was not within the scope of the policy). The acceptability of elements of reciprocity for the benefit of MSL says nothing about it being acceptable for Mr Sautner in his personal capacity. To the contrary, if anything, it suggests that even the tickets which were given to staff by MSL had considerable value, a fact making it more, not less, important that staff did not exploit their access to tickets for unacceptable purposes.

39    It should not be overlooked that Mr Sautner’s purpose was to treat his unlimited access to tickets as cash, that is as a supplementary form of income. Whatever “for their personal use” meant in the policy, on no reading would that purpose be authorised. The “perk” that staff were being given was not obtaining tickets to use as cash but obtaining tickets so that the staff member, their family, friends and acquaintances could get to attend events at the stadium. The fact that this was a valuable benefit explains why the policy expressly stated that non-compliance would be “considered a serious breach of terms of employment”. That is to say, inappropriate or “unacceptable or undesirable” (as the primary judge put it) accessing of tickets for use outside the scope of the policy was a serious matter exposing the culpable employee to the potential sanctions for serious breach, one obvious example of which is summary dismissal.

40    MSL’s desire to maximise attendance at events reflects common sense. Nevertheless, it could hardly be thought that this desire was such as to make any employee, let alone one in a senior position as Mr Sautner, think that he could use his capacity to access tickets as a form of income supplement. As MSL also submitted, if Mr Sautner had truly been concerned to fulfil MSL’s desire of maximising attendance he could have distributed tickets without seeking any benefit in return. He did not do so because his motivating purpose was to use the tickets like cash, specifically, his own cash.

41    Error is also apparent in [199] of the primary judge’s reasons where it is said that “if Mr Sautner were simply pursuing or enlarging on a practice condoned by the previous CEO, Mr Collins, then a clear policy was required if further restrictions were to be imposed on a ‘process’ recognised as involving a ‘benefit’ to the employee.” The problem is that there was no evidence that Mr Sautner was simply pursuing or enlarging a practice condoned by the previous CEO. The evidence did not go anywhere near so far. Mr Sautner’s version was that when his house was damaged in a flood and he could not get a loan to repair it, Mr Collins, the previous CEO, raised no objection when Mr Sautner asked if he could exchange tickets for getting “mates rates” on the repairs. Being willing to allow an employee to use tickets in this way in a one-off emergency situation does not constitute a “practice” condoned by Mr Collins.

42    The primary judge’s conclusion in [199] is also inconsistent with the correct inference he drew that the fact that Mr Sautner only once raised the issue of bartering of tickets with the former CEO (and never with his successor) meant that Mr Sautner knew what he was doing was “not ‘acceptable’ practice” (at [194]). If that is so, then how could Mr Sautner ever have been engaged in merely continuing or enlarging upon a use that Mr Collins had allegedly condoned? The primary judge concluded only that “in the circumstances, Mr Sautner could and perhaps should have reaffirmed the position taken by Mr Collins with Mr Sergeant” (at [194(c)]). This not only overlooks the very narrow compass and unusual circumstances in which Mr Collins did not object to Mr Sautner using tickets, but also glosses over the serious breach of trust involved in Mr Sautner continuing to do that which he knew was “not ‘acceptable’ practice”, knowing that he was protected by Mr Sergeant’s lack of knowledge of Mr Sautner’s conduct.

43    For these reasons the primary judge erred in respect of the bartering misconduct. The conduct involved repeated breaches of the ticketing policy and thus serious breaches of the terms of employment. Irrespective of the ticketing policy, the conduct involved a serious breach of the relationship of trust between MSL and Mr Sautner. The conduct, as disclosed by the facts as found by the primary judge, necessarily required the conclusion that summary dismissal would have been justified. Even if (contrary to this) a different conclusion on the facts was reasonably open, the conclusion was not one that could be reached by considering what MSL should have done rather than the true character of Mr Sautner’s knowingly wrong conduct. On either basis the primary judge erred and his conclusion that summary dismissal would not have been justified by the bartering misconduct cannot be sustained.

The ARU misconduct

44    The primary judge made a series of findings relevant to the question whether the ARU misconduct would have justified Mr Sautner’s summary dismissal.

45    The misconduct related to tickets for the second of three tests to be played between the Australian Wallabies and the British and Irish Lions. The second test was to be played at the stadium. It was “expected to be a very popular event” (at [105]).

46    The event was subject to a contract between MSL and the ARU. Mr Sautner had negotiated the terms of that contract on MSL’s behalf. The contract provided that MSL undertook not to issue more than four tickets to any one person for the second test between the Australian Wallabies and the British and Irish Lions (at [106]).

47    The ARU’s ticketing policy was strict and it sought to enforce that policy by checking ticket purchase details (at [107]).

48    Mr Sautner knew that tickets to the second test would be in huge demand as Mr Sergeant had refused a request by Mr Sautner to access tickets for Mr Harry Horsley, Sales Manager – Global for the Manchester United Soccer Club, on this basis (at [113]).

49    Mr Sautner also knew that there was a limit of four tickets per person for the second test (at [106] and [114]).

50    Despite this, Mr Sautner approached another employee, Ms Wight, who was subordinate to him, and asked her to buy him three “family tickets” (a family ticket consisted of four tickets each being various combinations of adult and childrens’ tickets) or a total of 12 tickets using three credit cards, one being Mr Sautner’s, another his girlfriend’s, and the other Mr Horsley’s (at [115]). Although she knew it was wrong Ms Wight did as Mr Sautner asked because she had been “asked to by [her] manager” (at [115]). Mr Sautner also knew he was acting in flagrant breach of the ARU’s requirements (at [116]). When more tickets were later put on sale Mr Sautner went back to Ms Wight and purchased another 6 sets of family tickets (or 36 tickets in total) (at [117]). Of the further 24 tickets, two sets of family tickets were purchased in the name of Mr Sautner, two sets of family tickets in the name of his girlfriend, and two sets of family tickets in the name of his flatmate, using his and their credit cards (at [117]). Mr Sautner asked Ms Wight to print the tickets without the names of the purchasers on them, but Ms Wight included the names of the credit card holders (at [118]). Again, despite knowing it was wrong, Ms Wight did as Mr Sautner requested (save for the last instruction) “because [he] was her manager” (at [117] and [118]). When the purchases were discovered, MSL cancelled the tickets (at [120]). MSL notified the ARU which thanked MSL for the way it had handled this “unfortunate issue” (at [122]).

51    Mr Sautner said that he attended the second test as a guest of Mr Alker, the ARU’s General Manager, Operations and that Mr Alker had tried to reinstate the cancelled tickets. According to Mr Sautner, he “considered that there would be no issue with the purchase of the additional tickets” because of his relationship with Mr Alker (at [123]).

52    The primary judge referred in his conclusions to the fact that Mr Sautner probably knew what he was doing was wrong (at [177]), that his conduct was a flagrant breach of ARU policy and involved an “imposition on Ms Wight” (at [179]). The primary judge, however, also referred to the fact that Mr Alker was the “superior of the author of the [ARU] letter” to MSL (more accurately described as an ARU email reply to the apology and explanation email written by Mr Sergeant) and had “apparently been prepared to condone Mr Sautner’s actions by considering the reinstatement of all the tickets and by inviting Mr Sautner to a pre-match function” (at [185]). According to the primary judge, this meant that it was likely that the severe damage to MSL’s reputation that Mr Sergeant feared was unlikely (at [185]). The primary judge also did not accept that Mr Sautner was carrying out other wrongful conduct, being an attempted rorting of the family ticket system (at [182]).

53    The fact that Mr Sautner was not involved in one form of rort (to the family ticket system) does not alter the character of the rort in which he was involved, the purchasing of more than four tickets to the second test when he knew that to do so involved a flagrant breach of the ARU’s requirements and MSL’s contractual obligations to the ARU. In so doing, it cannot be overlooked that Mr Sautner exploited his position of seniority to Ms Wight to get her to do that which she also knew was wrong. He used Ms Wight in this way twice. He obtained 36 tickets in total when he was only entitled to four. He tried to get Ms Wight to conceal his actions by printing the tickets without names on them. His only excuse for his conduct was that he believed that his relationship with Mr Alker meant that the ARU would not mind.

54    The primary judge’s statement at [185] that Mr Alker apparently would have been prepared to condone Mr Sautner’s conduct is misconceived. There was no evidence that Mr Alker knew what Mr Sautner had done other than obtain 36 tickets. There is no suggestion that Mr Alker knew about Mr Sautner involving Ms Wight or his attempt to get her to assist him in concealing what he had done by removing the names from the tickets.

55    The primary judge’s apparent focus on the relationship between Mr Sautner and Mr Alker and the consequences of that on the relationship between MSL and the ARU is also misconceived. The required focus was the impact of Mr Sautner’s conduct on the relationship between Mr Sautner and the MSL. Once that becomes the focus, the fundamental incompatibility of Mr Sautner’s conduct with his obligations to MSL is disclosed. Mr Sautner, the person who negotiated the contract between the ARU and MSL, who was responsible for ticketing at the stadium, which must include responsibility for the integrity of the ticketing system, knowingly and deliberately acted in flagrant breach of the ticketing arrangements contracted between the ARU and MSL and, in so doing, used a subordinate employee to facilitate his wrongful conduct and compounded his wrongs by then trying to make her conceal what he had done. While greater betrayals of the trust between employer and employee are readily imaginable, the possible extremes of conduct which might be envisaged do not undermine the very serious breach of Mr Sautner’s obligations to MSL which were involved. The person responsible to MSL for ensuring the integrity of its ticketing system blatantly rorted that system. This is serious misconduct. The primary judge’s conclusion to the contrary was simply not open on the facts as found. The ARU misconduct would have justified the summary dismissal of Mr Sautner.

The disparagement misconduct

56    The facts found by the primary judge relating to the disparagement misconduct all related to Mr Sautner’s immediate superior, the CEO of MSL, Mr Sergeant. Mr Sautner’s misconduct involved both the making of adverse comments about and the unauthorised taking of photographs of Mr Sergeant which Mr Sautner then used to support his adverse comments about Mr Sergeant. There were two main people to whom Mr Sautner made these comments. First, Ms Wight who, as noted, worked for MSL and was junior to Mr Sautner. Mr Sautner also showed Ms Wight the photographs (or at least one of them) he had taken of Mr Sergeant. Second, Mr Craig Thomas, who happened to be a personal friend of Mr Sautner but also held the position of State Manager (Victoria, South Australia and Tasmania) for Etihad Airlines, the major sponsor of the stadium, which was thus in a contractual and business relationship with MSL. The primary judge found that while Mr Thomas was not MSL’s direct contact with Etihad Airlines, the direct contact, a Ms Liz Graham, reported to Mr Thomas (at [140]).

57    There is no doubt from the primary judge’s findings that Mr Thomas shared Mr Sautner’s low opinion of Mr Sergeant and initiated communications with Mr Sautner which disparaged Mr Sergeant. Mr Sautner, for his part, did not suggest that communications of this kind were inappropriate given that Mr Sergeant was the CEO of MSL, but joined in and continued the disparagement. Mr Sautner’s conduct included written communications with Mr Thomas: (i) expressing his view that he could not believe Mr Sergeant had been appointed as the new CEO; (ii) ridiculing Mr Sergeant’s taste in clothes and expressing delight in Mr Sergeant not having been upgraded for a flight; and (iii) eliciting ridicule of Mr Sergeant’s appearance in a newspaper article about the stadium (at [141]-[143]).

58    The primary judge’s treatment of the differences in the evidence between Ms Wight and Mr Sautner about the comments Mr Sautner made is not straightforward. He found that Ms Wight “seemed truthful” but no doubt would rather not have been giving evidence given that her own conduct was also under scrutiny by her employer (at [160]), a fact that would have placed her under a “degree of pressure” (at [161]). The primary judge was also concerned that Mr Sautner had not had put to him in cross-examination the detail of Ms Wight’s evidence (at [161]). The primary judge found Mr Sautner’s evidence “at times unconvincing” but was not prepared to say he was an untruthful witness (at [162]). The problem is that the conflict in the evidence, as between Ms Wight and Mr Sautner, remains unresolved. It is not appropriate (or necessary) to attempt to resolve any such conflict as part of the appeal because the facts as found disclose error in the conclusions reached in any event.

59    What is clear is this. Mr Sautner did not respect Mr Sergeant (at [145]). He took two photographs of Mr Sergeant. He could not have had Mr Sergeant’s consent to do so and Mr Sergeant could not have known the photographs were taken because in both photographs Mr Sergeant appears to be asleep. In one Mr Sergeant appears to be asleep in a chair which Mr Sautner said was at a concert on a trip to London they took for MSL. In the other Mr Sergeant appears to be asleep in a car which Mr Sautner said was also taken in London as they were driving to a British Lions function (at [146]). While Mr Sautner does not recall showing Ms Wight the photographs, Ms Wight accurately identified one photograph she was shown as Mr Sergeant asleep (at [144] and [145]). The only available inference, and the one the primary judge should have drawn, was that Mr Sautner had shown Ms Wight at least one of the photographs he had taken of Mr Sergeant in London, and did so for the purpose of disparaging Mr Sergeant to Ms Wight. Mr Sautner admitted that he had told Ms Wight that Mr Sergeant did not dress properly and drank too much (at [145]).

60    The primary judge concluded (at [205]) that this conduct of Mr Sautner did not justify his summary dismissal because:

“a.    the comments were made in private conversations and would have remained private but for the investigations by MSL which were triggered by the termination of employment;

b.    the reaction by Mr Sergeant in his evidence to the disparaging remarks, including his references to the ‘continual trails of comments’, that Mr Sautner’s comments were ‘shocking’ and the fact that his reputation had been ‘tarnished’, does not seem commensurate;

c.    Mr Sergeant conceded that employees ‘were entitled to their own opinions’, presumably about their superiors, but it depended on ‘how they express it’;

d.    Ms Wight referred to ‘tea room discussions’ which occur in any organisation;

e.    no suggestion was made that Mr Sergeant’s reputation had been in any way affected by the disparaging remarks.”

61    There are problems with this analysis.

62    The main problem is that there is no reference to the fact that Mr Sautner saw fit to take two photographs of his immediate superior, the CEO of his employer MSL, without that person’s knowledge or consent. Nor does the primary judge draw the only proper inference that could be drawn given the nature of the photographs, the use Mr Sautner subsequently made of them in showing at least one of them to another employee, Ms Wight, Mr Sautner’s admitted lack of respect for Mr Sergeant, and Mr Sautner’s willingness to communicate disparaging comments about Mr Sergeant to Mr Thomas. The only available inference was that Mr Sautner took the photographs intending to use them in some way to disparage or ridicule Mr Sergeant in his capacity as the CEO of MSL. The comments alone would be one thing. Reasonable minds might differ about the seriousness of that conduct. In respect of Ms Wight in particular, the primary judge’s characterisation of the comments as “tea room discussions” (in which adverse comments about “the boss” are probably to be expected) is reasonable. The taking and use of the photographs, however, is in a different category. No one would expect that, after an international flight, they would be at risk of a subordinate employee taking their photograph while they slept for the purpose of using the photograph to later ridicule them. Doing so represents a serious breach of trust.

63    The photographs taken and the way Mr Sautner used at least one of them, disclose that Mr Sautner embarked on a deliberate course of action with the sole intention of undermining the reputation of his own CEO. This undermining was not done in a merely private setting. Ms Wight, although friendly with Mr Sautner, was an employee of MSL. While Mr Thomas was a friend, Mr Sautner also knew that Mr Thomas held a senior position with a major business partner of MSL. Mr Sautner must be inferred either to have intended or to have been indifferent to the potential harm to MSL caused by his conduct both within MSL (via Ms Wight) and within Etihad Airlines (via Mr Thomas).

64    On no view can the taking of unauthorised photographs of the CEO, intending to and in fact using them to disparage the CEO, be characterised as “tea room discussions” in which it may well be accepted that adverse comments and complaints about superiors, even of the most robust kind, are often made.

65    For these reasons the disparagement of Mr Sergeant, which included the taking and use of the photographs, was serious misconduct justifying the summary dismissal of Mr Sautner. The primary judge was in error to conclude to the contrary.

The breach of the CEO’s direction

66    This conduct raises an issue about the terms of the direction which Mr Sergeant gave to Mr Sautner and the circumstances in which it was given.

67    The facts as found by the primary judge are that Mr Sautner was invited to be part of a “knowledge team” constituted by the consultant to the West Australian government in respect of the proposed construction of a new stadium in Perth (at [73]). At a subsequent meeting of the executive team of MSL, convened by the CEO Mr Sergeant and attended by Mr Sautner, Mr Sergeant explained that as MSL was likely to be part of a consortium bidding for the new stadium in Perth any other involvement by employees with the new stadium would raise potential conflict of interest issues (at [75]). Mr Sautner disclosed that he had been invited to be part of the knowledge group. After various discussions Mr Sautner wrote to Mr Sergeant as follows (at [76]):

“I confirm that, under the management of Ian Collins, I had an approach from the Appian Group to be part of a ‘knowledge team’ which would assist the group in its bid, and if successful, its performance of project management services for the new Perth Stadium. I had previously rejected an offer to the CEO of the Western Australian Football League and the group was aware of that and my role at Etihad Stadium. I agreed to the role for my own personal development, to gain external experience and on condition that there was no conflict with my role at Etihad Stadium. I declared this involvement at our recent meeting.

There has been no job description provided for the proposed role, no contract signed and no remuneration paid. Accordingly, there is no involvement beyond my expression of interest in being involved in such a role provided it did not conflict or interfere with my role at Etihad Stadium. I would like very much to remain involved subject to your consent and approval. If you are prepared to discuss this option, I am happy to do so...”.

68    Mr Sergeant responded in these terms (at [77]):

“One of the topics we chatted about earlier in the week was the stadium project in Perth and I just want to follow up on the discussion so that it can be boxed off and put to bed as you asked me to write to you to confirm that MSL will not agree to you being involved with their knowledge team.

Previously at one of our executive team meetings towards the end of last year, I informed everyone of our potential involvement with one of the consortia and asked if anyone was or had been involved with this or any other industry interest outside of work. You quite rightly declared that you had received an approach from the knowledge group responsible for the new stadium development in Perth and subsequently provided me with the attached letter. As I understand it, this was on a personal level and did not involve MSL. What I am not clear about is whether the previous CEO gave his approval or not so can you clarify?

Given that the stadium’s briefing document makes numerous references to Etihad Stadium and we are in discussion with one of the consortia about possibly being part of that group, any involvement you might have with the Perth Stadium knowledge team represents a potential conflict of interest with our business. Additionally, the IP of MSL is extremely sensitive and valuable and should not be shared with such a group unless there is a formal arrangement in place between the two organisations. Therefore, I ask that you have no involvement with the Perth Stadium knowledge team or any other entity involved with this project or any other similar project. I am sure you appreciate our position and I know you will abide by this request.”

69    The direction given by Mr Sergeant to Mr Sautner is contained in the last paragraph of this communication. The date of this communication was 25 January 2013.

70    In May 2013 Mr Sautner was contacted by the former CEO, Mr Collins, who was now an adviser to one group bidding for the new stadium in Perth, known as the Brookfield consortium. He asked if Mr Sautner would arrange two tours of the stadium (one general and one “game day”) to assist the Brookfield consortium in the bid. Mr Sautner agreed to do so (at [78]). Mr Sautner did not inform Mr Sergeant of this approach or obtain his approval for the proposed tour. The primary judge said Mr Sautner “knew that the tour was to assist Brookfield with their bid although he did not regard arranging the tour as a breach of Mr Sergeant’s direction in the email dated 25 January” (at [82]).

71    At [93] the primary judge also recorded that:

“Conducting tours of the stadium was one of Mr Sautner’s responsibilities. He said he conducted tours ‘almost daily’ and that ‘every tour was customised’. Tours were undertaken for other stadium operators and Mr Sergeant had promoted the participation by MSL executives in the Venue Managers Association. Mr Sautner had been a member of the association for 13 years. Membership was mandatory for executives of MSL. When Mr Sautner travelled, including overseas, he undertook tours of other stadiums. Mr Sautner said that during the tour by Brookfield they were only taken to places that he had ‘numerous times taken people to’.”

72    Another employee, Mr Paul Brown, who had not been at the meeting with Mr Sergeant and had not received any direction from him, also conducted tours of the stadium for two other bidders for the new stadium in Perth (at [92]).

73    When MSL raised the issue as one of concern with the Brookfield consortium after learning of the tours, the consortium said that they had received no information before or after the tours from Mr Sautner or Mr Brown.

74    The primary judge also noted at [104] that:

“Mr Sergeant said that he had authorised a tour of Etihad Stadium by Honeywell. Honeywell was involved with one of the Perth Stadium consortiums and, although Honeywell had a long term commercial arrangement with MSL in relation to Etihad Stadium, that arrangement was in no way related to the Perth Stadium project.”

75    The primary judge found that Mr Sautner had not received “any financial benefit, or expected to obtain any such benefit, from arranging or conducting the tours of the stadium” (at [170]).

76    The primary judge otherwise concluded at [173] that:

“a.    with regard to the places visited, the records from the ticket scans and the security card scans provide no suggestion that places were visited on the Brookfield tours that did not form part of public tours. In relation to the visit to the communication centre, the unchallenged evidence of Mr Brown was that no confidential information could be obtained, unless the system itself was interrogated, which did not occur;

b.    so far as the provision of information in response to the requests by Brookfield, no specific suggestion has been made of information that was provided. The emails between Coles and Sautner appear to be frank and open communications with nothing concealed for private discussion;

c.    it is likely also, that Mr Ian Collins, as a consultant to the Brookfield consortium, would have had knowledge of most, if not all, matters that could be provided by Sautner or Brown to the consortium;

d.    the taking of photographs was apparently a regular occurrence on all tours of the stadium. The offer by Mr Roche to request photographs to be deleted by the attendees on the tour was apparently not taken up by MSL;

e.    as to whether Mr Sautner deliberately disobeyed a written direction of Mr Sergeant’s, what was discussed between Mr Sergeant and Mr Sautner, and which was the main thrust of the email from Mr Sergeant to Mr Sautner on 25 January 2013, was the personal involvement by Mr Sautner in a group involved in the Perth Stadium, or similar project, and the potential conflict that might thereby arise;

f.    Mr Sautner could have clarified the appropriateness of the Brookfield tours by a direct enquiry to Mr Sergeant as to whether he had any objection. Whilst it is possible that Mr Sautner’s evidence about disclosing the fact of the tour to the executive team meeting and to Mr Sergeant in the corridor on 23 May might constitute attempts to cover his actions after the event, I do not consider that there is sufficient basis to conclude that at the time the tours were arranged and conducted, Mr Sautner was deliberately and wilfully disobeying a direction by Mr Sergeant.”

77    The primary judge also noted at [174] that:

“a.    Mr Sautner had responsibility within MSL for tours and had conducted many, including for competitors from other venues in Melbourne;

b.    although Mr Collins had asked Mr Sautner to arrange the tour there is no evidence to support the suggestion that therefore Mr Sautner had a sense of obligation to Mr Collins, which conflicted with his duty to MSL;

c.    the correspondence between Mr Sautner and Mr Sergeant had taken place some months earlier. That correspondence, as I have mentioned, appeared to focus upon Mr Sautner’s personal involvement in a consortium or group other than MSL involved in the Perth Stadium or a similar project, similar to the paid role he would have had as a member of the “knowledge team”, and was not a broader prohibition;

d.    Mr Sergeant, to an extent in his evidence, appeared to exaggerate the interest of MSL in another consortium. The email exchange between himself and Mr McDonough appears to refer to a request by Mr McDonough for Mr Sergeant personally to have a limited role in a consortium as an adviser, although Mr Sergeant in his response tried to broaden the attractiveness of both himself and MSL as participants in any consortium. Also, it appears that in December 2012 Mr Sergeant effectively closed off further participation, although he may have hoped for a renewal of interest for participation by either himself of MSL (sic). There was apparently no further contact between Mr McDonough and Mr Sergeant after the brief exchange of emails in late December 2012;

e.    Mr Sergeant authorised a tour by Honeywell and Mr Brown apparently conducted a tour with at least one other party interested in the Perth Stadium project, without any problems arising.”

78    Thereafter, at [175], the primary judge concluded that:

“Accordingly, I consider that there is no basis to conclude that any ground of serious misconduct or breach of the employment contract or other obligations of Mr Sautner to MSL has been made out.”

79    There are a number of problems with this analysis.

80    First, Mr Brown was not at the meeting where MSL’s potential role as part of a consortium bidding for the Perth stadium and the risk of conflicts of interest was raised by Mr Sergeant. Mr Brown also did not receive the communication from Mr Sergeant that Mr Sautner received directing him to “have no involvement with the Perth Stadium knowledge team or any other entity involved with this project or any other similar project” (at [77]). Mr Brown’s tours appear to have been conducted in ignorance of the potential role of MSL in respect of the Perth stadium.

81    Second, the tour that Mr Sergeant arranged (the Honeywell tour) was not by a potential bidder for the Perth stadium. The significance of the tours Mr Sautner arranged were that they were tours by the Brookfield consortium, which Mr Sautner knew was going to bid for the Perth stadium and knew were being requested to assist with that bid, which Mr Sautner agreed to in the face of an express direction to him to “have no involvement with the Perth Stadium knowledge team or any other entity involved with this project or any other similar project”. A requirement to have “no involvement” means what it says. It is difficult to conceive of a more broadly expressed prohibition.

82    Third, although the context of the direction to Mr Sautner was the knowledge team, the direction was not so limited. Mr Sergeant expressly directed Mr Sautner not to have any involvement with “any other entity involved with this project”. Mr Sautner disobeyed that direction when he involved himself with the provision to the Brookfield consortium of the tours of the stadium.

83    In these circumstances, the primary judge’s conclusion that there was no basis to conclude that was a breach of the employment contract cannot stand. Mr Sautner was bound by his contract of employment to perform his duties and obligations “in accordance with all lawful instructions given to the Employee by or on behalf of the Company from time to time” (cl 2(e)). As MSL submitted, this is also an implied term in every contract of employment (Adami at 151 per Isaacs ACJ).

84    That said, the primary judge’s conclusion that the evidence did not establish a deliberate disobeying of the CEO’s direction (at [173(f)]) was reasonably open and not affected by any apparent error of principle.

85    For these reasons, the relevance of Mr Sautner’s breach of the CEO’s direction is limited. On the facts as found, the breach did not amount to serious misconduct justifying summary dismissal. Nevertheless, the primary judge’s characterisation of the evidence as disclosing no breach of the contract of employment at all, for the reasons given, is incorrect. There was a breach, albeit one that the primary judge’s findings did not indicate amounted to serious misconduct. That breach ought to have been weighed in the primary judge’s conclusions about the cumulative effect of Mr Sautner’s misconduct.

Cumulative effect of misconduct

86    The primary judge, as noted, dealt with the factors relevant to his assessment of the cumulative effect of Mr Sautner’s misconduct at [209], reaching his overall conclusion at [210].

87    The problem with the reasoning in [209], which founds the conclusion in [210], is that it focuses not on what Mr Sautner actually did, nor on the effect of what he did on the employment relationship with MSL (the required focus), but on things Mr Sautner perhaps could have done better, such as clearing the tour by the Brookfield consortium with Mr Sergeant, adhering to the ARU’s ticketing policy, clarifying MSL’s ticketing policy, and not disparaging Mr Sergeant. No attention is paid by the primary judge to the destruction of the relationship of trust essential to the employment relationship which Mr Sautner’s misconduct caused. Apart from the breach of the CEO’s direction, each of the other classes of misconduct was deliberate, involved elements of dishonesty, and of its very nature struck at the heart of the trust relationship between Mr Sautner and MSL. Each of those three, individually, justified summary dismissal. Taken together, with the breach of the CEO’s direction, no other conclusion was reasonably open other than that MSL had made good its case that Mr Sautner’s conduct justified summary dismissal.

88    The primary judge was in error to conclude to the contrary.

MR SAUTNER’S NOTICE OF CONTENTION

89    Given our conclusion that the primary judge erred in finding that the conduct of Mr Sautner was not such as to warrant summary dismissal, it is necessary to deal with Mr Sautner’s notice of contention, which raises the principle in Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359.

90    The background to this issue is as follows:

(a)    Clause 7.1 of the contract of employment provided that either MSL or Mr Sautner was entitled to terminate the contract upon giving 6 months’ notice in writing. Further, MSL could, in its absolute discretion, elect to terminate the contract by providing remuneration in lieu of the appropriate term of notice. Clause 7.2 provided that MSL could summarily terminate the contract immediately by notice in writing without any payment in lieu of notice for cause.

(b)    On 3 June 2013, MSL purported to terminate the contract under cl 7.1 and said that such termination was immediate and that it would pay 6 months’ remuneration in lieu of notice (primary judge’s reasons at [3]-[4]).

(c)    But on 20 June 2013, MSL asserted that it was and had been entitled to terminate the contract for cause under cl 7.2. Accordingly, it asserted, in reliance on the Shepherd principle, that its termination of the contract took effect for cause under cl 7.2, rather than under cl 7.1 (primary judge’s reasons at [5]-[6]).

(d)    The primary judge held that the Shepherd principle could be so applied, but in the circumstances of the case he did not need to apply it because of his finding that termination for cause was not justified in any event on the facts. But as we have found that his Honour was in error and that termination for cause was justified, the issue arises as to whether the Shepherd principle applies to permit termination for cause under cl 7.2 to be now relied upon by MSL, rather than the asserted termination based upon cl 7.1 (assuming for the moment that termination occurred under cl 7.1).

91    In our opinion, which will be elaborated on shortly, we do not consider that the Shepherd principle can be so used to justify termination of the contract under cl 7.2 if termination had already occurred at an earlier time under cl 7.1. We stress the conditionality of that proposition because, in our opinion, no termination in any event occurred under cl 7.1 as we later explain (see [120] et seq below). On that view, no application of the Shepherd principle needs to be considered. But given that the primary judge considered the Shepherd principle and the parties before us made submissions thereon, and in case we are incorrect in our view that there was no termination under cl 7.1, it is appropriate for us to address the Shepherd principle.

92    Shepherd involved a contract of agency. Shepherd’s agency was terminated by the respondent because it was dissatisfied with his services although at that time it was not aware of certain conduct of Shepherd. It was held that an agent’s dismissal may be justified upon grounds upon which his principal did not act or of which the principal was unaware when the purported termination occurred.

93    Dixon J (as his Honour then was) relied on a series of English cases including Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339. There the appellant purported, on grounds of alleged misconduct, to have terminated its managing director’s employment. It was unable to establish this conduct but was entitled to rely on other misconduct not relied upon initially but which warranted the employee’s summary dismissal. The proceedings at first instance included a counterclaim for wrongful dismissal. The later discovered conduct justifying dismissal was an answer to that claim.

94    As to the extent of the applicable principle, Dixon J observed at 377-378 in Shepherd:

“But the rule is of general application in the discharge of contract by breach, and enables a party to any simple contract who fails or refuses further to observe its stipulations to rely upon a breach of conditions, committed before he so failed or so refused, by the opposite party to the contract as operating to absolve him from the contract as from the time of such breach of condition whether he was aware of it or not when he himself failed or refused to perform the stipulations of the contract. ‘It is a long established rule of law that a contracting party, who, after he has become entitled to refuse performance of his contractual obligations, gives a wrong reason for his refusal, does not thereby deprive himself of a justification which in fact existed, whether he was aware of it or not’ (per Greer J., Taylor v. Oakes Roncoroni & Co. (1922) 127 L.T., at p. 269; 27 Com Cas, at p. 266; see, too, per Lord Sumner in British and Beningtons Ltd. v. North Western Cachar Tea Co. (1923) A.C. 48, at p 71 and per Starke J. in Henry Dean & Sons (Sydney) Ltd. v. P. O'Day Pty. Ltd (1927) 39 C.L.R. 330 at p. 359).”

95    Mr Sautner contends that neither Shepherd properly understood nor any later authorities relied upon by MSL and the primary judge, extend the Shepherd principle to a circumstance whereby a party lawfully terminates a contract in accordance with its terms on proper notice (or payment in lieu of notice) and a debt thereby accrues, and after this the terminating party discovers conduct which would have justified the summary termination of the contract of employment for cause.

96    This circumstance, Mr Sautner contends, is what pertains in the present case because the employment contract between the parties was terminated pursuant to cl 7.1 by notice from MSL to Mr Sautner on 3 June 2013. We have concluded that the contract was not so terminated for reasons we shall shortly explain. However, we shall, for the immediate purpose of considering the issue raised concerning Shepherd, assume the circumstance of contractual termination and consequent debt as an accurate premise, where such termination was not for cause.

97    The important distinction then between the case of Mr Sautner (and the premise of his termination) and the facts in Shepherd and related cases is that here there has been an actual contractual termination, not a mere purported termination upon inadequate grounds but nonetheless later justified on grounds not known or not relied upon at the time of purported termination. Moreover, the actual termination was not based upon breach.

98    The distinction was articulated by the English Court of Appeal in Cavenagh v William Evans Ltd [2013] 1 WLR 238 at [39] where Mummery LJ said:

“…Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339 did not go as far as to say that after-discovered misconduct provided an employer with a defence to an action for payment of an accrued debt. The principle for which that case stands is that an employer can defend a claim for damages for wrongful dismissal by using at trial, in its defence of justification, evidence of misconduct by the employee that was not known to the employer at the time of dismissal. [H]is appointment was terminated… in a fashion that was lawful... The consequence of the lawful termination was that the company became contractually bound to Mr Cavenagh for pay in lieu. All of that happened before the company knew of, or was in a position to accept, Mr Cavenagh's prior repudiatory breach. The lawful termination had already triggered the liability for pay in lieu, which was, as a matter of legal analysis, quite a different situation than that facing the Court of Appeal in Boston Deep Sea Fishing.”

In the same case, Tomlinson LJ said (at [54]):

“… the Boston Deep Sea Fishing principle is … of no relevance here, since the employer is not seeking retrospectively to justify a termination which was impermissible upon the grounds put forward at the time.”

99    Similarly, the Full Court of the Supreme Court of South Australia recently determined that the narrower approach to the principle in Shepherd is preferable. In District Council of Barunga West v Hand (2014) 120 SASR 228, Nicholson J said (Gray and Peek JJ agreeing):

“[89] This is not a case where the Council needs to justify on new grounds a wrongful summary dismissal of Mr Hand based on improper grounds. If the Council's factual case were to be made out (contrary to the findings of the Judge) and if that factual basis was of sufficient seriousness to give rise to a right in the Council to have summarily dismissed Mr Hand (either pursuant to s 97 or on some other basis) the Council (had it known of its rights at the time) would have been entitled to dismiss Mr Hand summarily. However, and at the same time, the Council always had (as I have found) an entitlement to dismiss Mr Hand upon the giving of appropriate notice. This is what the Council purported to do. Having determined not to investigate so as to find, if available, grounds for summary dismissal, the Council chose to exercise its rights to terminate upon the giving of appropriate notice. That termination has been effective and Mr Hand's employment has come to an end. Having determined to go down that track the Council does not need to justify its termination of the employment and should be held to the consequences of the contractual right it adopted.

[90] The Council having exercised its contractual right to terminate, without cause, breached its contract with Mr Hand by not providing the required notice. The fact that it could have terminated for cause (if this were to have been established) but did not, cannot be relied upon to reduce the damages for the Council's breach of the contract provision under which it elected to proceed.”

100    The decision of Vickery J in Hodgson v Amcor Ltd (2012) 264 FLR 1 at [1611]–[1617] also supports Mr Sautner’s contention.

101    The Shepherd principle was considered by the New South Wales Court of Appeal in Downer EDI Ltd v Gillies (2012) 229 IR 314. The judgment of Allsop P (as his Honour then was) (Macfarlan and Meagher JJA agreeing) significantly informs the issue before this Court. It is additionally of significance to the resolution of this appeal for its discussion of textual considerations of the employment contract before it which may have relevance to our analysis which we will come to later.

102    Allsop P at [131] referred to the “… well-known feature of the common law… that a contracting party who gives a reason for a contractual position being taken (such as termination) does not by the giving of that reason (which may be wrong) deprive itself of a justification which existed, whether known of or not at the time”.

103    This formulation, Mr Sautner in effect submits, is too wide and is not reflective of the ratio in Shepherd.

104    Nonetheless, in Downer, Shepherd is cited in support, as is Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 262 per Mason CJ (Deane, Dawson and Toohey JJ agreeing) and at 274-5 per Gaudron J; Concut Pty Ltd v Worrell (2000) 103 IR 160 at [27]-[29] per Gleeson CJ, Gaudron and Gummow JJ is also cited.

105    It is apparent that Allsop P at [133]-[135] doubted the correctness of Hodgson.

106    Moreover his Honour at [132] stated:

“The principle enunciated in Shepherd v Felt & Textiles often operates when a contractual act sought to be justified cannot be so justified on the ground contemporaneously relied upon, but can be so justified on a ground then existing but not known about …”. (Emphasis added).

107    In other words, on this view, such a circumstance is but a common but not universal illustration of the application of the principle but does not so confine its extent. His Honour relied upon British and Beningtons Ltd v North Western Cachar Tea Co Ltd [1923] AC 48 at 70-1 and also the discussion of principle by Devlin J in Universal Cargo Carriers Corporation v Citati [1957] 2 QB 401 at 443-6 approved by Mason CJ in Sunbird Plaza at 262.

108    Allsop P reasoned that the limitation of the Shepherd principle contended for by the respondent (and relied upon by Mr Sautner in this case) should not be accepted. His Honour stated at [136]-[138]:

“[136] As a matter of principle and authority, the limitation on the principle should not be accepted. There is no reason in principle for Shepherd v Felt & Textiles to be confined to supporting as justifiable acts done under contract which are not valid without further justification from the facts not previously known. In principle, it should equally extend to adding a further basis for justification of the act if that further basis has separate relevance. So to approach the matter accords with the approach to the availability of damages for loss of bargain even if the contract be terminated in the exercise of a contractual power: Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 31; and Sunbird Plaza at 260–2. Of course, whether or not the two contractual bases can operate concurrently or severally will be affected by the terms of the contract.

[137] As a matter of authority, the principle was expressed by Mason CJ in Sunbird Plaza at 262 in a fashion not so limited:

‘Shepherd v Felt & Textiles of Australia Ltd stands as authority for the general proposition that a termination of a contract may be justified by reference to any ground that was valid at the time of termination, even though it was not relied on at the time and even though the ground actually relied on is found to be without substance.’

The absence of substance of the ground actually relied on was not expressed by Mason CJ as a necessary element of the principle, but one circumstance in which the principle remains applicable. This is reinforced by the phrase ‘any ground that was valid’. See also the expression of the matter by Dixon J in Commonwealth Homes and Investment Co Ltd v MacKellar (1939) 63 CLR 351 at 378.

[138] To the extent that the principle was limited to supporting otherwise unjustified acts by the Court of Appeal in England in Stocznia Gdynia SA v Gearbulk Holdings Ltd [2010] QB 27 at [44] approved in Cavenagh v William Evans Ltd [2012] EWCA Civ 697 at [41], this Court is bound by the wider expression of the principle in Sunbird Plaza.”

109    We do not think that Mason CJ in Sunbird Plaza at 262 was seeking to cast the Shepherd principle in as wide terms as Allsop P describes it. We think the better view is that Mason CJ was merely describing the principle in terms of the facts found in Shepherd. Moreover, the facts in Sunbird Plaza (see the discussion by Gaudron J at 274-5) which gave rise to the discussion of the Shepherd principle concerned a discussion of the scenario where the initial advanced ground lacked substance.

110    Concut was a wrongful dismissal case. Dismissal was found to have been justified upon the respondent’s misconduct, even though the misconduct was not known of by his employer at the time, and was an available basis for resisting the claim for damages for wrongful dismissal. That is not this case, whether on MSL’s premise or otherwise. The reasons of Gleeson CJ, Gaudron and Gummow JJ at [29] do not provide any foundation to support an extension of the Shepherd principle in the manner suggested.

111    Minion v Graystone Pty Ltd [1990] 1 Qd R 157 was relied upon by MSL. There the respondent had successfully relied upon a ground, the appellant’s insolvency, to justify assuming control of subcontract works, although the notice given to the appellant to that end relied on a different invalid ground. This later reliance was nonetheless available upon the Shepherd principle as articulated by MSL. The circumstances were not on all fours with Shepherd. The questions raised in that appeal were whether the Shepherd principle is available in the case of an action taken under an express provision of the relevant contract and, second, as to whether it extends to action other than the discharge or termination of the contract. This is not the situation in the present appeal.

112    We do not consider that Shepherd supports MSL’s contention that a lawfully terminated agreement, in effect, may be resuscitated and then re-terminated upon some ground not known at the time of the termination. An agreement may be terminated lawfully for any number of reasons: resignation of the employee; redundancy; effluxion of the contractual term of employment or some other contractual basis. A contract cannot be terminated twice: Carter J, Carter’s Breach of Contract (1st Ed, LexisNexis Butterworth, 2011) at 10.08. Upon that question we regard Cavenagh as correctly decided. Mummery LJ in Cavenagh at [36]-[39] characterised the claim for the sum in lieu of notice as a debt. Mummery LJ referred to the respondent’s choice to terminate the service agreement under cl 11.5 by promising to pay the amount in lieu of notice and then said that “[h]aving chosen to terminate the service agreement in that way, the company was not entitled to resile from the contractual consequences of its choice…”. We would make such an observation in the case before us. MSL made a contractual choice to terminate under cl 7.1. It is bound by that choice, if properly implemented.

113    To the extent that Downer (and Bibby Financial Services Australia Pty Ltd v Sharma [2014] NSWCA 37 which followed it), may suggest otherwise, we would disagree. Allsop P construed the termination clause in Downer in a way which enabled the Shepherd principle to be invoked in its wider expression as articulated by his Honour. We do not need for present purposes to explore that textual construction in detail. However, we would depart from his Honour’s reasons at [144] which would permit, following a (lawful) termination of an agreement, an entitlement to rely upon a different type of termination based upon a serious misconduct provision to sustain that very termination.

114    As we have said, contrary to what was said by Allsop P in Downer at [136] and [138], we do not take anything said in Sunbird Plaza at (260-2) or otherwise to be a wider expression of the Shepherd principle. Nor do we think that Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 31 (referred to by Allsop P at [136]) is authority for any such wider expression of the Shepherd principle. Moreover, Commonwealth Homes and Investment Co Ltd v Mackellar (1939) 63 CLR 351 at 378 per Dixon J adds little to the present issue. Our attention has also been drawn to Kanes Hire Pty Ltd v Mitchell (2010) 203 IR 37 at [32]-[34] per Moore J, but it contains nothing inconsistent with what we have said. And neither does Intico (Vic) Pty Ltd v Walmsley [2004] VSCA 90 at [3] per Ormiston JA.

115    The important question here is whether the employment contract was lawfully terminated under cl 7.1.

116    The risk that misconduct may and often will not be discovered until after the employment agreement has, by some means, been lawfully terminated and payment in lieu of notice made could be addressed by a contractual term entitling the employer to repayment of those monies. In an employment agreement it may be that, by reason of the combined natures of the after discovered pre-termination breaches and the particular contract, payments in lieu of notice made may be recoverable as damages. Such too may be the case where the employee is under a fiduciary duty to his employer to report facts that may provide a foundation for any breach of his fiduciary duties and has failed to do so. Additionally, such payments may be recovered where the termination was induced by fraud or caused by proscribed statutory conduct.

117    For example, the terms of the contract may entitle the paying party to recover such monies. Clause 4.3 of the agreement in Downer (as construed by the Court of Appeal) rendered termination payments, such as payments in lieu of notice upon termination, as not payable where the termination was effected as a result of the payee’s misconduct or fraudulent activity. In Downer, termination under cl 4.1(b) and the payment in lieu had been made, but cl 4.3 was held to be a basis upon which those payments were recoverable. However, this followed from the Court of Appeal concluding that the agreement could nevertheless be terminated under cl 4.1(c). But this proceeded, in our opinion, from an extended view of the operation of Shepherd which is not warranted in principle or by reliance upon the cases said to justify it. Finally, it ought not be forgotten that Downer turned upon the specific contractual terms of cl 4.3. As Meagher JA made clear at [160]-[162], it was the idiosyncratic terms of cl 4.3 that distinguished Downer from Cavenagh and Hodgson.

118    In summary, in our view, if Mr Sautner’s employment contract was terminated on proper notice or payment in lieu of notice under cl 7.1, then MSL was not entitled under the Shepherd principle to later use otherwise available grounds for cause under cl 7.2 to summarily terminate Mr Sautner. To use the language of Allsop P in Downer at [136], cl 7.1 operated “severally” from cl 7.2 rather than “concurrently”. Clause 7.2 could not be used to disentitle Mr Sautner from any accrued entitlement flowing from termination under cl 7.1. Further, there was no cl 4.3 type provision of the type discussed in Downer; the last sentence of cl 7.2 is confined to cl 7.2.

119    But the issue arises in the present case as to whether there was termination under cl 7.1 at all. If not, there was nothing to disentitle MSL from terminating under cl 7.2. And as we have found on the facts, having departed from the views of the primary judge, summary dismissal under cl 7.2 would have been justified.

Was the employment contract terminated?

120    Clauses 7.1 and 7.2 are in the following terms:

“7.1    Either pay (sic) may terminate this Agreement by giving written notice of the duration referred to in Item 5 of the Schedule to the other party. The Company may, in its absolute discretion, elect to terminate this Agreement by providing remuneration in lieu of the appropriate term of notice.

7.2    The Company may terminate summarily this Agreement immediately by notice in writing to the Employee without any payment in lieu of notice if the Employee:

(a)    commits a serious or persistent breach of any of the terms of conditions of this Agreement;

(b)    commits any grossly negligent act in the course of performing the Employee’s duties;

(c)    commits any wrongful or dishonest act or engages in conduct, which in the reasonable opinion of the Company, brings it into disrepute;

(d)    commits any other act which would entitle the Company to dismiss the Employee summarily; or

(e)    is adjudicated bankrupt or make any composition with the Employee’s creditors,

and no remuneration or compensation shall be payable beyond the time of such dismissal.

    . . .”

121    Under the second limb of cl 7.1, termination can occur “by providing remuneration in lieu of the appropriate term of notice” (emphasis added). This is to be contrasted with the express provision for written notice under the first limb of cl 7.1 and indeed the requirement for notice in writing in the case of summary dismissal for cause under cl 7.2. This view is consistent with the effect of a similar clause in Downer described by Meagher JA at [151]. Similarly Allsop P concluded that although Mr Gillies had been asked by the Board of Downer to “step down” as managing director and CEO, this did not amount to a termination of his employment contract. This had occurred only when, pursuant to cl 4.1(b), Downer had made payment to him in lieu of notice in accordance with the termination provisions of his employment contract.

122    The letter of 3 June 2013 advised Mr Sautner that his position as Director, Commercial Business would be redundant as from 3 June 2013 and that he would be entitled to six months’ pay in lieu of notice. It also offered certain redundancy payments. A deed of release accompanied the letter but was never executed by either party. This deed by cl 3.1 promised payment under cl 7 including six months’ pay in lieu of notice of termination but this was expressed to be subject to MSL receiving back the deed duly executed by Mr Sautner.

123    The termination under the employment contract required, in order to be effective, payment of the six months’ pay in lieu of notice. This never occurred and there was therefore no termination under cl 7.1.

124    This point was raised by this Court and adopted by MSL. Although no objection to the point being taken was raised during the hearing, in circumstances where the point could be potentially determinative, we subsequently directed that if MSL wished to rely on the point it should formally apply for leave to do so and gave both MSL and Mr Sautner an opportunity to make further written submissions both as to whether leave should be granted and the merits of the point.

125    MSL applied for leave to add to its notice of appeal an additional ground 15A as follows:

“(1)    The learned trial judge found that Sautner’s ‘employment was terminated on 3 June 2013’ (Judgment at [1]).

(2)    To the extent this finding was:

(a)     a conclusion of law that the employment contract between Sautner and MSL was terminated by MSL on 3 June 2013 in accordance with its terms (which as a matter of contract law was not correct); and not

(b)     a finding of fact that for all practical purposes the employment relationship (as distinct from the employment contract) between Sautner and MSL was at an end –

his Honour erred.

(3)     In truth, on 3 June 2013, MSL purported to terminate the employment contract by advising Sautner that his position was redundant and that he would be paid ‘6 months’ pay in lieu of notice on termination’ (Judgment at [2]-[3]) (the purported termination).

(4)     MSL could not unilaterally discharge the employment contract with immediate effect (AB Part C, Vol. 1, Tab 13 (contract) and Tab 16 (amended Schedule to the contract) unless it:

(a)     provided Sautner with remuneration in lieu of six months’ notice (which it said it would do but did not do); or

(b)     summarily terminated Sautner (which it did not seek to do on 3 June

2013).

(5)     In the circumstances, the employment contract (as distinct from the employment relationship) was not effectively brought to an end until MSL confirmed at least by 20 June 2013 by letter of the same date from its solicitors to the solicitors for Sautner that MSL was ‘entitled to terminate [Sautner’s] employment on the basis that [Sautner] engaged in serious misconduct’ (AB Part C, Vol. 2, Tab 47, p.4.3).”

126    MSL submitted that leave should be granted to raise this new ground, it being expedient and just to do so (Metwally v University of Wollongong (1985) 60 ALR 68 at 71), and that it ought to be resolved in its favour. In MSL’s words, the ground “raises solely a point of law”, “the fact that the employment relationship ended on 3 June 2013 was beyond dispute below”, the “dichotomy between the termination of the employment relationship and the discharge of the contract of employment was not explored below”, and the “relevance of this dichotomy [having] only been brought into focus as an issue given the arguments advanced by [Mr] Sautner on appeal in respect of the scope of the rule in Shepherd.”

127    Mr Sautner argued that leave to raise the new ground should not be granted and, if granted, the ground should be rejected. Mr Sautner referred to the principle that a new point should not be permitted to be raised on appeal if there is any possibility that evidence could have been adduced which may have prevented the point from succeeding or where the point cannot be disposed of without determining questions of fact (Coulton v Holcombe (1986) 162 CLR 1 at 9, Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438). Further, even if the point is one of law only, exceptional circumstances would be required to permit the raising of a new point on appeal (Geelong Building Society (In liq) v Encel [1996] 1 VR 594 at 605 and 607).

128    Mr Sautner submitted that the new point left issues unexplored including when the contract of employment was terminated if not on 3 June 2013 and possible repudiation by MSL on 3 June 2013 and acceptance of that repudiation by Mr Sautner. Further, given the common assumption of the parties until now that the contract was terminated on 3 June 2013, the possibility of an estoppel arises. Another unexplored issue is whether Mr Sautner might be entitled to damages for conduct between 3 June 2013 and the date, whenever it might be, that the contract was terminated. Evidence could have been adduced about how MSL made termination payments, MSL’s payment systems, and the difficulty of calculating leave entitlements, as well as the prospect that cl 7 itself might have been made in circumstances bearing upon its proper construction so that evidence of those circumstances might have been admitted. Finally, it was submitted that MSL should not be entitled to avoid its contractual obligations merely because it had failed to make the required payment in lieu of notice.

129    Insofar as the substance of the new ground is concerned, Mr Sautner submitted that it lacked merit, being inconsistent with Cavenagh, common sense and sensible commercial practice.

130    We do not accept Mr Sautner’s arguments in respect of leave. It is clear that a new point cannot be taken on appeal other than in accordance with the principles articulated in Coulton and Suttor. Here, however, that no payments had been made is not in dispute. The issues said by Mr Sautner to be left unexplored on the evidence, and about which further evidence might have been called, are highly speculative and unconvincing. The operation of cl 7, given the undisputed fact that no payment in lieu of notice was made, involves a conclusion based purely on the proper construction of the clause. Thus the observation of Mason J (as his Honour then was) in O’Brien v Komesaroff (1982) 150 CLR 310 at 319 are apt.

131    It is, in our view, expedient and in the interests of justice to consider the point: Water Board v Moustakas (1988) 180 CLR 491 at 497.

132    MSL had not made payment under the second limb of cl 7.1 by the time it discovered Mr Sautner’s misconduct.

133    Accordingly, at the time that Mr Sautner’s misconduct was discovered his employment contract was still on foot. MSL had in its defence below always denied that the contract was terminated on 3 June 2013 (we note that in response to that plea, Mr Sautner never pleaded a case in damages based upon termination on or after 3 June 2013 flowing from Mr Sautner’s acceptance of any alleged repudiatory conduct on the part of MSL). Given that the employment contract was still on foot, MSL was entitled to terminate the agreement under cl 7.2, as a consequence of which Mr Sautner was not entitled to remuneration in lieu of notice or other benefits.

134    The reasoning in Cavenagh, that a debt accrued on the notice terminating Mr Cavenagh’s services, should not be applied. Further, if Bibby is authority for the proposition that termination occurs by the mere giving of notice of an intention to make payments in lieu, then we would respectfully disagree. We would adopt a similar position with Hodgson. To the extent that the employer’s letter in Hodgson was treated as an election (at [429]-[430]), the reasoning is inconsistent with that set out above, in particular, that the right in question is not a right to terminate by giving notice of an intention to make payments in lieu but a right to terminate by in fact making the payments. By the express terms of cl 7.1, termination is achieved either by notice or by providing remuneration in lieu of notice. On the undisputed facts, MSL did neither. Accordingly, the employment contract remained on foot as at 3 June 2013. MSL then later discovered Mr Sautner’s serious misconduct, and notified him to that effect by letter dated 20 June 2013. By that letter MSL asserted that it “is” entitled to terminate Mr Sautner’s contract on the basis he had engaged in serious misconduct. Although not expressed as such, this can only be an assertion of a then current entitlement to terminate in accordance with cl 7.2 of the employment contract, by reason of which no remuneration or other compensation was payable to Mr Sautner.

135    Finally, on this aspect, insofar as it is necessary to say so, we do not consider it appropriate to base these conclusions on s 117(1)(b) of the Fair Work Act 2009 (Cth) which provides that an employer must not terminate an employee’s employment unless the employer has paid to the employee payment in lieu of notice. Our conclusions follow from the application of cl 7 to the undisputed facts of the present case.

COSTS

136    At trial Mr Sautner relied on three causes of action. Two of them (claims for a redundancy payment and the imposition of a civil penalty) were brought under the Fair Work Act. The third was his common law contractual claim.

137    Having succeeded in prosecuting these claims Mr Sautner made an application for costs. He sought his costs on the usual basis. He also relied on MSL’s failure to accept an offer of compromise which he had made prior to trial and on some belated amendments by MSL to its defence and counter-claim which were made shortly before trial.

138    Mr Sautner’s application for costs raised a number of issues relating to the construction and application of s 570 of the Fair Work Act in a case in which a plaintiff, in a State court, made claims under the Fair Work Act and at common law in the same proceeding.

139    Relevantly, s 570 of the Fair Work Act provides:

“(1)    A party to proceedings (including an appeal) in a court (including a court of a State …) in relation to a matter arising under this Act may be ordered by the court to pay costs incurred by another party to the proceedings only in accordance with subsection (2) …

(2)    The party may be ordered to pay the costs only if:

…

(b) the court is satisfied that the party’s unreasonable act or omission caused the other party to incur the costs …”.

140    Section 570 operates as an express limitation on the broad discretion to award costs which is conferred on this Court by s 43 of the Federal Court of Australia Act 1976 (Cth) and on the County Court by s 78A of the County Court Act 1958 (Vic) (“the County Court Act”).

The primary judge’s decision

141    The primary judge distinguished between the claims made by Mr Sautner under the Fair Work Act and the common law claim which, he considered, constituted a separate justiciable controversy. He held that s 570 did not preclude recovery of costs in respect of the contract claim. He did, however, hold that the section prevented the making of a costs order in respect of the statutory claims unless one of the exceptions, provided for in s 570(2), applied.

142    His Honour then dealt with the offer of compromise. He found that such an offer had been made some nine months before trial. It had not been accepted by MSL. At trial Mr Sautner had succeeded in obtaining an award which, in aggregate, well exceeded the amount offered by way of compromise.

143    In these circumstances, the primary judge held that Mr Sautner was entitled to an order, under r 26.08(2)(b) of the County Court Civil Procedure Rules 2008 (Vic) (“the County Court Rules”) in respect of his contractual claim, for costs “before 11:00 am on the second business day after the offer was served, taxed on a party and party basis and for the plaintiff’s costs thereafter taxed on an indemnity basis.”

144    His Honour also held that MSL’s failure to accept the offer was an “unreasonable act or omission [which] caused the other party to incur costs” (at [33(b)]) and that, as a result, the exception, provided for in s 570(2)(b) of the Fair Work Act, applied. MSL was ordered to pay Mr Sautner’s costs of his statutory claims, incurred after 11:00 am on the second business day after the offer was served, on an indemnity basis.

145    The primary judge rejected Mr Sautner’s costs claims relating to MSL’s amendments to its defence and counter-claim.

146    MSL appealed against the costs orders which were made against it.

Consideration

147    Having regard to the views which we have formed in relation to the appropriate disposition of the appeal it is not strictly necessary that we deal with the costs argument. The issues relating to these costs orders were, however, fully argued and they raise questions which have not earlier fallen for decision. In these circumstances we consider it appropriate to deal with some important aspects of the issues which were in dispute.

148    It was common ground at trial that Mr Sautner’s claims for redundancy pay and the imposition of a pecuniary penalty were “matters” which arose under the Fair Work Act. The County Court had jurisdiction to deal with these claims as “an eligible State … court” under s 539 of the Fair Work act. In doing so the County Court was exercising Federal jurisdiction.

149    By s 565(1) of the Fair Work Act an appeal lies to this Court from a decision of an eligible State court which has exercised “jurisdiction under [that] Act”.

150    Mr Sautner argued that the primary judge had been correct to hold that s 570 of the Fair Work Act did not apply to the contract claim. He contended that the County Court had jurisdiction to hear and determine this claim pursuant to s 4 of the County Court Act. That jurisdiction was conferred independently of the County Court’s jurisdiction to deal with the claims made under the Fair Work Act. The County Court also had an unfettered discretion to award costs “of and incidental to all proceedings” before it under s 78A of the County Court Act. Relying on observations of the Full Court of this Court in Construction, Forestry, Mining and Energy Union v Director of the Fair Work Building Industry Inspectorate (No 2) (2013) 209 FCR 464 at 484, he contended that the two Acts which conferred jurisdiction on the County Court should be read together such that they operated “harmoniously”. This could be done, in the present case, by restricting the operation of s 570 of the Fair Work Act to those “matters” arising in the proceeding under the Fair Work Act and allowing the costs regime, provided for under the County Court Act, to operate in respect of the contractual claim.

151    These contentions must be rejected.

152    The Full Court’s decision in CFMEU (No 2) was made under s 824 of the Workplace Relations Act 1996 (Cth) (Workplace Relations Act). That section was worded differently from s 570(1). Relevantly, it provided that:

“(1)    A party to a proceeding (including an appeal) in a matter arising under this Act … must not be ordered to pay costs incurred by any other party to the proceeding unless the first-mentioned party instituted the proceeding vexatiously or without reasonable cause.” (Emphasis added).

…”.

153    The Full Court undertook an extensive examination of decisions made under s 824 and its predecessors. This review disclosed conflicting lines of authority. One line held that, in a proceeding in which claims were made under the Workplace Relations Act and its predecessors and also under other Commonwealth legislation or at common law, s 824 and its predecessors operated to prevent any award of costs in that proceeding. The alternative line of authority held that it was possible to treat causes of action based on the Workplace Relations Act separately from any other claims. The costs restriction applied to the former but not the latter.

154    In CFMEU (No 2) the Court had dealt with claims made under the Workplace Relations Act and another Commonwealth Act. There was no equivalent of s 824 in that other Act. The Court held that the two Acts could be read harmoniously if the costs restriction only applied to the claims made under the Workplace Relations Act.

155    Section 570, in its present form, came into force on 1 January 2013. Unlike s 824 which applied “to a proceeding … in a matter arising under this Act” it applied to a proceeding ‘in relation to’ a matter arising under this Act …”. (Emphasis added).

156    The word “proceeding” is not defined in the Fair Work Act. In the context of s 570 it bears a different meaning from the word “matter”. “Matters”, in the sense of claims or causes of action or their underlying controversies, are raised in the “proceeding” or “proceedings” which is or are prosecuted in the Court: cf Shea v Energy Australia Services Pty Ltd (No 7) [2014] FCA 1091 at [22] (Jessup J). As Gray J said in Geneff v Peterson (1986) 19 IR 40 at 90, in dealing with the construction of s 197A of the Conciliation and Arbitration Act 1904 (Cth) (a predecessor of s 570):

“[T]he section operates in relation to a ‘proceeding’. There is only one proceeding before the Court, although that proceeding involves a number of separate claims, each of which might have been the subject of a separate proceeding. … In my view, it is impossible to split the claims within a proceeding for the purpose of the application of s 197A.”

See also Qantas Airways Limited v Transport Workers Union of Australia (No 2) (2011) 211 IR 119 at 182 (Moore J); Grout v Gunnedah Shire Council (No 3) (1995) 59 IR 248 at 260-1 (Moore J); Goldman Sachs JBWere Services Pty Ltd v Nikolich (2007) 163 FCR 62 at 65 and 69.

157    There was a single proceeding which was commenced and prosecuted to judgment in the County Court. Mr Sautner made claims under the Fair Work Act and at common law. The claims under the Fair Work Act were “matters” within the meaning of s 570(1) of the Fair Work Act. The proceeding was, as a result, a proceeding in relation to a matter arising under that Act. Section 570(1) operated to preclude the Court from ordering MSL (‘another party to the proceedings’) to pay any costs incurred by Mr Sautner in prosecuting his claims unless he could satisfy the Court that one of the exceptions, provided for in s 570(2), applied.

158    As White J has demonstrated in Stanley v Service to Youth Council Incorporated (No 3) [2014] FCA 716 at [16]-[25], the legislative history and the relevant explanatory memoranda support the construction which we have placed on s 570(1).

159    Mr Sautner also sought to uphold the primary judge’s finding that MSL’s failure to accept the offer of compromise which he had made constituted an unreasonable act within the meaning of s 570(2).

160    In his statement of claim Mr Sautner had sought orders for the payment of $123,777.67 as payment in lieu of notice, $31,201.17 as redundancy pay and the imposition of an unquantified pecuniary penalty which was to be payable to him personally.

161    Mr Sautner’s offer was “to compromise the within proceeding by accepting payment to him by [MSL] of the amount of $111,000.” The offer did not discriminate between the amount sought under the Fair Work Act and at common law. It was an offer to settle the proceeding for a global sum.

162    The offer made no reference to costs.

163    Under the terms of O 26 of the County Court Rules, which were in force at the time at which the offer was made, had MSL accepted the offer it would have been required to pay Mr Sautner’s costs up until the date the offer was made in addition to the amount of the offer, unless relieved of that obligation by an order of the Court.

164    The primary judge was alert to the difficulties which would have arisen had the settlement offer carried costs implications for MSL. In his reasons ([2014] VCC 784 at [31]) he said:

“… no issue arises as to the validity of the offer of compromise. Such an issue might have arisen if the offer had included the payment of costs, without, for example the offer making it clear that the costs were only to be paid in respect of the common law claim and that no costs were to be paid for the statutory claims.”

165    His Honour was mistaken in concluding that these issues did not arise. The mistake arose because His Honour had applied the version of the Rule which operated at the time of his decision rather than the one which applied at the time at which the offer was made. Order 26 had been amended with effect from 1 September 2013 to provide that, if an offer of compromise was made for a fixed sum only, no costs would be payable in addition to that sum. His Honour assumed that the rule, in its amended form, had application to Mr Sautner’s offer. It was common ground that this was not so.

166    It is well established that a failure to accept a reasonable offer of compromise may constitute an unreasonable act for the purposes of s 570(2) and its predecessors: see, for example, McDonald v Parnell Laboratories (Aust) (No 2) (2007) 164 FCR 591 at 598-9 (Buchanan J);

167    Even if it be accepted that Mr Sautner’s offer was a reasonable one it does not necessarily follow that MSL’s failure to accept it constituted an unreasonable act: Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121 at 128.

168    This is also a case in which the Full Court’s counsel of caution in Stratton Finance Pty Limited v Webb (2014) 314 ALR 166 is particularly apposite. In that case a Calderbank offer had been made by the applicant in a case in which he made claims under the Fair Work Act and for breach of contract. The Full Court noted that Calderbank letters presupposed the existence of a “costs jurisdiction”. No such jurisdiction existed (subject to s 570(2)) where claims are made under the Fair Work Act. As the Full Court said (at [80]):

“To group together contractual and [Fair Work] Act claims in an offer may permit the conclusion that the refusal of the offer was unwise, even unreasonable, but it does not follow that such is an unreasonable act or omission, for the purposes of s 570(2).”

169    In the present case MSL was confronted with an offer which did not discriminate between the claims made by Mr Sautner under the Fair Work Act and at common law. The offer was for a single sum. It was made as an offer of compromise under the County Court Rules. Under those Rules, as they applied at the relevant time, MSL, had it accepted the offer, would have been obliged to pay the costs which Mr Sautner had incurred prior to the date of the offer in addition to the $111,000. This requirement rendered the offer less generous than might otherwise have appeared and left open the question of whether the costs contemplated by the County Court Rules were the costs of the proceeding as a whole or only in respect of the common law claim. If so, the latter additional uncertainty would have been introduced because of a presumed need for some apportionment.

170    In these circumstances we would not have been disposed to hold that MSL acted unreasonably in not accepting Mr Sautner’s offer of settlement.

Associate:

Dated:    26 February 2015

REASONS FOR JUDGMENT

WHITE J

171    I agree that the appeal should be allowed and that the orders proposed by the majority should be made.

172    However, my reasons as to the first issue raised by Mr Sautner’s Amended Notice of Contention differ from those of the majority. That is the issue of whether it was open to MSL to rely on Mr Sautner’s serious misconduct in defence of his claim, which involves in turn the issue of how Mr Sautner’s employment contract came to an end.

173    On the issue of the proper characterisation of Mr Sautner’s conduct, the issue concerning costs, and the grant of leave to amend the notice of appeal, I respectfully agree with the reasons of the majority.

174    The manner of termination of Mr Sautner’s contract of employment was governed by cl 7 of that contract. It provided:

“7. Termination

7.1    Either [party] may terminate this Agreement by giving written notice of the duration referred to in Item 5 of the Schedule to the other party. The Company may, in its absolute discretion, elect to terminate this Agreement by providing remuneration in lieu of the appropriate term of notice.

7.2    The Company may terminate summarily this Agreement immediately by notice in writing to the Employee without any payment in lieu of notice if the Employee:

(a)    commits a serious or persistent breach of any of the terms or conditions of this Agreement;

(b)    commits any grossly negligent act in the course of preforming the Employee’s duties;

(c)    commits any wrongful or dishonest act or engages in conduct, which in the reasonable opinion of the Company, brings it into disrepute;

(d)    commits any other act which would entitle the Company to dismiss the Employee summarily; or

(e)    is adjudicated bankrupt or make any composition with the Employee’s creditors,

and no remuneration or compensation shall be payable beyond the time of such dismissal.

7.3    …”

175    There is scope for differing views as to whether cl 7 provides for three methods of termination of the employment contract (two in cl 7.1 and one in cl 7.2), or only two (1 in each of cl 7.1 and cl 7.2). There are some indications that the provision for payment in lieu of notice is simply a subordinate variant on termination by notice. The references to the employer’s “absolute discretion” and the employer’s election suggests a construction to that effect, as does the fact that termination by payment in lieu is not given a separate clause number.

176    However, I consider that, properly construed, cl 7 provides for three means of termination:

(i)    termination by notice (six months in this case) (cl 7.1);

(ii)    termination by payment in lieu of notice (cl 7.1);

(iii)    summary termination for misconduct or other cause (cl 7.2).

That construction seems to follow from the structure of the clause and, as the reasons of the majority indicate, is consistent with the view taken by Meagher JA of a similarly worded clause in Downer EDI Ltd v Gillies (2012) 229 IR 314 at [151].

177    In relation to each means of termination, cl 7 specifies both the entitlement to terminate and the means of its exercise: by notice in the first and third categories, and by payment in lieu in the second. In practice, there would also have to be notice in the case of termination by payment in lieu, but the clause provides that the making of the payment is the means by which the contract may be terminated. MSL could not terminate the contract merely by giving notice that it was electing to do so by making payment in lieu of notice.

178    The varying means of termination of the contract have different consequences. In the case of termination on notice, the contract of employment will come to an end at the expiration of the period of notice: Grout v Gunnedah Shire Council (1994) 125 ALR 355 at 365; Hill v CA Parsons & Co Ltd [1972] 1 Ch 305 at 313-4. In the case of termination by payment in lieu and summary dismissal, the employment comes to an end immediately.

179    MSL’s letter of 3 June 2013 informed Mr Sautner that his position of Director, Commercial Business, was being made redundant with immediate effect and made him an offer of a “severance package”. The substance of the letter was as follows:

“As discussed with you, [MSL] has recently conducted a review of its operations and will be implementing a restructure of the Commercial Business area in which you are employed. As a result of this review, the position of Director, Commercial Business will be made redundant, effective from today, Monday 3 June 2013.

As discussed with you, MSL has considered whether there are any other suitable available positions which you are able to perform and regrettably has not been able to identify any alternate roles.

Under the terms of your employment you are entitled to 6 months’ pay in lieu of notice of termination and will be paid for all accrued annual and long service leave entitlements, subject to taxation at the appropriate rate.

In recognition of your service to MSL, MSL will also offer you twelve weeks’ redundancy pay and access to an outplacement services program. This will be paid upon the review and signing of a deed of release agreement.

Attached to this letter is an estimate of the amount you would be paid under this offer and a copy of the proposed deed of release agreement.

Please review and sign the attached copy of the release agreement and return it to myself by close of business Wednesday 5 June 2013 so that MSL can finalise payment of your severance package.

I would like to thank you for your service and contribution to [MSL].”

180    Although MSL conveyed implicitly that it would terminate Mr Sautner’s employment by the method of making payment in lieu, it did not make any such payment. Instead, the letter offered Mr Sautner a package comprising 12 weeks “redundancy pay” and access to an outplacement services program in addition to the payment of six months’ remuneration in lieu of notice and his accrued leave entitlements. It is apparent that MSL was seeking to negotiate the terms on which Mr Sautner’s contract would terminate. MSL’s letter required Mr Sautner’s acceptance of the offered package by his execution of the attached deed of release. By cl 3.1 of that deed, the payment of the monetary amounts in the “severance package”, including payment of the amount in lieu of notice, was made contingent on MSL’s receipt of the executed deed by 5 June 2013. Further, the deed required Mr Sautner to accept a number of obligations following the termination for which his contract of employment did not provide, including obligations with respect to confidentiality, non-disparagement, release and indemnity.

181    The offer of 12 weeks redundancy pay exceeded Mr Sautner’s statutory entitlement to severance pay, which was seven weeks.

182    By letter dated 5 June 2013, MSL withdrew the offer made on 3 June 2013 and made a revised offer, which required the execution by Mr Sautner of a revised deed of release by 6 June 2013. Mr Sautner did not execute the deed. Instead, correspondence ensued between the solicitors for the respective parties.

183    The Court was not provided with the whole of that correspondence. It is evident however, that the correspondence proceeded on the basis, sometimes explicit and sometimes implicit, that Mr Sautner’s employment had ended on 3 June 2013. The parties’ acceptance that Mr Sautner’s employment had so ended was consistent with their conduct on that day: after being given the letter of 3 June 2013 and told that his position was redundant, Mr Sautner left MSL’s offices, taking some personal possessions with him and did not thereafter return to work. He accepted that his employment with MSL had ended and it is evident that MSL intended that he should understand that that was so.

184    By letter dated 20 June 2013, MSL’s solicitor outlined conduct of Mr Sautner, ascertained by MSL since 3 June 2013, which MSL viewed as serious misconduct on his part. The solicitor’s letter then continued:

“Our client maintains that it is entitled to terminate your client’s employment on the basis that your client engaged in serious misconduct. We have previously invited him to particularise the basis on which he disagrees with our client’s view by reference to all of the above material. We continue to invite him to do so.”

185    It is pertinent that the solicitors did not by that letter communicate MSL’s termination of Mr Sautner’s employment that day by reason of the recently ascertained misconduct. Instead, the solicitors referred to Concut Pty Ltd v Worrell (2000) 103 IR 160; Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359; Downer EDI Ltd v Gillies (2012) 229 IR 314; Hodgson v Amcor Ltd (2012) 264 FLR 1, and contended that “misconduct uncovered after an employee [is] dismissed on redundancy grounds [is] nevertheless available to resist an action for damages for wrongful dismissal brought by the employee”. It is apparent that the solicitors were referring to means by which MSL could justify its earlier conduct.

186    There is no suggestion that MSL purported, on 20 June 2013 or later, to terminate Mr Sautner’s employment on the grounds of the ascertained serious misconduct.

187    In ascertaining the legal effect of these events, it is appropriate to keep in mind the distinction between termination of an employment relationship, on the one hand, and termination of the employment contract, on the other. That distinction is well recognised: Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 454 and 469, Visscher v Giudice (2009) 239 CLR 361 at [53] and [55]; Commonwealth Bank of Australia v Barker (2014) 312 ALR 356 at [3]. In Visscher, the plurality referred at [53] to the statement of Brennan CJ, Dawson and Toohey JJ in Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 427:

“It does not appear to have been doubted in this country that a wrongful dismissal terminates the employment relationship notwithstanding that the contract of employment may continue until the employee accepts the repudiation constituted by the wrongful dismissal and puts an end to the contract.”

188    In my opinion, the appropriate legal analysis of the events in this case is as follows. MSL purported to terminate Mr Sautner’s employment on 3 June 2013, but although saying (in effect) that it would terminate by payment in lieu of notice, it did not make that payment. Instead, it made an offer of a “severance package”, the acceptance of which was conditional upon Mr Sautner’s execution of the deed of release in the terms proposed by MSL. Because it did not make the payment in lieu, MSL’s conduct could not effect a lawful termination of the contract, although it is evident that it was effective to end the employment relationship. MSL’s purported termination of the contract other than in accordance with its terms was, however, repudiatory of the contract. That repudiation did not of itself terminate the contract as it remained on foot until such time as Mr Sautner accepted the repudiation. Such an acceptance is evident (at the latest) in the correspondence from his solicitors to MSL’s solicitors.

189    On this analysis, it was Mr Sautner’s acceptance of the repudiation which brought the contract of employment to an end. That occurred on either 3 June 2013 (by Mr Sautner’s conduct that day) or by his solicitor’s correspondence in the period to 20 June 2013.

190    An analysis in these terms is similar to that made by Barrett J in analogous circumstances in Northern Tablelands Insurance Brokers Pty Ltd v Howell (2009) 184 IR 307 at [27]-[33]. It is also consistent with the decision of the Court of Appeal in Western Australia in Conway-Cook v Town of Kwinana (2001) 108 IR 421 to which Barrett J referred in Howell. At [29] in Conway-Cook, Steytler J, in the judgment of the Court, said:

“[29]    The distinction between termination of the employment relationship, on the one hand, and termination of the contract of employment, on the other, is important. While there is no doubt that a wrongful dismissal terminates the employment relationship, the contract of employment itself continues until such time as the employee accepts the repudiation constituted by the wrongful dismissal (and a wrongful dismissal will almost invariably amount to a repudiation …) and puts an end to the contract …”. (Citations omitted).

191    This means that Mr Sautner’s contractual claim was properly one for damages by reason of MSL’s breach of the contract of employment: Conway-Cook at [35]. It was not, as Sautner’s Statement of Claim in the proceedings at first instance indicated, a claim for payment of a debt (being the six months remuneration). The circumstances necessary for such a debt to exist had not arisen, as MSL had not terminated the contract effectively by that means, nor had it otherwise bound itself to pay remuneration of six months to Mr Sautner. The period of notice agreed upon by the parties in the employment contract would of course inform the appropriate assessment of Mr Sautner’s damages, subject to questions of mitigation of loss and any other defences available to MSL.

192    It also means that, contrary to the submission of Mr Sautner, the question for determination is not whether the Shepherd principle “extends to a circumstance where a party terminates a contract in accordance with its terms, and a debt thereby accrues and, after this event, the terminating party discovers conduct which would have justified the termination of the contract of employment”.

193    On a claim by Mr Sautner for damages arising from MSL’s wrongful termination/repudiation, MSL was entitled to raise by way of defence the principle stated by Dixon J in Shepherd (the Shepherd principle). That was an orthodox application of the principle. Having said in Shepherd at 377 that “a servant’s dismissal may be justified upon grounds on which his master did not act and of which he was unaware when he discharged him”, Dixon J continued:

“[T]he rule is of general application in the discharge of contract by breach, and enables a party to any simple contract who fails or refuses further to observe its stipulations to rely upon a breach of conditions, committed before he so failed or so refused, by the opposite party to the contract as operating to absolve him from the contract as from the time of such breach of condition, whether he was aware of it or not when he himself failed or refused to perform the stipulations of the contract.”

194    In this case, MSL had failed to observe the provisions in cl 7 of the contract of employment relating to termination by it of Mr Sautner’s employment. The Shepherd principle indicates that it was nevertheless entitled to rely upon the antecedent serious misconduct by Mr Sautner as absolving it from the contract as from the time of Mr Sautner’s breach of contractual conditions even though it was unaware of those breaches when it failed itself to observe the contract.

195    This is the way in which the principle has been applied or stated in the later cases of Williams v Frayne (1937) 58 CLR 710 at 733 (in which Dixon J said, “as a general rule it is enough that upon the true facts a party is entitled to act as he has done, and his justification is independent of his own knowledge of the facts …”); Commonwealth Homes and Investment Co Ltd v MacKellar (1939) 63 CLR 351 at 378 (in which Dixon J said, “where a legal justification in fact exists for a course taken, it will suffice to support its validity though the parties or one of them acted for other reasons and in ignorance of its existence”); Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 262 (Mason CJ); and Minion v Graystone Pty Ltd [1990] 1 Qd 157 at 164 (McPherson J).

196    It is appropriate to refer to three authorities upon which counsel for Mr Sautner relied in particular for the contention that the Shepherd principle was inapplicable in the present context. These were Cavenagh v William Evans Ltd [2013] 1 WLR 238; Hodgson v Amcor (2012) 264 FLR 1; and District Council of Barunga West v Hand (2014) 120 SASR 228. In my opinion, none of these authorities warrants a different conclusion from that just outlined.

197    Cavenagh involved circumstances which were very similar to those of the present case but the Court of Appeal determined the appeal on the basis that there had been a lawful termination of the employee’s employment contract, that is, a termination “in accordance with its terms” even though the company had not made the required payment in lieu of notice. It was on that basis that the Court of Appeal held that a debt by the company to the employee had thereby accrued (at [36]) and that the company had thereby made “an irrevocable election as to how it terminated the service agreement” (at [45]). Those circumstances do not exist in the present case because, although MSL had indicated that it would provide six months’ pay in lieu of notice as part of the package, it sought to negotiate the terms of the overall package with Mr Sautner, and no agreement in that respect was achieved. In any event, it is not readily apparent how a termination could be regarded as having been made in accordance with the terms of a contract when the payment required by those terms had not been made.

198    The decision in Hodgson is also distinguishable. Vickery J found (at [403]-[404] and [1611]) that Amcor had, by notice dated 11 August 2004, terminated Mr Hodgson’s employment lawfully with effect from 1 October 2004. Implicit in that finding was an acceptance that the particular contractual provision permitting Amcor to elect to make payment in lieu of notice (set out at [393]), did not require actual payment in order for the termination to be effective. Those findings provided the basis for the conclusion of Vickery J that, having terminated Mr Hodgson’s employment by the notice on 11 August 2004, it was not open to Amcor later to ignore that termination and to terminate the contract again on a revised basis, namely, the alleged misconduct of Mr Hodgson. Having found, at [1611], that the validity of Amcor’s conduct on 11 August 2004 was not in issue, Vickery J then continued:

“[1612]    Second, the Shepherd principle in its broader form, in my opinion, cannot be applied, in effect, to convert a termination undertaken on one basis, namely a contractual termination in this case, to a termination on another basis, namely a summary dismissal. This is so, even though facts have now come to light which would have justified the summary dismissal of Hodgson as at 11 August 2004. The Shepherd principle does not go so far.

[1613]    Amcor took the step of terminating Hodgson’s employment pursuant to the terms of his contract on 1 August 2004 with effect on 1 October of that year. This gave rise to an obligation on the part of Amcor to pay Hodgson his contractual entitlements. Having taken this course, it is not open, in my opinion for Amcor to set aside the action it has taken or to treat it as never having occurred.

…

[1617]    Fourth, having taken the step of terminating Hodgson’s contract of employment on 11 August 2004 with effect on 1 October 2004, it was not open to Amcor to later dismiss Hodgson, which it purported to do by its letter dated 13 December 2004. By this time, as I have found, Hodgson’s employment contract with Amcor and his employment with the company, save for any continuing obligations arising from his 12 month restraint clause and the like, had ended. Accordingly, there was no contract left to terminate in December 2004, whether on summary dismissal grounds or any other ground. The relevant contract of employment did not survive beyond 1 October 2004. By 13 December 2004, Hodgson was no longer an Amcor employee.”

199    These circumstances indicate that Hodgson should be distinguished for two reasons: first, unlike Hodgson, the action taken by MSL on 3 June 2013 to terminate Mr Sautner’s employment was not lawful; and, secondly, MSL is not asserting that it terminated Mr Sautner’s employment contract after 3 June 2013 by reason of his misconduct but is instead seeking to avoid the consequences of its repudiatory conduct by reference to his subsequently ascertained misconduct.

200    In the decision of the Full Court of the Supreme Court of South Australia in Hand, the employing Council, which had purported to terminate on notice, was found to have given inadequate notice. The question was whether it was entitled to rely on alleged misconduct of the employee ascertained after the notice had been given, in defence of his claim for damages. The Full Court proceeded on the basis that the termination on notice, albeit insufficient notice, had been effective and that the employee was entitled to damages for the Council’s failure to comply with the particular contractual provision on which it relied for the termination. This seems to have reflected the way in which the case had been presented to the Full Court. The basis upon which the Full Court determined the appeal appears in the following passages in the reasons of Nicholson J:

“[89]    … Having determined not to investigate so as to find, if available, grounds for summary dismissal, the Council chose to exercise its rights to terminate upon the giving of appropriate notice. That termination has been effective and Mr Hand’s employment has come to an end. Having determined to go down that track the Council does not need to justify its termination of the employment and should be held to the consequences of the contractual right it adopted.

[90]    The Council having exercised its contractual right to terminate, without cause, breached its contract with Mr Hand by not providing the required notice. The fact that it could have terminated for cause (if this were to have been established) but did not, cannot be relied upon to reduce the damages for the Council’s breach of the contract provision under which it elected to proceed.

[91]    At no time did the Council in fact purport to terminate for cause either under s 97 or under any other power available to it. And, as already observed, this is no longer a case of seeking to justify an ineffective termination.” (Emphasis added).

201    The fact that the Full Court decided Hand on the basis that the employment contract had been lawfully terminated by the Council when that, on the found facts, was not so undermines the force of its authority for present purposes. I note however, that Nicholson J had adverted to an analysis in the terms which I consider to be appropriate, but, again presumably because of the way in which the case had been presented, did not consider it necessary to address it. Nicholson J said at [81]:

“… It is arguable that the notice of termination, by giving less than reasonable notice, was invalid. A conventional contract analysis suggests that an invalid notice of termination may itself be a repudiation of the contract which would not of itself terminate Mr Hand’s contract of employment. Any such act of repudiation would need to be accepted by Mr Hand before the contract of employment would be terminated. In the realm of employment law there are exceptions. However, in the circumstances of this matter it is unnecessary to explore these issues.” (Citations omitted).

202    In these circumstances, I consider that the decision in Hand does not warrant a different conclusion in this case but nevertheless provides some support for the contractual analysis which I consider to be appropriate.

203    In the view of the matter which I take, it is not necessary (and indeed undesirable) to address the submissions of the parties concerning the effect of the reasons of Allsop P in Downer. It is also unnecessary and undesirable to consider whether the Shepherd principle can be invoked to justify termination of a contract of employment by reference to subsequently ascertained misconduct of the employee if the contract has previously been terminated in accordance with its terms (assuming that such a circumstance can arise).

204    In short, in my opinion, it was open to MSL to justify its failure to give effect to the termination provisions in the employment contract by reliance on Mr Sautner’s earlier breaches, even though MSL was unaware at the time of its own failure of that conduct and the first contention raised by Mr Sautner’s Amended Notice of Contention must fail.

205    I have been concerned as to whether the analysis in these reasons is inconsistent with the issues raised by the parties’ pleadings. I do not think it is. MSL did not admit Mr Sautner’s plea in [5] of his Statement of Claim that he had, on 3 June 2013, been given notice of termination of his employment with immediate effect. It acknowledged that Mr Sautner was told that, by reason of a restructure, his position was being made redundant with immediate effect. It then pleaded that Mr Sautner was told that the payment of a “redundancy package” which included six months’ pay in lieu of notice, was subject to his execution of the deed of release, which Mr Sautner had not executed. This was in effect a plea that MSL had sought to negotiate the terms of the termination of Mr Sautner’s employment but had been unable to do so.

206    By [6] of its Amended Defence, MSL denied Mr Sautner’s plea that his employment terminated on 3 June 2013 by reason of redundancy and, by [7] of the Amended Defence, MSL denied his claim that he had accrued an entitlement to payment of six months’ notice. Thus, it is evident that MSL had put in issue Mr Sautner’s claim about the manner in which his employment had ended and his claim that an accrued debt had arisen.

207    MSL did not plead that it had summarily terminated Mr Sautner’s employment on 3 June (or any later date) by reason of his misconduct. It pleaded only that it had been entitled to terminate the contract because of Mr Sautner’s breach of contract (Amended Defence at [13]). Accordingly, this was not a case in which the issue was whether a contract of employment had been terminated by reason of the employee’s serious and wilful misconduct.

208    It is true that Mr Sautner did not plead a repudiation by MSL of his contract of employment which had been accepted by him. However, it would be unrealistic in my respectful opinion to consider Mr Sautner’s pleading as precluding a claim on that basis. In particular, although Mr Sautner did not in express terms frame a claim in the alternative, it would be unrealistic to regard him as having pursued a one dimensional claim only, with the effect that if his claim based on an alleged accrued debt failed, he could not pursue a claim on any other basis. That could have produced the seeming unjust result that, if both his claim based on an alleged accrued debt and MSL’s defence based on his alleged misconduct had failed, Mr Sautner’s contractual claim would (absent amendment to the pleadings) have had to be dismissed, even though it would then have been obvious that Mr Sautner had a remedy in damages.

209    I also note that although Mr Sautner’s Statement of Claim did not frame his prayer for relief in terms of a claim for damages, it did include a claim that he had suffered loss and damage by reason of the non-payment of the payment in lieu of notice and any redundancy pay.

210    In its supplementary submission in this Court, MSL made two submissions of present relevance. First, that as it had not brought the contract of employment to an end in accordance with its terms, the contract remained on foot. Secondly, that the employment contract (as distinct from the employment relationship) “was not effectively brought to end until MSL confirmed at least by 20 June 2013 by letter … from its solicitors … that MSL was entitled to terminate [Sautner’s] employment on the basis that [Sautner] engaged in serious misconduct”.

211    I accept the first of those submissions, but not the second. As earlier noted, the solicitor’s letter did not purport to terminate Mr Sautner’s contract, saying no more than that MSL was entitled to do so. MSL did not at any stage purport to terminate Mr Sautner’s employment on account of his misconduct. That being so, it appears that the employment contract must have terminated as a result of Mr Sautner’s acceptance of MSL’s repudiation.

212    I add two further matters. The recognition that an employer may, in circumstances like the present, be able to rely upon the subsequently ascertained misconduct of an employee does not involve injustice. On the contrary, there would seem to be incongruity if Courts were bound to award damages to a wrongfully dismissed employee by ignoring antecedent conduct of the employee which was itself a repudiation of the contract of employment entitling the employer to have terminated the contract. It is also to be noted that MSL could have relied on the subsequently ascertained misconduct of Mr Sautner if it had purported to terminate his employment pursuant to cl 7.2 or had, after giving notice of termination pursuant to cl 7.1, ascertained the misconduct while he was working out his period of notice.

213    Secondly, it should not be thought that this decision may provide some encouragement to employers not to observe contractual provisions requiring payment in lieu of notice in order to terminate a contract of employment validly. Section 117(2)(b) of the Fair Work Act 2009 (Cth) is pertinent in this respect:

“117 Requirement for notice of termination or payment in lieu

…

Amount of notice or payment in lieu of notice

(2)    The employer must not terminate the employee’s employment unless:

(a)    the time between giving the notice and the day of the termination is at least the period (the minimum period of notice) worked out under subsection (3); or

(b)    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.

…”

214    On its proper construction, s 117(2) prohibits the termination of an employee’s employment unless (relevantly) the employer “has paid” the requisite payment in lieu of notice. A contravention of s 117(2) is a contravention of a National Employment Standard for which a civil penalty may be imposed: Fair Work Act, s 44(1) and s 539. Accordingly, employers who terminate an employee’s employment in the circumstances contemplated by s 117(2) without providing the minimum period of notice or by making a payment in lieu at the time of the termination are likely to expose themselves to the imposition of a civil penalty.

215    Otherwise, as indicated, I respectfully agree with the reasons of the majority and the orders which they propose.

Associate:

Dated:    26 February 2015