FEDERAL COURT OF AUSTRALIA

Bruce v A W B Ltd [2000] FCA 594

CONTRACT OF EMPLOYMENT ‑ Written contract ‑ Specification for position stating that successful employee would report directly to managing director and be on executive committee ‑ Written contract silent as to those matters ‑ Whether terms of contract ‑ Parol evidence rule ‑ Whether essential terms ‑ Subsequent direction that employee no longer report to managing director or be on executive committee ‑ Whether authorised by power to alter employee’s duties ‑ Employee asserts direction ineffective to alter terms ‑ Whether “serious misconduct” justifying summary dismissal ‑ Dismissal for refusal to perform duties ‑ Whether wrongful dismissal.

State Rail Authority (NSW) v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 applied

Youell v Bland Welch & Co Ltd [1990] 2 Lloyd’s Rep 423 cited

Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 applied

Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 applied

Dilworth v Stamps Commissioners [1899] AC 99 cited

Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 2 All ER 285 considered

North v Television Corp Ltd (1976) 11 ALR 599 cited

Morris v Baron & Co [1918] AC 1 cited

Summers v The Commonwealth (1918) 25 CLR 144 cited

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 considered

Woodar Ltd v Wimpay Ltd [1980] 1 WLR 277 cited

Scharmann v APIA Club Ltd (1983) 6 I R 157 cited

Re Barrett and Women’s Hospital Crown Street [1947] AR (NSW) 565 cited

GARY BRUCE v A W B LIMITED

VG 654 OF 1998

SUNDBERG J

10 MAY 2000

MELBOURNE

THE COURT DECLARES THAT the applicant is entitled to damages for wrongful dismissal.

THE COURT ORDERS THAT:

1.                  In default of agreement, the quantum of damages be assessed by a Deputy Registrar.

2.                  The respondent pay the applicant’s costs of the application including the assessment.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

THE APPLICANT’S CASE

1                     The applicant’s pleaded case is that in late 1993 and early 1994 he negotiated with the respondent (then called the Australian Wheat Board) as to his possible employment as its Senior Manager, Information Technology.  The negotiations were conducted between the applicant and Mr Neil Lamming of Russell Reynolds Associates Inc, an employment recruitment agency retained by the respondent, and between the applicant and Mr John Lawrenson, the Managing Director of the respondent.  In the course of the negotiations the applicant made known to the respondent that he would enter into an employment contract only on terms that he would report directly to the Managing Director and would be a member of the executive management committee (the “Executive Committee”).  The respondent represented to the applicant that any employment contract would contain terms that the applicant would report directly to the Managing Director and be a member of the Executive Committee.  The representations are said to have been written and oral.  Insofar as they were written, they were contained in a Specification for the position (the “Specification”), and an “Agreement of Employment” signed on 1 February 1994.  The essential terms of the employment contract were that

·               the applicant would be employed as Senior Manager, Information Technology

·               he would report directly to the Managing Director

·               he would be a member of the Executive Committee

·               in the event of a significant change in the applicant’s role and responsibilities, as determined by the Managing Director, the applicant could determine the contract and would be paid nine months worth of his then annual salary

·               if the contract were to be determined by the respondent, the applicant would be given nine months notice or a payment in lieu thereof

·               subject to the foregoing, the employment would continue until 30 June 1998.

2                     The applicant entered into the contract in reliance on the representations.  He performed the role and discharged the responsibilities of the position from February 1994 to 28 November 1995.  During November 1995 the respondent sought unilaterally to vary the contract so that the applicant would no longer report to the Managing Director or be a member of the Executive Committee.  The proposed variation was a significant change in the applicant’s role and responsibilities within the meaning of the contract, by reason of which the applicant was entitled to determine the contract and receive nine month’s worth of his then annual salary.  The applicant did not agree to the proposed variation, and continued to perform the duties of his employment.  Because the applicant did not agree to the proposed variation, on 28 November 1995, in breach of the contract, the respondent dismissed him without notice.  In the alternative, it is said that those matters constituted a repudiation by the respondent of the employment contract which the applicant accepted, thereby determining the contract.

3                     The applicant also claims that the representations were untrue when they were made, and in the alternative that there were no reasonable grounds for making them “in that, notwithstanding that he was performing his obligations under the employment contract and was ready, willing and able to perform these obligations”, he was dismissed because he did not agree to the proposed variation.  The applicant seeks a declaration that the respondent’s conduct contravened s 52 of the Trade Practices Act 1974 (“the Act”), and damages pursuant to s 82 and for breach of contract.

THE DEFENCE

4                     The respondent admitted

·               that the Specification stated that the successful applicant would report to the Managing Director and form part of the Executive Management Team

·               that the parties entered into an employment contract on 1 February 1994, the terms of which are contained in the “Agreement of Employment”

·               that the contract contained the last three essential terms alleged by the applicant

·               that on 2 November 1994 Mr Lawrenson informed the applicant that the respondent intended to alter its organisational structure with the consequence that the membership of the Executive Committee reporting directly to the Managing Director would be reduced from eight to five, with the further consequence that the applicant would be reporting to the General Manager, Corporate Division.

Save for those admissions, the respondent denied the applicant’s allegations.

5                     The respondent relied on clauses 2, 8(c) and 8(a) of the contract as entitling it to terminate the applicant’s employment.  Clause 2 provides:

“The duties of the above position are set out under establishment no 7100 or as directed by the Managing Director.”

Clause 8(c) provides:

“In the event that you wish to break this contract prior to maturity the A W B is not obliged to make a severance payment and 30 days written notice is required.”

Clause 8(a) provides:

“The A W B may terminate this agreement at any time without prior notice if you as the Senior Manager Information Technology are guilty of any serious misconduct, including corrupt practice, wilful neglect or of consistent and repetitive breaks of A W B policies or instructions in the discharge of your duties.”

6                     The respondent claimed that on 28 November the applicant refused to perform his employment duties as directed by the Managing Director, in that when Mr Lawrenson asked him whether he would perform his duties as Senior Manager, Information Technology, in accordance with the new organisational structure under which he was required to report directly to the General Manager, Corporate Division, the applicant said he would not.  Later that day Mr Lawrenson told the applicant that his conduct was in breach of clause 8(c).  He was again asked if he was prepared to perform his duties in accordance with the new organisational structure, and refused to do so.  He was then handed a letter advising him that the respondent accepted his breach of clause 8(c).  In the alternative, the respondent contended that the applicant’s refusal to perform his duties as directed by Mr Lawrenson constituted “serious misconduct” within clause 8(a).

FINDINGS

7                     The applicant gave evidence by affidavit and was cross‑examined.  The only other witness for the applicant was Mr Lamming, the recruiter.  Mr Lawrenson, Mr Michael Doyle and Ms Amber McDougall gave affidavit evidence for the respondent and were cross‑examined.  Mr Doyle was employed by the respondent in several senior positions until he left in November 1997.  His last position was General Manager, Corporate Services, to which he was appointed in October 1995.  Ms McDougall was the respondent’s Human Resources Manager between November 1995 and June 1997.  The documentary evidence speaks for itself, and there were only minor differences between the witnesses’ accounts of what was said at various encounters and who was present at them.  Accordingly I will not attempt to summarise the evidence.  Rather I will record my findings on the central factual issues.

·               During 1993 the respondent redesigned the job description for Senior Manager, Information Technology, in order to attract someone with ability to strategically integrate IT with its business needs.  This change occurred because Mr Lawrenson believed the IT unit should be responding better to business needs rather than setting IT strategy in isolation, as it had in the past.  He decided that the appointee should sit on the Executive Committee and thus report to him.

·               The job description, or duty statement, for the redesigned position showed the position holder’s immediate supervisor as the Managing Director.  The duties of the position were:

·                 Prepare and maintain strategic and operational plans for IT development (including telecommunications) that help achieve the Board’s objectives

·                 Lead and manage the IT Division within an agreed budget and ensure an appropriate mix of IT skills amongst staff

·                 Develop and maintain close professional relationships with the Business Areas to ensure that appropriate IT solutions are developed for their requirements

·                 Establish and maintain the appropriate hardware platforms, architecture and software to deliver the business solutions

·                 Develop and maintain appropriate procedures for systems development and practical selection with emphasis on a contract concept with users

·                 Liaise with Bulk Handling Authorities to ensure that an appropriate degree of integration is achieved between the Board’s IT systems and those of the Bulk Handling Authorities.

·               Mr Lamming’s employer, Russell Reynolds Associates Inc, was retained by the respondent to search for a suitable person to be employed as its Senior Manager, Information Technology.  In consultation with the respondent, Mr Lamming prepared the Specification, which reflected the instructions given to him by Dr Ryan, the then Senior Manager, Corporate Affairs, and to a lesser extent by Mr Lawrenson.

·               Between 1989 and January 1994 the applicant was employed by Amcor Fibre Packaging (“Amcor”), first as General Manager, Information Technology and later as General Manager, Global Information Technology.  In mid‑1993, in order to further his career, he decided to leave Amcor.  He consulted Mr Lamming in August 1993.  He told Mr Lamming he sat on the Amcor executive committee and reported directly to the chief executive.  He wanted a more senior position, and was only interested in employment in which he reported directly to the chief executive and was a member of the executive committee of management.

·               Subsequently Mr Lamming informed the applicant that the respondent was looking for a senior manager responsible for strategically realigning the development and use of IT.  He said the appointee would report directly to the Managing Director and would be on the Executive Committee.  He gave the applicant the Specification.  Under the heading “The Position” the Specification stated

“The position is based in Melbourne and the successful applicant will report to the Managing Director and will form part of the Executive Management team.

The applicant was interested in the position.

·               Mr Lamming recommended the applicant for appointment, and after negotiations between the applicant and Mr Lawrenson, the parties entered into a contract of employment on 14 February 1994, effective as from 1 February.  The contract was for a period concluding on 30 June 1998.  The applicant’s remuneration was “to the value of $132,000”, reviewable annually.  Clauses 2, 8(a) and 8(c) have been set out in par 5.  Clause 8(f) provided that

“In the event of a significant change in your responsibilities, as determined by the Managing Director of the AWB, you may exercise an option to terminate this agreement and the AWB will pay nine months salary as compensation.”

·               The “establishment no 7100” referred to in clause 2 of the contract is the duty statement.  The applicant was not given a copy of the duty statement prior to entering into the contract.

·               The applicant entered into the contract relying on what he had been told by Mr Lawrenson and Mr Lamming about the position, especially that he would report directly to the Managing Director and would sit on the Executive Committee.  But for those two representations he would not have entered into the contract.

·               The respondent was aware that reporting to the Managing Director and being on the Executive Committee were central to the applicant’s acceptance of the position.  The applicant made it plain to Dr Ryan that being part of the overall strategic direction of the respondent and having a link between the requirements of the IT department and the overall strategy of the organisation were critical to the applicant’s acceptance of the job.

·               From February 1994 to 28 November 1995 the applicant performed the role and discharged the duties of the position.  He reported directly to the Managing Director and sat on the Executive Committee.  His participation in the affairs of the Executive Committee was not limited to IT aspects of its work, but extended to wider planning and strategy.  He chaired the Human Resources Sub‑Committee and the Equal Opportunity Sub‑Committee.  The respondent was satisfied with his discharge of his duties, and at the end of 1994 he received an increase in his remuneration and an expansion of his area of responsibility.

·               At the time of the applicant’s appointment in February 1994 Mr Lawrenson was not giving any consideration to reducing the number of members of the Executive Committee.

·               In about October 1995 Mr Lawrenson came to the view that the Executive Committee was too large, and that it would be more efficient if it had five members, in addition to himself, rather than eight.  The Board approved the restructure at the end of October.  The aim of the restructure was to facilitate the Executive Committee focusing on the respondent’s core business activities in a more effective and efficient manner.  In Mr Lawrenson’s view the old structure no longer reflected the respondent’s business needs.  He also considered that the respondent would be more efficient if fewer people reported directly to him.  He restructured and enlarged the corporate services division.  As part of that restructure he concluded that IT, financial management and other corporate services were best delivered to the business units by one division.  In that way a more effective management structure would be achieved if the Senior Manager, Information Technology, reported to a new position of General Manager, Corporate Division, rather than to the Managing Director.  Four Senior Managers would no longer be on the Executive Committee.  The decision was not based on personalities.

·               On 1 November Mr Lawrenson informed the applicant of the restructure.  He told him he would still be able to attend Executive Committee meetings when issues relating to IT were to be discussed, and that apart from the reporting and Executive Committee changes, his role would remain the same, as would his responsibilities, wage and title, and the same number of employees would be reporting to him.  The applicant said he regarded the restructure as a breach of the employment contract.  Mr Lawrenson disagreed.

·               On 3 November Mr Lawrenson told the applicant that the restructure, as it affected him, had nothing to do with any dissatisfaction with his performance, with which Mr Lawrenson was pleased.  The applicant again said he regarded the restructure as a breach of contract.

·               On 10 November, while Mr Lawrenson was overseas, he received a fax from the applicant in which the applicant stated that he regarded the restructure as “at variance with” the contract, and said that unless it was possible to find a mutually acceptable way in which to engage his services and compensate him for the career cost of the restructuring, he would have to consider terminating the contract under clause 8(f).  He proposed that he become a consultant to the respondent at effectively double his then wage.  On 16 November Mr Lawrenson met with the applicant and Mr Doyle and rejected the proposal.  This was confirmed in a letter of the same date in which Mr Lawrenson said:

“(a)         Under the new structure the importance of your position as Senior Manager IT is not diminished in any way.

(b)            There remains a large task to be undertaken in our continuous change programme which heavily involves IT.  You continue to be well positioned to play an important part within the Corporate Division.

(c)                        The Corporate Division covers a wide range of activities and as Mike [Doyle] himself said today, he doesn’t profess to be an expert in all these fields.  The strategic advice you provided in the past as to the direction of the A W B would still be appreciated and will find a proper forum within the Corporate Division.

(d)                       As outlined to you, my intention is to continue to have your attendance, and some other Senior Managers, at the monthly executive meetings when we are dealing with strategic and policy issues.”

·               On 20 November Mr Lawrenson announced at an Executive Committee meeting that the change of structure of the Committee and the altered reporting procedures for the Corporate Division would be effective immediately.

·               On 21 November the applicant sought legal advice about the effect of the restructure on his contract.  At a meeting later that day the applicant repeated to Mr Lawrenson his opinion that the restructure was in breach of contract.  Mr Lawrenson said his legal advice was that it was not.  The applicant said he did not want to leave the respondent, and stood ready, willing and able to continue his employment in accordance with the contract.

·               On 24 November the applicant gave Mr Lawrenson a copy of his solicitors’ advice that the restructure was in breach of his contract.  The solicitors approached the matter on what might be called a “common law” basis.  They did not deal with the implications of clause 2 of the written agreement.  Mr Lawrenson said he would consider the advice and take further advice himself.

·               During the period 1 to 27 November the applicant continued to carry out his IT activities, and on 22 November wrote to Mr Doyle in the latter’s capacity as General Manager, Corporate Division, reporting on the status of IT activities.

·               On 28 November two meetings took place between the applicant, Mr Lawrenson, Mr Doyle and Ms McDougall.  At the first Mr Lawrenson asked the applicant if he was willing to carry out his job as directed.  The applicant responded that he was ready, willing and able to carry out his obligations under the contract.  Mr Lawrenson told him that in the respondent’s opinion the restructure was not in breach of the contract, and that the applicant would be in breach if he refused to follow Mr Lawrenson’s direction.  The same group met again later in the day, and Mr Lawrenson again asked the applicant whether he was willing to carry out his job as directed.  The applicant said he had legal advice that the restructure placed the respondent in breach of contract, and that he was ready, willing and able to carry out his obligations under the contract.  Mr Lawrenson repeated his position on the contractual dispute and then handed the applicant a letter advising him that his services were no longer required.

·               The letter was in part as follows:

“the recent reorganisation …has resulted in a change to your reporting requirement by the interposition of Mike Doyle who has taken on, in part, some of my duties.  However, your remuneration, duties and responsibilities remain unchanged as I have told you on a number of occasions.

I confirm that we have advice that the reorganisation does not breach the agreement between you and the A W B.  The reorganisation as it affects you falls squarely within the terms of clause 2 and does not breach clause 8(f).

I asked you to carry out your duties in accordance with the agreement having regard to the recent restructuring that has occurred.  You refused to do this.  Such refusal constitutes a breach of clause 8(c).

I advise that in face of your continued refusal to carry out the terms of your agreement (which have not been breached as a result of the restructure) I waive your obligation to provide 30 days written notice pursuant to clause 8(c).  I accept your breach and advise that your services are no longer required forthwith.”

The applicant left his employment that day.

·               The restructure could be seen in the marketplace as a significant downgrade in the position, especially when the holder aspired to move into general executive and business management, strategy and policy making.  It would diminish the applicant’s prospects of obtaining other employment which reported directly to the chief executive and involved sitting on an executive committee of management.  The loss of the applicant’s ability to report to the Managing Director was a significant loss.  In the IT industry the involvement of the chief executive is seen as fundamental to the success of the use of IT within an organisation.  The loss of involvement with the Executive Committee was even more significant.  To be on the Executive Committee and involved in the development of the strategy of an organisation is seen to be fundamental to the development of an IT strategy that is compatible with the direction of the organisation.  The fact that the applicant might be invited to Executive Committee meetings at which IT matters were to be discussed, and to others at which strategic and policy matters were being canvassed, reduced the significance of this aspect of the restructure, but as Mr Lamming said “how an individual in the market is attracted by a job is hugely impacted on by whether he or she reports to the chief executive or lower down the organisation”.

BREACH OF CONTRACT CLAIM

Terms of the contract

8                     The Agreement of Employment does not itself provide that the applicant will report to the Managing Director and be a member of the Executive Committee.  The respondent submitted that the Agreement purports to be a complete statement of the contents of the contract, and that resort cannot be had to the Specification or other extrinsic material to supplement it.  The law on the scope of the parol evidence rule can I think be stated as follows.  The rule has no application until it is first determined that the parties intended that the terms of the agreement are wholly contained in the written document.  Whether they did so intend is a matter to be decided upon a consideration of all the evidence relevant to the issue.  A party can always adduce extrinsic evidence to show that a document is not a complete record of the contract.  If on that evidence the court finds that terms additional to those in the document were intended to form part of the contract, then the contract consists partly of the written terms and partly of the additional ones, and the parol evidence rule will not apply.  See generally Chitty on Contracts 28^th ed (1999) par 12‑096.  In 1986 the Law Commission reported that

“the mere production of a contractual document, however complete it may look, cannot as a matter of law exclude evidence of oral terms if the other party asserts that such terms were agreed.  If that assertion is proved, evidence of the oral terms cannot be excluded because the court will, by definition, have found that the contractual terms are partly to be found in what was agreed orally as well as the document in question.  No parol evidence rule could apply.  On the other hand, if that assertion is not proved, there can be no place for a parol evidence rule because the court will have found that all the terms of the contract were set out in the document in question and, by implication, will thereby have excluded evidence of terms being found elsewhere.”

See Law of Contract, The Parol Evidence Rule (1986) Cmnd 9700 par 2.12.  The above passage was quoted with approval by McHugh JA in State Rail Authority (NSW) v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 at 192.  At 191 his Honour said that the parol evidence rule:

“is a rule whose scope and rationale is often misunderstood.  It has no operation until it is first determined that the terms of the agreement are wholly contained in writing.  The tendering of oral evidence to prove a contractual term, therefore, cannot be excluded until it is determined that any terms in writing record the whole of the parties’ agreement.

…

… in my opinion the correct rule is that the existence of writing which appears to represent a written contract between the parties is no more than an evidentiary foundation for a conclusion that their agreement is wholly in writing.”

Although the Law Commission and McHugh JA spoke of extrinsic oral terms, the parol evidence rule applies to all forms of evidence outside the written document, and not merely to oral evidence.  See Youell v Bland Welch & Co Ltd [1990] 2 Lloyd’s Rep 423.

9                     There is no doubt that before the Agreement of Employment was entered into the parties agreed that if the applicant were to be employed, he would report to the Managing Director and be on the Executive Committee.  The question is whether the parties intended those matters to be part of the contract notwithstanding that they were not mentioned in the formal written contract.  Particularly important in this regard is the evidence of Mr Lamming, which I accept in its entirety.  He prepared the Specification on the instructions of Dr Ryan.  It stated that the appointee “will report to the Managing Director and will form part of the Executive Management team”.  These two aspects of the position were new.  The Senior Manager, Information Technology, had formerly reported to the Senior Manager, Corporate Affairs, and was not on the Executive Committee.  The changes were part of the redesign made in order to attract someone with ability to strategically integrate IT with the respondent’s business needs.  The applicant told Mr Lamming he wanted to advance his career with a significant organisation in which he would be head of IT and part of the company’s executive management team.  He added that at Amcor he had reported to the managing director and had sat on the executive committee.  At their first meeting Mr Lamming told the applicant the position had those two characteristics, and that this was an “upgrade” of the position of Senior Manager, Information Technology, because it involved a report to the Managing Director.  Mr Lamming gave the applicant a copy of the Specification.  Mr Lamming’s evidence was that the respondent, particularly Dr Ryan, was aware that reporting to the Managing Director and being on the Executive Committee was central to the applicant’s acceptance of the position.  In all those circumstances I have concluded that the parties did not intend the terms of their agreement to be found solely in the written agreement, and that there were terms of the contract that the applicant would report to the Managing Director and would sit on the Executive Committee.

Essential terms?

10                  That the applicant would report to the Managing Director and sit on the Executive Committee were, in my view, essential terms of the contract.  I am in no doubt that those terms were of such importance to the applicant that he would not have entered into the contract unless he had been assured of a strict performance of the promises they contained.  And, as appears from what I have said in the preceding paragraph, it was apparent to the respondent itself, and to its agent Mr Lamming, that this was the case.  Cf Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641‑642 and Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 at 337.

Clause 2

11                  Unless clause 2 in combination with clause 8(a) or (c) of the written agreement produce a different result, the respondent was not entitled to dismiss the applicant, because the applicant’s conduct on 28 November amounted to more than an insistence that the respondent comply with the terms of the contract.  The respondent relies on clause 2 to answer the claim that by altering the applicant’s reporting conditions and removing him from the Executive Committee it was in breach of essential terms of the contract.  Under clause 2 the applicant’s “duties” were as set out in the duty statement “or as directed by the Managing Director”.  The respondent contends that reporting to the Managing Director and being a member of the Executive Committee are “duties” within clause 2 which Mr Lawrenson was entitled to direct the applicant no longer to perform.  The applicant refused to perform his duties (ie to report to the General Manager, Corporate Division and no longer to be a member of the Executive Committee), and was thus in breach of his contract which entitled the respondent under clause 8(a) to terminate the agreement without prior notice.  In the alternative, the respondent contends that the applicant’s conduct on 28 November evinced his “wish to break this contract prior to maturity”, thus activating clause 8(c).

12                  Clause 8(f) shows that the Managing Director is empowered to change the applicant’s responsibilities under the contract, and that any such change may be “a significant change”.  No breach of contract is committed by the determination that there should be such a change.  The change is contemplated by the contract.  If the applicant does not like the change, and it is a significant one, he may terminate the contract, and the respondent must pay him nine months salary as compensation.  Otherwise the employment continues with the applicant discharging the changed responsibilities.  Despite the use of the word “responsibilities” in clause 8(f) and the word “duties” in clause 2, the clauses are in my view to be read together.  Clause 2 empowers the Managing Director to change the applicant’s duties, and clause 8(f) deals with the case where the change is a significant one, and gives the applicant the option of terminating the contract or electing to continue under the changed conditions.  The “duties” of the position in clause 2 are the acts and things the holder is bound to do.  One of the meanings of “responsibility” given in the Shorter Oxford English Dictionary is “a charge, trust or duty for which one is responsible”.  In an employment context, reporting to the Managing Director and sitting on the Executive Committee are duties in the ordinary sense of the word.  Since the written agreement is not the whole of the contract, but merely contains standard terms and conditions, I do not regard “duties” in clause 2 as limited to the six matters listed in the duty statement.  They are supplemented by the other duties that are part of the contract though not appearing in the written agreement.  Reporting to the Managing Director and sitting on the Executive Committee are essential terms of the contract.  But clause 8(f) contemplates a change to essential terms.  The words “significant change” suggest that.  So does the fact that the clause affords the applicant an opportunity to terminate the contract if he does not like the change, and that nine months salary is payable as compensation.  Clause 2 thus empowered Mr Lawrenson to make the changes he did to the applicant’s duties/responsibilities.  Though it is not necessary to decide the point, it follows from what I have said in par 10, that they were significant changes in his responsibilities which would have entitled the applicant to terminate the contract.  But he did not do so.

13                  Did the applicant’s conduct on 28 November constitute “serious misconduct” within clause 8(a)?  I do not accept the applicant’s submission that the word “including” introduces a self‑contained definition of the words, so that only corrupt practice, wilful neglect or consistent and repetitive “breaks” of the respondent’s policies or instructions can constitute serious misconduct.  Cf Dilworth v Stamps Commissioners [1899] AC 99 at 105.  The context supports the view that “including” introduces a non‑exhaustive list of things that constitute serious misconduct.  See in particular the words “any serious misconduct”.

14                  In Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 2 All ER 285 at 287, 289 Lord Evershed MR said:

“since a contract of service is but an example of contracts in general, so that the general law of contract will be applicable, it follows that, if summary dismissal is claimed to be justifiable, the question must be whether the conduct complained of is such as to show the servant to have disregarded the essential conditions of the contract of service … I … think … that one act of disobedience or misconduct can justify dismissal only if it is of a nature which goes to show (in effect) that the servant is repudiating the contract, or one of its essential conditions; and ... therefore … the disobedience must at least have the quality that it is ‘wilful’; it does (in other words) connote a deliberate flouting of the essential contractual conditions.”

See also North v Television Corporation Ltd (1976) 11 ALR 599 at 608‑609.

15                  Two conditions must be satisfied at common law in order to justify a summary dismissal.  First, there must be a breach by the employee of the terms of the contract or a demonstrated intention not to be bound by those terms.  Secondly, the conduct must be sufficiently serious to allow summary termination.  Freedland observes:

“The right to rescind a contract for breach of condition arises by reason of a failure of performance which has occurred in the past, provided the failure is of sufficient gravity or relates to a sufficiently major term of the contract.  The right to rescind a contract in response to repudiation arises, not so much by reason of a failure of performance in the past as by reason of the manifesting of an intention not to perform contractual obligations in the future.”

See The Contract of Employment (1976) at 217.  Clause 8(a) seems to me more or less to re‑state the position at common law.  The particular examples given ‑ corrupt practice, wilful neglect and consistent and repetitive breaches of policies or instructions ‑ identify conduct that, at common law, would justify summary dismissal.  The words “serious misconduct” reflect the common law position that mere misconduct is not sufficient.  The conduct must be serious enough to justify summary dismissal.  It must constitute a repudiation of the contract or one of its essential conditions.  See North v Television Corporation Ltd, at 608‑609.  Thus in the Laws Case, the conduct of an employee in leaving a meeting against the orders of the managing director, but at the request of her immediate supervisor, did not show an intention no longer to be bound by the contract, and the summary dismissal was therefore wrongful.

16                  In determining whether the applicant’s conduct in the period between 1 and 28 November constituted serious misconduct, that is to say whether by it he committed a serious breach of contract or evinced an intention no longer to be bound by the contract, assistance can be derived from the cases that have considered whether a party’s insistence upon an erroneous view of the construction of a contract amounts to a repudiation or renunciation of the contract.  As is apparent, I do not agree with the applicant’s view of the effect of the restructure.  But I do not regard it as an untenable view, so as to lead to the conclusion that a persistence in it showed an intention no longer to observe the contract.  Cf Morris v Baron & Co [1918] AC 1 at 41 and Summers v The Commonwealth (1918) 25 CLR 144 at 152.  Although the solicitors’ letter of advice does not deal with clause 2, there is a respectable, though erroneous, argument that in the context of the duty statement the words “or as directed by the Managing Director” did not authorise the alteration of terms such as the two in question.  In DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 432‑433 Stephen, Mason and Jacobs JJ, with whom Aickin J agreed, said:

“No doubt there are cases in which a party, by insisting on an incorrect interpretation of a contract, evinces an intention that he will not perform the contract according to its terms.  But there are other cases in which a party, though asserting a wrong view of a contract because he believes it to be correct, is willing to perform the contract according to its tenor.  He may be willing to recognize his heresy once the true doctrine is enunciated or he may be willing to accept an authoritative exposition of the correct interpretation.  In either event an intention to repudiate the contract could not be attributed to him.  As Pearson LJ observed in Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699 at 734:

‘In the last resort, if the parties cannot agree, the true construction will have to be determined by the court.  A party should not too readily be found to have refused to perform the agreement by contentious observations in the course of discussions or arguments.’

…

[Counsel for the respondents] suggested that the [appellant’s] interpretation was so irrational and ill founded as to compel the inference that the appellant did not bona fide believe in it.  … On the evidence this Court would not be justified in finding that the appellant acted otherwise than in accordance with a bona fide belief as to the correctness of the interpretation which it sought to place upon the contract.  Consequently it is a case of a bona fide dispute as to the true construction of a contract expressed in terms which are by no means clear ….  In these circumstances the Court is not justified in drawing the inference that the appellant intended not to perform the contract according to its terms or that it repudiated the contract.”

To a similar effect are the observations of Lord Wilberforce, Lord Keith of Kinkel and Lord Scarman in Woodar Ltd v Wimpey Ltd [1980] 1 WLR 277.  See also Scharmann v APIA Club Ltd (1983) 6 I R 157 at 164.

17                  The evidence does not disclose conduct on the applicant’s part amounting to serious misconduct, that is to say conduct constituting a serious breach of contract or evincing an intention no longer to be bound by the contract.  Over the period of nearly a month the applicant and Mr Lawrenson exchanged views as to whether the restructure amounted to a breach of contract.  Each obtained legal advice which supported his own view of the position.  I have no doubt that the applicant’s view, though it has not prevailed, was bona fide held.  Although the legal advice on which that view was ultimately based did not attempt to deal with the problem created by clause 2, there was in fact a tenable construction of the written agreement and the incorporated duty statement that supported the applicant’s view.  The parties were having a genuine dispute as to whether the contract permitted Mr Lawrenson unilaterally to alter its terms in significant respects.  In those circumstances, the Court should hesitate to find that the applicant’s conduct had that quality that constituted serious misconduct in the sense described.  Aside from expressing his views about the effect of the restructure on the contract, the applicant did not do any act which amounted to a breach of the varied contract.  He did not insist upon reporting to the Managing Director.  Indeed, the only evidence that bears on this aspect of his employment is that on 22 November he reported to Mr Doyle, the person to whom he was required to report under the restructure.  The last Executive Committee meeting under the old regime was on 20 November, and there appears to have been no further meeting before the applicant’s employment was terminated.  Thus there is no evidence that he physically asserted a right to attend Executive Committee meetings after the restructure.  In all these circumstances, I do not regard his conduct as amounting to serious misconduct, misconduct sufficiently serious to justify summary termination of the contract, conduct constituting a serious breach of the contract, or as showing an intention no longer to be bound by it.  Nor do I regard it as amounting to “consistent and repetitive breaks” of the respondent’s policies or instructions.  Although on several occasions the applicant expressed his views as to the legality and morality of the restructure, there was in fact no “break” in the sense of any actual failure to carry out his duties in accordance with the restructure.  As I have said, such evidence as there is supports the view that by reporting to Mr Doyle the applicant was acting in accordance with the restructure pending the outcome, whatever it was to be, of his exchanges with Mr Lawrenson about the effect of the restructure on the contract.  Further, even if the applicant’s forceful expressions of his opinions of the restructure amounted to a “break of AWB policies or instructions”, those repeated expressions did not in my view amount to “consistent and repetitive breaks”.  Those words contemplate a persistent course of disobedience, and not, as in the present case, a repeated statement of an employee’s legal stand on a particular contractual dispute.  Cf Re Barrett and Women’s Hospital Crown Street [1947] AR (NSW) 565 at 571.  Accordingly, the respondent was not entitled summarily to terminate the applicant’s employment under clause 8(a).

Clause 8(c)

18                  The phrase “In the event that you wish to break this contract prior to maturity” in clause 8(c) is in my view directed to the situation where the applicant indicates that he wishes to leave the employment prior to 30 June 1998.  In that event, he must give 30 days notice, and the respondent is not obliged to make any severance payment.  The phrase does not apply to a case such as the present, where on the respondent’s case the applicant refused to comply with Mr Lawrenson’s 28 November direction.  That situation is dealt with by clause 8(a).

CONCLUSION

19                  The applicant is entitled to damages for wrongful dismissal, in default of agreement to be assessed by a Deputy Registrar.  In view of my conclusion on the contract claim I need not deal with the alternative claim under s 52 of the Act.

Associate:

Dated:              10 May 2000