FEDERAL COURT OF AUSTRALIA

Elston v Commonwealth of Australia [2014] FCA 291

THE COURT ORDERS THAT:

1.    The application is dismissed.

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

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

REASONS FOR JUDGMENT

1    In 2001, the Commonwealth of Australia agreed to grant $400,000 over a period of five years to the University of Queensland (“the University”). The grant was to be used by the University to pay a salary to the applicant, Dr Guy N Elston, while he conducted medical research.

2    In 2006, the University suspended Dr Elston without pay while it investigated a complaint of misconduct that had been made against him. The Commonwealth then decided to suspend its payments to the University.

3    In proceedings commenced in the High Court and remitted to this Court, Dr Elston challenges the Commonwealth’s decision to suspend payments to the University. He alleges, in particular, that he was denied natural justice, and claims damages of over $54 million.

4    The proceedings have a tortuous procedural history, which has included the making of orders striking out Dr Elston’s pleadings and limiting the issues to be decided at trial. Despite these orders, Dr Elston has relied upon a large array of arguments and material, much of which is irrelevant to the remaining issues. In order to explain the issues that remain, it is necessary to describe the factual basis of the dispute and the procedural history of the litigation.

Factual background

5    Dr Elston was a research scientist employed by the University. He was awarded a doctorate in 1998. His particular area of research was the functioning of the human brain. It is apparent that Dr Elston was very highly regarded in his area by the scientific community.

6    On 23 July 2001, Dr Elston applied to the National Health and Medical Research Council (“the NHMRC”) for an award. The NHMRC was then a body corporate established under s 6(2) of the National Health and Medical Research Council Act 1992 (Cth) (“the NHMRC Act”). Its functions included making recommendations to the Commonwealth on expenditure on medical research.

7    In his application, Dr Elston said that the award would allow him to continue his studies into the anatomy, physiology and plasticity of normal brain function and to research specific brain pathologies such as epilepsy and Down syndrome.

8    On 11 December 2001, the NHMRC notified Dr Elston that the Minister for Health and Aged Care had approved the grant of a Career Development Award.

9    The Commonwealth and the University entered into a deed of agreement dated 12 December 2001. Under its terms, the Commonwealth agreed to pay the award to the University and the University agreed to administer the award and to provide Dr Elston with the necessary facilities for the efficient conduct of research. The University was to use the award to pay Dr Elston’s salary or part of his salary. It could not use the money for other purposes. The award was a total of $400,000 payable at the rate of $80,000 per year for five years. It was not renewable. The start date was 1 January 2002 and the end date was 31 December 2006.

10    The deed of agreement was varied by agreement on 12 March 2003. The main reason for the variation was to deal with a mistake with the dating of the original deed. The schedules to the deed as varied were not in evidence, but neither party suggested that the schedules were varied.

11    The deed of agreement as varied contained the following clause dealing with termination of the agreement and suspension of payments:

14    TERMINATION AND SUSPENSION

14.1    Where:

…

(e)    the Commonwealth is not reasonably satisfied that the purposes and activities of the Institution or the Award Recipient remain compatible with the objectives of the Award;

…

the Commonwealth may, in its absolute discretion, by notice in writing given to the Institution:

(j)    terminate either a relevant Award or this Deed; or

(k)    suspend or reduce payment of the Funds, pending a review by the Commonwealth of the future performance of the Award.

12    Over time, various disputes emerged between the University and Dr Elston. These included disputes about Dr Elston’s pay level, reimbursement of expenses incurred by him and his removal of equipment from the University’s campus. Eventually, Dr Elston and the University commenced legal proceedings against each other.

13    On 28 August 2006, the University wrote to the NHMRC, saying:

On 15 August 2006, following allegations of misconduct/serious misconduct made by his Head of School, Professor David Adams, under Clause 23 of the University of Queensland Enterprise Agreement (Academic Staff) 2005, the University suspended Dr Elston, without pay, from his duties at the University of Queensland. This suspension will continue until resolution of the misconduct/serious misconduct allegations.

…

The allegations concern the unauthorised removal of equipment by Dr Elston from the University of Queensland’s St Lucia Campus in May and Dr Elston’s absence from his workplace at the University since that time.

14    Mr Michael Hoare, the then director of the Programs and Researcher Support section of the NHMRC, replied to the University on 7 September 2006, saying:

Our records confirm that Dr Elston is currently receiving funding for a Biomedical Career Development Award which is in its final year of funding. In accordance with the NHMRC Researcher Support Schemes Deed of Agreement, Clause 14.2(e), further payments have been suspended pending the outcome of the allegations.

An extract of Section 14 of the Deed of Agreement is attached for your reference.

I request that you advise Dr Elston of my decision to suspend payment of his Career Development Award.

We look forward to hearing the outcome of proceedings in due course.

15    Mr Hoare acknowledged in his evidence that his reference to cl 14(2)(e) was erroneous. He had been mistaken as to the form of agreement. The clause he erroneously referred to was one found in a different standard form of the deed, and dealt with suspension of payments when an institution was conducting an investigation. Instead, Mr Hoare should have referred to cl 14.1(e), set out earlier.

16    In the course of deciding an application to strike out a statement of claim in this proceeding, in Elston v Commonwealth of Australia [2013] FCA 108, Logan J held:

35    Putting aside Dr Elston’s not being a party to the deed, Dr Elston alleges that the NHMRC had no power to suspend the grant because the clause called in aid, cl 14.2(e), does not appear in the deed. This is true but nothing to the point. The reference to cl 14.2(e) in the NHMRC suspension advice of 7 September 2006 to the University (suspension advice) is a mere misnomer. It is based on a reference by the author of the letter, in error, to a later version of what is evidently a standard form deed. … Even were he to have pleaded how it was that he could sue on the deed, Dr Elston has no prospect of succeeding in establishing that the Commonwealth had no power to suspend the grant on the ground of not being satisfied that his activities remained compatible with the Award.

17    Mr Hoare gave evidence that his decision to suspend the payments was based on the content of the letter from the University. His evidence did not explain the source of his power to decide, on behalf of the Commonwealth, to suspend the payments.

18    On 10 July 2009, the NHMRC wrote to the University seeking information as to the outcome of the University’s investigation into the conduct of Dr Elston. The University did not reply at that stage.

19    On 30 March 2011, the University replied indicating that, following its investigation, Dr Elston’s employment contract with the University had been terminated as his conduct was found to constitute misconduct and serious misconduct The letter said that no further payment was required as Dr Elston had not been in receipt of a salary. It appears from other material that Dr Elston’s employment with the University had been formally terminated on about 18 May 2007.

Procedural history

20    Dr Elston commenced proceedings in the High Court of Australia against the NHMRC and the Commonwealth by writ of summons and statement of claim filed on 15 September 2011. His pleading alleged at least breach of contract, breach of a duty of care and defamation.

21    On 22 March 2012, Kiefel J ordered that the proceedings be remitted to the Federal Court. The Commonwealth then applied to the Federal Court for summary judgment and an order striking out the statement of claim. On 21 February 2013, Logan J made orders dismissing the NHMRC as a party, striking out the statement of claim and giving Dr Elston leave to re-plead. Dr Elston applied for leave to appeal against the judgment of Logan J, but on 24 May 2013, Greenwood J dismissed the application for leave.

22    Dr Elston filed and served an amended statement of claim on 15 March 2013 and another amended statement of claim on 23 April 2013. The Commonwealth applied for orders striking out each of those amended statements of claim and for summary judgment.

23    On 9 September 2013, Logan J made orders including the following:

1.    The amended statement of claim filed 23 April 2013 be struck out and, for the avoidance of doubt as to the status of the amended statement of claim filed on 15 March 2013 in light of the later filing of an amended statement of claim, the amended statement of claim filed 15 March 2013 is also struck out.

2.    Pleadings be dispensed with.

3.    The matter proceed to trial in respect of the following issues:

(a)    Was the contract made by deed on 12 December 2001 between the respondent, the Commonwealth of Australia, and the University of Queensland (the Contract) a contract which, for the purposes of section 55 of the Property Law Act 1974 (Qld), was a contract for the benefit of a third party, namely the applicant?

(b)    In any event, even if the Contract was not one of that kind, was the respondent obliged to afford the applicant natural justice to the extent of affording him an opportunity to be heard prior to exercising its power of suspension of the award found in clause 14 of the Contract?

(c)    If the respondent was so obliged, did the respondent afford natural justice to the applicant prior to making its suspension decision on 7 September 2006?

(d)    If it did not, what damages flow from any such failure?

24    Dr Elston did not apply for leave to appeal against those orders and they remain in force. My construction of the orders is that only the four issues set out in Order 3 were to proceed to trial. Other issues that were raised by Dr Elston in the pleadings that were struck out, such as defamation, breach of duty of care and the merits of his dispute with the University, do not fall to be considered, except to any extent that they may be relevant to the four issues.

25    Despite the orders made by Logan J, Dr Elston sought to argue a number of matters which are outside the scope of the four surviving issues. Those matters will be discussed, but the primary focus of these reasons will be the four issues referred for trial.

Consideration

The first issue: s 55 of the Property Law Act 1974 (Qld)

26    The first issue that Logan J ordered proceed to trial concerns whether the contract made by the deed of agreement between the Commonwealth and the University is a contract which, for the purposes of s 55 of the Property Law Act 1974 (Qld) (“the PLA”), is for the benefit for a third party, namely Dr Elston.

27    In framing this issue, Logan J seems to have had in contemplation the question of whether any contractual promise given by the Commonwealth to the University to observe natural justice in respect of Dr Elston is enforceable by Dr Elston.

28    Section 55 of the PLA provides, relevantly:

55    Contracts for the benefit of third parties

(1)     A promisor who, for a valuable consideration moving from the promisee, promises to do or to refrain from doing an act or acts for the benefit of a beneficiary shall, upon acceptance by the beneficiary, be subject to a duty enforceable by the beneficiary to perform that promise.

…

(3)     Upon acceptance—

(a)     the beneficiary shall be entitled in the beneficiary's own name to such remedies and relief as may be just and convenient for the enforcement of the duty of the promisor, and relief by way of specific performance, injunction or otherwise shall not be refused solely on the ground that, as against the promisor, the beneficiary may be a volunteer

29    This issue is no longer a live one because, as I understand it, the Commonwealth does not dispute that Dr Elston is entitled to enforce any obligation of natural justice owed to him under the deed of agreement. Rather, the Commonwealth’s argument is that no such obligation arises.

30    However, I will briefly consider the issue since it was specifically referred for trial. Clause 1.8 of the deed of agreement provides, “The laws of the Australian Capital Territory apply to this Deed”. The proper law of the contract is the law of the Australian Capital Territory. There is no indication in the PLA that s 55 is intended to have extraterritorial operation. Therefore, s 55 does not apply in respect of the deed of agreement between the Commonwealth and the University. There is no equivalent statutory provision in the law of the Australian Capital Territory.

31    Even though s 55 of the PLA does not apply, it is arguable that any requirement on the part of the Commonwealth to give natural justice to Dr Elston under the deed of agreement is enforceable under the principle in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1997) 165 CLR 107. But, it is unnecessary to decide that question because, as I have said, the Commonwealth does not take issue with the entitlement of Dr Elston to enforce any such obligation.

The second issue: Whether the Commonwealth was obliged to afford Dr Elson natural justice to the extent of affording him an opportunity to be heard prior to exercising its power of suspension of the award

32    The second issue that Logan J ordered proceed to trial is whether the Commonwealth was obliged to afford Dr Elston natural justice to the extent of affording him an opportunity to be heard prior to exercising the power of suspension of the award found in cl 14 of the deed of agreement.

33    Dr Elston’s submissions on this issue are confusing. I take him to argue that he was owed an obligation of natural justice both under the NHMRC Act and under an implied term of the contract between the Commonwealth and the University. The Commonwealth submitted, in response, that the power to suspend payments arose under the deed of agreement, not under the NHMRC Act, and that there is no implied term of the agreement that operates to oblige the Commonwealth to afford Dr Elston natural justice. It argued, further, that no obligation to hear Dr Elston before suspending the payments could arise under the NHMRC Act because his interests were not affected by the decision to suspend. It argued, in the alternative, that relief should be refused on discretionary grounds.

34    The questions that must be considered are:

(a)    whether the NHMRC Act confers a statutory power to suspend payments, such that its exercise is attended by an obligation to those persons whose rights or interests would be prejudiced to observe natural justice;

(b)    whether Dr Elston’s rights or interests were prejudiced by that exercise of power;

(c)    whether, in any event, relief under s 39B of the Judiciary Act 1903 (Cth) and s 16 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) (“the ADJR Act”) should be refused on discretionary grounds;

(d)    whether the contract between the Commonwealth and the University contains an implied term that Dr Elston would be heard prior to the Commonwealth exercising its power of suspension.

35    As to the first of those questions, in Annetts v McCann (1990) 170 CLR 596, Mason CJ, Deane and McHugh JJ held at 598:

It can now be taken as settled that, when a statute confers power upon a public official to destroy, defeat or prejudice a person’s rights, interests or legitimate expectations, the rules of natural justice regulate the exercise of that power unless they are excluded by plain words of necessary intendment.

36    This passage must be taken to be qualified by the statement of Gummow, Hayne, Crennan and Bell JJ in Plaintiff S10/2011 v Minister for Immigration and Citizenship (2012) 246 CLR 636 at 658 that:

…the phrase “legitimate expectation” when used in the field of public law either adds nothing or poses more questions than it answers and thus is an unfortunate expression which should be disregarded.

37    The NHMRC Act was substantially amended by the National Health and Medical Research Council Amendment Act 2006 (Cth), the relevant provisions of which commenced on 1 July 2006. As the decision to suspend was made on 7 September 2006, it is the Act as amended that is relevant to these proceedings.

38    The NHMRC in its present form is established under s 5B(1) of the NHMRC Act as amended. Section 5B(2) provides that the NHMRC comprises the Chief Executive Officer (“the CEO”), the Council and its committees and the staff of the NHMRC.

39    Section 7 sets out the functions of the CEO and provides, relevantly:

7    Functions of the CEO

    (1)    The functions of the CEO are:

…

    (c)    to make recommendations to the Minister on expenditure:

    (i)    on public health research and training; and

    (ii)    on medical research and training;

including recommendations on the application of the [Medical Research Endowment] Account; and

(d)    any other functions conferred on the CEO in writing by the Minister; and

(e)    any other functions conferred on the CEO by this Act, the regulations or any other law; and

(f)    any functions incidental to any of the foregoing.

40    The NHMRC Act does not expressly confer power upon the CEO to exercise any powers that the Commonwealth has under a contract. However, s 7(1)(d) allows the Minister to confer functions upon the CEO. In addition, s 82(1A) provides that the Minister may delegate to the CEO or to a member of the staff of the NHMRC the power of the Minister to deal with any money held by the Minister on trust for the purposes of the Medical Research Endowment Account. Section 82(1C) allows the CEO to delegate all or any of his or her powers or functions to a member of the staff of the NHMRC.

41    The Commonwealth clearly had the power under cl 14.1(e) and (k) of the deed of agreement to suspend payments to the University. Clause 24.1 provided that, “The CEO [of the NHMRC] may exercise, on behalf of the Commonwealth, any of the powers conferred upon the Commonwealth by this Deed.” However, the power to suspend payments was exercised by Mr Hoare, not the CEO. In order to decide whether any obligation of natural justice was owed under statute, it is necessary to consider whether Mr Hoare’s decision to suspend the payments was made in the exercise of a power conferred by the NHMRC Act.

42    The evidence does not explain the source of Mr Hoare’s power to make the decision to suspend payments. The presence of express provisions for delegation in the NHMRC Act makes it likely that those provisions were utilised, rather than merely relying on the Carltona principle. It seems probable that the power to exercise the Commonwealth’s power to suspend was conferred by the Minister upon the CEO under s 7(1)(d) or s 82(1A), and that the CEO then sub-delegated his or her power to Mr Hoare pursuant to s 82(1C). The power of the CEO and Mr Hoare to exercise the Commonwealth’s right to suspend the payments might be said, in that narrow sense, to have its source in the NHMRC Act.

43    Does the mere legislative grant of powers to delegate and sub-delegate the powers held by the Commonwealth under the terms under a contract confer upon the delegate a power to destroy, defeat or prejudice rights or interests?

44    In Griffith University v Tang (2005) 221 CLR 99, the High Court was concerned with whether a decision was “made…under an enactment” for the purposes of the judicial review legislation. It did not deal with whether any obligation of natural justice was owed, but did touch upon the circumstances in which it can be said that it is a contract, rather than statute, which gives a public body the power to affect a person’s rights. Gummow, Callinan and Heydon JJ concluded:

82    …[A] statutory grant of a bare capacity to contract does not suffice to endow subsequent contracts with the character of having been made under that enactment. A legislative grant of capacity to contract to a statutory body will not, without more, be sufficient to empower that body unilaterally to affect the rights or liabilities of any other party. The power to affect the other party's rights and obligations will be derived not from the enactment but from such agreement as has been made between the parties. A decision to enter into a contract would have no legal effect without the consent of the other party; the agreement between the parties is the origin of the rights and liabilities as between the parties.

45    In the present case, the NHMRC Act merely allowed the delegation and sub-delegation of the Commonwealth’s power to suspend the payments. However, the Commonwealth’s power to suspend derived from the contract made by the deed of agreement, not under any statute. It was the contract, not statute, which conferred powers upon the Commonwealth, the CEO and Mr Hoare to prejudice the rights or interests of any person. The principle in Annetts v McCann does not apply for that reason.

46    In addition, the principle in Annetts v McCann applies only where the exercise of a statutory power is apt to destroy, defeat or prejudice a person’s rights or interests. In Kioa v West (1985) 159 CLR 550, Brennan J said at 619:

The presumption that the principles of natural justice condition the exercise of a statutory power may apply to any statutory power which is apt to affect any interest possessed by an individual whether or not the interest amounts to a legal right or is a proprietary or financial interest or relates to reputation.

47    The damage to rights and interests must be direct in order to attract an obligation of natural justice: Kioa v West at 584 per Mason J, 632 per Deane J.

48    Dr Elston argued that his financial interests and reputation were affected by the decision to suspend payments. The Commonwealth argued that the decision had no such effect and that any damage to his financial interests and reputation was caused by the University’s actions.

49    Dr Elston’s principal argument that his reputation had been damaged by the decision to suspend payments was that staff of the NHMRC had wrongly concluded, in the course of making the decision to suspend, that the University was alleging “scientific misconduct” against him. It will be recalled that the letter from the University dated 28 August 2006 referred to “allegations of misconduct/serious misconduct made by his Head of School”. The letter written by Mr Hoare notifying the University that the NHMRC had suspended payments was drafted by Ms Christine Hayter. Ms Hayter sent an email to Mr Ivan Sharma of the finance section of the NHMRC requesting that he suspend further payments “pending an outcome of allegations of possible scientific misconduct”. Ms Hayter could only explain her reference to “possible scientific misconduct” as a mistake. It may be acknowledged that this mistake, coupled with the mistake as to the form of the applicable deed of agreement reflected poor administration concerning a matter of importance to Dr Elston.

50    However, the reference to “scientific misconduct” in Ms Hayter’s email to Mr Sharma did not have any bearing upon the decision to suspend the payments. That decision had been made by Mr Hoare, not Ms Hayter. Ms Hayter’s email was merely a step to effect the suspension that Mr Hoare had already decided. Mr Hoare’s letter of 7 September 2006 conveying the decision to suspend referred to “allegations of misconduct/serious misconduct”. It accurately reflected the allegations that had been made by the University against Dr Elston.

51    Dr Elston’s reputation may well have been damaged by the allegations made against him by the University, but the Commonwealth’s suspension of payments did not affect Dr Elston’s reputation. The NHMRC did not decide that he had engaged in misconduct. Its decision to suspend payments reflected the fact that the University had suspended Dr Elston without pay while it investigated the allegations and that the University was no longer providing Dr Elston with facilities for his research. Clauses 14(1)(e) and (k) of the deed of agreement allowed the Commonwealth to suspend payments where it was not reasonably satisfied that the activities of the institution or the award recipient remained compatible with the award. The University did not require any further payments from the Commonwealth because it was not paying Dr Elston. It would have been pointless for the Commonwealth to make further payments at that stage. Mr Hoare’s letter did not foreclose the possibility of funding being resumed when the dispute between Dr Elston and the University was resolved. I reject Dr Elston’s submission that the decision to suspend payments affected his reputation.

52    Dr Elston contended that “the NHMRC effectively blocked [his] ability to obtain a salary to continue in the profession for which he had been trained”. He noted that the Commonwealth had provided funding for the purposes of his research for some years prior to the suspension of payments, but that he had submitted a number of applications for grants since the suspension that had not been approved. Dr Elston stated that the suspension of payments “caused prejudice [to his] right to have his future Grant applications put before the Minister for approval for funding”.

53    I understood Dr Elston to make these allegations on two bases. One was that the NHMRC deliberately blocked his funding applications because it had suspended the grant. The second was that the NHMRC had made the decision to suspend on the basis of what it believed was “scientific misconduct” and its policy prevented further grants being made while such allegations were being investigated.

54    Dr Elston pointed, in particular, to an application that he submitted to the NHMRC in about February 2006 for a grant. He noted that the panel of experts which considered his application had initially rated his application as “excellent”, but then changed the rating to “very good”. Dr Elston contended that the change in rating and the refusal to approve the grant was related to the decision to suspend payments.

55    However, Professor Graham Lamb, who was the chair of the panel of experts, gave evidence that the change in the rating from “excellent” to “very good” was based solely upon the panel’s assessment of Dr Elston’s application in comparison with all the other applications. His evidence was that no external factor influenced the decision of the panel. His evidence was also that even if the rating had not been reduced, Dr Elston’s application had no prospect of being funded because only the top 55% – 60% of applicants reaching the interview stage could be successful, and Dr Elston’s application was not within that bracket. Professor Lamb’s evidence was not contradicted by other evidence, and there was nothing arising from his cross-examination that causes me to reject his evidence. I do not accept Dr Elston’s contention that the rejection of his application for funding was related to the suspension of the payments.

56    Dr Elston did not adduce evidence supporting his contention that the rejections of his other applications for grants were because the Commonwealth had suspended payments to the University. I do not accept that there was such a connection.

57    Dr Elston next pointed to a policy published by the NHMRC entitled Research Misconduct Detected During Peer Review. It states that researchers who form a concern that research misconduct may have occurred while they are conducting an NHMRC peer review assessment must report the concerns. It then states that the “NHMRC will not recommend to the Minister any application for funding until all matters have been resolved.” Dr Elston argued that the NHMRC wrongly believed that unresolved allegations of research misconduct had been made against him and had therefore refused to recommend his applications for funding to the Minister.

58    Dr Elston relied on the letter from Ms Hayter which referred to allegations of possible scientific misconduct and a letter from Ms Lynne Callan, a complaints officer with the NHMRC, dated 18 June 2009 which referred to allegations of research misconduct. Ms Callan’s letter was a response to a letter from Dr Elston referring to various allegations he had made against officials of the University and complaining that the NHMRC had not investigated his allegations. Ms Callan responded that the NHMRC does not investigate allegations of research misconduct. Dr Elston interpreted Ms Callan’s letter as suggesting that some allegation or determination of research misconduct had been made against him. However, in her evidence, Ms Callan stated that her reference to research misconduct was intended to reflect claims that Dr Elston had made about the University. I accept her evidence.

59    Ms Hayter merely made an error that had no consequence and Ms Callan explained that her reference to research misconduct was not directed to any allegations against Dr Elston.

60    It may also be noted that the NHMRC’s policy of not recommending any application for funding until all matters have been resolved, read in context, applies only to applications about which a peer reviewer conducting an assessment of an application has concerns. That was not the situation here.

61    The evidence does not establish that the NHMRC refused to recommend any of Dr Elston’s applications for funding to the Minister on the basis of any belief that allegations of research misconduct had been made against Dr Elston. In addition, the evidence does not establish that the refusal of his applications for funding was connected with the suspension of payments to the University.

62    Dr Elston has not proved that his financial interests have been prejudiced by the NHMRC failing to recommend his applications for funding on the basis of a mistaken belief that he had been accused of research misconduct.

63    The Commonwealth argued that the decision to suspend payments to the University had no other effect upon Dr Elston’s financial interests. Dr Elston had been suspended by the University without pay prior to the Commonwealth’s decision to suspend payments. I accept that it was the decision of the University, not the decision of the Commonwealth that led to Dr Elston being deprived of his salary.

64    For the reasons I have given, I am not satisfied that the decision to suspend payments affected any relevant rights or interests of Dr Elston. For that additional reason, there was no obligation on the part of the CEO, Mr Hoare or the Commonwealth arising under the NHMRC Act to give Dr Elston an opportunity to be heard before the exercise of the power to suspend payments.

65    If I am wrong in this view, I would nevertheless refuse relief to Dr Elston under s 39B of the Judiciary Act and s 16(1) of the ADJR Act on discretionary grounds.

66    In Stead v State Government Insurance Commission (1986) 161 CLR 141, the High Court held that a departure from the rules of natural justice will not entitle the aggrieved party to a new trial if the new trial would inevitably result in the making of the same order. An order for a new trial in such a case would be futile. However, the Court continued at 147:

All that the appellant needed to show was that the denial of natural justice deprived him of the possibility of a successful outcome. In order to negate that possibility, it was, as we have said, necessary for the Full Court to find that a properly conducted trial could not possibly have produced a different result.

67    The question is whether the NHMRC giving Dr Elston an opportunity to be heard prior to exercising its power to suspend the payments could possibly have produced a different outcome.

68    Prior to the decision to suspend payments being made, Dr Elston had telephoned the NHMRC and had written to it setting out his side of the story in respect of his dispute with the University. It was clear that he strongly disagreed with the University’s decision to suspend him without pay. It may be assumed that had the NHMRC told Dr Elston that it was considering suspending the payments and given him an opportunity to respond, he would have had more to say about the merits of the dispute. However, even if he were able to persuade the NHMRC that the University had breached the terms of the deed of agreement or that its action in suspending him without pay was wrongful, that could not have made any difference to the decision to suspend payments to the University. The fact was that the University did not intend to pay Dr Elston’s salary pending the outcome of its investigation and was not providing facilitates for Dr Elston’s research. It would have been pointless for the NHMRC to pay money to the University when the University had no intention of using that money to pay Dr Elston, which was the purpose for which the grant was made. The only rational decision that the NHMRC could have made was to suspend payments pending the outcome of the dispute between the University and Dr Elston. Further, if Dr Elston had pointed out that the NHMRC was under a misapprehension as to the correct form of the deed of agreement, that would not have made any difference because the Commonwealth had power under cl 14.1(e) of the applicable agreement to suspend payments.

69    In addition, Dr Elston’s employment was later terminated by the University. He was not paid any salary from 15 August 2006, when he was suspended from his employment. The University eventually notified the NHMRC that the final payment was not required. Any order quashing or setting aside the decision to suspend and requiring the NHMRC to make a new decision would be futile.

70    A declaration as to a denial of natural justice might be appropriate in order to vindicate the reputation of an aggrieved person, but, as I have indicated, I am not satisfied that the suspension of payments caused any damage to Dr Elston’s reputation. I would therefore refuse Dr Elston relief even if I were satisfied that he was owed obligations of natural justice under the NHMRC Act which were breached.

71    Dr Elston submitted that the Commonwealth owed him an obligation under an implied term of the contract made by the deed of agreement to give him an opportunity to be heard before suspending the payments.

72    There are cases that hold that clubs and associations owe obligations of natural justice to a member against whom disciplinary proceedings are taken. These obligations require both an opportunity to be heard and absence of bias. Some authorities have held that such obligations arise as a matter of public policy. There is, however, ample authority for the proposition that such obligations are implied as a term of the contract between the club and the member: for example, Dickason v Edwards (1910) 10 CLR 243 at 250-251 per Griffith CJ, 255 per O’Connor J, contra at 258 per Isaacs J; McClelland v Burning Palms Surf Life Saving Club (2002) 191 ALR 759 at [97] – [98].

73    The club cases are not comparable with the present situation. Those cases involve disciplinary proceedings. An adverse finding in a disciplinary proceeding involves a judgment about the conduct of a member which would affect at least the reputation of that member amongst other members. The exercise of the power to suspend payments under the contract between the Commonwealth and the University is made to protect the financial interests of the Commonwealth. It is not in the nature of a disciplinary proceeding. The suspension of payments will not, or will not necessarily, involve any adverse findings. I consider that no analogy, requiring the implication of a term requiring the observance of natural justice, may be drawn between the club cases and the present contract.

74    There are some authorities outside the club cases that have considered whether a term is to be implied into a contract imposing an obligation on one party to give another party an opportunity to be heard.

75    Hounslow London Borough Council v Twickenham Garden Developments Ltd [1971] Ch 233 concerned a clause in a construction contract allowing the supervising architect to give the contractor notice specifying a default and permitting the Council to determine the contract if the default continued. Megarry J expressly rejected the contractor’s argument that the principles of natural justice applied to the architect’s notice. It may be noted, however, that only the proposition that the architect was required to hear the parties seems to have been rejected, because His Honour accepted that the architect was required to act impartially. His Honour held that for the rules of natural justice to apply there must “be something in the nature of a judicial situation”, and that was not the case.

76    In 500 Burwood Highway Pty Ltd v Australian Unity Ltd [2012] VSC 596, Vickery J held at [168] that a certifying expert is not under an obligation to provide procedural fairness in the absence of an express contractual provision.

77    In Malloch v Aberdeen Corporation [1971] 1 WLR 1578, the House of Lords decided that there is no duty under the common law to afford natural justice before dismissing an employee.

78    Davis in Contract: General Principles (2nd ed, Thomson Lawbook Co, 2006), notes that contracts which contain terms granting the right to terminate often provide for notice to be given to the promisor. Davis states that, “[a] notice requirement does not imply the rules of procedural fairness unless the terms of the contract itself expressly or impliedly import them or rules homogenous to them”.

79    There is no express term of the contract requiring the Commonwealth to hear Dr Elston before exercising the power to suspend payments. If there is to be found in the contract an implied term to that effect, the five requirements set out in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282 – 283 must be satisfied. The fact that the University and the Commonwealth expressly agreed in cl 10.2 that the University was to have the right to make submissions in a particular circumstance that affects the University’s interests tells against the implication of any such term in other circumstances. A term requiring the Commonwealth to hear Dr Elston before exercising the power to suspend payments is not obvious, in the sense of going without saying. Further, such a term is not necessary to give business efficacy to the contract.

80    I therefore reject Dr Elston’s submission that he was owed an obligation of natural justice under an implied term of the deed of agreement.

The third issue: Did the Commonwealth afford natural justice to Dr Elston?

81    The third issue referred for trial by Logan J concerned whether, if the Commonwealth was obliged to give Dr Elston an opportunity to be heard prior to exercising its power of suspension, the Commonwealth afforded natural justice to Dr Elston.

82    I have concluded that the Commonwealth was not obliged to give Dr Elston an opportunity to be heard before exercising its power of suspension. Therefore, this issue does not fall to be determined.

The fourth issue: Damages

83    The fourth issue referred by Logan J concerns what damages flow from any failure of the Commonwealth to give Dr Elston an opportunity to be heard before exercising its power of suspension. Again, this question does not strictly fall to be answered because I have found that there was no obligation on the Commonwealth to give Dr Elston such an opportunity.

84    However, in case I am wrong, I will proceed to assess damages upon the assumption Dr Elston was denied natural justice. Upon this assumption, the Commonwealth will have breached an implied term of the contract that it must give Dr Elston an opportunity to be heard prior to exercising its power of suspension.

85    Assuming that the principle in Trident v McNiece is applicable, Dr Elston could have sought specific performance against the Commonwealth or an injunction. However, Dr Elston was not a party to the contract and was therefore not entitled to damages. Only the University could be entitled to damages for breach of the contract. I do not understand Trident v McNiece to require a different conclusion.

86    In any event, I do not accept that any loss or damage suffered by Dr Elston was caused by the suspension of payments. Dr Elston made a number of allegations concerning the loss and damage he says he suffered as a result of the suspension and I will deal briefly with what I understand to be each of these allegations.

87    Dr Elston alleged that the suspension of the payment “effectively froze all funding available to him including salary support and research support”.

88    The Commonwealth did not make the final payment of $22,500 that was otherwise payable to the University, but even if Dr Elston had been able to persuade the Commonwealth that it ought to make that payment to the University, the University would not then have paid that money to Dr Elston. That is because the University had suspended him without pay and his employment was subsequently terminated. He has not demonstrated any loss of salary as a result of the suspension of the payments.

89    I have already found that Dr Elston has not proved any causal connection between the suspension of payments and his failure to obtain other grants.

90    Dr Elston alleges that as a result of the suspension of payments, his then wife left him, resulting in various family law disputes, legal expenses and payments to the Child Support Agency. The evidence does not establish that Dr Elston’s wife left him as a result of the suspension of payments to the University. In any event, any loss or damage arising from the breakdown of the marriage is too remote to found a basis for damages.

91    Dr Elston alleges that he was required to sell two apartments in order to support himself and suffered a loss. Those sales must have resulted from the University’s decision to suspend him without pay and then terminate his employment. Dr Elston has not demonstrated that any such loss was causally related to the Commonwealth’s exercise of its power to suspend payments. The same may be said of Dr Elston’s allegations of a loss of opportunity to purchase investment properties.

92    If Dr Elston were able to somehow establish breach of a contractual obligation that was capable of resulting in an award of damages to him, I would award him nominal damages of $100.

Other matters

93    Dr Elston raised a number of other arguments, each of which I consider to be clearly outside the scope of the matters referred by Logan J for trial. They do not fall to be decided for that reason. However, in case I am wrong in this conclusion, I will consider these arguments.

94    Dr Elston argued that cl 14.1(k) only permits the Commonwealth to suspend payments “pending a review by the Commonwealth of the future performance of the Award”. He argued that no such review had taken place and this amounted to a breach of the contract.

95    The five-year term of the grant ended on 31 December 2006. The letter written by Mr Hoare on 7 September 2006 asked the University to keep the NHMRC advised of the outcome of the University’s investigation. The NHMRC wrote twice asking for information about that outcome. Eventually the University advised that Dr Elston’s employment contract had been terminated as his conduct was found to constitute misconduct and serious misconduct and that the final payment was no longer required. That response made it clear that there was to be no future performance of the award. Dr Elston was no longer employed by the University and the University had not paid him after his suspension and did not require the final payment. In my opinion, the NHMRC reviewed the future performance of the award by writing to the University and obtaining its response. There could be no future performance of the award.

96    Dr Elston claimed that he had made an application to the NHMRC for the transfer of the award to Monash University. He alleged that he had made this request in the course of a telephone discussion with Mr Philip Callan, the then Acting Principle Executive Officer of the NHMRC, on 15 August 2006. He argued that the NHMRC had not acted upon his request for the transfer and that this amounted to a breach of the contract.

97    The telephone conversation between Dr Elston and Mr Callan on 15 August 2006 seems to have consisted largely of Dr Elston complaining about the University’s conduct. Mr Callan has no independent recollection of the conversation. Mr Callan’s notes do not record that Dr Elston requested that the award be transferred, but do contain the notation, “make Monash the administration of Fellowship”. This suggests that there was some discussion about the transfer of the award to Monash University, but I think it most unlikely that Dr Elston actually made an oral application for the transfer. It is unlikely that any step as serious as an application for transfer would be made with the informality of an oral request, unsupported by written evidence that Monash University was willing to accept the transfer. Dr Elston wrote to the NHMRC in the following days and did not mention any request for a transfer. I do not accept that anything that can be characterised as a request for a transfer of the award to Monash University was made on 15 August 2006.

98    In addition, cl 10.1 of the deed of agreement as varied provides that, “The Parties acknowledge that an Award Recipient may, at any time, make a Transfer Application to their Institution, so as to continue research at a New Institution”. It is plain that Dr Elston was required to make any application for transfer to the University, not the Commonwealth. The deed of agreement did not confer on Dr Elston any right to have any application approved or even considered by the Commonwealth. Dr Elston argued that the agreement as varied was not applicable as cl 1.10 of the original agreement provided that no variation “shall be legally binding on either party unless executed in the same manner as this Deed.” He submitted that the deed of agreement as varied was not executed in the same manner, but the basis of this submission was not apparent. Both versions of the deed of agreement were in writing and signed on behalf of the Commonwealth and the University.

99    Dr Elston persisted with an argument based upon the erroneous reference to cl 14.2(e) contained in the letter from Mr Hoare. I agree with Logan J (see para [16] of these reasons) that the error did not have any substantive effect. It cannot be said that the Commonwealth had no power to suspend payments, because it had that power under cl 14.1(e) and (k).

100    I referred earlier (paras [54]-[55]) to the NHMRC’s rejection of an application for a grant submitted by Dr Elston in about February 2006 on the basis of the recommendation of a panel of experts. Dr Elston submitted that there was apprehended bias on the part of a member of the panel.

101    Dr Elston says that in 2002, when he was in dispute with the University about his salary, he approached another employee of the University, Dr George Muscat, to ascertain the salary he was receiving. Dr Elston claims that:

Dr [Muscat] made a remark to the effect that I shouldn’t be a trouble maker. He expressed the view that I should keep working hard and the salary will go up.

102    Dr Elston claims that Dr Muscat was a member of the panel of experts that decided not to recommend his application for funding. Professor Lamb’s evidence was that there were six members of the panel and Dr Muscat was not one of them. Professor Lamb was able to refresh his memory by reference to a document which contains the panel’s assessment of Dr Elston’s application. Professor Lamb gave evidence that the practice was that a panel of experts would not contain a member from the same institution as the applicant for funding. I accept Professor Lamb’s evidence and find that Dr Muscat was not a member of the panel. In reaching this conclusion I have disregarded an affidavit of Dr Elston filed on 25 March 2014, well after I had reserved my judgment, which asserts that Dr Muscat was a member of the panel that interviewed him.

103    Even assuming that Dr Muscat was a member of the panel, I would not accept Dr Elston’s claim of apprehended bias. The test is whether a fair-minded lay observer might reasonably apprehend that the decision-maker might not bring an impartial mind to the resolution of the question the decision-maker is required to decide: Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337 at [6]. Dr Elston pointed to advice given to him by Dr Muscat some four years earlier, but on my interpretation of it, the advice was quite innocuous. Dr Elston also relied on the fact that he was in dispute with the University at the time his application was considered and that Dr Muscat was an employee of the University. There is no evidence that Dr Muscat was aware of any dispute between Dr Elston and the University other than Dr Elston’s complaint about his salary level some four years earlier. It is difficult to see how the factors pointed to by Dr Elston could lead Dr Muscat to decide upon the application other than on its merits. In my opinion, the test set out earlier is not satisfied.

104    In addition, where a person, fully aware of circumstances from which apprehended bias might be inferred, fails to act promptly, that person will be taken to have waived the objection and cannot later rely on it: Vakauta v Kelly (1989) 167 CLR 568 at 577-579 per Dawson J, 587-588 per Toohey J. Assuming that Dr Muscat was a member of the panel of experts, Dr Elston took no objection. He should be taken to have waived the objection.

105    I reject each of the grounds advanced by Dr Elston. The application will be dismissed with costs.

Associate:

Dated:    31 March 2014