FEDERAL COURT OF AUSTRALIA

Joseph v Parnell Corporate Services Pty Ltd [2020] FCA 426

ORDERS

THE COURT ORDERS THAT:

1.    The parties are to bring in Short Minutes of Orders to give effect to these reasons within 28 days.

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

REASONS FOR JUDGMENT

FLICK J:

1    In June 2018, the Applicant, Mr Robert Joseph, commenced a proceeding in this Court.

2    The First Respondent to that proceeding is Parnell Corporate Services Pty Ltd (“Parnell Corporate”). The Second Respondent is Parnell Pharmaceuticals Holdings Ltd (“Parnell Holdings”). The Third Respondent is Parnell Corporate Services U.S. Inc. (“Parnell US”). The Fourth Respondent is Dr Alan Bell, the Executive Chairman of Parnell Holdings.

3    Mr Joseph claims (inter alia) that his employment with Parnell Corporate was wrongfully terminated.

4    The First, Second and Third Respondents (together, the “Corporate Respondents”) have filed a Cross-Claim in which declaratory relief is sought, together with a claim for damages. With the leave of the Court, the Cross-Claim was amended on three occasions. The Corporate Respondents ultimately relied on the Third Amended Statement of Cross-Claim (the “Amended Cross-Claim”).

5    It is concluded that:

    Mr Joseph’s employment was lawfully terminated summarily on 18 December 2017.

In the event that that was the conclusion to be reached, the parties were in agreement that:

    Mr Joseph is entitled to be paid accrued but untaken annual leave.

In respect to the Amended Cross-Claim, it is concluded that:

    the conduct of Mr Joseph occasioned the institution by two employees of Parnell of proceedings in the United States, and that this conduct constituted a breach of his contract of employment; and

    monies paid in settlement of those proceedings, or at least some of those monies, are recoverable as damages in the present proceeding.

THE CONTRACTS OF EMPLOYMENT

6    Mr Joseph signed both an Australian contract and an American contract in respect to his employment relationship with Parnell.

7    The Australian contract is dated 1 February 2011.

8    The February 2012 American contract between Mr Joseph and Parnell US is described as a “contract of employment”, whereby Mr Joseph is “being seconded indefinitely to the related entity Parnell Corporate Services U.S. Inc. (a company domiciled in the United States of America)”. This contract is expressed to be “[f]urther to your current contract of employment”, and seconded Mr Joseph to work as “from February 1, 2012 in Kansas City, Missouri”.

9    Both contracts are expressed in similar terms. It is sufficient for present purposes to refer to the terms of the Australian contract. That contract provides that Mr Joseph’s employment is “deemed to have commenced on 21 August, 2006”.

10    Clause 15 provided as follows:

15.    Your obligations on Confidentiality

You must:

(a)    keep any information secret and confidential, except to the extent that you are required by law to disclose the Information;

(b)    take all reasonable and necessary precautions to maintain the secrecy and prevent the disclosure of any Information; and

(c)    not disclose Information to any third parties without first obtaining the written consent of the Board except in the ordinary and proper course of employment with the Company.

11    Clause 9 and 10 provided for the payment of leave and accrued leave. Those clauses provided as follows:

9.    Leave Entitlement

You:

(a)    are entitled to public holidays, long service leave and annual leave in conformity with statutory entitlements; and

(b)    must take annual leave and long service leave at a period or periods agreed between the Company and you and in the absence of agreement, when determined or directed by the Company.

10.    Accrued leave

Subject to any statutory provision, the Company may require you to take any significant accrued leave entitlement or may make a payment to your accrued leave pursuant to Section 94 of the [Fair Work Act 2009 (Cth)].

12    Clause 18 of that contract provides for termination and relevantly provides as follows:

18.    Termination

18.1    Other than in circumstances provided in 18.3 below, the Company may terminate the employment by giving six (6) months written notice or at its election by making a payment in lieu of the notice period which will bring your employment to an immediate end.

18.2    Notice given by you shall be six (6) months from the end of the day upon which notice is given.

18.3    Notwithstanding any other clause in this contract the Company may terminate this agreement immediately if you:

(a)    commit any act which may detrimentally affects the Company or any Group Company, including but not limited to an Act of fraud, wilful disobedience, or misconduct;

(b)    wilfully or persistently or materially breach this agreement; or

(c)    become medically incapacitated or become liable to be dealt with under any law relating to mental health.

TERMINATION OF SERVICES – THE OCTOBER & DECEMBER 2017 DECISIONS

13    Two decisions were taken to terminate the services of Mr Joseph, namely:

    on 14 October 2017 a decision was taken to terminate Mr Joseph’s services as from 14 April 2018 (the “October 2017 Decision”); and

    on 18 December 2017 a decision was taken to terminate Mr Joseph’s services immediately (the “December 2017 Decision”).

It is the latter decision which assumed primary importance during the hearing and in submissions.

14    Each of the two decisions, however, should be separately considered – the former only briefly.

The October 2017 Decision

15    On 14 October 2017, the Minutes of a meeting of directors of Parnell Holdings record as follows:

(header and footer omitted)

16    On the same day, Dr Alan Bell, as Chairman of Parnell Holdings, wrote to Mr Joseph. That letter stated in part as follows:

Dear Robert

Termination of your employment with Parnell Pharmaceutical Holdings Ltd

We refer to your employment by Parnell Corporate Services Pty Ltd (Parnell CS) pursuant to the written contract of employment dated 1 February 2011 (your Contract) and to your secondment to Parnell Corporate Services U.S. (Parnell CS US) pursuant to the written agreement between you and Parnell CS US effective from 1 February 2012 (your US Contract).

You are employed pursuant to your Contract and your US Contract as the Chief Executive Officer (CEO) of the companies identified in Schedule 1 to your Contract and in Schedule 1 to your US Contract (Parnell Group) and Veterinary Investigative Services, Inc.

Termination of your employment

This letter constitutes notice of the termination of your employment pursuant to clause 18.1 of your Contract and your US Contract.

The Board does not presently elect to make a payment in lieu of the 6 month notice period provided for in clause 18.1. You will therefore be required to continue to perform the duties required of you under your Contract and your US Contract, as detailed below, and will be paid your full salary, until the expiry of your 6 month notice period.

…

(emphasis in original)

17    Mr Joseph maintained throughout the present proceeding that the October 2017 Decision was invalid. He contended (inter alia) that he was given insufficient notice of the intention to hold the meeting – notice having been given at about 10am and the meeting being held some few minutes later.

18    Relief in respect to this allegedly wrongful termination of his services was initially sought, including a claim for damages and declaratory relief. The measure of such damages as may have been recoverable would most likely have been confined to the amount payable had appropriate notice of termination been given: cf. Bostik (Australia) Pty Ltd v Gorgevski (No 1) (1992) 36 FCR 20 at 32. Sheppard and Heerey JJ there observed:

In the course of the submissions about the amount of damages to be awarded, there was general discussion about the assessment of damages in a case such as this. The contract in question is a contract of employment which is terminable by either party on giving to the other the applicable period of notice provided for in the award. Where an employee is wrongfully dismissed, he is entitled, subject to mitigation, to damages equivalent to the wages he would have earned under the contract from the date of the dismissal to the end of the contract. The date when the contract would have come to an end, however, must be ascertained on the assumption that the employer would have exercised any power he may have had to bring the contract to an end in the way most beneficial to himself; that is to say, that he would have determined the contract at the earliest date at which he could properly do so: ….

(citations omitted).

19    Reliance upon the October 2017 Decision, in substance, was overtaken by the December 2017 Decision. There remained a prospect, however, that the December 2017 Decision could be held unlawful, and that the necessity would thereupon arise to determine the lawfulness of the termination sought to be effected in October 2017. But ultimately Counsel for Mr Joseph properly abandoned any claim for relief in respect to the October 2017 Decision, including declaratory relief.

20    Attention can thus be focussed upon the lawfulness of the December 2017 Decision alone.

The December 2017 Decision

21    On 18 December 2017, a letter was forwarded to Mr Joseph by Dr Bell on behalf of Parnell Corporate and Parnell US, summarily terminating his employment.

22    The letter commences as follows:

Immediate termination of your employment

1.    We refer to your employment by Parnell Corporate Services Pty Ltd (Parnell CS) pursuant to the written contract of employment dated 1 February 2011 (your Contract) and to your secondment to Parnell Corporate Services U.S. (Parnell CS US) pursuant to the written agreement between you and Parnell CS US effective from 1 February 2012 (your US Contract).

2.    This letter constitutes immediate notice of the termination of your employment pursuant to clause 18.3 of your Contract and your US Contract, on the basis that your conduct described in this letter constituted:

a.    acts that my detrimentally affect the Parnell group companies; and

b.    wilful and material breaches of your contract and your US Contract.

3.    This notice supersedes the notice of termination given to you on 14 October 2017 pursuant to clause 18.1 of your Contract and your US Contract. Your employment by Parnell CS and Parnell CS US ends effective immediately upon the giving of this notice.

23    The letter goes on to identify two reasons for the decision, namely what the letter refers to as:

    Mr Joseph’s “conduct in relation to the US Litigation”; and

    his “conduct in relation to [his] Notice to Shareholders”.

In addition to these two bases expressly identified in the termination letter, the Respondents also seek to rely upon two “Additional Bases”, namely:

    an incident in about December 2015, when Mr Joseph inserted a needle attached to a syringe into the leg of another employee, Ms Jennifer Lindsey (the “Needle Incident”); and

    an offensive remark made by Mr Joseph at a Gala Dinner in January 2016, and the subsequent termination of the employment of an employee (Ms Jennifer Tymeson) who had complained (inter alia) about Mr Joseph’s offensive remark (the “Gala Dinner”).

THE TERMINATION OF EMPLOYMENT – GENERAL PRINCIPLES

24    Given the fact that the Respondents contend that they were entitled to summarily terminate the employment contract of Mr Joseph on one or other of these bases, it is prudent to address (albeit briefly) two general principles of relevance to the summary termination of Mr Joseph’s employment, namely:

    the circumstances which must be made out if a contract of employment is to be summarily terminated; and

    whether conduct in addition to that specified in a notice of termination may be relied upon.

The relevant principles are well-established and were not in dispute.

Summary dismissal for misconduct

25    An employer may summarily dismiss an employee for breach of contract if the breach is of a “serious nature, involving a repudiation of the essential obligations under the contract or actual conduct which is repugnant to the relationship of employer-employee”: Rankin v Marine Power International Pty Ltd [2001] VSC 150 at [250], (2001) 107 IR 117 at 142 per Gillard J (“Rankin”). In Rankin, Gillard J summarised the principles to be applied, and the onus resting upon the employer to make out the right to terminate as follows:

Summary dismissal?

[237]    The defendant, in its amended defence, pleaded that it was entitled to summarily dismiss the plaintiff from his employment by reason of the plaintiff’s conduct, which was alleged amounted to a breach of the contract of employment.

[238]    A breach of the contract of employment by the employee may entitle the employer to terminate the agreement without notice.

[239]    The acts or omissions of the employee which constitute the breach may amount to misconduct, disobedience, incompetence or negligence. No doubt, misconduct would cover a multitude of sins. By way of example, conduct which results in a conflict between the employee’s interest and duty to his employer, or impedes the faithful performance of his obligations, or is destructive of the confidence between employer and employee, may ground a right to dismiss without notice. …

[240]    There is no rule of law that defines the degree of misconduct which would justify dismissal without notice.

…

[242]    The question whether the breach of contract justifies dismissal without notice, is a question of fact.

[243]    The onus of proof rests upon the defendant to establish that it had the right to terminate the employment without proper notice: …

…

[250]    The authorities do establish that the employee’s breach of contract of employment must be of a serious nature, involving a repudiation of the essential obligations under the contract or actual conduct which is repugnant to the relationship of employer-employee, before an employer may terminate the contract summarily. Isolated conduct usually would not suffice. Each case must be considered in the light of its particular circumstances, but nevertheless, the seriousness of the act of termination and the effect of summary dismissal are factors which place a heavy burden on the employer to justify dismissal without notice. The circumstances do not have to be exceptional, but nevertheless, must establish that the breach was of a serious nature.

(citations omitted).

His Honour continued on as follows to reject the proposition that an employer could only terminate a contract of employment where the conduct of the employee manifested “an intention not to perform the contractual obligations in the future”:

[251]    It was also submitted, on behalf of the plaintiff, that the right to terminate for misconduct ‘‘will only arise’’ where the employee has conducted himself in a way to demonstrate a repudiation of the contract, by, in a sense, manifesting an intention not to perform contractual obligations in the future.

[252]    I respectfully disagree that that is the only occasion when an employer may terminate summarily.

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

[254]    At common law, the authorities do establish that there is an interaction between the principles of contract law justifying rescission of a contract, and the rules established by the authorities over the last 150 years in relation to the type of misconduct justifying the dismissal of an employee without notice. It cannot be denied that in some cases, the courts do speak in terms of the basic principles of contract law … but in my opinion, it would be wrong to say, as was submitted on behalf of the plaintiff, that the right to terminate only exists where the conduct of the employee demonstrates repudiation of the contract, manifesting an intention not to perform the contractual obligations in the future. I do emphasise that many examples of conduct justifying termination would comfortably fit in with those principles. However, the authorities do establish that there are offences which justify dismissal but which would not, in themselves, show that the employee was intending not to perform contractual obligations in the future. There may be an example of a one-off serious act of misconduct which would justify dismissal, even though the probabilities were high that it would not occur again. This may be especially so when the employee is asked to explain his conduct, and shows remorse and gives an undertaking that the conduct will not occur in the future.

See also: Willis Australia Group Pty Ltd v Mitchell-Innes [2015] NSWCA 381 at [92] per Macfarlan JA.

26    In otherwise applying the decision in Rankin, in Willis Australia Group Services Pty Ltd v Mitchell-Innes [2015] NSWCA 381 Macfarlan JA observed:

[102]    It is clear however that something more is required than just serious misconduct. Both under the contract of employment and the general law, the circumstances must justify the employer taking a step that usually has very severe adverse consequences for the employee, both from a financial and reputational viewpoint. As Gillard J said in Rankin v Marine Power International Pty Ltd (see [92] above), the burden on the employer to justify summary dismissal is heavy.

Ward and Leeming JJA agreed with Macfarlan JA. See also: Avenia v Railway & Transport Health Fund Ltd [2017] FCA 859 at [256] to [259], (2017) 272 IR 151 at 213 per Lee J.

27    In Blyth Chemicals Limited v Bushnell (1933) 49 CLR 66 at 82, Dixon and McTiernan JJ voiced the following words of caution as to the care with which Courts should make such a finding of misconduct:

… But the conduct of the employee must itself involve the incompatibility, conflict, or impediment, or be destructive of confidence. An actual repugnance between his acts and his relationship must be found. It is not enough that ground for uneasiness as to its future conduct arises. …

Conduct in addition to that specified in the notice of termination

28    Albeit not specified in the December 2017 letter, the Additional Bases may be relied upon by the Respondents with respect to the summary termination: Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359. Starke J there concluded at 373:

… The fact that the appellant's misconduct was unknown to the respondent at the time of the termination of the agreement is quite immaterial. If there were, in fact, any circumstances in existence at the time of the termination of the agreement which could have justified the respondent in so terminating it, then it may justify the termination by subsequent proof of those circumstances...

(citations omitted).

Similarly, Dixon J concluded at 377 to 378:

… It is well established, however, that a servant's dismissal may be justified upon grounds on which his master did not act and of which he was unaware when he discharged him ….. It is true that the agreement between the appellant and the respondent does not amount to a contract of service. But the rule is of general application in the discharge of contract by breach, and enables a party to any simple contract who fails or refuses further to observe its stipulations to rely upon a breach of conditions, committed before he so failed or so refused, by the opposite party to the contract as operating to absolve him from the contract as from the time of such breach of condition whether he was aware of it or not when he himself failed or refused to perform the stipulations of the contract.

(citations omitted).

These conclusions were endorsed by Gleeson CJ, Gaudron and Gummow JJ in Concut Pty Ltd v Worrell [2000] HCA 64 at [27], (2000) 75 ALJR 312 at 318. Their Honours further observed:

[29] In this court, no attempt was made, and none would have succeeded, to deny the proposition of law expressed in Shepherd. The proposition that the dismissal of an employee may be justified upon grounds on which the employer did not act and of which the employer was unaware when the employee was discharged is but an application of what, in Shepherd, Dixon J identified as a rule of general application with respect to the discharge of contract by breach.

(citations omitted).

See also: Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 262 per Mason CJ.

THE WITNESSES

29    The factual background which gave rise to the December 2017 Decision involved, to some considerable extent, a divergence in the evidence relied upon by Mr Joseph and that relied upon by Parnell.

30    On behalf of Mr Joseph, the affidavits relied upon were the following:

    three affidavits from himself, being his affidavit dated 9 November 2018 and two affidavits dated 23 May 2019;

    Mr Greg Cotton, being dated 23 May 2019, employed by Parnell US from June 2016 to December 2016 as General Counsel and Vice President of Corporate Affairs;

    Ms Erika Vikor, being dated 23 May 2019, initially employed by Parnell as Executive Assistant to the CEO and CFO, and thereafter as Vice President of Human Resources from 2012 through to January 2017, when she took on the role of Vice President of Corporate Development; and

    Ms Kara Hokamp, being dated 15 May 2019, employed by Parnell US as a Marketing Associate.

Mr Cotton and Ms Hokamp were not required for cross-examination. Mr Joseph and Ms Erika Vikor were cross-examined.

31    On behalf of the Respondents, affidavits had been filed from:

    Dr Alan Bell, being three affidavits dated 30 November 2018, 22 February 2019 and 16 August 2019;

    Mr Nathan Orr, being dated 19 September 2019; and

    Ms Jennifer Lindsey, being two affidavits dated 9 November 2018 and 30 July 2019.

All of these witness were cross-examined. Mr Orr gave evidence and was cross-examined via video link to Kansas City.

32    The principal witnesses in the proceeding were Mr Joseph and Dr Bell.

Mr Joseph – an overall assessment of his evidence

33    Mr Joseph has worked in the pharmaceutical industry for about 20 years and was the Chief Executive Officer of the “Parnell group” of companies. He “established the US operations of Parnell undertaking drug discovery research, clinical trial, regulatory approval process and the successful commercialisation of multiple veterinary pharmaceutical products”.

34    Mr Joseph, it may be accepted, gave his evidence in what initially appeared to be a straight forward and confident manner.

35    But reason emerged during his cross-examination to occasion reservation as to the reliability of his evidence. There are, with respect, many reasons to question the reliability of his account of events, and many reasons to question his account (in particular) of the events in December 2015, when it is claimed that he inserted a syringe into the leg of Ms Lindsey. Without being exhaustive, these reasons include the following.

36    First, irrespective of any divergence in the evidence between Mr Joseph and Ms Lindsey as to what actually happened in respect to the Needle Incident, the approach taken by Mr Joseph to the identification of the issues to be resolved in this Court occasioned disquiet. This incident assumed importance by reason of the fact that it:

    was one of the four reasons relied upon to summarily dismiss Mr Joseph; and

    occasioned Ms Lindsey to commence proceedings in the United States, which were there settled by Parnell and formed part of the Amended Cross-Claim in the proceeding in this Court.

The importance of this incident can thus be assumed. At the outset of the hearing in this Court, an application was made on behalf of Mr Joseph to amend his Defence to the proposed Amended Cross-Claim. One of the amendments proposed to be made to the Defence included a statement that Ms Lindsey had made:

… an admission on oath during [her] deposition… to the effect that a clean needle had been administered with her consent …

37    Mr Joseph was aware of the substance of the proposed amendment. The deposition being referred to was a deposition given by Ms Lindsey in the proceeding she had commenced in the United States. But where in that deposition Ms Lindsey made any “admission” proved to be elusive. Having been given a copy of the deposition, Mr Joseph was invited overnight to review it and identify those parts which constituted the “admission”. The following morning he identified in excess of 40 pages where he said the “admission” could be found. Even on a very preliminary review of those pages, no such “admission” could be found. How Mr Joseph could endorse an amendment to a Defence being filed in this Court upon such an uncertain and misleading a basis occasioned disquiet and reservation as to the reliability of his evidence.

38    A second reason to question the reliability of Mr Joseph’s evidence also arose out of the Needle Incident. On many and repeated occasions a comparatively simple question was asked of Mr Joseph in cross-examination and a response provided which was anything other than an answer to the question. But one instance arose during the cross-examination as to how the pages he had identified in the deposition constituted “admissions”. Mr Joseph was asked:

And how does that go to an admission that a clean needle had been administered with her consent?

Although perhaps a question which was not susceptible to a short answer, the response provided was more in the nature of an advocate’s plea rather than an answer and occupied some 29 lines of transcript. An exchange then occurred between the Bench and Counsel in the absence of Mr Joseph as to concerns whether Mr Joseph was attempting to answer questions being put and whether he was being deliberately evasive. Counsel for Mr Joseph endorsed an approach whereby Mr Joseph was to be informed of these concerns. Mr Joseph returned to the witness box. The concerns were conveyed to him. Questions were thereafter put in cross-examination. The approach of Mr Joseph as to the manner in which he responded to questions did not alter. These concerns warrant a conclusion that Mr Joseph’s evidence in many respects should be viewed through the looking glass of an advocate advancing his case in the witness box rather than a witness attempting to provide simple answers to simple questions.

39    Third, in April 2016, Ms Tymeson commenced a proceeding in the Circuit Court of Jackson County, Missouri at Kansas City (the “Missouri Circuit Court”). The Defendants were named as Parnell US and Mr Joseph. On 1 November 2017, a deposition from Mr Joseph in those proceedings was sought. On 16 November 2017, there was filed in that Court a document titled “Defendants’ Suggestions In Support Of Their Expedited Motion For Protective Order” (the “Defendants’ Suggestions”). In that document, the Attorney for Parnell US asserted that the deposition was sought “because counsel [for Ms Tymeson] heard that Mr. Joseph’s employment with Parnell ended and that Mr. Joseph was permanently moving back to Australia in December”. The document further recited as follows:

… In response, defense counsel informed Ms Tymeson’s counsel that, as confirmed by Mr. Joseph himself, Mr. Joseph’s employment status with Parnell had not changed and that, while Mr. Joseph was planning to travel to Australia in December for the holidays, he did not plan a permanent move to Australia…

Thereafter, on 29 November 2017, a Motion For Sanctions (“Motion”) was filed on behalf of Ms Tymeson. That Motion recited (inter alia) a Notice of a General Meeting and Explanatory Memorandum issued to shareholders of Parnell US containing a statement that “[o]n 14 October 2017 formal notice was given to Mr Joseph terminating his employment as CEO of the Company…”. The Motion went on to state that the Defendants to that proceeding thus “knew about Mr. Joseph’s termination from Parnell, and the immediate suspension of his duties, more than one (1) month prior to the date they moved this Court for a protective order on November 16, 2017”.

40    Notwithstanding Mr Joseph’s attempts to put a different complexion upon the statement made in the response provided, it is concluded that he was well aware that his statement that his employment status had not changed was a statement being made to a Court having jurisdiction to resolve a claim made against him. Irrespective of whether or not Mr Joseph genuinely held the belief that the Notice of Termination “was invalid because the October Directors’ Meeting was improperly constituted and any resolution purportedly passed at that meeting was… of no effect”, the statement made to the Missouri Circuit Court was at the very least grossly misleading.

41    It is concluded that Mr Joseph’s evidence must be approached with a great deal of caution. His evidence, with respect, proved to be an unreliable source of information upon which facts could confidently be found.

Dr Bell

42    Dr Bell’s evidence had the hallmarks of careful attention to the questions being put in cross-examination and careful attention to the answers provided.

43    Dr Bell’s evidence was also characterised by a willingness to answer all questions, including those which may well have been perceived as being contrary to his interest.

44    His evidence is accepted without reservation.

THE REASONS FOR TERMINATION

45    The reasons for the December 2017 Decision to immediately terminate the employment of Mr Joseph are to be found in:

    the letter of termination dated 18 December 2017; and

    the two further reasons as identified in the Second Amended Defence, being the events surrounding Ms Tymeson (at para [33(b)(i) to (ix)]) and the Notice to Shareholders (at para [33(b)(x) to (xii)] of the Second Amended Defence).

46    In respect to the two bases upon which the Respondents initially seek to found their entitlement to summarily terminate Mr Joseph’s contract of employment, and as set out in the letter of termination dated 18 December 2017, it is concluded that:

    the conduct of Mr Joseph in respect to the US litigation cannot be relied upon;

but that:

    Mr Joseph’s conduct in relation to the Notice to Shareholders does make out a contractual right to summarily terminate his employment.

Albeit unnecessary to decide, it is nevertheless further concluded that a basis for the summary termination of Mr Joseph’s conduct has been made out in relation to both:

    the Needle Incident concerning Ms Lindsey; and/or

    the Gala Dinner in January 2016 and the subsequent conduct.

47    Again, each of these conclusions should be briefly addressed.

Conduct in relation to the US litigation

48    As stated in the December 2017 letter of termination, the conduct in relation to the US Litigation, which was one of the two reasons initially relied upon as the basis for immediately terminating the employment of Mr Joseph, centred upon the “instructions” he had given his American attorneys (Shook Hardy & Bacon) and the “assurances” he had provided in respect to a proceeding then pending in the Missouri Circuit Court. That proceeding was the one that had been commenced by Ms Tymeson against Mr Joseph and “companies in the Parnell group”.

49    The central focus of attention upon the “instructions” given by Mr Joseph is self-evident from that part of the December 2017 letter addressing his “…conduct in relation to the US litigation”, namely the following:

…

4.    We refer to the claims that have been brought against you and against companies in the Parnell group by Jennifer Tymeson in the Missouri Circuit Court (Tymeson claim) and by Jennifer Lindsey in the Kansas Federal District Court (Lindsey claims), in which the firm Shook Hardy & Bacon (SHB) has acted for you and for Parnell.

5.    The Board has become aware that:

a.    On 1 November 2017, Ms Tymeson’s counsel served a Notice of Videotaped Deposition requiring that you attend to give a deposition on 20 November 2017. The explanation given for the decision to issue the Notice was that they had heard that you had been dismissed from your employment with Parnell and that you planned to leave the country in December.

b.    You instructed SHB to assure Ms Tymeson’s counsel and the Court that your employment status had not changed and that the information relied on by Ms Tymeson’s counsel was untrue.

c.    On 16 November 2017 SHB filed a Defendants’ Expedited Motion for Protective Order supported by Defendants’ Suggestions in Support of their Expedited Motion for Protective Order, in which they conveyed your assurances that:

(i)    the information relied on by Ms Tymeson’s counsel was not accurate;

(ii)    your employment status with Parnell had not changed; and

(iii)    you had no plans to permanently move back to Australia in December.

6.    On 29 November 2017 Ms Tyson’s counsel filed a Plaintiff’s Motion for Sanctions, asserting that you and Parnell CS US had misrepresented your employment status to Ms Tymeson and to the Court in contumacious disregard for the authority of the Court. The motion seeks orders:

a.    striking your separate pleadings and entering judgment against you in all respects, and awarding Ms Tymeson certain legal costs; and

b.    granting Ms Tymeson an evidentiary hearing to further explore the necessity of taking your deposition immediately.

7.    At the time you instructed SHB to convey to Ms Tymeson’s counsel and to the Court your assurances that there had been no change in your employment status, you were aware that notice of the termination of your employment had been given by the Board’s letter dated 14 October 2017. The assurances you instructed SHB to give to Ms Tymeson’s counsel and the Court were therefore each either false or misleading, and you knew this to be the case. Your conduct in this regard was appalling, and amounts to serious misconduct in breach of your Contract and your US Contract.

The letter thereafter went on to state that Mr Joseph’s conduct “…caused serious detriment to Parnell’s interests”.

50    The basis upon which the December 2017 letter claimed that Mr Joseph had given the law firm Shook Hardy & Bacon the “instructions” referred to in para 5(b) of that letter and the “assurances” referred to in paras 5(c) and 7 of that letter was the statement attributed to Mr Joseph and which has been found to be grossly misleading. It was the statement that:

… In response, defense counsel informed Ms. Tymeson’s counsel that, as confirmed by Mr. Joseph himself, Mr. Joseph’s employment status with Parnell had not changed and that, while Mr. Joseph was planning to travel to Australia in December for the holidays, he did not plan a permanent move to Australia.

51    Counsel for Mr Joseph sought to resist a finding that his “conduct in relation to the US litigation” constituted misconduct on two principal grounds, namely:

    it was not false or misleading to state that his “employment status with Parnell had not changed”; and/or

    there was no satisfactory evidence that Mr Joseph had in fact given the “instructions” to Shook Hardy & Bacon or provided the “assurances” as stated in the December 2017 letter.

Each limb of the arguments being advanced by Mr Joseph should be separately considered, although the arguments to some extent overlapped.

52    As to the former basis, the argument advanced on behalf of Mr Joseph was that the October 2017 termination of employment was either invalid or – even if valid – only operated to bring his employment to an end six months thereafter, namely on 14 April 2018. As at November 2017, so the argument ran, Mr Joseph remained “employed” and was an “employee”. Irrespective of how those arguments may be resolved, it remained grossly misleading, to give any instructions that Mr Joseph’s “employment status with Parnell had not changed”. Even if it were to be concluded that the decision was invalid, it would be grossly misleading to state that the employment “status had not changed” in circumstances where an employee unequivocally knows that the employer wishes to bring his employment to an end.

53    As to the latter argument, considerable hesitation would be experienced in making any finding that the American attorneys representing Mr Joseph deliberately made a false statement to the Missouri Circuit Court. The same hesitation would be experienced in concluding that the American attorneys were not accurately stating to the Missouri Circuit Court the “instructions” they had been given and the “assurances” provided by Mr Joseph. That hesitation is only heightened when reference is made to the statement that “as confirmed by Mr. Joseph himself…”.

54    The two limbs of the argument overlapped to the extent that much depended upon the instructions being given by Mr Joseph to the American attorneys in respect to his “employment status”. Counsel for Parnell submitted that the Court should approach the resolution of this question upon the basis that what one lawyer was telling another and as recorded in a Court document should be accepted as accurately reflecting the instructions given. In the absence of any reason for doubt, it may readily be accepted that statements made on instructions to a superior court were accurately conveyed.

55    The lawyer who “confirmed” his instructions from Mr Joseph, however, was not called to give evidence.

56    And the nature of the instructions given by Mr Joseph to his American attorneys was explored in his cross-examination. That cross-examination exposed Mr Joseph as a person who was certainly “economical with the truth” when it came to providing instructions. Although there remained a question as to what precisely was the nature of the instructions given, what can be gleaned from the evidence is that the instructions provided were grossly misleading. The context in which the instructions were being conveyed was one in which Ms Tymeson believed that Mr Joseph’s employment had been terminated and he was about to leave the country. In that context, what Mr Joseph was instructing his lawyers – on his account – is exposed by the following exchange during his cross-examination in the present proceeding:

Do you see that? All right. And you gave instructions to Ms Page or, at least, Shook Hardy Bacon to that effect?––I gave some very specific instructions to Ms Page.

And it was to the effect, wasn’t it, that you had not been dismissed from your employment with Parnell?––No. I chose some very specific words in the instructions I gave her.

And what were they?––That my employment had not been terminated because under the advice of my lawyers, I hadn’t been terminated.

All right. So your very specific instructions were your employment had not been terminated. Is that right?––They were the specific instructions that I gave Ms Page that she did not follow.

Mr Joseph was then taken to that part of the Defendants’ Suggestions which recorded that “defense counsel [had] informed Ms. Tymeson’s counsel that, as confirmed by Mr. Joseph himself, Mr. Joseph’s employment status with Parnell had not changed”. The cross-examination then continued as follows:

And that was your instruction to Shook Hardy Bacon, wasn’t it?––Absolutely not.

Did you see this document before it was filed?––No. I did not.

And you’re suggesting, are you, that they misunderstood your instruction that employment – your employment had not been terminated to state your employment status with Parnell had not changed?––They filed these documents without my consent or review, and they were directly, unfortunately, contradicted the advice that I gave them which was advice I had been given by my lawyers of how to respond to it.

Do you – you seriously assert that, do you?––Absolutely. Yes.

Right. And when you say that you told Shook Hardy Bacon that your employment had not been terminated, did you tell them, “I’ve received notice that my employment is terminated in six months’ time, but I’ve got some advice from my lawyers which suggest that it’s not valid”? Did you tell them that?––No, I didn’t.

…

Mr Joseph, sitting here now, do you agree that you should have told your lawyers that your – you had been given six months’ notice, but that you had had advice from your Australian lawyers that that was not valid?––No.

Do you think that you should have told them that if, for no other reason, than that – they were acting for both you and the company at that time?––I acted upon the advice that I was given by my lawyers.

No. I’m asking a different question. At this time, Shook Hardy Bacon was still acting for you and Parnell, weren’t they?––Yes.

And you hadn’t told them that you were no longer CEO, did you?––I didn’t agree with that statement.

I’m asking you: you had no longer told them that, had you?––Had I told them that I was no longer CEO? No. I had not.

You – and you had not even told them that the company had tried to no longer make you CEO?––No.

…

So when they come to you with this motion for videotaped deposition, and they say, “It’s put on the basis there’s a rumour that your employment is terminated and you’re going back to Australia”, you just tell them, “No. That’s not right. My employment has not been terminated. And I’m not going back to Australia”. Is that right?––No. I think I did more than just that.

Well, you didn’t tell them, did you, “The company has tried to terminate me, and I’m fighting them,” did you?––I didn’t use those words.

Did you convey anything of that nature?––I believe the instructions that I gave Shook Hardy Bacon were relevant to the request of the deposition.

HIS HONOUR: Well, that’s not an answer to the question, Mr Joseph?––My apologies.

Can you put the question again, please.

MR BARNETT: Did you convey to Shook Hardy Bacon the notion – the concept that the company had tried to terminate your position as CEO but that you were resisting that attempt?––No.

All right. And so do you agree with me when I say you let – if you didn’t expressly instruct it, you at least let lawyers for you and the company file a document which made a false assertion in it?––No. I did not.

And it made an assertion which was – if not outright false, was at least incomplete. Do you agree with that, or not?––No.

And do you agree that, in doing that, you exposed the company to a potential for sanctions, whether those sanctions eventuated or not?––No.

This exchange exposes Mr Joseph as giving – at the very least – very incomplete instructions to his lawyers in respect to the proceedings commenced by Ms Tymeson. The exchange, moreover, only further supports the considerable reservation that has been expressed as to the reliability of Mr Joseph’s evidence and his credibility more generally.

57    But the focus of the 18 December 2017 letter, and as expressly stated at paras 5(b), 5(c) of that letter, was upon the “instructions” that his “employment status with Parnell had not changed…” and the “assurances” being provided. Although an inference may readily and properly be drawn that the American attorneys were competently and honestly stating what they understood their instructions to be, no finding can be made that Mr Joseph in fact gave those “instructions” or provided those “assurances”. And that is so notwithstanding the considerable reservations as have been expressed in respect to Mr Joseph’s evidence. The standard of proof to be applied is that set forth in Briginshaw v Briginshaw (1938) 60 CLR 336 at 362. Dixon J there relevantly concluded:

… But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters “reasonable satisfaction” should not be produced by inexact proofs, indefinite testimony, or indirect inferences…

Whatever other criticism may be directed at the instructions given by Mr Joseph to his American attorneys, it is concluded that the “instructions” and the “assurances” relied upon in the December 2017 termination letter have not been made out. In the absence of the American attorney being called to give evidence as to the instructions in fact given to him by Mr Joseph, and in the face of Mr Joseph’s evidence as to what he maintains were the “instructions” provided, a finding contrary to that made would be one based upon “inexact proofs, indefinite testimony, or indirect inferences…”.

58    This conclusion, it should further be noted, is one dictated by a fair reading of the basis for termination as expressed in the December 2017 letter. A differently expressed reason for termination, perhaps in terms of Mr Joseph having given incomplete and misleading (as opposed to “false or misleading”) instructions to his American attorneys, was not a reason relied upon for summary termination.

59    Attention should thus be shifted to the second of the two reasons for summary termination as expressed in that letter.

Conduct in relation to the Notice to Shareholders

60    The second of the two reasons relied upon in the December 2017 letter arose out of a Notice to Shareholders (the “Notice”) issued by Mr Joseph on 15 December 2017.

61    Albeit lengthy, it is necessary to set forth the following extracts from that Notice:

Notice to Shareholders of Parnell Pharmaceuticals Holdings, Ltd regarding Extraordinary General Meeting

Sydney, Australia / PR NEWSWIRE / December 15, 2017 / Parnell Pharmaceuticals Holdings Ltd. (OCT PINK:PARNF) company Director, Robert Joseph is providing this Notice to shareholders for consideration in advance of voting at the Extraordinary General Meeting called for Friday, 29th December 2017, at 9:00am (Australian Eastern Standard Time).

1.    In the last 12 months, Company executives have pursued multiple deals, the most important, and the most desirable, of which are:

(a)    Zydax for human use (being the licensing of the Zydax patent rights to interested human pharmaceutical companies). This deal would result in the Company receiving several million dollars in upfront and milestone payments, and potentially tens of millions of dollars in royalties for a period of up to twenty years if Zydax is approved as a generic of an existing human drug, Elmiron® in the USA.

(b)    The second deal involves the Company turning over the commercial distribution for its Reproductive Hormones in the US and other countries to interested multi-national veterinary pharmaceutical companies. The Company in return would receive a multi-million dollar upfront payment, and would continue to manufacture the hormone products thereby generating a gross profit that would be at least equivalent to that currently being earned from this business unit. Most significantly, the deal would enable the Company to eliminate the costs of its US operations, which are presently estimated to be costing $6 million per annum. This deal may also result in the future outright sale of the hormone assets potentially delivering tens of millions of dollars.

2.    These two deals have now been negotiated, and are ready for acceptance. In doing so, the Company would essentially become a specialty contract manufacturing company with potential for significant revenue growth. This restructure would also increase profits by millions of dollars each year providing a pathway for the Company to pay out its current debt which starts to amortise in the first quarter of 2019. The Company may then be in a position to commence paying substantial dividends to its shareholders.

Furthermore, given the significant reduction in the size of the company if the two deals are consummated, I have already indicated that if it was in the best interest of shareholders, I would be more than happy to step down as CEO to enable costs savings. I have however also stated my belief that the desired growth of the contract manufacturing business is likely to be beyond the capacity of Brad McCarthy acting as COO of Manufacturing in this pursuit.

3.    In September 2017, my fellow directors Alan Bell and Brad McCarthy, abruptly informed me of their preferred strategy which was to leave the Company (and therefore its current shareholders) owning only the Zydax asset, and to split off the Company’s remaining assets (Reproductive Hormones and Manufacturing Facility) to a new company, which would be owned only by them, for virtually no consideration (they suggested their new Company would take on Parnell’s current debt obligations). I firmly rejected their proposal as being clearly detrimental to shareholders’ interests.

4.    Since my dispute arose with Mr Bell and Mr McCarthy they are now stating to employees that they wish to take the risk of continuing to commercialise the Company’s products in the USA (requiring an increase in expenditure). However, they have given no indication as to how they would realistically achieve this and have refused to release any financial information to shareholders about the performance of the Company; such releases having been customary practice each quarter since the Company’s IPO. Of equal concern is the fact that they have also continually sought to withhold information from me as Director, and to obstruct me from undertaking my legal obligations.

5.    I have sought to resolve this dispute privately, and in the best interests of all stakeholders for two months but to no avail. It has now become a public matter as a result of Mr Bell’s decision to announce a shareholders meeting. I am therefore compelled to provide shareholders with complete information to enable an informed choice when voting at the upcoming meeting.

6.    My strategy for the Company involves accepting the two pending deals, closing US Operations to make substantial cost savings, and seeking to grow the Contract Manufacturing Operations.

7.    The response from my fellow directors was to attempt to remove me as a director and CEO of the Company. Many of the steps taken by them are likely to be invalid as they have involved breaches of one or more of; the Australian Corporations Act, the Company constitution (the equivalent of US articles of association) and the Bondholders Agreement (which governs the Company’s relation with its debt holders).

8.    Mr Bell and Mr McCarthy have articulated no clear alternative strategy for the Company, other than to split it, or continue to invest in the current, loss making business model. I believe that the above mentioned deals are needed to see shareholders rewarded in the short term, and to enable the company to pay off its debts. Also, I see the company split envisaged by Mr Bell and Mr McCarthy as extremely harmful to shareholder interests.

9.    I believe urgent change is needed to the Company’s corporate governance structure through the appointment of three or more, fully independent directors to ensure Bell and McCarthy cannot unilaterally act in a manner that is not in the best interests of shareholders.

If you vote AGAINST the resolution and retain me as a director, I shall be in a position to press for the acceptance of the two deals, and call a general meeting to resolve on the removal of Mr Bell as a director, and the appointment of three independent directors.

You received documents in the mail from your brokerage firm that explains how to direct them to vote your shares (For or Against). You can make your election on how to vote your shares online at xxx.xxx.xxx. You will need your Control Number which is specified on the documents you received from your broker. You can vote or change your vote anytime until the day before the meeting.

For further information email: xxxxxxxx@xxxxxxx.com

(header, footer and contact details omitted)

It was common ground that the reference in para 1(a) of this Notice to the Zydax “deal” was a reference to the steps taken by Mylan N.V. (“Mylan”) to licence that product; the reference in para 1(b) of the Notice was a reference to steps taken by Boehringer Ingelheim to secure the use of other products.

62    The 18 December 2017 letter of termination expressly referred to this Notice and went on to provide as follows:

10.    In summary, your press release:

a.    in breach of clause 15 of your Contract and your US Contract, discloses confidential information of Parnell, of which you have knowledge by reason of your position as a director and employee of Parnell, about the licensing of product rights and IP rights related to Zydax for human use;

b.    in breach of clause 15 of your Contract and your US Contract, discloses confidential information of Parnell, of which you have knowledge by reason of your position as a director and employee of Parnell, about the negotiation of commercial distribution rights for Reproductive Hormones;

c.    in breach of clause 15 of your Contract and your US Contract, discloses confidential information of Parnell, of which you have knowledge by reason of your position as a director and employee of Parnell, about communications between the Board of Directors and employees;

d.    wrongly asserts, in relation to the Zydax patent rights for human use and the commercial distribution rights for Reproductive hormones, that “two deals have now been negotiated, and are ready for acceptance”;

e.    wrongly asserts that the desired growth of Parnell’s contract manufacturing business is likely to be beyond the capacity of Brad McCarthy acting as COO of Manufacturing;

f.    wrongly asserts that the preferred strategy of Alan Bell and Brad McCarthy as directors of Parnell was to split off all the Company’s assets other than Zydax for virtually no consideration to a new company to be owned solely by them;

g.    wrongly asserts that Alan Bell and Brad McCarthy as directors of Parnell have withheld information from shareholders and have sought to withhold information from you as a director;

h.    wrongly asserts that Alan Bell and Brad McCarthy as directors of Parnell have sought to obstruct you from undertaking your legal obligations;

i.    wrongly asserts that the Board of Parnell has engaged in conduct that involved breaches of the Corporations Act 2001 (Cth) (Corporations Act), the Parnell constitution, and the bondholders agreement; and

j.    wrongly asserts that the Board of Parnell has articulated (and impliedly has) no strategy for Parnell except to split off all the Company’s assets (other than Zydax) for virtually no consideration, or alternatively to manage Parnell’s business according to a loss-making model.

11.    The disclosures of confidential information referred to in paragraphs 10.a, 10.b and 10.c above are likely to cause significant detriment to Parnell by reason that they relate to commercially sensitive aspects of Parnell’s strategic direction and commercial activities.

12.    The assertions identified in paragraphs 10.d to 10.j above:

a.    are false and misleading;

b.    impute improper motives and unlawful conduct to Mr Bell and Mr McCarthy;

c.    are disparaging to the Board and to Parnell; and

d.    are likely to cause significant detriment to Parnell, including by undermining shareholder confidence in the integrity of the Board and the soundness of Parnell’s strategic direction.

63    There can, with respect, be little doubt that the Notice to Shareholders disclosed confidential information and that such disclosure was contrary to cl 15 of the Australian contract. It was also contrary to cl 15 of the American contract, which was in identical terms.

64    In Gooley v Westpac Banking Corporation (1995) 129 ALR 628 at 637-638 Wilcox CJ sitting as the Chief Justice of the Industrial Relations Court considered whether information was “confidential” as that term had been used in the context of Westpac’s code of practice. In doing so, his Honour observed:

The nature of the disclosed information

It is clear that the three page document was confidential, in the sense that it had never been made public. In the words of Lord Greene MR in Saltman Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3 All ER 413 at 415 it was not “something which is public property and public knowledge”. But was it confidential in the sense used in the relevant passage in Westpac’s code of conduct, as alleged by the bank? That passage reads:

The principle of “confidentiality” underlies all functions of the group’s activities, and employees should treat the business affairs of Westpac, its customers and fellow employees, with absolute secrecy. This principle applies equally to ex-employees in relation to confidential information acquired during employment with Westpac.

Obviously, the principle referred to in this passage is not violated by an employee passing to an outsider a document already in the public domain or intended for public information; for example, a sales brochure or schedule of foreign exchange trading rates. Equally obviously, the converse is not true. The principle of confidentiality is not contravened simply because the relevant document is still within the private arena; that is, it is not “public property and public knowledge”. For example, a Westpac employee does not breach the principle by communicating with a customer about that customer’s own affairs or by revealing information about Westpac’s business affairs to a Westpac adviser or pursuant to a legal obligation. Another example is where it is necessary for the employee to disclose information about Westpac's financial affairs in order to progress negotiations with an outsider for a transaction believed to benefit Westpac. In order to determine whether or not an employee has breached the principle of confidentiality mentioned in the code of conduct, it is necessary to consider, not only the nature of the disclosed information, but also the circumstances of its disclosure.

65    There can, with respect, be little doubt that the information disclosed was both what the common law would regard as “confidential information” and information which was known by Mr Joseph to not be publicly available.

66    The state of play as at December 2017 was that on 16 November 2017 Mylan had sent a letter to Ms Vikor. The letter was headed “Strictly Confidential”, and commenced with the statement that Mylan was “pleased to submit a non-binding proposal”. The “proposal” was to enter into a license agreement with Parnell Pharmaceutical Holdings Ltd in respect to a named product. The letter further stated that that the “proposal” was “based on the limited information available to [Mylan] to date” and that “Material Conditions” were the “negotiation, execution and delivery… of a definitive agreement”. A further “Material Condition” was “Mylan’s satisfactory completion of its due diligence investigations with respect to the Proposed Transaction”. The provision with respect to the completion of due diligence was stated to be a “condition precedent to closing as identified in the Definitive Agreements”.

67    There had been no prior disclosure of the contents of that letter other than to persons within the Parnell Group, including Mr Joseph.

68    Counsel for Mr Joseph failed to establish a factual foundation for a submission that the information was not confidential. Although as stated by Mr Joseph in an email dated 29 November 2017 that “shareholders best interests will now be served”, his position in the company did not confer any licence to disclose that which his contracts of employment provided should remain confidential.

69    Suggestions, for example, that Dr Bell had discussions with a shareholder (Mr John Blockie) prior to 15 December 2017 as to “the existence of the Mylan deal and the Boehringer Ingelheim deal” were rejected. Similarly rejected was the proposition that Dr Bell “spoke about the Mylan deal and/or the Boehringer Ingelheim deal” with Mr Gerrett Parker prior to 15 December 2017.

70    Although Dr Bell accepted in cross-examination that he did not take steps to actively inform Mr Joseph that the deals remained confidential, and took no steps to “disavow Mr Joseph of his view that those two deals were ready for acceptance”, the failure to take such steps did not strip knowledge of the negotiations of its confidentiality.

71    This, of itself, would be a sufficient basis for concluding that Mr Joseph had engaged in “misconduct” within the meaning of cl 18.3(a) of his contracts. The disclosure of the information involved “a repudiation of … essential obligations under the contract”, was “destructive of the confidence between employer and employee” and “repugnant to the relationship of employer-employee”: cf. Rankin [2001] VSC 150 at [239] and [250], (2001) 107 IR at 141 and 142 per Gillard J.

72    That conclusion is only reinforced when attention is focussed upon the statements in the Notice that:

    these “two deals have now been negotiated, and are ready for acceptance”;

    Messrs Bell and McCarthy had “[withheld] information from me as Director”; and

    Mr Joseph felt “compelled to provide shareholders with complete information to enable an informed choice when voting at the upcoming meeting”.

These statements are “false and misleading” as stated in para 12(a) of the December 2017 termination letter.

73    As to the first of these matters, it is misleading (for example) to state that the Mylan deal was “ready for acceptance” given the qualifications expressed in the 16 November 2017 Mylan letter and the express identification of “Material Conditions” and one being “satisfaction of conditions precedent”. As to whether that deal was “ready for acceptance”, there was the following exchange with Mr Joseph during his cross-examination as to what that deal was:

So do you say that – so what is the deal that’s ready for acceptance?––That Mylan was seeking to pursue the licensing of Zydax for human use from Parnell.

So it is the deal that Mylan can do some due diligence and come up with – negotiate with the company and draft a formal document. Is that the deal that’s ready for acceptance?––With respect, I absolutely am referring to that deal being what was stated in Mylan which is a very valuable document.     

And is an answer to my question yes or no?––I – sorry. Was it a yes or no question?

Is that the deal? When you say in here there’s a deal …?––Yes.

… that’s being negotiated and ready for acceptance, that deal is a proposal by Mylan to carry out some due diligence, and then if that’s satisfactory, to negotiate with the company a formal document?––I don’t agree with what you’ve just said. I am referring to the entire deal sheet, not just the words that you’ve said.

The entire deal sheet. Is that something different from the letter from Mylan that we saw?––The entire letter.

All right. Well, we went through the entire letter, didn’t we?––No. You – we went through aspects of it.     

And you agreed with me at the end of going through that letter that it did not represent an offer which was capable of immediate acceptance, didn’t you?––It did. It represented an offer to enter into due diligence which is a very specific and valuable component of business development deal making.

74    The “deal” identified in the Notice to Shareholders which was “ready for acceptance” was identified as a deal in respect to “Zydax for human use” and it was “this deal [which] would result in the Company receiving several million dollars up front…”. There was no such “deal”. The attempt to re-characterise the “deal” during cross-examination as an “offer to enter into due diligence” should be rejected. This attempt on the part of Mr Joseph, moreover, only provides further reason to question the reliability of his evidence more broadly.

75    There is also difficulty in accepting as anything other than misleading the statement that Messrs Bell and McCarthy had “[withheld] information from me as Director”. The only request for information in evidence was an email request made by Mr Joseph to Dr Bell on 15 November 2017. That e-mail requested 19 categories of information. A response was provided on 24 November 2017 attaching “current [c]ompany information reasonably available at this time”. The information provided was extensive. More importantly, there was in evidence no further request for information or any email suggesting that the information provided was not a satisfactory response to the request made.

76    Irrespective of whether the information in para [1] of the Notice to Shareholders was confidential information, it was “false and misleading” to make the statement that Messrs Bell and McCarthy had withheld information from Mr Joseph.

77    It was also false and misleading to make the statement that Mr Joseph felt “compelled to provide shareholders with complete information to enable an informed choice when voting at the upcoming meeting”. What was false and misleading about that statement was the very fact that the information being provided to shareholders in the Notice was itself far from “complete”.

78    With reference to what was stated in the Notice as being the “preferred strategy” of Dr Bell and Mr McCarthy, the statements in the Notice, for example at para [3], were far from complete. A proposal to “split the company” in two was in fact discussed at a meeting held on 25 September 2017. Indeed, from the content of an email forwarded by Mr Joseph to Ms Vikor on that day it would seem that it was a lively discussion. Mr Joseph referred to it being an “interesting day” with “Brad and Alan dancing around the subject…”. But at least two things should be noted. First, that this was not the “preferred strategy”. When asked about this proposal, Dr Bell explained his position in cross-examination as follows:

Now, I put it to you, Dr Bell, in a meeting on around 25 September 2017, that you, in fact, put a proposal that would involve splitting the company in two and leaving one company only owning the Zydax asset and to split off the company’s remaining assets. That’s what you said, isn’t it? That was the strategy that you put to Mr Joseph and Mr McCarthy on around 25 September 2017; that’s right?––It was not a preferred strategy.

It was a proposal or a strategy, however described, wasn’t it?––It was for consideration.

And that was put forward by you; that’s right?––Yes. Yes.

And Mr Joseph disagreed with that proposal; that’s right?––Yes.

This evidence of Dr Bell is accepted. It was thus simply wrong for Mr Joseph to present to the shareholders the proposal as being the “preferred strategy”. And, second, what was told to shareholders was – in any event – far from complete. An email forwarded from Dr Bell to Mr Joseph and copied in to Mr McCarthy stated:

After deliberating overnight on yesterday’s protracted discussions I have drafted what I believe to be an outline plan that best serves the Company.

Please read through it and form your thoughts so we can discuss today. Let me know when you are ready to get together.

The proposal outlined did not contain any proposal to strip assets out of one company and create another. When asked about his statement at para [3] in the Notice, Mr Joseph gave the following account:

You refer to your fellow directors in September abruptly informing you of their preferred strategy which was to leave the company owning only Zydax and to split off the remaining assets to a new company which would be owned by them for virtually no consideration, and you say in parenthetical they suggested that their new company would take on Parnell’s current debt obligations, close bracket. You see that?––Yes, I can.

And you didn’t say there, “But they put a different proposal the next day which didn’t involve anything along those lines”, did you?––No. I didn’t say that.

You didn’t think that in fairness, at least, you should raise that?––Absolutely not.

Contrary to the denial of Mr Joseph, the Notice as drafted in this respect was intended to “scare” the shareholders.

79    These further findings in respect to the Notice to Shareholders only reinforce the conclusion that the reliance upon the second of the two bases for termination as identified in the 18 December 2017 letter was well-founded.

80    The Notice to Shareholders was also “disparaging to the Board and to Parnell”, as alleged in para 12(c) of the letter of termination. Between February 2011 and December 2017 the Board comprised Mr Joseph, Dr Bell and Mr Brad McCarthy. It was disparaging to Dr Bell and Mr McCarthy to suggest that their “preferred strategy… was to split off all the Company’s assets other than Zydax for virtually no consideration to be owned solely by them”, as stated in para 10(f) of the letter. The disparaging nature of the Notice was only reinforced when regard is had to the further statement in the Notice that the “preferred strategy” would involve setting up a new company “which would be owned only by them, for virtually no consideration…”.

81    The findings in the December 2017 termination letter that the Notice issued by Mr Joseph disclosed confidential information was:

     “false and misleading”; and

    “disparaging” to the Board

are a sufficient basis upon which to conclude that his conduct in this respect was “misconduct” within the meaning of cl 18.3(a) of his contracts of employment.

The Lindsey syringe

82    What was self-evident from the outset was that there was a significantly different account of the events in December 2015 as recounted by:

    Ms Lindsey;

and the account put forward by:

    Mr Joseph.

83    Although it has not proved easy to resolve this difference, it is ultimately concluded that the essential elements of the account given by Ms Lindsey should prevail. Even though her account involved making a serious allegation of what could otherwise be described as an assault, it has been concluded that the Court can be satisfactorily persuaded that the events occurred substantially as recounted by Ms Lindsey: Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-363 per Dixon J.

84    Ms Lindsey commenced employment with Parnell US in June 2015. She was employed as the Vice President of Global Marketing. She has an elderly Australian Shepherd dog, Yogi.

85    On her account, in December 2015 she had brought her dog to work. Mr Joseph observed the dog and observed “Oh yeah, he’s got osteoarthritis”. Conversations followed with another employee (Ms Karen Greenwood) about including the dog in a clinical trial for a drug called Zydax. Mr Joseph said to Ms Lindsey words to the effect:

“Jen, don’t do that [being a reference to entering Yogi into the Zydax clinical trial], Yogi could get the placebo, meaning that he may not receive the medication at all. I have some Zydax in my office. Just go to the pharmacy and get some syringes and I will show you how to inject Yogi. I will give him the first injection and you can give him the other three.”

Ms Lindsey went and bought the syringes and brought them to Mr Joseph’s office in December, possibly 18 December, 2015.

86    On her account, Mr Joseph then loaded one of the syringes with “the contents of a vial” which Ms Lindsey assumed to be Zydax and injected the dog. Mr Joseph then said:

“You just pull the scruff of the neck up and put the needle in, push the plunger and you are done”.

Ms Lindsey then said words to the effect of:

“Oh my gosh he did not even flinch, it did not seem to hurt him at all”.

Mr Joseph responded:

“Well of course not”.

87    Ms Lindsey then maintains that “Mr Joseph then suddenly, without warning, stabbed me in my upper left thigh, through my jeans, with the same needle he had just used to inject” the dog. Mr Joseph then said:

“See, you did not feel a thing.”

88    Ms Lindsey then commenced a proceeding in the United States and in April 2018 Parnell US paid US$295,000 in settlement.

89    Mr Joseph maintains that the “events and words [Ms Lindsay] attributes to me did not occur”. Mr Joseph maintains that he and Ms Lindsey had a conversation in early December 2015 in which he informed her that she was “entitled to the Company’s products for free” and that if she brought the dog in he could show her how to inject the dog at home, or he could inject the dog at work. Relevantly, on Mr Joseph’s account the following exchange took place after he had injected the dog:

Mr Joseph maintains that he then “swivelled back to face [his] desk and re-sheathed the used syringe”. That syringe was then wrapped in tissue and placed in a rubbish bin. He then took a “new needle from the packet Ms Lindsey had brought”. That process took less than one minute. He then approached Ms Lindsey with the second needle and told her what he was about to do. Mr Joseph maintains that Ms Lindsey did not move away from him. He then maintains that he “used the new needle to gently prick Ms Lindsey through her jeans, possibly in her right thigh as that was closest to me” and said:

“See that didn’t hurt at all.”

She replied:

“Oh no that didn’t hurt at all.”

Mr Joseph then maintains that they “continued to discuss the injection technique and dosing regime for her dog for several more minutes”.

90    In resisting the Court’s acceptance of the account given by Ms Lindsey, Counsel for Mr Joseph successfully established in cross-examination that Ms Lindsey could not recall much of what happened during the incident in Mr Joseph’s office. Ms Lindsey could thus not recall a number of matters, including (for example) which hand she used to hold the dog or which direction the dog was facing. Her failure to recall such details provided reason for caution before accepting her evidence as to Mr Joseph inserting the syringe into her leg without her consent. Her evidence on this central element of the incident, however, is accepted because:

    Ms Lindsey presented as a witness concerned to give her account of the events without embellishment and as a witness prepared to readily accept those details which she could not recall; and

    whatever other lack of recall she had in respect to some matters, there is every reason to accept that she could clearly recall the significant matter – namely, the syringe being inserted.

91    Counsel for Mr Joseph also sought to resist the Court accepting Ms Lindsey’s account of the incident by reason of (for example) her failure to make a complaint and her real reason for dissatisfaction with Mr Joseph being a poor performance review he had given her.

92    Notwithstanding the conflict in the evidence as to the accounts given by Ms Lindsey and Mr Joseph, it is concluded that the account given by Ms Lindsey should prevail. The events as described by her in fact took place as she described. Mr Joseph’s account is rejected.

93    Albeit a matter which should not assume disproportionate significance was the evidence given by Mr Joseph as to the manner in which Zydax was being marketed in Australia. During his cross-examination, there were the following two exchanges:

If you owned a drug in Australia in December 2015, could you buy Zydax without a prescription from a vet?––An individual could not.

Right. And the drug was marketed by Parnell in Australia in 2015 to be used, injected, by vets. Correct?––To be sold on prescription by a vet. It could be injected by an owner.

You say injected by an owner, do you?––Correct.

That’s not correct, is it?––Yes. It is correct.

It was sold to be injected …?––It …

… by a vet, wasn’t it?––It can only be sold to an individual under a prescription. It was common practice for veterinarians to give the drug to the owner to inject their dogs at home.

A couple of questions later there was also the following exchange:

All right. And you understand I’m not asking you what the common practice was. I’m asking you what Parnell’s marketing was. They marketed the drug on the basis it was for use by vets, didn’t they?––Our sales representatives and our marketing promotional material often referred to the convenience factor of allowing owners to inject their dogs at home. It is not illegal to do that.

The following day an Australian marketing brochure published in September 2015 was shown to Mr Joseph. Part of that brochure was the following:

The cross-examiner took Mr Joseph’s attention back to the earlier evidence he had given and there was the following exchange:

Now, Mr Joseph, do you remember yesterday I was asking you some questions about Parnell’s marketing of Zydax in December of 2015. Do you remember that?––I do.

And I asked you whether Parnell marketed Zydax in Australia because that was the only country it was approved for use in on the basis it would be administered by a vet. Do you recall that?––I do.

And you denied that proposition; correct?––I did.

And do you still deny it?––I do.

The brochure was then shown to Mr Joseph and there was the following exchange:

And if you turn to the second side up the top right-hand side, do you see the statement at the very top:

If Zydax is right for your dog, your veterinarian will administer treatment in a course of weekly injections over four weeks.

Do you see that?––I do.

Do you want to revise your answer about the way in which Zydax was marketed by the company?––You asked me whether it was administered. How it was marketed is a different answer.

I asked you whether Parnell marketed Zydax on the basis it would be administered by a vet, and you denied that proposition. I’m asking you: do you want to revise your answer?––No. I do not. I stand by the answer I gave yesterday.

Perhaps because the brochure assumed only passing relevance, it was not a matter the subject of any re-examination. Its relevance emerged, it was understood, because Mr Joseph wanted to support his account of the incident with Ms Lindsey by reference to a “common practice” of Zydax being administered by dog owners at home. Irrespective of such relevance as the brochure may have had, the adherence by Mr Joseph to his earlier evidence having been shown the Australian advertising brochure at least invites questions. The adherence to the earlier evidence lends some further support for the general reservation expressed as to whether Mr Joseph was more concerned to be his own advocate rather than to properly discharge his duties as a witness and the adhere to the oath, namely to “tell the whole truth”.

94    It is concluded that the conduct engaged in by Mr Joseph on or about 18 December 2015 constituted a further basis to support the decision to immediately terminate his employment. His conduct in respect to Ms Lindsey, at the very least, was “destructive of the confidence as between employer and employee”: cf. Rankin [2001] VSC 150 at [239], (2001) 107 IR at 141 per Gillard J.

95    On the account of the evidence which has been accepted, an employer can readily call upon its employees not to engage in a physical assault of one upon another.

The Gala Dinner & its aftermath

96    The final basis upon which the Respondents seek to justify the decision to summarily terminate the employment of Mr Joseph arises out of the combination of a number of related events, namely:

    the comments he made at the Gala Dinner held in Hawaii in January 2016; and

    the subsequent cessation of the employment of Ms Tymeson.

The Respondents maintain (inter alia) that:

    Mr Joseph terminated the employment of Ms Tymeson contrary to legal advice which had been received.

97    In resisting the claims made in the Amended Cross-Claim, Mr Joseph in very summary form maintains that:

    Ms Tymeson did not find the “joke offensive”; and

    the cessation of Ms Tymeson’s employment was brought about “for reasons of redundancy” as a result of the “restructure” of the marketing team.

Counsel on behalf of Mr Joseph repeatedly resisted the characterisation of the cessation of Ms Tymeson’s employment as “termination”. On his approach, there was a restructuring which brought about the abolition of her position.

98    Ms Tymeson commenced employment at Parnell US in November 2014. Her position was that of Director of Marketing, Companion. She did not return to work after the Gala Dinner held in Hawaii in January 2016.

99    On her account, the Gala Dinner was held for the purpose of presenting awards to those employees “who had performed well”. Just before the presentation of awards, Ms Tymeson maintains that Mr Joseph said words to the following effect (without alteration):

“Jen Lindsey was walking her dog, Jen Tymeson, in the dog park. They came upon Jeremie Tessier who took some dog bones and organised them in a straight line. Jen Tymeson then took those dog bones and built a beautiful Eiffel Tower. Jen and Jen came upon Casey Mize, who gobbled up all the dog bones, and fucked Jen Tymeson and the fucked Jeremy Tessler.”

Ms Tymeson was “deeply offended and shocked at being included by name in this inappropriate and offensive ‘joke’ told by Mr Joseph to the entire company, at an event purportedly intended to recognise employee successes”.

100    Mr Joseph in his affidavit maintains that he “did make a joke at the gala dinner on 27 January 2016 to the effect of that set out at paragraph 26 of the Tymeson Affidavit”.

101    If the evidence is paused at this stage, at least two things emerge:

    it was common ground that words “to the effect” of that set forth by Ms Tymeson were in fact said; and

    irrespective of whether or not what was said was intended to be a “joke”, the words themselves were accepted by Mr Joseph during his cross-examination as not being amusing at all. Indeed, he could not satisfactorily explain what further words could have been added to the account which would make the comment amusing.

Even by itself, the opening remarks of Mr Joseph at the Gala Dinner would go a long way to establishing “misconduct” and a basis upon which his contract of employment could be summarily terminated. The words which were said were inherently unsavoury. The seriousness of the remarks is only reinforced when reference is made to:

    the context in which the words were uttered – namely at a formal dinner attended by in excess of 100 employees; and

    the position occupied by Mr Joseph – namely that of CEO.

Although it is readily accepted that a determination as to whether conduct is of a sufficiently serious character as to justify termination may give rise to difficult questions of fact, including an assessment as to the circumstances in which that conduct occurred (cf. Willis Australia Group Services Pty Ltd v Mitchell-Innes [2015] NSWCA 381 at [89] per Macfarlan JA), it is found as a question of fact that Mr Joseph’s conduct at the Gala Dinner was a basis upon which his employment could be terminated.

102    Any hesitation in concluding that summary termination of Mr Joseph’s position was soundly based is removed when consideration is given to Mr Joseph’s further conduct leading up to the cessation of Ms Tymeson’s employment.

103    In response to Mr Joseph’s utterances at the Gala Dinner Ms Tymeson instructed her attorney, Mr Lewis Galloway. Mr Galloway contacted Mr Orr, the attorney at that point of time representing both Mr Joseph and Parnell.

104    At first, Mr Joseph gave Mr Orr instructions that his preference was for Ms Tymeson to leave the company but that she could return to work if she wanted to. So much is apparent from the following email forwarded by Mr Orr to Mr Joseph and Ms Vikor on Friday 5 February 2016:

… The short version of our discussion is that Jen has agreed to abandon any claims against the company. The longer version is that this came as a result of Lewis conveying to her the problems he saw with her claims, after talking with me. She has decided to return to work and plans to do so on Wednesday, though Lewis had told her she should return on Monday if she plans to return. Lewis said he spent a significant amount of time talking to her about the fact that she has to make a renewed commitment to the company and put this behind her, as she would expect the company to do.

Please let me know when you have a moment to talk, so I can further elaborate and answer any of your question in a phone call. Thanks.

…

105    Messrs Galloway and Orr had thus at that stage worked out an agreement whereby Ms Tymeson would abandon her claims and return to work, there being some exchange as to when that would take place. Mr Orr’s email raised the following concerns expressed in a reply e-mail about half an hour later from Mr Joseph to Mr Orr and copied in to Ms Vikor:

Not a good outcome, we need to work out a way for her to move out of the company. The issue has raised some very significant concerns as to her integrity and motivations which goes all the way to the Board and relates also to her failings professionally last year.

Can we talk today.

Mr Orr responded as follows on the morning of Saturday 6 February 2016:

I can talk anytime between now and 4:30 this afternoon. Unfortunately, when you conveyed that you thought it was best that the parties go their separate ways – but certainly that you were not terminating her (which was wise, because that would have completely shifted the dynamic against you) – it left open the door for her return to the company. Frankly, largely on the strength of our retort to the lies she’d told counsel, I got the impression that Lewis told her she really didn’t have a slam dunk case. And he gathered that in response to that, she figured she was probably better off just keeping her job.

But I agree with you that at this point, given the circumstances, it’s not the optimal outcome. I think Lewis and I both thought it would have been best for there to have been some negotiated separation. Let me know when you want to talk. Thanks.

106    What follows from this exchange of emails is that Mr Joseph was instructing Mr Orr that he was “not terminating” Ms Tymeson and that the “door” was open “for her return to the company” but that he would prefer her to leave. As at 5 February 2016 Mr Joseph was foreshadowing that they need to “work out a way for her to move out of the company”.

107    Mr Joseph then drafted a letter which was settled by Mr Orr or someone else in the office of Spencer Fane, the firm of attorneys of which Mr Orr was a partner. The letter as finally settled was undated and forwarded to Ms Tymeson in mid-February 2016. Whether the letter is to be properly characterised as a letter of termination or as a letter which eliminated the position of Ms Tymeson can presently be left to one side. However it be characterised, the letter in its final form was as follows:

Dear Ms. Tymeson:

This letter is to notify you that Parnell Corporate Services U.S., Inc. (“Parnell”) has decided to eliminate your position of Director Marketing – Companion, effective immediately. It is being sent in an effort to avoid any confusion or miscommunication about this decision, as well as to offer you the enclosed severance package. Because we know you are represented by counsel, we are delivering these materials to your counsel through our counsel.

As you know, when you joined Parnell in late 2014, we were seeking to build a marketing organization divided between Production Animal and Companion Animal divisions. At the same time, we began building and improving our digital technology capabilities. Unfortunately, the Companion Animal and Production Animal teams significantly underperformed in 2015. Therefore, the Board and senior executives–while developing Parnell’s 2016 business plans–were charged with identifying the causes of this underperformance and recommending alternative structures and/or strategies.

It was determined that Parnell needed a more focused marketing strategy that would heavily depend on putting our digital technology assets at the forefront of all activities. Parnell could no longer rely on the traditional marketing approaches that have been used for years in the animal health industry.

Ultimately, Parnell identified three issues. First, the Digital Technology and Marketing Departments were not aligned. Second, the Digital Technology team was top-heavy in management and needed more senior developers who could produce enhanced functionality faster. Finally, the company lacked senior marketing talent in the Production Animal division. Parnell concluded that all three problems could be resolved through a restructuring of the Digital Technology and Marketing Departments.

As you know, Parnell has begun implementing these necessary changes. Parnell terminated its Chief Commercial Officer for lack of confidence from the Board that the referenced problems could or would be resolved by the incumbent. The company has also decided eliminate the Director of Digital Technology position. This will fund the addition of one new Senior Developer. To fund the second developer, the Board has decided Parnell needs to combine the Director of Companion Animal and Director of Production Animal positions into one, new Director or Marketing position. Doing so will not only fund the second developer, but will also a) ensure better alignment between the Digital Technology and Marketing departments ; b) ensure that digital technology assets are at the forefront of marketing strategies; and c) address the lack of Production Animal marketing talent.

In assessing candidates for this new Director of Marketing position, you were considered. However, your relative lack of experience at the company and exclusive exposure to Companion Animal marketing (at the exclusion of any Production Animal or Digital Technology experience) made other candidates more valuable for this new, expanded role. The company has chosen the incumbent Director of Digital Technology to fill the new Director of Marketing position.

The decision to eliminate your position was made deliberately and over a period of several months. Despite the arguments your counsel has shared with us, Parnell will be able to show ample evidence and documentation to establish that it has planned to eliminate your Marketing Director position for some time.

Nevertheless, in appreciation of your work at Parnell and in an attempt to part ways amicably, please see the following severance package. In exchange for signing a Severance and Release Agreement substantially similar to the one attached to this letter as Exhibit A, you will receive the following:

$70,942.31, which is calculated as follows:

$13,076.92 as payment for the four-week notice period, as provided in your Employment Agreement, which is attached to this letter as Exhibit B;

$38,250.00 for your annual and quarterly cash bonuses, which you would otherwise not be eligible to receive at this time;

$19,615.38 as additional severance equal to six weeks’ salary.

Parnell will classify your departure as either a resignation or a position elimination, whichever you prefer.

Parnell will agree not to enforce Section 3(b)(ii) of your Confidentiality, Non-Competition and Assignment Agreement, attached to this letter as Exhibit C, and you may become employed at a competitive business without waiting for the six month non-compete period to expire. (However, please note that you will be expected to fully abide by all other terms and covenants contained in your Confidentiality, Non-Competition and Assignment Agreement.)

If you elect not to accept this severance package, Parnell will provide you only with the four weeks’ notice of termination pay, per your Employment Agreement.

Please consider this offer. We hope you will accept it, and we wish you the very best in your future endeavors.

108    In respect to an earlier draft of the letter, albeit in a form very much the same as that ultimately sent, Mr Orr had expressed his views in the following email forwarded on 10 February 2016:

Rob and Erika, please see the attached edited version of the Rob letter. Let me know what you think.

Casey and Dave, a few questions:

•    This is unorthodox, though I’m fine with the approach. But please let me know if you have any concerns about us having too much in the letter. Once this goes out, we are conceivably bound by the representations in it, so I don’t want to unduly box ourselves in. Murray and I pared the original draft down some, but I believe further paring eliminates a lot of the substantive content of the letter.

•    Do we want to throw a Confidential – For Settlement Purposes designation on the top of this, or do we, alternatively, like the idea of having this at our disposal for evidentiary purposes? Dave, mainly a question for you.

I’m looking at the draft severance agreement now and will send shortly.

The concern of Mr Orr was that he did not want to “unduly box [Parnell] in” – but he had been assured by Mr Joseph that what he was being told was factually correct. On that basis he was “fine with the approach”. Upon being taken to this e-mail during his cross-examination and to the reference to “unorthodox”, the following exchange occurred:

And you were fine with the approach, weren’t you, Mr Orr, because that was consistent with your discussion with Mr Galloway to try and reach a negotiated separation? That’s right?––No.

There was then an exchange as to whether Mr Orr was answering the questions posed by the cross-examiner and he continued his evidence as follows:

…The reference to what is unorthodox is it is highly unorthodox to include a cover letter with the transmission of a severance agreement. The reason for that is because it boxes the client in on a story before the lawsuit has even been filed. I say I’m fine with the approach because Mr Joseph had assured me that everything he included in his draft letter was factual and true and we need not worry about being boxed into that story. The approach has nothing to do with the fact that we are now transmitting a severance agreement. I disagreed, as you will see from the emails, vehemently with that course of action.

As to the absence of any e-mail recording Mr Joseph’s instructions, Mr Orr gave the following reason:

Mr Orr, if you were not happy with the approach taken by Mr Joseph, can you show me in this email where you say that?––I don’t believe I do say that in this email.

Yes. Thank you, Mr Orr?––I discussed it with him by – I discussed it with him by telephone.

Thank you, Mr Orr. If you had discussed something of that so much – I will withdraw and put it this way. If that was – you would agree with me that that’s a quite important conversation that you would have had with Mr Joseph about the approach to be taken. That’s correct?––I think that providing counsel to clients is important always.

And providing advice of that magnitude to a client, you would put that in an email, wouldn’t you, Mr Orr?––No.

Or at least some form of written document?––No. My practice with Mr Joseph was to discuss the most important things by telephone or in person. Mr Joseph had a propensity for getting highly agitated in written communications with which he disagreed. I found that it was – I was more successful in getting him to try to take our advice when I spoke with him in person.

109    The e-mail forwarded by Mr Orr is consistent with the following e-mail forwarded on 11 February 2016 by Mr David Schatz, a partner of Spencer Fane, and copied in to Mr Orr (without alteration):

Sorry for the slow response, long day of depositions in Mississippi.

I’ve reviewed and I’m good with the letter---assuming the board (or other key execs) will testify consistent with the letter if deposed.

We’re obviously staking our position early. (This letter essentially becomes our opening statement at trial.) If I’m Tymenson’s attorney I would look for any way to drum up evidence contrary to the letter. If we’re comfortable with that then I like it.

Mr Orr had requested the input of Mr Schatz in the settling of the then draft letter.

110    There is no doubting the conclusion that the American attorneys involved in providing advice to Parnell and Mr Joseph in respect to the letter to be forwarded to Ms Tymeson were constantly emphasising the imperative of ensuring that the facts supported the assertions being made in that letter.

111    The letter as finally sent to Ms Tymeson assumes some importance – it adds content to the reliance placed by the Respondents upon the Gala Dinner and the subsequent events as a basis for summarily terminating Mr Joseph’s employment and it also casts further doubt upon the credibility of Mr Joseph.

112    The letter, it may be noted at the outset, is factually incorrect in at least one important respect.

113    Although the letter stated that there had been a “decision to terminate your position” and that that decision had been made “over a period of several months”, the fact is that there had been no such decision. The importance of including that statement in the letter was (at least in part) presumably to convey the impression that the “decision” had been made well before the complaints being made by Ms Tymeson following the Gala Dinner.

114    But Mr Joseph was – perhaps not unexpectedly – reluctant to agree that no “decision” had been made. To do so would have been to both expose the inaccuracy in what he had been assuring Mr Orr was the position and to undermine any prospect of suggesting that the conduct now being pursued was due to a prior restructuring of the company and had nothing to do with the Gala Dinner. His reluctance is manifest in the following exchanges during his cross-examination:

Now, the reality is you wanted to get rid of her, didn’t you? You wanted to terminate her employment?––As a result of her actions, where …

I just asked you a yes or no question?––Yes. We definitely wanted to get rid of her prior to that as well.

And there had been no decision prior to this point, had there, to make her redundant?––Yes, there had.

You say there had been a decision, do you?––That’s right. Not a decision. There had [been] discussions.

There had been discussions about it?––Yes.

But there had been no decision, had there, to make her redundant?––There had been no decision on timing.

There had been no decision to make her redundant. Do you agree with that or not?––Yes, yes.

The matter was returned to the following day. Mr Joseph was taken to Mr Schatz’s email on 11 February 2016 and Mr Schatz being “good with the letter … assuming the board … will testify consistent with the letter if deposed”. Mr Joseph’s cross-examination continued as follows:

And you understood when you received that email that that was at least, in part, a reference to there being a longstanding decision to make Ms Tymeson’s role redundant; correct?––Correct.

And as we went through yesterday, there had been no such decision; correct?––No.

I’m sorry. Yesterday, you gave an answer on oath, didn’t you, that there had been discussions about making her role redundant, but no decision had been made; correct?––That is correct. Yes.

Notwithstanding Mr Joseph having agreed that there was no “decision” to abolish Ms Tymeson’s position but only “discussions”, Mr Joseph continued to try and re-characterise those “discussions” as constituting a “decision”.

115    Dr Bell’s evidence supported the conclusion that no “decision” had been made. In his affidavit of 30 November 2018, he stated that “Mr Joseph did not discuss his decision to terminate Ms Tymeson with the board before he sent the termination letters.” Dr Bell went on to further state that “[n]o formal decision was made by the board to terminate Ms Tymeson's employment, although… Ms Tymeson's termination was in line with the board's strategy at that time to reduce operating costs, and particularly the costs of the US Companion Animal team.” However, in his affidavit of 16 August 2019 he clarified that he did “recall that on or about 3 February 2016 Mr Joseph did ring [Dr Bell] and raise his proposal to terminate Ms Tymeson…” but that he “did not adopt or endorse Mr Joseph's proposal to terminate Ms Tymeson and no final decision was made during that call”.

In Dr Bell’s cross-examination, he clearly reiterated that no “decision” was reached:

You had a conversation with Mr Joseph. And I think Mr McCarthy was involved on this conversation, 3 February 2016, in which Mr Joseph sought and was provided permission to terminate the employment of Ms Tymeson; that’s right?–– My recollection of that conversation is that he was given carriage of the matter as CEO and the US based director.

And that’s the best of your recollection of a discussion on 3 February 2016?––Yes. I believe the options were canvassed, but no decision was reached.

116    In addition to the exchanges between Mr Joseph and his cross-examiner exposing Mr Joseph again as a witness not prepared to fully and frankly disclose the facts as they were, as opposed to a witness who was committed to advancing only such an explanation of the facts as supported his case, the exchanges also exposed the fact that Mr Joseph was not fully and frankly setting forth the facts, even to those who were providing him with legal advice.

117    The fact is that there had been no decision at the time the letter was written to Ms Tymeson to make her position redundant – at best, there had been “discussions” about a possible restructure.

118    Notwithstanding that there had been no such decision of the nature communicated to Ms Tymeson in the letter, Mr Joseph was prepared to let Mr Orr proceed on an understanding of the facts known by Mr Joseph to be incorrect.

119    The letter is also important by reason of the deletion of parts of the letter from an earlier version which had been forwarded to Mr Orr (or those within his firm) for the purpose of their input. An earlier version of the letter as it had been presented to Mr Orr for the purpose of being settled had included the following proposed statements (without alteration):

The decision to eliminate your position was made deliberately and over a period of several weeks months. Despite the arguments your counsel has shared with us, Parnell will be able to show ample evidence and documentation to establish that it has planned to eliminate your Marketing Director position for some time. Given recent and significant concerns regarding your trustworthiness and honesty, Parnell believes it is appropriate to eliminate the position immediately, rather than several weeks from now, as was originally contemplated.

The deleted parts of that paragraph were deletions made by Mr Joseph. It will be noted that:

    “weeks” became “months” – presumably an attempt on the part of Mr Joseph to convey to Ms Tymeson that the “decision” had been made well before her complaints; and

    the references to “trustworthiness and honesty” were deleted.

The deletion of the references to “trustworthiness and honesty” in the draft letter forwarded to Mr Orr mirrored the concern expressed by Mr Joseph in his email on Friday 5 February 2016 when he referred to the “very significant concerns as to her integrity and motivations” which Mr Joseph was telling Mr Orr went “all the way to the Board”. One of the matters being presented by Mr Joseph to Mr Orr for the purposes of the advice being given was that it was factually correct to assert that such concerns were in fact held. But when it came to including any reference to “trustworthiness and honesty” in the letter, Mr Joseph shrank from expressing any such concern to Ms Tymeson.

120    Another aspect of the letter is that it presented Ms Tymeson with a stark choice – she could either accept an offer of a “severance package” valued at US$70,942.31 or she could accept “four weeks’ notice of termination pay”. Yet Mr Joseph did not agree with the proposition that the letter provided Ms Tymeson with a choice – either accept what was said to be a generous offer or she would be left with four weeks’ pay. His evidence during cross-examination was as follows:

…And, again, the first paragraph ... is in the same terms we saw previously; correct, namely this letter is to notify you that Parnell has decided to terminate your – eliminate your position of director marketing companion effective immediately; correct?––Yes.

And then you can see – before we get to the paragraph I took you to a few moments ago, you can see there is discussion about a process of restructure, and you say [in] … the paragraph immediately before the paragraph I took you to a while ago:

In assessing candidates for this new position, you were considered; however, you didn’t get it.

Correct?––That’s right.

So the effect of this letter is that Ms Tymeson was informed her position was gone and she had no position at the company; correct?––No. As I stated earlier, this was an attempt to settle the matter with Ms Tymeson.

Well, it may have been an attempt to settle, but it nevertheless immediately terminated her employment for redundancy, didn’t it?––That was not the intention of why it was sent.

…

All right. And the next paragraph is the one that we’ve been through:

The decision to eliminate your position was made deliberately and over a period of several months.

Correct?––Yes.

And we’ve agreed, haven’t we, that prior to this time, at least, no decision had been made to make her position redundant; correct?––No final decision had been made. That’s correct. Yes.

And then the paragraph after that is:

Nevertheless, in appreciation of your work, you can accept this agreement.

The severance agreement. Correct?––Sorry. What’s the question?

That the paragraph that follows is, in substance:

Nevertheless, in appreciation of your work at Parnell, we offer you this severance and release agreement, which you can accept, and if you do, you will receive –

a sum of money there stated?––That’s what it says.

Correct?––Yes.

And if she didn’t accept that severance package, you see down the bottom, second paragraph from the bottom:

Parnell will provide you with – only with the four weeks’ notice of termination pay, per your employment agreement.

Correct?––That’s what that says. Yes.

So this letter, which you signed, sets up a choice for Ms Tymeson, doesn’t it? The choice is, “Accept our general offer, or you’re gone. But either way, you’re gone.” Do you agree with that or not?––I don’t agree with that.

The failure on the part of Mr Joseph to accept the obvious – namely that the mid-February 2016 letter was presenting Ms Tymeson with a choice to either accept the offer or not but either way “she was gone” – is yet further reason to question the reliability of Mr Joseph’s evidence.

121    In respect to this exchange, the evidence of Mr Orr is accepted. The evidence of Mr Joseph is rejected and provides yet a further instance of Mr Joseph being prepared to – at the very least – mislead the lawyers giving him advice for the purposes of protecting his own position.

122    It was in April 2016 that Ms Tymeson commenced a proceeding in the Circuit Court of Jackson County, Missouri at Kansas City. It was in respect to this proceeding that Mr Joseph gave instructions to his counsel, for the purposes of providing an “assurance”, that have been found to be misleading.

123    It is concluded that Mr Joseph engaged in serious misconduct in respect to:

    the comments made by Mr Joseph at the Gala Dinner;

taken together with his conduct:

    in resisting – if not opposing – Ms Tymeson’s return to work as had been negotiated as between Messrs Galloway and Orr;

    in misleading Mr Orr in relation to the drafting of the mid-February 2016 letter to Ms Tymeson; and

    in drafting the letter to Ms Tymeson in a manner which was factually inaccurate and asserting that a decision had been made to abolish her position some months ago.

That combination of factors was conduct such as to warrant the summary termination of his services.

THE FAIR WORK ACT

124    The claims pursuant to the Fair Work Act 2009 (Cth) assumed only passing reference during the course of the proceeding.

125    The claims nevertheless remain to be addressed, albeit briefly.

126    Mr Joseph claims (inter alia) that:

    Parnell Corporate Services contravened ss 44, 61 and 119 of the Fair Work Act by reason of the non-payment of monies in respect to his redundancy – claims in respect to which he seeks both compensation and the payment of penalties to himself;

    Parnell Corporate Services contravened ss 44, 90 and 539 of the Fair Work Act in respect to the non-payment of “statutory leave entitlements”, namely his annual leave entitlements – claims in respect to which he again seeks both compensation and the payment of penalties to himself; and

    Dr Bell was “involved in” the making of decisions and that Mr Joseph is “entitled to be paid any pecuniary penalties imposed on Dr Bell as a result of his contraventions of the FW Act”.

127    Irrespective of which company within the Parnell Group may ultimately be concluded as the company responsible for making payments to Mr Joseph, the Respondents accept that payments should have been paid to Mr Joseph upon the termination of his employment, including annual leave entitlements and long service leave entitlements. Those monies, the Respondents accept, have not been paid but should be paid – subject only to whether they are entitled to “set off” any such payments against any damages that may be awarded pursuant to their Amended Cross-Claim.

128    In the event that any contravention of the Fair Work Act had been made out, and in particular a contravention of s 90 of that Act, it is concluded that the circumstances are such that Mr Joseph would be entitled to, at best, declaratory relief but no penalty.

129    Any entitlement to a set off is to be resolved by reference to s 324(1)(d) of the Fair Work Act. That section provides in relevant part as follows:

An employer may deduct an amount from an amount payable to an employee in accordance with subsection 323(1) if:

…

(d)    the deduction is authorised by … an order of a court.

Section 323(1) provides as follows:

An employer must pay an employee amounts payable to the employee in relation to the performance of work:

(a)    in full (except as provided by section 324); and

(b)    in money by one, or a combination, of the methods referred to in subsection (2); and

(c)    at least monthly.

Note 1:    This subsection is a civil remedy provision (see Part 4-1).

Note 2:    Amounts referred to in this subsection include the following if they become payable during a relevant period:

(a)    incentive-based payments and bonuses;

(b)    loadings;

(c)    monetary allowances;

(d)    overtime or penalty rates;

(e)    leave payments.

130    Assuming that there has been a contravention of the Fair Work Act and assuming further that s 324 permitted the Court to make an order that the payment of outstanding entitlements payable to Mr Joseph could be deducted from any amount payable by him by reason of damages awarded against him pursuant to the Amended Cross-Claim, such an order would be refused in the exercise of the Court’s discretion. Mr Joseph’s entitlements that may be enforced pursuant to the Fair Work Act, it is respectfully considered, should be resolved in the circumstances of the present case separately and distinctly from any entitlement on the part of his employer for damages for breach of contract.

THE CROSS-CLAIM

131    The Amended Cross-Claim is founded upon the conduct of Mr Joseph in respect to:

    Ms Lindsey; and

    the Gala Dinner and its aftermath.

The claim for damages relies upon an allegation that that conduct:

    occasioned Parnell to enter into settlement agreements in respect to the proceedings commenced in the United States by both Ms Lindsey and Ms Tymeson; and

    constituted a breach of duty or duties owed by Mr Joseph.

The monies paid by way of settlement are now claimed as:

    damages in the present proceeding.

Mr Joseph’s conduct relied upon to support the breaches of duty alleged is the same conduct which has been found to constitute grounds for his summary dismissal. The amounts claimed as damages are the amounts paid in the settlement of those proceedings.

132    Mr Joseph admits the duties owed but denies any breach. He further contends, in very summary form, that:

    his conduct was not a “material cause” of the settlement monies being paid.

He further contends that:

    Parnell cannot now claim damages for any breach by reason of it having “condoned” his conduct;

    he is not liable to pay any monies by reason of s 3 of the Employees Liability Act 1991 (NSW);

and, in the event that he is liable to pay monies:

    he is entitled to be indemnified by reason of cl 27 of the Constitution of Parnell Pharmaceuticals Holdings Ltd.

133    It has been concluded that:

    the conduct of Mr Joseph constituted a breach of the duties he owed Parnell and constituted a breach of contract;

    that breach occasioned the institution of the proceedings in the United States by both Ms Lindsey and Ms Tymeson and the payment of monies in settlement of those proceedings; and

    some – but not all – of the settlement monies are recoverable in the present proceedings.

The duties relied upon

134    The duties said to have been breached by Mr Joseph in the Amended Cross-Claim were expressed to be:

    “express contractual duties”;

    “implied contractual duties”

    “equitable employee duties”;

    “statutory director duties”; and

    “equitable director duties”.

135    It is unnecessary for present purposes to attempt any exhaustive outline of the duties owed by a person in the positon of Mr Joseph. It is sufficient to set forth ss 180 to 182 of the Corporations Act 2001 (Cth) and the observations in respect to these provisions by Brereton J (when sitting as a Justice of the Supreme Court) in Australian Securities & Investments Commission v Maxwell [2006] NSWSC 1052, (2006) 59 ACSR 373 (“Maxwell”).

136    Section 180 provides as follows:

180 Care and diligence—civil obligation only

Care and diligence—directors and other officers

(1)    A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:

(a)    were a director or officer of a corporation in the corporation’s circumstances; and

(b)    occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.

Business judgment rule

(2)    A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they:

(a)    make the judgment in good faith for a proper purpose; and

(b)    do not have a material personal interest in the subject matter of the judgment; and

(c)    inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and

(d)    rationally believe that the judgment is in the best interests of the corporation.

The director’s or officer’s belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.

…

(3)    In this section:

business judgment means any decision to take or not take action in respect of a matter relevant to the business operations of the corporation.

Section 181 provides as follows:

181 Good faith—civil obligations

Good faith—directors and other officers

(1)    A director or other officer of a corporation must exercise their powers and discharge their duties:

(a)    in good faith in the best interests of the corporation; and

(b)    for a proper purpose.

…

(2)    A person who is involved in a contravention of subsection (1) contravenes this subsection.

…

Section 182 provides as follows:

182 Use of position--civil obligations

Use of position-directors, other officers and employees

(1)    A director, secretary, other officer or employee of a corporation must not improperly use their position to:

(a)    gain an advantage for themselves or someone else; or

(b)    cause detriment to the corporation.

…

(2)    A person who is involved in a contravention of subsection (1) contravenes this subsection.

…

137    After referring to these provisions, Brereton J in Maxwell [2006] NSWSC 1052, (2006) 59 ACSR at 397 observed:

[99]    The statutory duty imposed by s 180(1) reflects, and to some extent refines, that which obtains at general law. As Santow J (as his Honour then was) explained in ASIC v Adler (2002)… 41 ACSR 72, [372], both the common law and equity imposes on directors a duty of care and skill …, the content of which is essentially the same as the statutory duty … Similarly, the statutory duties imposed by ss 181 and 182 reflect, and to some extent refine, corresponding obligations of directors under the general law.

[100]    In determining whether a director has exercised reasonable care and diligence, as s 180(1) expressly contemplates, the circumstances of the particular corporation concerned are relevant to the content of the duty. These circumstances include the type of company, the provisions of its constitution, the size and nature of the company's business, the composition of the board, the director’s position and responsibilities within the company, the particular function the director is performing, the experience or skills of the particular director, the terms on which he or she has undertaken to act as a director, the manner in which responsibility for the business of the company is distributed between its directors and its employees, and the circumstances of the specific case …

[101]    Directors are not required to exhibit a greater degree of skill in the performance of their duties than may reasonably be expected for persons of commensurate knowledge and experience, in the relevant circumstances … And while directors are required to take reasonable steps to place themselves in a position to guide and monitor the management of the company … they are entitled to rely upon others, at least except where they know, or by the exercise of ordinary care should know, facts that would deny reliance ...

[102]    The constitution of the corporation, and concomitantly the identity of those to whom the duty is owed, is of importance because the duties referred to in ss 180, 181 and 182 are not duties owed in the abstract, but duties owed to the corporation. As Clarke and Sheller JJA observed in Daniels v Anderson at NSWLR 504… the duties imposed by former s 232 (the predecessor of s 180) reflected the concept of negligence at general law, in that a director owes to the company a duty to take reasonable care in the performance of the office. In Vrisakis v ASC (1993) 9 WAR 395, 449–50; 11 ACSR 162, 211–13; Ipp J (as his Honour then was) (with the concurrence of Malcolm CJ) held that although the statutory duty of care and diligence would be contravened if a director had not exercised a reasonable degree of care and diligence in the exercise of his powers or the discharge of his duties, even if there was no actual damage, that could only be so if it was reasonably foreseeable that the relevant conduct might harm the interests of the company – which means the corporate entity itself, the shareholders, and, where the financial position of the company is precarious, the creditors of the company – and, moreover, that in determining whether the relevant duty had been breached, the foreseeable risk of harm must be balanced against the potential benefits which could reasonably be expected to accrue to the company from that conduct …

See also: Termite Resources NL v Meadows [2019] FCA 354 at [180], (2019) 370 ALR 191 at 225-226 per White J.

138    “The statutory duty of care and diligence in s 180 reflects the concept of negligence at general law, in that a director (or officer) of a company ‘owes to the company a duty to take reasonable care in the performance of the office’”: Australian Securities and Investments Commission v Vocation Ltd [2019] FCA 807 at [727], (2019) 371 ALR 155 at 329 per Nicholas J.

The recovery of monies paid in settlement of proceedings

139    It was common ground that in order to recover as damages an amount paid by way of settlement of claims made, a party must show that:

    the conduct relied upon was a material cause of the settlement being entered into; and

    the amount paid by way of settlement was reasonable.

140    Thus, in Unity Insurance Brokers Pty Limited v Rocco Pezzano Pty Limited [1998] HCA 38, (1998) 192 CLR 603 (“Unity Insurance”) at 608-609 Brennan CJ (who together with McHugh and Hayne JJ formed the majority) there concluded:

[5]     The onus is on a plaintiff seeking damages in tort or more than nominal damages in contract to establish the nature and extent of the damages suffered as the result of the defendant's negligence …

[6]     The plaintiff must show that the sum accepted in settlement was reasonable. The test of reasonableness is, as Hayne J says, an objective one. Evidence of the advice which the insured received to induce it to accept the settlement is not proof in itself of the reasonableness of the settlement advised. The factors which lead to the giving of the advice are factors relevant to the reasonableness of the settlement but the only relevance of advice given by the insured's legal advisers to settle is that it tends to negative the hypothesis that the insured acted unreasonably in accepting the settlement.

[7]     If an amount be accepted by a plaintiff in settlement with a third party and subsequently discovered events demonstrate that the settlement was more favourable than it would have been had those events been known at the time, the defendant is not disadvantaged by the settlement. On the other hand, if events subsequently discovered by a plaintiff show that a more favourable settlement could have been obtained, the damages assessed against the wrongdoer are not necessarily diminished. The reasonableness of a settlement depends on the circumstances existing at the time, provided the plaintiff has acted reasonably in discovering the circumstances material to the settlement at that time.

(footnotes omitted)

See also: [1998] HCA 38 at [22] to [27], (1998) 192 CLR at 612-613 per McHugh J. In respect to the separate question as to the circumstances in which an amount paid by way of settlement is recoverable for breach of contract, McHugh J concluded:

[24]    However, to succeed in its action against the broker, the insured must show more than that its loss was causally connected with the broker's breach of duty. Damages in contract are recoverable only for a loss which is the kind of loss which was within the contemplation of the contract breaker or would have been within the contemplation of a reasonable person in his or her position…

…

[33]    Whether a settlement was within the contemplation of a defendant or a reasonable person in its position must depend upon the nature of the contract between the plaintiff and the defendant, their actual or imputed knowledge of the consequences of a breach, and the nature of the third party's claim against the plaintiff. As a general rule, a contract breaker must be taken to have reasonably contemplated that its breach may force the innocent party into litigation with third parties and that the innocent party may conclude that it is in its best interest to compromise the third party's claim. But it does not follow that the fact that it was reasonable for the plaintiff to compromise the claim against the third party necessarily means that the settlement was within the reasonable contemplation of the defendant. That is so even in those cases where the defendant's breach was proved to be causally connected with the settlement. Each case must depend upon its own facts.

[34]    … Whether the claim is in tort or contract, the question whether the plaintiff can recover from the defendant monies paid in settlement of a third party action depends on ordinary principles of causation and remoteness. That proposition also applies in a case such as the present where the settlement is an element in the calculation of damages.

141    In commenting upon Unity Insurance, Giles JA in BNP Paribas v Pacific Carriers Limited [2005] NSWCA 72 (“BNP Paribas”) observed:

[186]    The reasoning of the majority in Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd was that as a matter of causation entering into a reasonable settlement was attributable to the broker’s breach, and a reasonable settlement was a natural and reasonably contemplated result of the breach, so that on principles concerning causation and remoteness in assessment of damages for the breach the difference was recoverable; see per Brennan CJ at [3]-[4]; McHugh J at [22]-[27], [33]-[34]; Hayne J at [119]-[129]. …

His Honour reviewed the authorities and further concluded:

[249]    These observations provide guidance in the present case. The following can be said–

•    PCL had the burden of establishing that the settlement of the London arbitration was reasonable;

•    whether the settlement was reasonable was to be judged objectively, not according to whether PCL’s officers or its legal advisers thought that it was reasonable;

•    the judgment was to be made upon the information available to PCL at the time of the settlement, at least if sufficient enquiries after relevant information had been made;

•    evidence from PCL’s officers or its legal advisers was admissible to explain the circumstances in which the settlement was reached and the considerations leading to it; and

•    advice to settle was relevant but not conclusive – what mattered was the reasoning supporting the advice.

[250]    The facts in United Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd show that a settlement may be found to have been reasonable even if, as in the present case, there is little evidence of the circumstances in which the settlement was reached. …

142    What was not common ground in the present proceeding was whether the conduct was a material cause of the settlements and whether the settlements were reasonable.

The insertion of the syringe – a breach of duty

143    Notwithstanding the different accounts given of this incident, it has been concluded that:

    Ms Lindsey’s account of the events which took place in December 2015 is to be preferred to that put forward by Mr Joseph – and that her account is to be preferred notwithstanding the seriousness of the conduct alleged; and

    the events which took place in December 2015 constituted serous misconduct and conduct which justified the summary dismissal of Mr Joseph.

The same conduct is then relied upon by the Cross-Claimants as a breach of duty or duties owed by Mr Joseph.

144    In respect to the same conduct, the Amended Cross-Claim further pleads that:

    Ms Lindsey “resigned her employment with Parnell US because of the Lindsey Assault…”;

    Ms Lindsey then commenced two separate proceedings in the Circuit Court of Jackson County and the District Court of Kansas;

    Parnell US incurred and paid legal costs in connection with those proceedings;

    Parnell US entered into a settlement agreement with Ms Lindsey and agreed to pay US$295,000 in settlement of the claims made in the two proceedings; and

    damages should be awarded.

145    In addition to repeating the denial of the account given by Ms Lindsey, in resisting the Amended Cross-Claim Mr Joseph maintains that:

    Ms Lindsey resigned her employment because of a poor performance review following her annual review in January 2016; and

    the Cross-Claimants have incurred legal costs in defending the United States proceedings but he “does not know and cannot say what amounts were in what invoices or what amount the Cross Claimant paid”.

146    Counsel on behalf of Mr Joseph sought to resist the recovery of those monies in respect to the proceedings commenced by Ms Lindsey on the bases that:

    there was no evidence as to why Ms Lindsey commenced those proceedings;

and further submitted that even if a reason could be discerned, the amounts paid were not reasonable by reason of either:

    the monies being paid were contrary to or at least not supported by the report of a mediator who had attempted to resolve the dispute; and/or

    there being uncertainty as to the amount that would have been paid had there not been an obligation imposed by the settlement agreement in clause 6.4 to “render all reasonable assistance in and cooperation requested by [Parnell] in connection with the conduct of any Joseph Proceedings”. The submission being that part of the settlement sum was paid to render assistance in these proceedings.

147    The conduct of Mr Joseph in inserting the syringe into the leg of Ms Lindsey, it is concluded, was a breach of his duty:

    to faithfully and diligently discharge his powers and functions in a manner consistent with that of CEO and a failure to take reasonable care to prevent foreseeable harm to an employee; and

    to faithfully and diligently discharge his duty of care and diligence in a manner of a reasonable person.

The insertion of the syringe – causation & reasonableness

148    A conclusion that the conduct of Mr Joseph constituted a breach of duty leaves open the question as to whether:

    the commencement of the two proceedings by Ms Lindsey were “causally connected” to the conduct the subject of the breach (cf. Unity Insurance [1998] HCA 38 at [22], (1998) 192 CLR at 612 per McHugh J) or whether the settlement of those two proceedings was “a natural and reasonably contemplated result of the breach” (BNP Paribas [2005] NSWCA 72 at [186] per Giles JA); and

    whether the amount paid by way of settlement was reasonable.

149    The two proceedings commenced by Ms Lindsey in the Circuit Court of Jackson County, Missouri at Kansas City and the US District Court for the District of Kansas, were, respectively:

    a proceeding against Mr Joseph, the Petition for Damages claiming damages for both assault and battery; and

    a proceeding against Parnell Corporate Services U.S., Inc.; Parnell Inc; and Parnell U.S. 1 Inc.

A mediation of those proceedings in February 2018 was unsuccessful. The mediator, Mr Jay Daugherty, was a Circuit Court Judge for over 20 years and had been a mediator for seven years. The starting position of the parties at the outset was apparently very divergent – Ms Lindsey seeking US$478,000; Parnell offering US$125,000. “[P]ost mediation discussions with counsel”, however, led Mr Daugherty to believe that a “Mediator Proposal might have a reasonable chance of being helpful”. On 14 February 2018, Mr Daugherty thus proposed (inter alia) that Ms Lindsey be paid US$295,000, US$225,000 being in respect to the “personal injury battery case” and “$70,000 for the Kansas case…”.

150    In April 2018, a Confidential Settlement Agreement and Release was entered into in respect to both proceedings. Clause 2.0 of that Agreement stated that “[i]n consideration for the dismissal of the litigation with prejudice, Parnell” would pay US$225,000 for the first proceeding and US$70,000 for the second proceeding. Clause 6.4 of the Agreement further provided as follows:

6.4    Plaintiff agrees to promptly render all reasonable assistance and cooperation requested by any of the Released Parties other than Robert Joseph in connection with the conduct of any Joseph Proceedings, including without limitation by conferring with the Released Parties or their legal counsel, providing documents or information to the Released Parties or their legal counsel, providing instructions for the preparation of sworn witness statements or affidavits and signing, swearing or attesting to the same as necessary, and attending to give evidence as a witness at any court hearing in Australia or the United States of America.

The suggestion advanced on behalf of Mr Joseph, that the Agreement being expressed to be “with prejudice” was to be construed as an admission by Parnell that Ms Lindsey’s proceedings did not have merit, is rejected. In context, the settlement of the proceeding “with prejudice” is to be construed as reference to the fact that the settlement was agreed between the parties to preclude the commencement of any further proceeding in respect to the same conduct.

151    There is no difficulty in concluding that the breach of duty by Mr Joseph in respect to the insertion of the needle into the leg of Ms Lindsey was a material cause for the payment of US$225,000 in the April 2018 settlement. Although none of the Parnell companies are named as defendants to the United States proceeding alleging assault and battery, Parnell stood behind Mr Joseph and paid monies in settlement of a claim arising out of the conduct of its CEO, that conduct taking place in Mr Joseph’s office and directed at an employee.

152    Greater reason arises to question whether the conduct of Mr Joseph was a “material cause” for the payment of the US$70,000 in settlement of the second proceeding.

153    In that proceeding, after setting forth the “PARTIES” and the “JURISDICTION AND VENUE”, the Complaint was structured by reference to what it described as:

    “FACTS COMMON TO ALL COUNTS” (paras [11] to [52]);

    “COUNT 1 – Gender Discrimination – Sexual Harassment – Sexually Hostile Working Environment” (paras [53] – [67]); and

    “COUNT 11 – Retaliation” (paras [68] to [75]).

When setting forth the facts common to all counts, repeated reference is made to the conduct of Mr Joseph. However, the only two references to the facts the subject of the proceeding in this Court are (without alteration):

20.    As part of the promotion of this “masculine” culture, Mr. Joseph also tried to intimidate Plaintiff through physical contact. In December 2015, he told Plaintiff he would be willing to administer a drug manufactured by Parnell to her dog. He instructed Plaintiff to purchase a syringe from a pharmacy so he could inject the dog with the drug.

21.    Plaintiff brought the syringe and her dog to Defendant Joseph in Overland Park Kansas and he injected Plaintiff’s dog’s neck area with the syringe containing the drug.

22.    Mr. Joseph then removed the needle from Plaintiff’s dog and suddenly and without warning or permission stabbed the needle into Plaintiff’s left thigh. Defendant Joseph did not wipe, sterilize or otherwise clean the needle prior to stabbing the dirty needle into Plaintiff’s thigh. Plaintiff was stunned by Mr. Joseph’s actions. Plaintiff began to feel an itch and slight burn in the area where Mr. Joseph stabbed her.

…

32.    Further cementing Parnell’s pattern and practice of pushing sex upon women and demeaning women, at the January 2016 conference all employees attended the Gala evening event. Robert Joseph started the evening off with the following joke:

“There were three Parnell VP’s: Leo Avendano, who was the VP of Manufacturing, Jen Lindsey, who was the VP of Global Marketing, and Andy Ferrigno, who was the VP of Sales. Each of the VP’s had a dog. Leo’s dog was named Jeremy Tessier [lead manufacturing engineer], Jen Lindsey’s dog was named Jen Tymosen [a female who was Plaintiff’s director of companion marketing], and Andy’s dog was named Casey Mize [a male employee]. Leo’s dog was smart. He was 6-sigma certified, and could line up, in a row, all the dog biscuits. But Jen Lindsey’s dog, Jen Tymosen, was smart and creative, because she was in marketing. Jen Tymosen sculpted an Eiffel Tower out of the dog biscuits. But Andy’s dog, Casey, was the smartest of them all! He ate all the dog biscuits and “**ked Jeremie and f**ked Jen Tymosen!”

33.    The room was stunned and female employees were offended. This joke confirmed that the sexual innuendos and overtones were aimed at demeaning women and that sexual interaction with female employees was being encouraged by Robert Joseph.

154    The subject matter of the present proceeding in this Court is thus mirrored in part in the second of the two proceedings commenced by Ms Lindsey – the conduct of Mr Joseph in inserting the needle into the leg of Ms Lindsey and his comments made at the Gala Dinner being referred to in the American proceedings as part of the FACTS COMMON TO ALL COUNTS. This part of the American proceedings thus formed part of matters being settled by the April 2018 Settlement Agreement. But it cannot, with respect, be properly characterised as a “material” cause for the payment of US$70,000. That part of the Amended Cross-Claim thus fails. The settlement of the second of the two proceedings instituted in the United States was in substance a proceeding alleging “Gender Discrimination” and “Retaliation”. The payment of the US$70,000 for payment of that proceeding was not “materially” caused by the conduct relied upon in this proceeding as constituting a breach of contract. The passing reference in paras [22] to [22] and [32] to [33] to facts common to the proceeding in this Court is insufficient to characterise the payment of US$70,000 as having been materially caused by the conduct of Mr Joseph now relied upon as constituting a breach of contract.

155    It is further concluded that the payment of US$225,000 for the assault and battery case was a reasonable settlement. It was the product of an unsuccessful mediation and a subsequent Mediator Proposal. It was an amount put forward by an experienced Circuit Court Judge who had had substantial experience as a mediator. Although not conclusive in itself, the figure proposed by the mediator should be accepted as a reasonable quantification of the risks involved. No other reason was advanced as to why the quantification of the settlement amount nor the settlement itself was otherwise not reasonable.

156    It is thus concluded that that part of the Amended Cross-Claim and the associated legal costs are recoverable. Albeit somewhat arbitrary, and not necessarily reflecting an accurate differentiation as to which legal costs were common to both claims or indeed severable, it is proposed that the Amended Cross-Claim should succeed in respect to the recovery of 70% of the legal costs incurred in the two American proceedings instituted by Ms Lindsey.

The Gala Dinner & its aftermath – a breach of duty

157    In respect to the statements made by Mr Joseph at the Gala Dinner and the subsequent events leading to the cessation of the employment of Ms Tymeson, it has been concluded that:

    the statement made by Mr Joseph at the outset of the Gala Dinner would go a long way to establishing “misconduct”; and that

    any reservation as to whether Mr Joseph engaged in “misconduct” is removed when reference is had to subsequent conduct leading to the cessation of employment of Ms Tymeson.

That subsequent conduct involved:

    giving misleading instructions to the lawyers in respect to the proceedings in the Kansas City Court proceedings, those instructions including that his “employment status with Parnell ha[d] not changed”; and

    giving Mr Orr a factually inaccurate account of events, including the fact that a decision had been taken to render Ms Tymeson’s position redundant.

To these considerations may be added:

    the failure on the part of Mr Joseph to ensure that proper records were kept of the reasons for action taken against Ms Tymeson.

158    That conduct as well as providing a basis upon which Mr Joseph’s employment could be summarily terminated also constituted a breach by Mr Joseph of his duties:

    to exercise the degree of reasonable care expected of CEO and a director.

159    The argument advanced on behalf of Mr Joseph that Ms Tymeson’s employment had ceased due to her position becoming redundant as a result of a restructure of Parnell is rejected. There had been no prior decision to do so. Nor had there been any discussions between Mr Joseph, Dr Bell and Mr McCarthy which resulted in any earlier decision having been made.

160    The letter in mid-February 2016 constituted a termination of the services of Ms Tymeson. And Mr Joseph’s role in the drafting of the letter and misrepresenting in that letter the decisions that had been made constituted a breach of duty on his part.

The Tymeson monies – causation & quantification

161    A conclusion that the conduct of Mr Joseph in respect to the Gala Dinner and its aftermath constituted a breach by him of the duties owed, leaves open a question as to whether the monies claimed in the Amended Cross-Claim in respect to the settlement of her proceedings:

    were caused by those breaches; and

    whether the quantum of the settlement was reasonable.

Both issues are answered adversely to Mr Joseph.

162    Following the Gala Dinner in January 2016, Ms Tymeson did not return to work. Thereafter she:

    filed a Charge of Discrimination against Parnell US and Mr Joseph with the Equal Opportunity Commission in February 2016; and

    commenced her proceeding in the Circuit Court of Jackson County by way of Petition in April 2016.

The proceeding in the Circuit Court was commenced against Parnell Corporate Services U.S. Inc. and Mr Joseph. That proceeding alleged (inter alia) sex discrimination in the form of sexual harassment and a failure “to make good faith efforts to establish and enforce policies to prevent unlawful discrimination against its employees” and damages for “retaliatory action against Plaintiff” and the negligent infliction of emotional distress. It was in that proceeding that there was filed in November 2017 the “Defendants’ Suggestions In Support Of Their Expedited Motion For Protective Order”. It was that document that recited that Ms Tymeson was “asserting claims against Parnell for alleged sex discrimination, harassment, and retaliation, and against Mr. Joseph for alleged negligent infliction of emotional distress”. It was in response to that application that Mr Joseph had given misleading instructions to those then representing Parnell and himself.

163    Of present relevance is the fact that Parnell incurred legal costs in defending the claims made and paid Ms Tymeson settlement monies.

164    In late October 2018, there was an unsuccessful mediation conference held in respect to the Circuit Court proceeding. The mediator was again Mr Jay Daugherty. The starting point for the mediation exposed somewhat different expectations – Ms Tymeson seeking US$260,000 and Parnell offering US$140,000. The mediator proposed a settlement of that proceeding by the payment of US$180,000. On 27 November 2018, there was executed a Confidential Settlement Agreement and Release. That Agreement contained (inter alia) the following terms:

Dimissal of Lawsuit With Prejudice

1.0    As part of this Agreement, Plaintiff hereby agrees to dismiss the pending Litigation with prejudice, each party to bear her and its respective costs. To accomplish this dismissal, the parties have directed their respective counsel to file a Stipulation of Dismissal, a copy of which is attached hereto and marked Exhibit A, and incorporated herein by this reference. Plaintiff agrees she will file the Stipulation of Dismissal within five (5) business days after payment to plaintiff as provided in Paragraph 2.0.

Consideration

2.0    In consideration for the dismissal of the Litigation with prejudice, Parnell will pay to Plaintiff and her counsel the total sum of One Hundred Eighty Thousand Dollars and No Cents ($180,000.00) (the “Settlement Amount”), to be allocated as follows:

…

165    The Agreement further provided:

6.3    Plaintiff agrees to provide reasonable assistance and cooperation to the Released Parties (other than Robert Joseph) in the preparation and execution of a written affidavit or sworn declaration in connection with any Joseph Proceedings. Plaintiff understands that by agreeing to provide an affidavit or declaration, she is not required to, but may, provide additional assistance to the Released Parties (other than Robert Joseph), for example, attending to give evidence as a witness at any court hearing in Australia or the United States of America, provided that the parties reach a mutual agreement concerning reimbursement of time and expenses for such assistance.

166    Counsel on behalf of Mr Joseph sought to resist the recovery of monies paid in respect to the proceedings commenced by Ms Tymeson upon the bases that:

    Ms Tymeson was not called as a witness to give evidence as to her reasons for commencing the proceedings so her credibility could not be assessed, and an inference should be drawn that her evidence would not have assisted Parnell;

and, even in the absence of her not being called:

    there was reason to question why she had commenced proceedings in the face of the facts that she initially had agreed to return to work and make no claims and that she only commenced the proceedings once the “redundancy” letter had been given to her.

167    There is no difficulty in concluding that the conduct of Mr Joseph in respect to the Gala Dinner and the subsequent events leading to the cessation of the employment of Ms Tymeson was a material cause occasioning the institution of the Circuit Court proceeding. The Petition as filed in the Circuit Court of Jackson County expressly pleaded (inter alia) that it was “[b]ecause of Plaintiff’s complaints, Defendant Parnell retaliated against Plaintiff by failing to remedy concerns and by instead terminating her employment” and that the “retaliation against Plaintiff was committed with malice or reckless disregard of her federally protected rights”.

168    Any reliance by Mr Joseph upon a failure to call Ms Tymeson was, with respect, misplaced. Although cl 6.3 of the Settlement Agreement provided that Ms Tymeson was “not required to, but may, provide additional assistance”, that clause certainly did not impose any obligation upon her to render Parnell assistance. Nor was Ms Tymeson at the time of hearing “in the camp” of Parnell such that it may have been expected that she would give evidence in support of their case. More importantly, however, is the fact that it remained elusive as to what evidence she could have given in respect to the Settlement Agreement. Whatever may have motivated her to file the Petition with the Equal Opportunity Commission or her reasons for commencing the Circuit Court proceeding, her reasons were not to the point. What was of central relevance was whether Mr Joseph’s conduct was a material cause of the proceeding being instituted and the settlement being reached and whether the settlement was reasonable. Upon those issues, such evidence as Ms Tymeson could have given remained elusive.

169    The reasonableness of the settlement in fact reached and the payment of the US$180,000 is evidenced by the view of the mediator. Although not conclusive, no other reason was advanced by Mr Joseph to question to reasonableness of the quantum paid.

170    The legal costs incurred in resisting the Petition and in respect to the Circuit Court proceeding, together with the monies paid by way of settlement of that Court proceeding, are thus recoverable.

Indemnification

171    The conclusions that the settlement monies paid by Parnell in respect to both the proceedings commenced by Ms Lindsey and Ms Tymeson are recoverable as damages in the Amended Cross-Claim, or at least a significant part of those monies and associated legal costs, raises for resolution Mr Joseph’s contention that he is entitled to be indemnified for the monies he would otherwise have to pay as damages.

172    Somewhat curiously Mr Joseph in his Third Amended Defence to the Amended Cross-Claim claims that “as a director and executive officer [he] is indemnified by Second Respondent in relation to any and all liability and legal costs arising from the matters pleaded…” in the Amended Cross-Claim. Reliance is placed upon cl 27 of the Constitution of Parnell Pharmaceuticals Holdings Ltd.

173    Clause 27 provides in part as follows:

27.    INDEMNITY AND INSURANCE

27.1    Indemnity in favour of Directors, Secretaries and executive officers

Subject to the Act and rule 27.2, the Company shall indemnify each Director, Secretary and executive officer to the maximum extent permitted by law, against any Liability incurred by them by virtue of their holding office as, and acting in the capacity of, Director, Secretary or executive officer of the Company, other than:

(a)    a Liability owed to the Company or a related body corporate of the Company;

(b)    a Liability for a pecuniary penalty order under section 1317G of the Act or a compensation order under section 1317H of the Act;

(c)    a Liability owed to a person other than the Company that did not arise out of conduct in good faith.

27.2.    Indemnity for legal costs

The Company shall indemnify each Director, Secretary and executive officer to the maximum extent permitted by law, against any Liability for legal costs incurred by them in respect of a Liability incurred by them by virtue of their holding office as, and acting in the capacity of, Director, Secretary or executive officer of the Company other than for legal costs incurred:

(a)    in defending or resisting proceedings, in which the Director, Secretary or executive officer is found to have a Liability for which they could not be indemnified under rule 27.1;

(b)    in defending or resisting criminal proceedings in which the Director, Secretary or executive officer is found guilty;

(c)    in defending or resisting proceedings brought by the ASIC or a liquidator for a court order if the grounds for making the order are found by the court to have been established (but this rule 27.2(c) does not apply to costs incurred in responding to actions taken by the ASIC or a liquidator as part of an investigation before commencing proceedings for the court order); or

(d)    in connection with proceedings for relief to the Director, Secretary or executive officer under the Act in which the court denies the relief.

174    The claim for an indemnity by Mr Joseph is, with respect, misplaced.

175    Clause 27, upon its proper construction, is confined in summary terms to an indemnification of Mr Joseph in respect to liabilities as against third parties; it is not a right to be indemnified in respect of monies that he may be obliged to pay Parnell.

176    The claim by Mr Joseph for indemnification is rejected.

The Employees Liability Act

177    In the Third Amended Defence to the Amended Cross-Claim Mr Joseph also seeks to resist liability to pay the settlement monies paid in respect to the United States proceedings by placing reliance on s 3 of the Employees Liability Act 1991 (NSW) (the “Employees Liability Act”).

178    That part of his Defence is somewhat curiously drafted but is expressed as follows:

As to 31 to 33, the Cross Respondent says that the settlement agreement should not have been paid and asserts that it was, according to the apprehension of any reasonable person, paid for the reason of, or reasons that included, the collateral purpose of making this Cross-Claim against the Cross Respondent so as to avoid the lawful obligations of the Cross-Claimants and the Cross Respondent says further that he relies on section 3 of the Employees Liability Act, 1991 (NSW).

Paragraphs [31] and [32] refer to the settlement monies paid in respect to the proceedings commenced by Ms Lindsey.

179    Section 3 of the Employees Liability Act provides as follows:

Employee not liable where employer also liable

(1)    If an employee commits a tort for which his or her employer is also liable:

(a)    the employee is not liable to indemnify, or to pay any contribution to, the employer in respect of the liability incurred by the employer; and

(b)    the employer is liable to indemnify the employee in respect of liability incurred by the employee for the tort (unless the employee is otherwise entitled to an indemnity in respect of that liability).

(2)    Contribution under this section includes contribution as joint tortfeasor or otherwise.

Section 5 further provides as follows:

Act not to apply to serious misconduct of employee or to conduct not related to employment

This Act does not apply to a tort committed by an employee if the conduct constituting the tort:

(a)    was serious and wilful misconduct, or

(b)    did not occur in the course of, and did not arise out of, the employment of the employee.

180    Again, with respect, the reliance placed upon s 3 of the Employees Liability Act is misplaced. That section, it is concluded:

    applies in respect to claims for which an employer may be vicariously liable for the conduct of an employee and does not extend to claims for damages arising out of a breach of duty owed by the employee to the employer;

and, even if s 3 be construed differently:

    the conduct of Mr Joseph falls within the exception provided for in s 5, that conduct constituting “serious … misconduct” for the purposes of s 5(a).

There is no necessity to consider s 5(b). See also: JK v State of New South Wales [2014] NSWSC 1084 at [30] per Harrison AsJ.

181    The reliance placed by Mr Joseph upon s 3 of the Employees Liability Act is thus rejected.

Condonation by Parnell

182    On behalf of Mr Joseph it was also contended in Closing Submissions that Parnell had “condoned” the conduct of Mr Joseph which was the subject of the Amended Cross-Claim.

183    Reliance was placed upon the following observations of Gillard J in Rankin [2001] VSC 150, (2001) 107 IR at 155:

[352]    An employer who has full knowledge of the misconduct of an employee, and who makes a decision to continue to employ the employee, cannot at a later date, unless of course other facts come to his knowledge, dismiss him summarily on the basis of the employee’s known misconduct. It is said that the employer has waived his right to dismiss the employee summarily, and thereby condones the misconduct.

[353]    In Phillips v Foxall (1872) LR 7 QB 666, Blackburn J said, (at 680):

“Now the law gives the master the right to terminate the employment of a service on his discovering that the servant is guilty of fraud. He is not bound to dismiss him, and if he elects, after knowledge of the fraud, to continue him in his service, he cannot at any subsequent time dismiss him on account of that which he has waived or condoned. This right the master may use for his own protection.”

[354]    It is noted that his Lordship used the words “elects”, “waive” and “condone” as meaning the same thing. There has been much written in the past 100 years concerning those three expressions in the law, and it is not for me to add to the material, on what each word means and their application. It is clear that no such waiver, condonation or election can take place until the employer has full knowledge of the misconduct. Hence, it must follow that an employer would not be held to have condoned the wrongdoing, where he believed the employee's denial and subsequently found out the truth: See Federal Supply Co v Angehrn (1910) 103 LT 150 (PC).

[355]    In that case, the Privy Council said (at 152):

“The word ‘condonation’, though used in some of the authorities cited by most distinguished judges, is not quite happily chosen. In the cases of Phillips v Foxall and Boston Deep Sea Fishing and Ice Co, so much relied upon by the respondents, the word is used as applicable to a case where a master with full knowledge of a servant’s misconduct continues to retain him in his, the master’s, service. It is likened to the case of a man who, knowing he has a legal right to do either of two things, determines or elects to do one of them in preference to the other, and also likened to the case of a man who, knowing that a forfeiture has been worked, and that he has the legal right to take advantage of it, deliberately abandons that right – that is, waives the forfeiture. In these cases, however, to which ‘condonation’ is compared, the burden of proving that the election had been made or the forfeiture was waived would rest upon him who relied upon the one or the other, and so it is with condonation. The master must be fully aware that the servant has by his misconduct forfeited the right to be continued in his master’s service, which is the correlative of the master’s right to dismiss him, before he can be held to have waived that forfeiture.”

(Emphases added).

[356]    No effort was made by his Lordship to distinguish between the three concepts.

[357]    Consistent with the authorities, the plaintiff, who relies upon condonation in the present proceeding, would have to prove:

(i)    that the employer had full knowledge of the employee's misconduct;

(ii)    that with that knowledge, the employer retains the employee in his service;

(iii)    that having made the election, he deliberately abandons his right to summarily dismiss the employee.

[358]    These are questions of fact.

184    There were at least two difficulties in the path of accepting any submission as to Parnell having “condoned” or “waived” any right to claim damages against Mr Joseph in respect to his conduct which is the subject of the Amended Cross-Claim.

185    First, a submission that Parnell had “condoned” the conduct of Mr Joseph is in substance a submission that Parnell had waived any entitlement to claim damages for that conduct. And, in that respect:

    the facts relied upon by Mr Joseph to found such a submission should have been expressly pleaded such that (inter alia) the facts of which it is alleged Parnell had “knowledge” must be identified – and there was no such pleading.

186    Second:

    the onus of proving those facts rested upon Mr Joseph (Rankin [2001] VSC at [355], (2001) 107 IR at 154-155; Carter v The Dennis Family Corporation [2010] VSC 406 at [124] per Habersberger J) and Mr Joseph has failed to discharge that burden.

Mr Joseph failed, with respect, to establish that Parnell had “full knowledge” of the conduct of Mr Joseph. To prove, for example, that Dr Bell was in attendance at the Gala Dinner in Hawaii may establish that he had knowledge of the comments made by Mr Joseph. But Mr Joseph has failed to establish that Dr Bell had knowledge of such further aspects of his conduct in respect to that event as to (for example) the instructions being given to Mr Orr in respect to the termination of Ms Lindsey. Indeed, some important aspects as to the content of the instructions given to Mr Orr only emerged during the course of the present hearing. And, if attention is shifted to Mr Joseph’s conduct in respect to inserting the syringe into Ms Lindsey’s leg, Mr Joseph has obviously failed to establish that Dr Bell had knowledge of the fact that has been established by the present proceeding, or knowledge on the part of Dr Bell that Mr Joseph also inserted a syringe into other employees.

187    Any reliance by Mr Joseph upon Parnell having condoned his conduct or waived any right to claim damages for his conduct in respect to either the events surrounding Ms Lindsey or Ms Tymeson is rejected.

CONCLUSIONS

188    It is concluded that Mr Joseph’s claims that his contract of employment had been unlawfully terminated are to be rejected. Grounds for the summary termination of his employment on 18 December 2017 have been made out. Any one or other of the three bases upon which Mr Joseph’s employment could be summarily terminated would have been sufficient to reject the claims made by Mr Joseph. Taken together, the decision becomes – with respect – unassailable.

189    It is further concluded that much of the claims made in the Amended Cross Claim have been made out. The conduct of Mr Joseph in respect to Ms Lindsey and his conduct at the Gala Dinner in Hawaii in January 2016 and his subsequent conduct leading to the cessation of employment of Ms Tymeson caused those two employees to institute proceedings in the United States. Monies paid in settlement of those proceedings, albeit not all of the monies, are recoverable as damages against Mr Joseph for his breaches of contract.

190    The Respondents accept that Mr Joseph is entitled to payments due under his contracts of employment. Those monies should be paid to him and are not to be set off as against the damages payable by Mr Joseph. It is understood that the quantum of payments to be paid to Mr Joseph have been, or will be, the subject of agreement.

191    The claims made under the Fair Work Act have not been resolved. Even had a contravention of that Act been made out, no penalties would have been imposed.

THE COURT ORDERS THAT:

The parties are to bring in Short Minutes of Orders to give effect to these reasons within 28 days.

Associate:    

Dated:    2 April 2020

SCHEDULE OF PARTIES