Smith v Ventia Pty Ltd

1. [1]

   On 24 April 2023 the Court heard a notice of motion filed by the defendant on 2 March 2023 claiming orders as follows:

2. [2]

   The underlying proceeding is an action by the plaintiff for damages for wrongful termination of his contract of employment with the defendant. The notice of motion was listed when the trial of the action had already been fixed for a date three weeks later, namely, 15 May 2023. The argument concerning summary dismissal of the proceedings proved more complex than had been anticipated when the hearing of the notice of motion was appointed to a date so close to the trial. It was not possible to prepare reasons promptly after the hearing of the application on 24 April 2023, or reasonably in advance of the trial date.

3. [3]

   Upon the Court concluding that the defendant’s application for summary dismissal should succeed it became necessary to pronounce orders to that effect and to vacate the trial fixture, on 12 May 2023. The following orders were made:

Circumstances giving rise to the plaintiff’s claim

1. [4]

   The plaintiff was employed as the defendant’s operations manager from 16 April 2018 until 4 September 2020. Throughout that period the defendant had a long-term contract with the Royal North Shore Hospital under which it managed the maintenance of the hospital’s facilities.

2. [5]

   In about November 2018 Ms Courtney Epps commenced working for the defendant as a project coordinator at the hospital. On 1 July 2020 Ms Epps made a formal written complaint concerning the plaintiff to Ms Janene Browning, a human resources manager also employed by the defendant. In broad terms her complaint was that the plaintiff had interacted with her in disrespectful and discouraging terms and had refused her requests for various opportunities, such as working from home and a pay rise. The details are not presently material. By 13 July 2020 the defendant had referred the complaint to a private firm of solicitors for investigation. The solicitors interviewed Ms Epps, obtained a written response from the plaintiff and interviewed him, interviewed some other employees nominated by either Ms Epps or the plaintiff and reviewed the defendant’s documentary Code of Conduct and its workforce behaviour policies.

3. [6]

   In July or early August 2020 Ms Epps left the defendant’s employment of her own accord. On 17 August 2020 the investigating solicitors issued to the defendant a report in which they found some of Ms Epps’ allegations substantiated and others not. The solicitors concluded that the plaintiff had breached the defendant’s Code of Conduct and its policies. Their recommendations included the following:

4. [7]

   On the basis of this report, by email of 3 September 2020 Ms Browning made the following recommendations, amongst others, to the defendant’s Executive General Manager:

5. [8]

   The Executive General Manager accepted Ms Browning’s advice, by return email, and on 4 September 2020 she communicated the decision to the plaintiff orally, in person. The plaintiff’s recollection of her words, as deposed to in his affidavit affirmed on 4 August 2022, is as follows:

6. [9]

   The plaintiff requested confirmation of this decision in writing and a copy of the solicitors’ investigation report. The defendant refused both. To obtain a copy of the report it became necessary for him to apply to the District Court for an order for preliminary discovery. That application was resisted by the defendant but the order was made by his Honour Judge Scotting on 8 June 2021.

7. [10]

   When the plaintiff commenced employment with the defendant he accepted a written offer dated 13 April 2018 that contained the following terms regarding termination:

8. [11]

   Item G of the Term Schedule prescribed a period of notice of five weeks, based upon the plaintiff’s age and period of service as at September 2020. It is common ground that in the conversation with Ms Browning referred to above she directed the plaintiff to collect his personal possessions and leave the defendant’s premises immediately. He was paid five weeks’ salary in lieu of notice. The termination of the plaintiff’s employment involved no breach of the express terms of the contract. It was authorised by cl 8.1. The plaintiff’s claim for damages depends upon the implication of one or both of two additional terms that the plaintiff has pleaded.

Implied “Good Faith Term”

1. [12]

   The first implied term that the plaintiff contends for is directed to conduct of the defendant prior to it exercising its right to terminate on payment in lieu of notice, pursuant to cl 8.1. This implied term is pleaded in par 8 of the Amended Statement of Claim as follows:

2. [13]

   It is made clear by the plaintiff’s pleading of alleged breach of this implied term, in par 19 of the Amended Statement of Claim, set out below, that the term is not alleged to have applied to or conditioned the defendant’s exercise of its right to terminate on notice under cl 8.1. The exercise of the express right to terminate is alleged to have been qualified by the second implied term, the Reasonable Exercise of Discretion Term, pleaded at par 9 of the Amended Statement of Claim. The plaintiff’s submissions on the hearing of the notice of motion confirmed that the implied Good Faith Term in par 8 is only said to have bound the defendant and to have been breached by it during the subsistence of the employment contract.

3. [14]

   Breach of the Good Faith Term is pleaded as follows:

4. [15]

   As it is only alleged that the Good Faith Term created obligations to be fulfilled by the defendant during the subsistence of the employment contract, it might be thought that breach of the Term, if it should be implied, could not be causative of the damage claimed by the plaintiff. The only head of damage claimed is loss of salary following termination, pleaded in pars 20-22 of the Amended Statement of Claim as follows:

5. [16]

   In order to establish a causative nexus between the defendant’s alleged breach of the Good Faith Term during the subsistence of the contract and the plaintiff’s loss of earnings after termination, the plaintiff submits that the defendant’s failure to fulfil the Good Faith Term caused it to exercise the cl 8.1 right, which otherwise it would not have exercised. That is a novel concept of causation of damage. It involves, as the first link, that one party’s failure to perform a contractual obligation may be regarded in law as having caused that same party to exercise, regularly, a contractual right to bring the contract to an end. The second link is that the first party’s exercise of the right of termination occasions economic loss to the party who was innocent in relation to the earlier breach. The plaintiff’s argument purports to join the two links as a chain of causation, from the employer’s earlier failure to perform a substantive contractual obligation through to the loss occasioned by its exercise of the right of termination.

6. [17]

   The plaintiff submits that this analysis satisfies the “but for” test of causation of damages for breach of contract. It is said that but for the defendant’s earlier breach of the implied Good Faith Term the defendant would not have exercised its cl 8.1 right of termination and the plaintiff would not have suffered his subsequent loss of earnings.

7. [18]

   In JD Heydon, Heydon on Contract, 2019, Thomson Reuters the learned author summarised the law on this subject as follows (some citations omitted):

8. [19]

   In further discussion of extraneous events the learned author considers cases of intervening conduct by the innocent party or by a third party. The author does not identify any case in which it has been held that, following a non-repudiatory breach, if the at-fault party brings the contract to an end by exercising an unconstrained right to do so on notice or on payment in lieu, the court may nevertheless find an unbroken chain of causation between the original breach and any loss that the innocent party suffers as a result of the lawful termination. I am unaware of any decision that would permit the court not to recognise the exercise of that right as a novus actus inteveniens.

9. [20]

   The plaintiff submits that Ms Browning’s words at the point of termination, quoted at [8] above, prove a causal link from breach of the alleged Good Faith Term to the employer’s exercise of its rights under cl 8.1 and from that event to the loss of income that followed. However, Ms Browning’s nomination of a ground or reason for termination under cl 8.1, where none was required by the contract, cannot establish legal causation of loss of income damages.

10. [21]

    The plaintiff’s contention that his income loss due to termination was caused by breach of the implied Good Faith Term is not maintainable in law. Assuming that such a term is to be implied and that it was breached as alleged in par 19 of the Amended Statement of Claim, the first link in the causative chain propounded by the plaintiff is insupportable. It is not legally recognisable that the defendant’s failure to fulfil an affirmative obligation under the contract may be treated as a cause of it exercising its distinct contractual right in cl 8.1. Perhaps as another way of expressing the same point, the defendant’s exercise of its cl 8.1 right of termination must in law be regarded as having intervened to break any causal connection between the original breach of the Good Faith Term and the plaintiff’s loss of income following termination.

11. [22]

    The plaintiff cited Van Efferen v CMA Corporation Limited [2009] FCA 597. In that case the employer (“CMA”), based in Geelong, was performing a demolition contract at Port Hedland. The work there was underway in 2006 and was expected to continue until April 2008. The employee was assigned to work on the contract as marine supervisor. His workplace agreement contained termination provisions that were summarised by Tracey J as follows:

12. [23]

    Clause 2.10 of the agreement prescribed a grievance procedure that was expressed to be “designed to deal with CMA’s concerns about the behaviour of its employees”. The procedure comprised four steps, the first of which was that the employee and CMA’s manager would “discuss the issue”. If the employer’s concern continued there were further, graduated steps to be taken, with formal counselling and warnings to be given in writing. Ultimately, a written warning could be given by a more senior manager and if CMA was still concerned the employment could be terminated.

13. [24]

    In mid-October 2006 CMA’s site manager in Port Hedland expressed to the employee strong dissatisfaction with him and then arranged for him to be recalled to Geelong. The company knew that it had no gainful work to offer him at its base. He was engaged upon maintenance tasks at Geelong for about two weeks until his employment was terminated, with payment of wages in lieu of notice and a redundancy payment and other entitlements in accordance with the contract. The employee’s position at Port Hedland had not become redundant but was filled by another person.

14. [25]

    Tracey J held that CMA had breached cl 2.10 by failing to carry out any of the steps that the clause prescribed for resolving the Port Hedland site manager’s concerns. The employee claimed his lost income after termination as damages for the breach of cl 2.10. The Court was satisfied that if his employment had not been terminated the employee would have continued on the demolition contract until it was completed in April 2008. His Honour noted that the issue of whether his loss of income following termination was caused by CMA’s breach of its obligation to adhere to the grievance procedure in cl 2.10 arose in the following way:

15. [26]

    His Honour rejected CMA’s factual contentions that if its breach of cl 2.10 had not occurred the employee would in any event have been removed from the Port Hedland project before April 2008. CMA propounded a range of other circumstances that would have caused it to recall him and submitted that it would then have had no reason to continue his employment and would, instead, have terminated it. His Honour determined the issue of causation of damage as follows:

16. [27]

    The employer’s arguments about causation in Van Efferen v CMA Corporation Limited were limited to the factual issue of whether its failure to implement the grievance procedure was a proximate cause of the employee having been recalled to Geelong. That was resolved in favour of the employee. CMA appears not to have challenged the proposition that, upon the employer then exercising its right to terminate on payment in lieu of notice, loss of earnings that followed from the termination should be regarded as having been caused by the earlier breach of cl 2.10 that had resulted in his recall. No submissions were made that the exercise of the right to terminate was an intervening event between the failure to observe the grievance procedure and the loss of income. There was no submission that the breach of cl 2.10 could not in law be regarded as having caused the employer to exercise the independent right of termination, or that the exercise of that right disrupted and negated any legally recognisable causal connection between the original breach of cl 2.10 and the loss of earnings. Tracey J did not have to decide any such questions and his decision is therefore not authority against the conclusion that I have reached in the present case, where issues of that nature were raised by the defendant (at pp 9, 10, 26-28 and 65-68 in the transcript of oral argument) and were responded to by the plaintiff’s counsel (at pp 37-41, 57).

17. [28]

    The plaintiff’s claim based upon the implied Good Faith Term is doomed to failure on the issue of causation of damage. I will consider the further authorities cited by the parties, relative to the cause of action pleaded in pars 8 and 19-22.

18. [29]

    In Russell v The Trustees of the Roman Catholic Church [2007] NSWSC 104 the contract of employment between the plaintiff and the Church was made orally and informally, with no express terms concerning duration or termination. The Church caused an investigation to be made of allegations that the plaintiff had engaged in sexual misconduct towards children. The Church concluded “that there was a real risk to children in its charge and which risk it was not prepared to take”: [163]. It then immediately terminated the plaintiff’s employment, without notice but with payment of six months’ salary in lieu.

19. [30]

    Rothman J held:

20. [31]

    Rothman J said that in ordinary circumstances damages would be payment of salary for the period of reasonable notice that ought to have been given, which his Honour thought would have been no less than 12 months: at [169]-[170]. The plaintiff obtained an order for reinstatement from the Industrial Relations Commission, consequent upon which the Church paid the plaintiff the income he had not received. Accordingly, no damages had been suffered as a result of the wrongful termination.

21. [32]

    His Honour held that a duty of the employer to act in good faith was implied by law in the contract of employment. First, as to the content and scope of the implied term his Honour said this:

22. [33]

    Then at [118], after referring to the absence of any express terms regarding how the parties were to regulate their relationship and to the fact that their exercise of rights and performance of duties would necessarily impact upon each other, his Honour held as follows:

23. [34]

    Rothman J also held that there is implied by law in an employment contract a separate duty of trust and confidence, which his Honour expanded in the following terms:

24. [35]

    At [134] Rothman J acknowledged that issues concerning the content of implied terms of good faith and of mutual trust and confidence “await clarification by an appellate court”. His Honour’s reasons continued as follows:

25. [36]

    The plaintiff in that case claimed damages for psychological injury flowing from the way in which the employer had investigated his conduct, before terminating the contract. At [139]-[140] his Honour noted that the plaintiff did not claim that any duty to avert psychological damage “arose in relation to the termination of employment”. Rothman J added the following:

26. [37]

    His Honour found that the employer had breached its implied contractual duties by the manner in which it had investigated the allegations against the employee. However, he found that this breach “occasioned no damage and none is awarded”: [168]. The principal significance of this decision for present purposes lies in what his Honour said at [141]. Rothman J proceeded on the basis that there was to be implied in the employment contract a term substantially to the effect of that propounded in par 8 of the Amended Statement of Claim that is now under consideration. His Honour’s conclusion that such a term “will not interfere with the right of a party to a contract of employment to terminate the contract” and will not “operate in circumstances where the termination is, as a matter of fact and as a matter of law, without cause” supports my view that consequences to the employee from termination without cause, such as loss of income, cannot be treated as damages for breach of the implied duty of good faith. To recognise such damages as recoverable for breach of the implied term would allow it to “interfere with” the employer’s right of termination.

27. [38]

    On appeal, in Russell v The Trustees of The Roman Catholic Church [2008] NSWCA 217, Giles JA assumed that there were implied terms in the contract of employment “that the Church would act in good faith or would not without reasonable cause conduct itself so as to damage or destroy the relationship of trust and confidence”. It was not necessary for his Honour to decide the issue: at [1]. Campbell JA proceeded on the same basis: at [73].

28. [39]

    Basten JA noted the uncertain scope of the terms that Rothman J said were implied in the contract, particularly having regard to the fact that their field of operation must be constrained by the employer’s contractual right to terminate at any time on notice. His Honour held as follows (citations omitted):

29. [40]

    At [34] Basten JA referred to:

30. [41]

    In Russell v The Trustees of The Roman Catholic Church Basten JA did not consider that any breach of the implied terms identified by Rothman J had been established. However, his Honour addressed the question of whether any damages could have been awarded, for a breach constituted by the manner in which the employer had investigated allegations against the employee, if there had been established a causal connection between any such breach and the termination. On that subject his Honour concluded as follows:

31. [42]

    The critical points of Basten JA’s reasoning may be summarised as follows:

32. [43]

    I do not see how the position can be any more favourable for an employee who is lawfully dismissed, on notice or on payment in lieu, rather than wrongfully, following an employer’s breach of an implied obligation of good faith. To adapt Basten JA’s words in [63], where “steps taken by an employer leading up to a dismissal” are in breach of the implied term, “the loss will almost inevitably flow from the termination of employment, rather than the manner in which the decision to terminate was made”. Basten JA concluded that damages for breach of the implied term would be limited to whatever would be recoverable for the wrongful termination. It should follow that if the termination was lawful, damages would be limited to nil.

33. [44]

    Every aspect of the reasoning in Russell v The Trustees of the Roman Catholic Church reinforces my conclusion, on grounds additional to the analysis of causation undertaken earlier in these reasons, that the cause of action pleaded in pars 8 and 19-22 of the Amended Statement of Claim cannot succeed according to law. That is so irrespective of whether the putative Good Faith Term is implied by law or should be implied in fact. It is not necessary for me to determine whether the Term is implied, on either basis.

Implied “Reasonable Exercise of Discretion Term”

1. [45]

   The plaintiff has pleaded the Good Faith Term and propounded the extended causal connection to his post termination loss of income, as considered above, in order to overcome the defendant’s apparently unconstrained express right to terminate on notice pursuant to cl 8.1. The plaintiff’s alternative means of overcoming that obstacle to his damages claim is the implication of a term that would condition and restrict the defendant’s exercise of its right to terminate under cl 8.1. This term is pleaded in par 9 of the Amended Statement of Claim as follows:

2. [46]

   Breach of the Reasonable Exercise of Discretion Term is pleaded in par 19A, which merely invokes the same conduct as alleged in par 19 – as follows:

3. [47]

   In Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 347; [1982] HCA 24 Mason J (as his Honour then was) affirmed that criteria for implication of a contractual term upon the basis of facts and circumstances are as follows:

4. [48]

   The plaintiff’s Reasonable Exercise of Discretion Term could not possibly satisfy criteria (2)-(5), upon any assumption about what circumstances surrounding formation and performance of the contract might be established at a trial. It is sufficient to refer to item (2). There is no reason of business necessity why the employer should not be free to terminate the employment pursuant to cl 8.1 without any restraint additional to what is expressed in that clause. A workable contract of employment depends upon harmonious personal relations. The mutual right to end such a contract on notice is a safety valve that enables people who are not getting along to get away. That includes enabling the employer to end the employment of a worker who appears to be in personal conflict with another. To that end, either party needs to be at liberty to end the relationship upon subjective considerations, even idiosyncratic or capricious ones. No term should be implied that, by intruding an objective reasonableness test, would lock the parties into continuance of an employment relationship that one of them regards as unacceptable at a personal, subjective level. No doubt that consideration informs the common law’s implication, in a contract that is silent on the subject of termination, of an unqualified provision for termination by either party on reasonable notice: Russell v The Trustees of the Roman Catholic Church at [150] (Rothman J).

5. [49]

   Nor is there implied by law any qualification to the express right of termination on notice: Russell v The Trustees of the Roman Catholic Church at [150] (Rothman J), quoted at [35] above; Bartlett v Australia & New Zealand Banking Group Ltd (2016) 92 NSWLR 30; [2016] NSWCA 30 at [87] (Macfarlan JA, Meagher JA agreeing at [107]). In the latter case the relevant part of the provision for termination with notice was in the following terms:

6. [50]

   I see no material difference between that clause and cl 8.1 of the contract in the present case (quoted at [10] above), such as would warrant any different conclusion from that of Macfarlan and Meagher JJA in Bartlett v Australia & New Zealand Banking Group Ltd. At [87] Macfarlan JA said this:

7. [51]

   As the Reasonable Exercise of Discretion Term cannot be implied either in fact or in law, the plaintiff’s cause of action on pars 8A and 19A-22 is also doomed to failure. That leaves the plaintiff with no pleaded claim capable of being sustained in law. Hence the dismissal of the proceedings by the orders of 12 May 2023, referred to at [3].