Simakoff v The Federation of Ethnic Communities' Councils of Australia Incorporated [1999] ACTSC 58 (11 June 1999)

Last Updated: 7 October 1999

Simakoff v The Federation of Ethnic Communities' Councils of Australia Incorporated

[1999] ACTSC 58 (11 June 1999)

CATCHWORDS

DAMAGES - Wrongful termination of employment - Fixed term contract of employment - Measure of the value of benefit of a car - No issue of principle.

No. SC 486 of 1997

Coram: Master T Connolly

Supreme Court of the ACT

Date: 11 June 1999

IN THE SUPREME COURT OF THE )

) No. SC 486 of 1997

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: ALAN SIMAKOFF

Plaintiff

AND: THE FEDERATION OF ETHNIC

COMMUNITIES' COUNCILS OF

AUSTRLIA INCORPORATED

Defendant

ORDER

Judge Making Order: Master T Connolly

Where Made: Canberra

Date of Order: 11 June 1999

THE COURT ORDERS THAT:

1. The parties have leave to bring in short minutes of orders to give effect to these reasons or to make further submissions in consequence of findings made herein as they may consider appropriate within 14 days.

1.

1. This is a claim for damages flowing from a wrongful termination of employment. The plaintiff commenced employment with the defendant, the Federation of Ethnic Communities' Councils of Australia Incorporated as Chief Executive Officer on 24 April 1995 pursuant to a contract. In the contract, and in much of the documentation, the defendant is referred to as FECCA, and in these reasons I will also adopt this term. His employment was terminated on 1 March 1997. He commenced these proceedings in June 1997. After a protracted series of interlocutory proceedings a default judgment was taken out on 14 March 1999, and the matter was listed for hearing before me to assess the damages that should be awarded as a consequence of the wrongful termination.

2. The plaintiff has for many years been a public servant, and prior to his appointment with the defendant he was employed in the Office of Multicultural Affairs, which was then a part of the Department of Prime Minister and Cabinet. He was aware that the defendant was moving its headquarters to Canberra, and he entered into discussions with the defendant about the position of Chief Executive Officer. He says that he was aware that the maximum period of time that could be approved in one instance for leave without pay under the relevant provisions of the Public Service Award for a "public interest" grant of leave without pay was three years. He says that he did not wish to resign from the Public Service at that time. The contract was structured so that the initial period of employment would coincide with the initial grant of leave. Clause 2 of the Contract provides:

"The period of engagement shall be from 24 April 1995 to 24 April 1998 (called "term of engagement") subject to the Department of Prime Minister and Cabinet's agreement to releasing him on leave without pay from that date."

3. The contract also provided an Option, which is set out in Clause 3 as follows:

"If the employee has not breached any of the terms of this agreement, then three months prior to the expiration of the term of engagement, FECCA shall deliver a written offer to the employee to continue his employment with FECCA for a further period of at least two years. If the employee does not accept the offer (in writing) before the expiration of the term of engagement then the employment of the employee ceases on 24 April 1998. If the employee accepts the offer (in writing) before the expiration of the term of engagement then the employee shall be employed for a further term of at least two years on the same terms and conditions as are set out in this agreement."

4. After the plaintiff's employment was terminated on 1 March 1997 he was re appointed to a position in the Australian Public Service on 20 March 1997. This was in the Department of Immigration and Multicultural Affairs at the level of a Senior Officer, Grade C. The Office of Multicultural Affairs where he had previously worked in the Department of the Prime Minister and Cabinet had been transferred to the Department of Immigration and Multicultural Affairs as part of the reorganisation of the Public Service following the change of Government in March 1996, and the plaintiff was in effect returning to his former area at his former level.

5. His claim is for the difference between his earnings and allowances under the contract and his present earnings. He has clearly properly made efforts to mitigate his loss, and indeed he obtained employment within a period of one month for which the defendant did make a payment in lieu of notice. His employment with the defendant was however at a higher level, and he claims the difference, as well as loss of benefits.

6. Although the plaintiff's affidavit made reference to his feelings of distress flowing from his termination, his counsel conceded that this did not sound in damages in an action for damages for wrongful termination. This is appropriate. The law relating to the assessment of damages for breach of contract is well settled. The starting point is the principles stated in Hadley v Baxendale [1854] EWHC J70 (Exch); (1859) 156 ER 145 at 181:

"The measure of damages in an action for breach of contract is well settled. It is such loss as may fairly and reasonably be considered as arising according to the usual course of things or may reasonably be supposed to have been in the contemplation of the parties at the time of making the contract as the probable result of a breach. The motive or state of mind of a person who is guilty of a breach of contract is not relevant to the question of damages for the breach."

7. The principle first laid down by the House of Lords in Addis v Gramaphone Co Ltd [1909] AC 488 that damages for wrongful dismissal cannot include compensation for the distress caused by the dismissal has been reaffirmed as good law by the Full Court of the Industrial Relations Court of Australia as recently as 1996 (Burazin v Blacktown City Guardian Pty Ltd (1996) 142 ALR 144 per Wilcox, Von Doussa and Marshall JJ).

8. The plaintiffs claim was for the difference between his earnings at FECCA for the entire period of the contract, which he says is a fixed term contract for five years, plus the value of his lost benefits, relating to the use of a car, mobile phone and computers, loss of reimbursements for expenses he says were incurred as a result of his employment with FECCA, and loss of long service leave benefits. There is also a claim relating to loss of superannuation, which relates only to interest on the late payment of the employer contributions to the Public Service scheme made by FECCA. The issues in dispute between the parties relate to the length of the contract, the valuation of the benefit for the car and other benefits, questions as to which items claimed by the plaintiff are properly expenses incurred, and the issues of long service leave and superannuation.

9. I am satisfied that the appropriate approach to the measure of damages in the case of the breach of a fixed term contract of employment, where no provision is to be found in the contract providing a right for the employer to terminate upon the giving of a notice period, is the sum necessary to put the employee into the position which he would have been had the contract run its full term. The principles to be applied are well summarised by O'Brien J in Kilburn v Enzed Precision Products Pty Ltd (1988) 4 VIR 31 at 33, cited with approval by Whitlam J in Patterson v Middle Harbour Yacht Club (1996) 64 FCR 405:

"The measure of damages for wrongful dismissal is, prima facie, the amount that the plaintiff would have earned had the employment continued according to contract, including the value of benefits such as allowance or bonus or car, subject to a deduction in respect of any amount received from any other employment which the plaintiff, in minimising damages, obtained."

10. The primary measure is thus the salary for the balance of the term, plus any contractual entitlements. It is appropriate to make a deduction where, as here, the employee has mitigated his loss by finding alternative employment, and so the measure of damages is the difference between his salary and entitlements under the contract, and his present salary and entitlements.

11. In assessing damages for wrongful termination I am satisfied that the taxation aspects of the award should be considered by a court. Prior to 1984 damages for wrongful dismissal were taxed at 5 per cent, and the approach seemed generally be to calculate damages based on net earnings, in much the same way that loss of earnings are calculated in personal injuries matters. Since that time, however, damages are taxed as an eligible termination payment at a fixed rate of tax, being 31.5 per cent (Income Tax Assessment Act (1936) Part III Div 2 Subdiv AA). Counsel for the plaintiff urged that, in determining the final judgment sum, the process of "grossing up" adopted by Heery J in Martin v Tasmania Development and Resources [1999] FCA 593 and Whitlam J (1996) 64 FCR 405 be adopted. In order to facilitate this it was proposed, and counsel for both plaintiff and defendant agreed to this, that I should make findings of fact and then give the parties leave to file proposed final orders giving effect to these findings and reflecting the taxation aspects of the findings of fact.

12. It is appropriate for me to then make findings on the term of the contract, and the entitlements of the plaintiff under it.

13. It is the plaintiff's case that the contract is a fixed term contract giving the employee a right to employment with the defendant for five years. The terms of the contract are somewhat unusual, in that they do provide an option, but only exercisable by the plaintiff, to leave after three years. The employer has no option to refuse the renewal of the contract. There is no provision for termination at the choice of the employer by giving notice. The only termination is for cause, and that is not relevant, as I am entitled to assume, in the light of the default judgment, that the plaintiff has acted throughout in accordance with his contractual obligations. It seems to me that this amounts to a fixed term contract for five years, and I so find.

14. It was put to the plaintiff that he may have chosen not to have continued in his employment after three years, but he denied this. He did acknowledge that he would have had to either obtain a further period of leave from the Public Service, or make a decision to retire from the Public Service. He said, however, and there was no evidence to contradict this, that he had an expectation that a request for leave, which would have been made to the same superior officers who had approved his first period of leave to the maximum statutory period, would have received favourable consideration. I am satisfied that I should accept the plaintiff's evidence that he intended to remain with the defendant for the full period of the contract, and that there should be no discount in this respect.

15. I am thus satisfied that the plaintiff is entitled to his salary for the duration of the contract, less his earnings since he has mitigated his loss be returning to a Senior Officer Position within the Australian Public Service. The contract provides that the salary shall be

"...at the same rate that applies to a Senior Officer Grade A in the Australian Public Service (excluding the Senior Officer Grade A work related expense allowance)."

16. I am satisfied that, at the time of the plaintiff's termination, his salary was in the sum of $68,497. At the time of his appointment the evidence is that a Senior Officer Grade in the Australian Public Service was entitled to a salary, and in addition a sum for allowances, in the amount of $3,101. At the time of his appointment this money was available to reimburse senior officers for a range of work related expenses. At some time, and the evidence was not precise as to when, the Australian Public Service arrangements changed, and instead of making this amount repayable for claimed expenses, it was "rolled up" into regular salary payments. It was, however, on the evidence before me, still an identifiable sum.

17. It is clear that the contract which the plaintiff signed with the defendant was clear in excluding from his remuneration the Senior Officer Grade A work related expense allowance. This should thus not be taken into account in determining his payments. Although the Australian Public Service has changed its practice and now pays this amount as a part of the normal salary package, it is clear that this was specifically excluded from the plaintiff's package, and it would be inappropriate to bring this amount into consideration. To the extent that the plaintiff has received or been entitled to an expense allowance in his employment with the Australian Public Service since 20 March 1997, this is fully to be counted as a part of his remuneration in determining the difference between what would have been his earnings with the defendant and his actual earnings.

18. The plaintiff also had provisions in his contract to deal with other benefits. These are set out in the contract as follows:

"5.1 FECCA shall pay the employer contribution to the Commonwealth Superannuation Scheme.

5.2 In addition to any salary FECCA shall pay to the employee by way of reimbursement the amount of all expenses reasonably and properly incurred by him in the performance of his duties.

5.3 In addition to the salary the employee shall have the use of a fully maintained motor vehicle (with hands free telephone option installed), a 486 33 MHZ computer with relevant operating software and printer and a digital mobile telephone with paging option."

19. There is little dispute concerning the superannuation entitlement. I am satisfied that the defendant was obliged to pay the plaintiff's superannuation contribution to the Commonwealth Superannuation Scheme. This was an amount calculable on the basis of his substantive salary at his old public service position, and I am satisfied that for the period of his employment this amounted to $9,654.75. This was eventually paid, but I am satisfied that the plaintiff's claim that the payment was delayed so that he missed out on ten months interest on this money is made out. He claims the sum of $1,399.94 being ten months interest on the sum of $9,654.75. I am satisfied that this amount was due to be paid in at the time of his termination, and accordingly this amount should be awarded.

20. The plaintiff has set out at paragraph 7 of his affidavit of 6 May 1999 his claim for reimbursements pursuant to paragraph 5.2 of his contract, which amount in total to $7,239.15. The only guide from the contract is the provision that the plaintiff is entitled to reimbursements for

"...all expenses reasonably incurred by him in the performance of his duties".

21. For some of the expenses claimed in paragraph 7 the plaintiff says that he had in fact during the time of his employment been paid for equivalent claims. This is particularly the case with a list of expenses for meals and travel related expenses, which amount to $2,115.70, all set out with relevant dates in the affidavit, and the plaintiff says that he has provided the original receipts to the defendant. The plaintiff could have been cross examined as to any of these amounts, but was not, and they all seem to me to relate to relevant expenses incurred in travelling or entertaining on behalf of the defendant. I would allow this claim for $2,115.70.

22. The plaintiff has also made claims for telephone expenses for his home phone. This falls into two claims, one a claim for a quarter of the bill for calls made for the period from February to May of the year of his dismissal, and the other for 40% of the line rental for the entire period of his employment. I note that the contract provides the plaintiff expressly with the use of a mobile telephone, and makes no provision at all for home telephone expense defrayal, while expressly excluding the Senior Officers Allowance. I do not think that it is appropriate to read in to this a provision that would cover this type of expense, which has not been previously paid, and I do not think that the plaintiff has a right to reimbursement for his private home telephone.

23. There is a claim for reconnection of the plaintiff's private mobile phone. His evidence was that he purchased a private mobile phone, and allowed this service to lapse, but then re connected it upon the termination of his employment. This relates in my view solely to his private affairs, and is not appropriate to reimburse.

24. There are amounts shown to his private credit card in addition to the reconnection of his mobile phone for cab charges and a car wash. These were not shown to be connected to his employment. I am also not satisfied that a claim for $43.00 for a diary is an appropriate charge to be reimbursed.

25. There are expenses for the cost of newspapers delivered to the plaintiff's home for the whole of the period of his employment. These had never been claimed while he was in employment, and indeed he gave evidence that, during that period of employment, he decided to cancel newspaper deliveries to the FECCA office to save money. I do not see the delivery of newspapers to his home, in the absence of any provision in the contract, to be a reasonable expense.

26. There is also a claim for dry cleaning of suits for the whole of the period of his employment, in the sum of $129.18, and a sum of $1,906.92 to cover purchases of suits, shirts, ties and trousers. I do not think that the employer, in the absence of any specific provision in the contract, is responsible for the plaintiff's clothing. No such claims had been paid while he was working for the defendant. The plaintiff said that the Senior Officer Allowance could be utilised by public servants to purchase office clothes. That may be so, but this allowance was of course excluded from his contract. I would not allow these claims.

27. The plaintiff claimed the cost of his American Express credit card ($165) and the cost of his travel insurance ($110). It was his evidence that both of these were ongoing expenses for items which he held prior to his employment. I do not think that these fall within the terms of the contract and I would not allow these claims.

28. The plaintiff also claimed for memberships of associations. One of these was for an organisation called "Communique", which is associated with a commercial supplier of software and provides software support and some discounts. The plaintiff had been a member for many years. I do not think that this is legitimately an expense of his employment and I would not allow this claim. There is also a claim for membership of the Australian Society of Association Executives for the period of his employment. This does seem to relate specifically to his role as Chief Executive of an association, and was not an organisation that he had privately been a member of. I would allow this claim for $275.

29. The plaintiff also claims for the value of the benefit conferred by the contract in relation to the use of a motor vehicle. The contract provided for the plaintiff to have the

"...use of a fully maintained motor vehicle".

30. No provision was made in the contract as to any restriction on the private use of this vehicle. The plaintiff originally quantified this as a claim for $11,160 per annum. At the hearing I gave leave to this to be expanded to a claim for $20,522 per annum. This figure was based on a report from a consultant that the annual commercial cost of the vehicle supplied to the plaintiff (which was an Australian made six cylinder sedan at the upper range) would be $11,825, and that an employer providing such a benefit to an employee would incur a Fringe Benefit Tax cost of $8,697. The plaintiff claims the cost of the vehicle and the fringe benefit cost.

31. I am unfamiliar with any authority, and could not be directed to any, to support the proposition that in such cases the value to the employee includes the tax paid by the employer. There was some conflict on the evidence as to whether the defendant in fact paid Fringe Benefit Tax. The plaintiff said that, in the first year, it did not, because it was deemed as a government funded agency, but that this position later changed. This seems to me to well illustrate the difficulty. The employee is to be compensated for the loss of the value of the benefit to him. I am satisfied that the commercial cost of the use of such a vehicle is as claimed, that is, $11,825. It would cost the plaintiff this sum if he was to lease a replacement car on the same basis. Whether the employer paid Fringe Benefit Tax on the lease, or purchased the vehicle, whether free of sales tax or not, should not effect the value of the benefit to the employee, and it is this sum that is the maximum basis of the compensation by way of damages.

32. I note that, in the report attached to the plaintiff's affidavit, the commercial value of $11,825 is calculated by assuming the purchase price of the vehicle was $35,500. It goes on in the penultimate paragraph to note that, as the defendant is probably a sales tax exempt organisation, the purchase price of the vehicle

"...would have been considerably less than the $35,500 quoted above."

This further illustrates the need to value the benefit in the hands of the employee, and not as a cost to the employer, which may be higher (taking into account Fringe Benefit Tax) or lower (if the organisation is exempt from Fringe Benefits Tax or Sales Tax.)

33. Counsel for the defendant urged that the plaintiff be awarded only a proportion of the commercial value of the vehicle, equivalent to the value of his private use. In evidence the plaintiff indicated that he would use the vehicle for private use to a maximum of about 20% of the use of the vehicle, and it was this sum that was urged upon me.

34. The plaintiff was entitled to the use of the vehicle for unrestricted purposes, that is for private use as well as official duties and getting to and from work. It was his evidence that he disposed of his private vehicle. Where an employee is provided with full vehicle use entitlements under a contract, it seems to me that the appropriate way to value that entitlement is, on its face, the commercial value of the use of such a vehicle. I have reviewed the authorities cited by the authors of Macken, McCarry and Sappideens The Law of Employment (4^th ed, Law Book Co 1997) in support of the proposition that an employee is entitled to monetary compensation for the loss of the use of a car, and can find no support for the proposition that the value of the vehicle is to be divided into private and official use, and the private use only is to be compensated. I note that in NSW Cancer Council v Sarfaty (1992) 28 NSWLR 68 the Court of Appeal held that the trial judge was in error in making an award for the loss of the use of a vehicle because the contract itself did not provide for any right to use a vehicle for other than travelling on official business. In the other cases there cited the approach taken seems to have been to seek to determine the commercial value of the vehicle, and apply that for the period of the loss.

35. I find that the annual value of the vehicle supplied to the plaintiff, and thus the basis of his loss, is $11,825. The evidence is that the plaintiff actually continued to hold on to the vehicle and use it for some time after the employment ceased, and that the car was handed in in September 1997. He has thus lost the use of the vehicle from that month until the notional end of the contract, being April 2000. I would thus award the sum of $30,548 being the value for the loss of the vehicle for 31 months.

36. The plaintiff also claims for the value of a work supplied computer. The contract provides that he is entitled to

"...a 486 MHZ computer with relevant operating software and printer."

37. In his affidavit Mr Simakoff says that this is valued at about $5,000. While this may have been a fair estimate of the new value of the computer in 1995, I note that the plaintiff has had the use of it until now (he still has this equipment at his home). I thus must value the use for the period from this decision up to April 2000, for computer equipment that is now 4 and a half years old. I note that the plaintiff described the machine as

"...3 to 4 generations old".

When asked if it still worked, he said

"So does a typewriter with carbon paper".

38. I note that the plaintiff says that he has other computers in his home. I am not satisfied that a computer at this age is of any great value to the plaintiff, given his access to other equipment, and would only make an assessment of $50 for the remaining period. I note that he will return the equipment to the defendant, and also that he should return the Windows Software that he purchased for this computer. I would allow him the $90 he spent on this software for the FECCA computer as a reasonable expense.

39. The plaintiff is also entitled to the use of a mobile phone under the contract. In his affidavit he says that this is valued at $3,860. In his statement of claim he said that the value of this was limited to call value of $360 per annum. He also in the statement of claim referred to the value of the phone itself as being $1,200, but in the present market I doubt whether any real value can be attributed to a phone handpiece which is often supplied at a notional sum or free with a mobile phone contract. I would allow the plaintiff the sum particularised for the value of calls, being $360 per annum or $30 per month for the period from his termination to the end of the contract, being 26 months, for a total award of $780.

40. There is also a claim for the plaintiff's loss of long service leave entitlements, which is not vigorously opposed. This is particularised as a claim for $3,138.87 during the period of the plaintiff's employment with the defendant, and $1,056.16, being the difference between what his entitlements would have been if he continued in the position and the entitlements he has accrued in the Public Service. I would allow this claim for $4,195.03.

41. I will give the parties leave to bring in short minutes of a final order to give effect to these findings of fact.

I certify that this and the thirteen (13) preceding pages are a true copy of the Reasons for Judgment herein of the Master, Mr T Connolly.

Associate:

Date: 11 June 1999

Counsel for the Plaintiff: Mr R Goot

Instructing Solicitors: Barker Gosling

Counsel for the Defendant: Mr G Lunney

Instructing Solicitors: Sutherland & Tiirikainen

Dates of hearing: 26 May 1999

Date of judgment: 11 June 1999