Nr Pty Limited v William Frances Kearney [2000] ACTSC 92 (24 October 2000)

Last Updated: 18 January 2001

NR Pty Limited v William Frances Kearney

[2000] ACTSC 92 (24 October 2000)

CATCHWORDS

APPEAL - appeal from Magistrates Court - whether Magistrate had advantage in observing witnesses - whether advantage overcome by findings which should have been made on evidence not dependent on observation of witnesses - whether advantage given less weight by appellate court in light of recent High Court and Federal Court decisions.

CONTRACT - contract of employment - whether oral or written or both - resignation or termination - no question of principle.

Supreme Court Act 1933, s 20(1)(a)

Magistrates Court (Civil Jurisdiction) Act 1982, s 393

State Rail Authority of New South Wales v Earthline Constructions Pty Limited (in Liq) [1999] HCA 3; 160 ALR 588

Kelly v Apps [2000] FCA 687

Brunskill v Sovereign Marine & General Insurance Co Ltd [1985] HCA 61; (1985) 62 ALR 53

Abalos v Australian Postal Commission [1990] HCA 47; (1990) 171 CLR 167

Devries v Australian National Railways Commission [1992] HCA 41; (1993) 177 CLR 472

No SCA 85 of 1999

Judge: Miles CJ

Supreme Court of the ACT

Date: 24 October 2000

IN THE SUPREME COURT OF THE )

) No SCA 85 of 1999

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: NR Pty Limited

ACN 008 517 262

Appellant

AND: William Frances Kearney

Respondent

ORDER

Judge: Miles CJ

Date: 24 October 2000

Place: Canberra

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The judgment and order of the Magistrates Court dated 16 September 1999 be confirmed.

3. The appellant pay the respondent's costs of the appeal.

1. This is an appeal from a judgment of the Magistrates Court dated 16 September 1999, in which the Magistrate found for the respondent plaintiff in a claim for breach of a contract of employment.

2. The grounds of appeal are as follows:

"(a) The Magistrates Court erred in rejecting the evidence of the audited accounts of the Appellant company for all relevant years in calculating the incentive payments.

(b) The Magistrates Court erred in failing to find the Respondent resigned his employment with effect 28 June 1998.

(c) The Magistrates Court erred in not taking into account amounts already paid to the Respondent by the Appellant in the course of his employment with the Appellant.

(d) The Magistrates Court erred in not taking into account in its assessment of the credibility of the Respondent -

(i) the failure of the Respondent to confirm the terms of the employment contract in writing;

(ii) the reliance of the Respondent on the terms of the draft contract (Exhibit 3) when the Court had earlier found that that document was not consistent with the Respondent's evidence;

(iii) the role and the responsibilities of the Respondent as General Manager of the Appellant's business and affairs;

(iv) the evidence of the independent witness, Mr Jim Stubbs."

3. Grounds (b) and (d) are put forward in order to set aside the whole of the judgment. Grounds (a) and (c) relate to damages only and were not pursued at the hearing of the appeal. The Magistrate's reasons for judgment set out the various contentions of the parties at length. However, the issues and findings of fact are not stated so clearly.

4. In the particulars of claim dated 23 July 1998 the respondent alleged as follows:

"2. On or about the 22 April 1996, the plaintiff entered into the employment of the defendant as the General Manager upon certain terms and conditions as contained in a written agreement dated 19 April 1996 ("the Employment Contract").

3. It was a term of the Employment Contract under "Remuneration" that the plaintiff would receive a base salary of $75,000.00, plus incentive payments. From January 1997 the plaintiffs' base salary was increased to $80,000, plus incentive payments. The increase in base salary was agreed to by an oral conversation between the plaintiff and Mr Ian Nicholls, the Managing Director of the defendant on or about April/May 1997.

4. It was a further term of the Employment Contract under "Retirement" that:

`The normal age for retirement is 65 years of age. Based upon the importance of the position of General Manager, termination prior to retirement, by either side, shall require three months notice.

In all instances, failure on the part of either party to give the required period of notice will require the payment or forfeiture of an amount equal to the period of time by which the notice given falls short of the requirement of the paragraph above.'

5. By letter dated 19 June 1998 the defendant, without giving the plaintiff any notice of termination, determined the Employment Contract and dismissed the plaintiff from the employment. Such determination was wrongful and in breach of the Employment Contract.

6. At the time of the dismissal the defendant had failed to pay to the plaintiff certain salary and incentive payments as well as other entitlements to which the plaintiff is entitled, and the manner in which the plaintiff's employment was determined has caused the plaintiff loss of reputation and standing. As a consequence, the plaintiff has suffered loss and damage."

5. The ground of defence were as follows:

"2. The Defendant admits the Plaintiff entered into the employment of the Defendant as General Manager on or about the 22^nd April 1996. The Defendant otherwise denies each and every allegation contained in paragraph 2.

3. As to paragraph 3, the Defendant denies the Plaintiff's salary was increased to $80,000 as alleged or at all.

4. The Defendant does not admit the allegations contained in paragraph 4.

5. The Defendant denies each and every allegation contained in paragraph 5 and further says that the Defendant did not terminate the Plaintiff's employment and says that the Plaintiff resigned his employment with the Defendant on the 30^th June 1998, having given notice of such intention to resign on 19^th June 1998.

6. The Defendant has tendered to the Plaintiff payment of $4,438.80 in consequence of his determination. That payment is calculated as follows:

Final pay as per attachment dated 24 June 1998 $8,619.07

Less tax paid $4,180.27

Final pay (including lump sum) $4,438.80"

6. There was also a counter-claim and reply, but they are not relevant for the purposes of the appeal.

Nature of appeal

7. It is necessary to state yet again the principles governing the appeal since they have or may have been affected by the recent decision of the High Court of Australia in State Rail Authority of New South Wales v Earthline Constructions Pty Limited (in Liq) [1999] HCA 3; 160 ALR 588, and the decision of the Full Court of the Federal Court of Australia in Kelly v Apps [2000] FCA 687.

8. The jurisdiction of this Court to entertain and determine an appeal from a decision of the Magistrates Court sitting in its civil jurisdiction is conferred by s 20(1)(a) of the Supreme Court Act 1933, which provides that the Supreme Court has "all original and appellant jurisdiction that is necessary to administers justice in the Territory". This provision "is obviously intended as a salutary provision to enable justice to be done by the Supreme Court": Kelly v Apps at [21] per Wilcox J.

9. The decision in Kelly v Apps was handed down by the Full Court on 19 May 2000. The present appeal was conducted without consideration of the effect of the Full Court decision. I will assume that the provisions of s 393 of the Magistrates Court (Civil Jurisdiction) Act 1982 as to the powers of the Supreme Court on appeal remain unaffected, and that the principles as to fact finding on such appeals also remain unaffected. I leave unresolved the question whether Kelly v Apps means that the Supreme Court is not constrained by s 393 nor by previous doctrine about the restricted role of appeal courts.

10. The decision of the High Court in Earthline appears to have placed greater responsibility on appeal courts to ensure that an error of fact has not been made in the decision appealed against. Appeal courts may too readily accept that the court at first instance has an advantage in seeing and hearing the witnesses.

11. In Earthline the majority judgment of Gaudron, Gummow and Hayne JJ pointed out at [3] that "no short, exhaustive formula" meets every case for the purpose of describing or limiting the role of an appellate court in the evaluation of a finding of fact which depends in whole or in part on the credibility of a witness. In doing so their Honours appear to have withdrawn from the firm statements made in such cases as Brunskill v Sovereign Marine & General Insurance Co Ltd [1985] HCA 61; (1985) 62 ALR 53, Abalos v Australian Postal Commission [1990] HCA 47; (1990) 171 CLR 167 and Devries v Australian National Railways Commission [1992] HCA 41; (1993) 177 CLR 472 and the use of language like "palpably misused the advantage", "inconsistent with facts incontrovertibly established" and "glaringly improbable". It is sufficient, they say at [63], that the appeal court considers that the primary judge's conclusion that a witness is unreliable has "too fragile a basis".

12. Kirby J goes further and at [88] refers to long-standing scepticism about the supposed judicial capacity to decide credibility from the appearance and demeanour of witnesses, states that "most judges are aware of the scientific studies which cast doubt on the correctness of the assumption", concludes at [91] that only in a relatively limited class of case will credibility assessments be required where there is no documentary electronic or other incontrovertible evidence to resolve the conflict and recommends that courts minimise and not exaggerate the role of judicial assessment of credibility from appearance. In doing so, his Honour appears to accept, other than in exceptional cases, the trend of academic opinion and that of the Australian Law Reform Commission. It is fair to say, however, that such opinion does not yet represent mainstream judicial doctrine in Australia. Whether it may be affected by Kelly v Apps, it is not necessary to decide. I will endeavour to approach the present appeal in the light of the above.

Facts

13. From a reading of the whole of the transcript in the Magistrates Court (the evidence, the exhibits and the Magistrate's reasons) the following facts appear not to be in dispute.

14. The appellant and the respondent entered into a contract in about February 1996 under which the respondent from time to time assisted in the development of a technical manual for a communications monitoring system. In March or April the managing director of the appellant, Mr Ian Nicholls, and the respondent entered into oral negotiations for the employment of the respondent as general manager.

15. Agreement was reached on certain terms and conditions, including an annual salary of $75,000. The parties further agreed that the respondent would prepare a letter of offer using the appellant's standard letter of offer of employment adapted to include the terms agreed between the respondent and Mr Nicholls.

16. The standard letter of offer (Exhibit 2) included the following termination clause:

"Termination

The Company may terminate your appointment by giving one month's written notice, unless it determines that you have engaged in misconduct within the normal operation of the Company's business. In such cases, salary will be paid up to the time of dismissal. You may terminate your appointment by one month's written notice."

17. The respondent prepared a document in the form of a letter dated 19 April 1996 addressed to himself and to be signed by Mr Nicholls and himself. It did not include the standard termination clause. Instead it included a clause under the heading "Retirement" (the retirement clause) as set out in par 4 of the particulars of claim. He delivered it to Mr Nicholls on or soon after that date in order to discuss it with him. Mr Nicholls accepted delivery of the document. He expressed dissatisfaction with two annexures concerning taxation and insurance. There was no discussion of the retirement clause. The document became Exhibit 3 and it is convenient to refer to it as that.

18. Mr Nicholls arranged a further meeting between 19 and 22 April attended also by Mr Ray Buchannan, the appellant's external accountant. At the meeting the parties discussed the question of fringe benefits tax (FBT) and vehicle costs. It was agreed that the respondent would be responsible for the payment of FBT and vehicle costs. There was no discussion of the retirement clause.

19. There was no further discussion of Exhibit 3 prepared by the respondent. The respondent commenced employment as general manager on 22 April 1996 and continued in that role during the remainder of the year and into 1997. In about April 1997 his salary was increased to $80,000 per year. Neither party raises that matter as having any effect on the issues in the case. The respondent's employment at the increased salary continued into 1998.

20. On Thursday, 28 May 1998 the respondent and Mr Nicholls discussed the respondent's continuing employment. Mr Nicholls indicated that the business of the appellant was insufficient to justify keeping the respondent on and that it was in the interests of both parties for the respondent to resign. He suggested that 30 June would be an appropriate date on which to finish. The respondent said that he would think about the matter.

21. In early June 1998 (on a Friday) there was a further meeting between the respondent and Mr Nicholls, with Mr Jim Stubbs, the office accountant, also present. Mr Nicholls said to Mr Stubbs "[Bill] has resigned from the company with effective - effect 30 June". The respondent said nothing on that subject. Mr Nicholls further said that the respondent had drawn more than his entitlement. Mr Stubbs produced some calculations concerning the respondent's remuneration. The respondent disputed the calculation.

22. There was a further meeting on the following Monday. Mr Stubbs was present at the beginning but left before the matter of the respondent's employment arose. After Mr Stubbs left, the respondent handed Mr Nicholls a letter dated 15 June 1998 which stated, inter alia:

"My Offer of Employment clearly indicates the need, on either side, for the provision of three months notice of the intention to terminate. There was no indication, direct or implied, prior to our meeting in late May, that you wished to terminate my employment contract. I cannot conceive any circumstance where the three months `clock' started ticking prior to 28 May 1998.

In the interests of retention of other staff, and perceptions in the market place, I can understand why you might prefer that my termination be based on resignation. In the same vein, since 28 May, I have been doing everything within my power to seek alternate (sic) employment. I will continue to do this with the aim of limiting any imposition on the company, so that I might depart as early as possible, without unnecessarily disadvantaging my personal position and my family commitments. You must understand, in the current economic environment, that finding another position doesn't happen overnight."

23. Mr Nicholls read the letter and said "This is not what was agreed". The respondent said that he had never tendered his resignation and the meeting ended with the parties in that state of disagreement.

24. The respondent delivered a further letter to Mr Nicholls dated 16 June 1998 in which he reiterated his claim that he had never resigned and that "termination requires three months notice on either side". He suggested three options, two involving termination by the appellant "based on redundancy" with three months notice as from 16 June 1998 and the other involving the respondent continuing on "as if nothing had happened". The substantial response of Mr Nicholls came in a letter dated 19 June 1998 in which Mr Nicholls stated, inter alia:

"1. On 28 May, 1998, you resigned your position with the company effective June 30, 1998.

2. Your resignation was given freely and notwithstanding any entitlement you may have otherwise had for longer notice."

25. The letter of 19 June also referred to a "salary increase previously discussed but not implemented", and the over-remuneration of the respondent. It informed the respondent that it was not necessary for him to "serve out the additional time until 30 June 1998" and that he was to arrange his departure from the firm as soon as possible. Thus the employment of the respondent came to an end.

26. The respondent's solicitor wrote to Mr Nicholls on 22 June 1998 maintaining that the respondent had never resigned, accepting the letter of 19 June as a "formal termination" of the respondent's employment at that date, and making a number of claims for payment including $20,000 being three months pay in lieu of notice.

The Magistrate's decision

27. The Magistrate in his reasons for judgment summarised the issues raised in the pleadings and the evidence given by the three witnesses. The Magistrate expressed the opinion that the resolution of the case depended considerably upon the evidence of the two principal witnesses. On that issue he rejected the submission on behalf of the appellant that two pieces of what were called "real evidence" supported the case for the appellant. I take it that it was submitted that the two items stood independently of the credit of the witnesses. In this regard it appears that the Magistrate was, correctly, in the light of Earthline, trying to reduce, if not minimise, the effect that seeing and hearing the witnesses had had upon him. The first item was the provision in Exhibit 3 which provided for incentive payments. Counsel for the appellant had submitted that this provision meant that no incentive payments fell due unless and until profits reached $300,000 in any one year and that so read, it conflicted with the respondent's evidence about the conversations which preceded the preparation of the letter. In considering this submission, the Magistrate observed that neither the evidence of the respondent nor that of Mr Nicholls was clear as to the content of the conversations about incentive payments. Further, the Magistrate analysed the documentary evidence and concluded that the respondent was in fact paid one-twelfth of profits as an incentive payment and that that payment was consistent with the oral evidence of the respondent and the ambiguous terms of the letter. That, in my view, was a line of reasoning and a conclusion well open to the Magistrate and, as I understand it, not challenged in the appeal.

28. The other item is the attachment to the letter of 22 June 1998, which the Magistrate found to be a note in the handwriting of the respondent assessing the impact of possible increases in the salary of other employees "Given cessation of WK at end June". It was submitted for the appellant that this document was consistent with the respondent having already resigned and, presumably, inconsistent with an understanding on the part of the respondent, at the time of the preparation of the note, that his employment was or would be terminated on three months' notice. The Magistrate dealt with the submission initially by saying that the respondent's explanation, namely that the document was prepared when he had been asked to consider resigning, was a reasonable one. However, before making a final determination on the issue, which he thought depended ultimately on matters of credit, the Magistrate went on to consider other aspects of the evidence which led him to the conclusion that Mr Nicholls' version was attended by an "inherent unlikelihood" which was lacking in the version given by the respondent.

29. In relation to these other aspects, first, the Magistrate considered "incomprehensible" that Mr Nicholls, against a background of trouble with a previous manager and having received Exhibit 10 from the respondent, in terms which seriously misrepresented the agreement as he understood it, would not have directed the respondent to prepare another document incorporating the true terms, or alternatively, prepared such a document himself. Secondly, against that background and in addition against Mr Nicholls' professed suspicion of the respondent throughout, the Magistrate considered it incredible that Mr Nicholls did not require the plaintiff to submit his resignation in writing or did not confirm the resignation in writing himself.

30. In reaching those conclusions, the Magistrate expressly remarked that Mr Nicholls impressed him as an experienced businessman who would not take lightly the failure of an employee to carry out duties and as one who would act carefully to protect the interests of his company.

31. On that line of reasoning, the Magistrate concluded that Exhibit 3 contained the terms of the contract (more particularly the retirement clause), that it was the appellant who terminated the contract and not the respondent and that the notice required was given on 28 May 1998.

32. Having regard to the Magistrate's explicit reference to the impressions gained of Mr Nicholls, together with the clear recognition that he should have proper regard to the "real evidence" contained in documents, the appellant would have a difficult task in seeking to show that the Magistrate's decision is affected by an error in some way which was not dependent upon the credit of witnesses or by relying too much on demeanour and observation, were it not for the decision in Earthline. Nevertheless, the question whether the Magistrate had "too fragile a basis" for his findings of fact was fully canvassed by par (d) of the grounds of appeal and in submissions.

Grounds of appeal

33. The submission on behalf of the appellant is that the Magistrate should have found that:

(a) the respondent resigned his employment;

(b) the resignation took effect on 28 June 1998

and that the failure to arrive at those findings is attributable to the errors set out in par 4(d).

34. Much of the argument put in support of the appeal proceeds on the footing that Exhibit 3 was no more than a discussion document and that the terms of the contract, presumably oral or perhaps contained in the standard letter of offer, set a termination period of one month. That part of the submissions does not directly address the issue raised by par 4(b). However, it does indirectly address that issue insofar as it relies on the matters set out in par 4(d). I deal with each of those matters.

1. The failure of the respondent to confirm the terms of the employment contract in writing

35. I am not persuaded that the Magistrate failed to take into account the fact that the respondent did not "confirm" the terms of the contract in writing. The respondent did what he was told, namely to prepare a letter of offer setting out the terms of the contract. The parties were not at arm's length. It was never suggested to him that he did not prepare a document containing those agreed terms as he understood them. Mr Nicholls said in his evidence that he asked the respondent "to document our meeting so that we could confirm that it was an accurate record of what we had discussed" but he at no stage contended that the respondent was instructed to prepare only a discussion draft. He did not inform the respondent at any time that Exhibit 3 was not intended by the appellant to contain the terms of the contract, notwithstanding his query over the annexures and the provisions therein relating to insurance and taxation. The Magistrate was entitled to approach the case on the basis that there was no "failure" on the part of the respondent to confirm the terms of the contract, since in the circumstances they did not require confirmation.

2. Reliance of respondent on the terms of the "draft contract" (Exhibit 3) in the light of the finding that Exhibit 3 was not consistent with the respondent's evidence.

36. The reference to Exhibit 3 as a "draft contract" tends to obscure the answer to the question whether it contained the relevant terms of the contract. The Magistrate found that it did.

37. The complaint appears to be rather that the finding that Exhibit 3 contains the whole of the agreement is inconsistent with the evidence of the respondent to the effect that there were alternative or additional oral terms and that the Magistrate should have found that the contract was wholly oral or alternatively partly oral and partly in writing.

38. The complaint, however, is confined to what is alleged to be an inconsistency between the provisions regarding incentive payments in Exhibit 3 and the evidence of the respondent to the effect that the prior oral agreement reached was that the incentive payment would be calculated on the basis of one-twelfth of profits regardless of whether the profits reached the $300,000 threshold provided for in Exhibit 3. Yet the Magistrate considered that the document was ambiguous in this respect and the oral evidence not clear. The inconsistency contended for was therefore either non-existent or so insubstantial as to be of no effect.

3. The role and responsibility of the respondent as general manager of the appellant's business and affairs

39. The Magistrate was clearly aware of the appointment of the respondent as general manager of the appellant. The termination of that appointment was what the case was all about. There was abundant evidence as to the nature of those duties. Mr Nicholls described more than once what he considered to be the failure of the respondent to perform the duties satisfactorily. However, he never complained of a failure on the part of the respondent to provide a further written version of the contract or to provide written notice of resignation. He never gave instructions to the respondent to prepare such documents. Although the respondent was the general manager, Mr Nicholls was the moving force in the company with a certain amount of actual control over the day-to-day affairs. The Magistrate was entitled to conclude that the relationship between the company and its general manager was such that it was to be expected that the managing director would require from the general manager the furnishing of documentation to confirm arrangements between the company and the general manager as to the employment of the latter and the correction of incorrect documentation.

4. The evidence of the "independent witness", Mr Jim Stubbs

40. It is correct that the Magistrate did not in his reasons refer at all to the evidence of Mr Stubbs. This is hardly surprising, in my view, since Mr Stubbs said very little about anything that went to the matters at issue. On one aspect indeed, Mr Stubbs might have been expected to assist the appellant but did not do so. The respondent had given evidence that at the meeting in early June 1998 he had told Mr Stubbs, out of earshot of Mr Nicholls, that he had not resigned. Mr Stubbs, called later in the case for the appellant, was asked nothing about that in his evidence-in-chief, and in that situation it was not incumbent upon counsel for the respondent to raise it in cross-examination. There was nothing in Mr Stubbs' evidence that damaged the respondent's case.

Outcome

41. In the light of the above, it has not been demonstrated that the Magistrate made any relevant error and the appeal is to be dismissed with costs.

I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Chief Justice Miles.

Associate:

Date: 24 October 2000

Counsel for the appellant: Mr C Erskine

Solicitor for the appellant: Chamberlains Law Firm

Counsel for the respondent: Mr B Meagher

Solicitor for the respondent: Alliance Legal

Date of hearing: 14 August 2000

Date of judgment: 24 October 2000