Sutherland Shire Council v Finch [1970] HCA 49; (1970) 123 CLR 657 (30 November 1970)

HIGH COURT OF AUSTRALIA

SUTHERLAND SHIRE COUNCIL v. FINCH [1970] HCA 49; (1970) 123 CLR 657

Local Government (N.S.W.)

High Court of Australia
Barwick C.J.(1), McTiernan(2), Menzies(3), Owen(4) and Gibbs(5) JJ.

CATCHWORDS

Local Government (N.S.W.) - Officers and servants - Dismissal of officer after inquiry - Dismissal notwithstanding substantially favourable report from inquiry - Report - Nature and extent of inquiry - Power of Minister to direct payment of compensation if report substantially favourable - Power of Minister to make inquiries before directing payment of compensation - Whether report substantially favourable a matter of opinion or fact - Local Government Act, 1919 (N.S.W.), as amended, s. 99*.

HEARING

Sydney, 1970, October 30; November 30. 30:11:1970
APPEAL from the Supreme Court of New South Wales.

DECISION

November 30.
The following written judgments were delivered:-
BARWICK C.J. In this appeal I have had the advantage of reading the reasons his reasons therefor. In my opinion, the validity of a direction by the Minister under s. 99 (11A) depends upon the existence of a report made upon an inquiry under s. 99 (2) or (4) which is in fact substantially favourable to the employee and a termination of the services of that employee by the Council notwithstanding the receipt by the Council of such a report. Further, in my opinion, the ultimate question which the report should answer is whether in all the circumstances the services of the employee ought to be terminated. A report may be positive on this question or it may contain no more than considerations to which the Council should pay attention when deciding whether it will exercise its undoubted right to terminate the services of its employee. In such a case whether the report is substantially favourable to the employee is a question of fact to be decided by a court if the validity of a ministerial direction given under s. 99 (11A) is challenged. (at p660)

2. In my opinion, this appeal should be dismissed. (at p660)

McTIERNAN J. The appellant passed a resolution pursuant to s. 99 of the Local Government Act, 1919 (as amended) (N.S.W.), directing an inquiry to be held with a view to terminating the employment of its servant, the respondent. A lengthy inquiry was duly held and in accordance with the provisions of s. 99 a report was furnished to the Council and the Minister for Local Government. The report was, in conformity with the section, read at a meeting of the Council and thereafter a resolution was passed. The resolution stated that the Council in accordance with the findings of an inquiry under s. 99 "terminated" the employment of the respondent. He thereupon made an application to the Minister for an order under s. 99 (11A) of the Act for payment by the Council to him of compensation. The Minister sent a copy of the application to the Council and invited it to submit its views and to state any grounds of opposition to the payment of compensation. In its reply the Council set forth the matters which, it alleged, established that the report was not substantially favourable to the respondent. Subsequently the Department of Local Government sent to the appellant Council an instrument in writing signed by the Minister for Local Government directing the Council to pay compensation to the respondent in the sum of $1,800. The Council passed a resolution that the compensation be not paid and that the Council institute proceedings to challenge the validity of the Minister's direction. The proceedings were instituted in the Supreme Court of New South Wales. The learned primary judge decided in favour of the Council (1969) 17 LGRA 148 . His decision was reversed on appeal. The Council appeals to this Court from the decision of the Court of Appeal (1970) 91 WN (NSW) 396; 20 LGRA 332 . (at p661)

2. It is not alleged by the Council that the direction of the Minister was not a bona fide exercise of the power conferred by s. 99 (11A) of the Act. The question at issue between the Council and the Minister was whether the report was "substantially favourable" to the respondent. The exercise of the power given to the Minister necessarily involves, I think, an adjudication on the question whether "the report of the person holding the inquiry is substantially favourable to the servant". In Federal Commissioner of Taxation v. Munro [1926] HCA 58; (1926) 38 CLR 153, at p 176 , Isaacs J. said:

"The power and function of finally determining matters of fact
and even of discretion are not solely indicative of judicial
action. That is an attribute common to administrative bodies, to
subordinate bodies that are adjuncts to legislation, and to
judicial bodies." (at p661)

3. In my opinion it is implied in the provisions of sub-s. (11A) that the Minister is given the power and the responsibility of finally determining whether the report is "substantially favourable" to the dismissed servant. The Minister is authorized by the subsection to make the determination "after such inquiry as he deems sufficient". The question whether the report is "substantially favourable" is therefore not merely a question of construction but a question to be determined by the Minister "after such inquiry as he deems sufficient". It does not seem to me that the provisions of the subsection contemplate that a direction given by the Minister pursuant to the subsection should be open to challenge in a court merely on an allegation that the report was not substantially favourable to the dismissed servant. It would not be enough to set aside the report that the court was of an opinion different from that of the Minister on that question. In my view it is not appropriate to decide here whether the report is substantially favourable or not. It is sufficient to say that the report does not disclose anything which shows that the Minister could not reasonably have arrived at the conclusion that the report was substantially favourable. I agree entirely with the reasons of Mason J.A. on the question of the nature and extent of the authority of the Minister. (at p662)

4. The appeal, in my opinion, should be dismissed. (at p662)

MENZIES J. I have had the advantage of reading the judgment of Gibbs J., with which I agree. However, as we are differing in important respects from the construction of provisions of the Local Government Act, 1919 (as amended) (N.S.W.), adopted in the Supreme Court, I propose to state my own views very shortly. (at p662)

2. The limitation imposed by the Local Government Act upon the power of a council to dismiss a servant is drastic. Although, read by itself, s. 95 of the Act seems to confer upon the council a general power to remove a servant without cause, the effect of s. 99 of the Act is that no servant can be dismissed without the holding of an inquiry under that section, and consideration of a report made upon such an inquiry, except when a servant has been suspended and does not seek an inquiry. (at p662)

3. The object of an inquiry under s. 99 is clearly enough to provide a council with assistance in reaching a decision whether or not it should exercise its power to dismiss a servant whose services the council has proposed to terminate, whatever be the grounds for such termination. The inquiry should, therefore, cover whatever is material to an informed decision whether or not to dismiss a particular servant. It follows, therefore, that any report which recommends against dismissal would be a report substantially favourable to the servant, notwithstanding that it also shows that grounds for dismissal exist. A report to the effect that a servant should be dismissed for misconduct would not be substantially favourable to the servant. Between these extremes there are gradations, and the question whether a report is, or is not, substantially favourable to the servant becomes a matter for judgment in the particular case. A report substantially favourable to a servant whose dismissal is proposed does not deny the council the power to dismiss that servant - indeed, in some circumstances dismissal would be inevitable, even in face of a most favourable report. A substantially favourable report merely affords the basis for a direction by the Minister under s. 99 (11A) in favour of a dismissed servant who seeks such a direction. (at p663)

4. Whether a report is "substantially favourable" to a servant is to be determined upon the examination of the report as a whole; it is to be determined objectively but without regard to facts or information outside the report. The decision of the Minister that a report is substantially favourable to a servant affords a basis for his acting as provided by s. 99 (11A) but it does not conclude the question whether or not the report was, in fact, substantially favourable to the servant. If that question arises in court it must be determined by the court upon an examination of the report as a whole. (at p663)

5. The difficulty in determining whether the report as to the termination of Finch's employment was substantially favourable to him arises because the report, while recording debits and credits, does not state explicitly where the balance lies or whether the Council should or should not terminate his services. These conclusions are left as matters for inference. I agree, however, with Gibbs J., that the fair inference from the report as a whole is that Finch has been a good servant and that the Council should not dismiss him, notwithstanding that some of the things which he did, in his misguided but honest and, to some extent, useful enthusiasm, amounted to unjustified misconduct and afforded the Council grounds for dismissing him from its employment. I agree, therefore, that the report was substantially favourable to Finch and that, on this ground, the appeal from the order upholding the Minister's direction to pay him $1,800 should be dismissed. (at p663)

OWEN J. I agree that the appeal should be dismissed for the reasons stated by my brother Gibbs whose judgment I have had the opportunity of reading. (at p663)

GIBBS J. The respondent Hector William Finch was from 19th May 1958 to 27th May 1968 an employee of the appellant, The Council of the Shire of Sutherland. On 30th October 1967 the Council proposed to terminate his employment and accordingly ordered an inquiry under s. 99 (2) of the Local Government Act, 1919 (as amended) (N.S.W.), which provides that where a council proposes to terminate the employment of any servant to whom the section applies (and this includes all servants of a council who have had at least one year's continuous service - s. 99 (1)) "it shall either order an inquiry hereunder or suspend him". The inquiry was held by a stipendiary magistrate. On 20th May 1968 the magistrate made a report in writing and after this report had been read in open council as required by s. 99 (6) (c) the Council on 27th May 1968 resolved to terminate the employment of Finch. On 6th June 1968 Finch made application to the Minister for Local Government (the second respondent) that he should order the Council to pay compensation under s. 99 (11A). That subsection provides as follows:

"(a) In any case where the council decides to terminate
the services of the servant notwithstanding that the report of
the person holding the inquiry is substantially favourable to the
servant, the Minister, on the application of the servant made
within fourteen days after termination of his services, may,
after such inquiry as he deems sufficient, direct the council to
pay to the servant as from the date of termination of his
services compensation not exceeding an amount equivalent to
the amount of four weeks' salary or wages for each year of
service, such salary or wages being reckoned on the average
of the weekly salary or wages paid to him during the fifty-two
weeks immediately preceding the date upon which the inquiry
was ordered or the date of his suspension as the case may be.
(b) The council shall pay to the servant the amount of
compensation as directed by the Minister, and if the council
fails to do so the servant may recover the amount as a debt
due to him by the council."

The Minister, after giving the Council an opportunity to submit its views and after having considered the matter, directed the Council to pay Finch compensation amounting to $1,800. (at p664)

2. The Council thereupon brought against Finch proceedings in the Supreme Court of New South Wales in Equity for, inter alia, a declaration that it was not bound to pay the compensation referred to in the direction. To these proceedings the Minister was added as a party. It seems to me doubtful whether the Minister was rightly joined. Once the Minister had given his direction he had exhausted his powers under the subsection; he had no power to enforce the direction. The only person who had an enforceable right founded on the direction, assuming it to be valid, was Finch himself. Once the direction had been given, there was no real issue between the Minister and the Council; the parties in conflict were the Council and Finch. However the joinder of the Minister was not opposed and it is not necessary now to pronounce on its propriety. (at p665)

3. The learned primary judge held that the Minister had no power to give the direction for the payment of compensation and made the declarations sought by the Council (1969) 17 LGRA 148, at pp 152-153 . An appeal from this decision was upheld by the Court of Appeal of the Supreme Court which ordered that the decretal order made by the primary judge be set aside and that in lieu thereof the suit be dismissed. From the judgment and order of the Court of Appeal (1970) 91 WN (NSW) 396; 20 LGRA 332 this appeal is brought by special leave. (at p665)

4. On the appeal two questions fall for decision. The first is whether on the proper construction of s. 99 (11A) of the Local Government Act the power of the Minister to give a direction to a council to pay compensation to a servant whose services have been terminated depends on the existence of a report which is in fact substantially favourable to the servant or whether it is enough that there is a report which is in the opinion of the Minister substantially favourable. The second question is whether the report in the present case was in fact substantially favourable to Finch. (at p665)

5. On behalf of the respondents it was submitted that the power of the Minister to give a direction under s. 99 (11A) arises when he forms the opinion that the report is substantially favourable to the servant and that it is not open to a council to canvass the correctness of such an opinion formed in good faith. A similar contention was advanced in the Supreme Court; it was rejected by the primary judge but was accepted by the Court of Appeal. (at p665)

6. The question depends entirely on the interpretation of s. 99 (11A). The power given by that subsection to the Minister, after such inquiry as he deems sufficient, to direct a council to pay compensation, may only be exercised if two conditions precedent have been satisfied. First, the case must be one "where the council decides to terminate the services of the servant notwithstanding that the report of the person holding the inquiry is substantially favourable to the servant". Secondly, the servant must have made application within fourteen days after termination of his services. Whether the second of these conditions has been fulfilled plainly involves a pure matter of fact. The first condition however is of a composite nature. It is satisfied if there has been a decision by a council to terminate the services of a servant and a report by the person who held an inquiry and if the report is one which can properly be regarded as "substantially favourable to the servant". Before the Minister gives a direction, he must satisfy himself that this condition has been fulfilled and it is therefore true to say that the Minister is required to form an opinion as to whether the report is substantially favourable. However it does not follow that his opinion when formed is conclusive. The Minister must also form the opinion that the council has decided to terminate the services of the servant, and that the servant has made application within fourteen days, but he cannot acquire the power to give a direction by forming an erroneous opinion on those matters. The subsection does not state that the Minister may give a direction if in the opinion of the Minister the report is substantially favourable. No difficulty would have existed in framing the subsection to make the opinion of the Minister the governing consideration if that had been intended. The subsection, read naturally, treats the question whether the report is substantially favourable as an objective one; it refers to a report which is substantially favourable, that is, substantially favourable in fact and not merely in the opinion of the Minister. Moreover, it is material for a council, before it decides on the dismissal of a servant, to know whether or not a report is substantially favourable, for the fact that the Minister has power to direct the payment of compensation may cause a council to pause before proceeding with a proposed dismissal. This further supports the view that the test is an objective one. (at p666)

7. On behalf of the respondents it was submitted that the subsection as a whole provides a context which indicates that the question whether a report is substantially favourable is left to the Minister to decide conclusively. It was said that the question is an imprecise one, to be answered by the application of standards which the subsection does not define, and that it is the sort of question that is more appropriate for administrative than for judicial decision. However the facts that questions of degree may arise, and that there will be room for differences of opinion as to the true character of a report, do not mean that the matter would more appropriately be decided administratively than by judicial decision. Questions of degree may equally arise, and differences of opinion may occur, in deciding whether a person's conduct has been reasonable, a matter which falls for decision every day in the courts (cf. Fraser Henleins Pty. Ltd. v. Cody [1945] HCA 49; (1945) 70 CLR 100, at p 114 ). The respondents further relied on the fact that the subsection gives the Minister an unrestricted power to make his own inquiry and a wide discretion as to whether or not he should give a direction. These matters do not seem to me to bear on the question whether the Minister's opinion as to the character of the report is conclusive. Unless the report is substantially favourable, the Minister's power to inquire and to give a direction does not arise. The Minister's inquiries cannot alter the character of the report. The Minister may, in the exercise of his discretion, place much reliance on his own inquiry and may be led to refuse to make a direction notwithstanding that a report is substantially favourable, but neither the existence of the power to inquire nor the width of the discretion supports the view that the condition precedent imposed by the section is satisfied if the Minister erroneously considers that the report is substantially favourable to the servant. Finally the respondents submitted that once the Minister has given a direction it becomes binding upon the parties and imposes on the council an obligation to pay and confers on the servant a right to recover payment. However a direction only creates rights and obligations if it is valid, and the fact that a valid direction may place a heavy pecuniary burden on a council would if anything suggest that the condition precedent to the giving of the direction ought to be strictly construed. (at p667)

8. In my opinion, upon the proper construction of the subsection the power of the Minister to give a direction depends upon the existence of a report which is in truth substantially favourable to the servant, and it is not enough that the Minister thinks it is substantially favourable. It is therefore open to a council which challenges the validity of a direction given under the subsection to litigate the question whether the report was substantially favourable. (at p667)

9. The question that then arises is whether the report in the present case was substantially favourable to Finch. This question was answered in the negative by the primary judge but in the affirmative by the majority of the Court of Appeal. (at p667)

10. The report of the magistrate dealt also with the proposed termination of the employment of one Howard, the Shire Clerk of the Shire of Sutherland. The report is quite a long one, and it is not necessary to refer to those parts of it that deal only with Howard, or even to attempt to summarize all that it states in relation to Finch. The Council gave particulars of seven matters which it said warranted the dismissal of Finch. Some of the Council's allegations were denied but it was submitted on behalf of Finch that even in those cases in which the allegations were established his conduct was justified. It was said that he had acted in good faith and in the interests of the Council and the ratepayers as a result of information that he had received that suggested that the conduct of the Council's affairs had been irregular or otherwise open to criticism in certain respects. The magistrate said that the purpose of the inquiry, as he saw it, was to decide whether the matters relied upon by the Council were true and, if so, whether in law this would justify the dismissal of Howard or Finch and also to bring out such circumstances as he felt ought to be considered by the Council in considering his report. He further said that he was not investigating the truth of the statements made to Finch. However later in his report, after saying that it was a great mistake for Finch to go beyond his duties as he did, and that in some instances Finch failed to check some allegations that could easily have been seen to be untrue, he went on to say that some of the matters that Finch said had been told to him were investigated and were found to have some substance. He mentioned parts of the evidence "as supporting Mr. Finch's evidence that he was told certain things and also to show that what he said he was told was not necessarily untrue". He found that of the seven matters alleged against Finch three were not proved and four were proved but that in one case where the allegations were proved Finch's conduct was justified. The three unjustified acts of misconduct established were the following:

Item 3: That Finch wrongfully obtained confidential information
from Council records;
Item 6: That Finch removed records from the Council Chambers
contrary to Ordinance 1, cl. 56 of the Local Government Act
Ordinances; and
Item 7: That Finch misused part of his working time to obtain the
confidential information referred to in Item 3.

The magistrate found that any one of these matters would, in law, justify the Council in dismissing Finch. He added that although he was unable to find any justification for the actions of Howard and Finch in respect of those matters proved against them the evidence furnished abundant reasons why they acted as they did. He then went on to say: "I am of the opinion that Council ought to consider this report in the light of the following evidence and observations upon the evidence." Then follow eight numbered paragraphs which are to the following effect:

(1) Finch and Howard were men of honesty and integrity who had given valuable service to the Shire. "So far as this

inquiry was concerned their characters were as high at
the end as they were in the beginning."
(2) They were motivated solely by the need to carry out their duties,

as they saw them, in the interests of the ratepayers.
(3) This paragraph relates only to Howard and is not relevant to the present case.
(4) There was no evidence to suggest that anything that Finch did interfered with his normal duties. In each matter he

was acting bona fide, as he saw it, to protect the interests
of the ratepayers.
(5) The evidence revealed that a payment which was said to be due by

the Council might not, in truth, be due and this

could result in a considerable saving of the ratepayers'
money.
(6) The magistrate was impressed by the obvious sincerity and honesty

of Finch and Howard and with their genuine concern

for the welfare and interests of the ratepayers and the Shire.
There was no suggestion that they had derived any benefit,
monetary or otherwise, from their actions.
(7) This paragraph states, without comment: "Mr. Finch said, in

evidence, that there would not be room

for him and Mr. O'Donnell in the Council and later 'Either
Gietzelt or I would have to go from the Council'."
It appears elsewhere in the report that Gietzelt was President
of the Shire and O'Donnell an engineer.
(8) This paragraph also may be quoted in full: "The Shire Clerk

apparently had become caught up in the

over-zealousness of his close friend, Mr. Finch. If Mr. Finch
has to go from the Council would any problem in connection
with the Shire Clerk be solved?
However that may be, with regard to each of the respondents,
Council might well find itself wondering, as I wondered on
many occasions during the inquiry and still wonder: 'Is this
the type of servant the ratepayers of this Shire would really
want to lose?'"

The magistrate, who apparently erroneously believed that Howard and Finch had been suspended, went on in purported exercise of the power given by s. 99 (11) to determine that each of them should be paid the whole of his salary for the period of his suspension. He made no order as to costs. (at p669)

11. It was submitted on behalf of the Council that this report is not substantially favourable to Finch. First it was submitted that the inquiry was into the grounds which the Council had put forward in support of its proposal to dismiss Finch and that the report is not substantially favourable to Finch because it contains findings that three of those grounds have been established. In the alternative it was submitted that a report following on an inquiry ordered under s. 99 (2) should be a report in relation to the service of the servant, that the inquiry before the magistrate was not in fact directed to this question and the report does not relate to it and that it therefore cannot be said to be substantially favourable to the servant within s. 99 (11A). (at p670)

12. Subsections (2) and (4) of s. 99, which provide for an inquiry, do not, in terms, specify the matters to be inquired into or delimit the scope of the inquiry. However the inquiry under those subsections is carried out only when the council proposes to terminate the employment of a servant. A council which does intend to dismiss a servant to whom the section applies may order an inquiry or suspend the servant. In the latter case the council must state the reasons for the suspension (sub-s. (3)) and the servant may within one week apply for an inquiry which must thereupon be ordered by the council (sub-s. (4)). The person holding the inquiry must make a report in writing; the original of the report is to be furnished to the council and copies to the Minister and the servant and the report is to be read in open council (sub-s. (6)). Where an inquiry is ordered the decision of the council shall not be given until after the reading of the report (sub-s. (7)). It is apparent from these provisions that the primary purpose of the report is to provide material for consideration by the council before it decides upon the dismissal of a servant. Of course the council is not bound to act in conformity with the report but the members of the council must have an opportunity to consider the report before the employee is dismissed. In Edwards v. Culcairn Shire Council (1963) 64 SR (NSW) 62, at p 67; 9 LGRA 316, at p321 it was said:

"No indication is given of the scope of the inquiry but it is
clearly to be inferred from the scheme of the section that,
where ordered by the council under s. 99 (2), it is to relate to
the service of the servant, and, where ordered by the council
under s. 99 (4), it is to relate to the grounds upon which the
servant has been suspended. It is clear moreover from s.
99 (8), (9), (10), (11) that the inquiry is to have some of the
qualities of a judicial inquiry into the propriety of the servant's
conduct, the justification for termination of his services and
his right to salary during any period of suspension."

With respect, the first sentence of this dictum is misleading. An inquiry under sub-s. (2) is not necessarily into the service of the employee and an inquiry under sub-s. (4) is not limited to the reasons stated by the council for the suspension. In both cases the inquiry is into the question whether the servant should be dismissed. The area covered by the inquiry will depend to some extent upon what issues are raised by the council and the servant respectively and it is neither necessary nor desirable to attempt to formulate an exhaustive list of the matters that might be relevant on such an inquiry. Not every case of proposed dismissal will be on the ground of misconduct; it may be proposed to terminate the employment of a servant because of unfitness due to ill-health or incompetence or because he is redundant to the requirements of the council or because the council is in a financial difficulty which requires it to retrench its staff. It follows that it cannot be right to regard an inquiry as simply into allegations of misconduct. If the proposed dismissal is because of alleged misconduct the inquiry may in some cases be into the question whether the allegation has been made out, and, since it may be conceded that if the alleged misconduct is established dismissal would be warranted in spite of the servant's past unblemished record, it may not be material to inquire into his service generally. In other cases, the allegation of misconduct may be admitted and the inquiry may be into the question whether the misconduct was excusable or whether the servant's character or service has been such as in the circumstances would warrant the council retaining his services. Clearly it will not be right to say that a report is not substantially favourable simply because it finds that one or indeed all of the acts of misconduct alleged have been established. A report may be substantially favourable to a servant, although it contains some matters unfavourable to him. The question whether a report is substantially favourable must depend upon a consideration of the report as a whole and if the report lends substantial support to the view that the servant ought not to be dismissed it may be regarded as substantially favourable to him. Moreover it is wrong to suggest that a report which fails to deal with some matter relevant to the question of the termination of the servant's employment is for that reason not substantially favourable. What the report contains, rather than what it omits, will show whether or not it is a substantially favourable report. (at p671)

13. In the present case I have reached the conclusion that the report of the magistrate was substantially favourable to Finch. It is true that the report found that Finch had been guilty of misconduct and that the Council was legally entitled to dismiss him. In that respect (and in some other respects) it was unfavourable to him, but that does not mean that taken as a whole it was not substantially favourable. The character of the report is revealed most clearly in the eight numbered paragraphs in the light of which the magistrate intended that the Council should consider the report. Only one of these paragraphs (par. (7)) might be regarded as unfavourable to Finch, whereas the other six relevant paragraphs were favourable, and in some cases strongly favourable, to him. The recommendation that Finch's salary be paid, although misconceived, was favourable, and the refusal to make any order for costs was quite neutral. The question with which the report deals is whether Finch ought to be dismissed, and the report on a fair reading of the whole of it supports the view that he ought not. The report as a whole is therefore substantially favourable to Finch. I need hardly add that this is not to say that the Council was not justified in dismissing him. It does however follow that the attack on the validity of the Minister's direction fails. (at p672)

14. In my opinion, therefore, the Court of Appeal was right in setting aside the decretal orders made by the learned primary judge and in ordering that the suit brought by the Council be dismissed. (at p672)

15. I would dismiss the appeal. (at p672)

ORDER

Appeal dismissed with costs.