Hilton Hotels of Australia Limited v Pasovska [2003] NSWIRComm 17 (7 March 2003)

Last Updated: 7 March 2003

NEW SOUTH WALES INDUSTRIAL RELATIONS COMMISSION

CITATION : Hilton Hotels of Australia Limited v Pasovska [2003] NSWIRComm 17

FILE NUMBER(S): IRC 4961 and IRC 5345

HEARING DATE(S): 17/08/2001, 17/09/2001

DECISION DATE: 07/03/2003

PARTIES:

APPELLANT/CROSS-RESPONDENT

Hilton Hotels of Australia Limited t/as Sydney Airport Hilton

RESPONDENT/CROSS- APPELLANT

Blagarodna Pasovska

JUDGMENT OF: Wright J President Walton J Vice-President Boland J

LEGAL REPRESENTATIVES

APPELLANT/CROSS-RESPONDENT

Mr G C Grant of Counsel

Solicitors: Connery & Partners

(Mr C M Zucker)

RESPONDENT/CROSS-APPELLANT

Mr P R Stockley of Counsel

Solicitors: Paul A Curtis & Co

CASES CITED: Cachia v State Authorities Superannuation Board (1993) 47 IR 254

Durham v Western Australia Government Railways Commission t/as Westrail (1995) 75 WAIG 1787

Boilermakers Society of Australia v Evans Deakin & Co Pty Limited (1961) 56 QJP 5

Finch v Sayers [1976] 2 NSWLR 540

Grout v Gunnedah Shire Council (1994) 57 IR 243

H & H Security Pty Ltd v James Toliopoulos [1997] FCA 838

Harman v Flexible Lamps Ltd [1980] IRLR 418

Kinconne Pty Limited v Brombey (1985) 10 IR 122

King v State Bank of New South Wales [2002] NSWIRComm 353

Knowles v Anglican Property Church Trust (No 2) (1999) 95 IR 380

Marshall v Harland & Wolff [1972] 1 WLR 899

Notcutt v Universal Equipment (London) Ltd [1986] 1 WLR 641

Riley v WorkCover/Allianz Australia (Robinvale Transport Group (SA) Pty Ltd [2002] SAWCT 79`

Scanlan's New Neon Limited v Tooheys Limited (1943) 67 CLR 159

Simmons Limited v Hay [1964] NSWR 416

Walshe v The Police Association [2000] VSC 292

LEGISLATION CITED: Industrial Relations Act 1996 s 93 s 188(2) Ch 4 Pt 7

Long Service Leave Act 1955 s 4

Suitors' Fund Act 1951 s 6(1A)

Workplace Relations Act 1996 (Cth)

JUDGMENT:

INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES

IN COURT SESSION

FULL BENCH

CORAM: WRIGHT J, President

WALTON J, Vice-President

BOLAND J

Friday 7 March 2003

Matter No IRC 4961 of 2001

HILTON HOTELS OF AUSTRALIA LIMITED T/AS SYDNEY AIRPORT HILTON v BLAGARODNA PASOVSKA

Application for leave to appeal and appeal against a decision of the Chief Industrial Magistrate given on 22 June 2001 in Matter No CIM 40637 of 2000

Matter No IRC 5345 of 2001

BLAGARODNA PASOVSKA v HILTON HOTELS OF AUSTRALIA LIMITED

Application for leave to appeal and appeal against a decision of the Chief Industrial Magistrate given on 22 June 2001 in Matter No CIM 40637 of 2000

JUDGMENT OF THE COURT

[2003] NSWIRComm 17

1    These proceedings concern applications for leave to appeal and leave to cross appeal, and associated appeals, against decisions and orders of the Chief Industrial Magistrate, Mr G Miller, given on 18 May and 22 June 2001. The applications before his Worship related to alleged outstanding long service and annual leave payments said to be due to Ms Blagarodna Pasovska, following the cessation of her employment with Hilton Hotels of Australia Limited t/as Sydney Airport Hilton. That corporation initiated the first of the appeals and for convenience will be referred to as "the appellant".

Background (including proceedings in the Compensation Court)

2    The facts and circumstances surrounding these proceedings are not in issue. The appellant is the proprietor of an international hotel located near Sydney International Airport at Mascot. The respondent’s employment with the appellant commenced in September 1984, in a position variously described in the evidence as “room attendant” or “hotel maid”. During the course of her employment the respondent suffered a number of work related injuries. These injuries gave rise to proceedings before Campbell CJ in the Compensation Court of New South Wales in May 1995. At that time the respondent was 56 years of age. The Compensation Court proceedings were determined in a judgment delivered by Campbell CJ on 18 May 1995. The following extracts from pages 1 and 2 of his Honour’s judgment succinctly state the issues in those proceedings and a number of the more significant findings:

It is not disputed that on 5 September 1988 [the respondent] suffered an injury to her back whilst pushing a trolley filled with linen nor is it disputed that on 5 February 1989 she injured her back whilst pushing a large bed. What is disputed is whether the injuries or either of them have produced incapacity for work since the applicant ceased working for the respondent on 18 November 1993 or permanent impairment of her back.

...

It is my view that the evidence does not establish injury in 1993 or that the applicant’s continuing condition, such as it, arises from the nature and conditions of her employment. The events which she described demonstrate the condition of her back and her difficulty with the work, even the light work, with which she was provided after 5 February 1989.

...

It is my view that if she has suffered the incapacity or impairment alleged, it was caused by the injury of February 1989, which was the first occasion on which she suffered radiated pain. The earlier injury may have made her vulnerable for the further one, but it was the further one which caused the continuing problem.

3    Towards the end of his Honour’s judgment the following important findings were set out:

It is my view that on the balance of the evidence, the correct conclusion is that the applicant has continued to suffer continuing pain from a disc lesion and lumbar strain from the date of the injury, February 1989 to date, that she has, in fact, worked despite distress and difficulty and that in November 1993, a time was reached when she could no longer continue to work.

There is some medical observation that she could work at a suitable occupation and should be regarded as partially incapacitated. However, again I think that the lay evidence provides the answer to that. I have no reason to doubt Ms Evans’ evidence that the hotel did everything it could to find a suitable job for the applicant and I think it would be quite unreal to conclude that anybody else would make the same efforts, and the hotel was unsuccessful.

Just by way of illustration, employing her as a telephonist was considered, but her English, quite apart perhaps from other skills, simply would not have matched that task. Consideration was given to employing her in the restaurant, but again it was considered that could not match her problems. She was, from August 1993 onwards, working only four hours a day and, accepting as I do that she was unable to do that work, I see no realistic basis upon which it could be concluded that there is any task in the workforce that she could realistically engage in.

Accordingly, I take the view that she is totally incapacitated for work.

4    His Honour concluded:

For those shortly stated reasons I make findings which may be summarised as follows:

§ the applicant suffered injury to her back on 5 February 1989 arising out of and in the course of her employment with the respondent;

§ the applicant was partially or totally incapacitated for work thereby to 18 November 1993 and paid compensation or wages;

§ from 19 November 1993 to date the applicant has been totally incapacitated for work thereby;

§ the earnings are sufficient to support an award at the maximum applicable rate;

§ as a result of the said injury the applicant has suffered permanent impairment of the back being 20% of a most extreme case.

5    It is common ground that following Campbell CJ's decision no action, formal or otherwise, was taken to terminate the respondent's employment. The next event in the sequence of events leading to these proceedings occurred in December 1999. The respondent's solicitors sought to engage the appellant in discussions concerning payment for entitlements, noting that the respondent's employment did not appear to have been terminated. These discussions led to a letter of demand for outstanding long service and annual leave being forwarded to the appellant. This letter of demand resulted in a payment for long service and annual leave being made on 3 February 2000. That payment was said to represent accrued leave entitlements up to 5 December 1993. That date was taken from an injury claim form for industrial deafness that was signed by the respondent in August 1999 in which it was indicated that the respondent had retired in December 1993. This claim form will be discussed subsequently. Because of the complexity of the interrelationship of the various matters which are relevant to the proceedings which occurred between 1993 and 2000, including the matters referred to earlier in this paragraph, it is useful to set out in tabular form what appears to be the totality of the matters relied on in the proceedings as to that period:

Date

Details

March 1994

Appellant’s Personnel Officer advises respondent’s solicitors, in the context of the provision of an answer to a particular request for information, that the respondent's “Employment has not been terminated”

7 August 1999

In an industrial deafness notice of injury form dated 7 August 1999 signed by the respondent there is reference to the respondent’s period of employment with the appellant as concluding in “12-93” and there is a further notation: “RETIRED 12-1993”

3 December 1999

Respondent’s solicitors wrote to the appellant by letter described in the Chief Industrial Magistrates decision in this way: “... the [respondent’s] solicitors wrote a “letter of demand” to the [appellant] seeking payment for the period of unpaid leave as it appeared the employment of the [respondent] had never been terminated by the [appellant]”

3 February 2000

Letter from the appellant to the respondent’s solicitors enclosing payment for unpaid leave is in the following terms: “In reference to your recent correspondence enclosed is Ms Pasovska’s unpaid leave. You will also find the detailed calculation of this leave. The Hilton Sydney Airport wishes Ms Pasovska well”. The calculations attached were based on employment from 11/9/1984 to 5/12/1993.

10 February 2000

The respondent’s solicitors forward to the appellant a letter of acknowledgment for the payment. The final paragraph of that letter is in these terms: “As we have explained to you, our client claims that she was at no stage provided with any notice of termination by you. In the event that you have some copy of a letter or detail of any communication made to our client would you please let us know as soon as possible.”

29 May 2000

The respondent’s solicitors send follow up letter to letter of 10 February 2000 as reply had not been received. This letter contains the following paragraph: “Would you kindly provide us with any information that you hold which confirms that our client was terminated on 5 December 1993”

5 June 2000

Email from Natalie King, Human Resources Co-ordinator of the appellant, to the solicitors for the respondent in these terms: “In reply to your letter dated May 29, 2000, our records have no written confirmation of employment termination on file”

6    We do not consider that any weight should be attached to the date in the August 1999 claim form. The document was, on its face, plainly completed by someone other than the respondent, although signed by her. The factual matter for which the appellant relied on it (that is, the date of cessation of employment), whilst candidly accepting the limited reliance available, is inconsistent with every other piece of evidence as this matter, including more formal documents of the appellant employer closer in time to the date included in the document.

7    A dispute arose between the parties as to the appropriate date for calculation of outstanding entitlements which ultimately resulted in a claim being filed in the Local Court on 22 December 2000. That claim gave rise to the proceedings before the Chief Industrial Magistrate and subsequently to the appeal proceedings.

The proceedings before the Chief Industrial Magistrate

8    The proceedings before his Worship were conducted entirely on the basis of documentary evidence. It was not disputed that the respondent was employed under the Hospitality Industry - Accommodation, Hotels, Resorts and Gaming Award, 1998, an award of the Australian Industrial Relations Commission. Although the date in the title of the award, agreed by the parties to be the relevant instrument, seems inappropriate having regard to the period the respondent was employed and to the fact that one party contends the employment ended five years earlier, in 1993, it is assumed that the parties rely, in a practical sense, on the presumption of continuance, as to which see Heydon Cross on Evidence, Australian Loose-leaf Edition, paras [1125] and [7255].

9    It is appropriate at this point to record an agreement between the parties announced to the Court by counsel. The background to the agreement is that the claims dealt with by the Chief Industrial Magistrate related to first, a claim for payment of long service leave under the Long Service Leave Act, 1955 and, second, a claim for annual leave under the federal award under which the respondent was employed. His Worship's decision dealt with both matters and the question of the date of the termination of the respondent's employment was the crucial consideration in each matter. However, although it is clear that an appeal lies to this Court from his Worship's decision in so far as it dealt with the claim under the Long Service Leave Act, it is doubtful whether the Court has jurisdiction to hear an appeal from a decision of an industrial magistrate dealing with claims under federal awards made or deemed to have been made under the Workplace Relations Act 1996 (Cth). In the circumstances, the parties agreed that the Court should deal with the matter in so far as it related to the long service leave issue and the Court's decision as to that matter would resolve the other matter as well.

10    The submissions of the parties before his Worship may be shortly stated. The appellant contended that a contract of employment is commonly understood as involving no liability for wages or salary unless earned by service, even where the failure to serve is a consequence of the master’s wrongful act. A contract of employment has been held by the Full Court of the Supreme Court of New South Wales to be frustrated by the onset of an employee’s permanent incapacity: Simmons Limited v Hay [1964] NSWR 416 at 418. Whilst it has been held that in many types of modern employment prolonged incapacity of an employee does not automatically terminate the employment contract (see Finch v Sayers [1976] 2 NSWLR 540 at 548), disabling illness was something not provided for by the present parties when they entered into the relevant contract. The respondent’s disabling illness was capable of causing frustration of the contract of employment. Permanent incapacity will destroy all prospect of the employee’s return to work even when it is a contract for an indefinite period; thus frustrating the contract.

11    The appellant contended the award of compensation on the basis of total incapacity by a court of law either terminates the contract of employment or frustrates its performance by operation of law. The contract is brought to an end by operation of law and both parties are discharged from further obligation irrespective of whether notice of termination has been provided. In this case, the finding of total incapacity by Campbell CJ resulted in the contract of employment being frustrated - benefits provided either by award or legislation could not continue to accrue. On the basis of the maxim “no work, no pay” the respondent has not since the date of incapacity provided any kind of service to her employer and thus was not entitled to payment under the relevant award or legislation.

12    The respondent submitted to his Worship that no termination of employment had occurred until the letter from the appellant dated 3 February 2000 (with which some payments on termination were made to the respondent). There was no termination of employment expressly or by any alleged frustration of the contract prior to that date. The decision and award of Campbell CJ did not have the effect of terminating the contract of employment.

13    In the decision of 18 May 2001, the Chief Industrial Magistrate concluded that the respondent was entitled to payment for accrued annual leave and long service leave to the date of Campbell CJ's judgment. The appropriate rate for determining her entitlements was that provided in the relevant award as at 18 May 1995. His Worship’s reasons were stated succinctly and it is convenient to cite them here:

In my view, upon a literal translation of the definition of continuous service both in the Federal Award and the State LSL Act, leave as a result of an accident does not break the employee’s continuous service. Accordingly, in my view, whilst an employee is on workers compensation, annual leave and long service leave would both continue to accrue during the period of the employee’s employment.

However, illness or incapacity on the part of the employee may itself put an end to the contract of employment by operation of the doctrine of frustration, either if the resulting incapacity is permanent, or if temporary illness results in incapacity going to the root of the contract and frustrating the object of the engagement: Boilermakers Society of Australia v Evans Deacon and Co Limited (1961) AILR Reports 349.

It seems to me that the determination of Campbell CJ on 18 May 1995 when he determined that the applicant was totally incapacitated for work and made a determination to her in accordance with the Workers Compensation Act frustrated the employment contract between the parties. The total incapacity of the applicant as a result of her work injuries resulted in a situation fundamentally different from that which existed at the outset of the contract of employment. This was not a situation where there was a likelihood of a temporary incapacity for a short duration. In such circumstances it is my view that the contract of employment came to an end through frustration on 18 May 1995.

I do not accept the submission from the respondent that because the retirement date shown on the Industrial Deafness Claim Form was “December 1993” that the applicant retired in December 1993. It is obvious from that form and the applicant’s signature at the base of that form that she was not the person who completed that form. Accordingly it is my view that the applicant has an entitlement for accrued annual leave and accrued long service leave up to and including 18 May 1995. The appropriate rate for determining her entitlements as at that date is the award rate for a guest service grade 1 as at 18 May 1995.

14    On 22 June 2001 the appellant made an application to the Chief Industrial Magistrate to substitute a finding that the contract of employment came to an end on 19 November 1993. The application was made on the alternate bases of either a slip or the court’s inherent jurisdiction to review its determination before a final order is made. The application was dismissed and a schedule of damages and interest was handed up in court; orders were made accordingly.

15    It is from the decisions and orders so described that the appeal and, subsequently, the cross appeal are brought.

Contentions of the parties

16    The appellant contended that his Worship was in error in concluding that the contract of employment was frustrated as of the date of Campbell CJ's decision. In its submission, the date upon which a contract of employment is frustrated, in circumstances where an employee is found by the Compensation Court of New South Wales to be totally incapacitated for work, is the date of that total incapacity; in this case, 19 November 1993 as found by Campbell CJ. On the appellant's submission, that was the date to which any payments should have extended; no further orders for the payment of monies should have been made by his Worship.

17    The cross appeal raised a similar issue. The respondent contended his Worship should have found the contract of employment was terminated on the date the appellant forwarded the respondent the letter and cheque for accrued leave; that is, 3 February 2000. The contract was not frustrated.

Submissions for the appellant

18    Mr G C Grant of counsel, who appeared for the appellant, contended that the question arising for determination on appeal was whether a frustrating event discharges a contract of employment by operation of law at the time the frustrating event occurs, or at the time a Court delivers a decision concluding the contract had been frustrated. The doctrine of frustration was "alive and well” in the employment context: see Kinconne Pty Limited v Brombey (1985) 10 IR 122 and Grout v Gunnedah Shire Council (1994) 57 IR 243.

19    Counsel submitted that ordinary principles of statutory construction presume that legislation and the common law on which it operates are designed to co-exist, unless varied expressly or by necessary implication. The system of awards provided for in relevant industrial legislation is predicated on the existence of a contract of employment. The common law and its doctrines continue to apply to the employment relationship, including in award regulated industries.

20    The award does not codify the employment relationship. In particular, the provisions of the award which provide for sick leave or personal leave, as with similar terms in a contract of employment, do not oust the doctrine of frustration. Such terms do not anticipate disabling illness or total incapacity of an employee: Notcutt v Universal Equipment (London) Ltd [1986] 1 WLR 641. Significantly, clause 31.3.5 of the applicable award provides that a worker entitled to workers' compensation payments is not entitled to sick leave.

21    On the appellant's contention, courts of similar jurisdiction have recognised that the doctrine of frustration can operate, notwithstanding the relationship between the employer and employee is regulated by an award containing specific clauses dealing with termination of employment: see Durham v Western Australia Government Railways Commission t/as Westrail (1995) 75 WAIG 1787. In that case, the President of the West Australian Industrial Relations Commission considered the award did not contemplate totally disabling illness and, as such, the doctrine of frustration could still apply. Whilst the decision of Sharkey P in that case represented the minority view on the appeal, the other members of the Commission did not find it necessary to express a view on frustration of the contract. Further, Sharkey P held that, on the facts of the case, the doctrine did not operate.

22    Mr Grant contended that the appropriate principles applicable to the present matter are those set out in Marshall v Harland & Wolff [1972] 1 WLR 899 at 903 - 904 and Durham v Westrail. Disabling illness was not something the parties had provided for when entering into the contract. Permanent incapacity will destroy all prospects of the employee returning to work, even where the contract is for an indefinite period. Such an unanticipated event is capable of frustrating a contract: Marshall v Harland & Wolff, Notcutt v Universal Equipment; and see also Macken, McCarry and Sappideen, The Law of Employment, 4th Edition, Law Book Company at pp 232, 237 - 238.

23    The doctrine of frustration requires the Court to examine the situation of the parties at the time of the event relied upon as having frustrated the contract: Scanlan's New Neon Limited v Tooheys Limited (1943) 67 CLR 159. The finding that an event has frustrated a contract has a retroactive effect; the contract is discharged by operation of law upon the happening of the frustrating event.

24    In this case, the contract was frustrated upon the worker becoming totally incapacitated for work not by a unilateral act of the employer; it was determined by operation of law upon the occurrence of the frustrating event: Simmons Limited v Hay and Cachia v State Authority Superannuation Board (1993) 47 IR 254. The Chief Industrial Magistrate was in error in ordering monies be paid that would have accrued following the date of the frustrating event.

Submissions for the respondent

25    Mr P Stockley of counsel, who appeared for the respondent, submitted that the contract of employment under consideration was of an indefinite and ongoing nature. There was no formal act of termination by the appellant and the evidence does not demonstrate that the parties collectively considered the employment relationship at an end.

26    In reliance upon Finch v Sayers, Mr Stockley submitted for the reasons set out by Wootten J, the doctrine of frustration has no application in a modern industrial context in respect to the illness of a worker. He noted that Finch v Sayers was cited with approval by a Full Bench of the Industrial Court in Cachia v State Authorities Superannuation Board.

27    The respondent submitted, in the alternative, that the doctrine of frustration (assuming it to be applicable) does not act retroactively (H & H Security Pty Ltd v James Toliopoulos [1997] FCA 838 in which Madgwick J expressed general concurrence with the views of Wootten J in Finch v Sayers). On this alternative submission, the Chief Industrial Magistrate was correct to find that the contract was determined upon the giving of the judgment of the Compensation Court.

Leave to appeal

28    The appeal is brought pursuant to the provisions of Part 7 of Chapter 4 of the Industrial Relations Act and as such leave to appeal is required: see s 188(2) of the Industrial Relations Act. The principles as to the grant of leave are well settled: see, for example, King v State Bank of New South Wales [2002] NSWIRComm 353 at [52] - [55] and in particular the reliance on the decision in Knowles v Anglican Property Church Trust (No 2) (1999) 95 IR 380. We deal with this matter in terms of the approach in Knowles v Anglican Property Church Trust (No 2) both as to leave to appeal and as to the nature of an appeal under the Industrial Relations Act. It is therefore sufficient to observe that leave to appeal will not, as a general rule, be granted unless the appellant demonstrates that the appeal proceedings raise an issue of some significance for the wider operation of the principles of this Court over and above the interests of the parties to the particular piece of litigation.

29    Both parties contend that leave is warranted in these proceedings as there is no authority directly on the issues raised in these proceedings. When regard is had to the significant number of matters dealt with by the Compensation Court in which it may be found that an employee is totally incapacitated for work, it is clear that the requisite public interest element exists for this Court to authoritatively determine the correct approach to these matters.

30    Leave to appeal is granted. We agree with the parties' submission that the operation of the common law doctrine of frustration, in a modern employment context, is a matter of such importance as to warrant the granting of leave in the public interest.

31    We would emphasise, however, that the question of whether a contract of employment has been frustrated in a particular set of circumstances and when a contract of employment has been terminated are questions of fact. Although a determination of the Compensation Court may be a relevant circumstance to the determination of such factual questions, any such determination will depend on consideration of all the relevant factual circumstances.

Provisions of the award relating to termination of employment etc

32    It is relevant to note the terms of the provision of the award as to termination of employment. The provision (Clause 18, Termination of Employment) is in terms not dissimilar to those found in many other industrial awards. Other than in situations of misconduct or dismissal on account of inefficiency, the award requires the employer or the employee to give certain specified periods of notice in order to terminate employment. The periods of notice vary with the period of continuous service of the employee. Where the period of service is one year or less the period of notice required is one week; where the period of service is between one and three years, two weeks notice is required; three weeks notice is required for periods of service between three and five years and four weeks notice is required where the service has extended for more than five years. In the case of persons over 45, where the employee has at least two years continuous service, an additional week's notice shall be given by the employer.

33    The award is a comprehensive document consistent with modern industry awards. It contains 40 clauses. Those presently relevant also include:

(a) the subject of sick leave is dealt with in the award in Clause 31, Personal Leave. Personal Leave is defined to operate on a wider basis than traditional sick leave to cover also carer's leave and bereavement leave in relevant circumstances. In summary, for employees with more than 12 months employment, leave of 92 hours is credited or accrued every year (92 hours is the equivalent of two weeks and 16 hours leave). Untaken leave accrues to a maximum of 760 hours (that is 20 weeks leave). Sick leave is not available to an employee receiving workers' compensation payments.

(b) However, Clause 38, Accident Pay, provides that an employee who qualifies for compensation under the relevant State compensation statute shall have the compensation payment increased by the employer to the amount of the usual award weekly rate, limited to a maximum period of 26 weeks.

(c) Clause 25 of the award is entitled "Superannuation" and provides benefits by reference to the Superannuation Guarantee legislation with additional provisions as to an industry superannuation fund, employer membership of the fund, employee eligibility, definition of ordinary time earnings for contribution purposes and employer contributions.

Consideration and conclusions

34    Both the appeal and the cross appeal require determination of the same point. The issue might be described as follows: was the respondent's employment frustrated as a result of her illness or incapacity and therefore determined by operation of law; and if so, on what date? The practical significance of these questions, for present purposes, is the consequent effect any resolution of them will have on the respondent's rights as to payment for long service leave and, in terms of the parties' agreement, annual leave.

35    The appellant has referred us to numerous authorities in the course of its submissions including, as earlier referred to, Marshall v Harland & Wolff, Simmons Limited v Hay, Finch v Sayers, Durham v Westrail and Cachia v State Authority Superannuation Board.

36    Counsel for the appellant contended that the principles in Marshall v Harland & Wolff were applicable to the determination of this appeal. In that case a shipyard fitter with some 25 years of service, was absent from work due to illness from October 1961 until the plant at which he worked closed in April 1971. The employee was terminated on notice of the plant closure. The employee sought redundancy. The Court was required to determine whether or not the employment had been avoided at a point earlier than the notice given, on account of the contract having been frustrated. The principles espoused by the Court, on which the appellant in these proceedings relies, are to be found at 903 - 904 of the report:

In the context of incapacity due to sickness, the question of whether or not the relationship has come to an end by frustration sounds more difficult than it is. The tribunal must ask itself: ‘Was the employee's incapacity, looked at before the purported dismissal, of such a nature, or did it appear likely to continue for such a period, that further performance of his obligations in the future would either be impossible or would be a thing radically different from that undertaken by him and agreed to be accepted by the employer under the agreed terms of his employment?’ In considering the answer to this question, the tribunal should take account of:

(a) The terms of the contract, including the provisions as to sickness pay; The whole basis of weekly employment may be destroyed more quickly than that of monthly employment and that in turn more quickly than annual employment. When the contract provides for sick pay, it is plain that the contract cannot be frustrated so long as the employee returns to work, or appears likely to return to work, within the period during which such sick pay is payable. But the converse is not necessarily true, for the right to sick pay may expire before the incapacity has gone on, or appears likely to go on, for so long as to make a return to work impossible or radically different from the obligations undertaken under the contract of employment.

(b) How long the employment was likely to last in the absence of sickness; The relationship is less likely to survive if the employment was inherently temporary in its nature or for the duration of a particular job than if it was expected to be long term or even lifelong.

(c) The nature of the employment; Where the employee is one of many in the same category, the relationship is more likely to survive the period of incapacity than if he occupies a key post which must be filled and filled on a permanent basis if his absence is prolonged.

(d) The nature of the illness or injury and how long it has already continued and the prospects of recovery; The greater the degree of incapacity and the longer the period over which it has persisted and is likely to persist, the more likely it is that the relationship has been destroyed.

(e) The period of past employment; A relationship which is of long standing is not so easily destroyed as one which has but a short history. This is good sense and, we think, no less good law, even if it involves some implied and scarcely detectable change in the contract of employment year by year as the duration of the relationship lengthens. The legal basis is that over a long period of service the parties must be assumed to have contemplated a longer period or periods of sickness than over a shorter period. “These factors are inter-related and cumulative, but are not necessarily exhaustive of those which have to be taken into account. The question is and remains: ‘Was the employee's incapacity, looked at before the purported dismissal, of such a nature, or did it appear likely to continue for such a period, that further performance of his obligations in the future would either be impossible or would be a thing radically different from that undertaken by him and accepted by the employer under the agreed terms of his employment?’ Any other factors which bear on this issue must also be considered.”

37    It was conceded by the appellant, however, that none of the authorities relied on related to a circumstance in which the employment of the worker in question was governed by an industrial award. The closest example would be that of Durham v Westrail. We have found a number of the authorities to which we have been referred of limited assistance in determining this matter.

38    We consider that the authority which provides relevant assistance is the judgment of Wootten J in the Equity Division of the Supreme Court in Finch v Sayers. His Honour’s judgment was described by the Full Industrial Court in Cachia v State Authority Superannuation Board at 273 - 274 as “the principal relevant authority relating to the question of frustration of employment contracts” in New South Wales, and that the reasoning of Wootten J was “overwhelmingly persuasive in a modern industrial context”. We consider that those observations are correct and that his Honour’s judgment has particular significance in relation to award-related employment. Such employment (except where casual in nature) may usually be described as employment of indefinite duration. Such employment is the subject of terms drawn from either the award or the contract of employment which invariably provide a ready facility for termination of the employment by either party to the contract of employment. That is the situation in the present case.

39    The significance and utility of the judgment in Finch v Sayers lies not only in Wootten J’s conclusions but also in his Honour’s careful analysis of contemporary employment law and regulation and the way in which such circumstances have affected legal notions developed in times when employment relations and attitudes to such relationships were very different. It is not necessary for the disposition of these appeals to refer in detail to the whole of his Honour’s exposition of the pertinent legal and policy considerations. However, the following passage from the judgment (at 546 - 547) usefully provides the basis of his Honour’s reasoning:

One cannot but feel reluctance to embrace a view of the law of contract which produces a result not only contrary to what was a common assumption and basis of action of both parties, but contrary also to what common experience tells one is the normal basis on which employers and employees conduct their relationships today in this community, when permanent or indefinite employment is contemplated. If, as the defendants contend, the authorities constrain me to this course, I must adopt it. But I cannot accept that the proper starting point for consideration of this particular matter is the view adopted by the courts in England one hundred years ago of the consequences of an opera singer being disabled by illness: Bettini v Gye (1876) 1 QBD 183; Poussard v Spiers (1876) 1 QBD 410 or even the general view of the rights of an ordinary servant at that time: Jackson v Union Marine Insurance Co Ltd (1874) LR 10 CP 125. Certainly one can no longer assimilate an employee becoming ill to a chartered ship going aground, as was considered natural in the judgment last cited. Decisions of that era are quite natural and sensible expositions of the terms to be implied in contracts of employment in the laisse faire society of one hundred years ago, when the usual rights and obligations of an employee were quite different from what they are in the highly unionised welfare society of today. But it is a misconception to attempt to weave out of these decisions on the construction of contracts at that time rules of law to be applied automatically to regulate the rights of parties today.

The proper starting point is today the same as that adopted by the judges in those days, namely to ask what are the terms of the contract under consideration, and, where the express terms provide no answer, to ask what terms may be reasonably implied in a contract of the relevant sort, made between people in the position of the parties, assuming them to be reasonable men according to the standards of the day - not the standards of one hundred years earlier.

In this community the legislatures have either directly, or through the arbitration tribunals which they have set up, established a considerable array of minimum standards governing the rights of an employee to absent himself from work. Some of these provisions apply to all employees, including award-free executives, eg. Annual Holidays Act, 1944, Long Service Leave Act, 1955.

...

One important feature of many of these benefits, e.g. long service leave, annual leave, sick leave and superannuation, is that they commonly depend on, or are proportioned to, continuity of service. In such circumstances, the proposition that, independently of any act of the parties, a contract of employment is automatically discharged by a certain degree of incapacity on the part of the employee bears a totally different aspect from what it did one hundred years ago. Then it merely meant that the employee could not be sued for not carrying out the agreed work, and the employer did not have to go on paying for work which was not being performed, and hold the job open. Today a similar proposition could have a quite unforeseen and arbitrary effect on accruing rights, as is indeed claimed by the defendants in this very case, and would mean the automatic discarding of the disabled employee in a way quite inconsistent with current attitudes and industrial practice.

...

In short, the usual understanding in many types of employment today is that prolonged incapacity of an employee does not automatically terminate the employment but, subject to sick leave rights, excuses the employee from work and the employer from the obligation to pay, and gives the employer (and perhaps also the employee) the right to terminate the employment. (emphasis added)

40    His Honour's judgment then provides an extensive review of the relevant authorities, distinguishing the judgment in Simmons Ltd v Hay, and citing with approval a number of passages from Marshall v Harland & Wolff Ltd, including the principles earlier set out and the following passage:

Once a contract of employment has been proved, it is for the party alleging that it has been determined to prove it. Thus it is for the employee to prove determination by dismissal, but it is for the employer to prove determination by frustration.

His Honour continued, at 558:

The review of the authorities shows that, before one can answer the question whether a contract of employment is frustrated, one must look at the whole of the terms of the contract, express and implied, and at all the surrounding circumstances, including the provisions made for the sickness and retirement of the employee, and the general practice of the particular employer, or in similar employment. When one does this, it may well be that, in many areas of employment in contemporary society, particularly where one is dealing with an indefinitely continuing relationship, and not the performance of a specific task, there is relatively little room for the operation of the doctrine of frustration due to illness. It is notable that, irrespective of what their lawyers may have subsequently argued for them, the employers, not only in Simmons Ltd v Hay and in this case, but in every reported case in the last seventy years, have in fact acted on the basis that it was for them to terminate the sick employee’s employment when they were no longer willing to maintain the continuity of his employment. In Marshall v Harland & Wolff Ltd, the court said [1972] 1 WLR 899 at 904: “The ending of the relationship of employer and employee by operation of law is, by definition, independent of the volition or intention of the parties. A tribunal is, however, entitled to treat the conduct of the parties as evidence to be considered in forming a judgment whether the changed circumstances were so fundamental as to strike at the root of the relationship.

In this case, I have already concluded that it would be inconsistent with the terms of Finch’s employment to hold that his contract of employment had been frustrated by illness prior to his dismissal, and that question is not touched upon by the judgments in Simmons Ltd v Hay. (emphasis added)

41    Since the judgment of Wootten J in Finch v Sayers there does not appear to have been, with one possible exception, any Australian decision which has applied the doctrine to award employment. Although standard texts recognise the existence of the doctrine in this area, that cannot be decisive. For example, Professors Carter and Harland deal with the matter in this way in the 4th edition (2002) of their Contract Law in Australia (Butterworths) at p 776 in paragraph [2015]:

Where the contract does not involve a specific task, but instead envisages a long-term relationship, it will be more difficult to establish that the contract has been frustrated by a temporary incapacity. Apart from the difficulty of identifying the period of the incapacity, and its impact on the contract, modern contracts of employment frequently contain provisions dealing with sickness benefits. Moreover, superannuation schemes frequently provide for retirement in the event of permanent medical incapacity. These may leave little room for discharge under the doctrine of frustration. But if an employee is incapacitated for what will, in all probability, be an unreasonably long period of time, the contract must usually be frustrated.

If the contract is frustrated the parties are discharged and, for example, an employee is not to be regarded as in breach of contract by not turning up for work. However, it should not be assumed that a conclusion that the contract has not been frustrated necessarily means the incapacitated party is liable in damages. In fact, almost invariably the party in question, for example, an incapacitated employee, is temporarily excused from performance. (footnotes omitted)

42    On the other hand, the reliance by the courts on the doctrine of frustration in the area of employment law has been the subject of some criticism by academic commentators (for example, Collins, Ewing & McColgan, Labour Law: Text and Materials, Hart Publishing, Oxford, 2001, pp 535 - 540). As Bristow J, sitting in the Employment Appeal Tribunal, said in a case cited in that volume, Harman v Flexible Lamps Ltd [1980] IRLR 418 at 419:

In the employment field the concept of discharge by operation of law, that is frustration, is normally only in play where the contract of employment is for a long term which cannot be determined by notice. Where the contract is terminable by notice, there is really no need to consider the question of frustration and if it were the law that, in circumstances such as are before us in this case, an employer was in a position to say 'this contract has been frustrated', then that would be a very convenient way in which to avoid the provisions of the Employment Protection (Consolidation) Act. In our judgment, that is not the law in these sort of circumstances.

43    The situation in this State is however affected, as it is in all Australian jurisdictions, by comprehensive long service leave legislation. The New South Wales Long Service Leave Act 1955 was one of the examples given by Wootten J in Finch v Sayers of a situation in this community which his Honour described as the establishing of "a considerable array of minimum standards governing the rights of an employee to absent himself from work". That statute, however, has a number of significances in the present situation. First, it is the basis of one of the respondent's claims before the magistrate and before this Court. Second, a consideration of its terms shows the limited scope for the operation of the doctrine in award regulated employment.

44    The Long Service Leave Act provides valuable benefits to an employee, the existence and quantum of which depend, not upon work - as payment of wages often does, but on continuing service or employment. Section 4(1) of the statute provides that "every worker shall be entitled to long service leave on ordinary pay in respect of the service of the worker with an employer". Sections 4(4) and 4(4A) provide that the long service leave is exclusive of annual holidays and public holidays during the period of leave.

45    Section 4(5) provides that where the worker's services are terminated otherwise than by the worker's death any untaken leave is to be paid to the worker on the basis that he or she is deemed to have entered upon the leave from the date of termination; and in the case of worker's death, payment of the value of the leave is to be made to the worker's legal personal representative upon request.

46    Section 4(2)(a) deals with the quantum of leave and is instructive for present purposes. It provides:

(2)(a) Subject to paragraph (a2) and subsection (13) the amount of long service leave to which a worker shall be so entitled shall:

(i) in the case of a worker who has completed at least 10 years service with an employer be:

(A) in respect of 10 years service so completed, 2 months, and

(B) in respect of each 5 years service with the employer completed since the worker last became entitled to long service leave, 1 month, and

(C) on the termination of the worker's services after the completion of 15 years service, in respect of the number of years service with the employer completed since the worker last became entitled to an amount of long service leave, a proportionate amount on the basis of 2 months for 10 years service, and

(ii) in the case of a worker who has completed at least 10 years service but less than 15 years with an employer and whose services with the employer are terminated or cease for any reason, be a proportionate amount on the basis of 3 months for 15 years service, and

(iii) in the case of a worker who has completed with an employer at least five years service, and whose services are terminated by the employer for any reason other than the worker's serious and wilful misconduct, or by the worker on account of illness, incapacity or domestic or other pressing necessity, or by reason of the death of the worker, be a proportionate amount on the basis of 2 months for 10 years service. (emphasis supplied)

47    Sub-paragraph (iii) of that provision deals with the entitlement to leave of an employee whose employment ceases when the employee has between five and ten years service. In that circumstance, the employee will only have a right to a benefit (payment in lieu of leave) in two situations. First, where the employment is terminated by the employer for any reason other than for serious or wilful misconduct. Second, where the employee terminates the employment because of his or her illness, incapacity or domestic or other pressing necessity, or where the employee dies. None of these criteria is in terms satisfied where it is held that the employment is frustrated by illness or incapacity. If the employment was terminated by the operation of the doctrine the valuable rights conferred by the Act would not apply.

48    This is a further circumstance which tells against the role of the doctrine of frustration in modern industrial or award regulated employment, except in the case of the death of the employee. So much was recognised as to long service leave etc by Wootten J in Finch v Sayers at 547 when his Honour, in a passage cited earlier, referred to benefits such as long service leave "commonly [depending] on, or [being] proportioned to, continuity of service". However, his Honour may not have been alive to the other reason noted above; not only that the doctrine of frustration could have an unforeseen and arbitrary effect on accruing rights (presumably what his Honour was referring to was the cessation of the accrual of such rights) but also that the availability of the doctrine could destroy the rights altogether in some cases.

49    Returning then to the cases since Finch v Sayers. The possible exception earlier referred to, where the doctrine was applied, is Kinconne Pty Limited v Brombey which was one of the cases relied upon by the appellant for the proposition that the doctrine of frustration was "alive and well" in the employment context (the other case, that of Grout v Gunnedah Shire Council, does not, on examination, support the proposition in any event). In Kinconne Pty Limited v Brombey, Watson J was dealing with a number of claims in the context of an appeal from the Chief Industrial Magistrate. The claim in respect of which the issue of frustration was dealt with related to a claim for sick leave in circumstances where the respondent employee, a director of nursing in a nursing home, tendered her resignation accompanied by a medical certificate and at the same time made a claim for one month's sick leave on full pay seeking that her resignation be effective from the end of the period of sick leave. In accepting the submissions based on the doctrine of frustration, his Honour referred to the responsible and demanding nature of the relevant position and that the employee's letter of resignation referred to medical advice that she "should retire from work immediately". His Honour said:

I fail to see in such a case how she can later be heard to claim that her contract was not frustrated. Her illness was obviously not temporary but was such as to destroy the substratum of her contract as she in effect conceded by the terms of her letter resigning her employment.

It is very significant, however, that although Watson J (according to the report of the judgment) was specifically referred to the judgment in Simmons Ltd v Hay, there is no reference in the judgment to Finch v Sayers. It must be assumed that that judgment was not drawn to his Honour's attention. We accordingly consider that the judgment in Kinconne Pty Ltd v Brombey should be distinguished.

50    In Riley v WorkCover/Allianz Australia (Robinvale Transport Group (SA) Pty Ltd) [2002] SAWCT 79, Olsson J (sitting as an auxiliary judge of the South Australian Workers Compensation Tribunal) dealt with a submission that, if a contract of employment came into existence between the parties, it was immediately frustrated by reason of the applicant’s failure to hold a valid driver' s licence for truck driving duties. His Honour considered the principle of frustration and that it has been variously expressed in the authorities. His Honour accepted the availability of the doctrine in the employment area but observed that the concept has, however, been stated somewhat differently in the context of a contract of employment.

51    His Honour held:

96 On the one hand, the death of an employee plainly puts an end to the contract of employment, by reason of frustration. The incident of death is absolute in terms of frustration and that incident automatically terminates the contract without further action by anyone. (cf. Hirji Mulji and others v Cheong Yue Steamship Co Ltd [1926] AC 497). By way of contrast, the passing of a sentence of imprisonment on an employee does not automatically put an end to the contract of employment from the date of sentence, but it is capable of doing so. (FC Shepherd & Co Ltd v Jerrom [1987] 1 QB 301)

97 This is so not because a crystallised situation of frustration does not automatically put an end to the contract but, rather, because a very real factual question often arises as to when the stage is reached at which frustration can be said to occur. In the context of imprisonment, very much depends on the length of enforced absence from work, or the need (or otherwise) to obtain a replacement (Chakki v United Yeast Co Ltd [1982] 2 All ER 446).

98 So it is that it has been said that, whilst a lengthy sentence of imprisonment would clearly frustrate a contract of employment, nevertheless, one which could be served within an available period of leave would not, of itself. (Re Long Service Leave (Coal Miners) Award, (1962) 4 AILR 74); nor would one which could be served by periodic weekend detention (see “The Law of Employment”, Macken, O’Grady, Sappideen 4th Ed 234).

99 A similar line of reasoning has been pursued in cases of illness (See Finch v Sayers [1976] 2 NSWLR 540).

100 By analogy, it seems to me that the situation revealed by the evidence in this case could not have amounted to frustration, consistently with the above type of reasoning.

...

105 I do not accept that this was a case of frustration in the legal sense. Whether the situation would, at any stage, have justified Robinvale in terminating the contract for breach of an implied term of it, is another question altogether. It does not here arise, because Robinvale did not ever purport to do so.

52    Similarly, Gillard J of the Supreme Court of Victoria in Walshe v The Police Association [2000] VSC 292 considered an application (which was granted) for an interlocutory injunction to restrain the holding of a meeting of a trade union which was being called to ratify a decision made by the body's executive to terminate the trade union's secretary's contract of employment on the ground of its frustration because of the continuing illness of the secretary. His Honour accepted that it had been recognised that in contracts of employment, the contract can be frustrated by the failure of a party to provide personal services and then continued at [46] to [47]:

But whether or not the contract has been frustrated in law in the present matter will depend upon the construction of the contract and also disputed questions of fact concerning the health of Mr Walsh and whether he can resume his duties.

47. In this regard I refer to the case of Morgan v Manser (1948) 1 KB 184. Streatfield J at p.191 after considering the authorities stated the principles which were applicable. He stated that the event or changed circumstances had to go beyond what was contemplated by the parties at the time when the contract was entered into. In regard to a contract of employment it may be difficult for an employer to successfully establish frustration of a contract when the parties have contemplated sick leave and sick leave of some substantial duration. That is of course not to say that in a particular case frustration will not occur and bring the contract to an end. (emphasis added)

53    We accordingly consider that the passages cited from Finch v Sayers, and the principles expounded therein, provide the basis on which these appeals should be determined. It must however be observed that, because of the way in which the parties conducted their respective cases before his Worship, the evidence as to the employment relationship was very limited. In referring to this situation no criticism is intended of the parties and their approach may well have been appropriate in the circumstances of the case and the history of the relationship between them. Nevertheless, the situation does result in the approach of Wootten J being applied in the relatively limited factual matrix available.

54    Notwithstanding this situation, we do not consider that the circumstances of the respondent's employment, including its history, the nature of the employment, the nature of the award coverage and the circumstances in which payment of accrued entitlements came to be made, permit any available scope for the operation of the doctrine of frustration. In any event, we do not consider that the appellant has discharged the onus on it in that respect. We do not consider that the respondent's employment, regulated by comprehensive award provisions and statutes such as the Long Service Leave Act, could be said to require for its effective operation implied terms as to termination of employment or provide any basis for the doctrine to operate. The employer had ready means of terminating employment at short notice and incapacity of a worker would, subject to any other statutory protection (see, for example, the present s 93 of the Industrial Relations Act 1996), provide a readily available basis for termination of employment. Finally, we do not consider that the appellant’s reliance on the “no work, no pay” cases is relevant to the issues in these proceedings. As was conceded by Mr Grant, the cases in that line of authority stand alone; their usefulness in the circumstances of these proceedings is, at best, merely an analogy.

55    It follows that his Worship was correct in holding that the employment did not terminate in November 1993 but was in error in finding the employment ended because of frustration of the respondent’s contract of employment upon the finding of total incapacity in 1995. The finding of total incapacity of the individual did not frustrate the contract, but merely gave rise to a right in the appellant to terminate the respondent's employment in accordance with the award. We consider that occurred on 3 February 2000 when the appellant wrote to the respondent's solicitors enclosing what it considered was the final payment for unpaid leave and wishing the respondent well. In the particular circumstances this should be considered as communication of termination of employment although in many other circumstances it might not. The appeal must be dismissed and the cross appeal upheld.

56    Each party made application for the issue of a certificate as to their costs pursuant s 6 of the Suitors' Fund Act 1951. Section 6(1A) of that Act provides that the Industrial Relations Commission, when hearing an appeal from a court, may issue an indemnity certificate "to the respondent to the appeal or to any one or more of several respondents to the appeal" where the appeal has been successful on a point of law. We do not consider that a certificate may issue in the appeal, as the appellant was not successful. We consider that, as in the ordinary course, costs ought follow the event in those proceedings. The appellant should pay the costs of the respondent in an amount as agreed or assessed.

57    As to the cross appeal, the respondent/cross appellant has been successful in that proceeding and should therefore have her costs of that proceeding as well.

Orders

58    We make the following orders:

1. Leave to appeal is granted as to the appeal and the cross appeal.

2. The appeal is dismissed.

3. The cross appeal is upheld.

4. The respondent/cross-appellant shall, within 14 days, bring in short minutes as to the orders that should thereby be made in lieu of those made by the Chief Industrial Magistrate.

5. The appellant/cross-respondent is to pay the costs of the respondent/cross-appellant in respect of the appeal and cross appeal in an amount as agreed or assessed.

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LAST UPDATED: 07/03/2003