Adventure World Travel Pty Ltd v Newsom

Judgment 1McCOLL JA: I agree with Meagher JA's reasons and the orders his Honour proposes. I also agree with Leeming JA's additional reasons. 2MEAGHER JA: The appellant is a travel company in the NRMA Group of companies. The respondent was employed as managing director of the appellant under a written Employment Agreement dated 19 December 2006. That agreement and the respondent's employment commenced on 1 February 2007, the Commencement Date. The agreement could be terminated by either party by notice, cl 14.1(a) providing: "Either party may terminate this agreement and the Employment at any time by giving the other party not less than 12 months prior written notice during the 2 years period from the Commencement Date and thereafter by providing 3 months prior written notice." 3On 30 January 2009 the respondent wrote to the appellant and gave it 12 months notice of his resignation, relying upon cl 14.1(a). That notice was given at the end of the two-year period from the Commencement Date and purported to terminate the agreement on 30 January 2010. 4The efficacy of that notice depended upon cl 14.1(a) permitting the giving of a notice in the first two years of the agreement which ended the agreement after that two year period. A possible alternative construction of the clause was that any notice given in those first two years had to expire in that period, so as also to bring the agreement to an end within that period. 5By its letter dated 11 February 2009, the appellant accepted that the respondent's notice would be effective to terminate his employment on 30 January 2010. However, it reserved the right to issue its own notice under cl 14.1(a). In subsequent correspondence the respondent took issue with the proposition that by giving a further notice of termination after the first two years of the agreement, the appellant could, to use its language, effectively "shorten the notice period to three months". 6By letter dated 9 June 2009 the NRMA, writing on behalf of the appellant, gave the respondent notice that the last day of his employment would be 30 June 2009. It will be necessary to return to the detail of this letter when considering whether it gave three months prior written notice as required by cl 14.1(a). The appellant subsequently paid the respondent's salary and other entitlements to 30 June 2009 and paid a further amount equal to three months remuneration, including superannuation. The letter of 9 June 2009 foreshadowed the payment of that amount as being "in lieu of your three month notice period". 7The evidence before the primary judge, which consisted of an Agreed Statement of Facts and the parties' correspondence between February and June 2009, did not indicate when that further payment was made. Nor did the agreed facts include facts which might give any further understanding of the genesis of the transaction, its background and context, that is given by its subject matter and terms. It was common ground, however, that the respondent's employment had ended on 30 June 2009. The appellant contended that this was the consequence of its having given the notice dated 9 June 2009 and made the further payment. The respondent alleged that this was the result of his acceptance at that time of the appellant's repudiatory breach in wrongfully ending his employment on that day. 8The respondent brought proceedings against the appellant in the District Court claiming damages for wrongful repudiation of the Employment Agreement. The amount claimed was $117,173.33 plus interest. The primary judge (Gibson DCJ) upheld that claim, entering judgment for the respondent for $153,822.25: Newsom v Adventure World Travel Pty Ltd (District Court (NSW), 27 September 2013, unrep). The appellant appeals from that judgment.

The decision of the primary judge 9The respondent's claim was that by his notice he had terminated his employment with effect on 30 January 2010, that the appellant had wrongly repudiated that agreement by its conduct in June 2009 and that he had accepted that repudiation on 30 June 2009. He claimed, by way of damages, his salary and entitlements for the remaining seven month period of his employment, after giving credit for the payment which was equivalent to three months remuneration. 10Accepting that the respondent's notice was valid and effective, the appellant contended that by the letter dated 9 June 2009 it gave three months notice of termination, which was expressed to take effect on 30 June 2009. The further payment then made on or about 30 June 2009 was made in lieu of that unexpired three month notice period and was effective to bring the agreement and employment to an end on the date of payment in accordance with cl 14.1(b)(iv). It also contended that this was the effect of that payment irrespective of whether the letter of 9 June 2009 constituted an effective notice under cl 14.1(a). 11Finally, the appellant argued that any damages for which it was liable should be awarded on the basis that it was entitled to exercise, and would have exercised, its right to terminate the agreement by three months written notice in any event. Accordingly, as the respondent had been paid after 30 June 2009 an amount equal to three months salary, he had not suffered any loss or damage because but for any wrongful repudiation, his employment would have ended on 30 September 2009. In that event he would have been entitled to three months remuneration and he had already received a payment equivalent to that amount. 12In relation to the first and principal issue, the primary judge concluded at [32]: "I am satisfied that, as a matter of construction of the agreement, once the plaintiff gave twelve months' notice to terminate prior to the expiry of the first two year period, the defendant could not give three months' notice to terminate after that two year period had expired." 13Her Honour's reasons included that construing the clause as permitting the giving of more than one valid notice of termination would produce uncertainty in relation to the obligations and entitlements which by cl 14.1(b) arose with respect to the "applicable notice period". 14The primary judge also decided each of the remaining issues in favour of the respondent. As to the second, the letter of 9 June 2009 was not a notice complying with cl 14.1(a) because it did not give three months notice prior to termination. It purported to terminate the employment with effect on 30 June 2009: [35], [37]. As to the third, the appellant could not rely upon cl 14.1(b)(iv) because that clause was only engaged if a notice had been given in accordance with cl 14.1(a) and the appellant had paid an amount, calculated by reference to the respondent's remuneration, "in lieu of all or any unexpired portion" of the applicable notice period: [35], [39]. Finally, because the appellant was not entitled in June 2009 to terminate the agreement by 3 months notice (a valid notice already having been given by the respondent), the principles upon which it relied were not engaged: [32], [40].

The issues in the appeal 15The amended notice of appeal raises the same questions as were dealt with by the primary judge. They are: (3)was the appellant able to give a notice of termination after the respondent had given an earlier notice which was accepted as validly given under cl 14.1(a) (grounds 1 and 2); (4)was the appellant's letter dated 9 June 2009 a valid notice of termination under cl 14.1(a) (grounds 3 and 4); (5)in the absence of any valid notice of termination to which the payment was directed, could the appellant rely upon a payment under cl 14.1(b)(iv) as terminating the agreement (ground 5); and (6)was the respondent entitled to damages in an amount equivalent to about four months remuneration, as he contended and the primary judge held, or to nominal damages only, as the appellant contended (grounds 6 and 7).

Was the appellant entitled to give a later notice of termination under cl 14.1(a)? 16The proceedings were conducted before the primary judge on the basis that the respondent had given an earlier and valid notice under cl 14.1(a). That involved acceptance of a particular construction of cl 14.1(a), namely that it permitted the giving of a notice in the first two years of the agreement which would bring it to an end after that period. The first issue in the appeal raises a narrower question - which also would arise if the alternative construction referred to above was adopted, but then only in relation to notices given in the first two years of the agreement. It remains necessary, nevertheless, when addressing that narrower question, to consider the overall construction of the clause. The parties have done that by written submissions filed after oral argument concluded. Each contends for the construction adopted by the primary judge, which accepts that the respondent's notice was valid. The appellant argues that either party could give a later notice. The respondent takes issue with that.

The relevant provisions of the employment agreement 17Clause 3.1 provided that the agreement would commence on the Commencement Date and that the employment would continue until terminated in accordance with the agreement. Clause 14 provided for termination by either party by notice (cl 14.1) and termination by the appellant for cause and immediately (cl 14.2). Under cl 14.3 the payments to which the respondent was entitled on termination differed, depending upon whether the termination was by notice or for cause. 18Clause 12 contained provisions directed to protecting the appellant against the respondent engaging in activities similar to or competitive with its own or having an interest in a business which engaged in those activities. Clause 12.2 prohibited such conduct by the respondent during the period of his employment. Clause 12.3 restrained the respondent from engaging in such conduct, including by soliciting customers or accepting business from existing customers of the appellant, for a period of two years from the termination of his employment. 19In that context, cl 14.1 provided: "14.1 Termination with notice (a) Either party may terminate this agreement and the Employment at any time by giving the other party not less than 12 months prior written notice during the 2 year period from the Commencement Date and thereafter by providing 3 months prior written notice. (b) If paragraph (a) applies: (i) the Executive must remain available for the balance of the applicable notice period to provide services to the Company at the request of the Company; (ii) the Executive must adhere to his obligations including without limitation, under cl 12; (iii) the Company may require the Executive to remain available but not to attend the offices of the Company for all or any part of the period of notice under paragraph (a) unless requested to do so by the Company; and (iv) the Company may at any time pay the Executive an amount calculated by reference to the Remuneration in lieu of all or any unexpired portion of the applicable notice period referred to in paragraph (a), such that this agreement and the Employment shall terminate on the date the Company makes that payment." 20The payments which the appellant was required to make if the agreement was terminated under cl 14.1 included, by cl 14.3(a): "(i) any amount arising from the exercise by the Company of its discretion to pay the Executive in lieu of all or any portion of the applicable notice period; (ii) any accrued unpaid annual leave or long service leave up to the date of termination; (iii) any unpaid remuneration including superannuation contribution payments up to the date of termination; (iv) any unpaid bonuses and incentive payments due and payable pursuant to clauses 5 and 6 respectively"

The construction of cl 14.1(a) 21Clause 14.1(a) commences with an unqualified statement that "either" party may "terminate" the agreement "at any time". It then describes how that may be done - during the first 2 years of the agreement and "thereafter". A longer period of notice is required in the first period so as to provide secure employment for at least the first year. The notice given in that first period must be "not less than" 12 months. That language permits the party giving the notice to choose a longer period. How long that notice might be depends on whether it must expire in the two year period. If it can expire after that period, it is necessary to consider whether the exercise of the power to fix the period of notice was subject to any implied constraint. 22The right to terminate the agreement is given to "either" party. As Starke J observed in Currie v Glen [1936] HCA 1; 54 CLR 445 at 453, "either" is "a distributive word, and may mean one of two, or each of two - depending on the subject matter and the context. A common grammatical illustration will suffice: 'You can take either side', that is one side or the other; 'The river overflowed on either side', that is on each side." See also per Lindley MR in In re Pickworth [1899] 1 Ch 642 at 648 and Gibbs CJ in Fisher v Fisher [1986] HCA 61; 161 CLR 438 at 447. Here what is conferred is the right to do a unilateral act, namely to terminate at any time. That right is given to each party in the sense that it can be exercised by one or the other. That is not, however, the end of the inquiry, for here the question is whether where one party has acted unilaterally to "terminate", the other may also exercise the right do so, or whether the right, once exercised, is to be regarded as exhausted. The appellant argues that because termination involved the giving of a notice which brings the agreement to an end on its expiry, cl 14.1(a) continues to apply during that period and to permit a valid termination, in the same way that cl 14.2 continues to apply during that period and would permit the employer to terminate for cause with immediate effect. 23During the first two years of the agreement what must take place is "not less than 12 months prior written notice". That language could be read as meaning that the period of notice, and not merely the notice, must be given during the first two years. That would require that the notice expire in that period. On the other hand, if cl 14.1(a) is read as meaning only that the notice be given during that period, it permits notices to be given which would expire in or after that period. That in turn leaves open the possibility of a second and shorter notice being given, either in or after the first period. A second notice, if valid, would bring forward the date on which the agreement comes to an end. That is the position which the appellant argues for. The possibility of more than one notice being given and having that effect also exists if cl 14.1(a) is read as requiring that the notice expire in the period in which it is given. 24There is a fairly clear indication in the text that cl 14.1(a) is to be understood as requiring only that the notice be given in the relevant period. The clause enables either party to terminate "at any time". Terminate means to bring to an end. As used in cl 14.1(a), the word describes the act or process of terminating rather than merely the consequence or outcome of that act or process. It is only if it is used in that sense that it is possible for either party to terminate "at any time". What is referred to is or includes the giving of a written notice. If the notice period has to expire during the period in which the notice is given, it would not be possible to give a notice in the second year of employment because of the requirement that the notice be for "not less than" 12 months. That would be contrary to the unqualified statement as to the entitlement of either party to terminate "at any time". 25Reading cl 14.1(a) as so providing, it enables a notice to be given in the first period provided that it is "not less than" 12 months. The appellant suggests that by giving such a notice one party could bind the other to a further term of "5 years, 10 years, 20 years or more". It argues that reasonable business people in the position of these parties were not to be taken to have intended such a commercially unlikely outcome. It submits that outcome is one that could be avoided if cl 14.1(a) is construed as permitting more than one notice to be given. This argument makes it necessary to consider whether so read, cl 14.1(a) would permit the giving of such long notice periods. 26The power to fix a period of "not less than" 12 months is conferred for the purpose of giving advance notice of the termination of the agreement. Where a contractual power is given to one party for a purpose but in terms wider than necessary for the protection of its legitimate interests, the exercise of the power may be constrained by implied obligations of reasonableness and good faith, as was held in relation to the exercise of the powers given in the agreement in Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187; 69 NSWLR 558 at [163], [185]. A constraint in those terms would prevent the fixing of a period of notice for an extraneous purpose or one which could not on any view be justified as reasonable having regard to the purpose for which such a notice is given. That purpose, described generally, is to enable the parties to end their existing relationship and have a reasonable time to obtain either a substitute employee or other employment: see Birrell v Australian National Airlines Commission (1984) 5 FCR 447 at 458 (Gray J); and, in relation to a distributorship agreement, Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 at 448 (McHugh JA). In my view the power in cl 14.1(a) is to be read subject to such a constraint. The existence of that constraint substantially answers this argument of the appellant. It remains necessary, however, to address the language of the clause to see whether it is to be read as permitting the giving of a second or subsequent notice. 27The question is whether the right to terminate, once exercised, is to be regarded as exhausted. The valid exercise of the right conferred by cl 14.1(a) brings the agreement to an end, absent any subsequent consensual arrangement or conduct which compels a different outcome. Once the notice has been given the process of termination is engaged. At common law the general principle, which is subject to limited exceptions not relevant in the present context, is that a notice of termination, being a unilateral act that does not depend for its efficacy upon acceptance by the person to whom it is directed, cannot be unilaterally withdrawn: Riordan v War Office [1959] 1 WLR 1046 at 1054 (per Diplock J as his Lordship then was); on appeal [1961] 1 WLR 210; State of New South Wales v Paige [2002] NSWCA 235; 60 NSWLR 371 at [277], [283] (Spigelman CJ, Mason P and Giles JA relevantly agreeing). See also "Termination of Employment Contracts by Notice", GJ McCarry, (1986) 60 ALJ 78 at 82, 85. That principle applies equally to notices given by employers as to notices given by employees. To permit either party to give a second notice would in substance be to permit a party to withdraw an earlier notice by giving a later one. 28Upon the giving of a valid notice under cl 14.1(a) the introductory words to paragraph (b) ("If paragraph (a) applies") are satisfied. In that event, as between the appellant and respondent, rights and obligations are created or confirmed as continuing by cl 14.1(b). Whilst the words of that paragraph could be read as applying distributively to any notice given under cl 14.1(a), in their terms they refer to "the" applicable notice period, suggesting that there is only one such period to which the provisions of that paragraph could apply. 29By cl 14.1(b)(i) and (iii) the respondent is required to remain available to provide his services to the appellant and to attend its offices for all or part of the "applicable notice period" or "period of notice under paragraph (a)". These provisions require the respondent to keep himself free for the whole of that period and not to take other employment. The period during which that obligation applies may be shortened by a payment in lieu of the unexpired portion of the notice period. In the absence of such a payment, the respondent must make himself available for the whole period. Clause 14.1(b)(iv) confers on the appellant the entitlement to make a payment in lieu of notice and on the respondent the corresponding right to receive such a payment or to be paid his remuneration during the notice period. To permit a second and shorter notice to be given by either party, would enable the appellant to modify, by subtracting from, its obligation to pay and the respondent's entitlement to receive payment. To allow that possibility would introduce uncertainty at the outset as to the period of notice and as to the amount of the payment to which the employee was entitled in lieu of notice. 30In my view the construction urged by the respondent gives effect to the language which the parties have used and takes account of their likely commercial purposes and objects. The parties have agreed that either may terminate the employment "at any time", using terminate to refer to the act or process of giving a written notice to the other. By giving a notice the parties engage the process of termination. That process gives rise to rights and obligations as between the parties. 31Once exercised the right to terminate by notice is exhausted notwithstanding that the agreement has not yet come to an end. A construction of cl 14.1 as engaged by the first valid notice of termination is consistent with the references to "the" period of notice which has engaged the operation of that paragraph. That construction does not introduce uncertainty or result in the subtraction of any rights conferred by cl 14.1(b)(ii) or (iv). It also is consistent with the general principle that a notice of termination once given cannot be withdrawn unilaterally. 32It is not necessary to construe the clause as permitting more than one notice so as to avoid a commercially unlikely outcome. If a notice is given in the first two years, it must be for "not less than" 12 months. That, however, does not permit one party to fix a notice period which is excessive by reference to notions of reasonableness and good faith in the exercise of that contractual power. 33For these reasons the primary judge correctly concluded that the appellant could not give a later notice which had the effect of shortening the respondent's notice period. None of the remaining issues arises because each depends for its success upon the appellant being entitled to give a later notice. I nevertheless will address each of those issues briefly.

Was the letter dated 9 June 2009 a valid notice under cl 14.1(a)? 34The letter of 9 June 2009 referred to earlier correspondence between the chairman of the appellant and the respondent. In that correspondence the appellant acknowledged receipt of the respondent's notice as validly given under cl 14.1(a) so as to terminate his employment with effect on 30 January 2010. The appellant, however, asserted that it remained able to exercise its rights under that clause to "shorten the notice period to three months". The respondent took issue with its entitlement to do so. In that context the letter of 9 June 2009 provided: "You will note from Wendy's letter of 11 February 2009, it is NRMA's view that on and from 1 February 2009, the notice period under the clause 14.1 of your contract of employment became three months. Accordingly, on behalf of the Adventure World Travel Pty Limited I give you formal notice of the termination of your employment. This notice will take effect from 30 June 2009, this being your last date of employment. Following this notice taking effect, you will be paid in lieu of your three month notice period. As you will be employed on 30 June 2009, you may also be entitled to a bonus under your employment contract." 35The primary judge noted that this issue did not arise because the appellant could not give three months notice to terminate after the two year period had expired: [32]. Her Honour also addressed and rejected the appellant's argument that this letter was a valid notice under cl 14.1(a). She did so on the basis that it gave "only three weeks prior written notice": [35]. Her Honour considered that the letter should not be understood as a notice of termination but as a "reduction of the notice period in relation to the plaintiff's terminations": [37]. 36I agree with her Honour's conclusion. The letter unequivocally states that 30 June 2009 is to be "your last date of employment". That might have been the position if three months notice had been given on or before that date and a payment in lieu of notice had been made on that date. However, the letter contemplated that the employment would cease on 30 June 2009 and that a payment would be made after that time purportedly in exercise of the appellant's entitlement under cl 14.1(b)(iv). Such a payment could have terminated the agreement if there was an existing valid notice and then only on the date the payment was made. The letter did not give three months' notice that the agreement was to terminate on 30 June 2009 and it would appear that no payment was made on that day.

Was the agreement terminated by payment of three months salary in lieu of notice? 37The appellant argues that the payment made at some time after 30 June 2009 operated to terminate the agreement. The primary judge rejected that argument because the appellant could not and had not given a valid notice of termination and because cl 14.1(b)(iv) only applied to a payment made in lieu of "all or any unexpired portion" of a written notice given in accordance with cl 14.1(a): [39]. Her Honour was correct to do so for those reasons. The appellant could have made a payment in lieu of the unexpired portion of the notice period given by the respondent but it did not do so.

Was the respondent only entitled to nominal damages? 38The primary judge dismissed this argument because it depended on the appellant being entitled to issue a further notice of termination: [40]. The appellant accepts that this argument is only available if it was entitled to issue a later notice. The primary judge correctly rejected the argument on the basis that the appellant was not entitled to do so.

Proposed orders 39The appeal should be dismissed with costs. 40LEEMING JA: I agree with the reasons given by Meagher JA and the orders he proposes. Not least because the question illustrates the difficulties of giving legal meaning to ordinary contractual language, it may be helpful to explain my essential reasoning briefly. What follows presupposes familiarity with and does not repeat Meagher JA's reasons, and is wholly consistent with them. 41First, cl 14.1 is about "termination" of the agreement by giving written notice. Do "terminate" and "termination" refer to the giving of written notice whose effect will in due course be to bring an end to the contractual relationship, or instead to the bringing to an end of the contractual relationship? All indications suggest the former, not the latter. Hence the heading "Termination with Notice" and the opening words "Either party may terminate this agreement and the Employment at any time by giving the other party ... notice". 42Secondly, the clause makes different provision as to the right of "termination", depending upon whether a fixed two year period (ending on 1 February 2009) has elapsed - essentially, a longer period of notice is required in the first two years. 43Thirdly, the corollary of those two considerations is a threshold question of construction, namely, what must take place in the first two year period: merely the giving of notice, or also the ending of the contractual relationship? If what must happen "during the two year period" is not merely the giving of notice, but also the bringing to an end of contractual relations after not less than 12 months' prior written notice, then the power under cl 14.1(a) cannot be exercised in the second year of the term. 44However, the clause provides that the parties may "terminate" at any time. It is difficult to reconcile an express right to terminate "at any time" in a two year period with its unavailability for the whole of the second year of that period. Moreover, there is no good reason for the parties to be taken to have agreed to a regime whereby both are denied the right to give a notice throughout the whole of the second year - a year which is apt to be important, for it will be the first time that annual financial data of the business as sold will have become available. Such a construction would amount to commercial inconvenience, or even perhaps commercial nonsense, contrary to Zhu v Treasurer of New South Wales [2004] HCA 56; 218 CLR 530 at [82]. 45Those considerations confirm the correctness of the construction adopted by the parties at trial, namely, that the clause permitted giving notice of termination during the two year period which expired after the end of the two year period. 46Fourthly, that construction needs to accommodate the commercial absurdity of a notice terminating the agreement after 5, or 25, years. The answer is to be found in the implied obligations to which Meagher JA has referred, which often assume heightened significance in respect of contractual powers of termination. 47Fifthly, the unilateral act of one party giving written notice will of itself bring about the end of the contract. The exercise of that power also crystallises other provisions, especially, the power on the part of the Company to bring the contract immediately to an end by making payment in lieu of the Executive serving out that period. Here, the Company sought to defeat that right by purporting to terminate on three months' notice. There are a number of reasons telling against multiple exercises of the power to terminate on notice, as Meagher JA has observed, to which may be added that it would be contrary to the conventionally implied obligation for it to do all such things as were necessary on its part to enable the Executive to have the benefit of the contract: Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607. 48It follows that the first notice was valid, and the second notice invalid, with the consequences for the other issues, and the disposition of the appeal, as identified by Meagher JA.

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