Carter v The Dennis Family Corporation [2010] VSC 406

2 DFC relied on thirteen separate reasons as justifying Mr Carter's summary dismissal. Each of the reasons was said to show that Mr Carter was guilty of either serious misconduct or gross negligence or incompetence or two or more of them. With respect to ten of the thirteen reasons, DFC also pleaded that by his relevant conduct Mr Carter evinced an intention no longer to be bound by the employment contract, thereby repudiating the contract, which repudiation it accepted by dismissing the plaintiff from his employment.

3 Mr Carter is now 60 years of age. At the time of the hearing, he ran his own business as a Management Consultant. He was appointed to be the Managing Director of the defendant company in April 2003.

4 Mr Carter obtained a Bachelor of Economics with Honours (First Class) from Monash University in 1971 and a Master of Economics from the same university in 1977. Between 1974 and 1987 he was a lecturer and then senior lecturer in Economics at the University of Melbourne on a full time or part time basis. In 1976 he began consulting to a range of government and community clients on urban and regional development and labour market issues. He has been a Fellow of the Australian Institute of Management since 1991 and a Fellow of the Australian Institute of Company Directors since 1997. Mr Carter has been an Adjunct Professor of Management at the University of Queensland since 2000.

5 In March 1987, Mr Carter was appointed Deputy Director-General of the Ministry of Housing and Construction in Victoria. From January 1989 to April 1991, he was Director-General of the Housing Corporation of New Zealand. This organisation had approximately 1,700 employees and 34 offices throughout New Zealand and assets valued at over $NZ 8 billion. Mr Carter then resigned to become the Director-General of the new Department of Planning and Housing in Victoria. The Department had about 3,000 employees and an annual budget of approximately $1 billion. In October 1992 following a change of government the Department was abolished. In January 1993, Mr Carter resigned from the Victorian Public Service and accepted an offer of a senior role at the Brisbane City Council. He spent seven and a half years with that body, over six of them as its Chief Executive Officer. The Council had about 6,500 employees with an annual budget of approximately $1.5 billion. He resigned in April 2000. In August 2000, Mr Carter was appointed the Chief Executive Officer of the National Roads and Motorists Association ("NRMA") in New South Wales. He held that position until February 2003.

6 DFC is a privately owned housing construction and land development company, based predominantly in Victoria, and with operations in Queensland. The founder, and Chairman of DFC, is Mr Albert Dennis ("Mr Bert Dennis"). Mr Bert Dennis and his wife Dawn have four children. Three of their children, Mr Grant Dennis, Mrs Adele Levinge, and Ms Natalie Postma, were DFC Board members in the relevant period. The fourth child, Mr Marshall Dennis, was employed by the Group. During Mr Carter's time as Managing Director there were four independent directors: Mr Kingsley Culley, Mr Ron Dennis (no relation to the Dennis Family), Mr Michael Johnstone and Mr Raymond Peck.

7 Mr Bert Dennis was a civil engineer who started sub-dividing and selling residential land in the 1960s. During the 1980s, Mr Dennis bought or formed several housing construction companies including Triline Homes Pty Ltd and Glenbrae Homes Pty Ltd. The housing business offered both house and land packages and building homes for customers on their own land. Executive Homes Pty Ltd was acquired in more recent times.

8 In the 1990s a family trust was established to hold all of the family's business assets. Mr and Mrs Dennis and their four children are equal beneficiaries of the family trust. The corporate trustee of the family trust is Dennis Group Pty Ltd. At around the same time, DFC was established to be the overarching management company to operate the Dennis Family's housing and land operations. The six members of the immediate family are the company's shareholders. Mr Grant Dennis is the Chairman of Dennis Group Pty Ltd, as well as Chairman of the parent holding company, Dennis Family Holdings Pty Ltd. DFC is a wholly owned subsidiary of the holding company. Mr Grant Dennis heads DFC's housing and land business in Queensland, and has lived there since 1994.

9 DFC was originally owned and managed by the family. While it remained a privately owned family business a decision was made to adopt a governance structure similar to that of a public company, by separating the family affairs from the management of the housing and land businesses. The family members remained at the head of the structure, with the Board of DFC beneath that group. In line with these goals a decision was made to appoint a number of non-executive directors who were outside the family to the Board of DFC, in order to broaden the management expertise of the company. Mr Ron Dennis was appointed on 28 August 2001 and Mr Culley, Mr Johnstone and Mr Peck were all appointed to the Board on 9 January 2002.

10 The initial plan was to gradually hand over the day to day management of DFC to independent managers. In 1999, James Kelly was appointed as Chief Executive Officer. Following Mr Kelly's departure in 2002, Graham Hofmeyer was the acting Chief Executive Officer for a period of some months. DFC then decided to upgrade the position to Managing Director. It hired the recruitment firm Cordiner King to search for appropriate candidates for that position. Mr Carter was the successful applicant. He became a member of the Board on 28 May 2003, the first executive director to be appointed who was not a member of the Dennis Family.

11 At the time Mr Carter was appointed, DFC had a turnover of around $300 million and just under 350 employees. Prior to this time, the defendant's housing business had made losses in the past three years. Mr Dennis said to Mr Carter that housing was "in ... a mess when you started". The housing business continued to struggle during Mr Carter's period as Managing Director, but the company itself made profits because of the substantial profits in the land development division.

12 On 10 April 2003 Mr Carter signed a letter of offer from Mr Bert Dennis dated 8 April 2003 which contained the terms of his contract of employment with DFC ("the employment contract"). He re-signed a fully typed copy of the letter offer incorporating some handwritten amendments on 24 April 2003. The appointment was for a period of three years commencing on 5 May 2003. In addition to a base annual salary of $400,000 (which was increased to $420,000 from 1 July 2004), Mr Carter was entitled to superannuation, a car allowance and an incentive program with both a short term and a long term element.

13 The termination clause of the contract was as follows:

Notice of termination of employment

This appointment may be terminated by you giving three months' notice or such other mutually agreed period of notice, in writing.

Should the company:

• Terminate your employment, other than for a reason for which you may be summarily dismissed;
• Cause a material diminution of the level of responsibility or authority of your position; or
• Cause you to cease to be the Managing Director for reasons such as sale of the Company or the Company ceasing trading;

You will be given three months' notice and will be entitled to payment of the balance of your three year term of an amount equal to your total annual package.

The total annual package is calculated by including the following benefits:

• Base Salary.
• Non-Contributory Superannuation.
• Car Allowance.
• Short-term incentive at 30% of base for year of termination.

Payment is to be made at the end of the notice period and calculated by reference to your total annual package as defined.

Any acts of gross negligence, serious misconduct or fraud will result in immediate dismissal without notice and without payment of the balance of the contract.

14 Other relevant terms of the contact were as follows:

Notice of Renewal

At least 6 months before the end of your first 3 year term of appointment, the Company will give you notice of whether the Company intends to renew your appointment as Managing Director. If the Company gives you notice that the Company will not renew your appointment as Managing Director, you will be entitled to payment of an amount equal to your total annual package applicable at the date of the notice. This payment will be made within 30 days after the end of the 3 year term of appointment or earlier by agreement.

At least 6 months before the end of your second 3 year term of appointment, the Company will give you notice of whether the Company intends to renew your appointment as Managing Director. If the Company gives you notice that the Company will not renew your appointment as Managing Director, you will be entitled to payment of an amount equal to 50% of your total annual package applicable at the date of the notice. This payment will be made within 30 days after the end of the 3 year term of appointment or earlier by agreement.

Company Policies

Unless inconsistent with this agreement, you are required to comply with all Company policies and procedures as amended from time to time, details of which will be provided to you.

15 The defendant also pleaded that there was an implied term of the employment contract that the plaintiff would not, without reasonable and proper cause, conduct himself in a manner likely to destroy or seriously damage the relationship of trust and confidence between the defendant and any of its employees. This term was not admitted by the plaintiff.

16 Next, the defendant pleaded that it was a further term of the employment contract that the plaintiff warranted that:

(a) he was competent to perform the duties pertaining to the position of Managing Director of the defendant; and

(b) he had, and would exercise and make use of, the plaintiff's competencies.

It was pleaded that the plaintiff's competencies were those special skills, abilities and understandings which he had represented he possessed in his document entitled "Response to Specification; Managing Director, Dennis Family Corporation", which he had provided to Cordiner King on 17 February 2003. Thus, the defendant pleaded that this further term was partly in writing and partly to be implied. The plaintiff admitted and averred that he was competent to perform the duties of Managing Director and admitted that he provided the Response document but otherwise did not admit these allegations.

As Managing Director of the defendant, the plaintiff was under a duty -

(a) to exercise his powers and to discharge his duties with the degree of care and diligence that a reasonable person in a like position in the defendant would exercise in the circumstances;

(b) to exercise his powers and to discharge his duties in good faith in the interests of the defendant and for proper purposes;

(c) not to make improper use of his position to gain an advantage for himself or for any other person or to cause detriment to the defendant;

(d) not to make improper use of information obtained by virtue of his position to gain an advantage for himself or for any other person or to cause detriment to the defendant;

(e) in the event that circumstances arose where he would or might gain any such advantage as is referred to in the two preceding sub-paragraphs or either of them, to make an immediate, full and frank disclosure of those circumstances to the Board;

(f) to serve the defendant with fidelity and in good faith;

(g) to disclose to the Board every fact and circumstance within his knowledge that was material to a matter under consideration by the Board, alternatively not knowingly to withhold from the Board any such fact or circumstance;

(h) to be honest and frank in his dealings with the Board;

(i) to answer truthfully, directly, fully and frankly all questions asked of him by the Board;

(j) to comply, and to ensure that his subordinates complied, with the resolutions and directions of the Board and with the defendant's policies and procedures; and

(k) to give his full co-operation to the Board;

("the executive duties").

It was pleaded that these duties were implied by law. The plaintiff admitted and averred that he was under the duties imposed upon him by ss 180 to 183 of the Corporations Act 2001 as a director of the defendant and admitted that he was under the duties referred to in sub-paragraphs (a) and (c) above, but otherwise did not admit the allegations. In summary form, the statutory duties were reasonable care and diligence,[1] good faith,[2] not to use position improperly,[3] and not to use information improperly.[4]

18 During final submissions, counsel for the defendant sought to amend its defence and counterclaim by adding the plea that:

it was a term of the Agreement that the defendant could summarily terminate the employment of the plaintiff on any grounds which at law justified summary dismissal.

Particulars

The term is implied by law.

19 The proposed amendment was sought to overcome the plaintiff's argument that the employment contract only recognised three grounds for summary dismissal, gross negligence, serious misconduct or fraud, not incompetence, and that even a breach of the alleged warranty of competence did not give rise to a right of summary dismissal as distinct from a claim for damages.

20 The amendment was opposed by the plaintiff on the ground that it was made too late, particularly as the issue had been raised at the outset of the hearing and was not revisited until after the evidence had closed. Counsel for the plaintiff submitted that if the amendment had been sought and granted at an early stage of the hearing, they would have sought to led evidence from Mr Carter about the negotiations concerning the wording of the summary dismissal term. I indicated to the parties that I would rule on the application in my judgment.

21 In my opinion the amendment should not be allowed. Coming as late as it did, if the amendment were to have been allowed the only fair course would have been to allow Mr Carter to be recalled. Almost certainly this would have led to other witnesses being called or recalled. It would not have been in the interests of justice to permit this disruption to occur, particularly as the hearing had already lasted six weeks and the defendant had been aware of the point for virtually the whole of that period. Thus, there is no unfairness to the defendant in refusing the application to amend.[5]

22 The amendment application may have been delayed because it was thought that the employer's common law right to dismiss summarily, which arguably extended to a right to dismiss summarily for incompetence, was not displaced by the terms of the employment contract. In Concut Pty Ltd v Worrell,[6] Kirby J stated that the terms of a contract which deal with the circumstances which may justify termination will not, in the absence of clear intention, displace the common law right to summarily dismiss. His Honour said:

An express provision for termination for breach in certain circumstances may be regarded as designed to augment rather to restrict or remove the rights at common law which a party otherwise would have had on breach.

23 However, in my view, the wording of the employment contract was a clear indication that common law rights were intended to be displaced and that the grounds for summary dismissal were restricted to the three specified grounds and no others. There would seem to be little purpose in setting out the three grounds if that is not how the employment contract is to be read.

24 Nevertheless, in case I am wrong on the construction of the employment contract, when examining DFC's thirteen reasons for summarily dismissing Mr Carter, wherever appropriate I consider whether a case of incompetence has been made out against Mr Carter on the assumption that incompetence is a ground for summary dismissal.

25 With respect to the other terms said by the defendant to be implied terms of the employment contract, it seems to me that they are simply examples of the way in which it would be said that Mr Carter's conduct constituted gross negligence or serious misconduct. Thus, whether or not such terms meet the tests for implication of contractual terms, they do not provide further grounds for a summary dismissal in addition to the three set out in the employment contract. Therefore, these other pleaded implied terms really add nothing to the disputes surrounding the thirteen pleaded reasons for summary dismissal.

The Plaintiff's Duties under the Employment Contract

26 In deciding whether the plaintiff was guilty of serious misconduct or was grossly negligent, it is necessary to understand what Mr Carter's obligations were under the contract, and also what duties he had to abide by under the Corporations legislation as a company director. In North v Television Corporation Pty Ltd, Smithers and Evatt JJ stated:

Until the terms of the contract are known and identified it is impossible to say whether or not any particular conduct is in breach thereof or is a breach of such gravity or importance as to indicate a rejection or repudiation of the contract. One cannot begin the inquiry without ascertaining what work ... the employee was employed to do and had undertaken to perform. It also necessary to ascertain what particular obligations the parties had agreed upon as important or even vital.[7]

27 Little is said in the employment contract concerning Mr Carter's duties. However, he was appointed as the Managing Director of DFC. This means in my opinion, that, in his capacity as an employee of DFC, Mr Carter had to have a detailed understanding of, and responsibility for, the financial position and performance of DFC, subject to the supervision of the Board.[8] It was part of his role to keep the Board fully informed of these matters so that it could effectively discharge its supervisory role. In his capacity as a director of DFC Mr Carter was also required to comply with his statutory and common law duties.

28 The duties of "management" were summarised by Rogers J in AWA Ltd v Daniels.[9] Whilst the summary related to the facts of that case, I consider that it more than adequately described the relationship between Mr Carter and the Board of DFC. His Honour said:

The directors rely on management to manage the corporation. The board does not expect to be informed of the details of how the corporation is managed. They would expect to be informed of anything untoward or anything appropriate for consideration by the board. In the context of the present case directors rely on management:

(a) to carry out the day to day control of the corporation's business affairs;

(b) to establish proper internal controls, management information systems and accounting records;

(c) reduce to writing if appropriate and communicate policies and strategies adopted by the board;

(d) implement the policies and strategies adopted by the board;

(e) have a knowledge of and review detailed figures, contracts and other information about the corporation's affairs and financial position and summarise such information for the board where appropriate;

(f) prepare proposals and submission for consideration by the board;

(g) prepare a budget;

(h) attend to personnel matters including hiring and firing of staff and their terms of employment.[10]

29 The statutory business judgment rule is found in s.180(2) of the Corporations Act 2001. A director/officer who makes a business judgment will be taken to have met the requirements of the duty of care and diligence in s.180(1) and the equivalent duties at common law and in equity, if the director/officer satisfies the following requirements:

(a) the judgment was made in good faith for a proper purpose;

(b) the director/officer does not have a material personal interest in the subject matter of the judgment;

(c) the director/officer has informed himself or herself about the subject matter of the judgment to the extent reasonably believed appropriate; and

(d) the director/officer rationally believes that the judgment is in the best interests of the corporation.

Section 180(2) further provides that the belief of the director/officer that the judgment is in the best interests of the corporation is a rational one unless "the belief is one that no reasonable person in their position would hold".

30 "Business judgment" is defined in s.180(3) of the Act as:

any decision to take or not take action in respect of a matter relevant to the business operations of the corporation.

31 As will be seen, Mr Carter has relied on the business judgment rule in respect of some of DFC's reasons for his summary dismissal. In considering the application of the rule to the particular facts it is important to remember what Kirby P said in Darvall v North Sydney Brick & Tile Co Ltd:

Courts properly refrain from assuming the management of corporations and substituting their own decisions and assessments for those of directors. They do so, inter alia, because the directors can be expected to have much greater knowledge and more time and expertise at their disposal to evaluate the best interests of the corporation than judges.[11]

32 This passage was cited with approval by French J (as he then was) in Martech International Pty Ltd v Energy World Corporation Limited. His Honour continued:

It is important to bear in mind in assessing the reasonableness of judgments made by a managing director that they are not always to be tested against the criteria which a legal practitioner might apply in giving advice on the matter for decision. Commercial decisions, in the dynamic context of an ongoing commercial relationship and a complex development project, even important decisions, are not unusually taken on imperfect or partial information and reasonably in reliance upon the advice of colleagues and other officers in the common enterprise, whether it be a corporation or some other business structure.[12]

33 As previously stated, there were three grounds for summary dismissal set out in the employment contract. Fraud was not in issue here, so that leaves "gross negligence" and "serious misconduct". Although neither term is defined in the contract, each of them has been the subject of considerable judicial exposition. I was referred to many judgments in which terms such as these were considered. It is not necessary to repeat all of the relevant passages. It is sufficient, for my purposes, to set out what has been said to be the essence of each ground.

34 In Rankin v Marine Power International Pty Ltd, Gillard J said:

... there is a good ground for the dismissal of an employee if he is negligent in the course of his employment. However, it would indeed be a very grave case of negligence, causing substantial damage, to justify dismissal for a single act of negligence. As a general proposition, the neglect would have to be habitual.[13]

35 The ground is not just mere negligence, it is gross negligence. The adjective is not without significance. Gross negligence is a grave, serious or significant departure from the standard of care which a reasonable person would have observed in all the circumstances which causes substantial loss or damage to the employer.

36 In Boston Deep Sea Fishing & Ice Co v Ansell,[14] Bowen LJ described serious misconduct as an act " beyond all dispute a violation of the confidential relation" between employer and employee.

37 In North v Television Corporation Ltd, Smithers and Evatt JJ said:

In such a situation it is reasonable to interpret the expression "misconduct" as referring to conduct so seriously in breach of the contract that by standards of fairness and justice the employer should not be bound to continue the employment.[15]

As a general proposition one act of disobedience or misconduct would not generally justify dismissal, but one such act may justify dismissal, "only if it is of a nature which goes to show (in effect) that the servant is repudiating the contract, or one of its essential conditions; and for that reason therefore, ... that the disobedience must at least have the quality that it is 'wilful': it does (in other words) connote a deliberate flouting of the essential contractual conditions".[16]

As a general proposition, it is something more than ill advised conduct or omission to act, as a result of an error of judgment. ...[17]

39 In Serventi v John Holland Group Pty Ltd, Madgwick J said:

An employer is entitled to summarily dismiss an employee for serious and wilful misconduct. Such misconduct must be of a kind that, as a practical matter, is likely to make maintenance of the contract of employment impractical.[18]

40 In Sent v Primelife Corporation Ltd, Mandie J said:

Serious misconduct in this context has been held to include conduct, in relation to important matters, that constitutes a repudiation of or is incompatible with or repugnant to the essential obligations of an employee ...[19]

41 The ground is not mere misconduct.[20] Nor will isolated conduct usually suffice.[21] Again, the adjective is not without significance. The misconduct must be serious. As Osborn J said in Connor v Grundy Television Pty Ltd:

The negligence or misconduct may be sufficient to justify summary dismissal either if it is a substantial enough breach of the employee's duty or if its consequences are sufficiently damaging to the employer.[22]

42 Thus, it is clear that an employer who alleges gross negligence or serious misconduct to justify summary dismissal carries a "heavy burden".[23]

43 It is also clear from the above quotations that serious misconduct and repudiation are two sides of the same coin. Generally, conduct that meets the test of serious misconduct will also constitute a repudiation by the employee of the employment contract because it will be conduct repugnant to the essential obligations of the contract. Thus, as a matter of practical significance the allegations of repudiatory conduct in respect of DFC's reasons for summary dismissal do not add anything to the allegations of serious misconduct, as the latter is always alleged when the former is alleged.

44 Counsel for the plaintiff submitted that because a finding that an employee was guilty of conduct that justified the employer in taking the drastic step of summary dismissal was a very damaging one, the Court should only be satisfied by evidence of sufficient weight. Reliance was placed upon what Dixon J said in Briginshaw v Briginshaw:

Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters "reasonable satisfaction" should not be produced by inexact proofs, indefinite testimony, or indirect inferences.[24]

45 In Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd, Mason CJ, Brennan, Deane and Gaudron JJ said:

The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary "where so serious a matter as fraud is to be found". Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.[25]

46 To paraphrase what I have said elsewhere,[26] whilst the applicable standard of proof is on the balance of probabilities, both common sense and authority such as Briginshaw, as explained by Neat Holdings, dictate that findings of serious misconduct, gross negligence or incompetence should not be made lightly.

47 It was common ground that the defendant bore the onus of establishing the serious misconduct, gross negligence or incompetence.

48 Whilst the arithmetic calculations involved in the plaintiff's claim were common ground, the amount payable to Mr Carter in the event that he was successful was not. Counsel for the plaintiff submitted that the termination clause meant he was to be given three months' notice, or an amount equal to three months' pay in lieu of such notice, if he was not, in fact, allowed to work through the three months' notice period, and paid his total annual package for the balance of the three year term from the date notice was given or from the date of termination if no notice was given. Counsel for the defendant submitted that it was double dipping for Mr Carter to claim payment for the three months' notice period twice.

49 In my opinion, the construction issue turns on what is meant by "the balance of the three year term". Is it, as the plaintiff submitted, that period of the three year term dating from the date notice was given or from the date of termination if no notice was given? Or is it, as the defendant submitted, that period of the three year term dating from the end of the three months' notice period? In which case Mr Carter would also be entitled to be paid for working through the three months' notice period or to be paid an amount equal to three months' pay in lieu of such notice.

50 Counsel for the plaintiff submitted that the latter construction ignored the word "and" in the phrase "three months' notice and will be entitled to payment of the balance ...". It was said that this construction meant that the payment for the three months' notice period would be totally subsumed within the second payment.

51 Counsel also submitted that their construction was supported by the terms in the employment contract relating to Notice of Renewal which provided for the payment of one year's total annual package if not less than six months before the end of the first three year term the company notified Mr Carter that it would not renew his appointment as Managing Director. A similar but less generous provision applied with respect to non-renewal at the end of the second three year term. It was submitted that these terms made it clear that some notice period was intended, over and above the balance of the term.

52 Counsel for the plaintiff referred me to Walker v Citigroup Global Markets Pty Ltd.[27] In that case, the contract was construed in such a way that the clause permitting termination on one month's notice was not operative so as to permit termination without cause prior to the end of the first year of the contract. I did not find this decision to be of assistance to the resolution of the construction issue in this case. As counsel for the defendant submitted, it depended on its own unique and rather complex facts.

53 Counsel for the plaintiff also drew my attention to the judgment of Kaye J in Guthrie v News Limited,[28] which was published during the period in which my judgment was reserved. In that case, his Honour held that the contractual term relating to a termination payment at the end of a fixed three year term included both a payment in lieu of notice and a redundancy/severance payment.[29] However, as counsel for the plaintiff recognised, the decision in Guthrie turned on the particular words of the contract in that case. As they are not similar to the wording of Mr Carter's employment contract, the decision does not assist the resolution of the construction issue in this case.

54 In my opinion, the plaintiff's construction argument is not correct. Just as Mr Carter could terminate, without cause, the three year contract by giving three months' notice, so could DFC. But the company was required by the contract to give three months' notice. This was an important provision because it is well recognised that it is easier to obtain new employment while still in a position than when unemployed. In addition to the giving of three months' notice, when the company is terminating the contract without cause it is required to make "payment of the balance of [the Managing Director's] three year term". As this follows on straight after the reference to three months' notice, it seems to me that logically the way to construe "the balance" is that it is the balance dating from the end of the three months' notice. If the contract was intended to provide that the balance of the three year term was to be calculated from the date of notice of termination and not from the end of the three months' notice then I would have expected that to have been clearly spelt out.

55 I do not see any difficulty in applying this construction in practice. If the notice is given halfway through the three year term then, after three months' notice, the balance is 15 months. If the notice is given with seven months remaining of the three year term then, after three months' notice, the balance is four months. And if the notice is given with two months remaining, then after the required three months' notice, or two months' notice and one month payment in lieu of notice, the balance is nil.

56 Further, if the company chooses to exercise its right not to keep the Managing Director working through the period of notice, then it must pay an amount equal to three months' pay in lieu of such notice.

57 In my opinion, the terms relating to Notice of Renewal do not assist the construction of this term of the employment contract. They are addressing different situations - one where a decision is made not to renew the contract and the other where a decision is made to terminate the Managing Director's employment for any reason other than one for which he could be summarily dismissed. It is not surprising that in those circumstances very different provisions applied.

58 My conclusion means that Mr Carter's claim is limited to the lesser sum of $916,774.

59 Although each of DFC's reasons for Mr Carter's summary dismissal is examined in detail below, it is appropriate to state at this stage that, in my opinion, he should not have been summarily dismissed. Why then did this occur? I agree with the submission by counsel for the plaintiff that Mr Carter's fate was doomed when he accused Mr Bert Dennis of bullying him. This incident will be examined in detail below when I come to consider DFC's fifth reason for summarily dismissing Mr Carter. Suffice it to say at this stage that Mr Dennis did not take kindly to the accusation. He was affronted and regarded it as a lie. It seems to me that he therefore embarked on a campaign of gathering information about every possible issue he could think of to justify Mr Carter's summary dismissal. As will be seen, this culminated in the drafting by the solicitors of a list of 28 questions to be answered by Mr Carter.

60 I consider that many of DFC's thirteen reasons are based on quite unfair criticisms of Mr Carter's conduct and that the complaints have been blown out of proportion in an effort to turn them into a ground for summary dismissal. It should not be forgotten that if DFC considered Mr Carter's performance to be unsatisfactory it was able to terminate his employment, but at a price. The price was that set out in the employment contract which was prepared by and on behalf of DFC.

61 Many of the criticisms of Mr Carter made in this proceeding sit rather oddly with what was said in a "Performance Appraisal" of him dated 13 September 2004. It was said to be "based on comments" from Mr Bert Dennis, Mr Grant Dennis and the four independent directors. He scored three out of three in six of the 14 key areas of responsibility and 2.5 in another three. The appraisal concluded that overall Mr Carter was "at or above expectations" in the following key areas of responsibility - Vision, Strategy, Positioning, Professionalism, Commitment to Excellence and Establishment of ET [Executive Team]; "under expectations" in Leadership, Communication, People Skills and Relationship with Board/Chairman; and that he needed "a lot more work to meet expectations" in Delivery of Budget, Cost Control and Growth.

62 Regrettably, the animosity between Mr Bert Dennis and Mr Carter carried over into the hearing. The transcript is littered with accusations of lying and dishonesty.

63 The hearing lasted 30 days. Mr Carter was aggressively cross-examined for eleven of those days. In the circumstances, it is not surprising that on occasions Mr Carter became confused, made mistakes and became argumentative and defensive. Whilst I do not accept all of his evidence, overall I consider that he was doing his best to recall the events in a truthful way.

64 Mr Bert Dennis was aggressively cross-examined for over six days. Mr Dennis was obviously passionate about the welfare of the business he had developed. He was also very knowledgeable about the building business. This litigation was also a matter of real concern to him. It was therefore surprising that at times when pressed in cross-examination he said that he could not remember certain matters. A significant example of this was when he was asked why the defendant discontinued virtually the whole of its massive counterclaim, three days before witness statements were scheduled to be filed and exchanged. Although I could envisage a number of legitimate reasons for discontinuing most of the counterclaim, Mr Dennis was unable to give any explanation of why this step was taken, even though as the then executive Chairman and head of the family he must have been closely involved in decisions affecting this litigation. He said:

We just decided not to proceed with the counterclaim.

65 I therefore had real doubts about the accuracy of some of Mr Dennis' evidence, particularly as it concerned events leading up to Mr Carter's summary dismissal.

66 Counsel for the plaintiff mounted a sustained attack on what they called litigation misconduct by the defendant. They submitted that the conduct of the proceeding by the defendant had been such that the Court should draw the inference against the defendant that its case lacked substance.[30] Counsel referred to matters such as the discontinuance of the counterclaim without explanation, "the extravagant and inappropriate way" in which the defendant's case was put and the "failure to comply with discovery obligations".

67 I do not propose to draw the suggested inference as I do not consider it necessary or appropriate to enter into this controversy. My only comment would be that Mr Dennis' inability to give an explanation for the discontinuance of those parts of the counterclaim alleging total losses in excess of $8.7 million did lend support to the submission by counsel for the plaintiff that the counterclaim was "mounted and maintained only to hold the plaintiff in terrorem, to deter him from persisting with his claim".

68 I turn then to determine the factual question of whether any of DFC's thirteen reasons for summarily dismissing Mr Carter constituted serious misconduct, gross negligence, incompetence, or a repudiation of the employment contract.

69 DFC's first ground for Mr Carter's summary dismissal was summarised in its final written submissions as follows:

Carter undertook a renovation of his home at 16 Kardella Street, East Malvern and in the course of doing so used the services of DFC employees and subcontractors and procured or allowed others to afford him favourable rates on building products and supplies. Carter did not disclose this conduct to, or seek approval from, the board as required by the Use of Commercial Services Policy and he derived a benefit in breach of his duty to the company.

1. The defendant pleaded that the plaintiff's conduct was serious misconduct or a repudiation of the employment contract.
2. This issue arose in the following way. Mr Carter and his wife, Stacey Edwards, had been living in Sydney during Mr Carter's employment at the NRMA. They moved to Melbourne just prior to his commencement at DFC on 5 May 2003. On 14 June 2003, Mr Carter and his wife purchased at auction the property at 16 Kardella Street, East Malvern ("the Kardella Street property"). They decided that they wanted to renovate the house before moving in. The renovations were carried out between August and October 2003 at a cost of approximately $90,000.00. The total cost, however included furniture, curtains and other items that were purchased by Ms Edwards.

72 Mr Carter gave evidence that the management of the renovation project was left to his wife as he had just commenced at DFC, and was therefore too busy to be involved on a daily basis. He said that the renovations were paid for by him and his wife out of their own resources. Every subcontractor who worked on the job was an independent contractor, not an employee of DFC, and was paid separately. All the materials used were supplied by independent companies, and were paid for separately. The contractors and suppliers sent their invoices to Ms Edwards, who paid them directly. Mr Carter did not want his name given to suppliers in case they felt pressured into offering special deals.

1. The plaintiff submitted that throughout the renovations reliance on DFC resources was minimal, that it was limited to the company time expended by two DFC employees, Mr Vin Alderman and Mr Tony Croucher, and that the time of each of these employees was given freely, and provided to Mr Carter and his wife, as a gratuity, at the suggestion of Mrs Adele Levinge, a director of DFC.

74 It was common ground that on 14 June 2003, following the auction, Mr Carter and Ms Edwards were invited to have a celebratory drink at the home of Mrs Adele Levinge, which was located nearby. Mrs Levinge had attended the auction as she lived in the next street and was interested to see how much the property sold for, and also because she had heard that Mr Carter, the new Managing Director, was interested in the house.

75 Mrs Levinge had recently renovated, and she showed Mr Carter and his wife around her house, pointing out the work that had been done. According to both Mr Carter and Ms Edwards it was during this visit that Mrs Levinge suggested that they use Mr Alderman to source subcontractors for their own renovations.

76 It is clear that there was a general discussion about renovating the Kardella Street property. Ms Edwards said that she discussed with Mrs Levinge the fact that she was new to Melbourne and was not familiar with any tradesmen. Her evidence was in the following terms:

Adele Levinge offered the services of Vin Alderman when we were discussing the renovations after the auction. I simply thought that it was a bit of a welcome gift. We'd been made to feel very welcome. I think they wanted to give their new managing director an opportunity to settle into the house, get on with his job, without him stressing out over his wife having nightmares. Look, it was a building company, so it was - didn't surprise me that Adele would have offered the limited services of Mr Alderman to help us out.

She didn't use the word gift, but she said that Vin Alderman will be able to help you line up some tradesmen to help you.

It was, as I took it, a small welcome gift to our family, which was not at great cost to the company, but was something that would be very valuable to me.

77 Mr Carter's account of the conversation with Mrs Levinge accorded with his wife's recollection. In cross-examination he said:

Yes the - what stands out for me, because it was such a remarkable thing to say, was "You should use Vin Alderman because he's excellent at organising subies and suppliers".

When it was put to him that this conversation never happened, he said:

It did happen, it definitely happened. I'm under oath, it happened.

78 Mrs Levinge gave a differing account of how Mr Alderman's name was raised in connection with the discussion about renovations. She said that there was a discussion about renovating a bathroom in the Kardella Street house, and that Ms Edwards had mentioned that she needed a plumber, and she did not know where to start. Mrs Levinge agreed that she mentioned Mr Alderman as someone who could help because he was a plumber and so was his brother. Mrs Levinge stated that she was unable to recall whether she suggested to Mr Carter and Mrs Edwards that Mr Alderman could help them source reliable tradesman or subcontractors, although she did not deny that she may have said something to that effect.

79 Mrs Levinge's recollection of the visit of Mr Carter and his wife to her home appeared to be poor. In contrast, Ms Edwards was able to recollect the conversation with Mrs Levinge in some detail. Ms Edwards, for instance, recalled that the conversation took place in the kitchen/family room area at the back of the house. She also provided details of the renovation work that Mrs Levinge pointed out as she showed them around her home and accurately recalled features in Mrs Levinge's home including a unusual drying rack, and built-in wardrobe located upstairs, whereas Mrs Levinge's initial recollection was that neither Mr Carter nor Ms Edwards had been taken upstairs.

80 Mrs Levinge, however, was clear that she would not have given approval to an employee to use company resources to undertake renovations. To her mind, she only mentioned Mr Alderman because he had recently worked on her renovations and she knew that he and his brother were qualified plumbers.

81 I am satisfied that Mrs Levinge did suggest to Mr Carter and Ms Edwards that they should use Mr Alderman to source subcontractors for their renovations.

82 According to Mr Carter, following the conversation with Mrs Levinge, he called Mr Croucher into his office and discussed the renovation project with him. He said that he told Mr Croucher that Mrs Levinge had recommended Mr Alderman to assist with the sourcing of subcontractors and suppliers. At this stage, he had not met Mr Alderman.

83 Mr Croucher said that he could not recall having been told by Mr Carter that Mrs Levinge had recommended Mr Alderman to assist with the renovations. Mr Croucher confirmed that during his discussion with Mr Carter, he had agreed to arrange a supervisor for the renovations, but according to his recollection it was he, rather than Mr Carter, who had suggested Mr Alderman as a suitable person to assist with the renovations. Mr Croucher said that Mr Alderman was suggested because he was an experienced builder and because he had worked on a number of renovations and extensions for other employees and family members. Although I accept that Mr Croucher was clearly a truthful witness, I consider that his recollection was faulty and that Mr Carter did tell him that Mrs Levinge had recommended Mr Alderman.

84 Mr Carter gave evidence that following his discussion with Mr Croucher, they walked through the DFC offices together and bumped into Mr Alderman, by chance, at the top of the stairs. Mr Carter recalled saying to Mr Alderman something to the effect of "I'm told you are the man to help us with suppliers and contractors and Tony has agreed to that thanks Vin".

85 Mr Croucher could not recall this chance meeting at the top of the stairs nor what was said.

86 According to Mr Alderman, he was told by Mr Carter that Mr Bert Dennis had recommended him to assist with the renovation. He said that his recollection of the meeting was quite clear. Mr Alderman was adamant that he was told by Mr Carter that Mr Bert Dennis had recommended him for the job. His evidence was that Mr Carter said to him:

Bert Dennis said, "You're the man to do the job".

87 Mr Carter denied this evidence. Although I accept that Mr Alderman was clearly a truthful witness, he was, in my opinion, mistaken in his recollection. First, there was absolutely no reason for Mr Carter to say that Mr Alderman had been recommended by Mr Bert Dennis. Secondly, if anything had been said about how Mr Alderman's name had been put forward, it almost certainly would have been that Mrs Levinge had recommended Mr Alderman to Mr Carter, as that was the fact. Thirdly, Mr Carter's alleged comment to Mr Alderman would have been directly contrary to what, I find, he had just told Mr Croucher, namely, that Mrs Levinge had recommended Mr Alderman. Not surprisingly, Mr Croucher had no recollection of this chance three way conversation at the top of the stairs nearly six years ago. If Mr Carter had indeed contradicted himself in such a fashion I consider it was something that would have been likely to have been remembered by Mr Croucher, at least when he was first asked about this issue when the proceeding was commenced. Thus, although Mr Alderman steadfastly maintained his evidence, humorously adding that "Adele "did not sound much like "Bert", I cannot accept that his recollection was correct. He may well have correctly remembered that Mr Carter had mentioned something about being recommended by the Dennis family.

88 The only particular importance of this factual dispute, as I saw it, was that Mr Bert Dennis accepted Mr Alderman's assertion without question and regarded it as another example of Mr Carter lying. He reached this conclusion without hearing from Mr Carter.

89 Mr Croucher's evidence was that he spent approximately two or three hours on the Carters' renovations. He recalled three specific occasions when he visited Kardella Street. First, shortly before the property was purchased, in around late May or early June 2003, Mr Croucher undertook an informal building inspection of the Kardella Street property. At that time, Mr Croucher was employed as an Area Manager at DFC. He gave evidence that, at the request of Mr Carter, he inspected the property during a lunch break. Mr Croucher said that he was happy to inspect the property as he had an interest in restoring period homes. Mr Carter agreed in his evidence that Mr Croucher attended the property to provide advice as to whether a formal building inspection was required, and that he was there for approximately 30 minutes.

90 Mr Croucher's second visit was after the purchase of the property. Mr Carter asked Mr Croucher to accompany him and his wife on a visit to the Kardella Street property. Mr Croucher gave evidence that he attended the property and discussed what renovations would be feasible. It was following this visit that Mr Carter called Mr Croucher into his office to request that Mr Croucher arrange a supervisor for the project.

91 Thirdly, after agreeing to find a supervisor and discussing this with Mr Alderman, Mr Croucher telephoned Ms Edwards to arrange a meeting between himself, Mr Alderman and Ms Edwards to discuss the renovations. According to Ms Edwards, this meeting occurred about a week after the property settlement, which was finalised on 18 August 2003. Mr Croucher and Mr Alderman met Ms Edwards, at the rental property the Carters were living in at that time, to discuss the scope of the project. The three then went to the Kardella Street property. They walked through the house while Ms Edwards pointed out what she had in mind in terms of renovations. Mr Croucher thought that this visit was also during his lunch hour.

92 Apart from the occasions noted above, Mr Croucher said that he dropped into the property a couple more times, to see how the project was coming along, and also to chat to Mr Graham Young, the subcontractor appointed as site foreman. He agreed that he was keen to see Mr Young because he hoped to persuade him to take up a position as a DFC employee.

93 Counsel for the plaintiff queried, with some justification, how Mr Croucher's evidence of two or three hours became a claim by DFC of 12 hours, which was persisted with throughout the hearing.

94 There was debate about whether Mr Alderman or Mr Young was the site supervisor. Mr Carter and Ms Edwards believed that this was Mr Young's role. They both gave evidence that it was Mr Young, an independent contractor rather than a DFC employee, who was employed by them to act as site supervisor. Mr Carter's evidence concerning Mr Alderman's role was that it was limited to identification of trades and suppliers, whereas Ms Edwards accepted that Mr Alderman's role was to organise tradespeople, co-ordinate with Mr Young, and co-ordinate attendances of labourers, check on progress and verify and endorse invoices. It is clear that Ms Edwards was much more closely involved with the renovations, so she would have had a better knowledge of the work carried out by Mr Alderman

95 Mr Young was unable to say what he thought his role was because he had died.

96 Mr Alderman's evidence was that he visited the house, organised tradespeople and ordered some supplies for the project and did so in business hours and acted as a site supervisor on the renovation project. When cross-examined as to his role in the renovations, Mr Alderman unambiguously described himself as the supervisor of the job. He said that Mr Young was the site foreman.

97 I accept Mr Alderman's evidence that his role was that of site supervisor. Ms Edwards, and Mr Carter for that matter, may well have misunderstood the respective positions of Mr Alderman and Mr Young. In any event it is apparent from Mr Alderman's evidence, which in effect is supported by Ms Edward's evidence, what the extent of his involvement was.

98 Mr Alderman sourced some subcontractors and checked invoices, signing five of them. He assessed his time at "nearly every day between 18 August and 22 October 2003 for approximately half an hour. Forty days at half an hour a day is 20 hours' work". Counsel for the plaintiff submitted that even accepting the defendant's methodology and that Mr Alderman's salary was $108,750 (of which there was no evidence) the value of this time approximated $1,000.

99 In light of Mr Alderman's evidence, counsel for the plaintiff also queried, again with some justification, how the defendant maintained that Mr Alderman attended the property nearly every working day for up to two hours and how this became a claim for 3.5 weeks of Mr Alderman's time.

100 The defendant also pleaded that Mr Carter engaged the company's contractors "to perform work on the project at favourable rates not available to the public generally," and that he used to his advantage and benefit "the relationship between the defendant and tradelink and obtained discounts on the purchase price of building products used in the project".

101 However, the evidence is clear that neither Mr Carter nor Ms Edwards made any attempt to obtain special rates or discounts, and that Mr Carter in fact insisted that he obtain no special favours. Mr Alderman was quite adamant about that. Initially Ms Edwards was content to place the orders herself and be invoiced directly. This only changed at Mr Alderman's insistence. She paid whatever amounts had been arranged by Mr Alderman. Further, the Carters made no attempt to have DFC finance the renovations. No invoices were put through the company and all invoices appear to have been paid promptly by Ms Edwards.

102 The defendant contended that Mr Carter failed to comply with the Use of Commercial Services Policy ("the Commercial Services Policy") which dealt with employees using company resources. Mr Carter's first response was that it is not clear from the terms of Commercial Services Policy that it applied to him because of his senior position.

103 In my opinion, Mr Carter should have complied with the Commercial Services Policy. He was an employee, albeit the most senior employee. Thus, he should have made written application to his "manager", which would have been either Mr Bert Dennis, the Chairman of the Board, or the Board itself. However, I consider that Mr Carter genuinely believed that he had been offered the services of the company's employees to a limited extent, based on the statement made by Mrs Levinge at the celebratory drinks at her house following the auction.

104 Counsel for the plaintiff emphasised that family members had received assistance from DFC's employees with their renovations and that whilst the family members reimbursed the company for the cost of materials and subcontractors, they did not pay for the time of company employees. I do not consider that the practices followed by the family members with respect to their relationship with the company was relevant. Mr Carter was not a member of the Dennis family.

105 Counsel for the plaintiff submitted that the key consideration was whether Mr Carter disclosed that he was receiving assistance from company employees, even if he did not adhere to the letter of the Commercial Services Policy. They submitted that any non-compliance was technical and therefore could not constitute serious misconduct. Nevertheless, the policy was clear as to what was required of employees by way of approval. Mr Carter accepted in his evidence that he had read all company policies upon his commencement, including the Commercial Services Policy, which he signed as an indication that he had read and understood its terms.

106 It is apparent that the assistance and benefit obtained from the company was minimal. There was the time of the two employees which the Carters did not pay for. They also received a discount on some items and on some hourly rates charged by contractors, but this was not sought by the Carters and in any event was not to the detriment of DFC.

107 Further, it is clear that there was no attempt by Mr Carter or Ms Edwards to keep the employees' involvement in the renovations secret. Mr Carter proceeded as though he had approval and acted as though other employees knew that he was having the house renovated with Mr Alderman's assistance. It seems that he did, in his own mind, attempt to do everything above board, although he made the mistake of not complying with the Commercial Services Policy and ensuring he had approval.

108 Ms Edwards behaved as though the DFC directors knew that the renovations had been carried out with the assistance of DFC employees. For example, she openly thanked Mr Bert Dennis after the renovations were complete. It is, therefore, obvious that she believed the assistance from DFC was a gift and that it had been approved.

109 Mr Alderman gave evidence that there was nothing secret about the job. He did not keep it secret from other people at work that he was on this job.

110 Mr Croucher said in his witness statement that Mr Carter was "adamant that everything should be transparent" and that he was "absolutely adamant that he did not want his name given to suppliers". In evidence, Mr Croucher added that Mr Carter was emphatic that nothing was "to go through the books" even though this would have meant enjoying trade discounts. He agreed that there was no secret about this project and that he would have been surprised if senior, full time people had not known about the project and of Mr Alderman's involvement.

111 The openness of Mr Carter and Ms Edwards about the renovation weighs heavily against any suggestion of dishonesty by him.

112 The next question is when those in control of the company knew about the renovations. They were completed in about October 2003, 12 months before the termination of Mr Carter's employment. Ms Edwards recalled attending a DFC Board dinner on 25 November 2003 in Wodonga. She gave evidence that she was seated next to Mr Bert Dennis, and that during that dinner she told him and his wife Dawn how pleased she was with the renovations and that she appreciated Mr Alderman's assistance. Mr Dennis replied that Mr Alderman was a "real gentleman".

113 Mr Bert Dennis stated that he could not recall Ms Edwards being in attendance at that dinner. However, he seemed to base his assertion on the fact that Ms Edwards was not on the guest list. It is entirely possible that Ms Edwards was a late inclusion to the dinner as she had accompanied her husband to Wodonga on his business trip, and was subsequently invited. In fact, it would seem strange if she were not invited in those circumstances. Further her recollection of the dinner and the conversation appeared credible. Moreover, she was not cross-examined about being present at the dinner or about her conversation with Mr Dennis.

114 In any event, it is clear that Mr Dennis knew about the plaintiff's renovations at least by Christmas 2003. He gave evidence that he was told about the renovations during a DFC Christmas dinner at the Park Hyatt. His evidence was that:

We were standing outside the room before we went in to dinner, and I was in casual conversation with I think it was Adele and Mrs Carter and the issue of renovations came up and there was questions asked about it at that time.

115 Further, Mr Bert Dennis gave evidence that at that time, he thought about the question of lack of approval, knowing that he had not given any, and decided not to make any investigation about the question because Mr Carter was only new in the job and any inquiry would spread throughout the company and indicate a lack of confidence in Mr Carter.

116 Thus, despite becoming aware of the involvement of a DFC employee in the renovation project, and knowing that he had not given Mr Carter approval for the use of DFC resources, no action was taken, nor any investigations commenced, by Mr Dennis concerning the renovations until around September 2004. Mr Dennis arranged for Mr Alderman to come to his house on 27 September 2004 to discuss his involvement in the renovations to the Kardella Street property. Mr Dennis' evidence was, that to the best of his recollection, he had engaged solicitors on the 23 September 2004, and had then begun investigating all the matters relating to Mr Carter's employment with the assistance of Mr and Mrs Levinge, and in these discussions someone, presumably another family member, had mentioned the renovations to him, which prompted him to make inquiries into Mr Alderman's involvement. Mr Alderman said that he told Mr Dennis that DFC did not pay any of the suppliers or subcontractors and that it was all done directly. This did not stop DFC from pleading in its counterclaim that it had suffered damage as a result of Mr Carter's use of his position to obtain a personal advantage.

117 It seems to me that Mr Dennis' conduct has all the hallmarks of attempting to re-visit an issue, previously not considered as constituting misconduct, in order to find a purported justification for dismissing Mr Carter.

118 Mrs Levinge knew that Mr Alderman was involved because she put forward his name and later spoke to Mr Carter about the renovations.

119 Nevertheless, the fact is that contrary to the Commercial Services Policy, Mr Carter failed to obtain written authorisation in advance of the work being done. I have no doubt that if Mr Carter had sought such approval, it would have been forthcoming. Even Mr Bert Dennis, who, when giving evidence clearly displayed a most antagonistic and hostile attitude towards Mr Carter, begrudgingly accepted that he would "probably" have approved the use of the employees' services. This is hardly a remarkable conclusion. The cost to DFC was quite small, at most $2,000 to $3,000. This is to be contrasted with the 5% discount allowed to Ms Broadhouse by DFC on the cost of building her home. On another occasion Mr Bert Dennis said that he "possibly" would not have had a problem with Mr Alderman spending the modest amount of time on the Carters' renovations if that had been offered by Mrs Levinge, "providing there was reimbursement for the time".

120 In my opinion, therefore, the failure to obtain written authorisation in advance of the work being done, whilst a breach of the Commercial Services Policy, was not serious misconduct by Mr Carter. He genuinely thought he was doing the correct thing by the instructions he gave. Secondly, approval would undoubtedly have been given, and thirdly, the amount in question was very small.

121 Further, even if Mr Carter's conduct could be properly be regarded as serious misconduct, in my opinion DFC waived its right to rely on the episode as a reason for summary dismissal and condoned his conduct, when Mr Bert Dennis learned of Mr Alderman's involvement and decided to take no further action, despite knowing that, contrary to the Commercial Services Policy, there had been no written approval given.

Now the law gives the master the right to terminate the employment of a service on his discovering that the servant is guilty of fraud. He is not bound to dismiss him, and if he elects, after knowledge of the fraud, to continue him in service, he cannot at any subsequent time dismiss him on account of that which he has waived or condoned. This right the master may use for his own protection.[31]

123 A more recent statement of the principle is to be found in the judgment of Gillard J in Rankin. His Honour stated:

An employer who has full knowledge of the misconduct of an employee, and who makes a decision to continue to employ the employee, cannot at a later date, unless of course other facts come to his knowledge, dismiss him summarily on the basis of the employee's known conduct. It is said that the employer has waived his right to dismiss the employee summarily, and thereby condones the misconduct.[32]

It is clear that no such waiver, condonation or election can take place until the employer has full knowledge of the misconduct.[33]

124 The burden of proving that the election or waiver has been made rests with the person who relies on the condonation.[34] In my opinion, the plaintiff has discharged this burden because the defendant cannot argue that it did not have full knowledge of Mr Carter's conduct until September/October 2004, when in 2003 Mr Dennis knew most, if not all, of the important facts and deliberately decided not to investigate the alleged serious misconduct.

125 For the same reasons, I do not consider that Mr Carter's conduct constituted a repudiation of the employment contract.

126 If I had held that DFC was justified in summarily dismissing Mr Carter for the renovations issue, then it would have been necessary to consider that part of DFC's counterclaim which relates to the renovations. There were two items said to constitute the damages suffered by DFC, alternatively the profit made by Mr Carter as a result of paying less for the renovations than if they had been carried out at normal commercial rates.

127 The first item claimed was the sum allegedly foregone by DFC in not carrying out or supervising the project at normal commercial rates. This was said to be "in the order of $38,600", being the builder's margin of 30% on a job where the base cost was $90,000. I am not persuaded that this is the correct method of calculating DFC's damages, but, in any event, no evidence was led to substantiate a margin of 30% or the 20% rate mentioned in final submissions. Nor was any oral evidence led to prove the value of the job which would have been undertaken by DFC. The figure of $90,000 was the Carters' estimate, but Mr Carter's unchallenged evidence was that:

The amount of $90,000 included furniture and fittings that had nothing at all to do with DFC.

128 By a document annexed to the defendant's written submissions in reply, the defendant sought to prove that the invoices in evidence totalled a net $103,088.63. It was submitted that none of the invoices was for furniture. However, because neither Mr Carter nor Ms Edwards were cross-examined about the content of these invoices, I cannot be satisfied that they all relate to the job which would have been undertaken by DFC. From their description it is possible that some of them related to the "furniture and fittings" referred to by Mr Carter. Thus, invoices by D & I Artline Pty Ltd (dated 12 April 2003), Kresta Blinds Ltd, Kmd Designs Pty Ltd, Crystal Interior Concepts, Gail Young and Carpet Call might all have to be deducted from the defendant's list. This would reduce the net total to $77,152.40. However, given the state of the evidence, it is just not possible to say which invoices should be included and which should be excluded.

129 Thus, even if the defendant's methodology of calculating this first item was correct, it fails for a lack of evidence of the value of the job.

130 The second item claimed was "the estimated value of staff time ... in the order of $7,984.33". This was calculated by taking 3.5 weeks of Mr Alderman's time applied to his annual salary, which was said to be $108,750, and 12 hours of Mr Croucher's time applied to his annual salary, which was said to be $108,000. However, no evidence was led as to the annual salaries of Messrs Alderman and Croucher despite both of them being called as witnesses. There was also the question of the excessive number of hours claimed by DFC when compared to their witnesses' evidence. Thus, this item fails for a lack of evidence of the salaries of the relevant employees.

131 The above conclusions mean that DFC would not have succeeded in this part of its counterclaim even if it had been held that DFC was entitled to summarily dismiss Mr Carter for breach of the Commercial Services Policy.

132 The second ground pleaded by the defendant for the plaintiff's summary dismissal was that contrary to the Board's resolution of 27 August 2003, as subsequently amended, Mr Carter:

authorised or permitted the commencement of display homes, after 1 April 2004 without those homes having previously been prototyped.

This was said to be either serious misconduct by Mr Carter in not faithfully implementing the Board resolution, alternatively gross negligence by him in failing to take any or sufficient care to ensure that the resolution was implemented by having no display home commenced in breach of the Board resolution.

133 The Board resolution of 27 August 2003 read as follows:

The Chairman proposed base principles/processes for all new designs and display homes.

• All new display homes to be prototyped. During this period BOQ refined, suppliers & designers input and market acceptance testing.
• The range of homes available to be significantly reduced.
• Every new design added an old design removed.
• There should be a continuous prototyping program with 1 or 2 new homes being constructed per month. Strict selection criteria are enforced for new homes that added [sic] to the range.

The Board discussed the Chairman proposal [sic] and agreed to the following:

• The Chairman's process as outlined be communicated to the Best Builder Team;
• Mr Graham Hofmeyer to develop a prototype development program and Mr Michael Sheehy to support with a funding mechanism.
• From 1st of March 2004 no new display home will be commenced if it hasn't been prototyped.

134 It was common ground that at its meeting on 26 November 2003, the Board extended the cut-off date to 1 April 2004. The period before that date was referred to as the "moratorium" period.

135 In the particulars given under paragraph 44 of its Defence and Counterclaim dated 4 March 2005, the defendant identified four display homes as having been commenced in breach of the Board resolution. Of these, three were an Esperance design and one was a Scarborough design. In August 2005, the defendant gave new particulars. It was now alleged that there were seven display homes commenced in breach of the Board resolution, and they were substituted for the previous four. Only one of these seven display homes, the Scarborough design, had been included in the original list. In October 2008, the defendant abandoned its allegations in respect of two of the seven display homes. In the end, therefore, there were five display homes relied on by DFC as having been commenced in breach of the Board resolution. It seems extraordinary that DFC should have had so much difficulty in identifying which display homes it alleged were commenced in breach of the Board resolution.

136 The plaintiff denied that any of these five homes had breached the Board resolution.

137 Some of the agreed facts with respect to each of the five display homes were as follows:

138 As an order home builder, DFC achieved the majority of its sales through display homes. Although sales could be made off the plan, display homes were a key marketing tool, because they allowed customers to see what the finished product would look like. Display homes were usually built in a display village established by a land developer. Generally builders contracted to maintain a particular display home for the life of the village. This was usually around 15 to 18 months. Thus, even if a display turned out to be unpopular, the builder was committed to displaying and marketing the home for the agreed period. DFC's sales representatives were located at each display home to deal with customers who might be interested in having that particular home built or who might be interested in one of the various other DFC designs that could be purchased off the plan.

139 In the past, DFC had undergone two bad experiences with display homes. One was where the cost of building a display home had been underestimated which meant that the price of a number of subsequent sales was set too low. The other was where two display homes at a particular location had failed to generate satisfactory sales. Both of these problems caused the company significant losses.

140 Prototyping was a process of market testing. In relation to display homes, it meant that before being built in a display village, a design was constructed on a block owned by DFC. According to Mr Bert Dennis' email to Mr Carter dated 29 August 2003, the suggested procedure for prototyping could be as follows:

• Design the prototype with input from the sponsor/manager, sales and marketing, estimating and supervisors.
• Build the house with input from supervisors, trades and suppliers.
• Audit the costs and materials used during construction to ensure costs and bills of quantities are 100% correct by the end of construction.
• Sell the house with a settlement date of 30 or 60 days after C of O to give time for focus group sessions.
• During settlement period, conduct focus groups with potential customers as well as sales staff.
• Devise a standard score card appraisal system to ensure assessment is consistent across different locations.

The prototype would then be adjusted in accordance with the feedback from the focus groups. If the feedback indicated that customers would not purchase the home in sufficient numbers, the prototype would not be built as a display home.

141 The first issue to consider is what was meant by the Board resolution. The defendant submitted that the Board resolution meant that, after 1 April 2004, no construction of a display home could be commenced, regardless of whether or not it was a new design, unless it had been prototyped.

142 The plaintiff's interpretation of the resolution differed in three respects. First, it was submitted that commencement of a display home occurred before construction started. Secondly, it was submitted that the resolution did not apply to display homes where the design had been completed or commenced prior to 1 April 2004. Thirdly, it was submitted that the resolution did not apply to display homes which had previously been built and had proven to be successful.

143 The question of when a display home was commenced was raised by Mr Carter in his witness statement, when he said:

The Board's resolution read "no new display home will be commenced". DFC's allegations against me refer to the date "construction commenced" of display homes. A display home is commenced on a date much earlier than the date of commencement of construction. Regulatory requirements and display village contracts meant that DFC was committed to a specified display much earlier than the date construction commenced.

144 Mr Bert Dennis was adamant that the Board resolution was referring to the commencement of the construction of a display home. By commencement of construction, Mr Dennis explained that he meant a "site start" which occurred when the file was physically handed across to the supervisor for him to start engaging the trades. He said that within DFC, "commencement" meant a "site start" not the other activities preceding that stage.

145 Next, Mr Carter said that it was his understanding of the resolution that it did not apply to an existing design or a design developed during the moratorium period. Mr Carter also said that it was his understanding of the resolution that it did not apply to designs that were part of DFC's existing range. He said that it would be a "nonsense" to prototype a house that was already in the range and selling well.

146 The defendant's construction of the resolution as one imposing an absolute prohibition without any such qualifications found support in Mr Bert Dennis' email of 29 August 2003 to Mr Carter which outlined the proposed prototyping program. It began as follows:

Six months from now no house is to be displayed or enter a build out program unless it has been prototyped.

Anything that went to construction after 1 April had to be prototyped.

147 However, later in his evidence Mr Dennis accepted that the absolute prohibition was subject to qualifications. He agreed that in April 2004 DFC had:

a lot of houses in the range that could have been displayed without having to resort to a new prototype.

He stated that an existing design could be built after 1 April 2004 without prototyping "providing it had been displayed before" and proven to be successful. This was because:

in a sense, every house that had been on display had been - gone through a pseudo prototyping program, so that the quantities were checked and their marketability was checked.

148 In his witness statement, Mr Grant Dennis gave evidence as to the effect of the prototyping resolution:

The policy would ensure that any new display home built would be either a replication of an existing, successful design or would be a new design developed through the prototyping process.

His view was that "this resolution applied to all new designs". Mr Grant Dennis also gave evidence that designs from the Interim National Housing Range did not have to be prototyped:

The Interim Range was a selection of proven existing products from which newly constructed displays would be drawn. The interim range has to be contrasted with new designs - new designs were required to go through the prototyping process.

149 Mr Grant Dennis' view clearly accorded with that of Mr Carter. It seems that the difference was that Mr Grant Dennis considered that the five homes in questions were new designs rather than designs in the Interim Range. That, in turn, depended on whether a modified design was considered to be an existing design or a new design. Mr Kelvyn Rowley sent a memo to Mr Bert Dennis, which was also copied to Mr Carter, addressing some design issues raised by the Chairman. It stated:

The interim range is derived from product that existed in the current ranges from the three offices of DFC. A significant number of these homes have been in the range for some time prior to directions on lot size design & integrated garages.

150 Mr Johnstone's evidence also supported Mr Carter. He said that the Board resolution meant that "no new display home could commence design or construction after 1 April 2004 unless it had been prototyped". In cross-examination, he agreed that the corollary of what he had said in his witness statement was that a display home which had commenced design before 1 April 2004 did not breach the resolution.

151 On the other hand, Mr Peck gave evidence that his understanding of the Board's resolution was that no display home could be built after 1 April 2004 if it had not been prototyped. The resolution was intended to "draw a line in the sand" by stipulating a date after which prototyping was mandatory. He believed that there was no exception for previously successful display homes.

152 A literal reading of the resolution does not disclose the exception expressed by Mr Bert Dennis. It seems, therefore, that the meaning of the resolution was not as unambiguous as the defendant submitted.

153 However, the defendant submitted that Mr Carter's email to Mr Dall at 3.31 pm on 12 October 2004, immediately after being handed the 28 questions, revealed that his actual interpretation of the Board's resolution was consistent with the defendant's case. What Mr Carter asked Mr Dall was:

Did the following new displays commence construction without having gone through a prototype program? [Emphasis added]

154 However, it seems to me that Mr Carter's email simply followed the wording of questions 13 and 14, which read:

Question 13 - You will recall the Board's resolution that from 1 April 2004 all new designs and display homes must be prototyped before being built. Have all new designed displays where construction began after 1 April 2004 gone through the prototyping program? If not, why not?

Question 14 - Are you able to explain whether the following new designed displays commenced construction without having gone through the prototype program? [Emphasis added]

155 The meaning of the Board resolution is important because it was agreed that the design of each of the five display homes was either completed before 1 April 2004 (Killara, Scarborough, Palladium) or had been commenced before that date (Esperance, Hampshire). There were other agreed facts about other activity performed, before 1 April 2004, in respect of each display home.

156 The Killara display home to be built at Lot 9, Alexander Close, Strathfieldsaye illustrated the problems associated with the Board resolution. A deposit had been paid by customers in August 2003 to have the Killara built for them. It would have been leased back to the company for use as a display home for a certain period of time. A copy of the site plan for that house was noted as drawn on 10 November 2003. Executive Homes applied for building and planning permits on 23 December 2003. One would have thought that this would have meant that it could be safely assumed that approval would have come through by 1 April 2004, but as noted above the permits were not granted until 27 April 2004. Mr Peck was adamant that even in this situation the display home could only be built after prototyping. This does not seem to make commercial sense, because if the permit came through and construction could be said to have commenced by 31 March, the project could continue, but if the permit was not received until two days later (despite having been applied for some three months' earlier), then the project had to stop and be successfully prototyped before it could be continued.

157 A deposit was also paid by a customer, in November 2003, to have the Palladium display home built next door at Lot 10, Alexander Close, Strathfieldsaye. With this house, there was a floor plan drawn dated 19 February 2004 and a slab plan produced by consulting engineers in the same month. Executive Homes applied for construction warranty insurance for this design on 27 February 2004.

158 The third design which was completed before 1 April 2004 was for the Scarborough display house to be built at Lot 241, Whitby Place, Craigieburn. The minutes of "Highlands Display Project" team meeting on 6 May 2004 (meeting number 11) included a number of "Closed action items". "Propose new product for lot 241" was "opened" as at 19 February 2004 and "closed" as at 11 March 2004. A foundation investigation or soil test report for the block was dated 15 March 2004. A certificate of residential construction warranty insurance was issued on 24 March 2004. Mr Hurley kept, in a folder of documents, a document titled "2004 Display Home Programme". It had a workflow chart and a "to-do list" dated 17 March 2004 for this site.

159 With respect to the Esperance display home to be built at Lot 39, Scarlet Oak Avenue, Melton, the minute of the construction group had action items relating to the block being "closed" as early as 12 February 2004. A foundation investigation report relating to the block was dated 27 February 2004. A certificate of insurance for a single level dwelling was issued on 29 March 2004. Counsel for the plaintiff also submitted that it was inconceivable that the construction of the Esperance display home could amount to gross negligence by the plaintiff when it generated sales that exceeded expectations.

160 The other design which was commenced prior to 1 April 2004 was for the Hampshire display home to be built at Lot 7, Epping Road, Epping. A project application for residential construction warranty insurance was dated 18 March 2004. A site plan for a model then named "E16D Georgian" was dated 27 April 2004. Counsel for the plaintiff argued that as the date the construction commenced on the Hampshire display home, 28 October 2004, was two days after the plaintiff was dismissed, on the defendant's logic this part of the claim must fail. The defendant's counsel submitted that this was not correct as all of the preliminary steps had been completed well prior to 28 October 2004, during the plaintiff's period as Managing Director. But if commencement of construction was the critical event, as the defendant contended, then this did not occur during Mr Carter's time as Managing Director. On no view, therefore, does the construction of this display home provide any justification for Mr Carter's summary dismissal.

161 The question for my determination is whether Mr Carter's role in these events constituted either gross negligence or serious misconduct. In my view, it did not.

162 As Managing Director, Mr Carter was responsible for ensuring that the Board resolution was implemented. But he was not responsible for checking that every new display home in fact commenced construction before the cut-off date. He was entitled to delegate the responsibility of implementing the prototyping resolution to his staff.

163 The resolution itself contemplated that Mr Hofmeyer would undertake "a prototype development program". He gave evidence that he formed a team to carry out this process. Responsibility for the process passed to Mr Dall when he became National Construction Manager. Thus, the prototyping process was established although it appears to have taken longer than anticipated to set it up and get it running. However, this is not the criticism made by the defendant of Mr Carter.

164 In the circumstances, I agree with the submission by counsel for the plaintiff that the defendant has not identified the particular breach of duty which was said to constitute the assertion of gross negligence on the part of Mr Carter. I am not prepared to infer, as the defendant contended, that because Mr Carter "stood at the apex of the operational and management structure" and "had available to him such managerial and dictatorial power over his subordinates as necessary to prevent the commencement on non-prototyped homes", he had not exercised reasonable care and diligence.

165 I am also not prepared to conclude that there was any gross negligence when the defendant has not established that it suffered any loss. The prototyping issue gave rise to the largest part (some $6.6 million) of DFC's substantial counterclaim initially brought against Mr Carter. After maintaining this part of the claim for more than three years, the defendant abandoned it. No evidence of any damage from prototyping was led by the defendant at the trial. I agree with the plaintiff's submission that I should not infer that the defendant has suffered any loss, particularly where there was evidence that in one case, the Esperance display home, sales had exceeded expectations.

166 In my opinion, the allegation of serious misconduct with respect to the prototyping issue also fails.

167 In the circumstances, given the conflicting views expressed by the directors of DFC as to his or her understanding of the resolution passed on 27 August 2003, it seems to me that one has to accept that it was ambiguous. The fact that not even the defendant's own witnesses were in agreement as to what the resolution meant, indicates, at the very least, that the resolution was ambiguous, and lends support to the conclusion that Mr Carter's understanding of the resolution was genuinely held and was not an ex post facto attempt to avoid the conclusion that he had failed in his duty as Managing Director to implement a clear resolution. It has not been established that Mr Carter deliberately misread or misapplied the Board resolution. It is important to remember that, if Mr Carter's reading of the resolution was correct, then the whole complaint disappears because the design of each of the five display homes in question was commenced or completed prior to 1 April 2004 and each of the display homes was part of the Interim Range.

168 Finally, the defendant never explained why Mr Carter was said to be in breach of his duty as Managing Director of DFC, when none of the five display homes were constructed by DFC. Counsel for the plaintiff submitted that there was no resolution of the Board of either Triline Australia or Executive Homes that "no new display home would be commenced without having previously been prototyped", that neither company was party to this proceeding nor had either of them made a claim against the plaintiff, and that the plaintiff was not a director of either of those companies in 2003, nor was he ever an employee. The two management services agreements dated 16 June 2004, which had not been discovered and were only tendered after Mr Carter had finished his evidence and during re-examination of Mr Bert Dennis, did not assist the defendant in making out its case on prototyping. They imposed no duty on Mr Carter with respect to the construction of display homes by two companies of which he was not an employee.

169 DFC's third reason for Mr Carter's summary dismissal was his conduct towards a senior employee, Graham Hofmeyer, in March and April 2004. The defendant pleaded that Mr Hofmeyer gave notice of his intention to resign from his employment with the defendant as a result of Mr Carter's conduct towards him. It was further pleaded that Mr Carter's conduct was:

(b) "disproportionally harsh and inappropriate having regard to the extent of" Mr Hofmeyer's responsibility for the circumstances then facing the defendant;

(c) in breach of the company's Code of Conduct Policy ("the Conduct Policy") which relevantly provided that employees should:

not intimidate, threaten, or coerce fellow employees by using physical violence, improper language or other disorderly conduct;

(d) in breach of the implied term that Mr Carter would not engage in conduct likely to destroy or seriously damage the relationship of trust and confidence between DFC and its employees.

(b) alternatively, gross negligence by him in failing to take any or sufficient care to ensure that his treatment of, and the conduct of his relationship with, Mr Hofmeyer would not destroy or seriously damage Mr Hofmeyer's commitment to DFC or lead to his resignation;

(c) alternatively, a demonstration by Mr Carter of his incompetence.

171 Mr Carter's relevant conduct towards Mr Hofmeyer in March and April 2004 related to Mr Hofmeyer's responsibility for the excessive land stocks then held by DFC and a speculative program of building homes ("spec homes") which had been undertaken in the regional areas. The defendant spent a lot of time attempting to show that Mr Carter was to blame for these problems. But, if Mr Carter was responsible, this was not said to be a reason for his summary dismissal. As stated above, the complaint was about the way he dealt with Mr Hofmeyer. The question of Mr Carter's responsibility for the growth in land stocks and the building of spec homes is, therefore, only indirectly relevant to this issue.

172 As previously noted, DFC was primarily an order home business. With order home building, a building contract is entered into with a client before construction starts. As construction progresses the company receives progress payments for each completed stage of work in accordance with the terms of the contract. In the ordinary course, the payments that the builder makes to suppliers and contractors are made at about the same time the progress payments are received. As such, there is very little capital outlay for the company as the client pays as the job progresses. Generally, a home is built on land owned by the client, which means that there is also no outlay by the company for the purchase of the land.

173 By contrast, the building of spec homes involves the speculative purchase of land and the building of a house on that land, without a buyer having been secured. It therefore involves higher funding requirements, and is higher risk, as the company has to fund the purchase of the land and the construction, before a purchaser is found.

174 The term "rolling land stocks" was used to refer to the blocks of land purchased by DFC that were to be used primarily for approved purposes such as display homes or, in some cases, house and land packages where a client wants a DFC home built but cannot secure a block of land. In order to meet these needs, DFC had to have a certain amount of land available. This appeared to be a particular concern in country areas, where DFC did not own any estates and there was an apparent land shortage. This meant that land was purchased to certain agreed levels. It was "rolling" stock in the sense that if blocks of land where sold off, more could be purchased if they became available, to take the stock back up to agreed levels. If blocks of land were to be purchased in circumstances in which there was no customer and housing was to be built upon the land, then capital (or borrowings) was required. Thus, in the 2002-2003 financial year an allowance of $5 million was provided in the cash flow account of DFC for housing capital requirements.

175 The problem was that in late 2003 and early 2004 DFC's working capital (or borrowings) to finance the purchase of land and the building of spec homes increased to in excess of $20 million. It therefore had the capital exposure of this program and also the significantly increased interest payments by reason of its borrowings. The blow out in working capital was primarily caused by the purchase of excessive land stocks in regional areas, ostensibly to fund the construction of speculative housing. The resignation of Mr Hofmeyer from DFC was related to this issue.

176 Mr Hofmeyer had been employed at Executive Homes in 1995 when it was purchased by DFC. He remained employed in Shepparton with DFC as the Country Housing Manager for regional areas in Victoria and southern New South Wales.

177 In 2002, James Kelly, the Chief Executive Officer ("the CEO") of DFC at the time, left the company and Mr Hofmeyer was asked to take on the role of acting CEO, which he did for approximately six months until Mr Carter was appointed Managing Director. Mr Hofmeyer, it seems, was more than happy to step down from the role of acting CEO as he was predominately based in Shepparton, and had been travelling back and forward to Melbourne whilst in the role.

178 In around late May 2003, Mr Carter appointed Mr Hofmeyer as the National Housing Manager. In this role, Mr Hofmeyer oversaw housing in metropolitan Melbourne, New South Wales, Queensland and regional Victoria and reported directly to Mr Carter.

179 During the time that Mr Kelly had been CEO, the regional housing business had been given authority to purchase a limited allocation of land stocks to support the housing and land business. Mr Kelly set a limit of land stocks in each area of the regional business. As the National Housing Manager, Mr Hofmeyer had responsibility for ensuring that land purchases in the regional areas were kept to agreed stocking levels.

180 In his previous position as Country Housing Manager, Mr Hofmeyer monitored the purchase of land in the regional areas. It seems that part of the problem began when Mr Hofmeyer was appointed as acting CEO and subsequently National Housing Manager. This was because, in Mr Hofmeyer's words he was no longer "micro-managing" the business. When Mr Hofmeyer took on the acting CEO position he spent more time in Melbourne, and the responsibility of monitoring the land stocking levels was delegated to the District Housing Managers. Although these managers were given authority by Mr Hofmeyer to purchase land to agreed levels, they did not have authority to sign off on contracts to purchase land. Likewise, Mr Hofmeyer could not sign such contracts. Each contract to be signed had to go to the head office in Melbourne. Not surprisingly, Mr Hofmeyer said that he assumed that the financial impact of land purchases was being monitored.

181 There was certainly a need for such checking because in his witness statement, Mr Hofmeyer admitted that:

Sometimes managers and myself tended to commit to land over and above the agreed levels because we anticipated that DFC would find purchasers and not have to settle all of the blocks of land.

182 On 21 July 2003, Mr Hofmeyer sent to his managers in regional Victoria and southern New South Wales a memorandum on the topic of "Land Stocks by District" in which he set out the "Allowable Stock Levels of Land by District". There was a total of 66 blocks. Mr Hofmeyer asked his managers to:

review the current stock levels held by District and work with each District Manager to bring their land stocks in line with the Board approved levels.

183 On 21 August 2003, Mr Sheehy sent an email to Mr Hofmeyer and Mr Gary Davenport, regarding "Unsold Spec's and Housing's Land Holding". Mr Sheehy noted that there had been a $10 million increase in working capital in the last 12 months which was "straining our reserves as we do not borrow specifically for housing activities (we have never had to)". He attributed $7.8 million of the increase to "Spec land bought by Housing". Mr Sheehy suggested that part of the solution was that:

Each manager must be accountable for the Spec land and must not be able to purchase any more until there [sic] allocation is sold. There must be focus given to the spec/turnkey homes and these properties in what is still a good market sold.

184 On the same day, in response to Mr Sheehy's email, Mr Hofmeyer distributed two memoranda. One was to all District Managers in the regional area, in which he said:

Please note that we/you are no longer able to purchase land for a period of three months. After this period of time we will review the position of our stock levels in relation to cash flow.

The second email was sent to his Queensland and Metro managers stating:

1. Proposing to purchase land.
2. Prior to [sic] starting on Turnkey homes.

185 Mr Hofmeyer gave evidence that on or around 22 August 2003, Mr Carter telephoned him and told him that his memorandum to the managers was "too harsh". Mr Hofmeyer said that Mr Carter said to him that he had just been to a meeting and that the company was in the best financial position since he had been there, and that he directed Mr Hofmeyer to tell the country managers that they could continue buying land within the agreed levels. Mr Hofmeyer said that these agreed levels were set out in his memorandum dated 21 July 2003. In his witness statement, Mr Hofmeyer said that he then rang the country managers and advised them that they could continue to purchase land to agreed levels. In cross-examination, Mr Hofmeyer said:

I was quite surprised, so I got on the phone to every manager and I said, "I've just been told by the MD that you can continue".

Presumably, he meant continue buying land. Although in this evidence there was no reference to remaining within agreed levels, Mr Hofmeyer subsequently sent a memorandum to Mr Carter in which he said:

I have advised the Country team to work to agreed levels.

186 Mr Carter denied that a conversation took place in the terms alleged by Mr Hofmeyer. Mr Carter said that Mr Hofmeyer telephoned him. He said that he "certainly" did not say to Mr Hofmeyer that his memorandum was too harsh. He did not countermand Mr Sheehy's freeze on buying land. Nor did he say that the company was in the best financial position since he had been there. Mr Carter described that as "absolute nonsense". It was not in such a good position. What Mr Carter said he did say to Mr Hofmeyer was that he:

remained a supporter of the holding of sundry land lots in housing, but that he must conform with the process of setting the quotas and sticking to them.

That is, the managers could buy land to agreed levels.

187 Mr Carter agreed that he did use the term "agreed levels" in this conversation with Mr Hofmeyer:

Yes, because that referred to the quotas, yes, that we had to establish agreed levels and that support remained for sundry lot holdings in the country ... We had ... to establish agreed levels that would ... bring the housing working land capital down.

Mr Carter said that he understood the reference to "agreed levels" in Mr Hofmeyer's memorandum of 29 August 2003 was a reference to the agreed levels that were "being established at the time with Mr Sheehy", or to the "previously agreed levels of stock in country areas".

188 It seems to me that whatever the precise terms of this conversation between Mr Carter and Mr Hofmeyer, nothing much turns on it because if Mr Hofmeyer's July 2003 allowable levels had been exceeded then there could be no further purchases made in that district until the number of blocks was reduced below the agreed level, whether or not there was a freeze on further purchases.

189 On 26 August 2003 Mr Sheehy drew the attention of the Finance Committee to the unbudgeted increase in the Housing Division's instrument in working capital to $10 million, a large part of which, he said, came from "land held for House & Land Packaging". On the following day, Mr Sheehy told the Board about the issue.

190 In a memorandum dated 20 October 2003 from Mr Hofmeyer to Mr Sheehy, Mr Hofmeyer set out his "proposal" for the levels of "rolling stock". The total of 183 blocks consisted of 72 blocks for Melbourne Housing, 36 blocks for Queensland Housing and 75 blocks for Regional Housing. Excluding Geelong, which was not included in the 21 July 2003 stock levels, the total for regional Victoria and southern New South Wales was reduced from 66 blocks to 63 blocks. If all 183 blocks were purchased and paid for at the prices suggested in Mr Hofmeyer's memorandum, the cost to DFC would have been $20,925,000. The hope was that a house and land package could be sold before settlement was due to take place on the land. But Mr Hofmeyer said in his memorandum:

Michael, experience has shown that we could end up having to settle some of these proposed blocks of land.

191 In response, Mr Carter sent the following email to Mr Sheehy and Mr Hofmeyer:

I look forward to your joint recommendations on this. It is an important step forward. Board sign off will be needed on the approach.

In cross-examination, Mr Carter said that the reference to "the Board" was an error and that he meant sign off by the Finance Committee.

192 Mr Carter gave evidence that at the meeting on 27 October 2003 the Finance Committee gave its imprimatur to Mr Hofmeyer's quotas. He said:

The document was tabled, it was discussed and no ... finance committee member expressed any dissatisfaction with the proposal.

193 Mr Bert Dennis denied Mr Carter's assertion that the Finance Committee had approved the stock levels set out in Mr Hofmeyer's memorandum. That appears to be correct because the minutes of that meeting of the Finance Committee record that:

Mr Michael Sheehy advised that he had received a paper from Mr Graham Hofmeyer detailing rolling stock requirements. Mr Michael Sheehy had reviewed the requirements but had asked for a current status by operation on existing holdings. The Chairman asked for a status report listing land holdings by the Housing division to be included in the finance report.

194 Apart from the minutes, there was no document referring to any consideration of Mr Hofmeyer's memorandum.

195 Mr Sheehy reported to the Finance Committee meeting held on 28 January 2004 that the working capital provision was now over $20 million versus a budgeted $5 million. On 2 February 2004 Mr Bert Dennis sent a lengthy memorandum to Mr Carter and Mr Sheehy concerning the recent Finance Committee meeting. It commenced:

Wednesday's discussion re the stock and purchase of odd lots for Dennis Constructions alarmed me. I suggest these lots and the way we build spec. houses are one of the main reasons for the poor performance of housing.

196 By a memorandum dated 9 February 2004, Mr Hofmeyer advised Mr Dall (with copies to Mr Carter and Mr Sheehy) that he had:

advised all Country Managers that as from March 1, 2004 no more spec homes are able to be commenced on land not developed by DFC.

He then sought approval to continue the construction of two spec homes per month in the Wagga Wagga market place in order to be "competitive". Mr Dall rejected this request.

197 On 13 February 2004 Mr Sheehy sent an email to Mr Dall and Mr Hofmeyer telling them that the month end working capital for Housing had increased to $23.4 million. Settled land for housing was $10 million and "Spec under construction" was $13 million. He said that the later item represented:

168 HOMES or 20% of the total 800 under construction.

198 Mr Sheehy forwarded a copy of his email to Mr Carter on 16 February 2004. He commented as follows:

Since August I have been drawing the Board's attention to Housing Land issues and Housing Working Capital. In September Graham Hofmeyer presented a paper to the Finance Committee effectively capping and self regulating land held for house & land packages. This memo was then sent out to all housing operations. I viewed this as a band aid, providing me with the time to work through the broader issues of profitability of the revenue streams (H&L, Spec and OPOL). What I wasn't aware of, as it has never been discussed was that during this period we have undertaken a mass spec program (on non-DFC land) to I guess prop up Housing's revenue.

What I need to do is over the next month micro manage the process of bring [sic] this number down from $22m to $10m. This situation was created by the signing land on short(ish) terms to settlement and then instead of selling the homes building a spec's on them.

199 Mr Carter's evidence was that this was the first time he was informed about the full extent of the issues with respect to unsanctioned building of spec homes and the blow out in working capital. In an email to Mr Sheehy, Mr Carter said:

I have to say that at no stage was Executive Team or the Board or you as CFO advised that a major spec program was underway in the country. It is not consistent with either strategy or risk. We took a stance AGAINST volume for volume's sake. I believe that we were assured that this reflected robust demand and the shortage of land in some country centres - ie. to continue our market position in ORDER housing, we needed land holdings to satisfy customers who were already there! I believe we were absolutely entitled to assume that there were back-to-back order housing sales around this land. There was never a suggestion of a major spec build program. - In fact, we kept getting told about shortages of trades and inability of production cells to keep up. How on earth does that fit with a spec build program of well over a hundred homes?

200 On 17 February 2004 Mr Hofmeyer wrote to Mr Sheehy disagreeing with the figure of 168 spec homes:

The number of Spec homes reported is incorrect as the classification on IT factory distorts the numbers. My view would be more like 60 homes.

Between August 2003 and 2 March 2004, quite a lot of land was purchased. It was way above the total agreed levels. This came about because land administration was decentralised to the Country Managers as I was travelling to Melbourne frequently. The individual country branches were not paying attention to detail, were not disciplined in recording land stock levels and head office which was signing the contracts and writing the cheques had not alerted them to any problem.

Had the Country Managers ceased buying land in accordance with my memo dated 21 August 2003, the overstocking of land would not have reached the levels it did.

What Mr Hofmeyer apparently did not recognise in making the last statement quoted above was that it was also the case that "the overstocking of land would not have reached the levels it did" if he and his managers had stuck to the agreed levels.

202 Mr Hofmeyer agreed in cross-examination that the limits for regional Victoria and southern New South Wales were "severely overshot" in late 2003. He said that this was because he and his managers went over the limits. He agreed that he had personally been involved in purchases of at least six over the limit in Bendigo and ten over the limit in Albury Wodonga. He said that he did not know about other excessive purchases, but agreed that they were done by people under his supervision.

203 Mr Hofmeyer did not agree that number of unsold blocks reached about 300. He thought there were about 70 Regional Housing blocks unsold but agreed that he did not really know the numbers. He said that the records were inaccurate.

204 Mr Hofmeyer also accepted responsibility for the spec homes program. However, as previously noted he disputed Mr Sheehy's figure of 168 spec homes under construction. He said in cross-examination that he had told Mr Carter that he thought the figure was about 63, "but half of those I would've thought would have been sold". In his witness statement, Mr Hofmeyer said:

I would approve specs to a level of approximately 24 unsold specs under construction at any one time. However, at times this number may have gone to approximately 30.

He conceded in cross-examination that this figure of 30 was just his "best guess" because he could not recall the numbers. He also said that he did not recall discussing the question of spec housing with Mr Carter although he thought that "the accounting area" would clearly have known about the expenditure on spec homes in the country and would have alerted him if there were a problem.

205 Mr Hofmeyer agreed in cross-examination that it was appropriate for somebody to speak to him about the problem of excessive land stocks and spec homes.

206 On 20 February the Board members received Mr Carter's report to the Board, notifying them of the problem. At the Board meeting held on 25 February Mr Carter explained that there was an excess of land stock held by DFC and that these purchases of land and the spec homes program had not been sanctioned by the Board. Mr Bert Dennis said that Mr Carter stated that it was all the fault of Mr Hofmeyer.

207 Mr Carter said that, at this Board meeting, he was instructed by the Board to counsel Mr Hofmeyer. The Board minutes do not record this instruction. Mr Carter's evidence was that he recommended to the Board members that he should counsel Mr Hofmeyer and that they supported this course. Mr Bert Dennis said that Mr Carter told the meeting that he intended "to severely reprimand Hofmeyer", and that he told Mr Carter that he was concerned at this, because he did not want to lose Mr Hofmeyer. However, Mr Dennis said that beyond expressing his concerns he took the view that it was not his role to interfere.

management to assess the competencies of staff for gaps and then develop suitable training programs to overcome.

209 On 2 March 2004, Mr Carter and Mr Dall met with Mr Hofmeyer. Mr Carter admitted that he knew that Mr Hofmeyer had just returned from a funeral. It is this meeting that is the focus of the allegation that Mr Carter's treatment of Mr Hofmeyer justified his summary dismissal.

210 In his witness statement, Mr Hofmeyer said that Mr Carter's first words to him were in a loud and attacking voice. Mr Hofmeyer said that Mr Carter told him that he had just come from a Board meeting and was embarrassed about excessive land stocks and Mr Hofmeyer's failure to achieve his Key Performance Indicators and that normally he would resign his position. Mr Hofmeyer also said that Mr Carter stated that the company should sue him, but because it was a caring organisation, it would not be taking that action.

211 Mr Hofmeyer then said in his witness statement that Mr Carter gave him a four page letter notifying him that there were to be changes in "requirements for your work program and your accountabilities" and in the way his incentives were calculated, "not to disadvantage you - rather to change the basis on which you are rewarded" in accordance with DFC strategy. The letter indicated that these changes were due, in part to:

The discovery of a major, unsanctioned spec housing program in the regional business. There are very serious Board concerns over this issue and its impacts on the company's working capital, cash flow, risk profits and profitability.

212 In his witness statement, Mr Hofmeyer advanced two criticisms of this statement, which, he said, "particularly offended" him. First, he said that:

At any time, I understood that there was a limit in the budget of approximately 24 "spec houses".

Even accepting that to be the case, this did not excuse Mr Hofmeyer from allowing the number to reach 30 or 63 or 168.

213 Secondly, Mr Hofmeyer referred to Mr Carter telling him on 22 August 2003 "to continue purchasing land within the agreed limits". He objected to Mr Carter making him "fully accountable for all of those purchases of land". It seems to me that here Mr Hofmeyer was confusing two issues. Mr Carter's statement in the letter related to the excessive number of spec homes not the excessive land stocks issue. But even if they are considered together, Mr Carter was not responsible for the purchases, including the purchases by Mr Hofmeyer, that were above "agreed levels".

214 Mr Hofmeyer then said in his witness statement that he was "shocked" when Mr Carter told him what was in the letter. He said that he believed he was being set up. He continued:

I was angry and asked him whether I was being put on notice and if so, that I was happy to develop an exit strategy.

He said that he told Mr Carter that he would take the letter home as he wanted time to study it and prepare a reply in writing.

215 In cross-examination, Mr Hofmeyer said that he thought the letter was "professional", but he was shocked by the manner in which the letter was delivered to him. He said that he felt that "they wanted to get rid" of him and that it was "a set up". He continued:

I felt that I was being castigated for the whole non profitability of the Dennis family and I felt I was very unfairly treated. I felt also that I was treated unfairly because Mr Carter had told me to continue to buy land, provided it was within the agreed stock end levels. ... I was very upset about it. I was also told and I know Mr Carter denies this, but I was definitely told I could be sued over the matter, but ... he said the company is a caring organisation and that wouldn't happen. ... For the last five years I've lived in that fear, from that meeting. It almost destroyed my life.

216 Mr Carter denied that he spoke to Mr Hofmeyer in an aggressive manner, or that he used "improper language" or that he said the company should sue Mr Hofmeyer. He agreed that saying such a thing would not be caring. Mr Carter also agreed that his conduct in the meeting was more than counselling. He justified his behaviour towards Mr Hofmeyer as follows:

He was an employee who cost the - the company a great deal of money, put the company at risk and sometimes, Your Honour, tough love, as it's called in management, is required.

Mr Carter said that he told Mr Hofmeyer that he held him responsible for the excessive land stocks and that Mr Hofmeyer accepted that responsibility. Mr Carter stated that he said to Mr Hofmeyer that someone in his (Mr Hofmeyer's) position would normally have to resign. He said that Mr Hofmeyer offered to tender his resignation, but he declined to accept it. Mr Carter said that his dealings with Mr Hofmeyer were "firm but fair which was appropriate to the serious circumstances".

217 Mr Hofmeyer responded to Mr Carter by a memorandum dated 9 March 2004. With respect to the criticism about the spec housing program, Mr Hofmeyer said:

The Country Housing budget for the past two financial years has had a spec home component built in for the following purposes:

1. Guaranteed budget achievement through gap filling of KP's.

2. Trade loyalty (prevent trade loss).

1. The assumption had been that the spec homes were sanctioned as part of the budgeting process and thus financial provided [sic] for.

Again, Mr Hofmeyer has overlooked the fact that the purchase of land stocks exceeded "agreed levels" and the number of spec homes being built exceeded the "limit in the budget of approximately 24". He concluded his memorandum as follows:

I personally regret the concern my actions may have caused to the Board, yourself and any other members of the Executive Team.

Mr Hofmeyer's letter contained no criticism of Mr Carter or of the way in which he had been treated by Mr Carter at their meeting a week before.

218 Mr Hofmeyer said that he continued to try to run the regional housing business and to address the issues and concerns that had been outlined by Mr Carter. He found this very difficult because he felt that he had been "sent to Coventry" by Mr Carter and Mr Dall. He said that he felt that he "no longer had a good working relationship" with either Mr Carter or Mr Dall. However, on 1 April 2004 Mr Carter sent Mr Hofmeyer a compassionate and friendly email following the death of Mr Hofmeyer's father. Mr Hofmeyer said he "appreciated" Mr Carter's words. Nevertheless, Mr Hofmeyer decided that he should leave the company "for the better of the company".

219 In mid April 2004 Mr Hofmeyer arranged a meeting with Mr Carter and Mr Dall to tell them of his decision to retire and to work out an "exit strategy". Mr Hofmeyer said that he would give three months' notice. Mr Hofmeyer said that Mr Carter "did not say much at that meeting except that he could not tell Bert for a week because Bert was on holidays."

220 Mr Hofmeyer waited about a week before he telephoned Mr Bert Dennis on 22 April 2004 to let him know that he was leaving the company. Mr Hofmeyer said in his evidence that as Mr Carter (and then Mr Dall) was his immediate supervisor he would not normally have called Mr Dennis directly, however he felt that he had been mistreated by Mr Carter and wanted to inform Mr Dennis personally of his decision to retire. He said that he told Mr Dennis that he had "made some mistakes" during his time and that he was "sad to go". He agreed with Mr Dennis' evidence that during the conversation he apologised for "the problems" he had caused the company.

221 Mr Carter gave evidence that, on the same day, Mr Dennis called him and told him that Mr Hofmeyer was retiring. Mr Carter said that Mr Dennis described Mr Hofmeyer's resignation as "a loss", but made no criticism of Mr Carter. Also on 22 April 2004, Mr Dennis sent the following email to Mr Carter:

I had a long telephone discussion with Hoffy today.

He wants to ease his workload over the next three months.

Then take a three-month break.

Then take on consultancy role training our young managers.

I think this is a great outcome.

Thus, Mr Hofmeyer's intended departure was not to be a permanent break from the company.

222 Subsequently, Mr Carter telephoned Mr Hofmeyer. Mr Hofmeyer said that Mr Carter was extremely angry and aggressive during this phone call and that he said words to the effect of "You've shafted me", "I thought we had an agreement you wouldn't tell Bert", "You've white anted me" and "You've gone above my head". Mr Hofmeyer also said that during the 40 minute conversation, Mr Carter accused him of causing the demise of the company. He said that he was reduced to tears and was so affected that:

in fact, it took me a number of years to get over that statement ... I couldn't get it out of my mind that I'd caused the demise of the Dennis Family Group.

223 On 23 April 2004 Mr Carter sent an email to everyone at DFC in which he wrote:

It is with sadness, tinged with admiration for a job well done, that I announce the retirement from DFC of Graham Hofmeyer.

Graham has chosen this moment to take time out to "smell the roses" and pursue personal goals in preference to professional goals.

...

PS, the good news is that Graham has given a commitment to return after all that fun and give DFC the benefit of his wisdom and experience in a consultative/training role.

224 Then, following an apparently friendly meeting between Mr Bert Dennis and Mr Hofmeyer on 4 May 2004, when the Executive Team was meeting in the Yarra Valley, Mr Hofmeyer telephoned Mr Dennis on 13 May 2004. According to Mr Dennis' email to Mr Carter on 14 May 2004:

Hoffy rang me last night and said how appreciative he was for the session we had last week and that it restored his confidence and belief in himself. He had been at a very low ebb about the problems he caused, unfortunately, to the business.

He does want to continue on with us when he comes back from a holiday ...

225 It was probably in this telephone conversation that Mr Hofmeyer asked Mr Dennis whether he had "sent the company broke". Mr Hofmeyer gave evidence that he remembered ringing Mr Dennis and asking him this because he was really worried that this was what he had done He said that Mr Dennis assured him that he had not done so.

226 Mr Hofmeyer worked out his notice until July 2004. In November 2004, Mr Hofmeyer was engaged by DFC as a consultant. In his witness statement, Mr Hofmeyer said:

I loved my job and I would still be at DFC if it was not for Carter.

227 Mr Carter gave evidence that he had read and understood the Conduct Policy. However, I am not persuaded that he breached that Policy. I do not accept that Mr Carter's conduct towards Mr Hofmeyer prior to him deciding in mid April 2004 to resign was as inappropriate as the defendant has alleged. I agree with the submission by counsel for the plaintiff that the tone of the letter and Mr Carter's conduct at the meeting on 2 March 2004 were commensurate with the seriousness of the issues being discussed and did not breach the Conduct Policy. All of the directors of the DFC agreed that the two issues had caused a serious problem for DFC and Mr Hofmeyer had admitted responsibility for both of them, including being personally involved in the purchase of at least 16 blocks over the "agreed levels".

228 I am not persuaded that Mr Carter told Mr Hofmeyer that the company should sue him. Other parts of Mr Hofmeyer's evidence about that conversation seem to demonstrate that his recollection was faulty, for example, the evidence that Mr Carter said he had just come from a Board meeting.

229 Moreover, Mr Hofmeyer agreed that despite having a good relationship with Mr Bert Dennis and despite talking to him on the telephone on 22 April 2004, meeting with him on 4 May 2004 and talking again with him on 13 May 2004, he did not raise with Mr Dennis his concerns about Mr Carter's conduct towards him. Mr Hofmeyer's explanation for these omissions was that Mr Carter was his superior and he never went over the superior's head with a complaint. If Mr Carter had said that DFC should sue Mr Hofmeyer for its losses, which seems to be what most upset Mr Hofmeyer, then I consider that one or other of these friendly conversations with Mr Dennis would have been a perfect opportunity for Mr Hofmeyer to have this particular concern laid to rest. Mr Hofmeyer did say that he raised with Mr Dennis the possibility that he had caused the demise of DFC and was re-assured. Yet he agreed that he said nothing to Mr Dennis about the alleged threat of being sued. This was only mentioned after Mr Dennis approached him in October 2004. All of this suggests to me that Mr Hofmeyer's account of Mr Carter's conduct towards him, and its impact on him, was exaggerated.

230 When giving evidence about these events Mr Hofmeyer was visibly shaken and upset. But as Mr Hofmeyer accepted responsibility for some of the problems that led to the blow out in working capital, it seems to me that the fact that he blamed himself, at least partly contributed to his anxiety over what had happened. At one stage he said that these issues were "a big dent in my personal pride and my professionalism".

231 The only other person at the meeting on 2 March 2004 was Mr Dall, who was not called by either side to give evidence. If the defendant wanted me to be satisfied that Mr Carter treated Mr Hofmeyer harshly in this meeting then it should have called Mr Dall to corroborate Mr Hofmeyer.

232 On the other hand, it seems that Mr Carter overreacted and spoke to Mr Hofmeyer in a less than professional manner in the telephone conversation on or about 22 April 2004. Mr Carter agreed that he was upset during that conversation, as he felt that Mr Hofmeyer had gone behind his back by telling Mr Dennis about his resignation before he could. He agreed that he spoke in an aggressive manner and had used the terms "shafted" and "white anted" during this telephone conversation. However that may be, Mr Carter's conduct on this occasion is not relevant to the allegation that he caused Mr Hofmeyer to resign because he had already given notice. Nor did that conversation cause Mr Hofmeyer to change his mind about returning to the company in a less stressful position after taking a three month break.

233 In the circumstances, I am not prepared to find that this episode constituted serious misconduct by Mr Carter. I am not persuaded that Mr Carter's "tough love" in the meeting of 2 March 2004 was disproportionate or an attempt by him to deflect criticism from his own responsibility for the problems. Nor am I satisfied that Mr Carter was grossly negligent in his treatment of Mr Hofmeyer. Finally, there is no basis for the assertion that this episode was a demonstration by Mr Carter of his incompetence.

234 Finally, although DFC had once claimed that Mr Carter was liable for a loss of over $270,000 on account of Mr Hofmeyer's departure, after this part of the counterclaim was abandoned, no relevant loss was proved as a result of Mr Carter's alleged gross negligence.

235 The fourth reason pleaded by the defendant for the plaintiff's summary dismissal was that the company's housing budget for the 2004-2005 financial year was not based to the fullest extent possible "upon realistic estimates of the actual performance of that business, particularly with respect to the first three months of that financial year". The defendant pleaded that the plaintiff was directed by the Board to this effect, which he denied. The defendant further pleaded that it ought, with reasonable diligence and care, have been obvious to the plaintiff that this was how the budget should be prepared, which he admitted. This conduct was said by the defendant to be either gross negligence by Mr Carter, alternatively a demonstration of his incompetence.

236 Thus, the main factual issue under this head is whether the housing budget's revenue forecasts for the first three months of the 2004-2005 financial year were based to the fullest extent possible on actual workflow in the system as at 30 June 2004. Another issue is whether Mr Carter was directed by the Board to have the budget prepared on this basis, but given Mr Carter's admission that this was how the budget ought to have been prepared in any event, this has become more of a subsidiary issue.

237 The defendant pleaded that the plaintiff "by virtue of his position as Managing Director ... had overall responsibility to the Board for the defendant's financial budget". As previously discussed, this contention must be regarded as a correct statement.

238 The background to this dispute is that in the 2003-2004 financial year the housing budget was revised downward three times and each time DFC's housing business failed to meet the revised forecast.

239 The concern about the budgeting of the housing business was reflected in a memorandum dated 2 March 2004 which Mr Bert Dennis sent to Mr Carter. It read:

I am becoming increasingly frustrated and alarmed at our inability to produce details of the number of jobs in the pipeline and the ageing details of those jobs, particularly in Metro Housing.

The health of our pipeline is an absolute fundamental to our business.

Without knowledge of our pipeline I don't see how we can prepare reliable budgets, revised forecasts, financial projections, forecast office accommodation needs, staffing levels, training, need to increase or reduce advertising and marketing, arrange suppliers and subcontractors etc., in fact manage our business at all.

Knowledge of our pipeline should mean that a revised forecast is accurate for the first three months (barring weather) because all of the next three months' starts are in the system and reasonably accurate for the next three months when pre deposit activity is factored in.

Inability to produce pipeline details suggests that either we don't have the details, in which case we must question the basic fundamentals for the starting point of our budget, RF1 and RF2, or that the information is there but our managers are not making use of it.

Would you please as a matter of urgency produce for all three housing businesses as at 01.03.04 the number, in the system, of:

• Deposits
• Contracts
• Production
• Construction
• Maintenance
• Warranty;

with an initial concentration on deposits, contracts and production, and their age profiles.

240 Thus, there was obviously a concern that the 2004-2005 budget be prepared accurately. Mr Carter responded to Mr Dennis' memorandum on 3 March 2004. He said:

Of course I share your frustration.

It's not that we have not been working on this.

The information exists in the sense that people have spreadsheets to monitor workflow. Yes, some do it better than others. So, we have to compile these from round the business. That's what you and Mark and I have been talking about.

Graeme Hester has been tasked to generate key management reports from the system ... cfd [meaning] manually. It's now his role, not Michael's. There are key priorities agreed for IT Factory ... and reports is one Headway is being made by Graeme.

...

We are well aware of the slowdown in the pipe and are planning for it ...

241 The minutes of the Finance Committee meeting held on 30 March 2004 record the following:

Mr Bert Dennis questioned the availability of housing information and Mr Rob Carter informed the Committee that workflow information had improved and everything going to site was transparent on a weekly basis. Further enhancements to reporting and management information (specifically through ITF) would be forthcoming during April and was being handled by Mr Graeme Hester.

242 Mr Carter stated in his Managing Director's report dated 21 April 2004:

Finally, the Executive Team has a golden opportunity to put forward to the Board a budget for 2004-2005, that is based on the strategy, greatly improved metrics (eg Best Builder) and a much more firmly grounded set of estimates on the revenue side. In a sense, we all look forward to being accountable for an achievable stretch budget where we actually understand the drivers and the intervention points a great deal better than is the case for the current budget.

243 In a document entitled "DFC Business & Financial Planning Guidelines" for 2004-2005 and dated 22 April 2004, it was stated with respect to "Budget 2005":

Detailed monthly program, built from the bottom up. The Budget builds on the Pipeline (commitments in the system) ...

244 On 20 May 2004 Mr Carter responded by email to a concern which had been expressed by Mr Johnstone about how well the company was managing housing profitability. Mr Carter said, in part:

It is one thing to have the monitoring data on throughput in the pipe, time and quality measures, margin tracking etc. - Here, major progress has been made through the combined efforts of Graeme Hester and Mark Dall, with valuable input from Bert. It is another to have the pipe itself in a mess. You can measure a mess, but it's more important to fix it. In that sense, I do not see how the short and medium terms can be separated - especially in terms of priorities on action. You also need a strategic goal in such work - an eye on the future and the competition.

As to day to day management, IT Factory substantially upgraded our capabilities in terms of ability to track workflow - in raw, if not user friendly terms, at least. It was only fully rolled out last December. Since then, we have been dealing with low rates of take up and the legacy of poor data from previous systems. Best Builder is boosting take up by requiring use of the system, but it means extensive system modification (eg sales/building quality tracking). Developing specific reports to focus on day to day management has also been pursued vigorously.

We now have workflow sheets showing the stage of every job in the business through the pipeline. Within each stage (sales/production/construction) there are detailed break downs into process steps. Every area manager can now sit down with these sheets and regularly track exceptions and progress and timelines. This is the first time in the history of the business, given that Sage was not as capable. Previously, manually kept spreadsheets were used, with no consistency in quality or application.

Using the principle of the information pyramid, it is now possible to aggregate up from consistent micro data to consolidated reports to higher levels of management and depict trends and exceptions graphically. We can also analyse deviations from Best Builder metrics (eg target timelines at various stages). Again, major progress has been made, but there is further refinement needed and we are still cleansing some old jobs from the data (eg cancellations not recorded).

245 It appears that Mr Carter made a powerpoint presentation at the Board meeting held on 26 May 2004. Under the heading "Construction: Main Issues" he included the following points in the "short term settings in business" which were being focused on:

• Improving data consistently available to all housing managers on job cost and workflow to enhance daily management of all jobs.
• Aggregating these reports upward to get a clear view of the construction pipeline in terms of volumes and timelines and to interpret this into an overview of the state of the business and the workflows at least 3 months out.

246 One of the medium term settings noted by Mr Carter was:

• Setting a budget for 2005 based on solid research, hard questioning and reality and holding the Executive Team and all housing managers accountable for its delivery.

247 The defendant contended that at the Board meeting held on 26 May 2004, Mr Carter was given a direction as to the preparation of the upcoming budget by Mr Grant Dennis. Mr Grant Dennis gave evidence that he made comments to the following effect:

The first six months of the 2004/2005 budget should almost be spot-on for actuals to budget. This is because the company would have a series of guaranteed jobs in progress. Once the company takes a deposit, and more certainly signs a contract, it knows with a fair degree of certainty what the cash flow will be for the first six months.

248 Mr Bert Dennis' evidence on this direction was as follows:

At the May Board meeting Grant and I reiterated to Carter that the first three months of the 2005 budget had to be based on actual workflow statistics (not forecasts) with the second three months to be a mixture of actual and forecasts.

249 Mrs Adele Levinge also gave evidence that Mr Carter was directed to prepare the budget in this way.

250 However, the minutes of the Board meeting held on 26 May 2004 did not record any such direction. The minutes read:

5.2 Overview Budget

Mr Michael Sheehy presented the first draft budget 2005 in the context of the three-year plan. Feedback from the Board was that the contraction in revenue and profit was not in line with the expectations.

251 Although Mr Carter denied that there was any such direction, he did say in cross-examination that he recalled that Mr Grant Dennis said words to the effect that the first six months of the 2004-2005 budget should be "spot on for actuals to the budget" during the course of that Board meeting. Thus, it was perhaps not so much a formal Board direction as an indication during discussion. In any event, as I have said, the plaintiff admitted that as far as possible this was how the budget should be prepared.

252 In his presentation of the final draft of the budget dated 24 June 2004, Mr Sheehy wrote under the heading "Budget Risks":

Last year the opening comments in the Budget Risk section were, this Budget is a stretch. And, it proved to be. This Budget 2005 has been founded on as much relevant information as available - it is a unique combination of top down bottom up, founded on a strategy, and underpinned with measurable KPI's. Having said that, reaching it is contingent on some factors within Executive Management control and some factors outside control.

253 The criticism made of Mr Carter is that instead of looking at the construction pipeline and ascertaining the number of actual jobs, and then determining the stage they were at in the production or construction phase and using those figures as a basis for calculating how much revenue DFC could expect to receive in a given period, he allowed the budget to be prepared based on Best Builder estimates or assumptions as to how long a job would take to progress through the pipeline.

254 The defendant contended that with respect to the budget for the housing business at least for the first half of the year, and in particular for the first three months, it was possible to predict with a high degree of certainty what the actual revenue would be, because there was a long pipeline of jobs in the system, as a result of which there were a number of guaranteed construction jobs for the period. It was important to know how many jobs had reached the end of the production phase, because it was only when construction commenced that revenue started to come in. The defendant's complaint was that the plaintiff failed to have the budget prepared based on the statistics of actual jobs in the pipeline.

255 Mr Carter's position was that it was not possible to accurately ascertain when the actual jobs in the pipeline would start to bring in revenue because the IT system did not provide accurate forecasting. He said that because of this the budget was based on Best Builder "averaged assumptions".

256 The Best Builder assumptions were benchmarks of what would be achievable in terms of best practice in the housing business. Mr Carter explained how the Best Builder assumptions were compiled as follows:

With the best builder process redesign the first thing you do is an analysis ... Then you go to your competitors and you benchmark what ought to be achievable if you get it right. So we would go to Metricon and other companies, and benchmark their construction times. We would then take that back into our company, adjust for our own conditions, and set ourselves a target ... So we redesigned the whole process so that we can achieve that reduced construction timeline, in this case of 23 weeks.

257 Mr Carter insisted that the assumptions had a sound foundation and that he:

was entitled to assume, even though it was unproven in our company, that we could beat the competition and that's what we were trying to do.

258 In fact, the 2005 budget used a Best Builder figure of 16 weeks for the production phase. The target figure for production under Best Builder was 12 weeks, but it was recognised that, as the Best Builder targets were to be achieved incrementally, it would be some time before that target could be achieved. The plan was that Best Builder efficiencies would be at 50 per cent as at July 2004, 80 per cent as at 1 January 2005 and 100 per cent as at 1 April 2005. The figure of 16 weeks was calculated on the basis of 20 weeks for six months and 12 weeks for six months.

259 The defendant pleaded that after the first three months of the 2005 financial year, the actual revenue for the defendant's housing business was a total of $7.6 million below the budgeted revenue for that period. However, the plaintiff pleaded that in terms of profit and loss, the difference between the budgeted loss of $3 million and the actual loss of $5.3 million at the end of September 2004 was less than the difference in revenue because of "faster than expected progress on cost reduction with overhead expenditure". Thus, the result was only $2.3 million adverse to budget.

260 It is useful to recall the gravamen of DFC's complaint. It is that Mr Carter did not have the budget prepared in the manner directed by the Board, alternatively, that he did not have it prepared in the manner which he knew or ought to have known that it should be prepared. Thus, it is not relevant at this stage to consider the magnitude of any difference between the actual revenue and the budgeted revenue for the first three months of the 2004-2005 financial year. Nor is it relevant to consider whether or not the difference between the actual loss and the budgeted loss over the same period was greater or smaller than the revenue differential. It is also not relevant to consider the plaintiff's pleaded reasons for why there was a drop in revenue. Theoretically, the defendant's criticism of the manner of the preparation of the budget would still stand even if there had been no difference between actual and budgeted revenue. Finally, it is not relevant that the Board demanded a break even budget because the final draft of the budget was, according to Mr Sheehy's presentation "fully supported by the members of the Executive Team".

261 In order to determine whether Mr Carter was guilty of gross negligence or incompetence in the preparation of the budget, it is necessary to understand the concern with the number of jobs in the pipeline. It is therefore helpful to set out how a job moved through the construction pipeline.

262 The evidence was that within the production phase there were a number of steps that had to be taken with respect to each job in order to get it to the stage where construction could actually commence. The process generally started with a lead generated from a display centre, where a customer chose a design after talking to a sales consultant. The sales consultant then prepared an estimate sheet, which was later used as the basis for the formal contract. The customer was then asked to pay an initial deposit, usually around $500, which was the start of the "deposit" stage. Once the initial deposit was paid the job was recorded in the IT system. Previously this was a system called "SAGE", which was then upgraded to a program called "IT Factory". Once a deposit was received the sales consultant submitted the file to a Contract Administrator, who logged the job in the computer system, and created a job number. Under the SAGE system the Contract Administrator would manually enter forecasts as to when the job was likely to get to the "contract signed" and "site start" stages.

263 The next step was to have a soil test carried out. An engineer was employed to design the slab, which might differ depending on the land. Once the customer and DFC were ready to proceed, the job was placed in the queue for the drafting of the formal contract. Also at this stage the costing was checked by a Sales Estimator. Once the cost was confirmed, a formal contract was drawn up for the job which was sent to the customer for signing. The contract still required legal clearance. This meant obtaining a building permit, proof of ownership of the land and finance approval. Once legal clearance was obtained and all the relevant approvals had been given the file could be passed from the production cell to the building department for construction to commence. This was known as a "site start". At this time, the job moved from the production phase to the construction phase.

264 It was not disputed that during the production phase, there were numerous external factors that could delay the process. For example, the customer might be waiting on the sale of another property, or awaiting finance approval, or there might be delays with obtaining permits. Some of the jobs might never reach the site start stage. Customers might pull out for numerous reasons, even after the initial deposit had been paid. More customers were lost before the contract was signed than after that had occurred. Once the job reached the site start stage it was highly likely that the house would be built, but how long the construction took also differed from job to job.

265 While Mr Carter admitted that, at the time the budget was prepared, the number of jobs at each stage in the pipeline could be ascertained, he said that it was still necessary to make assumptions as to when each would job would start to generate revenue. He attributed this inability to determine how long a job would take to progress through each stage to deficiencies in the IT system. He said that there was no adequate forecasting mechanism within the IT system:

We had data on the number of jobs in the pipeline. We didn't have adequate data on the speed at which they would move through the pipeline.

266 It was apparent that historically there were difficulties in logging jobs and keeping track of them as they progressed through each stage. Part of this issue was attributable to the fact that DFC had grown from a number of separate housing businesses. There were a number of separate production cells which each had their own way of recording information. There was evidence that in the regional areas, weekly workflow meetings were held which tracked how many jobs there were and what stage they were at. Excel spreadsheets were then produced by Mr Hofmeyer, which set out forecasts as to when each job would reach the site start stage.

267 The metropolitan business appeared to a have less methodical records of the jobs in the pipeline. According to Mr Kevin Barnard, when he moved to a position as National Building Manager in June 2003 there were no site start sheets and no systematic way to track jobs in the pipeline, which meant there were hundreds of jobs logged in the system, some of which were old jobs that had never progressed to site start, but which had not been cleared out of the system.

268 By May 2004, at least some of these issues had been overcome. Mr Graham Hester was recruited by Mr Carter, to join the executive team as the Chief Operating Officer in January 2004. He was predominantly responsible for IT and procurement, and he was subsequently given responsibility for managing the Best Builder project. When Mr Hester commenced, IT Factory was already in place and he gave evidence that there were a number of existing problems with the system.

269 According to Mr Hester, IT Factory was not stabilised when he started at DFC. In his words it "crumbled" when a house sales consultant attempted to enter information in the system. A review of IT Factory was conducted, and Mr Hester sought to align the system with Best Builder processes. Mr Hester also worked with Mr Barnard to clear all the old jobs out of the system. According to Mr Hester, the issues with IT Factory meant that it was not possible to press a button on the computer and get a report. To obtain the information about the number of jobs in the system and what stage they were at, it was necessary to ring each area manager and ask about the number of sales each week.

270 A key task undertaken by Mr Hester was the improvement and stabilisation of IT Factory. This meant that DFC was moving away from having to manually obtain information, to a process whereby the IT system would be able to create reports with accurate numbers of jobs and forecasts. Mr Hester's evidence was that:

IT Factory was vastly improved and was doing its core function in the first half of 2004.

271 Mr Hester began producing initial reports on the housing pipeline in around July 2004. However, it seems there were still limitations in the forecast dates within IT Factory at the time of the 30 June 2004 Board meeting when the final presentation of the 2004-2005 budget was made. Mr Hester said that:

The system generated forecasting was not available at that point in time.

272 A point that was emphasised by the defendant was that even though the IT system could not generate accurate forecasts of the jobs in the pipeline at that stage, it was possible to manually obtain this information, by contacting each of the area managers and asking for their figures on each job. Mr Bert Dennis, for example, gave evidence that:

You go into any of the building offices, you go up to Ballarat or Geelong and invariably they'll have a big whiteboard or a chart up on the board, which will have each of the job names, the job number, the progress the job is at.

273 However, Mr Carter was adamant that manual reports were unsatisfactory and that it was therefore necessary to rely on Best Builder assumptions in the framing of the budget. He said that although the area managers were asked to do the best possible job they could in terms of a job by job analysis:

the data that came back was so inadequate we ended up running with the Best Builder assumptions in the end.

This is hardly surprising when one is talking about forecasting progress in the production phase. Estimating when a customer would obtain finance or when a permit would be issued is rather different from asking the foreman on a building site when a particular stage of construction will be reached.

274 In their final written submissions, counsel for the defendant submitted that:

The evidence of Mr Hester, Mr Wade, Mr Barnard and Mr Hester [sic] and Exhibit 17 ought leave the Court in no doubt that necessary information was available from every area of the business if it had sought to be obtained and used for the purposes of developing the 2005 budget.

275 I do not agree. I have already referred to Mr Hester's evidence on this topic. Secondly, Mr Barnard's evidence provided no support for the defendant's submission. He said that production forecast was "very difficult" because:

there's that many variables between taking a deposit and getting a job to site start it makes it very difficult to predict what you're actually going to produce each - month by month. Really the only way you could be - you could accurately forecast what you're going to do per month money wise and site start wise would be to do last month's work this month, but no one's going to do that.

Mr Barnard added that the situation was even more difficult in the production phase because DFC was "controlled by the customer" and, to a lesser extent, by third parties such as the local council or the titles office. A perfect illustration of the third party problem was the delay of four months in obtaining a building permit for the Killara display home referred to above in respect of prototyping. No person or system could have accurately predicted the time taken for this step.

276 Mr Leighton Wade gave evidence as a result of a challenge by senior counsel for the plaintiff to Mr Bert Dennis during cross-examination to produce any computer records which Mr Dennis said could have been used in preparation of the 2005 budget as a basis for predicting the actual time to be taken for the various stages in the construction pipeline. Mr Wade produced what became Exhibit 17. Despite a considerable amount of time being spent analysing and debating the merits of Exhibit 17, I am not persuaded that it did anything to advance the defendant's case. There were many unexplained errors in the document itself. Further, Mr Wade agreed that the few forecast dates contained in Exhibit 17 were "automatically generated template forecast dates, not dates that have actually been predicted by somebody with respect to each particular job". Mr Hester agreed that the forecast dates in Exhibit 17 were automatically generated by the system "based on a template".

277 Therefore, I consider that the defendant's attack on Mr Carter with respect to the preparation of the budget fails. It has not shown that the required forecasting information was available at the relevant time, in DFC's systems. Nor has it been shown that Mr Carter's decision not to rely on the inadequate data received from the field but instead to rely on adjusted Best Builder assumptions was grossly negligent or incompetent.

278 Although Mr Sheehy was not called as a witness, I am strengthened in my above conclusion by what he said in a memorandum sent to Mr Marshall Dennis on 1 February 2005 concerning the "Budgeting Process":

My instructions (guidelines) were to build the Budget on the jobs under construction and the known pipeline, on a job-by-job basis. To the best of my knowledge these instructions were followed by the Housing Mgt Team and the "acting" Financial Controller. ...

Construction revenue was then calculated based on an average and daily rate (billings) per home of under-construction, and the homes in production not yet site started. These average rates were specific to the operating unit ie. Ballarat. A Budget based truly from the ground up would have been based on the actual contract value of each job and precisely what stage that each job was up to ie. Lock up, or Fix Out, and then calculate revenue per job, for the balance of the claims. **We did not have the systems capability to do this for under construction until November 2004 and in the case of pre-construction job ie. the jobs in the pipeline we are still refining this capability. From a modelling perspective, Excel (our Budgeting tool) is not designed to crunch the number of permutations, that this job-by-job build up requires.

Construction efficiency ie. the number of homes that would move a stage (point of revenue recognition) was based on Best Builder efficiency rates. These rates, also averages were unproven, with the Best Builder new Construction Methodology only released in June. The assumption regarding achieving these rates were discussed in the Budget Commentary (24 June). [Mr Sheehy's emphasis]

279 DFC also counterclaimed in respect of this issue. It alleged a loss of over $1.8 million flowing from Mr Carter's conduct. This part of the counterclaim was subsequently abandoned. Thus, there was no evidence of any loss suffered by DFC as a result of Mr Carter's alleged gross negligence. I am not prepared to infer that there was any such loss. This alone would justify the conclusion that DFC has not made out its claim that Mr Carter was grossly negligent with respect to the framing of the 2004-2005 budget.

280 The defendant's fifth reason for the plaintiff's summary dismissal arose out of an accusation by the plaintiff on 26 August 2004 that Mr Bert Dennis had been bullying him. The defendant pleaded that the plaintiff's conduct in:

(a) accusing the chairman of bullying on or about 25 August 2004 [sic];

(b) sending the chairman the email on or about 30 August 2004;

(c) refusing to sign the file note of his meeting with the chairman on or about 6 September 2004; and

(d) informing the Board on 29 September 2004 that another employee had expressed concerns about bullying on the part of the chairman;

... was calculated, and intended by the plaintiff -

(e) to undermine the Board's confidence in the chairman;

(f) to undermine the chairman's authority over the plaintiff;

(g) to dissuade the chairman from holding the plaintiff responsible for the performance of the defendant and from taking an active interest in the management of the defendant;

(h) to deflect the Board's attention from the plaintiff's own responsibility in relation to the performance of the defendant; and

(i) in relation to the matter referred to in (d), to enhance the credibility of his own accusations of bullying against the chairman.

It was said that this was serious misconduct or a repudiation of the employment contract.

281 Under the Worksafe Victoria guide note workplace bullying is defined as:

Repeated, unreasonable behaviour directed toward an employee, or group of employees, that creates a risk to health and safety.[35]

The Australian Industrial Relations Commission defines bullying as a

persistent, offensive, abusive, intimidating, malicious or insulting behaviour, abuse of power or unfair penal sanctions which make the recipient feel upset, threatened, humiliated or vulnerable and which may cause them to suffer stress.

282 Workplace bullying is generally characterised as the repeated less favourable treatment of a person by another or others in the workplace. Bullying is persistent unwelcome behaviour, mostly using unwarranted or invalid criticism, fault finding, exclusion or isolation. It is behaviour that is unreasonable, and has the deliberate intent of causing physical and psychological distress. It often includes behaviour that is intimidating, offensive, humiliating or degrading in front of co-workers or colleagues.

283 According to Mr Carter, at about 8.45 am, on 26 August 2004, as he was walking past Mr Dennis' office, Mr Dennis motioned him into the boardroom. Mr Carter said that Mr Dennis "launched into a highly aggressive attack" concerning the performance of the business, including construction site starts and deviations from the Budget in July. It was a heated exchange. During this conversation Mr Carter said to Mr Dennis:

Bert, you have been bullying me for months and it is not helpful to the business.

I have been bullying you because you have not been doing your job properly.

Mr Carter said that he replied that he had been doing his best. There was a further exchange in which Mr Dennis said to Mr Carter that he did not understand the financial position of the business. Mr Carter rejected this criticism. He said that he then told Mr Dennis that he would no longer tolerate his bullying behaviour and that he intended to draft a letter to the Board on the matter. He then left the room. He returned to his desk and wrote down Mr Dennis' response to the allegation of bullying set out above.

284 Mr Carter said that he called Ms Chez Broadhouse, the human resources manager, over to his office at 9.05 am on the same day. He said that he told her Mr Dennis' exact words. Mr Carter said that in response to her advice that he could make a formal complaint, he said that he would prefer to sort it out in independent mediation.

285 Mr Carter said in his witness statement that he had no collateral purpose for the accusation of bullying. He said that he genuinely felt bullied and wanted the behaviour to stop. It was his view that Mr Dennis' "aggressive, intimidatory and fault-finding approach" in dealing with him was hurting the business in that it was diminishing his capacity to carry out his responsibilities as the Managing Director of DFC. Mr Carter denied that his statement was calculated to have any collateral effect such as undermining the Board's confidence in Mr Dennis. That never entered his mind.

286 Mr Bert Dennis said that during the 26 August meeting he told Mr Carter that he was very concerned about the losses being sustained by the defendant in its housing business, and that he asked Mr Carter whether he was aware of the likely loss in August and whether DFC would meet or exceed its budget targets for September. Mr Dennis said that Mr Carter replied that he would need to talk to Mr Dall and Mr Sheehy to find out. Mr Dennis was not satisfied with these answers, and he pointed out to Mr Carter that as Managing Director he should have this knowledge. Mr Dennis' evidence was that in the context of questioning about impending losses the company was facing, he asked Mr Carter "How are you going to fix this?", to which Mr Carter replied that he was "working his guts out" and that he was doing the best that he could. Mr Dennis also said that he told Mr Carter that he had missed budgets, three lots of forecasts, and was now substantially under budget with respect to the budget framed only two months ago. He queried whether Mr Carter had the ability to meet budget and manage the business.

287 According to Mr Dennis, Mr Carter was quiet for a few seconds, and then jumped up and shouted:

You're bullying me. You've been bullying me for the last three months.

Prior to this, Mr Dennis said, the conversation had been "a very sensible, sane discussion". Mr Dennis said that he tried to calm Mr Carter down, but he stormed out shouting that he was going to make a formal complaint to the Board about Mr Dennis' bullying. Following the meeting Mr Dennis said that he returned to his office, and made a detailed note of the conversation, which was initially hand written and then subsequently transcribed by his personal assistant Ms Vivienne Meerman.

288 Mr Dennis agreed that the allegation of bullying affronted him. He regarded it as a "lie". He denied saying to Mr Carter that he had been bullying him because he was not doing his job. He said that this was a "fabrication".

289 Mr Carter's evidence was that the bullying behaviour had started a few months prior to the 26 August 2004 meeting. He said that, in May 2004, he decided to run a three day workshop, that was attended by himself and the new Executive Team which he had recruited. Mr Bert Dennis was not asked to attend the workshop as he was not a member of the Executive Team. It seems that Mr Carter became aggrieved when Mr Dennis decided to meet with Mr Hofmeyer for a full day discussion at the time the workshop was being held. His evidence was as follows:

Mr Hofmeyer was on a management tier below the Executive Team by this time and was soon to leave the business. Circumventing the Executive Team in this way had the effect of undermining my responsibilities as Managing Director and those of Mr Dall as the new General Manager of Constructions. I expected such an extensive discussion with Mr Hofmeyer to have at least included either myself or Mr Dall.

290 Mr Carter telephoned Mr Dennis and told him this.

291 Neither Mr Dennis nor Mr Hofmeyer remembered exactly what was discussed other than that it was related to the housing business, and neither remembered how long the meeting lasted. Both thought it was much shorter than a full day. Mr Dennis' recollection was that he arranged the meeting with Mr Hofmeyer in order to discuss display home super centres. He said that there was no discussion about the plaintiff's performance as Managing Director, but could not recall precisely all the matters that were discussed with Mr Hofmeyer.

292 Mr Carter said that following the meeting between Mr Dennis and Mr Hofmeyer, the Chairman began questioning him on aspects of the housing business. On 5 May 2004, Mr Dennis sent Mr Carter an email, which stated, in part:

I am increasingly concerned about the housing business ... Our losses in housing are continuing to mount. We have lost and are losing knowledge and experience at an alarming rate.

293 According to Mr Carter, on 10 May 2004 Mr Dennis came into his office in an angry and agitated state. His voice was raised. Mr Carter said that Mr Dennis spoke to him in an angry, aggressive and threatening manner about the Executive Team workshop and their conversation about the meeting with Mr Hofmeyer. Mr Carter said that the Chairman said to him "you should worry about your professional reputation," and " I'll go formal on you," and also that he had a right to go anywhere in the business.

294 Mr Bert Dennis denied that such a conversation took place. He stated that it was a fabrication.

295 However, Mrs Levinge gave evidence of a conversation she had with Mr Carter in May 2004 when he came into her office. Mrs Levinge made a diary note of the conversation. It recorded that Mr Carter asked her:

What is mechanism in D family or DG [DFC] for censoring Chairman about his behaviour? AML to RC - don't have one. Let me think about. [sic] We have family hol this w/end.

296 Mr Carter said that communication between the Chairman and himself became increasingly difficult from this incident onwards. It is worth noting that Mrs Levinge never responded to Mr Carter's query.

297 Then, on 6 July 2004, Mr Bert Dennis announced that he and Mrs Levinge were to join the Executive Team. Mr Carter said that the manner in which the Chairman and Mrs Levinge ''imposed" themselves on the Executive Team humiliated him in front of his managers. He stated:

We went straight into the Executive Team and he took over the meeting and humiliated me in front of my team by saying we're now members of this team and this is how this meeting will run.

298 On 25 August a Board meeting was held. Mr Carter said that he was criticised for deficiencies in his Board report by Mr Bert Dennis, in front of the Board. During this Board meeting Mr Carter and Mr Sheehy were asked to leave the meeting. Mr Carter felt this eviction was a "humiliation" in front of his fellow directors, and ultimately part of the Chairman's bullying behaviour.

299 After the meeting where the bullying allegation was first made, Mr Carter began drafting a memorandum to the Board on his home computer. Mr Carter never in fact sent the memorandum to the Board, instead he put it in a sealed envelope and had it placed in his personal file in the human resources department. The handwritten inscription on the envelope, reads:

To be held on Rob Carter's personal file

Not to be released/opened without his approval or, in due process on instruction of GM P & OD. [General Manager - People and Organisational Development]

300 The document was dated 27 August 2004, and Mr Carter initially gave evidence that he drafted the document on the night of 26 August. However, in cross-examination, and after checking his home computer he admitted that the final draft was completed at 6.14 pm on 30 August. On that basis, Mr Carter said that it was likely that the memorandum, in its sealed envelope, was not handed to Ms Broadhouse until the morning of 31 August 2004.

301 The timing of the drafting of the memorandum was significant, as it seems that it was amended after conciliatory emails were exchanged between Mr Dennis and Mr Carter. On 30 August 2004, Mr Dennis sent an email to Mr Carter concerning the bullying accusation. It read:

Your accusation that I was bullying you and had been doing so for the past four months came as a real surprise.

I am truly sorry that I have created that impression and sincerely apologise. However, we can't escape the fact that the continuous underperformance in housing has put us in a very precarious position, and to quote Kingsley, the flash forecast has now put us in crisis mode.

Your lack of knowledge of the flash forecast until during the Board meeting is a real concern because as Managing Director you are expected to have a continuous knowledge of the performance of the business and not wait on some figures to be produced.

Had it not been for land and our borrowing capacity reserves the housing business would have gone belly-up many months ago. The unauthorised spec. program with its demands on cash flow would have had the same effect.

Housing has missed the first three months of last year's budget as well as revised forecasts, one, two and three. It has now missed the first month of this year's budget, and if the flash forecast is correct, the second one as well.

This continuous underperformance in housing has resulted in the decision to close Queensland and caused many redundancies.

If it continues it could threaten the whole of the business.

The next three or four months will be very difficult, but rest assured that myself and the Board will support you in any way that we can.

302 Mr Carter responded by email the same day. It commenced:

Thank you for your memo.

I had drafted a memo to the Board seeking independent mediation over the bullying and aggressive, fault finding behaviour you have periodically displayed toward me since early May. I had chosen that approach in lieu of a formal complaint because it could have been managed far more discretely and "in house" to the Board. It was drafted in a constructive manner - seeking resolution, not confrontation.

I had held the note in the hope that it would not be necessary to send it. In any event, the trials facing us this week had to have priority.

Your memo of today is welcome I appreciate your willingness to air the issues. The last thing I want is conflict between us. That cannot help us cope with a difficult time. Indeed, it would disadvantage the business severely.

The memo will be held in a sealed envelope on my personal file. Hopefully, that will be the end of the matter_._

Bert, it was a cry for help in most respects. You are the Founder of this business and held in high regard. When you rip into people and come across as unreasonable or hyper critical, it has a profound effect on people - including myself. It also creates a defensive reaction, which, I acknowledge, does not help resolve tension.

I have been struggling with dual sources of stress - The state of the business and the impact of this behaviour. The combination had sent me very low. I cannot be as effective as I could be in this state. Rather than fire me up, this approach makes me lose confidence and energy, which others notice.

I am more than happy to move on.

Mr Carter put the memorandum, and copies of the two emails exchanged with Mr Dennis, in the envelope and handed it to Ms Broadhouse the following morning to be placed on his file.

303 Mr Carter's memorandum in fact contained no surprises. It repeated the bullying accusation including the allegation that Mr Dennis had admitted that he had been bullying Mr Carter. It repeated Mr Carter's belief that Mr Dennis' conduct was affecting his ability to perform. It also sought a mediation concerning communication between the Chairman and Managing Director and the role of the Managing Director and the Executive Team.

304 Mr Bert Dennis' evidence was that he was concerned about what Mr Carter had said in his email of 30 August 2004, as he perceived the sealed memorandum on the file as a "threat". The explanation as to why it was seen as a threat was not clear, but he seemed to feel that it "was hanging over his head". Therefore, on 6 September 2004, Mr Dennis called Mr Carter to a meeting that was also attended by Mr Sheehy. Mr Dennis said that he told Mr Carter that the purpose of the meeting was to ascertain if there was a bullying complaint and to attempt to resolve the issue between them. Mr Dennis said that the meeting was an amicable one where it was agreed that a good working relationship had been re-established, that no formal complaint of bullying had been lodged, and that the need to seek independent mediation was not necessary.

305 Mr Sheehy prepared a record of the meeting. He was the company secretary and usually undertook this role at Board meetings. After Mr Carter left the meeting, Mr Sheehy began to draft detailed notes of what had been discussed. Mr Dennis' evidence was that he requested Mr Sheehy to write a short note that set out why the meeting was held and the resolution, as he believed recording everything that had been said by each party would have the potential to inflame the issue further. Subsequently, Mr Dennis approved and signed the note prepared by Mr Sheehy. It read as follows:

A meeting was called at 10.30 am on the 6 September 2004, to discuss the procedure that needs to be followed if a bullying complaint had been made.

Both the Managing Director and the Chairman agreed that since the memorandum exchange of the 30 August 2004, a good working relationship had been re-established and that a bullying complaint had not been made and the suggestion of involving the Board to seek mediation was not necessary.

306 The note, signed by Mr Dennis and Mr Sheehy, was left on Mr Carter's desk for him to sign. However, Mr Carter refused to sign the note. Mr Carter set out his reasons for refusing to sign the file note in a memorandum he sent to Ms Broadhouse and Mr Sheehy dated 20 September 2009. He complained that he had had no warning prior to the meeting that bullying would be discussed. He had returned to the Melbourne office on the morning of 6 September 2004 to find an electronic diary entry scheduling the meeting at 8.30 am not 10.30 am. The appointment had been created by Ms Meerman, and was entitled "OH & S Complaint Procedure Discussion". As the meeting was in fact about bullying and not workplace safety, Mr Carter felt that he was being "ambushed", in that he did not know that the bullying issue was to be discussed, and had no chance to prepare a response, or have an adviser present. He also said that the wrong responsible officer was present. Ms Broadhouse was responsible for this area and Mr Sheehy was not an expert on bullying policies.

307 Mr Carter also took issue with the fact that Mr Sheehy had been told by Mr Dennis to include in the file note only what was agreed at the meeting. Although Mr Carter accepted that the file note was correct, in that it recorded the resolution accurately, he said that it was an "inaccurate and incomplete account of the meeting".

308 Mr Carter also said in this memorandum that he told Mr Dennis that the meeting was unnecessary and pointed out that he had not laid a bullying complaint, rather he had drafted a letter to the Board seeking independent mediation. But given the email exchange, which he felt represented progress on the matter, he was not intending to send his letter. Mr Carter concluded his memorandum as follows:

Bert responded that I was "holding something over him". I replied that I was happier with how things were going, but that I would not withdraw the letter from my personal file.

...

The draft file note that I was presented with clearly fails to reflect the proceedings accurately. The draft was already signed by Bert and Michael. I was not invited to comment on the contents.

I am placing this on file for the record. I did not sign the file note, nor did I confront the Chairman over it, fearing further conflict.

309 Mr Sheehy subsequently informed Mr Dennis that Mr Carter would not sign the file note. Mr Dennis then decided to notify the Board of the bullying allegation. He said that this step was taken because he thought it was a very serious issue which he felt he should disclose to the other directors given that Mr Carter had refused to sign the file note. He also said that he saw the keeping of the memorandum kept on Mr Carter's personal file "as a threat which could not be left undisclosed".

310 Mr Dennis proposed that the bullying allegation be discussed at the next Board meeting scheduled for 29 September 2004. On 22 September 2004 he circulated the following memorandum to the directors:

On Thursday August 26 the Managing Director made a verbal allegation of bullying against myself.

To date no formal complaint has been lodged.

The complaint must be followed up as the matter is serious and the penalties for not acting are significant.

I have a conflict of interest and therefore will be excusing myself from the meeting while the issue is discussed.

My suggestion would be that the Board engage an independent expert to investigate the complaint and report back.

311 In response, on the following day, Mr Carter sent a memorandum to Mr Dennis and the other directors, in which he said:

I note that you have included the above item on the Board agenda. As Chairman, you create the agenda. However, this is a matter that directly relates to myself. I am very surprised that you did not communicate with me and discuss this proposed course of action prior to finalising the agenda.

As you state, there is no bullying complaint lodged. In the e-mail exchange that followed August 26, I thought we had reached a way forward and that we would just get on with business. I have also advised you that I never had any plans to make a formal complaint. Rather, I had drafted a note to the Board outlining my concerns and seeking independent mediation as the preferred resolution. This was not sent, given the e-mail exchange.

If you believe that the matter does need to be explored, then I would welcome a mediation process. I cannot participate in an investigation of a complaint when I have not lodged one.

I would recommend a qualified, independent mediator acceptable to both parties as a way forward. I would also request that the terms of reference include not only my perceptions of bullying and harassment in the past (as you seem to want to explore that), but the form and nature of communications between us and the respective roles of Chairman and Managing Director. This is what I had suggested in the original Board letter that was not sent.

I believe that it is in the interests of the business to resolve these issues amicably and in a neutral and professionally managed context. I would enter the process in the spirit of seeking to find a formula for improving my effectiveness in serving DFC by resolving these issues.

I hope that this matter can be considered prior to the meeting. I cannot myself participate in a detailed discussion at Board for identical reasons to yours, conflict of interest.

312 Mr Carter made it clear in an email sent to Mr Culley on 28 September 2004 that no complaint had been lodged and that it was not possible to discuss the bullying issue with the Board. He repeated his call for independent mediation "in the interests of the business".

313 At the Board meeting held on 29 September 2004, which was chaired by Mr Culley, Mr Carter tabled his 23 September memorandum to Mr Dennis, and his email to Mr Culley dated 28 September. He also tabled a Statement to the Board which contained the following points:

1. No matter how difficult the business situation, there is no excuse for workplace bullying and sustained harassment. It is counterproductive and contrary to company values.
2. This is just not about me. Concerns about this kind of behaviour have been expressed by others, as recently as yesterday.
3. The Board needs to face the fact that there is a serious breakdown in communications between the Chairman and Managing Director, typified by yesterday's incident at Finance Committee, where the Chairman engineered the "ambush" tabling of a memo regarding an Executive Team meeting that was both derogatory and inaccurate in content and demeaning of the whole Executive Team. This is distracting and damaging to the ability of management to perform.
4. In e-mail correspondence following the August 26 incident relevant to this matter, the Chairman expressed that I had his and the Board's full support. The behaviours being exhibited do not align with that statement. If that statement is not true, then that issue must be addressed.
5. All issues should be on the table in a mediation process, which I continue to welcome.

314 Mr Carter then left the meeting for approximately one hour.

315 During Mr Carter's absence from the Board meeting, Ms Broadhouse was invited into the meeting. According to the Board minutes, she was asked whether any "formal allegations or complaints from anyone in the Organisation against the Chairman had been received". Ms Broadhouse advised that "no formal complaint had been received however on 28 September 2004 she had received an informal harassment complaint", which was "supported by another member of staff". In answer to a question from Mr Culley, Ms Broadhouse said that she thought it was unlikely that this could lead to a formal bullying complaint.

316 The following resolution was then passed by the Board:

1. The Board acknowledged that workplace bullying and harassment is not acceptable.
2. The GM for People & Organisational Development confirmed that there are no unresolved formal complaints regarding bullying or harassment. The Board requested that all formal complaints be immediately copied to the attention of the Board.
3. In consideration of the serious financial crisis, the Board have resolved to become more actively involved in the management of the business through the Chairman.
4. Dennis Family and Dennis Family Corporation have always honoured all contracts and intend to adopt the same position for the Managing Director's contract.
5. As there has been no formal complaint made to the Board by the Managing Director, mediation is not required.

317 Mr Dall and Ms Broadhouse were then invited to join the meeting. The issue involving Mr Dall will be looked at when dealing with DFC's next reason for summary dismissal. As will be seen, I do not consider that it assists DFC either on its own or as part of the present issue.

318 After Mr Dennis and Mr Carter joined the meeting, the Company Secretary read the five point resolution. Mr Carter then asked whether he was going to get a response to his requests listed in his earlier email to Mr Culley. The Board minutes continue:

Mr Rob Carter reiterated his desire for mediation and summarised his requests as:

1. Clear the air regarding the bullying and harassment issue.

1. Communication issues between the Managing Director and the Chairman.
2. The need to discuss respective roles i.e. the role of the Managing Director and the role of the Chairman.

The Board's response was that mediation was not required.

Mr Rob Carter advised that there was a dysfunctional relationship between himself and the Chairman that required mediation as it was impeding the business.

Mr Kingsley Culley advised that until a more constructive formal notification was provided to the Board, arbitration would not be effective as successful mediation required clear Terms of Reference.

...

Through the Acting Chairman, Mr Bert Dennis invited Mr Rob Carter to take legal advice and, if he thought fit, to formalize a complaint and then the matter would be dealt with by the Board.

319 By a letter dated 6 October 2004, Mr Culley wrote to Mr Carter confirming that "these matters are now at an end". Mr Carter replied on 12 October 2004 saying that the issue was at an end "so long as the behaviour ceases".

320 I generally accept Mr Carter's evidence about Mr Bert Dennis' attitude towards him between May and August 2004 and in particular at the meeting on 26 August 2004. First, I accept Mr Carter's evidence about the confrontation on 10 May 2004. Mrs Levinge's note indicates to me that there had been some recent incident involving Mr Dennis and Mr Carter. I consider that Mr Carter would not have taken the highly unusual step of raising the Chairman's behaviour with his daughter and fellow director unless something untoward had occurred. I reject as fanciful any suggestion that Mr Carter was falsely laying a basis for his later bullying allegation.

321 Secondly, I accept Mr Carter's evidence about the meeting on 26 August 2004, in particular that Mr Dennis did say that he had been bullying Mr Carter because he had not been doing his job properly. However, this does not necessarily mean that Mr Dennis' conduct was bullying. It seems to me that in a heated argument a person could reply in this way when accused of bullying without it being a considered admission of such conduct.

322 Further, Mr Carter's description of Mr Dennis' conduct on this occasion does not persuade me that it could properly be categorised as "bullying". Mr Dennis was obviously very concerned about the serious financial position of the company and was seeking answers from Mr Carter. As Managing Director Mr Carter was responsible for the business and was answerable to the Board and its Chairman. I do not believe that Mr Dennis was intending to humiliate or belittle Mr Carter, he simply wanted to know how Mr Carter was going to fix the problems facing the business. Mr Carter's reaction to Mr Dennis' "tough love" is to be contrasted with the way in which he dealt with Mr Hofmeyer.

323 Nevertheless, I find that Mr Carter genuinely felt that he had been bullied. I reject the defendant's submission that the accusation of bullying was made by Mr Carter:

(a) to undermine the Board's confidence in the Chairman; or

(b) to undermine the Chairman's authority over him; or

(c) to dissuade the Chairman from holding him responsible for the performance of the company and from taking an active interest in its management; or

(d) to deflect the Board's attention from his own responsibility in relation to the performance of the company.

As discussed in the next part, I also reject the submission that Mr Carter's informing the Board on 29 September 2004 that another employee had expressed concerns about bullying on the part of the Chairman was intended to enhance the credibility of his own accusations of bullying against the Chairman.

324 Mr Carter must have known that Mr Dennis was highly respected by the members of the Board, three of whom were his children. In making the accusation of bullying, Mr Carter was picking a fight which he was never going to win. To do this without genuinely believing that he had been bullied would have been an act of sheer madness.

325 Mr Carter's contemporaneous correspondence reveals that he was severely stressed by the problems he was facing in managing the business. Not surprisingly, he considered that Mr Dennis' aggressive involvement only added to his stress. Thus, he sought mediation not just with respect to the bullying allegation but also concerning delineation of the respective roles of Chairman and Managing Director and means of improving the communication between them.

326 Counsel for the defendant pointed out that Mr Carter admitted in evidence that the bullying accusation was a defensive stance. He stated:

I was defending myself yes, I would say that it was a defensive stance".

However, I do not consider that this should lead to the conclusion that Mr Carter did not genuinely feel that he was being bullied. Rather than staying silent and absorbing more pressure from Mr Dennis, Mr Carter expressed what he was feeling in the hope that Mr Dennis would desist from his aggressive approach.

327 What is rather strange about this whole episode is the behaviour of both Mr Carter and Mr Dennis following the making of the accusation of bullying. I exclude from this comment Mr Dennis' sensible attempt to put an end to the dispute by sending his email of 30 August 2004. But having received the conciliatory email from Mr Dennis, and having expressed a desire to put the matter behind him, Mr Carter still persisted in finalising his draft memorandum, and placing it on his personal file. Mr Carter's explanation for this conduct was unsatisfactory. Had he genuinely felt bullied, such that he was suffering physical or psychological harm, it seems the obvious step would have been to make a formal complaint, as he stated he was advised to do. Instead he appeared to accept the Chairman's apology on the one hand, but on the other he placed a sealed envelope on his file, and provocatively told Mr Dennis about it, as if to warn him that he would take action if he was not happy with the Chairman's behaviour in the future.

328 In my opinion, there was no logical reason for such a step on Mr Carter's behalf. His evidence was that he consulted Ms Broadhouse about the Chairman's behaviour on several occasions. Had more bullying conduct emerged in the future presumably Ms Broadhouse would have had a record of these discussions, or would have had knowledge of what had occurred previously, so there was no need to keep the sealed memorandum. Mr Carter stated that his reason for keeping the memorandum on file was to have a record of what had occurred.[36] If this was his only concern, he could have kept it on file, without telling the Chairman that it was there.

329 Next, there was Mr Dennis' over-reaction to the fact that Mr Carter was keeping his sealed memorandum on his personal file. Just why Mr Dennis regarded this as a "threat" was never satisfactorily explained. Mr Dennis had prepared his own account of the dispute which he could have used to refresh his memory if Mr Carter's memorandum was subsequently disclosed. Moreover, despite the so-called "threat", Mr Carter had indicated that "hopefully" the matter was at an end and no complaint had been lodged.

330 However, Mr Dennis did not leave the matter there. Instead, he initiated the meeting on 6 September 2004. This step had the potential to inflame the situation but, as it happened, it appeared at first to have brought it to a satisfactory conclusion. But this did not happen because Mr Carter refused to sign the file note. Again, there was no satisfactory explanation given for this conduct. Given the fact that the meeting was held to confirm that the bullying issue had been resolved, there was no need for Mr Carter to have an adviser present. Likewise there was no need to record everything that had been said between the parties. What was important was what had been agreed and Mr Carter accepted that the statement of the resolution as set out in the note was correct. Yet he refused to sign it.

331 Once again, Mr Dennis escalated the dispute. It is not clear to me why he did so. Despite the fact that Mr Carter had refused to sign Mr Sheehy's file note, the agreement recorded therein had been reached and Mr Sheehy was a witness to that fact. Further, as Mr Dennis noted in his memorandum to the members of the Board, no formal complaint of bullying had been lodged. Yet, he referred the issue to the Board.

332 Whatever one might think about these strange developments, they are only of marginal relevance in deciding whether Mr Carter's bullying accusation was serious misconduct or a repudiation of the employment contract.

333 I have found that Mr Carter's accusation of bullying was not false in the sense that I believe he genuinely felt aggrieved by Mr Dennis' aggressive attitude towards him, although I doubt whether the conduct described by Mr Carter would constitute bullying. I have also found that Mr Carter had no collateral improper purpose in making the accusation. He wanted the behaviour to stop because it was not helping him deal with the company's pressing problems. In the circumstances, I do not consider that Mr Carter's accusation was serious misconduct or repudiation.

334 DFC's sixth reason for Mr Carter's summary dismissal was his alleged incitement of Mr Dall to make a complaint of bullying against the Chairman with a view:

(a) to undermining the Board's confidence in the chairman;

(b) to undermining the chairman's authority over the plaintiff;

(c) to dissuading the chairman from holding the plaintiff responsible for the performance of the defendant and from taking an active interest in the management of the defendant;

(d) to deflecting the Board's attention from the plaintiff's own responsibility in relation to the performance of the defendant; and

(e) to enhancing the credibility of his own accusations of bullying against the chairman;

when Mr Carter well knew that, at the meeting in question, Mr Dennis "neither did nor said anything that was or could fairly be construed as amounting to, bullying" of Mr Dall. It was said that this was serious misconduct, and a repudiation of the employment contract.

335 On 28 September 2004, at a meeting of the Housing Review Committee, Mr Dennis directed a number of questions to Mr Dall regarding the company's ability to meet the site start forecast. It was submitted by the defendant that it was a matter of major concern to the Chairman and other members of the Board at this time whether the production and construction pipeline would produce sufficient site starts to generate budgeted revenue. That cannot be denied. The question is whether Mr Dennis' questioning, which he conceded was "forceful and robust", constituted bullying or harassment. Mr Dennis agreed with Mr Dall's statement to Ms Broadhouse, as recorded in her file note of her conversation with Mr Dall later on 28 September, that:

Bert had given him the "rounds of the table" regarding the performance of the Housing Division and questioned his commitment to the business.

However, Mr Dall is also recorded as having told Ms Broadhouse that:

while the Chairman was aggressive he had experienced much worse from other Bosses in his time.

336 Mr Dennis disputed Mr Dall's description of his questioning as "aggressive" and senior counsel's suggestion that he shouted at him or told him not to "come in here and talk garbage". Mr Dennis justified his behaviour on the basis that he felt "false figures" were being presented to a Board committee. As will be seen when considering another ground for Mr Carter's summary dismissal, Mr Dennis came into this meeting having heard a "whisper" that Mr Dall's number of site starts for August and September was wrong, so it would not be surprising if he took an aggressive and domineering approach.

337 The defendant submitted that all of the witnesses it called, who were present at this meeting, namely Mr Dennis, Mrs Levinge and Messrs Johnstone, Peck, Hester and Barnard, gave evidence that there was nothing that the Chairman did that could fairly be construed as amounting to bullying of Mr Dall. Mrs Levinge's description was that the questioning was "robust". However, she also said that by his silence, Mr Carter had "hung Mark Dall out to dry". This indicates to me that the questioning was more than "robust". Mr Barnard gave evidence that he recollected Mr Dennis saying to Mr Dall at a HRC meeting:

He was uncertain whether this was said at the meeting on 28 September 2004 or some earlier meeting. It seems to me that such an aggressive comment would most likely have occurred at the meeting on 28 September.

338 In his witness statement, Mr Carter said that Mr Dall initiated a conversation with him after the meeting on 28 September 2004 and that Mr Dall was "visibly upset". He said that he explained to Mr Dall that he had to go to another meeting and had very little time to talk. He said that he was conscious that he was not the appropriate person to adjudicate the matter, but that he also had a duty of care to employees. Mr Carter said that he told Mr Dall that:

if he had any concerns he was able to refer the matter to Ms Broadhouse, who, as Manager People and Organisational Development, was the appropriate person to deal with such matters including if he wished to lodge any complaint.

Mr Carter denied "inciting" Mr Dall to make a complaint. He said that his purpose in saying what he said to Mr Dall was:

to strongly advise Mr Dall that he should raise any concerns with Ms Broadhouse.

Mr Carter said that he did not "pressure" Mr Dall to raise the matter with Ms Broadhouse. Whether he did so was "wholly a matter for Mr Dall". Mr Carter agreed in cross-examination that he telephoned Ms Broadhouse later that day to see if Mr Dall had been to see her.

339 I accept that Mr Carter genuinely believed that Mr Dall had been bullied by Mr Dennis and that he took what he considered to be the appropriate action.

340 I have previously set out what occurred at the Board meeting on 29 September 2004 concerning the topic of bullying. As stated, after the resolution dealing with Mr Carter's situation had been passed, Mr Dall and Ms Broadhouse were invited to join the Board meeting. The Board minutes record the following:

Mrs Chez Broadhouse advised the Board that there had been a meeting with Mr Bert Dennis and Mr Mark Dall with Mrs Chez Broadhouse as arbitrator regarding an alleged incident between Mr Bert Dennis and Mr Mark Dall at the Housing Review Committee meeting on 28 September 2004.

Mr Mark Dall advised that he had had a conversation with Mr Rob Carter immediately following the Housing Review Committee, where he had stated his frustrations and feelings of not being supported during the meeting. Mr Mark Dall advised that he felt pressured by Mr Rob Carter to raise an issue of harassment against Mr Bert Dennis with the GM of People and Organisational Development. Mr Mark Dall advised that he then followed Mr Rob Carter's instructions and discussed the matter with GM People and Organisational Development along with a number of other issues. His comments to the Board were that the Chairman's line of questioning was direct during the Housing Review Committee meeting, but that he didn't feel that this line of questioning constituted either harassment or bullying.

Mr Mark Dall stated that he had not, and did not intend to raise a formal complaint of bullying or harassment against the Chairman Mr Bert Dennis following the 28 September 2004 Housing Review Committee meeting.

341 On 7 October 2004, Mr Carter sent an email to Mr Dall stating that he was "appalled to read the draft minutes of the Board meeting" and that he would like to give Mr Dall "the chance to clarify" before he formally responded on Mr Dall's "apparent statements". Mr Carter then set out seven "salient points".

342 Mr Dall replied to Mr Carter by an email dated 12 October 2004. It read as follows:

As per your request, I respond to your email of 7 October as follows:

I was not intimidated by the process you refer to. I did not need time to gather my thoughts as you suggest. Honesty tends to require no time for preparation. The "relevant" text that you put in your email is the words of the Board meeting Minute taker, not mine.

I note your salient points 1 to 7. Here are mine:

(i) I attended the HRC meeting on the 28 September 2004.

(ii) I discussed with you as we were leaving the meeting the fact that the rest of the team were unduly silent during the meeting. I stated to you that it was almost as if it was only Bert and I in the meeting.

(iii) I was not visibly upset as you perceived me to be, and I felt that you were using your past conversations with Chez to add fuel to the fire.

(iv) When I met with Chez, we talked about my business and its HR matters including my view of the HRC meeting that had just taken place.

(v) At no time did I feel that I had been "bullied" (to use your expression) and I left my meeting with Chez, having other business matters on my mind to attend to, and regretting wasting some of that time on what was obviously more of a concern to others, more so than myself.

(vi) The "circus" that followed (including the meeting you called to discuss with me your historic issues) has left me concerned that there are distractions at the highest level of management which will take my eye off the ball at this most crucial time in the DFC business, and may distract other people unnecessarily.

I am of the belief that there are issues between you and the Board which do not concern me. Although I believe the concerns are mainly yours, I have not raised any formal complaint and do not feel it necessary. My involvement so far in these discussions has not been a voluntary one and I would like you to respect the fact that I am able to take any serious issue to the appropriate level as I see fit, and I would like to get on with the job of running the Constructions business of DFC.

343 The defendant submitted that this evidence made out its complaint about Mr Carter's conduct. However, Mr Dall was not called by DFC to give evidence about the alleged incitement. It seems to me that, although there was some evidence about what Mr Dall said at the time was his view about how he had been treated by Mr Dennis in the Housing Review Committee meeting, it would be quite wrong to find that Mr Carter had incited Mr Dall to make a complaint about bullying without hearing sworn evidence from Mr Dall himself. I am not satisfied that, now that Mr Dall is no longer an employee of the defendant, he would have repeated on oath what he told the Board was his view of Mr Dennis' conduct towards him or of Mr Carter's attitude in their conversation after the HRC meeting. Mr Dall may well have felt at the time that he was in a no-win situation if he agreed with Mr Carter's suggestion that the Chairman had bullied him in that meeting.

344 Although it was submitted by the defendant that the plaintiff should have called Mr Dall to corroborate his evidence about their conversation, I agree with the plaintiff's submission that the defendant's reliance on this reason "founders absolutely by reason of the absence of Mr Dall". As submitted by the plaintiff, the gravamen of the serious allegation is the inciting of a false complaint. It could hardly be serious misconduct for an executive to encourage an employee to make a soundly based complaint of bullying. Thus, the issues are whether Mr Carter incited Mr Dall to make a complaint of bullying against the Chairman, and, if he did, whether it was done for legitimate reasons or for the alleged improper purpose knowing that there was no substance to the complaint. Mr Dall's evidence was critical to both of these issues. Would he say on oath that Mr Carter pressured or instructed him to complain to Ms Broadhouse about Mr Dennis' conduct, bearing in mind that he disavowed these words from the Board minutes in his email to Mr Carter on 12 October 2004? Secondly, would he say on oath that Mr Carter should have understood from their conversation that he was not upset or aggrieved and did not feel intimidated or harassed by Mr Dennis? Mr Dall's unexplained absence left open the inference that his evidence would not have favoured DFC, particularly as he had apparently been interviewed by DFC's solicitors.

345 Therefore, I find that Mr Carter's conduct with respect to Mr Dennis' treatment of Mr Dall at the meeting of the Housing Review Committee on 28 September 2004 was not serious misconduct or a repudiation of the employment contract.

346 DFC's seventh reason for Mr Carter's summary dismissal arose out of the Managing Director's report dated 23 September 2004 ("the September report") which he forwarded to the Board for consideration at its meeting on 29 September 2004. The defendant pleaded that at the time the plaintiff prepared the September report, the facts were that the defendant's actual performance, in recent months, with respect to the period between deposit and site start was such that it was taking substantially longer than the budgeted assumption of 16 weeks, and that the defendant's performance in recent months, had shown no improvement. The defendant further pleaded that notwithstanding that the plaintiff knew, or ought with reasonable care and diligence to have known these facts, in the September Report he:

(a) purported to advise the Board with respect to the defendant's performance on the subject of construction throughputs;

(b) stated that monthly workflow statistics tabled at Housing Review Committee meetings showed progress with respect to production times (ie the total period between deposit and site start) but did not set out those statistics;

(c) presented statistics which dealt only with the period between the signing of the contract and site start and only with the months of April and May 2004;

(d) implied that -

(i) save as specifically mentioned in the report, the Board had little or no need to be concerned about construction throughputs; and

(ii) generally, the defendant's performance on the subject of construction throughputs was improving.

The defendant then pleaded that in presenting the September report to the Board on 29 September 2004, "the plaintiff did not qualify that report" in any respect relevant to the matters referred to above.

347 The plaintiff's conduct was said by the defendant to be:

(a) serious misconduct in misleading the Board or failing to be honest and frank with the Board if he knew of the above facts;

(b) alternatively, gross negligence in that he ought to have known these facts and advised the Board by reference to them;

(c) alternatively, a demonstration by the plaintiff of his incompetence;

(d) alternatively, a repudiation of the employment contract, if he knew of the above facts.

348 The issues raised by the defendant's pleading which require determination are:

(a) whether, at the time the September report was prepared, the actual period from deposit to site start was substantially longer than 16 weeks for the vast majority of jobs;

(b) whether the defendant's performance in recent months had shown no improvement;

(c) whether there was anything wrong in Mr Carter presenting statistics in the September report dealing only with the contract signed to site start stage and only with the months of April and May 2004;

(d) whether the September report implied that, save as specifically mentioned, the Board had little or no need to be concerned about construction throughputs; and

(e) whether the September report implied that, generally, the defendant's performance on the subject of construction throughputs was improving.

349 The contentious aspect of the September report was what was set out under the heading "Construction Throughputs", and particularly the figures mentioned with respect to production times. It is, however, necessary to consider the report as a whole. It was a twelve page document dealing with 14 topics, one of which was "Construction Throughputs". The report commenced by stating under the heading "Introduction and Overview" that one of seven major focuses during the month of August had been on:

• Accelerating throughputs in Constructions (production and consumption).

Then, with respect to the financial outlook the report stated:

The monthly trading losses incurred in July and August totalling $3.1m are not sustainable. The priorities in Construction remain production & construction efficiency.

Under the heading "Construction Throughputs", the report stated:

Construction revenues in the first two months of the financial year have been adversely affected by slower than budgeted throughputs on existing jobs. This can be ascribed to:

• Slower than anticipated positive effects from Best Builder processes.

• Management weaknesses in the Shepparton production cell.

This issue has been the subject of intensive management effort, on a job by job basis. Progress has been made.

...

In terms of Best Builder production and construction times, the monthly workflow statistics tabled at Housing Review Committee are showing progress, but still with higher than targeted average cycle times.

...

To test if the situation has improved, an analysis of recent jobs has been conducted. ...

In terms of production, with the Estimating process only rolled out in April, a trend has been analysed for average weeks from contract to site start. This is not the full cycle, so should be under the original 12 weeks from deposit to site start target.

The DFC average time taken in March was 13.7 weeks. This had dropped to 12.6 weeks in April and 9.8 in May (see table below).

The table which was headed "Average Time Between Contract Signed and Site Start", showed how the figures for April and May had been reached. Finally, the September report concluded with the item "Matters for Board Discussion/Decisions". The first topic listed was:

350 Construction throughputs, also known as work flow, referred to the length of time it took for a job to progress through the pipeline from the payment by a customer of a deposit at the outset to the final handover of the completed house. The pipeline was split into two phases - the production phase and the construction phase. The production phase was further divided into two sub-phases or stages, deposit to contract signed and contract signed to site start. The construction phase was further divided into a number of sub-phases relating to the stages in the construction of a house, such as base, frame, lock-up, fit out and completion. DFC received progress payments at the end of these stages in the construction phase.

351 As set out above, the budgeted assumption was that it would take 16 weeks from deposit to site start. The Best Builder target for the production phase was 12 weeks. The figure used in the budget was extended to 16 weeks because at that stage Best Builder had not been fully implemented.

352 The defendant's criticism was based on the work done by Graeme Hester, DFC's Chief Operating Officer. In July 2004, the Housing Review Committee was set up to scrutinise the housing business. Fortnightly meetings were held which were attended by four Board members, Mr Bert Dennis, Mrs Levinge, Mr Johnstone and Mr Peck and Executive Team members, including Mr Carter, Mr Sheehy, Mr Dall and Mr Hester. According to Mr Hester, the issue of production times and construction throughputs was regularly discussed at Housing Review Committee meetings.

353 Mr Hester's key responsibility was managing the Information Technology area of the business. He began working on workflow reporting, by developing "leading" and "lag" indicators. Mr Hester produced a set of statistics, based on these indicators, for discussion at the Housing Review Committee meeting held on 24 August 2004. The statistics showed that the production times in July were all substantially longer than the budgeted assumption of 16 weeks. For example, the lagging indicator for production times in the metropolitan business showed that for the 37 jobs in the pipeline in July 2004, it was taking an average of 35 weeks to move from deposit to site start.

354 A similar document was tabled at the Housing Review Committee meeting held on 14 September 2004, which set out the lagging indicators for August. The average time in the metropolitan business to move from deposit to site start was now 32 weeks. With the exception of Geelong, there had been significant improvement in the time taken for the production phase in each of the regional areas in August.

355 At the meeting there was a discussion about the statistics prepared by Mr Hester, and it was agreed that the separation of the statistics for OPOL housing (on people's own land) and house and land figures from the figures for speculative and display homes would be useful. Mr Hester worked on separating out the statistics for the different types of housing for the next meeting of the Housing Review Committee. On 24 September 2004, he sent an email setting out the adjusted workflow statistics to the Chairman, Mr Carter and other directors. In commenting on the statistics for deposit to site start, Mr Hester said:

In this Production pipe analysis, Display's and Spec's are minor.

Of the House & land 69, 43 are in Metro West and the average duration is currently 8 weeks. This is an encouraging statistic, however we need to balance that with a number of these jobs are recent results of First Strike and are therefore early in the cycle but I can say confirmation issued has been achieved on many within a 4 week period.

Other than this Metro West example splitting the analysis provides little additional information. In my opinion the current reporting & these Leading & Lag indicators are sufficient to drive performance improvement and measure whether we are progressing towards our Best Builder targets of 12 weeks. However as previously stated we do need to become more sophisticated in IT Factory of tracking land availability and other factors that cause delays outside of our control to. [sic] I can not currently report on this but will kick off this work in October.

356 It seems clear, therefore, at the time the September report was prepared, the actual period from deposit to site start was substantially longer than 16 weeks for the vast majority of jobs. However, according to Mr Hester's reports for the 14 and 28 September 2004 Housing Review Committee meetings, it was not correct that the defendant's performance in recent months had shown no improvement. This situation was accurately summarised by Mr Carter in the September report when he wrote:

In terms of Best Builder production and construction times, the monthly workflow statistics tabled at Housing Review Committee are showing progress, but still with higher than targeted average cycle times.

357 Thus, it is not surprising that Mr Bert Dennis was unable to point to what it was in the September report that was said to convey the implication that, save as specifically mentioned, the Board had little or no need to be concerned about construction throughputs. Moreover, as quoted above, Mr Carter highlighted in the September report that one of the seven major focuses during the month of August had been on "Accelerating throughputs in Constructions"; that the priorities in Construction remained "production & construction efficiency"; and that the issue of construction throughputs had been "the subject of intensive management effort". None of this implies, to my mind, that construction throughputs were not a matter of concern.

358 There remains the question of whether there was anything wrong in Mr Carter presenting statistics in the September report dealing only with the contract signed to site start stage and only with the months of April and May 2004. Mr Carter said that as a response to Mr Johnstone's request at the Board meeting of 26 May 2004 for an analysis of "new versus old" jobs, he asked Mr Sheehy to produce figures by taking sample files of recent "new" jobs to see whether or not the "new" jobs were going through the production phase faster than they had been before Best Builder. Mr Carter said that he did this because he:

wished to be able to tell the Board the rate at which jobs being built in accordance with Best Builder practices were progressing through the pipeline.

No such reports had previously been prepared although Mr Hester said that he could have done so but had not been asked to do so until October 2004.

359 Mr Sheehy commissioned Greg Leonhart, an accountant who reported to him, to prepare this analysis. Mr Leonhart started with the contract signed to site start stage as this was the stage in which the defendant had the greater control over the timing, as there were less external factors that could affect the progression of the job through the pipeline once the contract had been signed.

360 Mr Hester was critical of Mr Leonhart's statistics. As counsel for the plaintiff submitted, his main criticisms referred to the method of the production of Mr Leonhart's statistics. Mr Hester thought that it was "inherently dangerous" for the analysis to look at only part of the production pipeline. He had concerns over what definitions were being applied to the terms used. He was uncertain whether the number of houses was sufficient to provide a reliable average. Finally, he was very concerned that "this data did not link back to any previous data".

361 It seems to me that these criticisms are overstated. For example, obviously, an analysis of both stages of the production phase would have been preferable, but a start has to be made somewhere. It was clearly stated that the figures related only to the contract signed to site start stage. Secondly, as the analysis was of "new" jobs following the introduction of Best Builder then it is not really sensible to criticise the lack of previous data, because there was none.

362 Mr Hester also criticised the outcome of Mr Leonhart's analysis. He said that it was "considerably at odds" with the figures and trends discussed in the Housing Review Committee held the day before the September Board meeting. However, as will be seen in the discussion of another of DFC's reasons for summarily dismissing Mr Carter, Mr Hester's work in October did reveal similar results for the contract signed to site file stage to that obtained by Mr Leonhart. I therefore reject Mr Hester's criticism about the outcome.

363 Even if one accepts Mr Hester's criticisms, the fact is that Mr Carter accurately set out in the September report the results of Mr Leonhart's work, limited though it was to only the second stage of the production phase for only the months of March, April and May. It cannot be seriously suggested that Mr Carter asked for this work to be done in order to put misleading statistics before the Board. Equally ludicrous is the suggestion that, having received the work done to date by Mr Leonhart, Mr Carter should not have informed the Board of it, or that he put it before the Board in order to mislead the other directors. To the extent that Mr Hester's work did indicate a different picture, then Mr Carter would have known that it had been discussed at the Housing Review Committee held the day before the September Board meeting and that each of the four directors present at that meeting would therefore have been well aware of the differences. The Leonhart statistics were simply just one part of the picture which was only slowly emerging from the difficulties once encountered in DFC as a result of the deficiencies in the IT system.

364 Therefore, in my opinion, the defendant has not established that Mr Carter's relevant conduct was serious misconduct, gross negligence, a demonstration of his incompetence or a repudiation of the employment contract.

365 DFC's eighth reason for summarily dismissing Mr Carter, which is closely related to the previous reason, concerned his failure to take any steps to apprise the Board, at its meeting on 29 September 2004, of inaccuracies (particularly in data relating to the period between deposit and site start) contained in the financial report prepared by the company's Chief Financial Officer for that meeting ("the September financial report").

366 The defendant pleaded that in the September financial report, in relation to the defendant's housing business:

(a) there were presented data that showed that the period between contract and site start achieved by the defendant in May 2004 was 9.8 weeks and that this figure was less than that for March 2004 and that for April 2004;

(b) the period between deposit and contract achieved by the defendant was assumed to be four weeks; and

(c) the conclusion was expressed that, if that assumption was correct, the period between deposit and site start achieved by the defendant in May 2004 was 13.8 weeks.

367 The defendant further pleaded that the plaintiff had overall responsibility to the Board for the September financial report and was responsible for the provision of performance data contained in it, and that, although he was present at the Board meeting when the September financial report was presented by Mr Sheehy, he took no step to apprise the Board of the true situation with respect to the four weeks' assumption, although the plaintiff knew, or with reasonable care and diligence ought to have known, that the above assumption of the achievement of a period of four weeks between deposit and contract did not, by a substantial margin, represent the actual experience of the defendant.

368 The statement in question in the September financial report appeared alongside a table showing that for "New Work Since Best Builder Estimating" the number of weeks for "Contract to Site Start" had fallen from March to April to May. The commentary read as follows:

Best Builder Target is 12 - weeks deposit to site start, the assumption is 4 - weeks deposit to contract.

What this analysis shows is in May 2004, assuming the 4 - weeks is correct, deposit to site start was 13.8 weeks - this represents 87% Best Builder, above the Budget driver of 60% as at 1 July.

369 The defendant pleaded that the plaintiff's conduct was:

(a) serious misconduct in misleading the Board or failing to be honest and frank with the Board if he knew that the above assumption was not well-founded;

(b) alternatively, gross negligence in that he ought to have known that the above assumption was not well founded;

(c) alternatively, a demonstration by the plaintiff of his incompetence;

(d) alternatively, a repudiation of the employment contract.

370 Mr Carter explained the reasoning behind the use of the Best Builder assumption of four weeks:

As at September 2004, there was no statistical analysis separately available for the first sub-cycle: deposit to contract signing, nor any management information on the various sources of delay in this sub-cycle. Mr Sheehy and I reported to the Board on the basis of an assumption on that sub-cycle - the Best Builder assumption of a period of four weeks was applied.

371 It is important to remember that the defendant's criticism is not that Mr Carter, through not correcting Mr Sheehy's report, allowed a proven incorrect statement of fact to be made to the Board. Rather, it is that the use of an assumed figure was misleading because it was so unrealistic.

372 In my opinion, it should have been obvious to the other directors when reading the September financial report that Mr Sheehy was, relevantly, not saying anything beyond the fact that four weeks for deposit to contract was an assumed figure and that it was therefore not necessarily calculated on any factual basis. As Mr Sheehy explained, it had been chosen because it was the Best Builder target for the deposit to contract stage. That fact alone should have meant that the directors would understand that the assumed figure of four weeks was not necessarily correct. Apart from anything else, they had been told that an 80% success rate in meeting Best Builder targets was not expected to be reached until 1 January 2005.

373 In the circumstances, it was perhaps a little unhelpful for Mr Sheehy to talk about how 13.8 weeks for deposit to site start represented 87% Best Builder, assuming the four weeks for deposit to contract signed was correct. On the other hand, it should have been quite clear to the directors that to the extent that the four week assumption was incorrect, by being understated by a certain number of weeks, then the figure of 13.8 weeks was also incorrect by the same number of weeks.

374 It should also not be forgotten that in the September report Mr Carter had informed the directors that, although the production and construction times were showing progress, they were still longer than the Best Builder targets. There was no reason for a director not to include the deposit to site start target of four weeks as one of the Best Builder targets that was not yet being achieved and, therefore, to understand that Mr Sheehy's four weeks assumption was just that, an assumption which was not necessarily correct.

375 Therefore, I reject the submission that Mr Carter's failure to correct the statement by Mr Sheehy in the September financial report constituted serious misconduct, gross negligence, a demonstration of his incompetence or a repudiation of the employment contract.

376 DFC's ninth reason for Mr Carter's summary dismissal concerned the conduct of the plaintiff at the special Board meeting on 12 October 2004 with respect to a series of statistics forwarded to him by Mr Hester on 11 October 2004 ("Mr Hester's statistics"). The defendant pleaded that according to Mr Hester's statistics:

(a) the period between deposit and site start which the defendant had achieved per month had varied between 23.2 and 26.8 weeks;

(b) no trend of improvement in those statistics was apparent between April and September 2004.

377 The defendant made two complaints about Mr Carter's conduct. The first complaint pleaded was that:

At a meeting of the Board on 12 October 2004, the plaintiff -

(a) assured the Board that, with the exception of old jobs, all jobs in construction (ie site start to settlement) were meeting the Best Builder 20-week construction time;

(b) advised the Board that, excluding circumstances outside the defendant's control and with few exceptions, all jobs in production (ie deposit to site start) were going through at Best Builder times and in accordance with budget assumptions; and

(c) made no reference to the existence or substance of Mr Hester's statistics.

As the plaintiff well knew, or with reasonable care and diligence ought to have known, as at 12 October 2004 -

(a) even excepting old jobs and a few other jobs, substantially less than all jobs in construction were meeting the Best Builder 20-week construction time; and

(b) even excluding circumstances outside the defendant's control and a few other jobs, many jobs were in production for periods considerably longer than those provided under Best Builder standards and than those upon which budget assumptions were based.

379 The defendant pleaded that the plaintiff's conduct involved in the first complaint was:

(a) serious misconduct in misleading the Board or failing to be honest and frank with the Board;

(b) alternatively, grossly negligent if he did not know of the above facts about the times for completing the production and construction phases;

(c) alternatively, a demonstration by the plaintiff of his incompetence;

(d) alternatively, a repudiation of the employment contract.

380 The second complaint pleaded was that, at the Board meeting on 12 October 2004, Mr Carter:

resisted the chairman's suggestion that Hester's statistics should be placed before and considered by the Board because -

(a) the plaintiff knew or suspected that Hester's statistics would -

(i) cast doubt on the September report and the September financial report, upon the plaintiff's presentation of those reports at the said Board meeting on 29 September 2004 and upon the statements made by the plaintiff to the Board at its said meeting on 12 October 2004;

(ii) reveal [certain] ... facts ...; and/or

(b) the plaintiff desired to withhold from the Board any information or data that might tend to show the defendant's performance, in relation to the period achieved between deposit and site start, in a less favourable light than had been put to the Board by the plaintiff as hereinbefore alleged.

The alleged facts which the defendant pleaded the plaintiff did not want revealed were those referred to previously, namely, that the defendant's actual performance, in recent months, was such that a period substantially longer than 16 weeks elapsed between deposit and site start and that the defendant's performance in recent months had shown no improvement.

381 The defendant pleaded that the plaintiff's conduct involved in the second complaint was serious misconduct, alternatively, a repudiation of the employment contract.

382 I will deal with each of the complaints inturn.

383 On 11 October 2004 Mr Carter received an email from Mr Hester with a series of statistics attached. The document showed the period between deposit and site start, that had been achieved by DFC for each month from April to September of that year, as has been requested by Mr Bert Dennis. In the accompanying email, addressed to Mr Carter and Mr Sheehy, Mr Hester wrote:

Bert requested (week before last) the analysis contained in the MD's report for April and May on time between Contract Signed and Site Start be extended through to September.

Mr Hester explained that he had asked Rafael Acosta to generate a time period analysis that spanned deposit to contract signed, contract signed to site start and deposit to site start, which were the attached statistics. He continued:

I understand the original analysis was carried out by Greg Leonhart. The two sets of analysis do show a difference in overall results.

MD report This analysis

April 12.6 April 13

May 9.8 May 12.35

Can you please advise if any further analysis or cross checking is required prior to forwarding to Bert.

I would like to ensure this is communicated prior to the Housing Review meeting on Thursday.

384 Mr Hester's statistics can be summarised as follows:

385 Mr Carter received the email and statistics on the afternoon of 11 October 2004. He responded quickly to Mr Hester:

I have already commissioned this update, via Michael. Greg will conduct the further analysis on exactly the same basis. Vital that we have "apples and apples" - ie for contract signed to site start, Greg will work from actuals.

If you want to argue the toss, on which data set etc - I suggest we do this for a consistent approach to full cycle - ie deposit to site start. You could work on that, please. - ie March to July extending it two months beyond Board data.

In meantime, you must advise Bert that I had already commissioned this work and that it will be in the October Board papers and HRC prior to October Board.

The urgent work for the Board meeting prevents me considering this issue at present.

386 Mr Hester followed Mr Carter's direction and emailed Mr Bert Dennis, on the morning of the 12 October 2004, indicating that the analysis requested by the Chairman had already been commissioned by Mr Carter, and that his analysis would be in the October Board papers. However, Mr Hester said that he also took the "precaution" of telling Mr Peter Levinge, Mr Dennis' son in law, that the work had in fact been completed by him and sent to Mr Carter.

387 Mr Bert Dennis said the issue of the Hester statistics was raised at the special Board meeting because he felt that Mr Carter's suggestion that there had been an improvement in production times was at odds with previous statistics that had been presented by Mr Hester at Housing Review Committee meetings.

388 The minutes of the special Board meeting held on 12 October 2004 relevantly record that:

Mr Rob Carter assured the Board that with the exception old jobs, all jobs in Construction are meeting the Best Builder 20-week construction time.

Mr Rob Carter advised the Board that excluding circumstances outside DFC's control such as title office release that with few exceptions all jobs in production now are going through at Best Builder times per the budget assumptions. Mr Rob Carter advised that the few exceptions referred to related to jobs that would be going to site by the end of October 2004.

389 Mr Carter denied that he gave these assurances or advices. He sent an email to the Company Secretary, Mr Sheehy, on 25 October 2004 in which he stated:

As to the minutes of the special meeting on October 12, I take issue with the accuracy of a number of statements I was alleged to have made. The Board needs to note that. However, I am simply not well enough to go into detail for tomorrow. I will raise my issues at the November meeting, health permitting.

390 Mr Hester's statistics did not contain any figures for the construction phase. No doubt this is why the defendant's submissions in respect of the first complaint in respect of Mr Hester's statistics took the allegation about construction times no further. The concentration was on the production times.

391 It would be surprising in my view if the Board minutes were not accurate. Mr Sheehy generally seems to have performed the role of minute taker more than adequately. However, this was a particularly heated and stressful meeting and Mr Sheehy may have missed some of the further qualifications which Mr Carter said he made. For example, Mr Carter said that he explicitly excluded old jobs and problem jobs which were those that had been in the system for an extended period.

392 If those qualifications were made, and I accept Mr Carter's evidence that they were, then Mr Hester's statistics were not that helpful because they did not distinguish between "old" jobs and "new" jobs. Even so, it would appear that Mr Hester's statistics for the contract signed to site file stage did show that there had been improvement over the period from April to September 2004 and that by August the time taken for this stage was below "the budget assumptions".

393 It is not clear, however, on what basis Mr Carter was able to advise the Board that the deposit to contract signed stage and the overall production phase (deposit to site file) for new jobs were now "going through at Best Builder times per the budget assumptions".

394 However that may be, the fact is that there were so many qualifications to Mr Carter's statement to the Board that it is not possible to classify it as false. Thus, the defendant focussed on Mr Carter's failure to refer to Mr Hester's statistics when the question of construction throughputs was first raised. In my opinion, Mr Carter has given a rational and credible explanation for his omission.

395 Mr Carter said that he did not refer to Mr Hester's statistics at the special Board meeting because in his view the next Housing Review Committee meeting scheduled for 14 October 2004 was the proper forum to discuss the statistics. On 12 October 2004, Mr Carter emailed Mr Sheehy and Mr Hester, requesting them to brief Mr Dall on the differences between the Leonhart and Hester statistics, and asked that they be prepared to discuss the issues at the Housing Review Committee meeting later that week. It is apparent, therefore, that it was not Mr Carter's intention to shelve Mr Hester's analysis, but that he planned to have the differences examined in the forum at which the housing statistics had previously been discussed. From his email forwarding the statistics, Mr Hester clearly anticipated that they would be discussed at the Housing Review Committee meeting.

396 Secondly, the special Board meeting held on 12 October 2004 was arranged in order for the Board to discuss an "Action Plan" prepared by Mr Carter and Mr Sheehy to realign the cost base and operating structure of the business to the lower levels of trading activity being experienced in Construction and Development since January 2004. Mr Carter and Mr Sheehy made a number of recommendations concerning redundancies and other steps to improve the financial performance of the business.

397 It is clear that the primary consideration for the Board was whether to make up to 80 employees redundant. As Mr Carter said:

My obligation to the board was to respect the agenda they'd set for the next day, which was the discussion of a major action plan to rescue the financial status of the business.

398 However, Mr Bert Dennis said that in order for the Board to make the very difficult decision to implement redundancies, it needed accurate, current information. He said that "the Board needed the figures to base its future decision on the size of business" and that "the Board needed the best available information on which to make a decision". Mr Dennis gave evidence that once they had seen Mr Hester's statistics which showed that there was no positive trend of improvement in the construction throughputs from deposit to site start, the Board resolved to approve the proposal to implement redundancies across DFC.

399 There is sense in Mr Dennis' view, particularly if the extra information is clear, accurate and undisputed. However, Mr Carter made a business judgment and decided that the construction throughputs for the production phase were not crucial to making the decision to cut overheads. This thinking was rational, as it was clear that Mr Carter already believed that redundancies were necessary and had been suggesting ways in which overheads could be reduced for some months.

400 Mr Carter's third reason for not referring to Mr Hester's statistics was that he was not satisfied by the time of the special Board meeting that this extra information was clear, accurate and undisputed. He said that he was waiting for Mr Leonhart's updated figures which he had requested on 7 October 2004. Even without those figures, he said that he was not prepared to endorse Mr Hester's analysis as accurate, without further consideration at the special Board meeting. And he did not have the time for that consideration before the Board meeting. Mr Carter said that he made a business judgment that the construction throughputs for the production phase were best deferred to allow time for the two sets of statistics to be reconciled. He did not want to go to the Board with conflicting statistics and have to spend time attempting to explain the discrepancies between them. As Mr Carter also said in cross-examination:

It's far more important to act than argue over statistics.

Mr Carter also said that he had no confidence at that time that Mr Hester's figures were accurate or at least that at that stage he had no reason to prefer the statistics produced by Mr Hester to those of Mr Leonhart.

401 Therefore, I do not accept the defendant's submission that the only explanation for the delay in putting Mr Hester's statistics to the Board is that Mr Carter did not want to put forward figures which painted a bleaker picture of DFC's performance than what he had previously reported to the Board. Accordingly, I do not consider that the first complaint about Mr Carter's conduct with respect to Mr Hester's statistics constituted serious misconduct, gross negligence, a demonstration of his incompetence or a repudiation of the employment contract.

402 The second complaint is the defendant's allegation that the plaintiff resisted the proposal to call Mr Hester into the meeting to discuss his statistics. Mr Carter's evidence was that he did not resist Mr Hester's statistics being placed before the Board on 12 October 2004. He said:

Mr Dennis initiated a discussion of the Hester statistics at the meeting though it was not on the Board agenda. Mr Hester attended the Board meeting at the invitation of Mr Bert Dennis after I had suggested he be invited in, as Mr Dennis considered Mr Hester's statistics to be important and I had not had time to validate them myself.

The evidence of other Board members was directly contrary to this. Mr Bert Dennis' evidence was that:

Carter opposed Hester joining the meeting. He said he did not want to get Hester. He said it was not proper to bring Hester into a Board meeting and insisted that the figures he (Carter) had presented to the Board were accurate.

403 Mr Hester's evidence was that he was asked to come into the Board meeting where there was some discussion about site starts. Mr Bert Dennis then asked him if he had completed the analysis for deposits to site starts and requested that he go and get the document. Mr Hester said that Mr Carter was "very strongly opposing" the suggestion that he go and get the analysis.

404 It seems to me that Mr Carter's recollection that he suggested that Mr Hester be invited to join the meeting to present his statistics must be wrong. It is contrary to all of the valid reasons he gave for not referring to the Hester statistics in the first place. However, I also consider that Mr Carter's opposition to Mr Hester being called into the meeting to present his statistics has been blown out of proportion. The minutes of the Board meeting do not suggest any such dramatic confrontation. They relevantly record:

Mr Graeme Hester was invited by the Chairman to attend the meeting. There was considerable discussion regarding reconciling site start data discussed in the action plan, particularly in relation to the old definition and the new definition of site starts.

405 As a member of the Board Mr Carter was entitled to express his view that the Board was being diverted from the decision it had to make at the special Board meeting called for that purpose. I am not prepared to find that his opposition to the Chairman's proposal was for the ulterior purposes alleged by the defendant. Accordingly, I do not consider that the second complaint about Mr Carter's conduct with respect to Mr Hester's statistics constituted serious misconduct or a repudiation of the employment contract.

406 The defendant's tenth reason for Mr Carter's summary dismissal was that Mr Carter made a statement in his September 2004 report to the Board regarding the number of site starts which he knew or ought to have known were wrong or attended by doubt, and that at the meeting of the Board on 29 September 2004 he did not qualify those statements.

407 In his September report Mr Carter said that on an "apples for apples" comparison DFC had achieved 111 site starts in August 2004 which was "short of budget", and that although "a catch up" was required in September, DFC was "on track" to achieve 206 site starts for the months of August and September 2004. The defendant pleaded that Mr Carter did not qualify those statements, nor draw attention to the doubt which attended these statements, despite the fact that prior to the Housing Review Committee meeting on 28 September 2004 it was the fact, and Mr Carter knew, that the number of site starts since 1 August 2004 was inconsistent with any realistic possibility of achieving 206 for those months. In particular, it was alleged that, prior to that meeting, Mr Carter and Mr Dall were told by Mr Barnard, the National Building Manager, that there were not going to be 206 site starts and that at the Housing Review Committee meeting there was "data" prepared by Mr Barnard "which showed that there would not be 205 [sic], or anything close to 205, house [sic] starts in the months of August and September 2004".

408 It was further pleaded by the defendant that if the plaintiff knew, before the Board meeting, that his statements in his September report were "wrong, alternatively were attended by doubt" and yet did not qualify the relevant statements, nor draw the Board's attention to the doubt which attended these statements, then this amounted to serious misconduct in that it involved the plaintiff misleading the Board or failing to be frank and forthright with the Board. Alternatively, the defendant pleaded that Mr Carter was grossly negligent, in that with reasonable care and diligence he ought to have known those matters and advised the Board by reference to them. Alternatively, the defendant pleaded that by his omissions Mr Carter demonstrated his incompetence. Alternatively, the defendant pleaded that if Mr Carter knew that his statements were "wrong, alternatively were attended by doubt", then by his omissions he repudiated the employment contract.

409 As the defendant pleaded, it in fact achieved only 186 site starts in the months of August and September 2004, 100 in August and 86 in September. However, this does not take the matter very far at all. What is critical is what Mr Carter knew or believed was the position at the time of the September Board meeting.

410 Mr Carter said in his witness statement that in his forecasts for the September Board meeting he relied upon Mr Dall's weekly reports and Mr Dall's monthly Board report. He said that in drafting the September report he had:

no reason to doubt the accuracy of Mr Dall's reports to me and I relied on them in good faith.

411 In my opinion, statements by Mr Dall in some of the weekly reports in the four weeks preceding the September Housing Review Committee meeting and in Mr Dall's September Board report justified Mr Carter's belief that the forecast figure of 206 site starts was achievable. For example, in his weekly report dated 27 September 2004, Mr Dall repeated that DFC was:

on target to site start 206 jobs in Metro and country for August and September. Management monitoring progress closely.

412 Mr Carter also gave evidence that at some time in early September:

I attended a meeting in the downstairs conference room where Mr Dall and Mr Barnard told me the actions they were taking to ensure that the 206 site starts for August and September 2004 were achieved. Both of them expressed their confidence that this would happen. Mr Barnard said that, if necessary, he would put production files in his car from the Shepparton office and bring them to Melbourne for processing.

413 However, Mr Barnard gave evidence that Mr Dall came to see him in his office on the afternoon of 27 September 2004 and told him that he and Mr Carter were going to report to the Housing Review Committee meeting the next morning that DFC would achieve 206 site starts for August and September. After his meeting with Mr Dall, as was his usual practice, Mr Barnard called around to each housing manager to ask about the housing numbers, and on the basis of information relayed to him, he formed the view that there would be less than 200 site starts for the period.

414 Mr Barnard said that on the following morning, whilst on his way into work, he telephoned Mr Dall to tell him that they were not going to achieve 206 site starts based on the information he had obtained. He said that Mr Dall was very irate and responded with words to the effect of "Do not tell me this at this stage of the month". Mr Barnard also said that Mr Dall said that he was going to ring others to check some numbers.

415 Mr Barnard said that later that morning, before the Housing Review Committee meeting, he had a meeting with Mr Dall and Mr Carter. Mr Barnard could not say for certain where the meeting took place but he had a firm recollection that he told Mr Carter and Mr Dall what he had told Mr Dall earlier on the phone. In his witness statement, Mr Barnard said that he said to both of them:

Do not go into the meeting with 206. We do not have that amount of work. We are bleeding the system to get the numbers but we do not have 206.

Mr Barnard's oral evidence about the meeting with Mr Carter and Mr Dall was:

I said we have not go those numbers, the 206 site starts, so - and then I didn't want Mark to go up there and say I've got 206 site starts, and I knew how important it was, at that particular time there'd been a build up for some time over site starts and where does the 20 go each month, or where's the ten gone each month.

416 Mr Carter vigorously denied that he had a meeting with Mr Barnard and Mr Dall in which Mr Barnard suggested that DFC was not on target to achieve 206 site starts. He said that the only meeting he attended with Mr Barnard and Mr Dall was the one in early September referred to above.

417 Mr Barnard denied that he ever told Mr Carter that he was confident they would meet the target for August and September, but he did concede that putting files in his car and driving them to Melbourne was something he would do for the company, although he did not specifically recall saying those words to Mr Carter.

418 Mr Barnard was a credible witness in respect of his statement that Mr Carter was present when he told Mr Dall that there were not 206 site starts in the system. He was adamant that he told both Mr Dall and Mr Carter that they would not meet the target of 206. However, Mr Carter was equally credible in his denial that he had been present at such a conversation.

419 The evidentiary conflict between Mr Barnard and Mr Carter may well have been resolved by Mr Dall, but he was not called as a witness. As the onus is on the defendant to make out its grounds for summary dismissal, it should have called Mr Dall, in my opinion. In the absence of this independent witness, who was said to be the third participant in the conversation, I am not prepared to make a finding that Mr Barnard told Mr Carter as well as Mr Dall that the figure of 206 site starts could not be achieved. But even if he did, Mr Carter was entitled to rely on what he had repeatedly been told by his senior manager, Mr Dall.

420 Mr Carter was present at the Housing Review Committee meeting on 28 September 2004 when there was a discussion about the number of site starts DFC was likely to achieve for the months of August and September 2004. Mr Bert Dennis gave evidence that before the meeting he had heard a "whisper" that the 206 site start number was wrong. He said that he therefore "closely questioned" Mr Dall and Mr Carter about the accuracy of the site starts forecast. Mr Dennis said that despite the "close questioning" by him, Mr Dall "gave assurances that the figures were accurate and achievable". Mr Barnard did not tell the meeting that he had a different view or that he had already provided that information to Mr Dall and Mr Carter. This is perhaps not surprising given that this was the meeting at which Mr Dennis robustly questioned Mr Dall leading to the suggestion that he had been bullied. Mr Barnard also denied telling Mr Bert Dennis before the meeting that the 206 figure was incorrect.

421 It appears that Mr Barnard had a document with him at the meeting which, the defendant pleaded, showed that "there would not be 205 [sic], or anything close to 205, house [sic] starts in the months of August and September 2004". There was some uncertainty over what that document was.

422 Mr Barnard identified a document which he said was the site start sheet he had with him in the meeting on 28 September. He said that it was prepared using Excel, it covered a period of six months, and was updated weekly at regional workflow meetings. He kept a copy in his diary at all times. The spreadsheet set out all the jobs in the production pipeline within the regional business and tracked each job's progress towards site start. It forecast no more than 28 site starts in September.

423 However, I am left in some doubt about whether this document was in fact the one Mr Barnard had with him at the meeting on 28 September 2004, because it bears the date "29/09/04". Further doubt was cast by the response of the defendant's solicitors to a request by the plaintiff's solicitors, during the interlocutory stage, to identify any document or documents constituting Mr Barnard's "data". By a letter dated 3 May 2005, the defendant's solicitors referred to a document dated 9 September 2004 prepared by Mr Barnard and headed "Turnover". The solicitors said that it was:

the only document produced by Mr Barnard. Notwithstanding the absence of a specific reference to August figures in the document, Mr Barnard says the document confirms that the 205 [sic] target for August and September 2004 would not be achieved.

Then, in the further and better particulars dated 20 June 2005, it was said that the "data" was not in writing, oral or to be implied, but was "in the knowledge" of Mr Barnard and because of the conversation between the three of them, also in the knowledge of Mr Carter and Mr Dall.

424 The "Turnover" document forecast 36 site starts for the month of September. Mr Barnard said that he could not say whether this document was tabled at the meeting on 28 September 2004.

425 Mr Carter gave evidence that the "Turnover" document was discussed at the Housing Review Committee meeting. He said that he saw that document for the first time at that meeting. Mr Carter noted that the information presented was not a substitute for IT Factory data, nor was it a management reporting tool. According to Mr Carter, Mr Barnard was prompted by the Chairman to produce his site start sheet and to discuss it with the committee members. Mr Dennis said that it was the spreadsheet which was produced by Mr Barnard.

426 However, whichever document Mr Barnard produced it alone was no basis for a conclusion that 206 site starts was not going to be achieved. The "Turnover" document contained no details concerning August 2004 site starts and its forecasts were confined to the regional part, or less than half, of the business. Mr Barnard agreed that this document did not enable an accurate site start forecast to be made. Mr Barnard's spreadsheet also related only to the regional part, not the metropolitan or Queensland businesses. There was no comparable sheet kept for the metropolitan business.

427 The defendant submitted that having regard to what was said by Mr Barnard to Mr Carter and Mr Dall, and considering what had occurred at the Housing Review Committee meeting, Mr Carter should have qualified the statements as to the number of site starts reported to the Board. However, Mr Carter maintained that prior to the Board meeting on 29 September 2004 he did not believe that Mr Dall's forecast of 206 site starts in August and September 2004 was wrong or attended by doubt. He said that he had made a business judgment that the data prepared by Mr Barnard did not prove that the site starts forecasted by Mr Dall were unachievable. Accordingly, he did not qualify the figure in his Board report.

428 In my opinion, Mr Carter was entitled to adopt this stance. Mr Barnard's document certainly did not prove that Mr Dall's forecast was wrong. Mr Barnard agreed that he was not privy to what information Mr Dall possessed and that his own information was imprecise, so much so that he did not have an exact overall site start number. Moreover, Mr Dall was the senior employee on whom Mr Carter relied.

429 It must not be overlooked that Mr Carter could not have thought that, if he did not qualify the figures in his report, the issue would not be discussed at the Board meeting. Four other directors, Mr Bert Dennis, Mrs Levinge, Mr Johnstone and Mr Peck, had attended the Housing Review Committee meeting so that they were well aware of the debate between Mr Dennis and Mr Dall. Mr Carter would have to have realised that if any of these directors remained concerned about Mr Dall's forecasts, on which Mr Carter's report was based, then questions would be asked at the Board meeting.

430 In my opinion, therefore, the submission that Mr Carter's failure in the Board meeting on 29 September 2004 to qualify or draw attention to doubt about his statement that DFC was "on track" to achieve 206 site starts for the months of August and September 2004 was serious misconduct, or gross negligence, or incompetence or repudiation of the employment contract was not made out.

431 DFC's eleventh reason for Mr Carter's summary dismissal was that Mr Carter prepared a strategy paper for the 12 October 2004 emergency board meeting which contained information about site starts which was misleading and which Mr Carter could not reconcile (which he should have been able to do if he had exercised reasonable care and diligence). The defendant pleaded that in that strategy paper Mr Carter represented that in the months of August and September 2004 the defendant had achieved 255 site starts, as measured by files moved from the production cell, and that there had been 205 bases laid. It pleaded that these representations were:

misleading in that neither of the figures there referred to conveyed a reliable picture of the rate at which jobs progressed to the site start stage, on any relevant definition, in the said months.

432 The defendant further pleaded that at the Board meeting Mr Carter failed to provide a clear or satisfactory explanation of the figures contained in the strategy paper or a clear or satisfactory reconciliation between those figures and the 186 site starts allegedly achieved in August and September 2004.

433 Finally, the defendant pleaded that if Mr Carter knew that the number of site starts for August and September 2004 was 186, then he was guilty of serious misconduct by misleading the Board or failing to be honest and frank with the Board. Alternatively, the defendant pleaded that if Mr Carter did not know these matters, then he was grossly negligent as he ought to have known them and advised the Board by reference to them. Alternatively, the defendant pleaded that Mr Carter's conduct demonstrated that he was incompetent. Alternatively, the defendant pleaded that Mr Carter's conduct constituted a repudiation of the employment contract.

434 In a paper entitled "Action Plan" dated 11 October 2004, the authors, Mr Carter and Mr Sheehy, discussed the action plans being developed by management to re-align the cost base and operating structure of the business to the lower levels of trading activity being experienced in Construction and Development since January 2004. Mr Carter and Mr Sheehy made a number of recommendations concerning redundancies and other steps to improve the financial performance of the business.

435 Included under the heading "Actions Already Commenced" was the following point:

Continuing to increase throughputs in Constructions. The Board and the Housing Review Committee have been kept briefed on progress in this area. The latest statistics (August and September) show that the total production pipeline has fallen from 464 to 388, while total site starts for the 2 months (files moved from the production cell) were 255.

Significantly, the goal of accelerating from production to base stage has had impact, with a total of 205 bases laid over the 2 months (104 in September).

Further statistics were set out in the rest of that point.

436 In his witness statement Mr Carter said that both the figure of 255 site starts and the figure of 205 bases laid was "a typographical error". He also said that he "acknowledged the errors in the meeting on 12 October 2004".

437 I agree with the submissions by counsel for the plaintiff that it is plain how the errors arose. The first error occurred as a result of someone, probably Mr Sheehy, transposing or carrying across the total from the wrong line of Mr Hester's bar chart of statistics dated 5 October 2004. The typeface on the bar chart was very small and it was not easy to read. Instead of the figures for August and September on line 39 being added together to reach a total of 246 for "New Site Files" and this total being carried across to the strategy paper, the figures for "Contracts Signed Close" on line 40 were mistakenly used to reach a total of 255.

438 As I understand the terminology, the item "New Site Files", or as Mr Carter referred to it, "files moved from the production cell", is not the same as "Site Start Complete" which was line 67 on Mr Hester's bar chart. It was this latter entry which formed the basis of DFC's assertion that there had been only 186 site starts for August and September 2004. Thus, the defendant's reliance on Mr Carter's approach to the 186 figure seems misplaced with respect to this ground for summary dismissal.

439 Counsel for the plaintiff submitted that the second error was only "definitional pedantry". The strategy paper referred to "205 bases laid". Line 72 of Mr Hester's bar chart had the total of 205 for "Base Stage Complete". Thus, as Mr Carter said, the typographical error was "in not transposing the right description of what the statistic was describing".

440 In their final written submissions, counsel for DFC submitted that the essential element of this topic was not the fact that a typographical error may have occurred, but that Mr Carter was unable to explain the fundamental workings of the business or to check them. They argued that when Mr Carter was called upon to reconcile inconsistencies in his reporting and available data, he could not do so. This was a sensible approach. Clearly, the existence of two typographical errors could not have warranted Mr Carter's summary dismissal.

441 However, the evidence in support of this submission that Mr Carter was unable to provide a satisfactory explanation was so vague as to be virtually non-existent. Rather than addressing the evidence, or lack of it, of Mr Carter's alleged inability to explain these figures in the Board meeting, counsel for DFC drew attention to the difficulty Mr Carter had, when giving evidence, in trying to explain the discrepancies in the figures. They argued that Mr Carter had had five years to think about this issue. It certainly was a confusing part of the cross-examination but that really does not assist in deciding whether Mr Carter's behaviour at the Board meeting was serious misconduct or gross negligence. I am not persuaded that Mr Carter was not able to provide a satisfactory explanation for his claims, that there had been 255 site starts in the sense of "files moved from the production cell" (or 246 when the typographical error was corrected), and that there had been 205 "bases laid" (or bases completed to adopt Mr Hester's terminology).

442 In his witness statement, Mr Grant Dennis dealt with the Board meeting in greater detail than any of the others present, including Mr Bert Dennis. As Mr Grant Dennis noted, the minutes of the Board meeting recorded that:

Mr Grant Dennis asked that it be noted that as a Board member he was not satisfied with the "Working Paper and Action Plan" citing no Executive Summary, a sub-standard document for the Board's consideration, with adding and spelling errors.

Mr Grant Dennis moved a motion that Mr Bert Dennis and Mrs Adele Levinge be invited to attend all future meetings relevant to the business between the Managing Director and Executive Team or Executive team members; the motion was carried with Mr Michael Johnstone seconding this motion.

444 In his witness statement, Mr Grant Dennis said that he moved the motion referred to above as it was becoming apparent to him that the business was "in a greater degree of difficulty than had previously been thought" and that being a private company two family members should work much more closely with the Managing Director and senior executives to turn the business around. He then said:

To my observation there was a sense at Board level that Carter was not across the detail of the business or its finances and the Board were [sic] concerned at the accuracy of some numbers previously presented.

445 In my opinion, this evidence does not establish DFC's allegation that Mr Carter's strategy paper contained misleading information about site starts which he could not reconcile at the 12 October 2004 Board meeting. The directors of DFC were not backward in expressing criticism of Mr Carter, often in the strongest of terms, and yet the suggestion that Mr Carter was unable to provide a clear or satisfactory explanation of the figures contained in the strategy paper, or a reconciliation between those figures and the 186 site starts in August and September 2004, was not made at the time. Although Mr Grant Dennis asked that it be noted that the strategy paper had "adding and spelling errors", no mention was made of the far more serious criticism subsequently levelled against Mr Carter that he could not explain the figures in the paper prepared by him and Mr Sheehy and that he had thereby misled the Board.

446 Therefore, I find that there was no serious misconduct, gross negligence, incompetence or repudiation involved with the Board paper of 11 October 2004.

447 DFC's twelfth reason for Mr Carter's summary dismissal was that his response to the 28 questions:

was untruthful, disingenuous and/or non-responsive.

448 The defendant pleaded that the plaintiff's response to the 28 questions constituted serious misconduct, alternatively, that it was a repudiation by him of the employment contract.

449 On 12 October 2004, following the special Board meeting, Mr Bert Dennis asked Mr Carter to remain. Mr Culley, Mr Johnstone and Mr Sheehy also stayed. Mr Dennis then told Mr Carter that a number of serious matters had come to the attention of the Board and gave him a written list of 28 questions which he was required to answer. Mr Carter said that as the questions alluded to misconduct he would be referring the matter to a solicitor and requested two weeks to respond to the questions. Mr Dennis said that the Board "needed a response" in two working days. He informed Mr Carter that he could spend the next two days outside the office drafting his response.

450 Mr Carter sought assistance from his lawyers, Holding Redlich, in preparing his response. On 14 October 2004, the solicitors wrote a letter to DFC on Mr Carter's behalf requesting a further day to answer the questions, which was granted. Mr Carter provided a copy of his responses to each Board member on 15 October 2004.

451 Eight of the 28 questions concerned the topic of renovations, four the topic of "Figures regarding site starts", four the topic of prototyping, three the topic of "Review of financial methodology, 2004/2005 Budget", four the topic of "Spec program", four the topic of "European Study Tour" and one the topic of "Inciting a staff member to make a complaint against the Chairman". The defendant's pleading limited its allegation that the response was "untruthful, disingenuous and/or non-responsive" to Mr Carter's answers to the first twelve questions. There were no specific allegations pleaded with respect to questions 13 to 28, and as such they need not be considered.

452 In the response document Mr Carter prefaced his answers to the questions about renovations with the following "Background" statement:

It will be recalled that my wife, Stacey, and I arrived from Sydney in May 2003 when I took up the position of Managing Director. We took on a short-term rental property prior to purchasing 16 Kardella Street in June 2003. I believe the fact that we were buying a property was well known to family members. In fact, on the day of the auction, Adele Levinge, who lives near Kardella Street invited Stacey and I to her place for a drink. We discussed our plans for minor renovations to Kardella Street. At this point Adele showed us renovations to her house and suggested we use Vin Alderman to source sub-contractors. Adele also suggested the name of an interior designer. Subsequently, on a regular basis, Adele, Peter Levinge, Marshall Dennis and Bert Dennis all asked about the progress of renovation. Stacey specifically recalls a board function in November 2003 when Bert Dennis asked her about the renovations and Mr Alderman's involvement. Stacey also recalls discussions with Dawn Dennis about the renovations.

I was aware of the Company's "Use of Commercial Services Policy". Notwithstanding that it was not expressed to apply to a person in my position I regarded it as an indication of the approach I should adopt. Whilst I did not seek formal written approval from the Chairman of the board, I believed that, at all times, I was proceeding with the knowledge of the Chairman and some, but not all, board members. I discussed the project with both Chez Broadhouse and Michael Sheehy and learned that both had had work done on their properties using similar arrangements.

Given that it is about 12 months since the renovations were completed, I am surprised that this matter is being raised at this time in the manner that it is. I am equally surprised that an issue is being raised given that the alternative would have been for me to have had the work done by another builder.

453 The defendant pleaded a number of criticisms of what Mr Carter had said in the "Background" statement. The first two criticism concerns the Chairman's knowledge of the renovations and the manner in which they were being carried out. In cross-examination Mr Carter agreed that the answer was "ambiguous" with reference to Mr Dennis knowing "at all times" about the project and whether he was saying that Mr Dennis knew about Mr Alderman's involvement from the start. Mr Carter said that he accepted that Mr Dennis did not know about the latter point "until later when the renovations are progressing".

454 Rather tellingly, Mr Peck gave evidence that he regarded Mr Carter's reference in the "Background" statement to "the directors knowing of his housing renovations" as an example of his inadequate response to the 28 questions, because he, Mr Peck, did not know of Mr Carter's use of "DFC staff and contractors for his housing renovations" prior to the 28 questions being prepared. What Mr Peck ignored was that Mr Carter's actual statement was that he believed that he was proceeding "with the knowledge of ... some, but not all, board members". [Emphasis added]

455 DFC's next criticism concerned the reference to Ms Broadhouse and Mr Sheehy. Mr Carter agreed that this sentence contained errors in that he did not know whether Mr Alderman's work for Ms Broadhouse was a "similar" arrangement to his, as he had not discussed her work with her. He also conceded that Mr Sheehy's use of a carpet supplier was "not really comparable to the renovation that I was having ..." and that he had not discussed this aspect with him. Mr Carter said that his knowledge had come from what his wife had been told by Mr Alderman. But Mr Carter maintained that he had discussed his renovations with both Ms Broadhouse and Mr Sheehy.

456 Question 1 simply asked whether renovations had been carried out at the Kardella Street property and was answered satisfactorily.

Did you involve any of the Company's employees to work on renovations done to your property? If yes, which employees were involved and what work did they do?

In his answer Mr Carter said that he "did not personally involve the Company's employees in the work ..." and that "Stacey contacted Vin Alderman".

Did you represent to the employees that you had the Company's approval to use their services?

had no direct dealings with Vin Alderman in relation to the renovations, other that [sic] at the conclusion of the project, to thank him. To the extent that there were communications with Vin these were conducted by Stacey.

459 The defendant's pleaded criticism of these two answers was that:

The plaintiff said that -

(i) he had left it to his wife to manage the renovation project and that she had contacted Alderman,

(ii) he (the plaintiff) had no direct dealings with Alderman, other than to thank him at the conclusion of the project, and

(iii) to the extent that there were communications with Alderman, these were conducted by Mrs Carter,

when in fact it was the plaintiff, in company with Croucher, who first informed Alderman that he (Alderman) was to organise and supervise the project.

Mr Johnstone said that he regarded both of these answers as "evasive". He was the only director who was asked to go through each of the first twelve questions and state how, at the time he was considering the question of termination, he regarded Mr Carter's answers.

460 Mr Carter said that he thought that his answer to question 2 concerning Mr Alderman's involvement "could be seen as misleading". He said that he should have answered that after "clearing Mr Alderman's involvement" with Mr Croucher, he did not personally have any involvement with the company's employees. If the statement that "Stacey contacted Vin Alderman" was intended to suggest that it was Ms Edwards who first contacted Mr Alderman then it was clearly incorrect. But if, as Mr Carter suggested, it was intended to refer to the relationship after he had cleared Mr Alderman's involvement with Mr Croucher, it was more accurate in that all subsequent dealings were between Mr Alderman and Ms Edwards.

461 With respect to his answer to question 3, Mr Carter said that he did not think "it answers the question very well". He denied that it was misleading, because he "clearly was talking there about during the course of the renovations". But, he said, whether it was "misleading or just not answering the question well ... Either way it's a boo boo on my part for sure". Mr Carter admitted that his response did not answer the question.

Did the employees work on renovations done to your property during normal working hours?

As stated above to my knowledge Vin was the only employee of the Company involved in the project, and his role was limited to sourcing reliable sub-contractors. To the extent that Vin provided assistance, I assume that some of this assistance was provided in work time. I did, however, insist to Stacey that Vin's priority was DFC work.

463 The defendant's pleaded criticism of this answer was that:

The plaintiff said that Alderman's role in relation to the renovation project was limited to sourcing reliable sub-contractors, when in fact Alderman acted as supervisor of the project, organised trades and suppliers and visited the site of the project either daily or every other day for about two months.

Mr Johnstone said in his evidence that he regarded this answer as "evasive".

464 Although the answer understates Mr Alderman's role, in accordance with the perception that Mr Carter and Ms Edwards had of the differing roles of Mr Alderman and Mr Young, it did respond to the particular point of the question, which was whether DFC employees had worked on the renovations "during normal working hours". Therefore, I do not consider the criticism to be warranted.

465 Question 5 concerned payments to the company's employees for time spent working on the renovations and was, in my opinion, answered satisfactorily.

Did you purchase any materials for renovations from suppliers of the Company? If yes, from which suppliers did you receive materials?

As stated above, I had no direct dealings with suppliers: all dealings were between Stacey and the suppliers. All invoices were sent to Stacey and she paid the invoices by cheque.

467 The defendant's pleaded criticism of this answer was that it avoided the question and failed to respond "fully and frankly thereto". Mr Johnstone regarded this answer as "evasive".

468 I do not understand why, with the assistance of his wife, Mr Carter could not have answered this question directly. If they did not know which of the suppliers Ms Edwards had dealt with were "suppliers of the Company" then they could have said so and listed all of the suppliers so that a comparison could be made. On the other hand, I do not see why the Carters could not deal with suppliers who also happened to be "suppliers of the Company". The real issue was that raised by the next question.

Did you obtain any discount on your purchases from suppliers of the Company by referring to the Company's supply relationship with the supplier? If yes, who provided the discounts to you?

As stated above, I had no dealings with suppliers.

470 The defendant's pleaded criticism of this answer was that it avoided the question and failed to respond "fully and frankly thereto". Mr Johnstone regarded this answer as "evasive".

471 In cross-examination, Mr Carter said that his legal advice was to keep the answers short and sharp and that he did not have time to run through the invoices to ascertain discounts. The time allowed to him to answer was far shorter than what he had asked for. Moreover, it was a correct statement that he had had no dealings with suppliers.

Did you use the employees in accordance with the Company's Use of Commercial Services Policy? If yes, do you have written approval for the authorisation to use the Company's services for personal purposes? If no, what have you done to comply with the Company's Use of Commercial Services Policy?

I refer generally to the response provided to earlier questions and my introductory comments.

473 Mr Johnstone regarded this answer as untrue. But as has already been seen the "Background" statement did refer to the company's Commercial Services Policy and Mr Carter's view as to its application to his renovations.

474 The next four questions concerned the figures regarding site starts. They were as follows:

1. Prior to the Housing Review Committee meeting on 28 September 2004, did you have any discussions with Mr Dall or any other employee regarding the site start figures to be submitted to the Committee for August and September 2004? If yes, can you please tell us who you spoke to and what was discussed.
2. Do you think the 206 site start figure submitted by Mr Dall for August and September 2004 is accurate? If yes, what are your reasons for believing that the 206 figure is accurate?
3. Did you take any steps to verify the 206 site start figure put forward by Mr Dall? If yes, what steps did you take.
4. Do you have any documents which can support the 206 site start figure put forward by Mr Dall? If yes, please provide us with those documents.

475 Mr Carter introduced his answers to these questions with the following "Background" statement:

As there are no minutes of the Housing Review Committee meetings, I am not entirely clear about the figure being referred to.

It is self evident that these figures would have been discussed with Mark Dall as a high priority in September was to accelerate the throughput in production. Kevin Barnard was also involved in these discussions. The goal was to achieve the combined budget target for Metro and Country of 206 for August and September.

Questions 10 to 12 referred to the relevant figures included in the budget. Mr Carter also said that he could confirm that the figure of 206 site starts was "the figure discussed with Mr Dall and Mr Barnard".

the plaintiff dissembled by referring to the absence of minutes of meetings of the Housing Review Committee and to budgeted, as distinct from actual, figures, when the plaintiff well knew the nature of the problem and of the Board's concerns in relation thereto.

477 Whilst there is some merit to this criticism, Mr Carter did answer that the figure of 206 site starts was discussed with Mr Dall and Mr Barnard. This answer is consistent with Mr Carter's evidence on this topic which is discussed above.

478 Mr Carter's answers to the 28 questions concluded with the following "General Comment":

If there is any further clarification of my responses required, I am happy to provide it. I would also request Board members to meet with me to discuss any issues they have arising from their consideration of the questions and my responses.

The point was repeated by Mr Carter's solicitors in their covering letter dated 15 October 2004:

If any member of the Board wishes to clarify any factual issue they should do so and, before reaching any concluded view of these matters, they should give our client a further opportunity to respond to any tentative conclusions they may have reached.

479 No director sought any clarification or further information from Mr Carter in the intervening 11 days before the decision to terminate his employment on 26 October 2004.

480 It can be seen, therefore, that criticisms can certainly be made of Mr Carter's answers to the first twelve questions. It is not so much that the answers were untrue but that some of them were non-responsive, or evasive to use Mr Johnstone's word, and not a full account directly answering the question.

481 In considering the seriousness of these criticisms it is important to remember that the questions were numerous and many involved complex issues such as the methodology for the preparation of the budget. Moreover, the time allowed for the response was short, particularly given that this was an extremely high pressure situation in which Mr Carter found himself. However, while Mr Carter indicated that he had some difficulty in preparing the answers because he was away from the office, he did concede that he had full access to his staff by email and telephone during the three days in which he had to answer the questions. Nevertheless, the eventual time allowed of three days is to be contrasted with the nearly three weeks taken in drafting the questions with the assistance of DFC's lawyers. It is perhaps not surprising, therefore, that some mistakes appeared in Mr Carter's answers.

482 A more important question is for what purpose the 28 questions were asked. Mr Dennis claimed that the administration of the questions was a genuine search for information. He said that by late September 2004 he had some concerns with the performance of the Managing Director because of the bullying issue, and because of what he had discovered upon his investigation of the renovations and the Hofmeyer incident. Mr Dennis also indicated that he believed by that stage that Mr Carter had misled the Board on a number of occasions. Mr Dennis stated that the process of administrating the questions was conducted to give Mr Carter an opportunity to put the full facts before the Board.

483 I do not accept this evidence. I am satisfied that, as far as Mr Bert Dennis was concerned, he was already of the view that Mr Carter had to go because he had had the temerity to accuse Mr Dennis of bullying him. The three directors who were his children were also of the same view. The 28 questions were not a genuine search for information. It is clear that the answers to some of the questions, such as whether the Carters had carried out renovations and the names of the employees who worked on the renovations were already known to the Board.

484 If the 28 questions were a genuine search for information then Mr Carter's request for a period of two weeks within which to respond would have been granted. Instead, Mr Bert Dennis' falsely stated that "the Board needed a response" within two days. In fact, the Board did not consider the answers until its next meeting some 11 days later.

485 In Associated Dominion Assurance Society Pty Ltd v Andrew,[37] Herron J said:

Furthermore, a duty lies upon an employee in general terms to give information to his employer such as is within the scope of his employment and which relates to the mutual interest of employer and employee. If an employee is requested at a proper time and in a reasonable manner to state to his employer facts concerning the employee's own actions performed as an employee, provided that these relate to the master's business, the employee is bound, generally speaking, to make such disclosure.

486 The process of questioning must be fair and reasonable.[38] Moreover, as Judd J said in Howard v Pilkington (Australia) Ltd[39] the questioning must be:

a genuine investigation ... to properly inform the employer of the true character or extent of the employee's conduct.

the investigation was a managed process, designed to accumulate material to justify Mr Howard's early termination. Mr Kruger's written interrogation of Mr Howard was demonstrated to be a charade, designed to justify his dismissal for failure to co-operate. This is no doubt why Pilkington did not rely upon Mr Howard's responses as a justification.

487 Counsel for the defendant correctly pointed out that the right to terminate an employee at common law is not subject to a right on the part of the employee to be heard in his own defence.[40] However, the point made by the plaintiff is different. It is that DFC should not be entitled to submit that Mr Carter's answers to the 28 questions constituted serious misconduct or a repudiation of the employment contract when the questions were not a genuine search for information and were not put in a fair and reasonable manner in that sufficient time was, quite unnecessarily, not allowed for the answering of the questions.

488 I have concluded that the whole process of administering the 28 questions was a charade. It was simply a process designed to create a justification for Mr Carter's dismissal. In the circumstances, I am not prepared to find that the answers were serious misconduct or a repudiation of the employment contract.

489 DFC's thirteenth and last reason for Mr Carter's summary dismissal was that by a statement in his solicitors' letter to Mr Bert Dennis dated 15 October 2004 he falsely represented that in leaving his former employment with the NRMA he relied on certain representations made by DFC ("the NRMA representation"). The defendant pleaded that at the time of making the NRMA representation the plaintiff knew it to be "false" because of the time of making it:

(a) he had not left his former employment of his own accord, rather his employment had been terminated by resolution of the Board of NRMA on 26 February 2003; and

(b) at the time of termination, the alleged representations by the defendant had not been made by it.

490 The defendant pleaded that the plaintiff made the NRMA representation knowing it to be false, with a view to:

(a) deceiving the defendant into believing:

(i) that the plaintiff had left his employment with NRMA of his own accord and had not been, as was in fact the case, terminated by NRMA;

(ii) that representations allegedly made by the defendant had been a material factor in the plaintiff ceasing employment with NRMA when that was not in fact the case;

(iii) alternatively, that the plaintiff would not have ceased employment with NRMA but for the representations alleged to have been made by the defendant; and

(iv) that the plaintiff stood to suffer loss and damage as a consequence of leaving employment at NRMA and accepting employment with the defendant;

(b) frustrating and impeding the consideration by the defendant's board of the plaintiff's response to the 28 questions; and

(c) exerting pressure on the defendant to terminate the employment of the plaintiff on financial terms favourable to him.

491 The defendant pleaded that the making of the false representation was serious misconduct by the plaintiff or a repudiation by him of the employment contract.

492 The false representation alleged to have been made by Mr Carter was set out in the solicitors' covering letter that accompanied his answers to the 28 questions. The six page letter covered a number of topics, namely representations made prior to entering into the contract of employment, the terms of the contract of employment, dealings between DFC and Mr Carter, allegations of bullying, the issue of the appointment of an internal auditor and the 28 questions. It is clear that these topics were referred to in light of the fact that, as stated in the letter, Mr Bert Dennis had advised Mr Carter that his answers to the 28 questions "could have serious repercussions for his employment with the Company". The letter continued:

For this reason, our client has asked us to put a number of issues in relation to his contract of employment to the Board for its consideration.

In considering our client's legal position vis a vis the Company regard must be had to the representations made to him prior to entering into the contract to the terms of the contract, to whether the Company has complied with the contract and to our client's response to your questions.

493 With respect to the topic of representations, the letter stated as follows:

We are instructed by our client that, prior to entering into the contract of employment, a number of representations were made to him, which he relied on in leaving his former employment and which, we believe, now form part of this contract of employment. These representations are contained in documents and in discussions between yourself and our client. The first document relied upon by our client is a document prepared by the Company's consultant, Cordiner King, in which it is stated, inter alia, - "It is also intended to physically separate the Managing Director and the CFO, who are presently co-located with family members in separate but adjacent premises. Whilst symbolic, these actions are all designed to emphasise that DFC is intended to be a stand-alone business in much the same way as any public company". The second document is a briefing paper provided to our client after he was short listed for the position. At page 6 of this document under the heading "Family" the following statement is made ―

Nevertheless, the family members and shareholders believe that their interests are best protected if the business operates at similar levels of governance as would be demanded if it operated in the listed environment.

The representations set out above were repeated, in similar terms, in separate conversations between our client, the consultant and yourself. On one occasion, in response to the question "What do you expect from a Managing Director?" you stated "I want someone to run the business".

494 The first document relied upon by Mr Carter was a letter from Cordiner King dated 10 February 2003. The second document, the briefing paper prepared by Cordiner King, was dated March 2003. The oral repetition of the representations was, of course, said to have been made by Mr Bert Dennis.

495 Under the heading of "Dealings between the Company and our client", the solicitors complained about Mr Bert Dennis' conduct in July 2004 in announcing:

a fundamental realignment of the relationship between the Board and the Executive Team by insisting that yourself and other family members on the Board would attend Executive Team meetings on a weekly basis.

After further discussion, the solicitors concluded this part of the letter as follows:

In our view the involvement of yourself and other family Board members in the day to day management of the Company amounts to "[causing] a material diminution of the level of responsibility or authority" of our client's position as Managing Director. Having regard to the terms of our client's contract of employment, if the Board's position is truly that it endorses the current diminution in the responsibilities and authority of our client, it should, consistent with the contract of employment, either remedy the situation by restoring our client's former authority or by terminating the contract in accordance with the terms of the contract, namely by giving our client 3 months' notice and paying him out the balance of his contract.

496 In his witness statement, Mr Carter denied the allegation that the solicitors' letter contained a false representation that he had relied on representations by DFC in leaving his employment with NRMA.

497 Mr Carter's evidence at trial was that the representations made by the defendant were at least one factor that he relied upon in making the decision to end his employment at the NRMA. In re-examination he said:

Prior to leaving NRMA can you tell His Honour what representations or documents you had had from or on behalf of the defendant?---Yes, Your Honour. I had - I had been approached by Cordiner King to see if I had an interest in the role, and I had been provided with materials by Cordiner King. I'd also had a very lengthy meeting with Mr Richard King, in which he assured me that the intention in creating the role was that the Dennis Family Corporation was seeking to professionalise its management and its governance, and that it intended to be governed as if it were a publicly listed company.

Did you rely on those representations?---I did.

498 Nevertheless, Mr Carter agreed in cross-examination that the letter contained a mistake. He said that the part of the sentence highlighted above was "poorly expressed and is a mistake". He then agreed that it was "false" but said that he had "no intention to be dishonest. It's just poorly expressed. ... I did not intend to lie". That led to the following question and answer:

You would agree with me sir, wouldn't you, that an employee who lies to a managing director is capable of being summarily dismissed? - It depends on the extent of the importance of the lie, and this is a statement made on the verge of my being dismissed when it was very plain that they were intending to dismiss me.

499 Mr Carter said that what was false was that he left his former employment in reliance on DFC's representations "because it happened before I did that" [sic]. But he said that he did rely on what DFC's agent had said because Mr Cordiner had:

left me with a very clear impression that I would be a very, very strong candidate for this job.

500 Mr Carter also agreed in cross-examination that it would have been false to have suggested that he had relied on any representations by Mr Dennis in leaving his former employment because that occurred in late February 2003 and he did not meet Mr Dennis until 2 April 2003. He said that what was intended was that the representations by Mr Dennis were made prior to him entering into the contract of employment on 10 April 2003.

501 An inordinate amount of time was spent by the defendant cross-examining Mr Carter about his performance as the CEO of the NRMA. I do not consider it relevant to refer to many of the issues canvassed in this cross-examination. Nevertheless, as the defendant has pleaded that Mr Carter's employment was "terminated" by the Board of the NRMA it is necessary to refer briefly to the circumstances of his departure from that organisation.

502 Mr Carter was employed as the CEO of the NRMA from August 2000 until February 2003. DFC was aware, at the time Mr Carter was appointed, that the NRMA Board had experienced a turbulent period during the time of Mr Carter's employment. There had been bitter factional fighting, and almost continuous litigation, which was widely reported to the public. DFC was also directly alerted to the situation that had existed at the NRMA during Mr Carter's employment by material that was set out in Cordiner King's briefing paper prepared in March 2003. The paper noted:

He has just left the NRMA after two and a half harrowing years. There have been major problems on the Board, and this has affected the whole organisation. In the circumstances, what he achieved was quite outstanding and we have had this confirmed by one of the old Board.

503 It was Mr Carter's evidence that the competing factions on the Board made his time at the NRMA extremely difficult. On 17 December 2002 a new Board was elected at the NRMA. Mr Carter said that in about late February 2003 he suggested to Mr Ross Turnbull, the President of the NRMA, that the newly appointed Board might want to consider the appointment of a new CEO. By this time he had already been approached by Cordiner King about the Managing Director's position at DFC. Mr Carter said:

I approached Mr Turnbull and said "In light of the fact that there is a new Board I am prepared to consider resignation. Not only because of the fact that there's a new Board but there are things going on in the organisation that caused me great concern.

According to Mr Carter, Mr Turnbull said he would go to the Board and discuss the issue with them. Mr Carter said that, prior to the February Board meeting, Mr Turnbull and he had lunch a restaurant near Luna Park in Sydney, and Mr Turnbull informed him that the Board did want to appoint a new CEO.

504 At the NRMA Board meeting held on 26 February 2003 Mr Carter was asked to absent himself, at approximately 4.40 pm, while the Board discussed his employment. Mr Carter gave evidence that following the 26 February Board meeting, perhaps the next day, Mr Turnbull invited him to lunch and indicated that the Board had decided to appoint a new CEO.

505 Mr Carter said that on or about 28 February, a couple of days after the Board meeting, Mr Turnbull came to his home in Paddington to discuss the details of his departure. A record of Mr Turnbull's activities confirms that he did meet Mr Carter at his home on 28 February 2004. Mr Carter's evidence of the meeting was as follows:

He and I discussed some details of my departure including: the payment to me and NRMA's requirement for strict confidentiality ... We also discussed in general terms the nature of a press release about my departure although the details of that press release were finalised later. No suggestion was made that my employment was terminated for any reason. I left the NRMA by mutual agreement.

506 The defendant called Mr Alan Evans, a non-executive director of the NRMA, to give evidence of the circumstances in which Mr Carter's position as CEO came to an end. Mr Evans said in evidence-in-chief that Mr Carter had not resigned but that he had been terminated. Mr Evans said that he had discussions with other Board members in the lead up to the 26 February Board meeting about the performance of the organisation and its management, and that:

I did not think Mr Carter was capable of adequately performing the task of Chief Executive Officer of NRMA and my view was that his tenure as CEO should be terminated.

507 The minutes of the NRMA Board meeting on 26 February 2003 record that at 4.47 pm, after Mr Carter had left the meeting, the following resolution was moved by Mr Alan Evans and adopted unanimously by the Board:

That having regard to the current adverse financial position of the NRMA and the decisions and actions necessary to rectify the financial position, the Board determines that current Chief Executive Officer is not the appropriate person to undertake the management of the organisation whilst the necessary actions are taken in the future and authorises the President to terminate the Chief Executive Officer's contract as expeditiously as possible in accordance with the provisions of his contract.

508 As stated, Mr Carter was not present when the resolution was passed. He said that he only became aware of the content of the resolution as a result of this legal proceeding sometime in February 2008.

The Board resolved that the President, Mr Turnbull and I should negotiate with Mr Carter about the terms of his departure and that he should get no more than he was entitled to under his contract.

510 Subsequent negotiations between Mr Carter and representatives of the NRMA, including Mr Turnbull, resulted in a Deed of Release being entered into on 28 February 2003. The Recitals to the Deed of Release read as follows:

1. The Employee is employed by the Association as its Chief Executive Officer.
2. The Employee and the Association have agreed that the employment of the Employee with the Association will cease on 28 February 2003.

1. The parties have agreed to formalise their separation on the terms set out in this deed.

The parties agree that the employment will terminate on the Termination Date.

511 An agreed media release was jointly drafted. It noted in part:

The Board also announced that Rob Carter, the CEO of the NRMA for the past two and a half years, has left his position and intends to pursue new interests.

NRMA President, Ross Turnbull said today that Rob Carter had guided the organisation through the difficult post demutualisation era and at times had been under direction of past NRMA Boards who must ultimately bear responsibility for the poor performance.

Mr Evans' view of the resolution of the Board of the NRMA was that Mr Carter's employment had been brought to an end under the termination clause in his contract. He was suggesting that Mr Carter's contract had been terminated in the sense that he had been dismissed or sacked. Mr Evans unequivocally stated, that:

The resolution that was passed by the Board was that Mr Carter's employment should not continue and he should be paid out under the termination clause of his contract, not the resignation clause. There was no option for Mr Carter to stay at the NRMA.

However, Mr Carter's contract of employment at the NRMA stipulated that he would receive payment for three months if he resigned, and payment for twelve months if his contract was terminated by the Board. Not surprisingly, therefore, Mr Evans said that it was Mr Carter himself who had sought to have the word "resign" excised from the media release, as he wanted to secure the payout available under the termination clause. It is clear from the evidence and from the terms of the Deed of Release itself that there had been negotiations between the NRMA Board and Mr Carter which resulted in an agreement as to the terms of his departure. Mr Evans agreed in cross-examination that the terms of the Deed accurately reflected the agreement between the parties. It provided for payments and other benefits to be received by Mr Carter in addition to his contractual entitlements.

512 On one view, Mr Carter's evidence about his discussions with Mr Turnbull, which I accept, and the terms of the Deed of Release suggest that he was correct to say that his employment ceased by mutual agreement. However, the problem remains that Mr Carter's employment with NRMA certainly ceased on 28 February 2003 and most of the representations referred to in his solicitors' letter could not have been made before then. The Cordiner King briefing paper was dated March 2003, and he did not meet Mr Bert Dennis concerning the position of Managing Director of DFC until April 2003. The claim made by Mr Carter that he relied upon these representations in making the decision to leave his former employment was, therefore, incorrect.

513 The other representation was made in the letter from Cordiner King dated 10 February 2003. Mr Carter's evidence was that by 20 February 2003, following a meeting with Cordiner King, he was "very, very confident" that he would get the job at DFC.

514 However, Mr Carter admitted that the first sentence of the paragraph referring to representations made by DFC in the 15 October 2004 letter from his solicitors was a mistake. He explained it in this way:

The mistake is that I relied on representations made to me regarding corporate governance under DFC, because after my meeting with Cordiner King I was very, very confident I would get this job. He gave me indications to that affect. However, I couldn't fairly say that I'd left my employment by then, and the - that sentence mistakenly gives that I suppose suggestion [sic].

Mr Carter said although he had not been offered the job at the time he left the NRMA he was confident that he would get it, and that was one factor that he took into account when he considered leaving the NRMA. Mr Carter said the job at DFC "was one of the many things in my mind when I approached the president regarding my resignation on 23 February".

515 The most serious part of the defendant's pleading of its case in respect of this ground was that the false representation was made by the solicitors on the instructions of Mr Carter with a view to:

frustrating and impeding the consideration by the defendant's board of the plaintiff's response to the 28 questions.

I do not accept this argument. There was no evidence to support it and there does not seem to be any logical connection between the two.

516 Rather, I consider that the representation was made as part of the complaint that the Board by its recent resolution had diminished the Managing Director's level of responsibility and authority. The letter was trying to make the case that not only had this been done, it was also contrary to representations made to Mr Carter before he entered into the employment contract with DFC. The mistake was that instead of limiting it to a situation of alleged representations made prior to the entering into the contract, it was extended to a situation of alleged representations prior to Mr Carter leaving his then employment and entering into the contract with DFC.

517 Although this mistake was a careless error on the part of Mr Carter, it is easy to understand how the chronology became confused under the pressure of dealing with the 28 questions and Mr Carter's employment situation in a short time frame. In the circumstances, I do not consider that the mistaken allegation in the solicitors' letter should be held to be serious misconduct or a repudiation of the employment contract.

518 Further, I consider that the prohibition on reliance by DFC on Mr Carter's answers to questions which were designed to accumulate material to justify his summary dismissal rather than being part of a genuine search for information should also apply to the solicitors' covering letter accompanying the answers to the 28 questions. It was all part of the same unfair process.

519 As previously stated, I do not consider that Mr Carter should have been summarily dismissed. None of DFC's thirteen reasons, whether considered separately or together in any combination, justify the conclusion that he was guilty of serious misconduct, gross negligence or incompetence or that he repudiated the employment contract.

520 Accordingly, there should be judgment for the plaintiff in the sum of $916,774 and an order that the counterclaim be dismissed. I will hear from the parties on the question of interest and costs.

[1] Corporations Act 2001, s.180(1).

[2] Corporations Act 2001, s.181(1).

[3] Corporations Act 2001, s.182(1).

[4] Corporations Act 2001, s.183(1).

[5] Aon Risk Services Australia Limited v Australian National University (2009) 235 CLR 175.

[6] [2000] HCA 64; (2000) 75 ALJR 312, [23].

[7] North v Television Corp Pty Ltd (1976) 11 ALR 599, 609.

[8] See Corporations Act 2001, s.198A and Australian Securities and Investments Commission v Vines [2005] NSWSC 1349, [90] (Austin J).

[9] (1992) 7 ACSR 759.

[10] (1992) 7 ACSR 759, 867.

[11] (1989) 16 NSWLR 260, 281.

[12] [2006] FCA 1004, [351].

[13] [2001] VSC 150; (2001) 107 IR 117, [267].

[14] (1888) 39 ChD 339, 363.

[15] (1976) 11 ALR 599, 608-9.

[16] Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 1 WLR 598, 701 (Lord Evershed MR).

[17] [2001] VSC 150; (2001) 107 IR 117, [263] and [264].

[18] [2006] FCA 1049, [6].

[19] [2006] VSC 445, [17].

[20] Bruce v AWB Ltd [2000] FCA 594, [15] (Sundberg J).

[21] Rankin v Marine Power International Pty Ltd [2001] VSC 150; (2001) 107 IR 117, [250] (Gillard J).

[22] [2005] VSC 466, [48].

[23] Rankin v Marine Power International Pty Ltd [2001] VSC 150; (2001) 107 IR 117, [250] (Gillard J).

[24] [1938] HCA 34; (1938) 60 CLR 336, 361-362.

[25] [1992] HCA 66; (1992) 67 ALJR 170, 170-171.

[26] Orrong Strategies Pty Ld v Village Roadshow Ltd [2007] VSC 1; (2007) 207 FLR 245, [31].

[27] [2006] FCAFC 101; (2006) 233 ALR 687, [78] (Gyles, Edmonds and Greenwood JJ).

[28] [2010] VSC 196.

[29] [2010] VSC 196, [191].

[30] Li v Herald & Weekly Times Pty Ltd [2007] VSC 109, [305], [306] and [313] (Gillard J).

[31] (1872) LR 7 QB 666.

[32] [2001] VSC 150; (2001) 107 IR 117, [352].

[33] [2001] VSC 150; (2001) 107 IR 117, [354].

[34] See Federal Supply Co v Angehrn (1910) 103 LT 150 (PC), at 152 in Rankin v Marine Power at [355].

[35] Worksafe Victoria, Preventing and Addressing Bullying at Work (2009), 4.

[37] (1949) 49 SR(NSW) 351, 357.

[38] Patty v Commonwealth Bank of Australia [2000] FCA 1072, [95]-[96].

[39] [2008] VSC 491, [139].

[40] Intico (Vic) Pty Ltd v Walmsley [2004] VSCA 90, [3] (Ormiston JA) and [17] (Buchanan JA).