Carter v The Dennis Family Corporation [2010] VSC 406

Supreme Court of Victoria|2010-09-09|Before: HABERSBERGER J

EMPLOYER - Employee - Managing Director - Summary dismissal - Serious Misconduct - Gross Negligence - Incompetence - Repudiation - Condonation - Questioning of Managing Director a charade, not a genuine search for information - Meaning of "the balance of the three year term".

1 On 26 October 2004, the plaintiff, Mr Robert Carter, was summarily dismissed from his position of Managing Director of the defendant, The Dennis Family Corporation Pty Ltd ("DFC") about eighteen and half months prior to the expiration of his three year term. In this proceeding Mr Carter sued for the sum of $1,067,851, being his entitlement to various payments totalling $916,774 due under the balance of his three year contract, plus $151,077 in lieu of three months' notice. DFC counterclaimed for a net overpayment of $3,590.58 and damages or compensation in the sum of $46,584.33 in respect of allegedly unauthorised renovations.

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.

The defendant pleaded that the plaintiff's conduct was serious misconduct or a repudiation of the employment contract.
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.

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:

At a glance

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Before

Source

Judgment (860 paragraphs)

Parties

Cases Cited (9)