Downe v Sydney West Area Health Service

Supreme Court of NSW|2006-11-24|Before: Rothman J, Mr J, Mr P

Background 3 The plaintiff is a neonatologist who has been employed at Nepean Hospital since 5 November 1990. She was initially appointed for the purpose of establishing and conducting the Neonatal Intensive Care Unit at the hospital. She was appointed as the Director of the Unit and continued employment without any issue arising. On or about 2 September 2004 issues arose, which the defendant considered affected her capacity to continue in that position. 4 Because of the plaintiff's recognised and accepted skill as a clinician and medical practitioner the defendant desired to continue the employment of the plaintiff as a senior specialist in the neonatal area, but not as the Director of the Unit. The defendant suspended the plaintiff from the performance of duties but continued her employment and continued to pay her wages. 5 The plaintiff has remained suspended from duties, on full pay, since 2 September 2004. 6 The defendant's suspension of the plaintiff was the subject of a dispute notification to the Industrial Relations Commission of New South Wales and has been the subject of conciliation before a member of the Commission. The issue was referred to private arbitration before a former member of the Commission, the Hon Russell Peterson QC. 7 On 2 December 2005, following unsuccessful conciliation of the dispute notification, the plaintiff commenced proceedings in the Commission in Court Session under s106 of the Industrial Relations Act 1996 (NSW). On 12 April 2006, the plaintiff commenced proceedings in the Federal Court of Australia alleging unconscionability and contraventions of the Trade Practices Act 1976 (Cth). Each of these proceedings have been cross-vested into this Court and consolidated with proceedings commenced in this Court on 8 March 2006, which proceedings were originally confined to the cause of action in contract. 8 The motion to strike out would confine the consolidated proceedings to that which had originally been commenced in the Supreme Court. The basis of each strike out is very different from the other. The application to strike out so much of the Statement of Claim that relates to s106 of the Industrial Relations Act 1996 (NSW) (the "Act") depends on the proper construction of s108A of that Act. Section 108A restricts the contracts of employment that may be subject to an order under s106 by reference to an upper limit, being $200,000, which the remuneration package of the employee must be below. 9 The application to strike out on that part of the Statement of Claim that relates to the cause of action under the Trade Practices Act 1976 (Cth) relates to the content of the pleadings and in particular an alleged failure, on the pleadings or the particulars thereof, to make out the basis of a good cause of action.

Trade Practices Act 10 Because the proceedings are now a consolidation of three sets of proceedings, the hearing of the matter suffered consequential delay, and because of the nature of the justiciable controversy between the parties, the Court has, on application of the plaintiff, granted expedition and removed the matter from the General Case Management list. The matter is now listed before me for hearing for three weeks commencing 29 January 2007 and is the subject of a special case management procedure. Part of that procedure, unusually for this Division of the Court, because of the history of the matter in other jurisdictions and the need to expedite the preparation and hearing of the matter, is that evidence will proceed by way of affidavit. 11 The Amended Consolidated Statement of Claim deals with unconscionability, under both the general law and the Trade Practices Act 1976 (Cth), in paragraphs 27 through to 34. Paragraph 27 of the Amended Consolidated Statement of Claim repeats paragraphs 1 to 26, which are a recital of the factual allegations and the allegations relating to the breach of contract. 12 The Statement of Claim asserts that the suspension of the plaintiff was "in the course of trade and commerce". The Statement of Claim then asserts that the defendant's conduct amounted to unconscionability, a breach of a duty not to destroy trust and confidence, and a breach of the duty to act in good faith towards the plaintiff. 13 The defendant submits that employment, simpliciter, is not in trade or commerce: see Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594. There the High Court, per Mason CJ, Deane, Dawson and Gaudron JJ, said: "The phrase 'in trade or commerce' in section 52 has a restrictive operation. It qualifies the prohibition against engaging in conduct of the specified kind. As a matter of language, a prohibition against engaging in conduct 'in trade or commerce' can be construed as encompassing conduct in the course of the myriad of activities which are not, of their nature, of a trading or commercial character but which are undertaken in the course of, or as incidental to, the carrying on of an overall trading or commercial business. If the words 'in trade or commerce' in section 52 a construed in that sense, the provisions of the section would extend, for example, to a case whether misleading or deceptive conduct was a failure by a driver to give the correct handsignal when driving a truck in the course of a corporation's haulage business. It would also extend to a case, such as the present, where the alleged misleading or deceptive conduct, consisted of the giving of inaccurate information by one employee to another in the course of carrying on the building activities of a commercial builder. Alternatively, the reference to conduct 'in trade or commerce' in section 52 can be construed as a referring only to conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character. So construed, to borrow and adapt words used by Dixon J. in a different context in Bank of NSW v The Commonwealth , the words 'in trade or commerce' refer to 'the central conception' of trade or commerce and not to the 'immense field of activities' in which corporations may engage in the course of, or for the purposes of, carrying on some overall trading or commercial business ….The driving of a truck for the delivery of goods to a consumer and the construction of a building for another pursuant to a building contract are, no doubt, trade or commerce insofar as the relationship between supplier and actual or potential customer or between builder and the building owner is concerned. That being so, to drive a truck with a competitor's name upon it in order to mislead the customer or to conceal a defect in the building for the purpose of deceiving the building owner may well constitute misleading or deceptive conduct 'in trade or commerce' for the purposes of section 52. On the other hand, the mere driving of a truck or construction of a building it is not, without more, trade or commerce and to engage in conduct in the course of those activities which is divorced from any relevant actual or potential trading or commercial relationship or dealing will not, of itself, constitute conduct 'in trade or commerce' for the purposes of that section. That being so, the giving of a misleading handsignal by the driver of one of its trucks it is not, in the relevant sense, conduct by a corporation 'in trade or commerce'. Nor, without more, it is a misleading statement by one of a building company's own employees to another employee in the course of their ordinary activities. The position might well be different if the misleading statement was made in the course of, or for the purposes of, some trading or commercial dealing between the corporation and the particular employee." ( Concrete Constructions v Nelson (1990) 169 CLR 594 at 603-604) 14 Transferring the rationale in Concrete Constructions from misleading and deceptive conduct to unconscionability requires that the conduct said to be unconscionable must not be divorced from any relevant actual or potential trading or commercial relationship or dealing. Employment relations, and conduct affecting them, are not, on the authorities as they stand, without more, conduct in trade or commerce. In order for unconscionable conduct toward an employee (or by an employee toward her or his employer) to be actionable under the Trade Practices Act 1976 (Cth), there must be circumstances that take the conduct beyond a relationship confined to employer/employee. 15 The plaintiff, as already stated, was the Director of the Neonatal Unit and was, in that respect, it may be inferred, the face of the defendant in its relations with patients. At least, at this stage of the proceedings, it cannot be assumed to the contrary. If that were the case, and/or if the alleged unconscionable conduct affected the defendant's relationship with its patients and/or the manner in which the defendant provided its services, there may be "more" (as the High Court described it), which would bring the conduct within the description "of conduct in trade or commerce". 16 At this preliminary stage it is not possible for the Court to conclude that the evidence will not disclose circumstances that make the conduct "in trade or commerce". 17 Because the defendants moved by motion to strike out at a preliminary stage, they must show that the cause of action is "clearly untenable" and that the plaintiff cannot, in that respect, possibly succeed: see General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130. This they have not done and, on this aspect, their motion must fail. 18 The alternative aspect of the strike out motion, insofar as it deals with the claim for unconscionability, either under the general law or under the Trade Practices Act 1976 (Cth), relates to the failure by the plaintiff to plead special disability, or as developed in oral submissions, to provide particulars of any special disability: see Blomley v Ryan (1956) 99 CLR 362 at 415, 405; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 461. 19 In essence, this is a submission that, in circumstances where affidavits are to be filed and served, the lack of particulars of special disability warrants the Court striking out the cause of action. Whether the plaintiff can adduce evidence, acceptable to the Court, that shows special disability of the kind that would make the conduct unconscionable and, therefore, actionable is a matter upon which it is inappropriate for me to comment at this stage. It is sufficient to acknowledge, once more, the onus placed upon an applicant for strike out, and to confirm the view that in this regard, also, the defendant has failed to satisfy the onus. The absence of particulars, as alleged, must necessarily be examined within the procedures to be adopted prior to and at the hearing of the matter. The evidence of the plaintiff will be confined to the affidavits and the defendants will have sufficient notice of the nature of the case, if any, they must meet. This ground must also fail.

Industrial Relations Act 20 As earlier stated, the motion of the defendants to strike out the plaintiff's Statement of Claim in regard to the cause of action arising under the Industrial Relations Act 1996 (NSW) depends upon the application of the "statutory cap" imposed by s108A. It requires the construction of the section and an understanding of its place within the Act. It is not my intention, for reasons that I will state later, to determine finally this issue of construction. I will, however, set out at length my preliminary views on the submission so that the parties are aware of them and can address them at the trial. It is necessary to set out the relevant statutory provisions: " [105] Definitions In this Part: ' contract ' means any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument. [106] Power of Commission to declare contracts void or varied (1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract.

[108A] Employment contracts in respect of which applications cannot be made (1) An application cannot be made for an order under this Division if the application relates to a contract of employment under which: (a) a remuneration package that exceeds the remuneration cap is paid or received (or is payable or receivable) during the period of 12 months immediately before the application is made (or, if the application concerned relates to a contract that has been terminated, immediately before the termination), or (b) a remuneration package is paid or received (or is payable or receivable) during a period of less than 12 months immediately before the application is made (or, if the application concerned relates to a contract that has been terminated, immediately before the termination) that would, if the remuneration package had been paid or received (or been payable or receivable) for a period of 12 months, have exceeded the remuneration cap. (2) An application cannot be made for an order under this Division by a person who is a partner carrying on a business if: (a) the application relates to a contract between that partner and the other persons carrying on that business in partnership, and (b) the share of the net profits, or payments contingent on the net profits, of the business that are paid to or received by (or payable to or receivable by) the applicant during the period of 12 months immediately before the application is made (or, if the application relates to a contract that has been terminated, immediately before the termination) exceed: (i) $200,000, or (ii) if an amount is prescribed for the purposes of paragraph (b) of the definition of "remuneration cap" in subsection (3) - that amount. (3) In this section: " contract of employment " means any contract or arrangement under which work is done by a person in the capacity of an employee, and includes a related condition or collateral arrangement with respect to such a contract. " employment benefit " means a benefit provided to an employee at the cost of his or her employer (being a benefit of a private nature) and, without limitation, includes: (a) contributions payable to a superannuation scheme by an employer in respect of the employee, including any liability of that employer to make any such contributions or to pay costs associated with that scheme, or (b) the provision by an employer of a motor vehicle for private use by the employee, or (c) any other benefit prescribed by the regulations for the purposes of this definition. " monetary remuneration " includes any performance-related bonus or incentive payment. "remuneration cap" means: (a) $200,000, except as provided by paragraph (b), or (b) any greater amount prescribed by the regulations (being a regulation that increases the amount by reference to increases in the amount referred to in section 83 (1) (b)). " remuneration package " means the total value of monetary remuneration and employment benefits payable or receivable under a contract of employment."

21 In order to understand the defendants' submission on this aspect, it is necessary to appreciate some aspects of the remuneration of the plaintiff. In the period from 2 December 2004 until 1 December 2005, the plaintiff was paid, by way of salary and allowances, $193,765.91. The defendants allege that in the same period the plaintiff received a benefit of $15,186.04, being the liability imposed upon the first defendant pursuant to the State Authorities Superannuation Act 1987 (NSW) (the "SAS Act"). The provisions of the SAS Act require the first defendant to match, dollar for dollar, the payment of the plaintiff into the superannuation scheme to which it refers. Other superannuation benefits accrue to the plaintiff but they arise under a non-contributory defined benefit scheme and are factually more difficult to categorise as a liability to the employer. 22 The defendants submit that, for the purposes of s108A, the remuneration package of the plaintiff for the relevant 12-month period was at least $208,951.95. At all relevant times the remuneration cap was $200,000. Therefore, the defendants submit, the plaintiff's remuneration package exceeded the remuneration cap and the plaintiff cannot make application under s106 of the Industrial Relations Act 1996 (NSW). 23 There is no dispute between the plaintiff and defendants concerning the amounts attributable to various benefits received by the plaintiff. The dispute concerns whether the wages set by the Award, and/or the superannuation benefits to which reference has already been made (and some other benefits) fall within the definition of remuneration package in s108A(3) of the Act. 24 There are a number of subtleties in the difference between the parties and the construction of the Act. In the definition of "contract of employment ", is the term "contract" used in the sense defined in s105? Does the salary sacrifice (being the employee contribution to the aforementioned superannuation scheme) form part of the monetary remuneration and therefore part of the remuneration package? More fundamentally, is a requirement imposed on an employer by either a statute or an award (or other industrial instrument) payable and/or receivable under a contract of employment, in either its ordinary meaning or in its defined meaning? 25 The difficulty arises from the fact that the answer, whatever it is, to any one of the above questions, results in what seems to be inconsistencies. For example, if an employee in the situation of the plaintiff chose not to contribute from her or his salary towards superannuation, the employee would receive more salary in the hand, the employer would not be paying a benefit to the fund, and the employee's remuneration package would be under the cap. If the employer, as a consequence of the foregoing or otherwise, did not pay the 9% statutory superannuation requirements, the employee would receive a benefit from the federal government, the employer would be required to pay a tax impost, and the employee's remuneration package would still be under the salary cap. Yet the employee would be no worse off than otherwise. 26 It is essential, unless forced by express provisions or words of necessary intendment, in construing the Act, to seek to give effect to harmonious goals. "The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined 'by reference to the language of the instrument viewed as a whole'…. A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals. Where conflict appears to arise from the language of particular provisions, the conflict must be alleviated, so far as possible, by adjusting the meaning of the competing provisions to achieve that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions." ( Project Blue Sky v ABA (1998) 194 CLR 355 at [69], [70]) 27 Neither of the parties referred the Court to the Second Reading Speech. Unaided by recourse to the Second Reading Speech, I would, from the provisions of s108A and the Act as a whole, infer a purpose in the legislative provision which was to proscribe "high earners" from gaining access to the unfair contracts provision, the original purpose of which was to give the industrial tribunal the jurisdiction to ensure fairness in work contracts in circumstances where awards and other industrial instruments may not apply. 28 The defendants submitted that if the intention of s108A was to allow all workers covered by an award (or industrial instrument) to gain access to s106 of the Act, the legislature could and would have used words similar to that used in s84 of the Act. 29 The Second Reading Speech contains the following statement: "The original intention of the unfair contract provisions of the Industrial Relations Act was to protect award terms and conditions from being undermined by artificial contract arrangements. However, because of amendments to the provisions and the way in which the provisions have been interpreted, the operation of the unfair contracts jurisdiction has moved away from that original intention. In recent times the unfair contracts jurisdiction has been used by highly paid employees as a way to hit the jackpot and obtain compensation after the termination of their employment. The Industrial Relations Commission of New South Wales has awarded benefits on termination to these former highly paid executives which are much more than what an ordinary worker can expect to achieve in the unfair dismissal jurisdiction. A number of recent cases have shown that the Commission may find unfairness in a contract notwithstanding lavish remuneration packages during employment and generous payouts on termination. The most notorious example is probably Canizales v Microsoft Corporation , in which a human resources director was awarded access to share options valued at $12 million to $14 million in a decision arising from his redundancy, even after evidence that between the ages of 21 and 31 the earnings of the applicant were more than $10 million. In that case Justice Peterson said: 'It seems to follow necessarily that a contract may be exceedingly generous in an objective sense, such that an employee may earn over ten years more than most will earn in a lifetime (or, what would take more than 66 years to earn at the rate of $150,000 per annum) yet the contract may be unfair in the statutory sense because of the manner of its termination.'

This bill will ensure that the Commission is not compelled to award such generous payouts to highly paid executives. The expansion of this jurisdiction to enable highly paid executives to achieve large compensation payments has coincided with significant increases in the number of claims being made. Almost twice as many unfair contracts applications were lodged in 2001 as compared to 2000 - that is, 956 claims in 2001 compared with 552 claims in 2000. This was after a 76 per cent increase from 1999 to 2000. One firm conclusion can be stated: The unfair contracts provisions are being regularly invoked by people who are neither being exploited nor treated ungenerously. The consequences of this situation are both negative and serious. Similar provisions existing in other Australian jurisdictions are of much narrower application than the New South Wales provisions, and overseas centres with which New South Wales is competing for business and investment have no comparable provisions. This bill will limit these extravagant and speculative claims, and bring the provisions back in line with their original intention of protecting award terms and conditions. I commend the Bill to the House."

In reply to the debate on the Bill, the then Minister referred to the legislation excluding "highly paid employees, who would not be able to make an unfair dismissal claim". 30 If one seeks to construe the Act in a way that achieves the harmonious goals said to be the purpose of the Act, it would seem necessary to ensure that workers who are paid under an award would have access to the provisions of s106 of the Act. Superficially, the submission of the defendants that such a purpose could best be achieved by terms similar to those in s84 seems attractive. However, s84 of the Act achieves a slightly different purpose. Section 84 of the Act seeks to ensure that all employees, other than those for whom conditions of employment are not set by an industrial instrument, have access to the unfair dismissal provisions of the Act together with employees who earn less than the prescribed amount.

31 The terms of the Second Reading Speech confirm the purpose that seems obvious from the provisions of s108A, namely, the exclusion of "high earners". But an employee whose conditions of employment are covered by an award may still be a "high earner". Thus, an award may prescribe rates of pay and conditions of employment for an actor (or news presenter or footballer), but their rate of pay may far exceed any amount set by the relevant award. Such a "star" performer would, on the above analysis of the purpose, not be covered by the provisions of s106 of the Act, but would have one or more of her or his conditions of employment set by an award and could invoke unfair dismissal provisions. 32 However, an employee, whose rates of pay are set by the award and who is paid accordingly, would have access to s106 of the Act. This is because an employee that is paid a rate set by an award could not, in the relevant sense, be described as a "high earner". 33 Only one construction allows the achievement of that goal without significant inconsistencies. That construction also accords with the ordinary and grammatical meaning of the words used in s108A of the Act. 34 An examination of the definition of "contract of employment" confines the contract or arrangement to a situation of employment but extends it to include "a related condition or collateral arrangement with respect to such a contract". An "arrangement" is a term wider than "contract" but necessarily imports "a meeting of the minds of those said to be parties to the arrangement": ACCC v Amcor Printing Papers Group Ltd (2000) 169 ALR 344 at [75] on 359-60 and the cases cited therein. An award or statutory requirement could never be described as a meeting of the minds of an employee and her or his employer. 35 An award may operate on the employment relationship, or even perhaps collaterally with a contract of employment, but it is not an arrangement. 36 Nor is an award or statutory requirement a "related condition" to the contract of employment. "Condition" is a term well known to the law. It is generally something demanded or required as a prerequisite to the granting or performance of something else. It is commonly, i.e. not strictly, also used to mean any term in a contract, whatever its nature: Whitman Machine Tool Sales Ltd v L. Schuler AG [1972] 1 WLR 840, per Denning LJ. In contract law, it is sometimes used to mean a contractual term so fundamental that any breach of it gives rise to a right of termination of the contract: Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 at 302. 37 The Dictionary definitions do not detract from the above. An award is an instrument created by the Commission and given force and effect because it is rendered binding by the Act. It may be made in circumstances where there are no employees, at least at the time it is made, and it may be binding on an employer, for example, in relation to matters that occur prior to any employee entering into a contract of employment. Further, it may operate to provide rights and/or obligations at a point in time after the cessation of a contract of employment. While it is necessary for there to be an employment relationship (present, past or future) in order that the award may operate, it is the employment relationship (as distinct from the contract of employment) that is the related condition to the award, not the converse. In other words, a contract of employment can and does exist independently of any award and an award can and does exist independently of any contract. If either ceased to exist, the other would continue unaltered. 38 It should be noted that there is a well known and a recognised distinction between an employment relationship and a contract of employment: see Byrne & Frew v Australian Airlines Ltd (1995) 185 CLR 410 at 427, citing Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435. 39 Further, if a statutory provision were a collateral arrangement or related condition, then the bizarre situation would arise that the Commission could, under the provisions of s106 of the Act, determine whether that statutory provision was unfair. Similarly, and equally bizarrely, would be the existence of a power to determine as unfair an industrial instrument, which is a creature of the Commission and binding by operation of statute. 40 The defendants submit that the definition of "contract" in s105 of the Act, and particularly the express exclusion therein of an industrial instrument, displays an intention that an industrial instrument is otherwise a "related condition or collateral arrangement". The terms of the definition of "contract" do not necessarily display such an intention. First, it may be that the exclusionary words are used as a matter of abundant caution. Second, there may be occasions when an industrial instrument is a related condition or collateral arrangement. Such may occur, for example, when the award, or a provision of it, is expressly included in a contract; especially when the award would not otherwise apply to such an employee: Byrne & Frew, supra, at 443-444, citing True v Amalgamated Collieries of W. A. Ltd (1938) 59 CLR 417. 41 Even if the defendants were correct in the submission summarised in the immediately preceding paragraph, the submission does not deal with the issue of a statutory requirement such as, in this case, the superannuation liability. However, contributions payable to a superannuation scheme are expressly included in the definition of "employment benefit" in s108A(3)(a). 42 It seems to me that the contributions payable to a superannuation scheme to which s108A refers are contributions payable under a contract of employment, not an award or statute. This is made clear by the definition of "remuneration package". In the definition of "remuneration package", even if the term "contract of employment" therein is used in the defined sense, it would not include, as outlined above, rights and obligations imposed by statute or award. 43 The extended definitions in s108A of the Act seek to effect the original purpose: to ensure that "high earners" are outside the provisions of s106; to ensure that such "high earners" are not able to circumvent the cap by diverting extraordinary over-award payments under the contract into superannuation or other non-monetary benefits. In this way, employees who are paid an award rate and statutory entitlements are not precluded from the provisions of s106, but employees, even those covered by an award, who receive contractual benefits well in excess of any award or statutory right, whether as a monetary or non-monetary benefit, are excluded. 44 My preliminary view is that, on the general contention of the defendant, the provisions of s108A do not preclude the plaintiff from pursuing her application under s106 of the Industrial Relations Act 1996 (NSW). It may be that evidence emerges that the remuneration package, as defined, is over $200,000 and, therefore, that the application under s106 is precluded. This may be because there are other conditions under the contract of employment or it may be that there are express provisions of the contract of employment that require the benefits otherwise provided by statute or award to be paid. This will depend on evidence, of which at the moment, there is none.

Conclusion 45 Even though difficult questions of law may be decided on an application to strike out (General Steel Industries, supra), as already noted, I do not finally determine the questions of law on this issue. I do so because I consider that further argument is necessary once the parties are aware of the matters of concern to the Court and because determining the issue on a preliminary basis will not, on the material of which I am aware, shorten the proceedings, even if I were minded to accept fully the submission of the defendants: Sun Earth Homes Pty Ltd v ABC (1993) 45 FCR 265. The material to which I refer is that which the defendants put to the Court in answer to the prior application by the plaintiff for the determination of a separate question. That material suggested that substantially all of the material relating to "unfairness" is to be adduced on the breach of contract claim and in relation to the discretionary elements associated with the remedy sought by the plaintiff. 46 For all the above reasons I order that the motion of the defendants to strike out those parts of the statement of claim and/or the cause of action relating to the Trade Practices Act 1976 (Cth) and the Industrial Relations Act 1996 (NSW) be dismissed and that the defendants pay the plaintiff's costs of and incidental to the motion, as agreed or assessed.

19/12/2006 - Added in date of decision to cover sheet. - Paragraph(s) N/A

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Trade Practices Act 1976(Cth)

CITATION : Downe v Sydney West Area Health Service [2006] NSWSC 1416 This decision has been amended. Please see the end of the judgment for a list of the amendments.

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