Intico (Vic) Pty Ltd & Ors v Walmsley [2004] VSCA 90

Court of Appeal (Vic)|2004-05-21|Before: ORMISTON, BUCHANAN and EAMES, JJ.A.

Contract - Wrongful dismissal - Summary dismissal for misconduct - Employee has no right to be heard - Employer's obligation of good faith not breached by summary dismissal for cause of an unwanted employee.

In this appeal I have had the benefit of reading the admirably succinct judgment of Buchanan, J.A., with whose reasons and conclusions I agree, so that the appeal must be allowed and the matter remitted for further trial in the County Court.

I would add only these observations. Lest there be any misunderstanding as to the functions of the Court of Appeal, in particular in relation to the allegations which form the first two incidents relied upon by the appellant and referred to by Buchanan, J.A. in paragraphs [7] and [8] of his judgment, this Court's role is not to retry issues of fact already determined by a trial court. It is possible that members of this Court might have reached different conclusions of fact from those reached by the trial judge as to those incidents, but the appellant must demonstrate error on the part of the judge in one form or another. Of course it need not necessarily be an error of law but asserted errors of fact are the harder to sustain when the judge's conclusions rest, as here, on his impression of a witness's oral evidence, both that given in chief and upon cross-examination, and of his impressions of the totality of the evidence given in that way at the trial. The relevant facts, as related by judges of appeal in their judgments, must necessarily take the form of a shortened and somewhat colourless account, such that it would be wrong for an appeal court, as it would be for others, to assess the precise circumstances in which those events took place without regard to the whole of the evidence given in the court room. Statements which to some may carry an innuendo of sexual harassment, as was alleged in this case, may, upon fuller examination, turn out to be either innocent or merely vulgar. The judge had the benefit of all that evidence and it was his function to assess it, so that, in the absence of demonstrated error, it is not for this Court to reassess it. His conclusions as to the other issues, however, involved questions of mixed law and fact and have been shown to be wrong.

Secondly, I agree entirely with Buchanan, J.A. that at common law and in the circumstances of the present employer/employee relationship, there could not have been implied a duty to afford procedural fairness before deciding to dismiss the

respondent as an employee. Statutory and award-based regimes may now require some such notice where employers are bound by such regimes, and that may be seen generally as being desirable when applied to the particular employment relationships which are made subject to the terms of those regimes. At common law, however, the right to determine a contract and thereafter to justify it on grounds not raised or even known at the time has long been recognised: see, e.g., Shepherd v. Felt & Textiles of Australia Ltd.[1], as discussed and referred to on many subsequent occasions, including in Concut Pty. Ltd. v. Worrell[2], applying it in the context of an employment contract. Affording an opportunity to be heard may well be a courtesy extended to employees in certain circumstances, but, in the absence of some specific stipulation requiring it, such a term is not ordinarily to be implied. To dismiss an employee, the circumstances must always show that the particular employee no longer intends to be bound by the essential terms of the employment contract, but there may be many reasons why immediate dismissal without making further enquiry of the employee may be the only appropriate course. Good relationships between members of staff are essential to any well run business, and enquiry into circumstances of the kind here alleged may unnecessarily create or exacerbate tensions. The right balance is a matter for the employer, indeed common sense frequently would dictate some checking of a person's allegations, but necessarily the employer must have good and proper grounds for terminating the employment.

The question whether the appellant had such grounds was not correctly resolved by the trial judge and that is the reason why the matter must be remitted for, regrettably, a further trial.

In December 1999, the respondent was engaged by the fifth-named appellant to act as its general manager. In August 2000, the respondent was appointed general

manager operations of the appellants, a group of companies in the business of manufacturing pipelines. On 19 April 2001, the respondent's employment was summarily terminated. In these proceedings, the respondent has alleged that he was entitled to notice of his dismissal and has claimed damages for breach of contract.

The appellants sought to justify the respondent's summary dismissal by pleading that the respondent "made inappropriate and unwanted sexual advances towards female members of his employers' staff."

Three incidents were relied upon. The first incident occurred at drinks after work. The respondent was alleged to have urged a female member of the appellants' staff to drink more. The member of staff said that she had to leave as she was going home to cook her mother a special meal. The respondent is alleged to have said, "Why don't you invite me to come along, too, and we will make a threesome of it?" The trial judge said:

"I am very sceptical of the notion that it contained any sexual invitation at all, and if it were to be interpreted in that fashion, it could not possibly be imagined to be anything more than a crude joke .... The situation that my mind is left in, however, is that I am not satisfied at all that what was said had a sexual connotation to it."

The second incident occurred at a party in a restaurant. The wife of one of the directors of an appellant, who performed part-time work for the appellant, gave evidence that she overheard the respondent making loud remarks of a sexual nature to his female partner. The trial judge said:

"The incident, if it occurred, and I assume for the purpose of this ruling that the lady was not making up what she said she heard, may have been misunderstood, but it did not contain any connotation of harassment of her, except in the most indirect fashion and it was not meant for her ears anyway."

Finally, the appellants relied upon allegations made by Ms Handler, a female employee of one of the appellants, that between November 2000 and February 2001 there were occasions when she passed the respondent in a narrow passageway and he touched her buttocks, and on one occasion, her breasts.

The trial judge said that the events described by the employee, if done intentionally and repeatedly, warranted summary dismissal and said that the question was whether the contact was deliberate or accidental. His Honour, however, did not determine that question. Instead, he held that the respondent was denied the opportunity of answering the charge and so could not be summarily dismissed. The trial judge said:

"The conclusion I reach, therefore, is that the facts, if known at the time, would have and should have led to the matter being investigated. They would not, in fairness, be used as summary dismissal without requiring an explanation from the supposed wrongdoer. When the supposed wrongdoer did inquire about what he was being accused of at the time of dismissal, reliant upon other facts, Mr Boegel replied, `Sexual harassment and insubordination.'"

The appellants now contend that the trial judge erred in reaching his conclusions as to each of the three incidents.

With respect to the first incident, counsel for the appellant submitted that the trial judge took into account two irrelevant considerations. The first was speculation as to the behaviour of one Mika, an employee who overheard the conversation. His Honour said:

"I believe that this somewhat strange handling of the situation by Mr Mika subsequently, in alleging he heard what he said he heard, but then refusing to identify the person to whom the invitation was given, and those very stances he took up with Mr Paterson and with Mr Boegel leave me wondering what it was that Mr Mika was trying to achieve. ... I do not understand why he behaved in the way he did in relation to making the accusation but then not revealing the full particulars of it."

The second so-called irrelevant consideration was that the respondent was denied an opportunity to counter the charge.

In my view, neither consideration could have affected the trial judge's conclusion that the respondent's remark had no sexual connotation, and that was sufficient to dispose of the matter.

Counsel for the appellant similarly attacked the trial judge's finding as to the second incident on the basis that he took into account irrelevant considerations, and again relied on two matters. The first was that the appellants failed to act immediately. The consideration may have been irrelevant, but it did not affect the basis on which the judge rejected the appellants' justification.

The second matter said to be irrelevant was that the trial judge considered that the words spoken by the respondent "did not contain any connotation of harassment of her (the director's wife), except in the most indirect fashion, and it was not meant for her ears anyway." Counsel said that the question which the trial judge was obliged to answer was whether the conduct was inconsistent with the duty and responsibility of the respondent as a senior manager who managed and supervised female employees. In my opinion, the trial judge correctly rejected the contention that the respondent's reports overhead by the director's wife warranted summary dismissal. The misconduct which was alleged in the defence was "two advances towards female members of his employers' staff". The respondent's words were not a sexual advance to the director's wife nor, I think, sexual harassment of her. It was not alleged that the appellants were entitled to dismiss the respondent because he acted in a manner offensive to others or was a coarse or vulgar person.

With respect to the third incident, counsel for the appellants submitted that the trial judge erred in holding that the appellants could only dismiss the respondent after he had been given an opportunity to answer the charge of misconduct arising from the incident.

The rules of natural justice must be observed by those making judicial and administrative decisions which affect the rights, interests, livelihood and reasonable expectations of others. A person who holds an office from which he can only be dismissed for cause cannot lawfully be dismissed without first telling him what is alleged against him and hearing his defence or explanation.[3] There is no like obligation which must be observed by an employer who dismisses an employee. The employer is exercising a contractual right in dismissing an employee for misconduct. The employer is not bound to act reasonably, or to give reasons or accord the employee an opportunity to be heard. The question whether the employer is contractually entitled to dismiss his employee depends upon whether the facts emerging at trial demonstrate breach of contract; it does not depend on whether the employer has heard the employee in his own defence. As Lord Reid said in Malloch v. Aberdeen Corporation:

"At common law a master is not bound to hear his servant before he dismisses him. He can act unreasonably or capriciously if he so chooses but the dismissal is valid. The servant has no remedy unless the dismissal is in breach of contract and then the servant's only remedy is damages for breach of contract."[4]

Accordingly, in my opinion, the trial judge erred in holding that the appellants were not entitled to summarily dismiss the respondent without first giving him an opportunity to meet the charge of misconduct.

Counsel for the respondent contended that the trial judge did find that the contact between the respondent and Ms Handler was accidental and relied upon the fact that his Honour said:

"Accusations of the sort that she made, in circumstances which apply here, would, in my view, certainly not, if I was the tribunal of fact, amount to evidence which would be sufficient to convict [the respondent] of an indecent assault. The conclusion I reach, therefore, is that the facts, if known at the time, would have and should have led to the matter being vitiated."

In my view, a statement that no crime was committed is not to be interpreted as a statement that no tort was committed. I do not accept the respondent's submission that the criminal standard of proof beyond reasonable doubt is to be equated with taking the seriousness of an allegation into account in determining whether the civil onus has been satisfied.[5] Nor do I think the statement that the matter should have been investigated at the time meant that the allegation was not made out at trial. In my view, it is clear that his Honour did not decide the question whether the contact between the respondent and Ms Handler was accidental or deliberate on the part of the respondent, but rather determined the case on the basis that the respondent was denied an opportunity to be heard.

The respondent pleaded that there were terms in the contract of employment that the appellants would not "without reasonable cause conduct themselves in a manner likely to damage or destroy the relationship of confidence and trust between them and the [respondent] as employee and employer", and that the appellants would act towards the respondent in good faith.

The respondent submitted that the trial judge concluded that the summary termination of the respondent's employment constituted a breach of those terms. Although he did not refer to the contractual terms pleaded by the respondent, he did say:

"Mr Boegel ... made the frank admission that he had formed the opinion ... that [the respondent] was no asset to the company, and that his engagement to work in a responsible position was a mistake, and he was looking for a way to terminate his employment. When it came to hand, in the form of the accusation that Mr Mika eventually made known, Mr Boegel seized the moment and dismissed him summarily when, in my view, he was not entitled to do so."

I have some doubt that his Honour held that to rely on sexual harassment to achieve a result the appellants desired for other reasons was a breach of a duty of good faith which they owed to the respondent. In any event, in my opinion, to seize the opportunity to dismiss an unwanted employee for cause did not amount to a breach of contract by the appellant. I think no want of good faith or destruction of the relationship of confidence and trust between employer and employee is constituted by an employer relying upon facts which do entitle the employer to

dismiss an employee when the employer wishes to dismiss the employee for reasons that have nothing to do with those facts. The duty of good faith does not qualify an employer's right to summarily dismiss an employee for misconduct.[6]

For the foregoing reasons, I am of the opinion that the trial judge erred in finding for the respondent on the basis that the appellants were obliged to give him notice of the charge of misconduct and an opportunity to meet it. I would allow the appeal and remit the matter to the County Court.

For the reasons given by Buchanan, J.A. I agree that the appeal should be allowed. As his Honour has pointed out, the employment contract in this case was governed by the common law and, contrary to the approach adopted by the learned trial judge, at common law there was no obligation on the appellant to hear the respondent's response to the allegations made against him and relied upon for his dismissal.

The allegations in this case were serious and the impact on the respondent's future prospects of employment by his dismissal in such circumstances was bound to be significant. Whether the circumstances of the dismissal in this case constituted a breach of contract is a matter which must be determined on re-trial. It is not a question which is to be determined on the appeal. It is clear, however, that the principles governing the question at common law are much more restrictive than the approach which was adopted by the learned trial judge.

The common law permits an employer to act "unreasonably or capriciously if he so chooses", as stated by Lord Reid in Malloch v Aberdeen Corporation[7]. That reflects the origins of the common law concerning termination of employment, the

case law being replete with discussions as to the respective positions of "masters" and "servants"[8]. The principles stated by Lord Reid in that case, as discussed in the judgment of Buchanan, J.A., are now entrenched, and have only been overcome by statutory reform. In this case, however, the income level of the respondent denied to him such processes of procedural fairness as may have been applicable to his situation had the Workplace Relations Act 1996 [9] applied.

In Johnson v Unisys Ltd[10]the House of Lords (Lord Steyn, dissenting as to this issue), having regard to the elaborate statutory scheme that existed to deal with such matters, declined to expand the common law concerning the termination of employment contacts so as to import additional implied terms into such contracts dealing with unfair circumstances of dismissal. In his judgment Lord Steyn considered the judgment of Lord Loreburn in Addis v Gramophone Co Ltd in which the House rejected the notion that a wrongfully dismissed servant could recover damages for the harsh and humiliating manner of his dismissal. Lord Steyn noted that the nature of the relationship between employers and employees had developed since the time of that judgment, and said that the case "was decided in the heyday of a judicial philosophy of market individualism in respect of what was then called the law of master and servant. The idea that in the eyes of the law the position of a servant was a subordinate one seemed natural and inevitable"[11].

In his judgment, which was agreed to by the majority, Lord Hoffman acknowledged the binding force of the statements of the law in Malloch and Addis, and said that it was in response to the recognised deficiencies of the common law as stated in such cases that a statutory regime was introduced to deal with unfair dismissals[12]. In Marlborough Harbour Board v Goulden[13] the New Zealand Court of Appeal suggested that the common law might in time come to apply to private contracts of employment principles of fairness and reasonableness which had been created by the relevant statutory scheme for unfair dismissals. In Byrne v Australian Airlines Ltd[14] McHugh and Gummow, JJ. said that that suggestion "does not take matters very far", and their Honours held that Ridge v Baldwin[15] remained the classic statement of the law, denying any obligation on the employer to hear the employee in his own defence.

In the present case, as I have said, the common law prevailed. In his short judgment, the learned judge cited no authority at all, and his conclusion that the dismissal was vitiated by the failure to accord natural justice to the respondent was contrary to law. The decision, must therefore be set aside and the matter be remitted for re-trial.

[3] Ridge v. Baldwin [1963] UKHL 2; [1964] A.C. 40; Cooper v. Wilson [1937] 2 K.B. 309; Chief Constable of North Wales Police v. Evans [1982] UKHL 10; [1982] 1 W.L.R. 1155.

[4] [1971] 1 W.L.R. 1578 at 1581. See also Ridge v. Baldwin above at 64-66 per Lord Reid; McClory v. Post Office [1993] 1 All E.R. 457 at 462-3 per David Neuberger, Q.C.; Johnson v. Unisys Ltd. [2001] UKHL 13; [2001] 2 All E.R. 801 at 817 per Lord Hoffman and at 823 per Lord Millett; Byrne v. Australian Airlines Ltd. [1995] HCA 24; (1995) 185 C.L.R. 410 at 443 per McHugh and Gummow, JJ.; Coutts v. The Commonwealth [1985] HCA 40; (1985) 157 C.L.R. 91 at 121 per Dawson, J.; Sanders v. Snell (1998) 196 C.L.R. 329 at 352 per Callinan, J.; Brophy v. Mapstone [1984] FCA 257; (1984) 56 A.L.R. 135 at 142-3 per Smithers, A.C.J., Keely and Morling, JJ.

[5] Briginshaw v. Briginshaw [1938] HCA 34; (1938) 60 C.L.R. 336.

[6] Cf. Aldersea v. Public Transport Corporation [2001] VSC 169; (2001) 3 V.R. 499.

[7] [1971] 1 W.L.R. 1578, at 1581. I am not to be taken as suggesting that the conduct of the appellant was unreasonable or capricious. That question does not arise on this appeal.

[8] In Bell v Lever Brothers Ltd [1931] UKHL 2; [1932] AC 161, at 228, Lord Atkin illustrated his discussion of the question whether an employee was obliged to disclose to his employer his past faults by using the example of a man dealing with his butler, wine merchant and cook.

[9] See s.170CC(3) and Reg 30BB, Workplace Relations Regulations.

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Judgment (57 paragraphs)

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