MacDonald v Queensland Justices & Community Legal Officers Association Inc [1997] IRCA 252

Background The respondent is a public company limited by guarantee. In July 1996 it had a membership estimated variously as approximately 7500 or 8500 members who were either Justices of the Peace or Commissioners for Declarations. The respondent originated as an unincorporated association in 1918. It was incorporated in 1948 under section 30 of the Companies Act of 1931. Pursuant to that, a licence was issued by the Attorney-General on 18 August 1948 to enable the respondent to be registered as a company with limited liability. The role of the respondent was akin to other public and charitable institutions incorporated under section 30. The respondent changed its name to its present one in 1991. Its aims, as reflected in its objects, are honourable and play an important role in the administration of the justice system in the State of Queensland. The objects include: To assist in raising and maintaining the status of the office of a Justice of the Peace. To help members in the performance of their responsible duties. To acquire and disseminate information on subjects of interest to Justices of the Peace.... To make such contributions to any charitable relief, benefit, commemoration or memorial funds of any kind whatsoever as the Association may deem desirable. Clause IV of the Memorandum of Association provides: The income and property of the Association whencesoever derived shall be applied solely towards promotion of the objects of the Association as set forth in this Memorandum of Association and no portion thereof shall be paid or transferred directly or indirectly by way of dividend, bonus or otherwise howsoever by way of profit to the persons who at any time are or have been members of the Association or to any of them ..... PROVIDED THAT nothing herein contained shall prevent the payment in good faith of remuneration to any officers or servants of the Association or to any member thereof or other person in return for any services actually rendered to the Association ..... Clause VIII of the Memorandum of Association provides: Every member of the Association undertakes to contribute to the assets of the Association in the event of its being wound up while he is a member or within one year afterwards for payment of the debts and liabilities of the Association contracted before he ceases to be a member and the costs charges and expenses of winding up and for the adjustment of the rights of the contributories among themselves such amount as may be required, not exceeding Ten shillings. The licence granted by the Attorney-General in 1948 was granted upon his being satisfied that the intention of the Association, as expressed in clause IV, would be carried into effect. The licence was issued on that condition and contains the following proviso: That if the Association acts in contravention of the said condition or any of such further conditions the liability of every member of the Association shall be unlimited. Article 20 of the Articles of Association of the respondent provides that the affairs of the Association are to be managed, controlled and conducted by a council comprising a president, three vice-presidents and six members. The council is elected at each alternative annual general meeting, for a period of two years. The applicant had been associated with the respondent in various roles since 1983. At that time a business operated by him was engaged by the respondent to provide certain services, including office and council meeting accommodation. These services grew over the years, with the applicant personally playing an increased role in the management of the affairs of the respondent. The applicant had various titles over the years. His business or he was paid by the respondent as an independent contractor until 1 August 1989, when the applicant became a P.A.Y.E. employee of the respondent. The applicant held the positions of general manager, secretary to the council and registrar in June 1996. He has never been a member of the respondent. On 17 June 1996 the then president of the Association, a Mr Tiley, and one of the council members, a Mrs Patterson, applied to the Supreme Court of Queensland in their capacity as contributories for the winding up of the respondent by that Court under the provisions of the Corporations Law. In the alternative, those applicants sought orders, inter alia, that the applicant in this Court, whether in his capacity as general manager or in acting in any other office in the respondent's affairs, be restrained from so acting by order of the Court. The application to the Supreme Court was accompanied by an application seeking the appointment of a Mr Rees as provisional liquidator of the respondent. On 25 June 1996 that Court made an order by consent appointing Mr Rees provisional liquidator. By its order the Court directed the provisional liquidator to report to it in respect of specific matters. In affidavits filed in the Supreme Court the applicants, Mr Tiley and Mrs Patterson, alleged that prior to their application, they had been effectively excluded from discharging their functions as councillors by other members of the council. By May 1996 Mr Tiley had become very alarmed that there were serious irregularities in the management of the financial affairs of the respondent by the applicant. In that same month he sought the appointment of an independent auditor to audit the respondent's financial affairs. Mrs Patterson was present at the respondent's offices on 20 May 1996 at which time the applicant was informed that he was suspended from duty pending an audit of the respondent's books. Subsequently, after having taken legal advice, Mr Tiley and Mrs Patterson instituted the Supreme Court proceedings. Affidavit material in support of these proceedings raised allegations of serious misconduct on the applicant's part. By report dated 12 July 1996 Mr Rees reported to the Supreme Court. I will return to the contents of that report in more detail later in these reasons. For present purposes it is sufficient to note that Mr Rees observed that there existed a serious breakdown in the management and control of the property, business and affairs of the respondent by its council. Mr Rees thought that there was an alternative to the winding up of the respondent by the Court. He recommended for the Court's consideration the following: (1) That it is inappropriate that the general manager of the company, Peter Harper MacDonald, in all of the circumstances adverted to in this report should be further involved in the management and conduct of the affairs of the company. (2) That the Court in the exercise of its powers under s.260 of the law may consider and if thought fit order and direct:- (i) that all offices of the 10 present directors of the company be declared vacant; (ii) that an extraordinary general meeting of members of the company be called as early as practicable to fill such vacancies on the board; (iii) that none of the 10 directors whose offices on the board are declared vacant be eligible to nominate for re-election as directors.... Prior to his said report, Mr Rees had written to the applicant on 27 June 1996 suspending the applicant's employment forthwith. On 19 July 1996 the Supreme Court noted that it had not yet heard anything from the applicant by way of direct response to the allegations made against him nor had it heard anything in terms of affidavit material from the other councillors whose own independence had been challenged. This comment was in response to the fact that none of the other eight councillors of the respondent nor the applicant had filed sworn material in the Supreme Court in opposition to the substantial affidavit material filed on behalf of Mr Tiley and Mrs Patterson. The Court went on to add to the powers of Mr Rees the power to hire and fire staff. After the Court proceedings of that day, Mr Rees caused a letter dated 19 July 1996 to be dispatched to the applicant which letter stated, inter alia: Please take notice that you are dismissed forthwith as general manager of the company and in any other employment by it of you in any other capacity. The respondent's stance at trial was that Mr Rees, as agent of the respondent, had a valid reason or reasons, within the meaning of ss170DE(1) of the Workplace Relations Act 1996, connected with the applicant's capacity and conduct for the termination of his employment. It further contended that the applicant had been given the opportunity to defend himself against the allegations on which Mr Rees relied; alternatively, Mr Rees could not reasonably be expected to give the applicant that opportunity. The respondent contended that the applicant had been guilty of serious misconduct within the meaning of para 170DB(1)(b) of the Act such that Mr Rees was justified in summarily terminating his employment. The applicant denied that valid reasons existed for the termination of his employment. He alleged a want of procedural fairness in the manner of his termination. He denied serious misconduct. He raised in the associated jurisdiction of the Court a claim for holiday pay allegedly due to him and unpaid by the respondent. Evidence and Findings It is necessary now to go in some detail to the matters relied on by the respondent to justify the termination of the applicant's employment. In what follows below, I do not purport to traverse all matters of the applicant's capacity and conduct which emerged in the evidence. The matters following are all dealt with by Mr Rees in his report dated 12 July 1996 to the Supreme Court of Queensland and, I am satisfied, were taken into account by him in his decision to terminate the applicant's employment. For convenience, I will deal with each under separate headings. The Defence of the Charge Brought by the A.S.C. On 23 November 1992 the applicant pleaded guilty to a charge brought under ss229(1) of the Companies (Queensland) Code to the effect that, as an officer of the company he did not act honestly in the exercise of his powers and the discharge of the duties of his office. The Magistrate imposed a conviction, fined the applicant the sum of $2000 and ordered him to make restitution to the respondent in the sum of $1818. On 10 May 1993 the applicant appealed to a District Court against the sentence. That Court overturned the formal conviction and ordered the applicant be fined $500. The restitution order stood. The background to this charge was that the applicant had engaged a firm to prepare training tapes for use by members of the respondent. The firm billed the respondent $20 for each tape. The respondent paid that sum and the firm then paid the applicant out of that fee $6 for each tape. In this way, the applicant received the sum of $1818, the subject of the order for restitution. The applicant's case before me was that the respondent was, at all material times, aware of the arrangement he had made with the firm, including his receipt of the sum of $6 for each tape. This was put as being in payment for services he provided to the respondent, principally editing. I reject his explanation and those of the witnesses he called in support of it. In what can only be described as extraordinary, the council of the respondent, between the time of the applicant's plea of guilty and his appeal, resolved not to accept payment from him of the restitution which had been ordered. Not only that, the respondent met the payment of the applicant's fine and the costs of his legal representation, in an amount of $21,000. It is appropriate at this juncture that I record some general observations which will provide colour to the applicant's dealings with members of the council, and outsiders. I have no doubt that over the years the applicant has exercised an inappropriate and unhealthy degree of influence over successive councillors. His influence manifests itself in a reading of the voluminous minutes of the council. I had the advantage of observing and listening to him over nine days in this Court. I also heard from six of the councillors, including Mr Tiley and Mrs Patterson. I have no doubt that the applicant was capable of getting his own way with the councillors. He is garrulous, plausible (in some eyes) and aggressive. As will emerge in a further reading of these reasons, successive councils displayed naivety which was breathtaking in its scope. The fact that councillors were, in the main, supine in their dealings in matters in which the applicant had a personal interest is to their discredit. They do not appear to have had any proper appreciation of the difference between the interests of the members they purportedly served and the personal interests of the applicant. The applicant convinced the then councillors that by pleading guilty to the charge brought against him, he was in some way protecting them from legal action. This contrived argument runs that the council was derelict in its duty by not having properly recorded the alleged arrangement whereby the applicant was entitled to receive a fee for the editing of the tapes. Not only is it hard to see how this neglect exposed the councillors to the prospect of legal action on the part of the Australian Securities Commission, I am satisfied, as I have already stated, that no such arrangement existed. Several of the councillors who gave evidence on the applicant's behalf attested to such an arrangement. Curiously, none of them gave evidence to the Magistrate that the respondent was aware of this arrangement before the applicant's receipt of the fees. It would, one thinks, have provided a complete defence to the charge. In fact, a former president of the respondent, a Mrs Clancy, who gave evidence on the applicant's behalf, testified before the Magistrate that the $6 fee was never discussed by the applicant with the respondent and he did not disclose to the respondent his receipt of it. I accept that this was the true position. The applicant rounded-off the charade by penning a piece in the Journal published by the respondent after his appeal against sentence was heard. In the June 1993 edition of the Journal, the applicant has written, in reference to the ASC case, a Brisbane District Court Appeal Judge tossed out the ASC case. The same article made plain the applicant's modus operandi and that was to convince the councillors of their joint responsibility and liability for his own actions. The following excerpts in relation to the ASC proceedings are instructive: A loyal employee - and by implication, 10 men and women of impeccable integrity who give of themselves as honorary directors - are being labelled as corporate criminals. So, high-powered legal advice is necessary...for MacDonald as the person charged; for Clancy and her fellow State Councillors because, by implication, they have either been grossly negligent or accessories to improper activity. Clancy and her Council want to support MacDonald - and fight for the Council's "name" - but the non-profit Q.J.A. is unable to meet such costs. Long Service Leave Payments It will be recalled that the applicant did not become a P.A.Y.E. employee of the respondent until 1 August 1989. The council at its then meeting of 13 June 1989 agreed to pay the applicant $3000 in recognition of his past services. The minutes record: .... this decision was in recognition of past service, but specifically negated any claim by the current Registrar for long service entitlement for the past 6 years. The applicant was present at this meeting. On 6 August 1992 the respondent made a payment to the applicant of $12031.37 for holiday and long service entitlement which included a payment of $4511.82 for long service leave. A further $1889.10, representing group tax payable on the long service leave payment, was later remitted to the Taxation Office. The applicant accepted this payment. At different stages of the proceedings before me, the payment for long service entitlement was variously described as being in respect of alleged unpaid overtime, or a bonus. The applicant and those of his witnesses who dealt with the issue were reluctant to concede that there was no lawful basis for the payment. Someone in the applicant's position who had a proper appreciation of his duties and responsibilities ought never to have accepted this payment. The McPhie Defamation Case The applicant commenced Court proceedings against a then councillor, a Ms McPhie, alleging that he was defamed by her in statements made by her at the annual general meeting of the respondent in November 1988. These proceedings were not concluded until September 1994. The costs of the proceedings were funded by the respondent and some amount of the order of $25,000 was paid by it for the applicant's legal costs. The applicant characterised these proceedings as being in truth brought on behalf of the respondent with him as plaintiff for convenience only. This assertion of his does not sit well with a letter written by the solicitors who acted for him in the proceedings to the solicitors for Ms McPhie. That letter states: ......the action is being funded by the State Council of the Association on Mr MacDonald's behalf so that your client was aware the matter was one which was regarded as serious by the Association and in respect of which Mr MacDonald had the support of the Association. Mr MacDonald is the correct Plaintiff and it is he who seeks damages. He simply has the Association behind him in support. This action was personal to the applicant. The funds of the respondent should not have been used to pay his legal costs. The Design of a J.P. Course. The respondent expended a sum in excess of $120,000 in the design of a J.P. course of training. The respondent's auditors made critical reference to this transaction in an internal control report for the years 1991-93. The auditors stated: At no time was a contract signed, or were any invoices received from Ms Rowan for the work done. The only information received in which to substantiate Ms Rowan's work were verbal time-sheets. Now a dispute has arisen with Ms Rowan where the work has to be handed to another group for completion. Mr Rees observes in his report that the figures he had for the current accounting period showed minimal income from the operation of the course. He comments that it appears that this money was spent on an item of no effective use to the Association. The applicant, who arranged for Ms Rowan to perform the work, is responsible for this debacle. A significant sum of the respondent's resources was wasted. Valid Reason for Termination The applicant treated the respondent as his personal fiefdom. He was incapable of acknowledging that the interests of the Association and its members are separate from his own personal interests. He has been a party to the spending of the respondent's funds on matters quite unrelated to its objects. As Mr Rees correctly points out, successive councillors have, over many years, acted in some matters concerned with the trade dealings, property and affairs of the respondent in breach of its objects, Articles of Association and the Corporations Law. The applicant has been a party in those breaches. He and successive councillors have exposed the members of the Association to the prospect of unlimited liability in the event of the winding up of the respondent. In my view, the evidence available to Mr Rees was so compelling that he was left with no alternative but to terminate the applicant's employment as he did. The fact that successive councillors were derelict in their duty to the respondent's members is no bar to the provisional liquidator acting as he did. The termination of the applicant's employment was completely justified in all the circumstances. The respondent has proved a valid reason for termination. Notice The applicant had been guilty of serious misconduct in his employment such that the question of notice to him of termination does not arise. Procedural Fairness During the trial the applicant sought to distance himself from any knowledge of the allegations raised against him in the material filed in the Supreme Court proceedings. There is, however, cogent evidence to conclude otherwise. The affidavits filed in the Supreme Court proceedings were served at the respondent's offices late on the day of filing, 17 June 1996. Most of the remaining councillors met with a newly-appointed solicitor, Mr Walters, on 22 June 1996. They had in their possession copies of at least the affidavits of Mr Tiley and Mrs Patterson. A reading of those affidavits informed them of the allegations against the applicant in respect of which Mr Rees acted to terminate his employment. At least Mrs Clancy, and perhaps other councillors, were in very regular communication with the applicant at this time. She passed on the substance of the allegations to the applicant within a few days of service of the material at the respondent's offices. The applicant himself swore an affidavit which became an exhibit in the proceedings before me. In reference to a period of several days after the service of the Supreme Court proceedings on the respondent's offices he swore as follows: 109. Legal advice to me as C.E.O. and to the council was that the council could fight the proposal, incurring unquantifiable costs, or agree to the appointment of a provisional liquidator on the basis that the nine of us (eight councillors/directors and myself) knew without doubt that no honest audit would establish the misappropriation, fraud and gross mismanagement alleged primarily against me. Further, it is fanciful to think that given the applicant's history of protecting his own personal interests, he would not have been informing himself at the first available opportunity of the matters Mr Tiley and Mrs Patterson had sworn to. I reject the notion that the applicant was not at any material time fully aware of the allegations made against him in support of the Supreme Court proceedings. He had in truth an opportunity to defend himself against those allegations by filing affidavit material in the Supreme Court in answer. He chose not to. In any event, in the particular circumstances of this case, there was nothing to be achieved by Mr Rees calling the applicant in for a discussion about the allegations. This is a case where it would have been futile to go through the motions of giving the applicant an opportunity to respond of this sort. One might well ask what could the applicant have told Mr Rees in a meeting which would have made any difference to his assessment of the records and information then available to him. The applicant wrote to Mr Rees by letter dated 2 July 1996. He had a further opportunity then, given his knowledge of the allegations against him, to deal with them. Instead, all he did was make reference to the personality-targeted allegations (referring to those concerning him). The applicant wrote also to the employer of Mr Rees by letter dated 12 July 1996. That letter made a scurrilous attack on Mr Rees. It records: It might also be of interest to you to know that at no time since his mutually-agreed appointment on June 25, has Rees made the slightest effort to discuss any aspects of Q.J.A. management, policy or process, or raise any questions in regard thereto with any of the eight Councillors not involved in the illegal and unjustified private takeover attempt begun on May 18 - and nor has Rees sought information/explanation from the sole remaining longserving Q.J.A. employee (13 years' service), being the undersigned. It must be for Grant Thornton, guided by you as Managing Partner, to consider whether the company's professional standing and particularly, its standing with the Supreme Court of the State, have been prejudiced by the blatant unprofessionalism and improper presumptuous bias of Rees. There has been no breach of procedural fairness in this case. Summary It will be apparent from these reasons that I do not accept the applicant's defence. There were numerous occasions during the trial on which the applicant's credit as a witness of truth was called into question but perhaps none more telling than the following. The applicant swore in his affidavit in the proceedings before me as follows: 110. On 24 June, in a telephone hook-up with all of the eight legitimate councillors/directors who could be contacted, I strongly recommended to them that they decide against possibly bankrupting the Association with legal costs and, instead, they agree to a Court-appointed provisional liquidator. 111. Several of the councillors/directors expressed reservations about agreeing to the sole liquidator proposed by Tiley. 112. However, solely to protect the Association from costly litigation over spurious allegations, the councillors/directors accepted my advice. On the very same day, 24 June, the applicant faxed a memo to the respondent's solicitor in which he set out alleged grounds in opposition to the appointment of Mr Rees. The last paragraph of that memo is in these terms: Therefore, Council could be confidently expected to withhold consent from any proposal that Mr Rees be appointed to any administrative/provisional liquidator position in/for The Q J A. The grounds raised in this memo against the appointment of Mr Rees were baseless. The memo also points up how little regard the applicant had for the oath he took when swearing his affidavit. Interestingly, it also points up how active a role the applicant continued to play in the affairs of the Association. He engineered the alleged council opposition to Mr Rees's appointment. He has himself providing a strong recommendation to the remaining councillors, and those councillors accepting his advice. In his address at the conclusion of the trial, the applicant put up a conspiracy theory in explanation of his present predicament. His indignation was so palpable that one could be forgiven for thinking it was genuine. I do not. There is no substance in his conspiracy theory. His day of reckoning was long overdue. The substantive application fails and it must be dismissed. Associated Jurisdiction Claim As I understand it, the applicant based this claim on the alleged applicability to his employment of the Metropolitan Newspapers (Journalists) Award. He claimed to be owed eight weeks leave for the years 1989-96 inclusive. This is apparently calculated on the basis of one unpaid week for each of those years. I am unconvinced that any proper basis to ground this claim was laid, and I reject it Costs At the conclusion of the trial, at the request of the respondent, I reserved the question of the costs of these proceedings. If the respondent wishes to pursue this aspect, it ought to file and serve material in support of its application, including the quantum of costs sought and calculations in support, by close of business this Friday, 4 July 1997. The matter will be listed subsequently for argument. Order I order that the application be dismissed. I certify that this and the preceding TWELVE (12) pages are a true copy of my Reasons for Judgment. Judicial Registrar: Date: 30 June 1997