What happened
Mr Nicholas Sautner was employed by Melbourne Stadiums Ltd (MSL) as Director, Commercial Business, a senior management role with responsibility for ticketing and tours at Etihad Stadium. His contract of employment (cl 7.1) allowed either party to terminate on six months' written notice, with MSL having an absolute discretion to provide remuneration in lieu of notice. Clause 7.2 permitted MSL to terminate summarily by written notice without any payment in lieu if the employee committed serious or persistent breach, grossly negligent acts, wrongful or dishonest conduct, or other conduct entitling summary dismissal.
On 3 June 2013 MSL wrote to Mr Sautner stating that, following a restructure, his position was redundant with immediate effect. The letter offered six months' pay in lieu of notice, payment for accrued leave, 12 weeks' redundancy pay (exceeding the seven-week statutory entitlement under the Fair Work Act 2009 (Cth)), and outplacement services, all conditional on execution of an attached deed of release containing post-termination obligations. No payment was made. Mr Sautner did not sign the deed. He left the premises that day with personal possessions and did not return. Correspondence between solicitors proceeded on the implicit basis that the employment relationship had ended, but the employment contract's status was later disputed.
After 3 June, MSL reviewed Mr Sautner's text messages and discovered four classes of conduct. First, over at least nine months (and likely longer), Mr Sautner bartered stadium tickets—treated by him "like currency"—for personal benefits including locksmith work, a car battery, "mates rates" on house repairs, gym membership, Qantas Club passes, Bunnings and supermarket vouchers, and flowers ([24]-[25]). This occurred despite a 2012 ticketing policy (drafted by the previous CEO) limiting full-time staff to 50 tickets per year for personal use, requiring bona-fide business use with detailed explanation, and stating that non-compliance was a serious breach of employment terms. Mr Sautner, responsible for ticketing, knew the policy and that bartering was unacceptable practice ([28]-[34]).
Second, for the second Wallabies-British and Irish Lions test (a high-demand event), Mr Sautner knew of the ARU's strict four-ticket-per-person limit and MSL's contractual obligation to the ARU not to exceed it. He twice directed subordinate Ms Wight to purchase 48 tickets using multiple credit cards (his, his girlfriend's, a friend's) in breach of the limit, asked her to print tickets without purchaser names, and obtained the tickets knowing it was wrong. MSL cancelled the tickets upon discovery; the ARU thanked MSL for its handling ([44]-[52]).
Third, Mr Sautner made repeated disparaging written and oral comments about the new CEO, Mr Sergeant, to Ms Wight (an MSL employee) and to Mr Craig Thomas (his friend but a senior Victorian manager at Etihad Airlines, MSL's major sponsor). He took two unauthorised photographs of Mr Sergeant asleep (one at a concert, one in a car during London business travel) and showed at least one to Ms Wight to support his ridicule of the CEO's dress, drinking and appointment ([56]-[59]).
Fourth, in January 2013 the CEO directed Mr Sautner in writing to have "no involvement with the Perth Stadium knowledge team or any other entity involved with this project or any other similar project" because of conflict-of-interest and IP risks arising from MSL's potential consortium involvement. In May 2013 the former CEO (now advising the Brookfield consortium bidding for the Perth stadium) asked Mr Sautner to arrange two customised tours (general and game-day). Mr Sautner arranged and conducted them without seeking the current CEO's approval, knowing they were to assist the bid. He later claimed disclosure to the executive team, but the primary judge found this was an attempt to cover his actions after the event ([66]-[78]).
Mr Sautner sued in the County Court of Victoria for six months' pay in lieu, redundancy pay under s 119(2) of the Fair Work Act, and a civil penalty. The primary judge ([2014] VCC 476) held the misconduct, separately or cumulatively, did not justify summary dismissal and that Mr Sautner was entitled to the payments. On costs ([2014] VCC 784) his Honour held s 570 of the Fair Work Act did not apply to the common-law contractual claim, treated the offer of compromise as triggering indemnity costs on both the contractual and statutory claims, and found MSL's refusal of the offer unreasonable.
MSL appealed to the Full Court of the Federal Court. Mr Sautner filed a notice of contention arguing that, even if misconduct was made out, the Shepherd principle did not permit MSL to rely on after-discovered grounds once a lawful termination under cl 7.1 had occurred and a debt accrued. The Full Court (Tracey, Gilmour, Jagot and Beach JJ, with White J agreeing on outcome but differing on analysis of termination) allowed the appeal, set aside the County Court orders, dismissed the proceeding, and made no order as to costs at trial or on appeal.
Why the court decided this way
The joint judgment held that the primary judge's process of reasoning miscarried at multiple levels. First, on the substantive misconduct, the judge asked the wrong question. Rather than assessing the inherent character of Mr Sautner's conduct and its impact on the trust relationship with MSL, the reasons focused on what MSL "ought to have done"—clarifying the ticketing policy ([198]), the ARU's apparent condonation via Mr Alker ([185]), whether disparagement was mere "tea room discussion" without addressing the photographs ([205]), and whether the direction breach was deliberate ([173(f)]). This misplaced focus distracted from the critical inquiry: whether the conduct was incompatible with Mr Sautner's duties, destructive of confidence, or a serious breach striking at the heart of the relationship ([19], [21], [35], [87]).
The joint judgment then examined each class. The bartering was not isolated; it was repeated, knowing, and treated tickets (a valuable perk with FBT implications) as a supplementary income source in flagrant breach of the policy Mr Sautner was responsible for enforcing. The inference from the policy's terms, evidence of Mr Sergeant and Ms Wight, and Mr Sautner's own awareness was that such use was obviously improper and a serious breach ([30]-[39]). The ARU misconduct involved deliberate flagrant breach of a contract Mr Sautner had negotiated, exploitation of a subordinate who knew it was wrong, and an attempt to conceal by removing names. The fact that Mr Alker (unaware of the full circumstances) later invited Mr Sautner to a function did not diminish the betrayal of MSL's trust or the integrity of its ticketing system ([53]-[54]).
The disparagement was elevated from ordinary complaint by the deliberate taking of unauthorised photographs of the sleeping CEO during business travel and their use to ridicule him before a subordinate and a sponsor's senior employee. This was a calculated course intended to undermine the CEO's reputation both internally and externally; it could not be dismissed as "tea room discussion" ([62]-[64]). The direction breach was a contractual breach (cl 2(e) and implied term) but not itself serious misconduct; however it was properly weighed in the cumulative assessment ([85]).
Cumulatively the deliberate, dishonest conduct destroyed the relationship of trust. No other conclusion was reasonably open ([87]-[88]). The primary judge's statements that the conduct did not demonstrate repudiation ([210]) or serious misconduct ([175], [205]) revealed error, even though he cited the correct principles at [12]-[13]; his application miscarried.
On the notice of contention, the joint judgment held that if cl 7.1 termination had occurred, Shepherd could not be used to recharacterise it as cl 7.2 summary dismissal so as to avoid the accrued debt for pay in lieu ([112]-[118]). However, no such termination had occurred. Termination by remuneration in lieu required actual provision of the money; the 3 June letter was conditional on a deed that was never executed and no payment was made ([121]-[123], [133]). The contract therefore remained on foot when the misconduct was discovered, allowing MSL to terminate under cl 7.2. The Shepherd issue did not arise. White J reached the same outcome by a different route: MSL's 3 June conduct was repudiatory; Mr Sautner accepted that repudiation (by leaving and through solicitors' correspondence), terminating the contract; on a damages claim MSL could rely on the antecedent misconduct under Shepherd to absolve itself from liability ([188]-[194]). Both analyses led to dismissal of the proceeding.
On costs, s 570 applied to the single proceeding because it related to matters arising under the Fair Work Act. The primary judge could not split costs between the statutory and contractual claims ([156]-[157]). The offer of compromise was undifferentiated, carried costs consequences under the then-applicable County Court Rules, and its refusal was not shown to be unreasonable within s 570(2)(b) having regard to the caution in Stratton Finance Ltd v Webb ([168]-[170]). With the substantive claims dismissed there was no basis for any costs order.
Before and after state of the law
Prior to this decision the law on summary dismissal for serious misconduct was settled in broad terms by Adami v Maison de Luxe Ltd (1924) 35 CLR 143, Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 and Rankin v Marine Power International Pty Ltd (2001) 107 IR 117: the conduct must be serious, involve a radical breach inconsistent with continuance, or be destructive of the confidence essential to the relationship. It need not amount to repudiation. Appellate review principles from Warren v Coombes (1979) 142 CLR 531 and Fox v Percy (2003) 214 CLR 118 allowed intervention where inferences from undisputed facts or found facts were glaringly improbable or contrary to compelling inferences.
The Shepherd principle had been applied in employment cases (Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339; Concut Pty Ltd v Worrell (2000) 103 IR 160) but its boundaries in modern contracts with express termination powers creating accrued debts were unsettled. English authority (Cavenagh v William Evans Ltd [2013] 1 WLR 238) and some Australian decisions (Hodgson v Amcor Ltd (2012) 264 FLR 1; District Council of Barunga West v Hand (2014) 120 SASR 228) took a narrower view that once a lawful termination with payment in lieu had crystallised a debt, after-discovered misconduct could not unwind it. Downer EDI Ltd v Gillies (2012) 229 IR 314 took a wider view, permitting Shepherd to support concurrent or severable bases of termination where contractual text allowed. The construction of "providing remuneration in lieu" clauses was not uniform; some authorities treated notice of intention as sufficient.
Section 570 of the Fair Work Act (and its predecessors such as s 824 of the Workplace Relations Act 1996 (Cth)) had produced conflicting authority on mixed claims. Some cases treated the restriction as applying only to the statutory "matters"; others held it governed the entire proceeding (Geneff v Peterson (1986) 19 IR 40; Qantas Airways Ltd v Transport Workers' Union of Australia (No 2) (2011) 211 IR 119).
This decision clarifies several points. It confirms that the focus in misconduct cases remains the character of the employee's conduct and its effect on the trust relationship, not collateral questions of employer clarification or third-party condonation. It adopts the narrower Cavenagh approach to Shepherd in circumstances where a cl 7.1 termination has been completed, but holds that actual payment (not mere offer or conditional promise) is required to complete termination by remuneration in lieu. Where payment has not occurred the contract remains on foot and after-discovered misconduct can found summary dismissal. On costs, it confirms that s 570 governs the whole proceeding where Fair Work Act matters are included; splitting is not permitted. The decision therefore narrows the circumstances in which employers can "convert" a redundancy-style exit into summary dismissal after the event, but widens the window for summary dismissal where the payment-in-lieu mechanism has not been perfected. It also tightens the availability of costs in mixed-claim litigation in state courts.
Key passages with plain-English translation
At [12] the joint judgment cites the classic authorities: "Summary dismissal is not justified by a mere breach of the contract of employment as what is required is a 'radical breach of the relation… inconsistent with its continuance' (Adami ... at 151)"; and Dixon and McTiernan JJ in Blyth Chemicals: "Conduct which in respect of important matters is incompatible with the fulfilment of an employee's duty or involves an opposition, or conflict between his interest and his duty to his employer or impedes the faithful performance of his obligations, or is destructive of the necessary confidence between employer and employee, is a ground of dismissal... An actual repugnance between his acts and his relationship must be found." In plain English: it is not enough that the employee broke a rule; the breach must go to the root of the job and make it impossible for the employer to keep trusting the employee in that role.
At [7] the court adopts Warren v Coombes: an appellate court is "in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed... [and] will give respect and weight to the conclusion of the trial judge, but, once having reached its own conclusion, will not shrink from giving effect to it." Translation: appeal judges do not have to defer to the trial judge on logical deductions from facts that everyone now agrees on; they can reach their own view if the trial judge's view was wrong.
At [19] the court criticises the primary judge's bartering analysis: "The focus of these paragraphs is not the character of Mr Sautner's conduct but, rather, what MSL ought to have done to ensure it could summarily dismiss Mr Sautner for such conduct. This focus is misplaced." Plain English: the judge asked whether the employer had done enough to warn staff, instead of asking whether what the employee actually did was so bad it justified instant dismissal. That was the wrong question.
At [30] the court explains why bartering was obviously wrong: "it is inconceivable that MSL contemplated that by 'personal use' a staff member would treat the tickets as the equivalent of cash and use them to barter for goods and services from third parties. The flagrant incompatibility of such a use with the concept of a bona fide 'personal use' is obvious..." Translation: giving staff tickets as a perk so they, their family and friends could go to games is one thing; letting them sell or swap those tickets for cash or discounts is completely different and obviously not allowed.
At [121]-[123] on termination: "Under the second limb of cl 7.1, termination can occur 'by providing remuneration in lieu of the appropriate term of notice' (emphasis added)... The termination under the employment contract required, in order to be effective, payment of the six months' pay in lieu of notice. This never occurred and there was therefore no termination under cl 7.1." Translation: saying "we will pay you six months" in a letter is not the same as actually paying it. Until the money is paid, the redundancy termination clause has not been triggered and the contract continues.
At [157] on costs: "There was a single proceeding... The claims under the Fair Work Act were 'matters' within the meaning of s 570(1)... Section 570(1) operated to preclude the Court from ordering MSL to pay any costs incurred by Mr Sautner in prosecuting his claims unless he could satisfy the Court that one of the exceptions... applied." Translation: once a case includes even one Fair Work Act claim, the strict no-costs rule covers the whole case; you cannot carve out the contract claim and award ordinary costs on it.
What fact patterns trigger this precedent
This decision will be triggered where an employer purports to terminate on notice or by payment in lieu under an express clause but has not actually made the payment in lieu, later discovers serious misconduct, and seeks to rely on cl 7.2-style summary dismissal. It applies to senior employees whose roles involve trust, policy enforcement, supervision of juniors, or access to valuable perks such as tickets or confidential information. The misconduct must involve deliberate, repeated or flagrant breaches that strike at trust—treating company assets (tickets) as personal cash, exploiting subordinates to breach third-party rules, secretly photographing and ridiculing the CEO before staff or business partners, or breaching clear written directions on conflicts of interest. The precedent also applies to any mixed Fair Work Act and common-law proceeding in a state court when costs are sought; the entire proceeding is caught by s 570 and an undifferentiated Calderbank or offer of compromise is unlikely to trigger the "unreasonable act" exception.
It will not be triggered if actual payment in lieu has been made and a debt has crystallised, or if the misconduct is minor, isolated and does not destroy confidence. It will not assist an employer who has completed a lawful redundancy termination and then tries to unwind the accrued liability. The appellate-review aspect applies whenever an appeal court is asked to draw inferences from facts that were undisputed or have been found by the trial judge; "weight" arguments are reviewable.
How later courts have treated it
Although the decision is relatively recent (2015), it has been cited with approval on the construction of payment-in-lieu clauses and the requirement of actual payment. In subsequent Federal Court and state appellate decisions it has been treated as settling that mere notice of an intention to pay in lieu does not effect termination if the money is not transferred. Courts have followed the narrow reading of Shepherd in completed-termination scenarios while accepting that where the contract remains on foot the employer may rely on after-discovered misconduct.
On s 570, later authority has reinforced that the provision governs the whole proceeding; attempts to split costs have been rejected. The misconduct principles have been applied in cases involving misuse of corporate perks, unauthorised dealings with third parties, and undermining of senior management. No court has disapproved the core holdings. The decision is regularly cited in employment-contract drafting advice as a reason to include claw-back clauses for payments in lieu if serious misconduct is later discovered. It has been treated as clarifying rather than changing the law, and its emphasis on the "character of the conduct" and "impact on the relationship" has been approved in summary-dismissal appeals.
Still-open questions
Several questions remain unresolved. First, the joint judgment and White J took different analytical paths to the same outcome on termination—repudiation and acceptance versus no termination under cl 7.1 because payment was not made. Future cases with slightly different contractual wording or different sequences of correspondence may have to choose between these analyses. Second, the precise limits of the "actual payment" requirement are unclear where an employer makes payment but the employee refuses to accept it, or where payment is made into a disputed account. Third, the interaction with s 117 of the Fair Work Act (which prohibits termination unless notice is given or payment in lieu made) remains open; the court expressly disclaimed reliance on it ([135]) but noted the civil-penalty consequences of non-compliance. Employers may still face penalties even if the contract remains on foot.
On costs, the court left open whether a carefully drafted offer that expressly apportions sums between statutory and contractual claims and waives costs on the statutory portion could trigger s 570(2)(b). The "unreasonable act" exception's application to mixed offers remains fact-sensitive. Finally, the decision does not address the position where the contract contains an express claw-back clause for payments in lieu upon later discovery of misconduct; Downer's cl 4.3 was distinguished on its text. Whether such clauses are enforceable against accrued debts or are penal remains for future litigation. Most practitioners still do not realise how narrowly Shepherd now operates once a payment-in-lieu mechanism has been perfected; many redundancy letters continue to be drafted as if a mere statement of intention suffices. This subtlety, combined with the strictness of s 570, makes the case a trap for the unwary in both substantive and costs outcomes.