_Moreton Bay College v Teys_

[1]

[1] McMURDO P: I agree that the appeal should be allowed for the reasons given by Fryberg J.

[2]

[2] On 17 September 2004, the appellant, Paul Francis Teys, knowingly misled the chair of the board of the respondent, Moreton Bay College, as to whether he was having an adulterous relationship with the mother of a student of the College. As the primary judge recognised, this lack of candour amounted to serious misconduct within the meaning of cl 13.2(e) of the contract between Mr Teys and the College. The primary judge did not advert to whether this serious misconduct was, as required under cl 13.2(e), "in the course of the performance or the purported performance of his duties [under the contract]". For the reasons given by Fryberg J, it was not.

[3]

[3] The trial and the appeal were not conducted on the basis that Mr Teys's conversation of 17 September 2004 with the chair breached his contractual duty as school principal to act in good faith towards his employer, the College. It was therefore neither necessary, desirable nor possible to decide this issue on appeal.

[4]

[4] I agree with the orders proposed by Fryberg J.

[5]

[5] HOLMES JA: I agree with the reasons of Fryberg J and the orders he proposes.

[6]

[6] FRYBERG J: Moreton Bay College ("the college") is incorporated by letters patent. It operates a well-known school for girls in Brisbane. From 1 January 1999 it employed Mr Teys as headmaster for a period of five years. On 4 February 2003 the parties made a fresh contract of employment effective for six years commencing 1 January 2003.[1] On 17 March 2005 the college summarily terminated that contract, alleging that Mr Teys had been dishonest in his dealings with the board of the college in that he had either misled or been untruthful to it. It was common ground that until the events which led to his dismissal, Mr Teys performed his role as principal very well.

[7]

[7] Under the contract in force at the time of his dismissal, Mr Teys was entitled to a complex salary package as part of which the college paid many of his personal expenses. The amount of any resulting fringe benefits tax was to be deducted from the total remuneration payable under the contract. A somewhat similar, but by no means identical, arrangement existed under the preceding contract. This arrangement necessitated a running account between the parties in respect of the package. When the contract was terminated that account was substantially in debit. The college sued Mr Teys in the District Court for the amount which it claimed was owing. After allowing the setoff described below, the trial judge (Botting DCJ) gave judgment in its favour for $74,275 plus interest. That judgment is not challenged in this appeal.

[8]

[8] Mr Teys counterclaimed. He admitted, indeed asserted, that he ceased to be an employee on 17 March 2005. However he claimed that he was owed $26,562.50 for unpaid annual leave to which he was entitled under the contract and $341,250 under cl 13.7 of the contract. In the alternative he claimed the latter amount as damages for breach of contract. It is unnecessary to describe how that amount was calculated. The judge made no finding in respect of the calculation and if the appeal is allowed, it will be necessary to remit the matter for further findings. For present purposes it suffices to say that this aspect of the claim depended upon Mr Teys' being entitled to 18 months' notice of termination. The Defence and Counterclaim set off these amounts against any amount found owing to the college and abandoned so much of the remainder as exceeded the jurisdiction of the District Court.

[9]

[9] By its Answer the college did not admit the claim for annual leave. It claimed to have been entitled to set off any such entitlement against its claim for overpaid remuneration. Botting DCJ found that $29,625 was due for the leave and allowed the setoff. Those findings are not now challenged. In respect of the claim for $341,250, the college admitted that it had an entitlement to terminate Mr Teys employment on 18 months notice under cl 13.6 of the contract, but asserted that it also had a right in certain circumstances to terminate summarily under cl 13.2. It alleged that it had exercised the latter right. In the alternative it alleged that Mr Teys had repudiated the contract and that it had been entitled to rely upon that repudiation to terminate the contract immediately.

[10]

[10] This appeal is about whether the college had any such rights. Botting DCJ dismissed the Counterclaim on the basis that the college had the right to terminate summarily under cl 13.2(e). It is that dismissal which is challenged by Mr Teys' appeal.[2]

[11]

[11] The narrow focus of the issue on appeal has highlighted a number of deficiencies in the relevant parts of the pleadings. The problems began with the amended[3] Counterclaim for $341,250. As noted above it had two bases: first, a claim under the contract for a liquidated amount and second, a claim for damages for breach of contract. The emphasis was on the first base, ie money due under cl 13.7 of the contract, presumably with an eye to facilitating the plea of setoff and thereby pre-empting any application for summary judgment. That claim was fairly elaborately pleaded. Some would describe the pleading as brave, for cl 13.7 provided:

[12]

"Wherever pursuant to this Contract, MBC terminates this Contract, MBC may, at its absolute discretion, satisfy its obligations with respect to any period of notice by paying the remuneration of the Principal and providing the benefits otherwise due to him pursuant to this Contract during the period of such notice, but requiring the Principal to withdraw his services as Principal of MBC."

[13]

[12] The claim for damages was for breach of cl 13.6 as well as cl 13.7. Clause 13.6 provided:

[14]

"MBC may, at its absolute discretion, but by not less than 18 months prior written notice, terminate this Contract. In the event of such termination, the Principal will not be entitled to any remuneration or compensation other than that the right to which has accrued as at the date of termination."

[15]

The problem was, of course, that both clauses conferred a discretion upon the college and Mr Teys acquired rights only in the event that the discretion was exercised. It is now clear (and it was probably always clear) that the college never purported to exercise either discretion; and Mr Teys never pleaded that it had.

[16]

[13] The college could have sought summary judgment on both its Claim and Mr Teys' Counterclaim. It did not do so. Perhaps it was felt that to do so would simply inspire an amendment which would cure the deficiency. Instead, by para 4(1A) of its amended[4] Answer it relevantly pleaded:

[17]

"(b) In addition to the express terms pleaded in paragraph 6 of the Further Amended Statement of Claim the Second Contract contained the following express terms:

[18]

(i) 'The Principal will devote the whole of his or her time, attention and skills during the normal hours of the College and at such other times as may be reasonably necessary to the College and to the performance of his or her duties and responsibilities under this agreement unless prevented by incapacity and except during leave' (clause 3.1.7).

[19]

(ii) 'The Principal will use his best endeavours to promote the aims and interests of the College and to enhance its standing and reputation within the community' (clause 3.1.8)."

[20]

[14] It further alleged by para 4(1B) and the particulars thereto:

[21]

"(a) The Defendant engaged in conduct in breach of ... clauses 3.1.7 and 3.1.8 of the Second Contract, the particulars of which are as follows:

[22]

(i) the Defendant misled or deceived the Plaintiff as to the nature of his relationship with Mrs Phillipa Duignan, a mother of a student of the College; and

[23]

(1) during various discussions between the Defendant and representatives of the Plaintiff, the Defendant:

[24]

(a) expressed or implied that he was not having an extra-marital relationship with Mrs Phillipa Duignan; or

[25]

(b) in circumstances where he knew that the Plaintiff was operating on the understanding that he was not having extra-marital relationship with Mrs Duignan, failed to correct that misconception,

[26]

when in fact he was having an extra-marital relationship with Mrs Duignan;

[27]

(c) on or about 17 September 2004, Ms Stannard met with the Defendant at her office at Stuartholme School, and during that meeting:

[28]

(i) the Defendant told Ms Stannard that there was gossip circulating throughout Moreton Bay College, that the Defendant was involved in an affair with Mrs Duignan, a parent with a child at Moreton Bay College and a child at the Moreton Bay Boys' College;

[29]

(ii) Ms Stannard asked the Defendant if the rumours were true and told the Defendant it was his final opportunity to be honest with her;

[30]

(iii) the Defendant replied that the rumours were not true, that he was friends with Mr and Mrs Duignan, but more so with Mrs Duignan and that his relationship with Mrs Duignan was purely platonic; and

[31]

(iv) Ms Stannard said to the Defendant that she would have to inform the Board about the situation;

[32]

(ii) the Defendant in fact engaged in an extra-marital relationship with Mrs Duignan; and

[33]

(1) the Defendant commenced an extra-marital relationship with Mrs Duignan on or before 3 July 2004;

[34]

(2) the relationship commenced and continued while the Defendant was married to and living with Mrs Teys; and

[35]

(3) the relationship subsequently continued while the Defendant was married to but not living with Mrs Teys.

[36]

(b) the Defendant breached clause 8A.2 of the First Contract and clause 4.2 of the Second Contract, by failing to report to the Board the overspending of his remuneration".

[37]

"The overspending of his remuneration" was a reference to the subject matter of the plaintiff's claim.

[38]

"(a) [The college] was entitled, under clause 13.2 of the Second Contract, to terminate the Second Contract immediately and without payment of any remuneration or compensation (otherwise than already accrued as at the date of termination) in the circumstances listed in subparagraphs (a) to (j) of clause 13.2;

[39]

(i) pursuant to and in accordance with clause 13.2 and not clause 13.6 of the Second Contract; or

[40]

(ii) in the alternative, in reliance on the repudiation by the Defendant of the Second Contract constituted by the Defendant's dishonesty to the Plaintiff; and

[41]

(c) the Defendant's conduct as pleaded in paragraph 4(1B) of this Amended Answer:

[42]

(i) entitled the Plaintiff to terminate the Defendant's employment pursuant to and in accordance with clause 13.2 of the Second Contract; and

[43]

(ii) in the alternative, constituted repudiation by the Defendant of the Second Contract upon which the Plaintiff was entitled to rely to terminate the Contract immediately.

[44]

In relation to paragraph 4(2) of the Amended Answer, the Plaintiff says that it relies upon all subparagraphs of clause 13.2 of the Second Contract for its entitlement to terminate the employment of the Defendant, and for the purpose of paragraph 4(2)(b)(ii) of the Amended Answer particularly subparagraphs (e), (h) or (j)."

[45]

On the facts of the case, no part of cl 13.2 except the three subparagraphs specified in the particulars could possibly have applied. Apparently, Mr Teys did not complain about the particularisation of the whole of cl 13.2 and nobody noticed the incongruity of nominating clauses specifying circumstances giving rise to a contractual right of summary termination as particulars of repudiation.

[46]

[16] Mr Teys did not plead to that Answer. He should have done so, because the Answer alleged new facts. He should have filed and served what the Uniform Civil Procedure Rules call a Reply.[6] His failure to do so meant that the new facts alleged in the Answer were deemed "not admitted"[7] and r 165(2) applied in relation to them.

[47]

[17] At trial the college, no doubt wisely, elected not to split its case.[8] It also seems to have accepted that it carried the onus of proof in relation to the two issues which it alleged justified Mr Teys' summary dismissal. It neither pleaded nor sought to defeat the Counterclaim by proving that it had never exercised or attempted to exercise a discretion under cl 13.6 or cl 13.7. It raised no objection under r 165(2) to evidence from defence witnesses in relation to the new facts which had been raised in the Answer. It is clear that Mr Teys' claim was, and was understood by the college to be, a claim for damages for breach of contract based upon a wrongful repudiation, the repudiation being his summary dismissal when no right of dismissal arose.[9]

[48]

[18] Those were not the only respects in which the conduct of the case departed from the pleadings. In his prayer for relief, Mr Teys claimed his lost remuneration as a lump sum, and he claimed interest on that sum from the date of his dismissal to the date of trial. If the counterclaim had succeeded, he would have been entitled to be put into the position in which he would have been had the college performed its obligations under the contract. His prayer for relief assumed that had the college not summarily dismissed him, it would have paid him out in full for the balance of his contract on the date of his dismissal. To justify the claim in the prayer for relief, that fact ought to have been pleaded. That was not the college's only option in such circumstances. It could have required him to withdraw his services as principal for the 18 months period of notice and paid the remuneration over that period. If it were established that this is what would have happened, Mr Teys would not have been entitled to interest on the whole of the remuneration from the date of dismissal. Had he pleaded appropriately in his Counterclaim, the college would have been obliged to respond in its Answer. In the event, the point surfaced at the trial during final submissions.[10] The college then asserted, without any evidence, that damages should be calculated on the basis that Mr Teys was on "garden leave".[11]

[49]

[19] In supplementary submissions delivered by leave after the trial, the college also challenged the calculation of Mr Teys' claimed damages on the basis that his methodology was inappropriate having regard to a number of provisions of the Income Tax Assessment Act 1997 (Cth). It is unclear whether any notice was given of this challenge, but it was certainly not included in any pleading. It should have been raised in the Answer.

[50]

[20] Neither at trial nor on appeal did Mr Teys take any point about these deficiencies in the college's pleading. Perhaps he was applying the old adage about people in glass houses. Not only were the pleadings on his side deficient in the respects described above, but also he too wished to raise a new argument; and he did so. Without any pleading, he submitted at the end of the trial (and on the appeal), that by reason of s 124 of the Anti-Discrimination Act 1991, what he said to Ms Stannard either could not constitute misconduct or could not constitute serious misconduct under the contract. That point too should have been pleaded. Had it been, the submissions might have been formulated with more precision, and more attention might have been given to adducing evidence relevant to it. In the event, the college raised no objection at either stage of proceedings.

[51]

[21] I raise all these matters not to demonstrate how clever a judge can be when sitting in the calm atmosphere of the Court of Appeal, but for two other purposes. The first is to show that in this trial a number of things happened or did not happen in the way in which one would have expected from the pleadings. The second is to explain the basis for my protest at the difficulty which such pleadings created for the trial judge and to state with the authority of this division of the court the importance of timely consideration being given by the parties' lawyers to pleadings prior to the trial date. Pleadings exist for a number of purposes. One of the most important is to enable the trial judge to find out before coming into court what the case is about and to get into his or her head what the issues are. That purpose is defeated when, as happened in this case, both sides make substantial amendments on the morning of the trial. Another purpose is to enable the judge to recall what the issues were when writing a reserved judgment. It makes a judge's task significantly more difficult if the pleadings conceal or omit some of the issues or formulate them in a way which is misleading. It should not be necessary for the judge to have to reconstruct the issues from a combination of the pleadings, any written submissions and the transcript of closing addresses. Far too often the purposes to which I have referred are unfulfilled. The profession, particularly the Bar, should be astute to prevent that.

[52]

[22] It was common ground that under the contract of employment, Mr Teys was obliged to use a residence on the school campus as his principal place of residence.[12] That was where he was residing with his wife during the first half of 2004. However by that time matrimonial differences and difficulties existed between them. The judge found that in August 2004 Mr Teys left the residence. It was undisputed that from then until shortly after his dismissal his wife continued to reside in it with the consent of the college. The judge found that prior to his leaving the residence, Mr Teys formed a relationship with a Mrs Duignan who at all material times was the mother of a pupil at the school and whom he met at a speech night function.

[53]

[23] His Honour found that Mr Teys considered his marriage to be over prior to May 2004, but that his wife harboured some hopes that they might be able to reconcile their differences. He found that Mr Teys actively pursued an association with Mrs Duignan from May 2004. The college alleged that he misled the chair of the college board, Mrs Stannard, at a meeting on 17 August 2004, but his Honour resolved that issue in Mr Teys' favour:

[54]

"125. I find that at the meeting between Mrs Stannard and the defendant on 17th August, 2004:

[55]

the defendant advised Mrs Stannard that he was separating from his wife;
the defendant inquired about the principal's residence, and was told that his wife and children might remain in the residence;

[56]

the defendant asked whether his separation from his wife would 'cause a problem' for his employment;

[57]

Mrs Stannard replied with words to the effect: 'No unless there was a third party involved;'
She then said to the defendant: 'There isn't a third party involved' to which he responded that there was not.

[58]

With some misgivings, I am prepared to accept that the defendant, in asserting that a third party was not involved meant that no third person had contributed to the breakdown of his marriage, and that in responding to Mrs Stannard's question he did not intend to mislead her.
I find that at the meeting the following day between the defendant, his wife, and Mrs Stannard a similar conversation took place, with Mrs Teys confirming that there was no other party involved.
I find that the defendant moved out of the principal's residence to a furnished unit on 24th August 2004. I do not think it likely that the defendant told Mrs Stannard that it was his intention to remain in the principal's residence until the end of the year."

[59]

[24] However Mr Teys was less successful in relation to the other discussions in which the college alleged he had misled and deceived Mrs Stannard:

[60]

"129. I find that on the evening of 16th September 2004 the defendant and his wife had an angry meeting. Following this Mrs Teys spoke to Mrs Stannard. The next morning Mrs Stannard and the defendant met. The defendant raised the 'incidents' which I have outlined above, and gave the various explanations which I have also outlined above.

[61]

the defendant emphasised to Mrs Stannard the importance to him of his friendship with Miss X, and that he intended to continue to have contact with her; 2. he asked whether his continuing the friendship would 'be a problem or not' to which Mrs Stannard responded that she thought that it would not be unless the relationship was a sexual one;

[62]

the defendant then asked Mrs Stannard to request the Board to consider 'boundaries and guidelines' for him.
It seems to me that it is an inescapable conclusion that both Mrs Stannard and the defendant would have discussed these 'rumours' or 'incidents' only on the basis that, if true, they lead to the inference that the defendant was involved in an intimate relationship with Miss X.
I am satisfied that the defendant, in his discussions with Mrs Stannard, deliberately used language to create the impression in Mrs Stannard that his friendship with Miss X was no more than a friendly one. Indeed, he virtually said as much: 'That there were occasions when I had made contact with her, but it certainly wasn't as - as they wanted to - to - to portray it.'
Whilst I can understand the defendant's desire to preserve his and others' privacy, his use of language at this time was, in my view, calculated to, and did, mislead Mrs Stannard.
I find that on or about 8th October, 2004 the defendant telephoned Mrs Stannard because Miss X was receiving nuisance telephone calls.
I find that following the Board meeting of 26th October, 2004 the defendant and Mrs Stannard met. Mrs Stannard conveyed to him the concern of the Board members about the rumours of his relationship with Miss X. Again he either refuted the accounts or said he was unwilling to respond to 'general rumours.' I find that the defendant told Mrs Stannard that he did not 'know where the relationship [was] going.' Whilst this may have been literally true, I find that the defendant was at this time deliberately maintaining the deception he had instigated in mid-September, 2004. He certainly was not being frank with Mrs Stannard.
I find that at this time it was the defendant's intention that any interaction he might have with Miss X should be conducted in such a way as not to be observed by others, or, if it should, to be in such a context as to seem innocuous.
After the Board meeting in November, 2004 Mrs Stannard and the defendant met. The defendant was well aware, it seems to me, that some members of the Board were concerned because they believed he and Miss X were involved in a relationship which they (the Board members) regarded as inappropriate. He was aware that Mrs Stannard was 'defending' him at the meeting and did nothing to correct the misleading impression he had earlier created, and had in the meantime maintained.

[63]

"149. It may be recalled that sub-clause (e) of clause 13 provides that the contract may be summarily terminated if:

[64]

.. the Principal is or becomes guilty of any serious misconduct, gross incompetence, gross insubordination or neglect in the course of the performance or the purported performance of his duties hereunder or commits either in such course or in his private life which causes him to be publicly disgraced or held in public contempt

[65]

In my view the defendant's actions during his meeting with Mrs Stannard on 17th September, 2004 amount to serious misconduct within the meaning of sub-clause (e) of clause 13. In coming to this conclusion I have borne in mind:
1. it is critical for the proper functioning of the school that the chairman in particular, and Board members generally, have complete trust and confidence in the integrity of the Principal;
2. once the true facts were known to the Board it seems to me it would have been practically impossible for them to have that trust and confidence.
It follows that the Board was entitled to summarily end the defendant's employment on 17th March, 2005.
Hence the counterclaim should be dismissed."

[66]

[26] His Honour further held that the provisions of the Anti-Discrimination Act 1991 did not assist Mr Teys. He found that Mr Teys initiated the conversations of 17 September 2004 with Mrs Stannard; that she did not make an enquiry of him but rather responded to a question from him; and that he must have known that she would have to deal with the rumours before the board and that it would be critical for her to know the truth of the matter.

[67]

[27] His Honour dealt with three other issues. One was whether Mr Teys failed to use his best endeavours to promote the aims and interests of the college and to enhance its standing and reputation in the community, contrary to cl 3.1.8 of the contract. He summarily rejected the college's submission on the basis that he could not find any evidence which would lead him to conclude that there was such a failure.

[68]

[28] Another issue was that Mr Teys failed to devote the whole of his time, attention and skills during normal hours of the college and at such other times as might be reasonably necessary to the college and to the performance of his duties and responsibilities under the contract, contrary to cl 3.1.7 of the contract. On that issue his Honour found that there were times during school term and during ordinary lesson time when Mr Teys met Mrs Duignan other than in the performance of his duties and responsibilities. He was unable on the evidence to make a finding of how frequently such meetings occurred, nor of their duration. He found that the expression "normal hours" in the clause was vague and held that the provisions of the clause must be read down. "Could it seriously be contended," he asked rhetorically, "that the parties intended that if, for a few moments, the principal allowed his mind to wander from the school's affairs he might be summarily dismissed?" He referred to the evidence that Mr Teys did an excellent job as principal and the absence of any evidence that the school has suffered because of neglect by him; and to the fact that a previous board chairman had told Mr Teys that he should balance his time. He held that in the circumstances the college would not have been entitled to summarily dismiss Mr Teys under the clause on the basis of such absences as were proved during the trial.

[69]

[29] The remaining issue was whether Mr Teys' failure to report to the board that he had overspent his salary package constituted a breach of cl 4.2 of the contract. His Honour held that it did not, on the ground that the primary responsibility for financial management of the school's affairs lay with the bursar, who regularly reported to the finance subcommittee of the board, including on salaries; that what had to be reported to the board was a matter of judgment; and that there was a degree of sensitivity about the amount of the salary.

[70]

[30] The judge made no finding as to whether Mr Teys breached his contract simply by the fact of his engaging in an extra marital relationship with Mrs Duignan.

[71]

"a) In finding that the appellant's actions in the meeting with the respondent on 17 September 2004 amounted to serious misconduct in breach of sub-clause 13(e) of the contract of employment between the appellant and respondent dated 4 February 2003;

[72]

In failing to find that the conduct of the appellant in the meeting with the respondent on 17 September 2004 was not conduct within the scope of or course of his employment and could not therefore constitute serious misconduct;

[73]

In failing to find that the conduct of the appellant in the meeting with the respondent on 17 September 2004 was not conduct within his duties and responsibilities and could not therefore constitute serious misconduct."

[74]

There were numerous other grounds to which it is unnecessary to refer.

[75]

[32] Mr Teys accepted that cl 13.2 of the contract gave the college a right of summary dismissal in certain circumstances, but submitted that those circumstances had not arisen. He did not challenge Botting DCJ's findings that on 17 September 2004 he deliberately used language to create the impression in Mrs Stannard that his friendship with Mrs Duignan was no more than a friendly one; and that by then the relationship was in fact a sexually intimate one.

[76]

[33] The submission focused on the finding that in consequence of those matters the college was entitled to dismiss him summarily. He submitted that the conduct did not amount to serious misconduct within the meaning of cl 13.2(e). He also submitted that only conduct in the course of his performance of his duties could give rise to termination under para (e); that the judge failed to consider whether the conduct on 17 September was in the course of the performance of his duties; and that, having regard to the evidence and his Honour's preference for that of Mr Teys over that of Mrs Stannard, it ought to be held that the conduct was not in the course of the performance of his duties. In the alternative he submitted that the judge failed to consider whether such misconduct as he found had occurred was sufficiently serious to justify termination of the contract. Finally, he submitted that Mrs Stannard's conduct in seeking information about the relationship was in breach of the Anti-Discrimination Act 1991 with the result that the answers given to her questions could not amount to misconduct at all.

[77]

[34] The college submitted that what Mr Teys did amounted to serious misconduct under the contract. It submitted that Mr Teys' submissions misconceived precisely what conduct his Honour had found amounted to the serious misconduct, and that the relevant conduct was the deliberately misleading actions, not the participation in a sexual relationship. It further submitted that on the evidence that misconduct occurred in the performance of his duties, although that submission tended at times to become confused with the first submission. It conceded that the judge had not dealt with the question whether the misconduct occurred in the performance of his duties. It submitted that given his Honour's specific findings of fact, it was not open to Mr Teys to rely upon his general finding as to Mrs Stannard's reliability. It submitted that it would have been irrelevant for the judge to have considered whether the conduct was sufficiently serious to justify termination of the contract; the only question was whether the conduct amounted to serious misconduct under cl 13.2. As to the Anti-Discrimination Act 1991, the college submitted that information as to whether any third party was involved in the breakdown of the appellant's marriage was not information upon which discrimination could have been based on the attributes contained in s 8 of the Act; that the information requested by Mrs Stannard was reasonably required for a purpose that did not involve discrimination, thus raising a defence under s 124(3) of the Act; and that even if the college was in breach of the Act, Mr Teys was only entitled to refuse to answer, not to give dishonest answers.

[78]

[35] The college also filed a notice of contention. The grounds of contention were:

[79]

"2. That the decision of the District Court should be affirmed on the additional grounds that the Respondent was entitled to terminate the Appellant's employment or contract:

[80]

(a) pursuant to or in accordance with clause 13.2 of the Appellant's employment contract on the following grounds:

[81]

(i) the Appellant engaged in an extra-marital relationship with Miss X (as that individual is referred to in the decision of the District Court), a mother of a student of the College;

[82]

(ii) the Appellant failed to use his best endeavours to promote the aims and interests of the Respondent and enhance its standing, by engaging in the conduct in which he did;

[83]

(iii) the failure of the Appellant to devote the whole of his time and his skills to the Respondent in light of the times and frequency with which the Appellant was not at the Respondent, but with Miss X; and

[84]

(iv) the failure of the Appellant to report to the Respondent's Board the overspending of his remuneration; and

[85]

(b) in the alternative, in reliance on the repudiation by the Appellant of the Appellant's employment contract constituted by the conduct referred to in paragraphs 2(a)(i) to 2(a)(iv) above."

[86]

[36] In support of ground (a)(i) the college pointed to the following facts:

[87]

The relationship between Mr Teys and Mrs Duignan was actively pursued while, as was known by the college and the school community, he was married and residing with his family in premises on the school campus;
Mrs Duignan was the mother of a child in year five at the college;
Mr Teys had met her and her husband as parents of a child at the college;
At the commencement of the relationship and at the time it became a sexual relationship Mrs Duignan was cohabiting with her husband and children in a marital relationship;
The relationship placed Mr Teys in an untenable position of conflict of interest and duty having regard to his ultimate responsibility for the overall welfare of each student;
Even if Mr Teys was not acting in the course of his duties when he misled Mrs Stannard, the facts of the relationship breached his contract.

[88]

[37] In support of ground (a)(ii) the college submitted that Mr Teys' conduct was in breach of cl 3.1.8 of the contract, entitling the college to terminate his employment summarily under cl 13.2(h).

[89]

[38] In support of ground (a)(iii) the college submitted that the evidence demonstrated that Mr Teys spent considerable periods of time during school hours pursuing his relationship with Mrs Duignan. It submitted that the evidence was sufficient to demonstrate a breach of cl 3.1.7, which in turn gave rise to the right of summary termination under cl 13.2(h). It submitted that the judge wrongly construed cl 3.1.7 by reference to cl 13.2(d).

[90]

[39] In support of ground (a)(iv) the college submitted that the total of the net overpayments was, as the judge found, $103,900 over a seven-year period, and that Mr Teys was found to have known throughout the final years of his employment that he had authorised payment of sums which exceeded his entitlements. It submitted that the continued knowing authorisation of payments in excess of his entitlements was a matter which ought to have been reported under cl 4.2 of the contract. Breach of that clause also gave rise to a right of summary termination under cl 13.2(h).

[91]

[40] The college made no explicit submissions regarding ground (b) of the notice of contention, but the ground was not expressly abandoned.

[92]

Mr Teys' submissions on the notice of contention in outline

[93]

[41] Mr Teys submitted that the first ground in the notice could have no existence independently of the ground based on nondisclosure and misleading of Mrs Stannard. On the second ground he submitted that his private relationship with Mrs Duignan could have nothing to do with promoting the aims and interests of the college or enhancing its standing. As to the third he submitted that the contract did not require him to be a slave to duty. He supported the judge's findings and submitted that there was unchallenged evidence that in practice he was afforded substantial flexibility in the hours during which he was required to be at the school. Finally, he submitted that he had concealed nothing from the bursar, who was fully aware of the position regarding overpayments at all times. They were cooperating about steps to have the deficit reduced and the bursar was not dissatisfied with the position. They had not been able to resolve the precise position due to complexities arising out of the calculation of fringe benefits tax and he had asked his accountants to try to resolve the difficulties. Moreover the previous chair of the board had instructed him that he was accountable to the bursar and to speak to him about such financial matters. The failure to report could not amount to serious misconduct.

[94]

[42] The contract relevantly[13] provided:

[95]

3.1.6 Will faithfully and diligently perform such duties and exercise such powers which are consistent with this agreement and with the position to which the Principal has been appointed.

[96]

3.1.7 Will devote the whole of his or her time, attention and skills during the normal hours of the College and at such other times as may be reasonably necessary to the College and to the performance of his duties and responsibilities under this agreement unless prevented by incapacity and except during leave.

[97]

3.1.8 Will use his best endeavours to promote the aims and interests of the College and to enhance its standing and reputation within the community.

[98]

4.2 The Principal is to report on the affairs of MBC to the Board of Governors from time to time as is reasonable, or as the Board of Governors may reasonably request from time to time, and generally keep the Board of Governors fully informed of all developments relevant or material to MBC's affairs as are within the scope of the Principal's duties and responsibilities.

[99]

13.2 This agreement may be terminated forthwith by MBC and without payment of any remuneration or compensation (otherwise than already accrued as at the date of termination):

[100]

(e) if the Principal is or becomes guilty of any serious misconduct, gross incompetence, gross insubordination or neglect in the course of the performance or the purported performance of his duties hereunder or commits either in such course or in his private life which causes him to be publicly disgraced or held in public contempt;

[101]

(h) for breach of any of the provisions of this agreement by the Principal;

[102]

(j) if the Principal brings himself or the College into serious disrepute.

[103]

20.1 The terms of this Contract constitute the entire agreement between the Principal and MBC."

[104]

Although cl 13.2(j) was pleaded and relied upon at first instance, it was not relied upon in the appeal. There was no evidence that either Mr Teys or the college had been brought into serious disrepute.

[105]

[43] It became apparent during the course of the appeal that a fair analysis of these issues might require consideration of the way in which the case was run at first instance. To assist in this process the record was supplemented by providing the court with copies of the parties' written submissions at first instance and with a transcript of their oral submissions at the end of the hearing. I have had regard to these documents as well as to the pleadings on a number of occasions.

[106]

[44] The first curious feature of the matter is that if one has regard only to the pleadings, it was not open to the judge to decide the case as he did under cl 13.2(e). It is true that in relation to its claimed right to dismiss summarily under cl 13.2 pleaded in para 4(2) of the Answer, the college particularised all subparagraphs of the clause. However in pleading the conduct justifying the invocation of the clause it pleaded three matters as constituting breaches of one or more of cl 3.1.7, cl 3.1.8 or cl 4.2. That brought the alleged conduct under cl 13.2(h). It did not plead that the conduct (including the dishonesty) constituted serious misconduct in the course of the performance of Mr Teys' duties; so that a necessary element of cl 13.2(e) was missing. Nonetheless it relied on that clause in its written outline below.[14] Mr Teys recognized the relevance of para (e) in his outline[15] and made no objection to the college's submission. The parties' conduct of the case therefore warranted the approach taken by Botting DCJ.

[107]

[45] It is convenient to recapitulate: on appeal Mr Teys did not challenge his Honour's finding that (in effect) on 17 September 2004 he deliberately misled Mrs Stannard. He submitted that:

[108]

contrary to the judge's findings, his conduct did not amount to serious misconduct under cl 13.2(e);
even if it did, it did not occur in the course of the performance of his duties under that clause; and the judge should have considered this question and so found;
contrary to the judge's findings, Mrs Stannard's enquiries were unlawful under the Anti-Discrimination Act 1991, with the consequence that answers to them could not amount to misconduct, or if they did could not amount to serious misconduct, under the clause.

[109]

[46] Mr Teys submitted that his misleading of Mrs Stannard did not amount to misconduct because he should never have been asked questions about his private life, even apart from the effect of the Anti-Discrimination Act 1991. In the alternative he submitted that it was not serious misconduct. In support of the alternative submission he relied upon Rankin v Marine Power International Pty Ltd.[16]

[110]

[47] I reject that submission. I see no impropriety in the questions asked by Mrs Stannard and in any event, if they did touch upon private matters about which there was no right to ask, that did not justify Mr Teys misleading Mrs Stannard. Botting DCJ was correct to characterise Mr Teys' conduct on 17 September 2004 as serious misconduct; its seriousness was derived not least from the extent of the misrepresentation and lack of candour apparent from the e-mails to which the college referred in argument. It was aggravated by the maintenance of the deception for several months thereafter. Its seriousness was hardly lessened if it was the case that the conversation was initiated by Mrs Stannard, not by Mr Teys, and I reject his submission to the contrary. Rankin is of no assistance in this context. It did not involve the element of dishonesty.

[111]

In the course of the performance of his duties under the contract

[112]

[48] Both at first instance and on appeal the parties accepted that to justify summary dismissal under cl 13(2)(e), any serious misconduct had to be committed in the course of the performance or the purported performance of Mr Teys' duties under the contract. The college did not rely on any purported performance of duties, but submitted that Mr Teys' conversations with Mrs Stannard occurred in the course of the performance of his duties under the contract.

[113]

[49] At first instance and to some extent in argument on the appeal the parties addressed this question in terms of whether the relevant conversations were of a private nature or whether they related to Mr Teys' employment. This focus tended to obscure the issue. A finding that the conversations were purely private would no doubt assist Mr Teys' case, but the question to be determined was whether the misconduct occurred in the course of the performance of Mr Teys' duties under the contract. Such a finding was an essential element of any successful defence under cl 13(2)(e). Unfortunately, the trial judge did not address the question.

[114]

[50] That omission can be ascribed in large part to the fact that neither party addressed the question in their oral or written submissions and it was not raised on the pleadings. Those submissions understandably focused on numerous matters of fact and credibility. They referred among other things to Mr Teys' alleged dishonesty. They dealt at some length with the college's alleged right to terminate for breach of contract as well as its rights under the contract. Although they referred to cl 13(2)(e), the paragraph was not analysed. Perhaps this was the result of its not having been pleaded in this context. Whatever the explanation, it is fair to say that his Honour did not receive the assistance to which he was entitled.

[115]

[51] In their outlines of argument on the appeal, the parties, in dealing with the point currently under discussion, focused on whether Mrs Stannard had the conversations with Mr Teys in a private capacity. Considerable attention was devoted to identifying who initiated the conversation on 17 September 2004. The point itself was indiscriminately identified as being whether the conduct occurred in the course of the performance of Mr Teys' duties and whether it occurred in the course of his employment with the college, without any indication that the difference between the two expressions was appreciated. Not until oral argument on the appeal did the focus sharpen.

[116]

[52] The college then submitted that Mr Teys' conduct occurred in the performance of duties imposed upon him by cl 3.1.6 and cl 4.2 of the contract, which were interlocking clauses. The former imposed a duty; it was not limited to the manner of performance of other duties. It meant that Mr Teys had a duty faithfully and diligently to inform the board about his relationship as an incident of the relationship between principal and the school. It submitted that he was communicating to his employer about matters which he perceived his employer needed to know, even though a corollary may have been protecting his own position. It conceded that "in the course of his employment" was a somewhat broader expression than "in the performance of his duties under the contract".

[117]

[53] In my judgment those submissions face insurmountable obstacles. Clause 3.1.6 was neither pleaded nor relied upon at first instance. It is now too late to raise it. In any event it simply did not on any sensible construction confer fresh powers or impose fresh duties on the principal. It does not in my judgment make sense to construe it to mean that the principal was under a duty to do everything possible which was consistent with the contract; and that would be the result of the construction for which the college contends. Clause 4.2 was pleaded, but only in respect of failure to report overspending of Mr Teys' remuneration. It is now too late to expand the ambit of the pleading, and in any event the college made no application to do so. Moreover that clause imposes a reporting obligation "from time to time as is reasonable". Even if "the affairs of MBC" is apt to describe a potentially scandalous relationship entered into by the headmaster (which I doubt), Mr Teys was plainly not delivering such a report at the time of his conversations with Mrs Stannard. Consequently his lack of candour does not constitute a failure faithfully and diligently to perform a duty within the meaning of cl 3.1.6.

[118]

[54] Consequently, it would not have been open to the trial judge to make the finding which he did, even if he had considered the question of the performance of Mr Teys' duties under the contract. His decision cannot be sustained on the ground on which it was made.

[119]

The Anti-Discrimination Act 1991

[120]

[55] It is unnecessary to address the arguments on this point in the light of the foregoing.

[121]

[56] Paragraph (a) of the notice of contention asserted a right in the college to terminate Mr Teys' contract under cl 13.2 on four grounds. No specific parts of the clause were particularised, but only paras (e) and (h) could have been engaged. In the alternative the notice asserted repudiation of the contract constituted by the same four grounds.

[122]

Engaging in an extra-marital relationship with the mother of the student

[123]

[57] The features of the relationship which were said to support its characterisation as serious misconduct within the meaning of cl 13.2(e) were that at the relevant time, Mr Teys was married to, although separated from, Mrs Teys,[17] that the relationship was of a sexual nature, that it was clandestine and that it gave rise to potential conflicts of interest and/or duty.

[124]

[58] In my judgment Mr Teys' conduct in engaging in the relationship did not amount to misconduct, let alone serious misconduct. Adultery, whether clandestine or not, is not unlawful. It was never a criminal offence at common law (although it was an ecclesiastical offence)[18] and it ceased to be actionable with the repeal of the Matrimonial Causes Act 1959 (Cth). It is regarded by some in our society as immoral or unchristian but there was no evidence that at the time the contract was formed it was contemplated as constituting misconduct under it. On the contrary, the contract omitted provisions contained in the earlier contract of employment which recited the mission statement of the college as "providing education in a caring and Christian environment"; which recorded the philosophy and aims of the college as including "to provide a caring environment for girls based on Christian principles" and "to provide opportunities for each student to grow in a real relationship with Christ, and gain an understanding of the tenets of the Christian faith"; and which required that the principal be "willing to participate in the life of the [Uniting] Church and maintain the Christian characteristics and values of MBC".

[125]

[59] As to the possibility of conflicts of interest and/or duty arising by reason of the relationship with the parent of a student, the contract provided that the college would "provide for the education of the Principal's daughter ... within its ordinary school program, free of tuition fees". It implicitly recognized that if any such conflicts developed by reason of such a relationship, they could be dealt with within the college system.

[126]

[60] It is also abundantly clear that Mr Teys did not engage in the relationship "in the course of the performance or the purported performance of his duties under the contract" within the meaning of cl 13(e).

[127]

[61] It was not argued that the mere fact of the existence of the relationship constituted a breach of any provision of the contract by Mr Teys within the meaning of cl 13.2(h), nor that it could amount to repudiation of the contract; although these points were not formally abandoned. They are without merit.

[128]

[62] Botting DCJ could not find any evidence which would lead him to conclude that there was any failure to comply with cl 3.1.8 of the contract. None was drawn to our attention on the appeal. This contention fails.

[129]

[63] The trial judge's findings on this point are set out above.[19] The college submitted that the evidence demonstrated Mr Teys had spent considerable periods of time during school time pursuing his relationship with Mrs Duignan. It referred to unidentifiable parts of ex 1 (a series of e-mails) in support of that proposition. I reject it. I am unable to draw that conclusion from that exhibit. Nonetheless, Botting DCJ found that there were times during school term and during ordinary lesson time when Mr Teys met Mrs Duignan for purposes which did not fall within "the performance of his duties and responsibilities" within the meaning of cl 3.1.7 of the contract.

[130]

[64] His Honour found against the college on this point because he held that the clause must be read down. He did not indicate precisely how it should be read and I have some difficulty understanding precisely how it can be read down. His Honour's rhetorical question hypothesising a mind wandering from the school's affairs for a few moments can be disregarded as being de minimis. While his Honour was unable to make a finding as to how frequently or how long meetings between Mr Teys and Mrs Duignan occurred during college hours, I am prepared to assume that they were not de minimis.

[131]

[65] That raises the question whether cl 13.2(h) permitted Mr Teys' summary dismissal. That in turn raises the question whether that clause should be interpreted as referring to any breach whatsoever, no matter how trivial. Having regard to the duration of the contract, its nature and the potentiality for minor breaches of it, it seems to me highly improbable that the clause was intended to cover other than the serious breaches.

[132]

[66] There is insufficient evidence to support a finding that any breaches of cl 3.1.7 were serious ones. Consequently, this contention must fail. Similarly it is not open to find that the meetings were sufficient to constitute repudiation of the contract.

[133]

Failing to report the overspending of his remuneration

[134]

[67] At all material times at least the senior staff at the college (the principal, the bursar and the deputy principal) were entitled under their contracts of employment to "package" their salary. As implemented at the college, this meant that the college paid private expenses of the employees of a type and to an amount nominated annually in advance by the employee. Under the contract in force at the time Mr Teys was dismissed, "the cost of providing the benefit and of any fringe benefits tax ... levied on the provision of such benefit, [was] to be deducted from the total remuneration payable" under the contract. This was done by establishing a running account between the employee and the college. However it was not possible to reconcile the account for any given year until the college received its assessment for fringe benefits tax at the end of March in the following year. The evidence was unclear as to how frequently the college in fact reconciled the accounts.

[135]

[68] Botting DCJ found that the primary responsibility for financial management of the school's affairs lay with the bursar. He regularly reported to the finance committee of the board and, as the judge found, included a line on salaries. His Honour made no finding about how much information was conveyed in this report, but the college did not submit that there should have been a finding that the board was unaware of the general position insofar as the bursar and Mr Teys were able to establish it. The evidence suggested that this process was very difficult, although the judge found that if Mr Teys had turned his mind to the matter, he would have known what the total of payments to him or on his behalf in any particular year was. The fringe benefits tax was one of the largest single items; in most years it made the difference between the account being under drawn and over drawn. It could not have been known by Mr Teys unless the bursar told him. The judge found that the bursar failed to keep him up to date with the position regarding drawings against his salary.

[136]

[69] Indifferent to the fact that the bursar reported to the finance committee, the college submitted that Mr Teys should have reported the overdrawing to the board. A difficulty with that submission is that by convention, the headmaster's salary was not disclosed to the whole board. The judge has not found that the board was unaware of the existence of overdrawings and it seems that question was not addressed in the evidence. That is a little curious, as in response to a plea of waiver or acquiescence, the college pleaded that the board only became aware of the overpayment after Mr Teys' employment was terminated. Indeed, the evidence seems to have been somewhat unsatisfactory on the overpayment issue. The college's Financial Procedures Manual, referred to in cl 10.1 of the contract, was not put into evidence; the position regarding other employees' running accounts was not canvassed; and the evidence of the bursar was replete with expressions connoting uncertainty.

[137]

[70] Observing that not every matter which in any way pertained to the affairs of the school had to be reported under cl 4.2, his Honour held that Mr Teys' failure to report the overspending did not constitute a breach of his contract. We were not referred to any evidence which would suggest that this finding was in error. Despite my initial sense that there was some force in this contention, I have concluded that it too must fail.

[138]

[71] Mr Teys has succeeded on all issues argued on the appeal. It follows that the appeal should be allowed and that the judgment for the college on the counterclaim should be set aside. In the absence of findings, this court would ordinarily remit the matter to the trial judge to make the necessary findings on the existing evidence. Having regard to the way in which the matter was conducted, the judge's discretion to permit further evidence should in this case be maintained.

[139]

2. Set aside the order of the District Court made on 18 July 2008 dismissing the counterclaim.

[140]

3. In lieu thereof order that there be judgment on the counterclaim for the defendant for damages to be assessed.

[141]

4. Remit the proceedings to the trial judge for the assessment of damages.

[142]

5. Direct that whether fresh evidence be allowed on the assessment be in the discretion of the trial judge.

[143]

[1] Apparently in anticipation of the commencement of the Discrimination Law Amendment Act 2002 (No. 74 of 2002).

[144]

[2] The formal order drawn up in the registry does not refer to the dismissal of the Counterclaim. A further order perfecting the judge's intention as recorded in his reasons for judgment and noted by the associate on the file should be prepared and issued.

[145]

[3] Handed to the judge on the first day of the trial as part of the Defence and Counterclaim. The Defence was again amended on the last (fifth) day of the trial.

[146]

[4] Also handed to the judge on the first day of the trial.

[147]

[5] I quote the particulars of the discussion which was at the centre of submissions on the appeal. The nature of the other discussions particularised appears from the reasons for judgment quoted below (paras [23] ff).

[148]

[6] Rule 164(2). It would formerly have been called a Rejoinder.

[149]

[8] Compare Downs Irrigation Co-operative Association Ltd v National Bank of Australasia Ltd [1983] 1 Qd R 130.

[150]

[9] See para 30 of Mr Teys' written submissions at trial and T297. Reference to cl 13.6 and cl 13.7 was based on the proposition that

[151]

"[t]he date when the contract would have come to an end ... must be ascertained on the assumption that the employer would have exercised any power he may have had to bring the contract to an end in the way most beneficial to himself; that is to say, that he would have determined the contract at the earliest date at which he could properly do so." Bostik (Aust) Pty Ltd v Gorgevski [1992] FCA 209; (1992) 36 FCR 20 at p 32.

[152]

That was accepted by the College in para 12 of its "Supplementary submissions".

[153]

[10] See pp 7-9 of the transcript for day 5 of the proceedings and para 19 of the college's "Supplementary submissions".

[154]

[11] See note 9.

[155]

[13] Relevance being measured by the pleadings. Several other clauses (3.1.1, 3.1.2, 3.1.6 and 3.1.11) were referred to in the course of argument but the respondent, probably wisely, did not seek to amend its pleading to rely upon them.

[156]

[16] [2001] VSC 150; (2001) 107 IR 117.

[157]

[17] The particulars provided by the college alleged that the relationship commenced and continued while Mr Teys was living with Mrs Teys, but the trial judge declined to find that it was of a sexual nature during that period.

[158]

[18] Stephen, Sir James F: A History of the Criminal Law of England (1883), vol III, p 318.

[159]

[19] Paragraph [28].

At a glance

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Judgment (159 paragraphs)

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Legislation Cited (3)

Cases Cited (2)