Newsom v Adventure World Travel Pty Ltd

The employment agreement 5The employment agreement between the plaintiff and defendant contained the following relevant provisions: (a)Their agreement was to commence on the "commencement date" which the parties agreed is 1 February 2007. Although Senior Counsel for the defendant submitted that this contract of employment was that the plaintiff would be employed "for a period of at least one year and one day but no more (the Guaranteed Term)", clause 3.1 provided that the agreement would "continue until terminated in accordance with this agreement"; (b)Remuneration, duties and responsibilities, bonus, hours of work and an incentive arrangement are set out, as are superannuation requirements (clause 9) and leave. Provisions restraining the plaintiff from undertaking a "Restrained Business" in Australia are set out at clause 12.3. Clause 14 provides for termination as follows: "14.1 Termination with notice (a) Either party may terminate this agreement and the Employment at any time by giving the other party not less than 12 months prior written notice during the 2 years period from the Commencement Date and thereafter by providing 3 months prior written notice. (b) If paragraph (a) applies: (i) the Executive must remain available for the balance of the applicable notice period to provide services to the Company at the request of the Company; (ii) the Executive must adhere to his obligations including without limitation, under clause 12; (iii) the Company may require the Executive to remain available but not to attend the offices of the Company for all or any part of the period of notice under paragraph (a) unless requested to do so by the Company; and (iv) the Company may at any time pay the Executive an amount calculated by reference to the Remuneration in lieu of all or any unexpired portion of the applicable notice period referred to in paragraph (a), such that this agreement and the Employment shall terminate on the date the Company makes that payment."

Termination of the employment agreement by the plaintiff 6On 30 January 2009 the plaintiff wrote to Ms Wendy Machin, the Chairman of the defendant as follows: "Dear Wendy, RESIGNATION I refer to the issue of my responsibilities in respect of my employment agreement. In particular, the major and significant changes made by members of the Board to my specific duties and responsibilities as Managing Director. Over the last 8 months working in the role of Managing Director, it has become apparent that my position as Managing Director has become redundant. Accordingly, I feel that I am left with no other option but to resign from my employment. I hereby give notice of my resignation, which pursuant to Clause 14.1(a) of my Employment Agreement is 12 months notice. I would respectfully request that the Company consider paying me my 12 month notice period in lieu as is envisaged pursuant to Clause 14.1(b)(iv) of my Employment Agreement. However I would appreciate the opportunity to formally discuss this with you to enable me to discharge my responsibilities to the company under the terms of my employment agreement." 7On 11 February 2009 Ms Machin replied: "Your resignation is noted and, following from your notice, your last day with AWT will be 30 January 2010. AWT, however, reserves the right to exercise its right under clause 14.1 in your Employment Agreement, to shorten the notice period to 3 months." 8On 16 February 2009, the plaintiff replied to Ms Machin stating that he was disappointed that the company requested him to work out his entire 12-month notice period. He went on to say: "Secondly, I do not agree with your assertion that my notice period can somehow be "shortened" by the Company. Clause 14.1 of my Employment Agreement clearly and precisely states a mandatory entitlement to 12 months notice if written notice is given within 2 years of the commencement date of my Employment Agreement. My resignation letter of 30 January 2009 exercises my option to terminate within 2 years of the commencement date of my Employment Agreement. The 3 month notice period only applies to termination after 2 years of the commencement date of my Employment Agreement. I am sure that this is purely an oversight on the Company's behalf." 9On 13 March 2009 Ms Machin replied: "I am cognisant that your last date of employment, at this point in time, is 29 January 2010 so these arrangements will continue until this point in time. AWT, however, still reserves the right to terminate with three months notice pursuant to clause 14.1(a) of your employment agreement." 10On 23 March 2009 the plaintiff wrote: "As I stated in my resignation letter of 30 January 2009, Clause 14.1(b)(iv) of my Employment Agreement clearly envisages that I be paid the 12 months in lieu of notice in recognition of my service and cooperation to the Company. I would again respectfully request that the Company reconsider its decision in this regard and to specify what it sees as my role and responsibilities during my notice period. Secondly, I do not agree with your assertions in both letters that my notice period can somehow be "shortened" by the Company. Clause 14.1 of my Employment Agreement clearly and precisely states a mandatory entitlement of 12 months notice if written notice is given within 2 years of the commencement date of my Employment Agreement. My resignation letter of 30 January 2009 exercises my option to terminate within 2 years of the commencement date of my Employment Agreement. The 3 month notice period only applies to termination after 2 years of the commencement date of my Employment Agreement. I am sure that this is purely an oversight on the Company's behalf."

Termination of the employment agreement by the defendant 11On 9 June 2009, Tony Stuart, CEO of NRMA wrote to the plaintiff in the following terms: "I refer to your letter to Wendy Machin of 30 January 2009, Wendy's reply to that letter of 11 February 2009 and Wendy's subsequent letter to your of 11 March 2009. As you know, the amendments to the governance structure of the NRMA travel businesses has been discussed with you at length and, as long ago as September, it was agreed that you would be moving to a transition and mentoring role. We believe that Carl is now ready to step up fully to the role he holds as CEO of Travel and Leisure Holdings Limited and therefore believe it is time to bring to a close your employment with Adventure World Travel Pty Limited. You will note from Wendy's letter of 11 February 2009, it is NRMA's view that on and from 1 February 2009, the notice period under clause 14.1 of your contract of employment became three months. Accordingly, on behalf of Adventure World Travel Pty Limited, I give you formal notice of the termination of your employment. This notice will take effect from 30 June 2009, this being your last date of employment. Following this notice taking effect, you will be paid in lieu of your three month notice period." 12On 22 June 2009, the plaintiff replied: "1. I do not agree with the Company's assertions in your letter (and those of Wendy Machin's earlier letters of 11 February 2009 and 13 March 2009) that my notice period can somehow be "shortened" by the Company. Clause 14.1 of my Employment Agreement clearly and precisely states a mandatory entitlement to 12 months notice if written notice is given within 2 years of the commencement date of my Employment Agreement. My resignation letter of 30 January 2009 exercises my option to terminate the employment within 2 years of the commencement date of my Employment Agreement. 2. The 3 month notice period you refer to only applies to terminations after 2 years of the commencement date of my Employment Agreement. As I have already initiated the termination of my Employment Agreement, it is not open for the Company to somehow seek to terminate with the notice period. I am sure that this is purely an oversight on the Company's behalf. Should the Company wish for my employment to cease on 30 June 2009, it obviously will need to pay me for the remainder of my resignation notice period up and until 29 January 2010, as I indicated and requested in my letter of 30 January 2009." 13On 29 June 2009, Tony Stuart, on behalf of NRMA, replied: "Paragraphs 1 and 2 - Notice of Termination We do not agree with your interpretation of the employment agreement. You were only entitled to the benefit of 12 months' notice if the Company decided to terminate your employment in the period up until 31 January 2009. It did not do that. The agreement continues with full force and effect after 31 January 2009. The Company was therefore entitled to exercise its rights under the employment agreement. The period of notice required to be given to you in the circumstances is three months. We can agree to disagree on this matter, however, the termination notice will take effect on 30 June 2009, at which point you will be paid in lieu of the three months' notice period due to you."

The issues in these proceedings 14The plaintiff submits that the issues in these proceedings are: (1) Whether or not the valid notice to terminate was the 12-month notice given by the plaintiff on 30 January 2009, making 30 January 2010 his last day of employment; and (2)Whether this was the only valid notice to terminate, or whether the defendant was entitled (once the 2 year period for giving 12 month notice by either party had expired) to shorten this period by giving only 3 month notice. 15The plaintiff identified these issues as depending on a construction of the agreement in accordance with general principles of contract law. Absent fresh grounds for termination of the plaintiff's employment under some other provision in the agreement (for example, misconduct warranting immediate dismissal), can an employer give a notice to terminate by waiting until another provision in the notice of termination clause comes into effect, if the employee has already given notice? 16There is an ancillary question as to whether or not the defendant did give notice within the terms of clause 14.1, since what was effectively given was three weeks' notice, albeit with three months salary paid. 17The defendant submits that the issues are as follows: (a)The proper construction of clause 14.1(a) of the Employment Agreement between the plaintiff and the defendant dated 19 December 2006; (b)Whether the defendant gave 3 months notice of termination of the Employment Agreement by its letter to the plaintiff dated 9 June 2009; (c)Whether the Employment Agreement was terminated by payment of 3 months' salary by the defendant to the plaintiff; (d)If, which is denied, the defendant repudiated the Employment Agreement, what is the proper measure of damages; (e)If the proper measure of damages is more than 3 months' salary, has the plaintiff failed to mitigate his loss?

The plaintiff's submissions 18How may a contract of employment be terminated? Should there be one event of termination only, and if so is that right given to the party who first gives notice? In his outline of submissions, Mr Faulkner SC states that this is "what commercial people would expect" (written submissions, paragraph 14). Determination of this question must turn on what clause 14.1(a) says. He submitted that the keywords in this clause are "either" and "other". 19Mr Faulkner SC drew my attention to the following cases extracted in Words and Phrases Legally Defined, 2nd ed., Re Pickworth, Snaith v Parkinson [1899] 1 Ch 642, C.A., per Lindley, M.R. at pp 648, 649 and Currie v Glen (1936) 54 CLR 445 per Starke J at p 453. In addition, I note the following interpretation of the word in Re Fyfe, Dickinson v Dickinson [1946] ALR 344 per Fullagar J at p 345: "There is, I think, no difficulty in regarding a substitutional gift employing the word 'either' as referring indifferently to each of two persons, and covering each of two successive contingencies." 20Applying the definition of these deceptively simple words to the facts in question, the plaintiff's letter of 30 January 2009 gives 12 months written notice to the defendant of termination "during the two year period". Nearly six months later, the defendant purports to give three weeks notice of termination of the agreement, by its letter of 9 June 2009 and purports to invoke rights pursuant to clause 14.1(b)(iv) to pay three months salary in lieu of three months notice. While this had been foreshadowed in earlier correspondence, the plaintiff had indicated his disagreement with such a proposition and restated the fact that he had already tendered his resignation in relation to the obligations defined between the parties relating to the two-year period. 21The issue is therefore whether or not the only valid notice to terminate was the twelve-month notice given by the plaintiff on 30 January 2009 (making 30 January 2010 his last day of employment) or whether, nearly six months later, the defendant was entitled to terminate the agreement in accordance with the different, and shorter, notice period set out in clause 14.1(a). 22The plaintiff's written submissions, under the heading "Only one notice" (written submissions, page 3), states that the power to terminate is given to "either party" meaning one or the other, not both, and that the plaintiff exercised a legal right when he gave notice, namely his entitlement to terminate the contract, thereby triggering other contractual rights and obligations which were dependent upon that period. It is submitted that clause 14.1(a) provides for one event of termination, that right being given to the first party who gives notice, and that the balance of the contractual provision is a machinery clause by which the event in question is construed, depending on whether notice is given or after the two year period, and containing some additional provisions such as the entitlement of the defendant to pay the plaintiff out, or to require him to "remain available". Applying those facts to the present circumstances, this meant that the plaintiff was required to "remain available" for the whole of the notice period. This is in fact what he did, in that he continued to attend the office and to fulfil his part of the contract by carrying on his duties.

The defendant's submissions 23The defendant does not agree that, when an employee resigns (or when an employer gives an employee notice), this prevents the giving of a second notice under the same clause. 24The defendant submits that, although the terms of the contract provide for employment without a fixed term (clause 3.1), the contract should be construed as an agreement that the plaintiff would be employed for a period of at least one year and one day but no more (described as "the guaranteed term"). This is because one day after the commencement date, either party could terminate the employment agreement by giving the other not less than 12 months' written notice. 25The term of employment as identified in clause 3 of the employment agreement states: "3.1 TermThis agreement will commence on the commencement date and the employment will continue until terminated in accordance with this agreement." 26The defendant submits that the plaintiff's case is fundamentally misconceived in that this employment agreement was treated as though it remained on foot until termination, when in fact it was the intention of the parties (either as an express or implied term) that the plaintiff would only be employed for a period of at least one year and one day. The plaintiff's case therefore proceeds upon the fundamental misconception that "the guaranteed term" could be extended unilaterally by the plaintiff tendering his resignation in such a way as to extend this one year and one day period. This construction is "patiently absurd" (written submissions, paragraph 7). No reasonable person would understand the language which the parties had used in clause 14.1(a) was intended to bring about this result. 27If such a term is not expressed in the contract, then it should be implied from the structure of the notice period. 28The defendant draws my attention to the following principles in relation to employment contracts: (a)This is an employment contract which binds the parties as master and servant in a relationship subject to an implied term of trust and confidence. In those circumstances, it was inconceivable that one party would have the unilateral right to extend the guaranteed term and thereby deprive the other party of its right to terminate on three months prior written notice; (b)The interpretation of contracts requires the court to construe all parts of the document, and no part should be treated as inoperative or surplusage; (c)The construction for which the plaintiff contends misconceives the effect, nature and purpose of rights of termination in employment contracts. Giving a notice of termination has no legal effect and no practical effect at all apart from informing the recipient what will happen upon its expiry (Australian Wool Selling Brokers Employers' Federation v Federated Storemen and Pakers Union (1976) 176 CAR 884). In particular, a notice of termination has no practical effect until it expires, at which point the contract of employment comes to an end. The giving of notice merely operates to determine the contract by effluxion of the period of notice: Birrell v Australian National Airlines Commission (1984) 5 FCR 447 at 457. A notice of termination may not be used to extend the period of employment which is not otherwise contractually available (Birrell v Australian National Airlines Commission at 458 per Gray J). (d)Although it is common practice for contracts of employment to contain notice provisions which differ for the employer and employee, this contract did not do so. However, principles applicable to differing notice periods (such as where an employer is required to give more notice than the employee) could be applied by analogy, and where an employer had exercised the right to give twelve months' notice but the employee had a right to terminate on three months notice, it would be "inconceivable" that the employee would be prohibited from immediately exercising a right to terminate. (e)The word "thereafter" in clause 14.1(a) refers to a point in time following two years from the commencement of the employment contract, but the plaintiff's interpretation of this word to mean that there is one event of termination only (namely the right given to the party who first gives notice, a right characterised by the defendant as "first in best dressed") amounts to rewriting the employment agreement so as to depart from the language used by the parties, an approach entirely inconsistent with the approach explained by Bathurst CJ in Current Images Pty Ltd v Dupack Pty Ltd [2012] NSWCA 99 at [47]. (f)Giving a notice of termination does not have any legal effect, or indeed any practical effect at all, apart from informing the recipient what will happen upon the contract's expiry (Australian Wool Selling Brokers Employers Federation v Federated Storemen and Packers Union (1976) 176 CAR 884 - 5); Birrell, supra, at 457). In particular, the giving of notice cannot be used to extend unilaterally the term of an employment contract. 29In addition to these principles, Mr Rushton SC drew to my attention the plaintiff's notice of termination in which he considered his position "redundant" and requested payment for the twelve-month notice "in lieu" of the twelve-month period contemplated by his notice. It is submitted that what the plaintiff was really seeking to do was "to obtain twelve months pay without twelve months work".

The proper interpretation of clause 14.1 30I shall deal with each of these issues set out at (a) - (f) in turn. (a)The degree to which the courts will imply terms of trust and confidence into an employment contract has, as the defendant notes, been the subject of consideration by the NSW Court of Appeal in Russell v The Trustees of the Roman Catholic Church [2008] 72 NSWLR 559 (and more recently in Commonwealth Bank of Australia v Barker [2013] FCAFC 83). Given the nature of the employer/employee relationship, the court may imply (Commonwealth Bank of Australia v Barker at [98]) that the employer will not, without reasonable cause, conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee. That is because of the special nature of the employer/employee relationship, which is founded upon an open-ended agreement to provide labour or services (Ramsey v Annesley College [2013] SASC 72 at [390]), unless there is a specified period (Shepherd v Felt & Textiles of Australia Ltd (1935) 41 CLR 359 at 378 (5 year period)). The defendant's submission that there was a "guaranteed term" of one year and one day, in circumstances where there was no fixed term, is inconsistent with the intention of the parties for the continuous provision of service or services by one party to the other, without a fixed period, in circumstances in which the contract often gives to the other party a right to terminate on notice. As Blue J noted in Ramsey v Annesley College at [390], where there is a fixed or minimum period, both parties typically contemplate that the contract may be renewed upon termination, which is not the case here. (b)The court must construe a contract as a whole, and to construe individual clauses in that context, in order to avoid repugnancy and absurdity: Walker v Citigroup Global Markets Australia Pty Limited [2006] FCAFC 101 at [77]. The inconsistencies the defendant claims arise from any other interpretation of clause 14.1(a) (for example, that the plaintiff could give a notice period for many years because of the "not less than" provision) fortunately do not fall for determination, but if they did, it would simply be a matter of construing the contract in the light of the relevant facts. There is no reason why these commercially mature parties did not embrace the clear and literal meaning of the words used, namely a notice period of not less than one year (meaning that this was a minimum period), and then a three-month notice period. The construction contended for by the defendant, of the first, 12-month termination by the plaintiff being trumped by a 3-month termination, made at any time during the 12-month notice period, possibly by either party, would involve what Kitto J described as "practical absurdity": Rawson v Hobbs (1961) 107 CLR 466 at 488. (c)By implying a "guaranteed term" of one year and one day, the defendant is implying a contractual term that is inconsistent with an express term in the contract, namely clause 3.1. A term will not be implied where it has been expressly excluded or is inconsistent with the express terms of the contract: Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 448; University of Western Australia v Gray (2009) FCR 346 at [136]; Yorkshire Water Services Ltd v Sun Alliance & London Insurance PLC [1997] 2 Lloyd's Rep 21 at 30, 33. The plaintiff's submissions in reply, which make this point without referring to these authorities at paragraph 2, should be accepted. (d)Clause 14.1 speaks of termination as a singular and unilateral event by either the plaintiff or the defendant. To import more than one termination into the contract would lead to what the plaintiff's written submissions in reply call "progressive uncertainty" (at paragraph 7). This is because the giving of a notice of termination triggered other clauses in the contract, such as restraint after termination of employment (clause 12) and intellectual property obligations (clause 13(c)). Of course, if there was misconduct (clause 14.2), the defendant would have been entitled to terminate the contract immediately under those provisions. However, they did not do so. (e)The word "thereafter" means the period after the initial twelve month notice period had expired. The plaintiff put no such argument and the defendant's submissions on this issue are misconceived. (f)The use of "legal effect" by the plaintiff was perhaps unfortunate, but Mr Faulkner SC made it clear, in his oral submissions, that his point was that this event would trigger other provisions in the contract. The giving of notice in accordance with the time specified in a contract is not an extension of the contract but an exercise of the right to terminate for the period of notice provided unless (as is not the case here) the period of notice was for an unrealistic period such as several years. 31The termination of a contract is generally a unilateral act, and there is nothing in the construction of clause 14.1 to the contrary. As termination of a contract may have unpleasant sequelae, parties generally include provisions designed to protect their position after termination, and that is the case here. 32I am satisfied that, as a matter of construction of the agreement, once the plaintiff gave twelve months' notice to terminate prior to the expiry of the first two year period, the defendant could not give three months' notice to terminate after that two year period had expired. This means that the plaintiff is entitled to the wage loss he claims, and which is mathematically agreed at $153,822.25. 33A subsidiary issue is whether the notice given by the defendant did in fact conform to the terms of clause 14. Although, in view of my findings in relation to the interpretation of this clause, I am satisfied that the defendant could not give three months' notice, this issue is now not of relevance, I set out briefly my findings on this issue in the event that they are of any assistance to an appellate court.

Subsidiary issues 34As is set out above, the text of the 9 June 2009 letter terminated the plaintiff's contract from 30 June 2009. This was to be his last day of employment. Once the notice took effect, he was to be paid three months salary in lieu of the three months' notice period. 35The plaintiff submits that clause 14.1(a) requires "3 months prior written notice". The 9 June 2009 letter gave only 3 weeks prior written notice, and then purported to engage clause 14.1(b)(iv) to pay out "all or any unexpired portion of the applicable notice". However, clause 14.1(b)Iiv) cannot take the place of any requirement within clause 14.1(a). The express requirement of 3 months prior written notice must occur before any part of clause 14.1(b) can be engaged. Clause 14.1(b) says "If paragraph (a) applies...", but paragraph (a) cannot apply because of the failure to give 3 months written notice. 36The 9 June 2009 letter is, the defendant's written submissions concede, "inelegantly expressed" (written submissions, paragraph 22), but its intention is clear, namely that he was being given three months notice which would commence on 30 June 2009. No reasonable person could have misunderstood the meaning of the letter, and the reference to the defendant intending to "shorten the notice period to 3 months" should be read as a notice of termination. 37I do not agree that this letter should be read as a notice of termination. This was not a separate termination of the agreement, but a reduction of the notice period in relation to the plaintiff's termination. That is impermissible under the terms of the contract, for the reasons set out in the plaintiff's submissions. 38The defendant's submissions go on to say that this was more notice than he was entitled to, in that by telling him this on 9 June 2009, he was being given 3 months and 21 days notice. The plaintiff's submission is that he was a senior executive, not a junior employee who could be given a few weeks' salary in lieu of notice. In the absence of written notice provided three months beforehand, the defendant cannot claim to have terminated the plaintiff's employment in accordance with the contract. However, clause 14.1(b)(iv) specifically provides that the Company may pay the Executive the salary owing for "the applicable notice period referred to in paragraph (a)", and this would include the three month as well as the twelve month period. Accordingly the plaintiff's argument on this issue fails. 39I was not addressed as to whether the payment of this three months' salary sum amounted to compliance with clause 14.1(b)(iv) in the absence of 3 months prior written notice. In my view, given the concluding language of 14.1(b)(iv) ("and the Employment shall terminate on the day the Company makes that payment"), it does, and the plaintiff's claim would fail for this reason also. 40The defendant also submitted that no loss had occurred, in that the plaintiff was paid the three months salary, whether proper notice was given or not. That is essentially a restatement of the same argument.

Quantum 41The parties have mathematically agreed quantum as follows: Damages: $117,494.36 Annual Salary (inc Super) = $351,520.00 Unpaid Notice - 1 October 2009 - 30 January 2010 (122 days) $351,520.00 * 122 / 365 = $117,494.36 Period Days Interest Rate Interest 1 October 2009 to 30 June 2010 273 9% 7909.14 1 July 2010 to 31 December 2010 184 8.50% 5034.55 1 January 2011 to 31 December 2011 365 8.75% 10280.76 1 January 2012 to 30 June 2012 182 8.25% 4820.16 1 July 2012 to 31 December 2012 184 7.50% 4430.12 1 January 2013 to 20 June 2013 171 7% 3853.17 Interest Total 36327.89

Principal 117494.36 Principal and Interest 153822.25

42There will be additional interest for the period since this matter was argued (due to delays in obtaining the transcript) so I have granted the parties liberty to apply.

Orders (1)Judgment for the plaintiff for $153,822.25. (2)Defendant pay plaintiff's costs. (3)Liberty to apply in relation to interest and costs. (4)Exhibits retained for 28 days.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 July 2014