PURCELL v TULLETT PREBON

CITATION: PURCELL v TULLETT PREBON (AUST) PTY LTD [2010] NSWCA 150

JUDGMENT OF: Allsop P at 1; Basten JA at 2; Handley AJA at 3

CATCHWORDS: CONTRACT - employment - fixed term - repudiation - walk out by employee - contract not terminated. - CONTRACT - performance - readiness and willingness. - EMPLOYMENT - contract for fixed term - repudiation - walk out by employee - contract not terminated. - EMPLOYMENT - repudiation - walk out by employee - negative restriction - injunction - contract not terminated - employer's direction to return to work - whether reasonable.

A-G for NSW v Perpetual Trustee Co Ltd [1952] HCA 2, 85 CLR 237 Alghussein Establishment v Eton College [1988] 1 WLR 587 HL Automatic Fire Sprinklers Pty Ltd V Watson [1946] HCA 25, 72 CLR 435 Byrne v Australian Airlines Ltd [1995] HCA 24, 185 CLR 410 Foran v Wight [1989] HCA 51, 168 CLR 385 CASES CITED: Holland v Wiltshire [1954] HCA 42, 90 CLR 409 Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21, 136 CLR 444 R v Darling Island Stevedoring and Lighteridge Co Ltd; Ex Parte Halliday & Sullivan [1938] HCA 44, 60 CLR 601 Rawson v Hobbs [1961] HCA 72, 107 CLR 466 Suttor v Gundowda Pty Ltd [1950] HCA 35, 81 CLR 418 Visscher v Guidice [2009] HCA 34, 239 CLR 361

PARTIES: A: Simon Purcell R: Tullett Prebon (Australia) Pty Limited

COUNSEL: A: SJ Rushton SC and MS Henry R: JJE Fernon SC and RM Foreman

SOLICITORS: A; Horton Rhodes (Neil Archer) R: Freehills (Miles Bastick)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT MEDIUM NEUTRAL CITATION: [2009] NSWSC 1079

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 2008/282176

Allsop P Basten JA Handley AJA

Tuesday 28 September 2010 SIMON PURCELL v TULLETT PREBON (AUSTRALIA) PTY LIMITED CATCHWORDS

CONTRACT - employment - fixed term - repudiation - walk out by employee - contract not terminated.

CONTRACT - performance - readiness and willingness.

EMPLOYMENT - contract for fixed term - repudiation - walk out by employee - contract not terminated.

EMPLOYMENT - repudiation - walk out by employee - negative restriction - injunction - contract not terminated - employer's direction to return to work - whether reasonable.

The appellant, a successful finance broker, entered into a contract of employment with the respondent for a two-year term. Some months later, in breach of contract, he commenced to work for a competitor of his employer. The employer obtained an injunction restraining the appellant from working for that competitor and placed him on paid garden leave. Shortly before the injunction expired the employer directed the appellant to return to work but the appellant did not do so. The employer treated this as a final repudiation of the contract, terminated it for breach, and sued for liquidated damages. The trial Judge gave judgment for the liquidated damages. The former employee appealed. HELD: Dismissing the appeal (1) In the face of the appellant's repudiation the employer initially elected to keep the contract alive; (2) The contract entitled the employer to give the direction to return to work; (3) The employer was ready and willing to perform the contract when it gave that direction; (4) The appellant's refusal to resume his employment with the employer was a final repudiation which entitled the employer to terminate for breach and recover the liquidated damages.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 2008/282176

Allsop P Basten JA Handley AJA

Tuesday 28 September 2010 SIMON PURCELL v TULLETT PREBON (AUSTRALIA) PTY LIMITED Judgment 1 ALLSOP P: I agree with Handley AJA. 2 BASTEN JA: The appeal should be dismissed with costs, for the reasons given by Handley AJA. 3 HANDLEY AJA: The appellant is a former employee of the respondent. On 9 October 2009, Ward J upheld the respondent's claim for liquidated damages of $503,100 payable under the contract of employment when it was terminated for breach following its repudiation by the appellant: Tullett Prebon (Australia) Pty Ltd v Purcell [2009] NSWSC 1079. 4 The issues in this Court were whether the employer had the right under the contract to direct the appellant to return to work, and whether it was ready and willing to perform its obligations under the contract, so that, on his failure to return, it was entitled to terminate for breach. 5 On 31 July 2007 the parties entered into a written contract of employment for a two-year term. The employer carried on business as a financial broking company and the appellant was one of its brokers. He resigned on 4 April 2008 and on 9 April commenced to work for one of the employer's competitors. 6 On 6 April 2008 the employer gave the appellant a direction under cl 11.4 of the contract to take paid " garden leave" and elected to "continue your employment in accordance with its terms". By doing so it affirmed the contract. 7 On 11 April 2008 the employer obtained an ex parte injunction restraining the appellant from working for its competitor, and on 23 April McDougall J continued it on an interlocutory basis: [2008] NSWSC 437. On 28 August Brereton J granted a "permanent" injunction until 4 October 2008 restraining the appellant from working for any of the employer's competitors: [2008] NSWSC 852. He also granted a declaration that the contract had not been terminated and remained on foot (blue 256-259). 8 The appellant was on paid "gardening leave" while the injunction continued. On 2 October 2008 the employer sent the appellant a letter (blue 260) which referred to its direction to take garden leave and continued: "I now direct you to return at 8 a.m. on 7 October 2008 and work at Tullett Prebon in accordance with the Contract. If you do not return to work as directed, you will be in breach of your obligations in the Contract. Tullett Prebon reserves its right in that regard, including its right to terminate the Contract for breach on your part … Please let us know at your earliest convenience (and, in any event, by no later than 4 p.m. on Friday 3 October 2008) that you intend to return to work as directed on 7 October 2008. If I do not hear from you by then, I will assume that you are refusing to comply with a lawful direction from your employer." 9 The appellant ignored this direction and on 7 October commenced to work for the competitor. On the same day the employer's solicitors wrote to the appellant's solicitors (blue 262) asserting that his failure to return to work for the employer was a breach and repudiation of his contract of employment. The letter stated that the employer elected to terminate the contract and it claimed $503,100 under cl 10.4. 10 Clause 10.4 provided (blue 11): "… if your contract of employment is terminated for breach or repudiation on your part, including if you resign or otherwise seek to leave the employment of TPAust without serving TPAust with a required notice for the period to the Contract End Date, without prejudice to any additional rights or remedies available to TPAust you shall on the day following termination of your employment (Date for Payment) pay to TPAust, as a debt due and owing, an amount calculated as follows: 50% x Your Average Net Brokerage x No. of Whole months from the date you cease providing services to TPAust to the Contract End Date. You further agree that such amount is a genuine pre-estimate of the loss that TPAust is likely to suffer as a result of premature termination of your employment, and that from the Date for Payment interest at the Reserve Bank of Australia base lending rate (from time to time) plus 2% shall accrue on such amount until it is paid." 11 The quantum of the claim under this clause and the decision of Ward J that it was not a penalty were not challenged. 12 An employee is bound to obey the lawful and reasonable directions of the employer. The principle is that stated by Dixon J in R v Darling Island Stevedoring and Lighteridge Co Ltd; Ex Parte Halliday & Sullivan [1938] HCA 44, 60 CLR 601, 621-2: "If a command relates to the subject matter of the employment and involves no illegality, the obligation of the servant to obey it depends at common law upon its being reasonable. In other words the lawful commands of an employer which an employee must obey are those which fall within the scope of the contract of service and are reasonable." 13 Ward J held that the employer's direction of 2 October 2008 was lawful and reasonable because the contract of employment remained on foot. The principal argument by Mr Rushton SC for the appellant was that the employment relationship came to an end in April 2008 and could not be reinstated unilaterally by the employer. The appellant's departure, although wrongful, terminated contractual obligations which depended on a subsisting employment relationship. These were said to include the employer's right to give reasonable directions for the performance of work and the appellant's duty to comply. 14 This right and duty, derived from the contract, were said to be dependent upon a subsisting relationship of employer and employee and could not survive its severance. 15 Mr Rushton submitted that this did not depend on the discredited view that the repudiation of a contract of employment by either party "automatically" terminated the right and duty to work, the right to remuneration, and the duty to pay it, remitting the innocent party to a right to damages. 16 An employee who has been wrongfully dismissed is no longer entitled to salary or wages which are the price for work performed, and neither party is entitled to specific performance: Automatic Fire Sprinklers Pty Ltd V Watson [1946] HCA 25, 72 CLR 435. 17 Mr Rushton submitted that just as a dismissed employee who was willing and able to work was not entitled to wages, so an employer confronted with a recalcitrant employee was not entitled to give binding directions for the performance of work. The relationship and status had gone and those rights had gone with it. 18 As Ward J noted [58] this argument, if correct, would give the repudiation of a contract of employment partial operative effect by terminating some of its terms. The law has not recognized the right of an innocent party to terminate part of the contract for breach. It can hardly allow a guilty party to rely on his own breach to achieve that result. This would enable him to take advantage of his own wrong: Suttor v Gundowda Pty Ltd [1950] HCA 35, 81 CLR 418, 440-2; Alghussein Establishment v Eton College [1988] 1 WLR 587 HL. 19 The High Court has distinguished between the relationship of employer and employee and the contract of employment. A wrongful dismissal or walkout terminates the relationship, even if the act of termination was wrongful: Automatic Fire Sprinklers Pty Ltd v Watson [1946] HCA 25, 72 CLR 435 per Latham CJ at 451, and per Dixon J at 466: Byrne v Australian Airlines Ltd [1995] HCA 24, 185 CLR 410 per Brennan CJ, Dawson and Toohey JJ at 427, 428; and Visscher v Guidice [2009] HCA 34, 239 CLR 361 per Heydon, Crennan, Keifel and Bell JJ at 379-80 [53]. 20 Byrne v Australian Airlines Ltd (above) at 427, and Visscher v Guidice (above) at 379-81 establish that contracts of service are not in a special position and like other contracts they are not terminated by a repudiatory breach even if further performance is suspended. In Visscher v Guidice (above) the majority said at 379-81 [53]-[55]: "… the concepts of termination of an employment relationship and the discharge of a contract of employment … are different. It does not follow from the fact that a wrongful dismissal is effective to bring the employment relationship to an end that it thereby discharges the contract of employment … As was said in Byrne , the position was not always so clear in England. For a time the opinion was maintained that contracts of employment are sui generis, in that certain forms of repudiation are effective automatically to terminate them without the need for their acceptance. But, as has been observed, the theory was later rejected in favour of the 'elective theory of termination'. Such an approach accepts as correct the general principle in contract law that acceptance by the innocent party of a repudiation is necessary to terminate the contract. This is not to say that in a case of dismissal there will ordinarily be anything to be gained by employees refusing to accept the repudiation. Even if they keep the contract of employment on foot, they cannot receive remuneration after the dismissal, because the right to receive it is dependent upon services having been performed. Further, historically the courts would not grant specific performance of a contract of personal service, save in exceptional cases … It was said in Byrne that, for all practical purposes, the contract of employment will be at an end upon dismissal. In a case of a wrongful dismissal, the possible continuation of it will rarely be of significance. In principle, however, it remains the case that an unaccepted repudiation does not terminate a contract. In the circumstances of this case this assumes importance. To view it as automatically discharged would be to elevate a problem concerning remedies to a substantive principle concerning the termination of contracts." 21 Mr Rushton relied on statements in A-G for NSW v Perpetual Trustee Co Ltd [1952] HCA 2, 85 CLR 237; [1955] AC 457 which establish that the action per quod servitium amisit (since abolished by statute) for the loss of the services of an employee was a remedy for interference with a subsisting relationship of employer and employee, not for interference with the contract of employment. 22 The cause of action in that case was in tort and the passages relied on are of no assistance where the remedy sought is purely contractual. 23 The contract of employment was still in force on 2 October 2008 when the employer gave the notice. The contract entitled the employer to terminate the appellant's "garden leave" and require him to report for work. The notice did not require the appellant to do anything unlawful or anything he had not done while working under the contract. 24 The employer had kept the contract alive for the benefit of both parties, and its direction was an offer to reinstate the appellant in his employment under the contract. The converse situation was considered by Dixon J in Automatic Fire Sprinklers Pty Ltd v Watson (above) at 465-6 where he said: "By keeping his contract open [an employee] may be able to resume his service without a new contract, if his employer is induced to retract the discharge." 25 In Visscher v Guidice (above) at 382 the majority referred to this passage with approval. 26 If the appellant had reported to the employer on Monday 7 October the relationship of employer and employee would have been reinstated under the existing contract. 27 In my judgment the employer's notice of 2 October 2008 was valid, the appellant's repudiation continued and his failure to comply with the notice was a further repudiatory breach which entitled the employer to terminate the contract. 28 The remaining issue is whether the employer was ready and willing to perform its obligations under the contract when it gave the notice. Mr Rushton submitted that the notice was a device for terminating the contract and the employer did not to really want the appellant to return. It knew that if he returned he would re-establish his connections with its clients and if he left when his contract expired they might follow him to his new employer. 29 Ward J found [64] that the employer was ready to re-employ the appellant and that finding was not seriously challenged. The substantial challenge was to its willingness to accept the appellant back. Mr Tullett, the managing director of the employer, said in his evidence before Brereton J that the appellant was welcome to return and remain until the end of his contract. Brereton J doubted the sincerity of that evidence but did not reject it [31] (blue 220). His doubts could not create an issue estoppel and the contrary was not suggested. 30 Mr Tullett repeated this evidence before Ward J and was adamant that he would have been happy for the appellant to return. Her Honour found [84] that this was for financial, not personal, reasons. The appellant had been a very successful broker who earned substantial profits for the employer. 31 Ward J said she shared the scepticism of Brereton J and continued [86]-[88]: "… balanced against Mr Tullett's personal feelings about Mr Purcell … is the impression which I gained from Mr Tullett's evidence that what [he] was primarily focused on was the impact to his business' bottom-line profits if Mr Purcell were to return … Mr Tullett seems to have been looking at a short term, rather than long-term view. I cannot dismiss that as improbable … while I certainly have my doubts that Mr Tullett would have welcomed Mr Purcell back with open arms … it is not inconceivable to me that Mr Tullett could have weighed up the advantage of nine months' increased revenues from Mr Purcell's dealings with his particular clients once more against the potential downside of having disharmony in the employer/employee relationship and/or a further period of losses down the track, and chosen the former. Working on the 'bird-in-the-hand' principle, therefore, I consider there may well have been a logical business reason for TPAust to want Mr Purcell to return to work and hence do not dismiss Mr Tullett's protestations to that effect." 32 Mr Rushton submitted that these passages showed that the trial Judge had not accepted this evidence of Mr Tullett. I reject that submission. Proof beyond reasonable doubt was not required and her Honour said she could not dismiss this evidence as improbable. She must have accepted it because she found tht the employer was willing to perform the contract. Her findings were necessarily based, in part at least, on her assessment of Mr Tullett's credibility, and they cannot be disturbed. 33 The employer wished to bring matters to a head so that the relationship would either be re-established or the contract would be terminated for breach. This was not unreasonable. 34 In any event the appellant's continuing repudiation (Holland v Wiltshire [1954] HCA 42, 90 CLR 409 at 415 per Dixon CJ, and 421 per Kitto J; Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21, 136 CLR 444, 461 per Gibbs, Mason and Jacobs JJ), which had not been retracted, entitled the employer to terminate the contract without further notice. 35 In these circumstances it was open to the employer to give the appellant a final opportunity, by its notice of 2 October 2008, to retract his repudiation. 36 The employer's readiness and willingness to perform its obligations under the contract is not just a question of fact. It involves the application of a legal standard. In Rawson v Hobbs [1961] HCA 72, 107 CLR 466, 481 Dixon J said: "One must be very careful to see that nothing but a substantial incapacity or definitive resolve or decision against doing in the future what the contract requires is counted as an absence of readiness and willingness." 37 This statement of principle was approved in Foran v Wight [1989] HCA 51, 168 CLR 385 by Mason CJ at 405-7, by Brennan J at 423-6, and by Deane J at 452-4. 38 The liquidated damages payable under cl 10.4 on termination for breach or repudiation were said to be "a genuine pre-estimate" of the employer's loss. It was only entitled to recover substantial damages for breach if it was ready, willing and able to perform the contract in the sense explained by Dixon CJ in Rawson v Hobbs (above). The findings of Ward J established that it was. 39 In these circumstances it was entitled to terminate the contract for repudiatory breach and recover damages for loss of its bargain. 40 Clause 10.4 made an amount calculated in accordance with its terms a debt due and payable the day after the contract was terminated but the amount was still damages. The clause was only enforceable on termination if the employer was entitled to recover general damages for loss of its bargain. If it was only entitled to nominal damages the debt calculated in accordance with cl 10.4 could not possibly be a genuine pre-estimate of its loss. 41 The employer having proved that it was relevantly ready, willing and able to perform the contract on its part was entitled to recover the liquidated amount provided for in cl 10.4. 42 In my judgment therefore the appeal fails and should be dismissed with costs.

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