Rankin v Marine Power International Pty Ltd [2001] VSC 150

Supreme Court of Victoria|2001-05-21|Before: Gillard J

EMPLOYER - employee - common law claim for wrongful dismissal - proper notice of 12 months required - no justification for dismissal without notice - allegations of misconduct, failure to comply with reasonable directions and negligence not made out to justify dismissal - condonation of alleged wrong not established - entitled to Long Service Leave pursuant to Statute on total salary - not entitled to compensation under Bonus Scheme.

Before the court is a proceeding instituted by writ, in which a former employee is suing his employer for damages for alleged wrongful dismissal and money due for termination entitlements.

The plaintiff, Geoffrey Robin Rankin ("the plaintiff"), is 52 years of age, and is presently engaged in primary production. He was employed by the defendant, or an associated company, from December 1980 until 15 April 1999. He was employed in various capacities at a senior level. When he ceased his employment, he was a director of the defendant and occupied the position of General Manager, Business Development Asia, and was managing a project in China on behalf of the defendant.

The defendant, Marine Power International Pty Ltd ("the defendant"), is a company incorporated in the State of Delaware, United States of America, and registered in Australia under the Corporations Law. It is and was, at all material times, part of a Division of the world's largest recreation company, Brunswick Corporation, and operated throughout Australia and the Asia-Pacific region. The Division is the Mercury Marine Division, which manufactures and sells marine engines, boats and associated products. The defendant's general business was the importation and distribution of marine products, including motors, boats and associated products.

The Brunswick Corporation commenced business in 1845 and is located in the United States of America. It is a very large corporation employing some 24,000 employees around the world. It has a number of divisions. Other divisions include bowling alleys and associated equipment.

The defendant's Australian Asian-Pacific business unit is conducted from its Australian head office in Dandenong.

The defendant reports to the senior management of the Mercury Marine Division, which in turn reports to the Brunswick Corporation. At all relevant times, the senior person in Australia was Mr Theo Wiggill, who occupied the position of Vice President International, and his deputy in Australia was the plaintiff.

Whilst Mr Wiggill was responsible for the Australian Asia-Pacific part of the group, he was also in charge of the European, African, Latin American and Japanese units of the Mercury Marine Division.

The plaintiff reported to Mr Wiggill, who in turn reported to the President of the Mercury Marine Division. The senior personnel of the Mercury Marine Division located in the United States of America, were the President, Mr G. Buckley, and the Financial Controller, Mr J. Schroeder.

At all relevant times, the CEO of the Brunswick Corporation was Mr P. Larson.

In 1994, Mr Wiggill was informed that parts of mainland China had been divided into ten tourism vacation zones, and that the zone committees were interested in joint ventures to develop the zones. He travelled to China and eventually in that year, agreed with the Suzhou Taihu National Tourism Vacation Zone Administration Committee ("Zone Committee") to enter into a joint venture to develop a site on the side of Lake Tai, China's third largest fresh water lake. The lake is situated some 70 kilometres south-west of Shanghai.

Initially, the project was to be the construction and operation of a large store selling Mercury Marine and other products. However, the project was changed in late 1995/early 1996 to the construction of a marina, warehouse, administration block, showroom, boat club and other sports and recreation facilities.

A joint venture company was incorporated, called Suzhou Taihu Mercury Club and Marina Co Ltd ("joint venture company"). Eighty five per cent was owned by the Brunswick Corporation and the balance was owned by the Zone Committee.

The defendant, at that time, sold its products in mainland China, through Singapore, and was not permitted by law to establish a distribution outlet in China. By entering into this project, the defendant was able to establish an outlet in China for its products.

Before a project could be commenced, it was necessary, within the Mercury Marine Division, to obtain approval for the expenditure for the project. A manual called "Capital Policies and Procedures" ("the Capital Manual") set out the procedures and policies which had to be followed.

As the joint venture project involved considerable expense, it was necessary for an Appropriation Request ("A.R.") to be prepared and approved.

The procedure involved was for a senior officer to prepare the A.R. It was then reviewed by that person's manager, followed by a review by the senior personnel in the Mercury Marine Division. Final approval was given after review by senior personnel in the Brunswick Corporation.

The first approval was granted in July 1995, and was to fund the development of a Mercury Marine superstore in the zone. The amount approved was US$4.273M.

The second approval was for the construction of a boat club, marina, boat storage, service and sales centre. The amount approved in June 1996 was US$6.0M.

At this time, the plaintiff was a director of the defendant and its Finance Director responsible for its financial matters.

On 1 July 1996, the plaintiff was appointed General Manager, Business Development Asia, and was given the task of managing the China project on behalf of the Mercury Marine Division in China. This was his main job with the defendant thereafter, although he did have responsibility in respect of a few areas concerned with superannuation and finance.

On 18 September 1996, the joint venture company entered into an agreement with Ausino Engineering Consultants Ltd ("Ausino"), pursuant to which it was appointed project manager of the development. Ausino was based in Hong Kong but operated also in Shanghai.

The works were divided up into a number of separate contracts.

In January 1998, the plaintiff prepared an Executive Report as a basis for an application for an increase in funds. The report was taken to America by Mr Wiggill, and formed the basis of an application, in February 1998, to increase the capital costs to US$6.8M. Approval was granted on 10 March 1998.

The works continued during 1998. On 19 October 1998, the opening of the marina warehouse, office and showroom complex was held.

In early 1999, the plaintiff was requested to prepare a report on the cost of the project. He presented his report to Mr Wiggill on 11 January 1999, which revealed that the estimated total construction cost of the project was US$9.526M, substantially more than the US$6.8M approved in March 1998.

The works had not been completed at that date, and the plaintiff had estimated the likely cost of completing the total works. The increase was in the order of US$2.7M.

The substantial increase in the cost of the project caused considerable consternation within the Mercury Division, in particular the President, Mr Buckley, and the Finance Controller, Mr Schroeder. It was alleged that the plaintiff had failed to comply with the clear instructions in the Capital Manual, and had failed to inform senior management that the cost of the project would exceed the last approved A.R. It was alleged that he knew or should have known, in mid 1998, that the costs of the project would substantially exceed the A.R. approved in March 1998.

At a meeting held on 15 January 1999, the plaintiff was informed by Mr Theo Wiggill, after some discussion, that his employment would be terminated as at 30 April 1999. It was indicated to him that he would be employed for a further period of three months, from 1 May, on full salary or six months on half salary.

On 29 January 1999, Mr Wiggill forwarded a letter to the plaintiff, which was later countersigned by the President of the division, Mr Buckley, and the Personnel Manager, Mr Hubbard, which confirmed the termination of his employment.

The letter, in effect, alleged that he had misled senior personnel by assurances given that the costs would be maintained within the budget.

"It is unacceptable that there be such discrepancies in the Project costs and that the discrepancies remained unrecognised until now. I regret that I must confirm the advice given to you on January 15 1999, that your contract with Marine Power International will terminate on 30 April 1999. You are required to resign all your directorships held within the group and your position as trustee of the Marine Power Superannuation Plan."

The penultimate paragraph repeated the offer of continued employment from 1 May to 31 July 1999 on full salary.

The plaintiff was invited to attend the opening of the China complex on 28 March 1999. He was told, before the opening, that the wives of the defendant's employees were not invited to the opening.

The plaintiff took his wife to the opening on 28 March.

On 15 April 1999, the plaintiff was informed that because he had taken his wife to the opening and disobeyed a clear instruction to the contrary, his employment was to cease immediately. He left the employment on that day.

On the twenty second day of September 1999, the plaintiff issued the writ in this proceeding.

The rival contentions and pleadings established the following issues for consideration and determination.

(i) What were the nature and terms of the plaintiff's contract of employment with the defendant?

(ii) If either party could terminate the employment by notice, what was a reasonable period of notice to terminate the plaintiff's contract of employment?

(iii) Was the defendant entitled to summarily dismiss the plaintiff?

(iv) If the plaintiff was guilty of a breach of his contract justifying summary dismissal without notice, did the defendant condone the breach, thereby depriving it of its right to summarily terminate the contract?

(v) What termination benefits was the plaintiff entitled to?

(vi) Is the plaintiff entitled to damages, and if so, in what sum?

Facts

Most of the facts were not in dispute. There were disputes with respect to what was said at various meetings on particular days, but the resolution of many of these discussions is not necessary for the resolution of this case. I set out the facts as found by me. It will be necessary when considering the issues in detail to further consider some of the facts.

The plaintiff was born on 30 April 1949 and is presently aged 52 years. His present occupation is primary production.

The defendant is a company incorporated in the State of Delaware, in the United States of America, and registered in this country. It is owned by the Brunswick Corporation of the United States of America. The Brunswick Corporation has been in business since 1845, and some two years ago employed some 24,000 employees around the world. It has a number of divisions. One of them is the Mercury Marine Division, which is the division concerned with the manufacture, sale, distribution, service and maintenance of Mercury Marine engines and recently, the manufacture of boats.

The defendant is part of the Mercury Marine Division and is responsible for the Australian, Asian and Pacific regions. It had a number of directors who resided in Australia. It operated from its head office in Dandenong in this State.

At all relevant times, Mr Theo Wiggill was Vice President International of the Mercury Marine Division and was in charge of the defendant company. During the period from 1995 to 1999, he was also responsible for the Division's activities in Africa, Europe, Latin America and Japan; in other words, the Division's activities outside North America.

The CEO of the Brunswick Corporation at all relevant times was Mr P. Larson. The President of the Mercury division was Mr G. Buckley, who was appointed in or about August 1997. Mr Wiggill reported to Mr Buckley.

During the period from 1995-1999, the defendant's general business was the importation and distribution of marine products including motors, boats and associated products in the Australia and Asia-Pacific region.

The plaintiff has a Diploma of Business Studies and Accounting, is an Associate of the Institute of Chartered Accountants and a Fellow of the Certified Practising Accountants. He has been involved in finance and accounting from 1971.

He joined the defendant, or one of its predecessor companies, on 1 December 1980 and was employed as a financial controller/company secretary. He held those offices until mid 1982 when he was promoted to financial director. His duties at that time were reporting to the parent company management, involvement in personnel matters, being in charge of the computer department, acting as chief trustee of the superannuation scheme and general administration of the company.

In mid 1982, he was promoted to Finance and Administration Director of the company and was appointed a director. His duties were much the same as Financial Controller, except he was responsible for the financial controls of the company and involved in general management of the company. At that stage, there were only two resident directors in Australia and they reported direct to America.

He held that position from mid 1982 until 30 June 1996.

In the 1980s, the defendant was operating the business of importing and distributing Brunswick Corporation products in Australia. In about 1992, the defendant took over, from the parent company, the responsibility of distribution of the Mercury Marine products in the Pacific region, and in 1994, took over the responsibility of looking after Asia, which involved 37 distributors in 17 Asian companies. This resulted in the plaintiff undertaking more duties and responsibilities, which were aimed at establishing distribution outlets and improving the profitability of the distribution outlets in Asia and the Pacific.

The Division had been selling its goods in China from Singapore from the late 1980s. When the defendant took over the Asian distributors, the Singapore outlet became part of the defendant's activities. However, it was not possible to establish a distributorship in China and accordingly, the products that were sold went via Singapore.

The plaintiff had not done any business in China personally other than supervising the Singapore distribution, had not visited China and, more relevantly, had never been involved in any construction-type project. It would appear that nobody within the defendant company had been involved in building projects. Further, nobody within the Division in North America had been involved in construction jobs in Asia.

In 1994, Mr Wiggill was informed that the Chinese government had set up some ten tourism vacation zones, with the object of attracting overseas investment to develop the zones. A proposal was put to the Brunswick Corporation that the Division should enter into a joint venture to develop a tourist zone.

The plaintiff was also involved in putting the proposal together.

Discussions took place between representatives of the defendant and representatives of the Suzhou Taihu National Tourism Vacation Zone Committee.

The zone was situated on the side of Lake Tai, China's third largest fresh water lake. The lake is situated some 70 kilometres south-west of Shanghai, and some 20 kilometres from the city of Suzhou.

The initial project was to enter into a joint venture with the Zone Committee, which would contribute the land, and the defendant would build and operate a Mercury Marine superstore, which would sell Mercury Marine products and provide spare parts, service and maintenance.

Before any contract to spend substantial sums of money could be entered into by the defendant, it was necessary within the Division to obtain approval for funds for the project. During 1995-99 and earlier, the procedures and policies which had to be followed were contained in a manual called "Capital Policies and Procedures".

The Capital Manual, as at June 1996, comprised some 46 pages and set out the procedures for planning, approval and review for capital programmes. Capital programmes were defined to include the "acquisition of land, buildings, equipment and tooling".

The Capital Manual set out the approval process that had to be followed.

An appropriation request had to be prepared, and was the joint responsibility of a person who was designated as the "Person Responsible" together with the controller or financial services manager of each business unit.

The Capital Manual went on to provide that if there were overruns, a supplementary appropriations request must be completed.

Unauthorised spending was not permitted, and authority had to be obtained before spending over the approved A.R.

"Unauthorised spending is defined as funds committed and/or spent without an Approved Appropriation Request. Confirmation of unauthorised spending as defined above is subject to discipline by Management."

In July 1995, the first appropriation was approved in the sum of US$4.273M for the development of the superstore.

During the following months, further discussions took place and the project was changed.

The Zone Committee and the Division agreed to enter into a joint venture to "develop a boat club, a marina, boat storage, retail sales and service of engines, parts, accessories and boats, service and technical training and other associated activities." The object of the exercise was to establish a regional distribution base for Mercury Marine in China.

Accordingly, a further A.R. was prepared in February 1996 by the plaintiff and reviewed by his immediate superior, Mr Wiggill, seeking approval for US$6M. The appropriation request was approved in June 1996 in that sum.

A joint venture company was incorporated in China, called the Suzhou Taihu Mercury Club and Marina Co Ltd, which was owned 85% by the Brunswick Corporation and 15% by the Zone Committee.

An engineering company was engaged to be project manager of the project. The company was Ausino Engineering Consultants Ltd ("Ausino"), which was a company located in Hong Kong with an office in Shanghai. The person who controlled the company was an expatriate Australian, Mr Kenneth G. Rippin.

On 18 September 1996, the joint venture company and Ausino entered into a contract engaging Ausino as project manager. The scope of the services to be supplied by Ausino were preliminary services, design and documentation, tendering, construction supervision and commissioning.

An Australian architect, Mr Bruce Allen, was engaged in 1996 and was to provide architectural services for the project, pursuant to a separate agreement.

Mr Allen, from the very outset, charged at an hourly rate, together with disbursements when he travelled to China.

On 1 July 1996, before any works had commenced, the plaintiff was appointed to the position of General Manager, New Business Asia, which resulted in him working on the China project. This coincided with the joint venture agreement which was executed on 23 June 1996.

It was a new position, although the plaintiff remained second in charge of the company and a director, but the position resulted in a change of his responsibilities.

On the same date, namely, 1 July, Mr Warren Ho took over the responsibilities, which had formerly been those of the plaintiff, in the finance area, save for superannuation and finance hedging. Mr Ho was responsible for the accounts and financial statements of the defendant. He was appointed Finance Director in January the following year.

The works were divided into a number of contracts. Contract 4.0 was subsequently divided into 4.0A and 4.0B.

Contract No. 1 was for the lake works, contract No. 2 was for the construction of the warehouse, the third contract was for the foundation pilings, contract 4.0A was for the construction of the office and service centre, and contract 4.0B was for the construction of the boat club. The latter contract was not awarded until the middle of 1998.

Construction commenced on 23 January 1997. The works were the lake works and the marina and some months later, the warehouse was commenced.

The marina and warehouse, save for a few offices inside the warehouse, were completed by September 1997.

In 1997, Mr Wiggill assumed more responsibilities and spent a long time out of Australia and in America. He stated that he spent about one-third of the year outside Australia. The plaintiff, for his part, during 1997, was travelling to the project site in China at approximately six weeks' intervals.

On 6 October 1997, the plaintiff told Mr Wiggill that the defendant would not know the actual cost of the project until near completion because of, the nature of the building contracts which often were not strictly priced, the difficulties of building in China using Chinese contractors and labour, the difficulties involved with Chinese administration, the standard of workmanship and the difficult weather conditions, especially in the months of February and March when the area suffered from extremely cold conditions.

Neither the plaintiff nor Mr Wiggill, nor any other person employed by the defendant or the Division, had any experience in large scale construction, let alone any experience building a marina in China. The defendant was very much in the hands of Ausino, which in turn had to deal with the Chinese builders and authorities. In addition, there was another problem. Mr Bruce Allen, the architect based in Melbourne, prepared the working drawings. His drawings were not accepted by the local authorities. As a result, the drawings had to be copied by Chinese architects from the Shanghai Design Institute and translated into the Chinese language. Many errors were made which resulted in delays, alterations and variations. Mr Allen had to travel to China to supervise the re-drawing.

During this conversation in October 1997, the question arose concerning the necessity to obtain additional funds.

On 8 October 1997, Mr Wiggill sent a letter to the plaintiff, referring to the conversation and noting that the construction of the warehouse and marina had come in under budget. He then wrote -

"Just want to make quite sure that we are both on the same wavelength that the total project cost should not exceed the A.R. as approved by Brunswick."

Mr Wiggill then went on to say that if after tenders were received, the costs would be over the approved A.R. amount, then he put forward two choices, namely, the architect redesigns the works to reduce the cost or, submit a new A.R. for the increase in cost. He made it clear that the current climate at Brunswick was such that it was unlikely that there would be an increase.

The conversation and the letter followed closely on the appointment of a new president to the Division, Mr G. Buckley. Mr Buckley was known to be a person who closely watched the finances, in particular expenses, and was known to demand strict adherence to financial controls and procedures.

In the latter part of 1997, Ausino put out to tender to seven construction companies, the construction of contracts 4.0A and 4.0B, and the results of the tenders, made known in early December 1997, revealed that additional funds had to be approved.

The plaintiff prepared a very long document called the Suzhou Executive Report ("Executive Report"), which was completed in January 1998. It is a document of some 275 pages, although the actual text occupied some 30 pages and the balance were attachments. The plaintiff said that he needed to prepare such a long document because there had been a management clean out at divisional level, and the new people had no idea of the background of the project.

After preparing the Executive Report, the plaintiff requested Mr Wiggill to read it, which he did, and he gave approval that it be sent to America. This was done in January 1998.

The report was discussed in America, and the plaintiff was informed by Mr Bob Miller, in late January 1998, that it was necessary to prepare a revised A.R. to seek a further US$800,000 to complete the project.

"Frankly I am surprised that we got so close to the A.R. figure considering that this is our first venture in China. The bowling div often goes over and then they put in a revised A.R."

Application was made in February 1998 for an increase to US$6.8M, which was an increase of US$800,000. Mr Rankin prepared the A.R. It was supported by a number of attachments which set out a summary, a comparison with the original A.R. approved in February 1996 and a forecast budget setting out income, expenses, et cetera. The plaintiff was not responsible for the documents attached to the A.R. They were prepared by Mr Bob Miller and other personnel in the United States of America, assisted by Mr Wiggill, who was also there at the same time.

"This represents the final revision for the project which is based upon finalised tender bids received for all construction to turnkey."

The plaintiff was not responsible for that representation, and it would appear that those who prepared the document in the United States of America came to that conclusion, based on the Executive Report.

The A.R. was approved on 10 March 1998 in the sum of US$6.8M.

The evidence established that, as at January 1998, both the plaintiff and Mr Wiggill were very keen to see the project successfully completed. Both had an interest in achieving that result. Mr Wiggill was instrumental in the move to establish a base in mainland China, and the plaintiff was managing the project on behalf of the Division.

At that stage, the building project was experiencing difficulties. The problems were numerous. By law, only Chinese architects and engineers could submit plans in China. They knew nothing about boat clubs and marinas. The Melbourne architect, Mr Allen, had to prepare drawings and then give them to the Chinese, who did their drawings to submit for approval. The latter misinterpreted a lot of information, which resulted in Mr Allen having to go to China. The Chinese construction company was on a steep learning curve because it had never done a boat club marina before, but more importantly, the Chinese were ignorant as to international standards. The project was aimed at a four star finish. That meant nothing to the Chinese and hence, a lot of work was done teaching the Chinese as to the standard of finishes and re-doing the work. There were difficulties with the Chinese culture, in that it was not part of their culture to meet deadlines. There was an appreciation that once the work was completed, the workers may be out of employment. They looked upon foreign companies as being wealthy and "fair game". In addition, the Chinese culture was such that in order to save face, a lie would be told rather than bad news. There were problems with ordering materials. In China, there was no such thing as credit. Payment had to be made. The Chinese construction company doing the bulk of the works, namely, Tongzhou Construction and Installation Co Ltd, ran out of money and hence, misleading information was given about ordering materials and the like. Climatic conditions came into play and during winter, the temperature could be minus five during the day. During summer, it was very hot and often very wet. In addition, the rules and regulations often were changed without notice, so that payments were made for approvals or the installation of public utilities, and further demands were made later. The construction company put in claims for a substantial number of variations.

The works continued throughout the first half of 1998. On 9 April 1998, the plaintiff, on behalf of the Division, accepted the tender for the construction of contract 4.0B, which was described as Stage 2 of the building of Tongzhou Construction Installation Co Ltd at a sum of local currency RMB22.788M, which was approximately US$2,745,642.

Contract 4.0B was entered into on the basis that there would be a third floor on the boat club building, an indoor swimming pool with roof garden and moving walls. There had been discussion earlier, involving the plaintiff and Mr Wiggill, as to whether there should be changes to the works to reduce the costs. Subsequently, changes were made.

By 10 August 1998, the contractor had submitted approximately 100 variations which, it was anticipated, would increase the cost for contract 4.0A by approximately US$75,000. A decision was made, by the plaintiff and Ausino, that it was wise not to deal with the variations at that stage, but to ensure that all the works were completed, and the variations would then be negotiated and finalised at the end of the project.

During 1998, a Mr Randall was engaged by the Division to work in China to promote and market the marina and the boat club. His services were terminated prior to August 1998.

On 18 August 1998, Mr Randall wrote a letter to the Chairman of the Brunswick Corporation, which set out in detail his views of the project. He set out in some detail his criticisms of the project, and all those involved, including the plaintiff.

Amongst his criticisms was the allegation that spending exceeded the budget. He asserted that approximately US$9M was spent on construction, consulting fees, salary, international travelling, and purchase of vehicles and expensive houseboats. He stated that the project had become a personal ego trip for some of the Australian executives. He alleged that the project general manager, which apparently referred to the plaintiff, had minimal experience in this type of project. He also asserted that a total of six vehicles, including "two luxury cars", were purchased. He further noted that some 15 houseboats were purchased.

Mr Randall sent the letter to the CEO of the Brunswick Corporation, who referred it to Mr Buckley, President of the Division, who in turn referred it to Mr Wiggill. Mr Wiggill asked the plaintiff to respond.

On 27 August, the plaintiff responded to Mr Wiggill and sent a copy to Mr Buckley. The plaintiff stated, under the heading "Current Situation", the following -

"As at August month end, the total amount spent on construction is US$5.0M versus a total construction budget of US$6.8M. The total project is covered by contract price of US$6.4M with a contingency of US$0.4M. I am not aware of any final unfavourable variances. We currently have approximately US$1.8M worth of boats in China which are financed by intercompany trading accounts. The bulk of the boats consist of 17 houseboats which are for sale or rent at the Mercury Club."

The plaintiff explained the necessity of having six vehicles. He also pointed out that of the 17 houseboats in China, six were unassembled, and stated that houseboat accommodation was a matter critical to the club's future success.

On 27 August 1998, Mr Wiggill also sent a report to Mr Buckley, in which he criticised the performance of Mr Randall whilst in China, conveying the view that he was a man whose services were terminated and who had a grievance.

He concluded by making the following observations -

"In the meantime (Michael Randall's comments aside) we will open the business facility on October 17, 18, 19 in spite of extreme rainfall, floods, working in a country that has never seen a boat club and marina and is writing the rules for us as we go. It is a communist country trying to be socialist or capitalist with wonderful interpretation of the rules. We will be successful, indeed we already are; (he set out the market share of the trading in China for the years 1994-1999 which showed a steady increase, and then concluded) And the A.R. will not be exceeded."

The plaintiff, on the following day, wrote to Mr Buckley and extended an open invitation to the parent company's audit department to audit the books, with respect to the China project, and on 29 August, Mr Buckley agreed it was a good idea and said that he would get it organised.

It was clear, at the end of August 1998, that the question was raised as to the cost of the project and whether it would exceed the budget, which was established by the March 1998 revised A.R.

The plaintiff stated that he thought the construction was within budget, and Mr Wiggill, Mr Ho, and Mr Buckley did not request the plaintiff to do a careful and detailed assessment of the situation at that stage, nor did the plaintiff consider that it was necessary.

It is necessary, next, to refer to the provision of the houseboats on the marina. This issue assumed some importance in the latter quarter of 1998, as did the issue of operating expenses.

In 1995, the plaintiff and Mr Wiggill thought it appropriate to acquire a houseboat from America and transport it to Australia. This was done, and the houseboat remained in the premises at Dandenong for some months before it was shipped to China. This was, in effect, a trial run to determine cost and ease of importing. Houseboats were later purchased.

The houseboats were purchased for a number of reasons. First, they would be available for sale or for rent and secondly, would be used for accommodation at the club.

By September 1998, there were some 17 houseboats in China. Twelve had been fully assembled and were on the lake, and some five were in the process of being assembled by local labour.

An issue arose, at the end of 1998, as to why it was necessary to purchase so many houseboats. Another issue that arose, in the last quarter of 1998, was the treatment of the cost of the houseboats in the accounts of the joint venture, and in particular, whether the cost should have been part of the A.R. which had been approved in March 1998.

Another issue concerned the start up expenses. By the end of September 1998, approximately US$1.3M in set up and preliminary expenses for the project had been incurred since September 1997.

Like the houseboats, an issue arose, in the last quarter of 1998, as to how the operating expenses should be treated in the accounts of the joint venture, and in particular, whether the expenses should have been also included in the A.R. approved in March 1998.

Both the houseboats' cost and the start up and operating expenses became the subject of spirited correspondence between Mr Schroeder, in America, as the financial controller of the Division, and the plaintiff, and to a lesser extent, Mr Wiggill.

The A.R. approved in March 1998, included in the US$6.8M, US$100,000 for start up expenses and US$200,000 for rental boats. The item for rental boats was an allowance for an amount for runabout-type rental boats, and was not to cover houseboats. Attached to the A.R. approval, and forming part of it, was a 10 year operating budget forecast. For the year 1998, total expenses of US$988,000 were allowed, and a sum of US$1,422,000 was allowed for inventory.

The plaintiff treated the houseboats as part of the inventory, and was of the opinion that it was not necessary to have A.R. approval for the cost. He thought the start up expenses were also not part of the A.R. approved sum because they were operating expenses, and were to be treated as such.

In November/December 1998, correspondence took place between Mr Schroeder and the plaintiff and Mr Wiggill, the former being of the view that both the start up expenses and the houseboats should have been part of the A.R. approved sum, and accordingly, the A.R. was exceeded. Mr Shcroeder's view was based upon the differing accounting standards in Australia, China and the United States of America. Because of the delay in the project, the operating expenses could not be treated as an expense, and it followed that they were a cost that should have been part of the approved sum. Mr Schroeder was of the view that the houseboats should not be included in inventory. The plaintiff and Mr Wiggill did not agree.

Whilst there was much discussion, during the case, about the issues of houseboats and start up and operating expenses, and whether they should have been in the A.R. approved in March 1998, in my opinion, they play little part in the resolution of the issues in this case.

The main object of the A.R. approvals in 1997 and 1998, was for approval for the construction of the marina and adjoining buildings. The criticism that is made against the plaintiff is that, he failed to inform his superiors when it was apparent that the cost of construction exceeded what had been approved, and he failed to promptly make application for a revision of the A.R. to take into account the substantial increase in construction. In my opinion, the changes in the treatment of the houseboat and sundry expenses items in the accounts were something that was beyond the control of the plaintiff, and could hardly be visited upon him as a failure on his part to discharge his duties as an employee of the defendant.

Their significance in this case is that, as a result of the debate in the latter few months of 1998 and Mr Schroeder's views, the March 1998 A.R. had to be revised, and this was made clear to the plaintiff and Messrs Wiggill and Ho in November 1998.

The opening of the marina, warehouse, office and showroom complex was fixed for 19 October 1998, and was described as a "soft opening". Mr Wiggill defined "soft opening" as a special term used by the Chinese, to describe an opportunity to show the public what you are doing, and get them excited, before you actually deliver on your promise later; in other words, a form of promotion.

Prior to the opening, Mr Schroeder requested the plaintiff to give him a report on the financial position of the project. The plaintiff sent a report on 7 October 1998, and gave copies to Messrs Wiggill and Ho. In the report, the plaintiff asserted that, as at 30 September 1998, the total funds spent on construction amounted to US$5.0M (as compared to the A.R. budget of US$6.8M). He attached to the document the subsidiary ledger, which was prepared by the defendant's accountant in China, Miss Sandra Howells, and which recorded the sums paid out each month with a running total. It showed that, as at the end of the financial period in September 1998 (not necessarily the end of the month), the total amount spent was US$5.01M.

The plaintiff went on to note that US$1.8M of the budget had not been spent, and he stated that that was represented by the balance of the costs of contract 4.0B, which he estimated at US$1.4M and added US$400,000, comprising sundry equipment, furniture and contingency. It is observed that the cost of contract 4.0B was the sum of US$2.745M and as at the end of September 1998, very little work had been done on that contract. According to the subsidiary ledger, as at the end of the period in September 1998, the total amount actually spent on that contract was US$124,753. It is observed at this date, that the subsidiary ledger did not take into account the claims for variations made by the builder in respect to contract 4.0A, and these exceeded 100. A reasonable assessment of the variations at that time, would have led to the conclusion that it was most likely the joint venture company would be liable for an increase in cost due to the variations.

On 19 October 1998, the "soft opening" took place and the plaintiff, Messrs Wiggill, Schroeder, Bob Miller and Ho attended. The 12 houseboats were on the water and were seen at the opening. The club, which was the subject of contract 4.0B, was barely started. The footings had been poured but very little else had been done.

In the latter part of October 1998, the plaintiff impressed upon Ausino Engineering and the others engaged in the project in China, that the works had to be completed promptly and to a proper finish and, in particular, that contract 4.0B had to be completed by the end of February 1999 for a grand opening in March 1999. A lot of work had to be performed by a lot of people to get the site into proper condition for the "soft opening". Last minute preparations were to be avoided at the grand opening.

On 29 October 1998, Mr Ken Clark, employed by the defendant and who was the senior manager on site, wrote a report concerning the fit out and completion of contract 4.0B. He highlighted in the report the difficulties that had been experienced with the contractor in relation to earlier contracts. He wrote -

"The current system where we wait for the contractor to complete unacceptable work before intervening must cease, all assistance must be given to the contractor to establish the finished requirements and once this has been established, there must be a daily quality supervision activity. It has to be kept in mind that in many cases the contractor is working with materials and systems that he is not familiar with. There is a need for more constructive dialogue between the contractors and the Ausino site management. The current method that involves abuse should not be accepted. This has resulted in the contractors coming to us for assistance and advice rather than working with Ausino. This should not be the case."

"The final point I would like to make is that I believe it is a must for a Mercury Marine person to be on site to monitor the fit out and completion of Stage 2." ("Stage 2" is a reference to contract 4.0B.)

The plaintiff sent a copy of that report to Ausino Engineering and the architect, Mr Allen.

On 30 November 1998, the plaintiff reported to senior management in the Division and concluded, in reference to construction, by stating -

"Construction As usual numerous hours were spent on construction issues which is made more difficult by using cheap Chinese companies to build to international standards. Then again not much has changed in this regard after the last 18 months. We are still aiming for a 28th February 1999 completion however it must be remembered we are heading into a short sharp cold winter which will no doubt slow progress."

On 20 November 1998, Mr Wiggill sent an e-mail to the plaintiff on the question of the houseboats. The e-mail provided -

"Please explain to me how it is that we have so many houseboats, I understand the figure is 17 units at +/-$85,000. As far as I can see five would have been too few, perhaps seven, eight, nine and ten would have been just right. But we have 17 and to my mind this sounds like we have over done it. Please explain to me, why did we go so many. What was the thinking. I need the answers so that when the questions are inevitably asked, probably quite soon, we have the rationale and answers at our fingertips."

The plaintiff responded by memorandum, dated 1 December 1998, in which he referred to a marketing survey in May 1996 that raised the question of providing accommodation at the club, and he went on to say that a decision was made to import and assemble boats at Lake Tai. By this time, the parent company was asking questions and there is no doubt Mr Wiggill was concerned.

However, I am quite satisfied that Mr Wiggill was fully aware of the decision to import the houseboats early in 1998 and further, was aware that in 1996, a houseboat was imported into Australia before it was sent off to China. The houseboats were seen by those who attended the "soft opening" in October, and others had viewed them earlier. The attempt to lay the blame wholly on the plaintiff reflects adversely on Mr Wiggill.

By mid December 1998, it was clear that it would be necessary to apply for a revision of the A.R., if for no other reason than, to cover the boat investments and the start up and operating expenses.

On 17 December 1998, Mr Schroeder wrote to Messrs Wiggill and Ho and the plaintiff, and stated -

"I reviewed a copy of the final A.R. revision for March 1998 that was approved by the D.C. and it included only $100,000 of start up expenses and made no mention of any boat investments. We now sit with $2.0M of start up expenses and $1.5M in boat investments which in my eyes have never been approved or authorised."

"Do not take this message as a lack of support for the project. I am still supportive of the initiative but I am disappointed that the financials are so radically different than the A.R., that we spent capital $$ on boats without an A.R. approval and we had no communication or approval re: the dollar value and accounting treatment of the start up expenses. Please get back to me ASAP so we can develop a plan for resolution."

The e-mail prompted a response from the plaintiff as to which standards of accounting were to be applied, and correspondence passed in relation to how to deal with these matters.

On 21 December 1998, Mr Ho forwarded an e-mail which in fact had been prepared by the plaintiff. It was sent to Mr Schroeder, with a copy to Mr Wiggill. It set out, in tabular form, the position under the revised February 1998 A.R. and the position which is described as "actual December 1998". This e-mail was sent on or about 21 December 1998. The figure for construction was put at US$5.8M, but in fact was the figure to the end of November. It would not have been difficult to have ascertained the figure for December because the accounting period would have closed at that point, and an e-mail to Sandra Howells in China would have quickly ascertained the position. The figure of US$5.8M was to be compared with the US$6.5M in February A.R.

"It is anticipated that the capital construction completion cost of Mercury Club and marina to Turnkey will be on budget (estimated completion date March 1999)."

In making that representation, the plaintiff did not carry out any exercise to determine the total cost, other than to note the amount in the subsidiary ledger. As became very apparent in early January 1999, the statement was incorrect.

On the following day, Mr Ho prepared another e-mail which he sent to Mr Schroeder, after showing it to the plaintiff. By this time, Mr Schroeder had also raised the question of the fact that US$300,000 had been spent on motor vehicles for the project, and no allowance had been made for motor vehicles in the approved A.R.

At the beginning of January 1999, Mr Wiggill raised the question of a revised A.R. with the plaintiff, and the plaintiff prepared a memorandum dated 6 January 1999.

In that memorandum, the plaintiff requested a revised A.R. and stated -

"As a result of certain uncontrollable events during 1998 combined with market driven decisions, a revision to the February 1998 A/R is requested. Attached is a reconciliation of our approved project spending and our final projected spending and the reason for the request."

The attachment revealed that the anticipated cost of construction would be in accordance with the revised March 1998 A.R. It was noted that there had been a considerable increase in start up expenses, and the cost of rental boats and motor vehicles. These items added some US$3.2M to the amount.

Mr Wiggill sent the plaintiff's memorandum, including attachments, to Mr Schroeder on 6 January 1999. Mr Schroeder had requested the background for a revised A.R.

On a careful reading of the documents, the position was being represented that the construction costs were within budget. At this stage, Mr Bob Miller, who was the Vice President International Market Development, was travelling to Australia to consider a number of matters, including the question of a revised A.R.

The plaintiff was requested to prepare a detailed report, setting out the costs to date and the anticipated final costs of the project. The request followed on from a very stern e-mail sent by Mr Buckley to Mr Wiggill on 8 January 1999, with a copy to Mr Schroeder. He indicated that he was extremely annoyed that there had been an approved A.R. for US$6.8M, and that the latest report showed that there was spending of US$10.8M. He was very critical of the plaintiff. He stated that he could not understand how it was that there was so much spent on salaries in China, in addition to the amount spent on vehicles and the excessive number of houseboats.

He was critical of Mr Ho, and pointed out that he had the responsibility "to blow the whistle if he thought something was wrong ... ". Mr Buckley went on to write -

"So now we have an A.R. that I have to take back to B.C. for $10.8M as against the $6.8M authorised. I can assure you, Peter Larson is going to go into outer orbit."

He stated that the plaintiff "engaged in rampant unauthorised spending, has embarrassed you, has embarrassed me, embarrassed Mercury in a good year and tainted a good project." He also stated -

"I have not decided finally what punishment should be meted out, but I think this is a discharge level offense for Geoff and a serious reprimand for Warren, including removal of his bonus this year. Nobody should imagine that this is anything other than the most serious offence possible, short of fraud. I'd appreciate some feedback on what you plan for remedial and punitive action against the offending partners."

The plaintiff was not made aware of the contents of Mr Buckley's e-mail.

The plaintiff prepared his report over the weekend of 9 and 10 January 1999, and on Monday 11 January, he tabled his report. Messrs Wiggill, Ho and Bob Miller were present. The plaintiff stated that he was surprised by the figures with respect to the cost of the construction. He stated that he was so shocked, "I nearly fell off my chair".

The report set out an analysis of the construction cost in US dollars.

The plaintiff set out each contract and revealed that what had actually been spent on the construction was US$6.2M, and that it was anticipated that the cost to complete the works would be US$3.326M.

In round figures, this represented an increase over the A.R. approved in March 1998 of US$3.296M for construction costs.

If it was necessary to add in the houseboats and start up and operating expenses, the increase would have been over US$6.0M. On any view, there was a substantial increase in the cost of construction, something in the vicinity of 50 per cent.

There is some dispute as to what was said at the meeting, but it is unnecessary to resolve it. Mr Wiggill was extremely annoyed as to the increase and the fact that he had not been alerted, nor had the senior personnel in the Division in the United States of America. Mr Wiggill spoke to Mr Buckley over the following few days, who informed him that he should get rid of the plaintiff. In this period, Mr Wiggill took advice from the defendant's lawyers, and also spoke to Mr Hubbard, who is a senior director in the Division in the United States of America handling, inter alia, employee matters.

On 13 January, Mr Wiggill spoke to the plaintiff by telephone and informed him that if there was trouble with the parent company concerning a revised A.R., then the plaintiff, as project manager, "can carry the can".

On 15 January, the plaintiff was summoned to Mr Wiggill's office, where he and Mr Ho were present. At the meeting, Mr Wiggill raised the question of the overrun of the cost of construction which exceeded the revised A.R. of the previous year, and asserted to the plaintiff that it was due to his sloppy bookkeeping, which the plaintiff denied.

Mr Wiggill then stated that the plaintiff's services were to be terminated, effective on 30 April. He stated that he would like the plaintiff to stay on and help with the completion of the project, and the opening of the club at the end of March. It was also said that since the plaintiff had given good service to the defendant, the defendant was prepared to employ him for a further six months on half pay.

Despite evidence from Mr Wiggill to the contrary, I am satisfied that he had made a decision before that meeting to terminate the employment. He gave evidence that he had not made a decision to that effect, and that he was giving the plaintiff an opportunity to explain his conduct to avoid termination. I am also satisfied that the plaintiff did not say it was due to his sloppy bookkeeping. His analysis report, tabled on 11 January, set out many reasons why the project had cost substantially more than the estimate given in the Executive Report.

The fact was that Mr Ho was the finance director at that time, who was the person responsible for the bookkeeping in relation to the project, and Miss Sandra Howells, the employee in China, was the person who actually prepared the financial statements concerning the project in China.

Subsequent to the meeting, Mr Wiggill made it clear to the plaintiff that he was not to make any decisions concerning the China project, and that moneys spent of any nature on the project had to be subject to Mr Wiggill's approval. He put Mr Steven Missen in charge of the project.

By mid January 1999, the builder had sought in excess of 300 variations to contract 4.0A and some 25 variations to contract 4.0B. On any view of the evidence, the probabilities were that the final cost of both contracts would be increased and by substantial sums.

On 20 January 1999, Mr Ho sent to the plaintiff a draft revised A.R., which showed that the construction costs were expected to increase by US$3.073M, and that the start up expenses which were to be included in the A.R. were US$1.842M, in excess of what had been allowed in the March 1998 A.R.

On 21 January 1999, an A.R. was prepared by Mr Ho, reviewed by Mr Bob Miller and Mr Wiggill, and forwarded to the Division for approval. The plaintiff did not see the document. Attached to the formal A.R. was a bundle of documents setting out the background and reasons for the application for a revised A.R., together with a budget. The amount sought for construction was US$9.053M, and US$970,000 for machinery and equipment, and expenses of US$1.728M, making a total of US$11.751M.

On 29 January 1999, the plaintiff was handed a letter, signed by Mr Wiggill, confirming the termination of his employment on 15 January 1999.

In the letter, Mr Wiggill asserted that the plaintiff was unable to give any reasonable explanation for the increase in the capital outlay to complete the project on 15 January 1999. This was incorrect, because it was clear from the plaintiff's analysis, tabled at the meeting on 11 January 1999, that there were a considerable number of reasons for the cost increasing. Mr Wiggill also asserted that the plaintiff had stated that his bookkeeping had been sloppy, but I accept the evidence of the plaintiff that he did not say that.

"It is unacceptable that there be such discrepancies in the Project costs and that the discrepancies remained unrecognised until now. I regret that I must confirm the advice given to you on January 15 1999, that your contract with Marine Power International will terminate on 30 April 1999. You are required to resign all your directorships held within the group and your position as trustee of the Marine Power Superannuation Plan. Having regard to your prior service and the close working relationship that we have enjoyed and on the basis that you will continue to work with the company in a spirit of mutual co-operation to resolve the difficulties we now find ourselves in, you will be paid a further three month's full salary (from May 1 - July 31 1999). This has been agreed to by Fond du Lac." The reference to Fond du Lac is the headquarters of the Brunswick Corporation.

The plaintiff continued his employment with the defendant, carrying out his duties with respect to the project and responding to requests, from amongst others, Mr Ho, concerning the claim for variations and the costings involved in the China project.

On 23 February 1999, the further revised A.R. was approved in the sum of US$11.751M.

The grand opening of the project was fixed for 28 March 1999. On 17 February 1999, Mr Wiggill sent an e-mail to a number of employees of the defendant, including the plaintiff, concerning the grand opening in March. The e-mail commenced with the following clear instruction -

"Please be advised that this is an [sic] without wives function."

The e-mail went on to provide that adherence to this instruction was "a must", and that the objective of the opening, amongst others, was to promote and sell memberships to guest couples who attended the function. Mr Wiggill stated that the only wives in attendance would be the wives of the president of the Division, Mr Buckley, the CEO of the Brunswick Corporation, Mr Larson, and a senior director of the Division.

On 11 March, a conversation took place between the plaintiff, Mr Wiggill and Mr Ho, concerning the presence of wives at the opening. The plaintiff informed them that he was taking his wife to China at his own expense, and that he was doing it because he had been away a lot during the early stages of the project while she was battling cancer and he had promised to take her to see the finished product. Mr Wiggill had no difficulty with the plaintiff taking his wife, but stated that she should not be at the opening.

On Saturday 27 March, the evening before the opening, a dinner took place at the club. Evidently, the topic of wives attending the function was raised and Mrs Buckley indicated that it was unfair that the wives could not attend. She spoke to Mr Buckley who then spoke to Mr Wiggill. According to Mr Wiggill, he explained to Mr Buckley that it would be unfair to allow wives because of the decision that had been made earlier. However, Mr Wiggill made a decision to allow Mrs Gauci to be present.

Mr Gauci was General Manager of the club and marina in China, and his wife performed many tasks in assisting him with that job, including some of the decoration for the opening. A conversation did take place between Mr Gauci and Mr Wiggill, in which Mr Wiggill stated that Mrs Gauci could attend.

The plaintiff gave evidence that Mr Gauci rang him, informed him of his discussions with Mr Wiggill, and that permission had been given for the plaintiff to take his wife. Mr Gauci, when he gave evidence, denied any such conversation.

The plaintiff took his wife to the opening on the Sunday, which was held some time prior to lunch time, followed by a luncheon.

At a dinner held on the previous night, Mr Larson spoke and acknowledged the plaintiff by name, and thanked him for his efforts, together with others, in completing the project.

Approximately 250 people attended the grand opening on the Sunday.

Mr Wiggill did not rebuke the plaintiff for taking his wife to the function, whilst they were in China.

The plaintiff returned to work during the first week of April, and Mr Wiggill returned on or about 12 April.

The plaintiff continued to carry out his duties. On 15 April, a meeting took place involving the plaintiff, Messrs Wiggill and Ho, and Mr Thompson, who was a director of the defendant. The meeting commenced by Mr Wiggill informing the plaintiff that it would be better if he left the company that day. He was asked for the reason, and stated that the plaintiff had disobeyed his instructions in taking his wife to the opening in China. The plaintiff stated that he had been told by Mr Gauci that the wives could attend, and in any event, other wives did attend. He also said that the whole thing was ridiculous. Mr Wiggill said that he had made up his mind and the plaintiff was to leave that day.

The plaintiff stated that there were still a lot of matters that he had to attend to, especially the variations, and he preferred to stay until the 30th.. Mr Wiggill said he would get back to him later that day. Some three hours later, at another meeting, Mr Wiggill stated that he had been in touch with the defendant's solicitors and had spoken to Mr Buckley. He said that he, Mr Wiggill, felt uncomfortable having the plaintiff in the building and it was best that he leave that day.

At a glance

Court

Decision date

Before

Source

Judgment (448 paragraphs)

Parties

Cases Cited (9)