Rod Bowman v Ricegrowers' Co- operative Limited

CATCHWORDS: Jurisdiction s109A- Whether claim was for unfair dismissal - whether applicants claim was for breach of contract of employment. Held: applicant alleges deficiencies in provisions - absence of protocol dealing with conflict of interest - absence of protocol dealing with allegations of serious misconduct - claim based on unfair contract.

Contract of employment found to be unfair & varied accordingly - monetary order - costs reserved.

LEGISLATION CITED: Industrial Relations Act 1996

Beahan v Bush Boake Allen Australia Limited (1999) 47 NSWLR 648 Bell and Berg v Macquarie Bank Limited & anor [2003] NSWIRComm 363 CASES CITED: Byrne v Australian Airlines Limited (1995) 185 CLR 410 Concut Pty Ltd v Worrell [2000] HCA 64 Sydney Water Corporation Limited v Industrial Relations Commission (2004) 61 NSWLR 661

HEARING DATES: 29/11/2006, 30/11/2006 & 14/12/2006

APPLICANT Mr R Reitano of counsel SOLICITOR: Mr P Pasfield Slater & Gordon LEGAL REPRESENTATIVES:

RESPONDENT Mr S Nixon of counsel SOLICITOR: Mr G Fredericks Freehills

• 1 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES

Application under s 106 of the Industrial Relations Act 1996

1 In these proceedings, the applicant, Rod Bowman, seeks relief under s 106 of the Industrial Relations Act 1996 ("the Act") against the respondent Ricegrowers' Co-operative Ltd. 2 Relevantly, ss 105 and 106 of the Act are in the following terms S 105 Definitions In this Part: "contract" means any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument. "unfair contract" means a contract:

(a) that is unfair, harsh or unconscionable, or (b) that is against the public interest, or (c) that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or (d) that is designed to, or does, avoid the provisions of an industrial instrument. S 106 Power of Commission to declare contracts void or varied

(1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract. (2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason. (2A) A contract that is a related condition or collateral arrangement may be declared void or varied even though it does not relate to the performance by a person of work in an industry, so long as: (a) the contract to which it is related or collateral is a contract whereby the person performs work in an industry, and (b) the performance of work is a significant purpose of the contractual arrangements made by the person. (3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time. (4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force. (5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case. (6) In making an order under this section, the Commission must take into account whether or not the applicant (or person on behalf of whom the application is made) took any action to mitigate loss. 3 The proceedings arise out of the termination by the respondent of the applicant's contract of employment with it. The applicant commenced employment with the respondent in 1977 and was, from time to time thereafter, promoted or otherwise assumed different duties. On 1 November 1999, the applicant was appointed Materials Manager, Paddy within the logistics group of the respondent, based in Leeton. He reported to the General Manager, Logistics. His employment terms were, in part, reduced to writing, consisting of a two-page letter. That letter made no reference to the type of controversy that has given rise to these proceedings. 4 It was the applicant's responsibility to provide an overall central planning and logistical role with respect to the harvest each year including the receipt, drying, storage and transportation of the rice harvest. He had an annual budget in 2001 of between $40 million and $50 million and was responsible for expenditure of about $12 million for the storage and handling of the rice crop. 5 The applicant's contract of employment was terminated summarily on 1 March 2002. The reasons for termination were set out in a letter under the hand of the General Manager, Human Resources, Ms Del Gigante. It referred to the engagement by the applicant of a company owned by his brother to provide services to the respondent. The letter referred to a meeting between the applicant and, on behalf of the respondent, Mr Graham Harvey, Mr Dirk Teale and Ms Del Gigante on 1 March 2002. The letter said, in part, referring to the meeting: "As you were informed, we have taken this action as result of your actions with respect to the engagement of your brother's company to provide services to Ricegrowers. In summary: - the arrangement you entered into was, at best, highly uncommercial; - you did not attempt to contact the main supplier to Ricegrowers to see if they could perform the work; - you directed a subordinate to not report this issue to management; - during the meeting you produced what you claimed to be the contract entered into by your brother. When it was drawn to your attention that the services were not provided in accordance with the contract you claimed that the contract was incorrect. Further, during our meeting you were not candid with us about the matters we discussed. Indeed, you changed your versions of events on some matters during the course of the meeting. As a consequence we no longer have the trust and confidence in you which is necessary for you to continue to be an employee of Ricegrowers. We must be able to rely on the integrity of our managers and we can no longer do so in your case." 6 The applicant's case, on a factual basis, was that the arrangement that he made with his brother's company for the performance of work was not uncommercial in any sense and could not be described as "highly uncommercial". The applicant denied that he had failed to contact the "main supplier" to Ricegrowers and said that for some of the work, at least, given to his brother's company the alternative supplier and other suppliers were unavailable. The applicant denied that he had directed a subordinate to not report the issue to management and denied having concealed the fact that the person with whom he was dealing was his brother from anyone in particular. However, as I understand the applicant's case, he conceded that his failure to be more open about the fact that he was dealing with his brother constituted an "error of judgment" but not one that would justify summary termination of employment, particularly after 25 years of employment. 7 The applicant alleged that his contract of employment was unfair and should be so characterised for a number of reasons. Whether or not the contract of employment was unfair for the purposes of s 106 of the Act and whether it was caught by another provision of the Act, namely s 109A, was a matter of significant controversy in the proceedings and I shall return to this aspect later after dealing with the factual background and the evidence given relating to it.

Factual Background 8 The respondent is a co-operative representing the interests of rice growers in the Murrumbidgee Irrigation Area. I understand that paddy rice is rice that is grown in paddies. It was the substantial part of the applicant's duties to make arrangements for the storage of rice after harvesting and its subsequent transportation. After the harvested rice is dried in storage sheds owned by the respondent it is then taken to other locations for external storage. That storage is either in sheds or in what are called bunkers. Bunkers, as I understand the evidence, are large areas on flat ground with either a concrete or other hard material as a base or an earthen base. An earthen base needs to be constructed by using a bobcat. The area is flattened and a trench is built around the bunker so that tarpaulins which are used at the base of the bunker and which are also used to cover the rice being stored can be secured. Some of the sheds are owned by the respondent and others are on property owned by third parties. The same applies to the bunkers. 9 Bunkers vary in size from 10,000 to 20,000 tonnes storage capacity. Most of the transportation of rice to and from storage sheds or bunkers, and from those storage facilities to other destinations, is undertaken by companies within the McNaught Group, being either McNaught's Transport Pty Ltd or McNaught's Grain and Fertilizers Pty Ltd. McNaught's Transport specialises in the transportation of grains including paddy rice, which it has been undertaking for the respondent since 1997. 10 Since 2001 McNaughts has been used by the respondent to load paddy rice or grain into storage facilities. This has not been done pursuant to any exclusive contract but on a job-by-job basis. Most of the arrangements for the loading of paddy rice into the storage facilities have been organised by the applicant as part of his duties. 11 McNaughts has charged the respondent $3.00 a tonne to load paddy rice into storage facilities. This charge has included the use of McNaught's own equipment and labour and the provision, at McNaught's cost, of diesel fuel and oil for the equipment. Where it has been necessary for McNaughts employees to pull tarpaulins over the rice in the final stages of loading the bunker, there has been a charge of $3.50 per tonne, even allowing for employees of the respondent to occasionally assist in pulling some of the larger tarpaulins over the rice when circumstances, such as a threat of rain, required this. Where the respondent's employees assisted in pulling tarpaulins over the rice in the final stages of loading the bunker, the rate was $3.00 per tonne. 12 The equipment provided by McNaughts when loading rice into a storage facility included a drive over hopper, a tubulator (which carries the rice to the top of the pile), a surge bin to hold the rice as it is being carried up, a front end loader, a generator and, if the work is being performed on a 24-hour basis, some lighting. 13 McNaughts does not perform any preparatory work in creating a bunker or in digging a trench or laying any base tarpaulin. Where McNaughts is involved, that work was generally performed by the employees of the respondent. 14 In order to gain some appreciation of the work involved in loading rice for storage in a bunker, I should indicate that the evidence was to the effect that a 20,000 tonne storage capacity bunker would be between 13 and 14 metres wide, about 200 metres long and would store grain to a peak height of about 5 metres. 15 The applicant used his brother's company for the 2001 harvest. The applicant asserted, and there seems to be no doubt on the evidence, that 2001 was a bumper year and there was significantly more rice produced than in the previous year. The applicant said that in the 2000 year only about six bunkers and sheds were used external to those owned by the respondent. That figure for the 2001 year was said to be about 22. In the 2000 year between 35 to 40 storage facilities were used in total. There were over 90 such facilities used in the 2001 year. It was the responsibility of the applicant to ensure that there were sufficient storage facilities for the 2001 crop. The applicant said that his duties for that year were made even more difficult by reason of two other matters. The first was an understanding that a storage shed at Burraboi would be built and ready for storage for the 2001 year. That did not occur. By late January 2001, the applicant was made aware of the estimated size of the crop to be harvested that year and it was at that stage that it was necessary for him to make alternative plans which included the building of three storage bunker sites. One of those was to be at Burraboi to which I shall later return. The other matter that affected the applicant's duties and responsibilities was a proposal to sell rice during the harvest and transport it directly to Geelong where it would be shipped to Turkey. In early April, the applicant was made aware that the rice would not be shipped to Turkey and accordingly would need to be stored. 16 The applicant gave evidence that even though the Burraboi bunker had been built by early April 2001, he had not, at the time that the proposed sale of rice to Turkey had fallen through, arranged for a contractor to load any rice into that bunker for storage. He said he had about a week to do so. 17 In the course of oral evidence dealing with the circumstances in which the applicant determined to use his brother's company (H&K Grain Handlers) the applicant said: Q. Now I think I was asking you about organising H&K to do the work; when you organised them to do the work, what was your understanding about the availability of other contractors to do that work? A. Well at that particular time I had Graincorp filling about seven or eight bunkers and McLeish filling bunkers, I had Grainlink filling bunkers, and my initial thought was to use our own staff at Burraboi to fill the bunker but we couldn't. I asked Brian Bourke if they could supply the men. He said they didn't have the experience, they didn't have enough men. The staff goes on, up on a site like Burraboi, which only has two or three permits to use for about 30 people working on the staff at the site at harvest time, so to find another eight to nine people to work on the bunkers would be difficult in a situation like that.

Q. How did you come to use your brother's company rather than any other contractors you had used? A. I couldn't get anyone else and I asked him whether he was capable; would he like to look at the job? He came up and had a look at it. 18 In recounting a conversation that he had with Mr Harvey in early March 2002, attended also by Mr Teale and Ms Del Gigante, the applicant, in his affidavit said, in reply to Mr Harvey: 32. …."With respect to using H&K at Burraboi, the initial approval concerned earthworks for a bunker which I was initially confident would not have to be done. I was so confident because there was a shed still under construction and there was a proposed paddy sale to Turkey. At the last moment, the paddy sale did not go ahead and neither did the shed. I then immediately enquired about contractors who could do the bunkers. No-one was available. McNaughts were due to commence work at Finley but were already delayed as they were filling a shed at Tocumwal. In addition, Grimisons were doing work at Deniliquin, McLeish was at Emery and GrainCorp were doing 3 bunkers at Deniliquin and one at both Woorinen and Tocumwal.

As a last resort, I approached H&K. I knew at the time they had not done rice bunker work so I rang my brother. He was in Melbourne at the time. I told him that $3.00 per tonne was the going rate and that he would have to unload trucks, fill the bunkers evenly, sew tarps and provide sufficient labour to run the bunkers 24 hours a day. I told him that we would provide at cost labour to pull tarps during periods of bad weather or when they were fitted. I suggested to him that as they had not done rice bunker work before that they go and get some experience with GrainCorp at Deniliquin for a couple of days to gain experience. I understand that H&K did this." 33. I then stated:

"After the Burraboi contract, I also let a contract to H&K to do a bunker at Hay. I also used them on a bunker for barley storage in December 2001 delivered directly from growers. A second bunker was also done for rice. It was old season rice and the price was $3.00 per tonne. I didn't approach McNaughts as they were doing the wheat harvest for GrainCorp in the Central West wheat belt..

As for the Burraboi job, apart from one small problem, both bunkers were done properly. Further, Burraboi was outloaded by McNaughts and Hay by us with no losses. " 19 H&K Grain Handlers performed work loading the bunker at Burraboi for the period 9 April 2001 to 23 April 2001. It rendered an invoice, which was paid, in the sum of $86,761.42 including GST calculated at the rate of $3.00 per tonne. In addition to this payment, the respondent paid further expenses of $8,832.19 for the transport of a generator, to Graincorp for setting up of bunker equipment and its maintenance and for packing up that equipment, for bobcat hire and diesel fuel for a generator. 20 After this first contract, H&K Grain Handlers was engaged by the applicant to load rice into a storage facility at Hay between 28 April and 7 May 2001. 21 There was a further engagement to load barley into a storage facility at Burraboi between 21 November and 6 December 2001. 22 Evidence was given in the proceedings on behalf of the respondent by Brian Troy, a paddy administrator officer, who reported to the applicant and part of whose duties was to process the payment of accounts, including those of contractors involved in the loading and unloading of rice and other product. He had processed accounts rendered by H&K. 23 In November 2001, Mr Troy travelled throughout the Murray Valley region to observe loading operations of rice into storage facilities. Whilst at the Burraboi depot, Mr Troy overheard a conversation between two other employees of the respondent complaining about the work of H&K Grain Handlers. Whilst talking to one of them it was revealed to Mr Troy that one of the principals of H&K was a person named Harry Hunter whose real name was Harry Bowman and who was the applicant's brother. 24 On his return to Leeton, which I assume occurred some time in November 2001, Mr Troy approached the applicant and asked him about H&K Grain Handlers. He asserts that initially the applicant denied any knowledge of Mr Hunter or that he was his brother, but eventually conceded this. Mr Troy said that he told the applicant that there was "a bloody big conflict of interests here, you could find yourself in deep water." He asserts that the applicant responded that none of the respondent's employees would make any adverse comment, that he was giving his brother "some opportunity" and that his brother would be returning to Darwin once outstanding accounts had been settled. Mr Troy further said in evidence that the applicant told him not to tell anyone else about his brother's involvement in H&K Grain Handlers. 25 Mr Troy said that he did not raise the matter with anyone else because he understood that H&K Grain Handlers would not be performing any more work for the respondent and that the applicant's brother would be returning to Darwin. 26 The applicant denies parts of the conversation, especially having requested that Mr Troy not tell anyone else about his brother's involvement. In fact, the applicant asserted that he explained to Mr Troy that his brother's rates were commercially competitive with those of other contractors and, on this basis, Mr Troy agreed to let the matter rest. 27 I am unable to determine which of these two competing versions is to be believed. Both the applicant and Mr Troy appear to have recollected the conversation as accurately as they could. Their evidence was given five years after the event. I am unable to determine that either was intentionally saying anything they believed to be untrue. In these circumstances, I shall not have regard to either of the conflicting versions about this discrete matter. However, the applicant did not deny that Mr Troy had raised with him the fact that there was a conflict of interest in retaining his brother's company and that this was recognised by the applicant. 28 Subsequently, H&K Grain Handlers rendered accounts for further work undertaken. One was for the period 21 November 2001 to 6 December 2001 for the loading of barley at Burraboi bunker, in an amount of $31,802.76 including GST. This was processed by Mr Troy because, as he said, he thought that this was the last invoice to be received prior to the applicant's brother returning to Darwin. 29 However, a further invoice was received for the period 9 January 2002 to 26 January 2002. This was for an amount of $50,853.26 inclusive of GST for the unloading of rice to bunker storage at Burraboi at a rate of $3.00 per tonne. Mr Troy said that he was concerned when he received this invoice because it demonstrated that the applicant's brother had not finished up with the respondent and had not returned to Darwin. He took the file containing all of the invoices rendered by H&K Grain Handlers to a Mr Wayne Preston, a senior manager in the respondent's operations. It was this step that commenced a process by which the General Manager, Mr Harvey, initiated an internal audit inquiry into the retention of H&K Grain Handlers by Mr Bowman and the process leading eventually to the termination of Mr Bowman's employment. 30 In the course of his evidence, Mr Bowman said that he had committed an error of judgment in failing to disclose to persons to whom he was responsible in the organisation the fact that his brother had an interest in H&K Grain Handlers.

A Conflict of Interest 31 What is abundantly clear is that, whether or not the applicant realised that there was a conflict of interest or a potential conflict of interest in retaining a company associated with his brother when this initially occurred, at least by November 2001, the applicant knew, from his discussion with Mr Troy who reported to him, that he had a potential conflict of interest which should have been disclosed. Whatever the detail of the conversation between the applicant and Mr Troy and whatever version is to be believed, the conversation ended on the basis that there was a consensus that at that stage the applicant did not need to take the matter further because either Mr Troy had been assured of the complete commerciality of the arrangement with H&K Grain Handlers or Mr Troy had been assured that the relationship had ended and that the applicant's brother was returning to Darwin. In either event, it is clear at that stage, as I have said, that the applicant knew that there was potential for a conflict of interest. It follows that he ought to have disclosed at that stage his relationship with his brother in any further dealings with him. Whatever the timing of the second last contract, it is clear that the final engagement of H&K Grain Handlers occurred in early 2002, after the applicant's conversation with Mr Troy.

Was the H&K arrangement uncommercial? 32 A subsidiary issue is the commerciality of the arrangement between the applicant and H&K Grain Handlers. He maintains that a comparison with the McNaught organisation is not appropriate. This is, firstly, because McNaught subsidised its loading and unloading rates because of the general transportation contract that it had with the respondent and, secondly, because McNaught carried out loading and unloading operations only at Finley. The applicant maintained that there were other contractors involved including Grimison and McLeish where the same arrangement prevailed as he had made with H&K Grain Handlers. That is, there was a rate of $3.00 per tonne and the respondent paid for the cost of all equipment that was used in the unloading operation and the cost of fuel and other consumables. 33 There was admitted into evidence two invoices from a company of which Mr McLeish was a director. The first related to bunker storage of long grain rice in March 2001 at a rate of $3.00 per tonne. The second related to bunker storage in early April 2001 at a rate of $2.00 per tonne. It was the evidence of the applicant that Mr McLeish's company had in-filled bunkers on two occasions. On the first occasion, he had negotiated a rate of $2.00 a tonne but realised that he was unable to do the work for that rate, which is why a rate of $3.00 a tonne was negotiated on the second occasion. This evidence is not consistent with the dates shown on the invoices. Whatever inferences may be drawn from this inconsistency, it was the evidence of the applicant that Mr McLeish's company did not provide any equipment for those jobs and that the equipment was provided by the respondent. 34 With respect to work carried out by an organisation known in the proceedings as "Grimison's", it was the evidence of the applicant that that organisation had charged $2.50 a tonne to fill a large shed at Deniliquin, that it had provided some of the equipment for the job but not all of the equipment. 35 I have earlier referred to a meeting on 1 March 2002 between the applicant and Mssrs Harvey and Teale and Ms Del Gigante. During the course of that meeting, the applicant was asked whether or not there was in existence a written contract for the work carried out by H&K. The applicant had said that there was such a contract, left the meeting room to locate it and returned with a copy. That copy became evidence in the proceedings. It was not, in fact, signed on behalf of either the respondent or H&K Grain Handlers Pty Ltd. There is a provision for the signature of the applicant on behalf of the respondent and Karen Letch, the de facto spouse of the applicant's brother on behalf of the company. The agreement provided for a rate of $3.50 per tonne for the inloading of bunkers. It provided that H&K was to make available "all grain handling equipment to ensure that the inloading is maximised." In cross-examination, the applicant said that he had prepared that contract from a McNaught's contract and that the inclusion of reference to the supply of equipment by H&K was an error. In any event, I observe that the rate shown on that contract was $3.50 a tonne whereas the rate actually paid to H&K was $3.00 a tonne.

The reasons for termination 36 A further issue relates to the circumstances in which, and the reasons why, the applicant's employment was terminated. The applicant alleged that Mr Dirk Teale, who was at the meeting and who was the applicant's immediate supervisor, had had a falling out with him some years previously and was therefore ill disposed towards him. The applicant conceded that he and Mr Teale had resolved any differences between them once Mr Teale had been appointed as his supervisor. Furthermore, there is no evidence upon which I could find that Mr Teale was biased in any particular way towards the applicant. In any event, the decision to terminate the applicant's services appears to have been made ultimately by the General Manager, Mr Harvey, and there is no evidence that he was in any way influenced by any representations made by Mr Teale. 37 In considering the allegations made by the respondent, I do so against the background of evidence given by the applicant that he was never instructed to prefer any particular contractor to carry out any particular work, nor was he instructed to obtain quotations for work prior to engaging contractors and he was never instructed to put any work out to tender prior to engaging contractors. In his evidence, Mr Graham Harvey, the General Manager, Operations for the respondent, confirmed that it did not have any written codes of conduct in place whilst the applicant was employed, it had no specific policy with respect to conflicts of interest and there was no written procedure dealing with conflicts of interest. Mr Harvey conceded that, given the operations of the respondent in small country towns, there was some inevitability that persons who were related might work together and that, in fact, the respondent employed people who were related. 38 In the course of cross-examination, Mr Harvey said that whilst interviewing the applicant on 1 March 2002 about his concerns with respect to the conflict of interest and in discussing the commerciality of the terms on which H&K had been engaged, the applicant had said that H&K had been engaged on the same terms as Grimison's and McLeish. Mr Harvey said in his evidence that he was unaware of the terms upon which those contractors had been engaged and had no information about those terms. He had benchmarked the arrangement made by the applicant with H&K solely against the McNaught contract rates, as he understood them from his discussion with others. Furthermore, he was aware that McNaught's had carried out work involving inloading of bunkers at Finley but was unaware of any other inloading work carried out by McNaught elsewhere. Mr Harvey also conceded that in approaching the determination of whether to terminate the applicant's services, he had proceeded on the basis that McNaught was always available to undertake the work that H&K had been contracted to do. 39 Mr Teale, who had been involved in the preparation of the auditor's report concerning Mr Bowman's activities and engagement of H&K, gave evidence in the proceedings. He said that in general terms he was aware that the respondent had engaged, in addition to McNaught, both Grimisons and McLeish in connection with the inloading of rice. He was, at all times, unaware of the rates that these contractors had charged. He recollected the applicant mentioning the engagement of these contractors during the course of the meeting on 1 March 2002. 40 Consistent with the applicant's case, there was tendered into evidence three invoices from McNaught covering grain handling received into a bunker or bunkers at Finley in February, March and April 2001, charging a rate of $3.00, $3.00 and $3.50 per tonne respectively. However, there was also tendered into evidence an invoice from McNaught for grain handling received into a Griffith bunker in February/March 2001 at a rate of $3.00 per tonne. There is, with respect to this last invoice, no evidence as to whether that work was undertaken by McNaught in conjunction with the transportation of grain to Griffith. 41 There was additional evidence and submissions relating to global charges made to the respondent for the unloading of rice into storage sheds and the storage of that rice at sheds owned by third parties. The state of the evidence is such that I am unable to confidently draw any inference as to whether, in unbundling any such rate, there is any comparable rate that may be assessed to determine the commerciality or otherwise of the rate charged by H&K. 42 It is clear from the evidence that the respondent determined to terminate the employment of the applicant because, substantially, the rate charged by H&K was non-commercial. In coming to that conclusion, the respondent restricted itself to a consideration of the rate charged by McNaught at Finley without determining whether there were any other appropriate matters to take into account. On balance, I accept the evidence of the applicant that McNaught was not available at least for all of the contracts given to H&K and I accept the evidence of the applicant that the rate paid to H&K was comparable to that charged by other entities performing similar work. Accordingly, I conclude that the respondent was in error in determining that the contracts given to H&K were uncommercial to the extent asserted by the respondent as a reason for the termination of the applicant's employment. 43 This leaves for consideration whether and to what extent the applicant was at fault and in error in failing to disclose that his brother was a principal of H&K Grain Handlers.

The impact of the failure to disclose the contract involving his brother 44 In general terms, it may be observed that the use by an employee in the course of his or her employment of a family member or of a friend may raise an apprehension in the minds of others that such a person might have been given favourable treatment. Such a person might by retained in preference to others who may have greater experience or qualifications, or he or she might be retained contrary to some established protocol for the orderly retention of employees or contractors. Furthermore, such a person may be retained on terms more costly to or in some other way to the disadvantage of the principal. 45 Disclosure of the retention of a family member or a friend will have the effect of countering any apprehension or misapprehension that in some way the principal will have been disadvantaged or that favourable treatment has been afforded to the person retained. A failure to make such disclosure may of itself give rise to an apprehension of something untoward having occurred. In a general sense where apprehensions or misapprehensions of the kind to which I have referred may possibly impact upon a principal or, in some cases, on fellow employees or contractors, common sense dictates that there should be relevant disclosure. 46 Obviously, much will depend upon the particular circumstances. In the case of these proceedings, there was always going to be a possibility that members of a family or friends might be retained by a person to work for the respondent in small country communities where the potential labour pool is restricted. In such a case, it is probable that retention of a family member or friend would be widely known within the small community involved. This is not the situation in the case of these proceedings, however, because as it appears from the evidence the applicant's brother normally resided in Darwin and used a different name to that of the applicant. That is, the applicant's brother was not generally recognised by others as being related to the applicant. 47 In the circumstances of these proceedings, it is necessary to consider the impact of the failure of the applicant to disclose his relationship with his brother on his contract of employment and on the respondent as his employer. The applicant's evidence was that at least initially he was compelled to seek out his brother because there was no one else available to perform work that had to be carried out quickly to meet the demands of a bumper harvest. On the basis of such evidence as is before the Court, I accept this. I am unable to draw any inference contrary to the interests of the applicant in terms of the retention of H&K by the applicant. The evidentiary burden of establishing that there were others available to have performed that work fell upon the respondent. Although Mr John McNaught, the managing director of the McNaught group, was called to give evidence in the proceedings, his evidence in a general sense did not displace the specific evidence of the applicant about this matter. This is not surprising given that the applicant dealt with employees of the McNaught organisation and not with Mr McNaught personally. 48 I accept also that, in a general way, the terms upon which the applicant engaged H&K were not to the commercial disadvantage of the respondent. Again, the applicant having relied upon his own extensive knowledge and having given evidence about the terms upon which two other contractors had been engaged, supported in one of those cases with documentary evidence, the respondent then bore the burden of demonstrating that that evidence was incorrect. On the basis of all of the evidence before the Court in the proceedings, I am not satisfied that I can make any inference or otherwise find as a fact that the terms of the engagement of H&K in all the circumstances were to the commercial disadvantage of the respondent. 49 It is then necessary to consider the impact in all of the circumstances of the retention by the applicant of H&K and the failure to make disclosure. The applicant freely admitted that he was in error in having failed to disclose the fact that a principal of H&K was his brother. It was submitted on his behalf that such a matter would not of itself justify summary dismissal. Furthermore, it was submitted that the processes used by the respondent to consider the applicant's position and in determining to summarily dismiss him were unfair and flawed. 50 I should deal firstly with the summary dismissal itself. I am of the opinion that although the applicant was guilty of an error of judgment in failing to disclose that his brother was a principal of H&K, in all of the circumstances this error of judgment did not constitute a matter which would justify summary dismissal. 51 The general principles governing this area of the law were referred to succinctly in the High Court of Australia in Concut Pty Ltd v Worrell [2000] HCA 64. At [25] and [26] Gleeson CJ, Gaudron and Gummow JJ said: "[25] In Pearce v Foster [20], Lord Esher MR stated it to be a "rule of law" that "where a person has entered into the position of servant, if he does anything incompatible with the due or faithful discharge of his duty to his master, the latter has a right to dismiss him". In Blyth Chemicals Ltd v Bushnell [21], in the course of considering the position of the respondent, who was the manager of the appellant's business, Starke and Evatt JJ said[22]: "As manager for the appellant, the respondent was in a confidential position. And it is clear that he might be dismissed without notice or compensation if he acted in a manner incompatible with the due and faithful performance of his duty, or inconsistent with the confidential relation between himself and the appellant." In the same case , Dixon and McTiernan JJ said[23]: "Conduct which in respect of important matters is incompatible with the fulfilment of an employee's duty, or involves an opposition, or conflict between his interest and his duty to his employer, or impedes the faithful performance of his obligations, or is destructive of the necessary confidence between employer and employee, is a ground of dismissal."

[26] Contractual obligations and fiduciary duties have different conceptual origins, "the former", in the words of McLelland J [24], "representing express or implied common intentions manifested by the mutual assents of contracting parties, and the latter being descriptive of circumstances in which equity will regard conduct of a particular kind as unconscionable and consequently attracting equitable remedies". Formulations of the obligations of an employee in terms such as those in Pearce and Blyth Chemicals may be understood, Professor Finn has pointed out, as the re-expression of equitable obligations in terms of implied contracts[25]. If so, the importation is well established and beneficial, and nothing turns upon it for present purposes." 52 Of course, these general principles require in turn an assessment of whether particular conduct in the circumstances of a particular employment relationship warrants summary dismissal. In determining this matter, I take into account the absence of any particular protocol established by the respondent concerning conflicts of interest, the possibility of such conflicts arising in small rural communities and that, on the evidence, there has been no established disadvantage to the respondent in terms of cost or otherwise. 53 It is then necessary to consider two jurisdictional arguments put by the respondent.

S 109A Industrial Relations Act 54 S 109A of the Act is in the following terms: S 109A Exclusion of certain contracts in connection with unfair dismissals

(1) This Division does not apply to a contract of employment that is alleged to be an unfair contract for any reason for which: (a) an application has been or could have been made by the employee under Part 6 (Unfair dismissals), or (b) such an application could have been made but for the provisions of section 83 that exclude the employee from making an application under that Part. (2) In this section: "contract of employment" means any contract or arrangement under which work is done by a person in the capacity of an employee, and includes a related condition or collateral arrangement with respect to such a contract. "dismissal" has the same meaning that it has in Part 6. 55 It is also necessary to set out the provisions of ss 84 and 88 of the Act which are as follows:

S 84 Application for remedy by dismissed employee (1) If an employer dismisses an employee and the employee claims that the dismissal is harsh, unreasonable or unjust, the employee may apply to the Commission for the claim to be dealt with under this Part. (2) An application may be made on behalf of the employee by an industrial organisation of employees. (3) An industrial organisation may make one application on behalf of a number of employees who were dismissed at the same time or for related reasons. However, this subsection does not prevent the Commission from hearing a number of applications under this Part together or individually. (4) An application may be made under this Part even though the applicant does not specify the nature of the remedy sought or requests compensation only. However, this subsection does not affect the requirement under this Part that compensation is available only if the Commission considers that reinstatement or re-employment would be impracticable. S 88 Matters to be considered in determining a claim In determining the applicant's claim, the Commission may, if appropriate, take into account: (a) whether a reason for the dismissal was given to the applicant and, if the applicant sought but was refused reinstatement or re-employment with the employer, whether a reason was given for the refusal to reinstate or re-employ, and (b) if any such reason was given - its nature, whether it had a basis in fact, and whether the applicant was given an opportunity to make out a defence or give an explanation for his or her behaviour or to justify his or her reinstatement or re-employment, and (c) whether a warning of unsatisfactory performance was given before the dismissal, and (d) the nature of the duties of the applicant immediately before the dismissal and, if the applicant sought but was refused reinstatement or re-employment, the likely nature of those duties if the applicant were to be reinstated or re-employed, and (e) whether or not the applicant requested reinstatement or re-employment with the employer, and (f) such other matters as the Commission considers relevant. 56 The provisions of s 109A were examined comprehensively by a Full Bench of this Court in Beahan v Bush Boake Allen Australia Limited (1999) 47 NSWLR 648, 93 IR 1. 57 The Court, in considering the impact that the provisions of s 109A had on the operation of s 106 commenced its consideration by concluding, on the basis of authority, that s 109A would need to express very clearly or to necessarily infer by implication that there was an intention in the Legislature by enacting s 109A to cut across the basic protection afforded to persons by the provisions of s 106. (See 47 NSWLR at 664 - 668, 93 IR at 14 - 18). 58 The Court referred to the grounds contained in the summons by which it was alleged that the contract of employment in those proceedings was unfair. It noted that those grounds "were directed to the failure of the contract in permitting the respondent to terminate the applicant's employment without any, or any sufficient, notice or payment in lieu thereof and in permitting termination without any, or any sufficient, redundancy payment or other appropriate monetary benefits…." The Court noted "importantly, there was no allegation contained in the summons that the termination of the applicant's employment by the respondent itself was in any way unfair nor was there any claim for reinstatement, re-employment or compensation relative to an alleged unfair dismissal…." (47 NSWLR at 670). 59 The Court then considered the unfair dismissal provisions of the Act and concluded that the nature of such a case was "concerned principally with the dismissal itself as to whether it was harsh, unreasonable or unjust by the employer abusing the right to dismiss an employee but not so as affect the contract of employment as to its terms and operations as such." (47 NSWLR at 679) 60 The Court next turned its attention to the provision of s 106. Having considered a number of authorities it noted that that section "is directed to an impugned contract of employment, whether existing or terminated, as to the fairness of its express or implied terms. Such unfairness will depend upon the facts of each particular case by focussing attention on the contractual relationship between a particular employer and employee and where the unfairness may arise from the terms of the contract itself, the surrounding circumstances and/or the manner of performance or operation of the contract….the section is properly concerned with the fairness of the terms of the contract of employment in its various respects and, if relevantly found to be unfair, to provide remedial relief by avoiding or varying the terms of that contract and to order the payment of money in connection with any contract so avoided or varied as is considered just in the circumstances of the case." (47 NSWLR at 685). 61 Having considered the intention of legislature in introducing s 109A into the Act, the Court concluded that "….it is central to the operation s 109A that an excluded contract of employment is one where it is alleged that it is unfair for any reason for which an unfair dismissal claim could have been made." (47 NSWLR at 692). The Court concluded that it remained permissible to argue under s 106 that the terms of a contract were unfair, unconscionable or harsh and to seek a variation accordingly as opposed to dealing with the termination of the contract and whether or not it was unfair. The Court concluded: "In short, our view is that s 109A operates to exclude a contract of employment from the operation of s 106 only where the unfair contract claim is an unfair dismissal claim in disguise and where essentially it is of the nature of an unfair dismissal. Where a claim challenges the terms or operation of a contract of employment by genuine, not superficial or coloured, reasons related to the contract itself then, in our view, it is a claim properly within ss 106 and 109A has no operation in relation to it. A review of the allegations made in the present case, we are satisfied, discloses allegations directed to the contract of employment and not to the applicant's dismissal. It is properly within s 106." (47 NSWLR at 692) 62 I now turn to the allegations of unfairness contained in the summons in these proceedings. They are that: "(27) The contract or arrangement whereby the applicant performed work in an industry is and was unfair, harsh and unconscionable and contrary to the public interest in that: (a) It permitted the respondent to terminate the employment of the applicant on grounds of alleged misconduct without providing the applicant with any fair and reasonable opportunity to respond to allegations made against him. (b) It permitted the respondent to terminate the employment of the applicant without conducting any fair and reasonable investigation in circumstances in which such an investigation would have revealed that the allegations were not made out or did not provide any reasonable basis for the dismissal. (c) It failed to require the respondent to give genuine and proper consideration to matters raised by the applicant in response to the allegations when deciding whether to terminate the applicant's employment. (d) It failed to require the respondent to give genuine and proper consideration to the applicant's length of employment with the respondent, seniority, experience, level of remuneration, personal circumstances, age and contribution to the respondent's business when deciding whether to terminate the applicant's employment. (e) It failed to require the respondent to give genuine and proper consideration to the effect of dismissal on the applicant when deciding whether to terminate the applicant's employment. (f) It failed to require the respondent to pay the applicant a proper period of notice by way of compensation in circumstances in which it had summarily terminated the applicant's employment without proper grounds. (g) It contained a provision permitting the contract to be terminated on notice of one month which was one its face harsh, unfair and unconscionable having regard to the applicant's length of employment with the respondent, seniority, experience, level of remuneration, personal circumstances, age and contribution to the respondent's business. (h) It caused the applicant to be in a position of unequal and inferior bargaining power and permitted the respondent to act in a manner that was one-sided and contrary to the applicant's interests. (i) Such further grounds or reasons as the Commission considers appropriate." 63 In his submissions, Mr S M Nixon of counsel for the respondent focussed attention on whether or not the claim was essentially of the nature of an unfair dismissal and whether it was concerned principally with the dismissal itself by the employer abusing the right to dismiss an employee. These are matters that were considered by the Full Bench in Beahan. It was further submitted that all of the evidence in the proceedings was directed to the summary dismissal of the applicant and whether or not the respondent was justified in taking this action. In essence, therefore, the focus of the applicant's claim, both in substance and reality, was his dismissal and the circumstances in which his dismissal occurred. 64 In my opinion, the approach contended for by the respondent does not accord with the principles developed by the Full Bench in Beahan. Those parts of the judgment which I have extracted make it clear that if the applicant's claim is directed to the provisions of the contract of employment whether express or implied as to their fairness and the impact upon those provisions of the termination, the claim may be characterised as a challenge to the terms or operation of the contract by genuine reasons and is therefore properly within s 106 and outside the operation of s 109A. Such was the factual situation in Beahan and such is the situation in all the circumstances of these proceedings having regard to the manner in which the summons is framed including, in particular, the grounds of unfairness asserted in it. 65 The approach of the Full Bench in Beahan was reinforced by a Full Bench of this Court in Bell and Berg v Macquarie Bank Limited and Anor [2003] NSWIRComm 363. The Court (Walton J, acting President, Boland J and Curtis AJ) said "….we do not consider that the introduction of s 109A had the effect of excluding from any consideration under s 106 of the Act whether or not there was procedural fairness." (At [10]). 66 There is only one express provision of the applicant's contract of employment that touches upon termination. It says: "Termination of this appointment will require one month's notice (unless otherwise stated) by either party, however, in the case of serious misconduct no notice is required." 67 The applicant's case was that the contract of employment by its terms was unfair in a number of ways. There was no contractual provision containing or referring to protocols in engaging or dealing with contractors and the disclosure of any potential conflict of interest. This, on the evidence, has now been attended to by the respondent in terms of its general conditions of employment. Furthermore, there was no provision in the contract containing or referring to any protocol for dealing with allegations of misconduct against an employee. Other assertions were made alleging unfairness in the contractual provisions, but it is sufficient only to refer to the two that I have previously set out. I should add for completeness that some of the submissions in the context of what should have been contained within the contract of employment by way of provisions were, in my opinion, artificial. For example, there was an allegation that the contract was unfair in that it failed to proscribe "what would constitute serious misconduct justifying summary termination." In my experience, very few, if any, contracts of employment contain such a provision, for good reason namely the difficulty in formulating an appropriate formula to reflect what is, after all, a common law principle. 68 In my opinion, the Full Bench authority represented by Beahan dictates that the respondent's attack on the applicant's case based on s 109A must fail. Although in essence and at its heart the proceedings revolved around the termination of employment, the claim as contained within the summons was framed in a manner that challenged the terms or operation of the contract of employment in the circumstances of what occurred. I am unable to characterise the claims and basis so framed as not being genuine or as being superficial or coloured. This submission must fail.

Sydney Water 69 The respondent submitted that based on principles established in the New South Wales Court of Appeal in Sydney Water Corporation Limited v Industrial Relations Commission of New South Wales (2004) 61 NSWLR 661 the applicant's case must fail. In Sydney Water, the Court of Appeal concluded that s 106 had no application to a claim where the applicant was, in effect, alleging unfair conduct in breach of the provisions of a contract. It was necessary to found jurisdiction and power under s 106 to find that the contract sought to be impugned by its terms or, by what it failed to provide, was of itself unfair or became unfair as it applied to the circumstances of the employment. 70 In considering what was necessary to found jurisdiction and power under s 106, Mason P (with whom McColl JA agreed) said: "[32] A contract of employment may be found unfair because, in the words of Sheller JA (with whom Meagher JA agreed) in Walker (at 149): "[it] permitted termination which, in the circumstances, was unfair and discriminatory. By so permitting the contract was or became unfair." [33] Sheller JA was using the term "permitted" in the sense of that which the contract did not proscribe. Absence of proscription in the relevant particular meant that a party was at liberty to act unfairly without the general law's sanctions for breach of contract. A contract may "permit" certain conduct either by sanctioning it expressly or by failing to prohibit it. In either circumstance the other party has no contractual remedy to prevent that conduct. Either type of "permission" may properly lead to an appropriate remedy in the Commission, if the Commission finds that the contract is unfair. If that finding is made, the remedies open to the Commission extend to declaring the contract wholly void or partly void, or varying the contract, with appropriate accompanying orders for the payment of money (s106(3) and (5))." (61 NSWLR at 669- 670) 71 Hodgson JA delivered separate reasons for judgment and agreed with the reasoning of Mason P, which I have extracted above. At 677 his Honour said: "[76] As regards pars.[34] to [43], I think that the occurrence of unfair conduct in breach of contract could in some circumstances go towards supporting a finding that the contract was unfair, because it might help to demonstrate that the contract was itself unfair in lacking provisions that could have rendered such conduct less likely or in failing to provide adequate remedies for breach.

[77] As to the former possibility, a contract cannot absolutely prevent a party acting in breach of it; but it is possible that, for example by laying down clear procedures to be followed before an employee is to be dismissed, a contract could make dismissal in breach of contract less likely. I accept that it would be a large further step from this to say that the contract was unfair because it lacked such provisions; but I would not say that this is inconceivable.

[78] As to the latter, it would require a finding that the common law remedies for breach were inadequate, and perhaps also, in the case of wrongful dismissal, that the additional remedies under Part 6 of the Act were inadequate. It would then require the large further step of saying that the contract was unfair because it did not provide additional remedies. Again, although this seems unlikely, I could not say it is inconceivable." 72 The respondents submitted that the applicant's case in substance was that the respondent had wrongly summarily dismissed him and was therefore in breach of the contract of employment. Accordingly, it was a claim based purely on breach of contract and was not permitted to be brought under s 106 by reason of the principle established by Sydney Water. 73 I agree with submissions made by the applicant that endeavouring to characterise the applicant's claim in this way does not reflect the substance of the claim. Firstly, the applicant alleges deficiencies in the provisions of his contract of employment. It is only necessary that I refer to two of them. One concerns the absence of any reference to a protocol for dealing with conflicts of interest. The second deals with the absence of any provisions containing or referring to a protocol to be followed in the event of allegations of misconduct brought by the respondent against the applicant. It is alleged that, for example, the process adopted by the respondent in considering the applicant's conduct was flawed and that the decision to terminate his employment on a summary basis was rendered unfair for the purposes of s 106. 74 Once it is made clear that the applicant's case is based upon a consideration of the provisions of the contract of employment and, more particularly, what was lacking in those provisions, the attack made by the respondent based upon the Sydney Water principle falls away.

Was there relevant unfairness? 75 I have already referred to the reasons given by the respondent and relied upon by the respondent for its decision to summarily dismiss the applicant. I have also referred to the process that was adopted by the respondent in considering the applicant's conduct and in determining to summarily dismiss him. 76 It is clear from the evidence that the respondent determined to terminate the applicant's services because, predominantly, it formed the view that he had engaged the services of H&K on terms which were "at best, highly uncommercial." In coming to this conclusion, the respondent's representatives considered only the terms and conditions upon which McNaught had been engaged to carry out inloading work for the respondent. The applicant furnished information to the respondent concerning two other contractors, asserting that they were engaged on the same terms and conditions as H&K. The respondent's representatives chose not to investigate these matters and confined their consideration to the terms and conditions applying to the McNaught contracts. In doing so, and because they were permitted by the contract of employment to do so, the respondent, in my opinion, acted unfairly. The contract of employment in that it permitted this conduct and did not require the respondent to investigate appropriately and consider appropriately any case in reply put by the applicant to it rendered the applicant's contract of employment unfair. 77 I would propose varying the contract of employment so as to require the respondent, in the event of any concerns arising about the applicant's conduct to properly investigate those concerns, to give the applicant an opportunity to answer any allegations and to consider properly and appropriately any answers so given. Furthermore, in making any determination to terminate the services of the applicant as an employee, the respondent should be required to have regard to all the circumstances of the employment in determining what action to take. 78 As I have previously indicated, the contract of employment provided for termination of employment upon one month's notice. As is clear from authority, a contract of employment of indefinite duration is to be regarded at law as containing an implied term that, absent circumstances justifying summary dismissal, termination can be brought about by the giving of reasonable notice. What is reasonable will depend upon all of the circumstances of the employment. The fixation in a contract of employment of a specific period allowing for termination of employment upon one month's notice will, in my opinion, always carry the risk of such a prescription being held to be unfair in circumstances where it does not reflect what is reasonable in all the circumstances. In the circumstances of the applicant's employment by the respondent, one month's notice is unfair and renders the contract of employment unfair. (For the general common law principle, see Brennan CJ, Dawson and Toohey JJ in the High Court of Australia in Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 429). 79 Although I have found that the contract of employment was unfair in the manner described and that the conduct of the respondent created unfairness, it is also necessary to determine whether and what monetary compensation should be awarded to the applicant consequent upon the findings of unfairness and the variation to the contract which I propose making. 80 I have already indicated that there can be no doubt that the applicant was aware at least prior to the last occasion on which he engaged H&K that he should have disclosed his relationship with his brother and that he failed to do so. This failure constituted, in my opinion, misconduct although not such as would justify summary dismissal. The respondent was entitled, as it always was under the contract of employment, to terminate the applicant's employment, but upon giving appropriate notice or paying monies in lieu. 81 This in turn requires a consideration of what is appropriate notice in all the circumstances. The principles in this regard are well settled. It is necessary to have regard to all of the circumstances of the employment including the applicant's age, position, seniority and employment history. It is also appropriate, in my opinion, to have regard to the circumstances in which the termination of the contract of employment has come about. This includes, in my opinion, any misconduct or dereliction of duty that an employee may have embarked upon. 82 However, I emphasise that the determination of what is just compensation does not involve simpliciter the equation of a monetary amount with what an employer ought to have afforded an employee by way of reasonable notice on termination in accordance with common law principles. The requirement under s 106(5) is to award such compensation as is just in all the circumstances. Not only does the awarding of compensation benefit an employee applicant, but it imposes a burden on a respondent employer. Accordingly, it is appropriate to take into account for the purpose of assessing what monetary amount is just in the circumstances of these proceedings what is appropriate notice for the purposes of both the employer and the employee. I have found that the arrangement with H&K was not uncommercial and I have rejected any finding that the applicant failed to contact McNaught to see whether they could perform the work. I have not made any particular finding about whether or not the applicant directed a subordinate not to report the matter to management. I have further found that the respondent did not have in place any process requiring contracts with contractors and tenders for work to be reduced to writing. Nevertheless the applicant acted with a certain degree of lack of candour particularly prior to awarding the final contract to H&K. Having regard to the applicant's length of service, his seniority, his apparent good record of service but taking into account also his conduct that brought about the circumstances of his termination, I have formed a view that an appropriate amount to be paid by way of just compensation would reflect an amount equivalent to payment of his annual salary package over a period of 15 weeks. 83 The parties have asked that I reserve costs and I shall do so accordingly. 84 Orders 1. In consequence of the findings of unfairness which I have made, the applicant's contract of employment with the respondent is varied from its inception by the addition of the following terms:

"Notwithstanding anything to the contrary: a) In determining any question of misconduct of the employee, the employer shall carefully enquire into and consider all matters relevant to any allegation of misconduct, shall give the employee an opportunity to respond to those allegations and shall consider any such response in determining what action, if any, to take. b) In determining to terminate the employment of the employee for any reason other than circumstances justifying summary dismissal, the employer will give the employee reasonable notice of termination or pay moneys equivalent thereto based on the employee's annual remuneration package." 2. The respondent is to pay the applicant a sum of money calculated as the equivalent of 15 weeks of his gross annual salary package as at 1 March 2002.

3. Costs and the awarding of interest are reserved. 4. Liberty to apply with respect to the quantification of monetary orders, costs and interest.

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