Romero v Farstad Shipping

THE BREACHES OF CONTRACT 6 It will be convenient at this point to refer to certain of the provisions of the Policy which the Full Court found had been breached. The purpose and scope of the Policy are explained in clause 1 as follows: "Farstad Shipping seeks to establish a workplace culture where all employees are treated fairly and with respect and dignity. Behaviours that are harassing, discriminatory or bullying in nature are totally unacceptable, destroy workplace harmony and co-operation, and are distressing and harmful to the individuals on the receiving end of such behaviours. Workplace harassment, discrimination and bullying are against the law and will not be tolerated in Farstad Shipping. Managers and supervisors are accountable for monitoring the workplace and reinforcing the harassment and discrimination procedure with employees. Farstad Shipping will: • Handle complaints promptly, with confidentiality, impartiality and with sensitivity to the complainant's needs; • Meet all legal and statutory obligations; and • Ensure employees making complaints of workplace harassment and discrimination are not disadvantaged in their employment conditions or opportunities. Farstad Shipping's harassment and discrimination procedure applies to all personnel, including part-time, full-time and casual employees, contractors and visitors." (Emphasis added.) The Policy went on to make it plain that discrimination, harassment and bullying would not be tolerated in any Farstad workplace. All employees were to be made aware of the Policy and regular education programs conducted. Trained staff members were to be available to conciliate disputes and explore other options, "including making a formal complaint." 7 Clause 2.6 dealt with the complaints procedure. It provided: "2.6 Harassment and Discrimination Complaints Procedure 2.6.1 Raising Concerns and Identifying Options Farstad strongly encourages and supports employees who believe they have been subjected to harassing, bullying or discriminating behaviour, to bring their complaint to the attention of a Contact Officer or their Manager or the HR Department at the earliest possible opportunity. Also, Farstad strongly supports employees who believe they have witnessed harassing or bullying or discriminating behaviour in the workplace to encourage victims to bring their complaint to the attention of a Contact Officer, their Manager or the HR Department at the earliest possible opportunity. The Manager or HR Department may notify a Contact Officer, unless contact was made with a Contact Officer directly by the complainant. The Contact Officer will listen to the concerned person's complaint, explain the options available and provide advice as necessary. Ongoing support in the form or (sic) counselling may also be arranged utilising the Employee Assistance Program. All formal contacts regarding issues of a harassing, discriminatory or bullying nature are to be recorded by the person contacted and forwarded to the GM HR or Staff Administration Manager. The written record of contact should form a record of issue whether it be resolved, arise again at a later date, or escalate to a more formal investigation. All contacts will be handled in a strictly confidential manner. 2.6.2 Assessing Options The employee must decide what action they want to take in terms of resolving the problem in an effective and acceptable manner. The options available include: • Taking informal action to resolve the complaint themselves, including talking to the alleged harasser, and if required, requesting that the Contact Officer or Manager be present. • Requesting the Manager discuss the concern with the alleged harasser to resolve the complaint informally. • Initiating a formal complaint and investigation under the Workplace Harassment and Discrimination procedure. • Initiating a general grievance/complaint through their line management where the employee believes they have been treated unfairly but not for any of the reasons contained in anti-discrimination legislation. • This procedure does not remove the employee's right to take their complaint directly to the relevant State Anti-Discrimination body or to the Human Rights and Equal Opportunity Commission. The person contacted by the complainant can facilitate the employee's assessment of these options, but the decision as to how to proceed must remain with the employee. 2.6.3 Informal Action This option emphasises resolution rather than factual proof or substantiation of a complaint. The informal option can be the first step in dealing with harassment or discrimination if the allegation is not of a 'serious' nature. The informal option may be used by the complainant where: • the allegations are of a less serious nature, but the complainant subjected to the behaviour wants it to cease nonetheless; or • the individual subjected to the behaviour wishes to pursue an informal resolution; or • the parties are likely to have ongoing contact with one another and the complainant wishes to pursue an informal resolution so that the working relationship can be sustained. The complainant can initiate the informal option by asking the person (harasser) to stop the behaviour to which they object. The complainant may also approach their Manager or a Contact Officer for assistance and request that they: • accompany the employee to discuss the issues with the alleged harasser; or • privately convey the complainant's concerns and reiterate the Company's policies and procedures on the matter. Managers and/or Contact Officers involved in the informal resolution of harassment and/or discrimination complaints are to complete and submit a confidential EEO, Harassment and Discrimination report to the GM HR. The Contact Officer or Manager involved must also follow up within two weeks to determine the outcome of the meeting. If the issue has been resolved, the procedure will stop. If the issue has not been resolved, the option of a formal complaint may be pursued. Employees are not required to exhaust all informal options for resolution before formal action can commence. 2.6.3 (sic) Formal Complaint The formal option focuses on proving whether a complaint can be substantiated. This formal option may be appropriate where: • informal attempts at resolution have failed; • the complainant alleging harassment or discrimination has been victimised; • the complaint involves serious allegations of misconduct and informal resolution could compromise the rights of the parties; • the complaint is against a more senior member of staff. The formal option may help to ensure that the complainant is not victimised or disadvantaged; • the allegations are denied and the complainant wishes to proceed with an investigation to substantiate the complaint; or • the complainant wishes to make a formal complaint from the outset. If the employee chooses to go ahead with a formal complaint, they need to lodge the complaint in writing with their Manager. The complainant may request assistance from a Contact officer or their Manager if they require assistance in making a formal complaint. The Manager will inform the GM HR or Staff Administration Manager so that an investigation can begin, and so that the employee's manager can ensure that no victimisation takes place. If their Manager is the alleged harasser, the employee should lodge the complaint with their Manager's Manager, GM HR or Staff Administration Manager. 2.6.4 Formal Investigation If an employee decides to make a formal complaint, the employee's Manager must investigate the complaint. In some circumstances this may not be considered appropriate, either because the Manager is the alleged harasser or because the Manager does not have the skills to conduct the investigation. In such cases, the Manager will need to appoint another manager to conduct the investigation. If no other Manager has the skills or experience to conduct this type of investigation, professional external assistance may be used. The investigator will interview: • the complainant; • the alleged harasser • other appropriate employees/witnesses. The investigating Manager will take a record of interview with the complainant, the alleged harasser and any witnesses. The parties to a complaint and any witnesses should be given the opportunity to peruse, correct and sign their record of interview. The investigation Manager should stress the importance of confidentiality with all people interviewed and should not discuss the investigation with anyone who does not have an express need to know. The investigating Manager should seek advice from the Company's Legal Council (sic) without divulging names if legal clarification is required. Only in cases of very serious allegation (e.g. Breach of Criminal Law) will an investigation be instigated without the employee's consent and the matter referred to an appropriate external agency. The relevant Managing Director shall be informed of an allegation that may be considered a very serious breach of Criminal Law. If the allegation against a person is a criminal act the complaint becomes a police matter." (Emphasis added.) 8 The catalyst for the inquiry undertaken by Farstad was a telephone call by Ms Romero from the ship to Farstad's human resources department on 2 December 2011. In the course of that day Ms Romero spoke to two officers in the department. She made various complaints about Captain Martin. They included references to his treatment of her and what she said were actions by him which compromised safety. On 7 December 2011 Ms Romero followed up her verbal complaints with an email which she sent to various managers. She wrote: "I have been reflecting on my recent trip on board Far Swan and wanted to thank you for your support by assisting in an attempt to improve the situation. It is comforting to know that [Captain Martin's] management style is seen as needing to change. It has certainly taken a toll on me. I am very concerned that [Captain Martin] has made inappropriate comments about me. He has told me that he emailed the Ship Manager and explained to him and Peter Barrow that I am incompetent. To me he also expressed this opinion as well as commenting that I have mental health issues. As Peter Barrow pointed out, I have a very good work history with Farstad as I also do with other companies. Lucy asked [Captain Martin] to modify his management style to assist me to regain my confidence and to deliver my training in smaller blocks. He put the phone down after talking with Lucy, walked over to me and told me that the only reason I was still on board was because he couldn't get rid of me. He explained Lucy's instructions with regard training and so ordered me off the bridge, even though it was the beginning of my four hour watch. [Captain Martin's] behaviour was non relenting and targeted bullying towards me from the first hour of the 12 day trip. Farstad clearly places a high level of importance on safety issues on it's (sic) vessels and [Captain Martin] undoubtedly jeopardised safety for the sake of illustrating his belief that I am incompetent. I have just put myself through the first of two blocks of study for an Advanced Diploma (Chief Officer/Master). Given that Farstad will sponsor the second block commencing in January, I propose for the time being I do not return to sea in order to recover from this difficult experience. [Captain Martin's] inappropriate behaviour needs to change but this is a matter for Farstad management to address. My intention is to continue my professional development through study and return to sea to what has been up until now, a productive and happy working environment with Farstad." (Emphasis added.) 9 It was common ground that neither the telephone conversation nor email constituted a formal complaint for the purposes of the Policy. It was also accepted, on both sides, that a formal complaint by an employee was a necessary precursor to the commencement of a formal inquiry under the Policy. Despite this, Farstad treated the telephone discussion as being a formal complaint and established an inquiry purportedly under the Policy. That inquiry was found by the Full Court to have badly miscarried. The Full Court explained these shortcomings (at a general level) (at 433) as follows: "In fairness, there are certainly indications from the internal documents and the communications to Ms Romero that Farstad thought it was complying with the Policy and discharging its functions with care and urgency. The analysis set out above, however, indicates the ways in which Farstad's performance fell short of the standard and procedure promised under the Policy. Essentially, it was the rolling up of the concerns Ms Romero had expressed about Captain Martin with his complaints against her that caused the major difficulties. All indications were, as contended by Ms Romero, that Farstad formed the view that Captain Martin's complaints were considerably more serious and likely to be substantiated. With a focus on his complaints about Ms Romero's alleged incompetency (complaints which were ultimately rejected), her own complaints about his failure to comply with the Policy were not effectively examined and were lost. The two lines of inquiry should have been kept separate. It was appropriate for the company to pursue Captain Martin's challenges about Ms Romero's competency, but in doing so, there were procedures designed by the enterprise agreement which were to be followed. It was also appropriate, indeed, promised under the contract that if a complaint were made under the Policy, it would be pursued in accordance with a certain standard. Not only was no formal complaint actually lodged, but the standard applicable under the Policy, had it been lodged, was not met. The Policy, and thus the contract, was breached by Farstad" 10 More specifically, the Court found that Farstad had failed to comply with sub-clauses 2.6.1, 2.6.2, 2.6.3 (Formal Complaint) and 2.6.4 of the Policy. Their Honours said (at 431-2) that: "The Policy was breached in a number of respects. The first is that there was no decision by Ms Romero to pursue any action under the Policy. Put another way, she made no decision to initiate a formal complaint and trigger an investigation under the Policy. This is a central plank to the argument on appeal. Ms Romero's email of 7 December 2011 was certainly not in terms a formal complaint, even though it was treated in that fashion by Farstad. Indeed, to the contrary, Ms Romero made the point expressly in that email that Captain Martin's behaviour was "a matter for Farstad management to address". A formal complaint which conformed with the Policy would be expected to articulate the specific complaints and, in view of the seriousness of the matter, make it clear that the employee was electing to lodge a formal complaint. According to the Policy, such a formal complaint needs to be lodged in writing and procedures are put in place so that when an investigation commences no victimisation can take place. A formal complaint should not be inferred by receipt of an email from an employee which makes no reference whatsoever to the Policy, makes no reference to a formal complaint and does not specify details of a formal complaint. An appropriate option in the circumstances, as expressly foreshadowed by the Policy, would be for a suitable representative of Farstad, such as Ms Barker, to meet with Ms Romero to explain to Ms Romero her options under the Policy and to explain to her in broad terms the consequences in exercising any of those options" 11 The Full Court also identified certain failures, by Farstad, to fulfil obligations which fell on it under the Policy. It said (at 432) that: "Secondly, Farstad failed to properly or fully document the investigation, contrary to 2.6.1 and 2.6.4 of the Policy. The initial telephone contact with the human resources department on 2 December 2011, which triggered Farstad treating the Policy as being invoked, was recorded on post-it notes. While there could be no criticism of a temporary method of recording, one would expect more formal treatment of the recording of a complaint soon after it was made if Farstad was treating such a complaint in the crucial manner it suggested and as required by the Policy. There were also on proper analysis, inadequate records of the interview with Ms Romero which occurred on 16 December 2011. Ms Romero herself prepared extensive typed notes of the entire exercise, which are substantially more detailed than the notes taken by those representing Farstad. But most importantly on this topic, there was a general failure to carefully and systematically investigate the complaints of Ms Romero once the company had determined that they should be treated as a formal complaint. Strangely, the company chose to interview Captain Martin first, albeit very briefly, before interviewing Ms Romero. Ms Barker flew over 3000 kms from Melbourne to Dampier and boarded Far Swan to put the brief and skeletal complaints to Captain Martin and while there, to give a training session on harassment and discrimination. The detailed allegations from Ms Romero had not then been collated by Farstad, were not capable of being put to Captain Martin and were not put to him. Ms Barker did not interview other potential witnesses on that visit. Despite his having mentioned that he had made notes on 21 December 2011, Ms Barker did not ask Captain Martin for those notes on that visit or subsequently. Farstad never obtained a copy of his notes before Captain Martin destroyed them." 12 It is, conceptually, easier to treat Farstad's failure to comply with the procedures prescribed by sub-clauses 2.6.2, 2.6.3 and 2.6.4 as constituting breaches of contract than it is to so characterise the failures to document the investigation once it had been commenced, and carefully and systematically to investigate Ms Romero's complaints. As the Full Court acknowledged, the Policy provided for a range of options, apart from a formal inquiry, to deal with complaints of the kind raised by Ms Romero. Ms Romero could instigate a formal inquiry; Farstad could not. In embarking on this inquiry Farstad breached the contract. There should have been no formal inquiry. That being so, it is difficult to treat the subsequent failures by Farstad to comply with parts of the Policy which regulated the conduct of formal inquiries as themselves constituting breaches of the Policy. Nonetheless, it will be necessary, consistently with the Full Court's reasons and orders, for an assessment to be made of the damages incurred by Ms Romero as a result of all of the breaches identified by the Full Court. In doing so, however, the considerations to which I have referred will have a bearing on the assessment of the seriousness of the breaches and their consequences. 13 The parties relied on evidence which had been adduced at the hearing before the trial judge. This included evidence relating to Ms Romero's past and future financial loss, including study costs associated with her retraining as a lawyer, the parties' conduct during the investigation and after the meeting that took place on 16 December 2011, and evidence of Ms Romero's performance, which related to the likelihood of her continued employment. 14 Further, the parties sought to rely on additional evidence, which had not been adduced at the first trial. Ms Romero relied on correspondence sent by Farstad's solicitors setting out the nature of some of her leave entitlements, a deed of release and terms of agreement arising from the resolution of the Tribunal proceeding and her University of Tasmania faculty record showing her study towards a certificate as a Master. She also relied on an affidavit, affirmed on 23 March 2016, which dealt with various study costs, expenses and income earnt since the hearing before the trial judge. She was called to give evidence and was cross-examined. 15 Farstad relied on correspondence between Ms Romero and her solicitor and Farstad in July and August 2012, and in February 2013, concerning the insistence by Ms Romero that Farstad make payments relating to her employment, and on a payment advice dated September 2012, which included an allowance for industrial clothing. It was alleged that Ms Romero's conduct was consistent with the exercise of a right to affirm the contract of employment. 16 Ms Romero claimed a total of $115,759.71 as damages for breach of her contract of employment. That sum was made up as follows: Study costs incurred in study for a Masters certificate prior to November 2011 - $20,000. Income lost during the period during which Ms Romero was undertaking the study prior to November 2011 - $40,000. Study costs for a law degree undertaken by Ms Romero between March 2013 and March 2016 - $35,759.71. Estimated costs of completion of her law degree and undertaking pre-admission practical legal training - $20,000. 17 I note that Ms Romero did not, at trial, press for an award of damages because of the upset, stress, disturbance and psychological disability which she claimed to have sustained as a result of Farstad's conduct which gave rise to the contractual breaches (cf Nikolich v Goldman Sachs JB Were Services Pty Ltd [2006] FCA 784 at [330] (Wilcox J)). As a result of consent orders made on 17 December 2015 in the Tribunal proceeding and pursuant to a Deed of Release between the parties dated 30 November 2015, Farstad was required to pay Ms Romero a substantial sum to compensate her for "an adjustment disorder and/or depressive anxiety condition and/or major depressive disorder" arising out of her employment by Farstad. Farstad agreed to make such payment without admission of liability. It was a condition of the Deed of Release that Ms Romero release Farstad from any common law claim for damages in respect of these conditions. 18 At common law, damages for breach of contract are awarded in order to compensate the innocent party for losses incurred as a result of the breach. The underlying principle was explained by Mason CJ, Dawson, Toohey and Gaudron JJ in Haines v Bendall (1991) 172 CLR 60 at 63 as follows: "The settled principle governing the assessment of compensatory damages, whether in actions of tort or contract, is that the injured party should receive compensation in a sum which, so far as money can do, will put that party in the same position as he or she would have been in if the contract had been performed or the tort had not been committed … Compensation is the cardinal concept. It is the 'one principle that is absolutely firm, and which must control all else' … Cognate with this concept is the rule, described by Lord Reid in Parry v Cleaver [1970] AC 1 at 13 as universal, that a plaintiff cannot recover more than he or she has lost." See also Robinson v Harman (1848) 1 Exch 850 at 855; Tabcorp Holdings Limited v Bowen Investments Pty Ltd (2009) 236 CLR 272 at 286. 19 The injured party is entitled "to recover such damages as arise naturally, that is, according to the usual course of things, from the breach of contract, or such damages as may reasonably be supposed to have been in the contemplation of both parties concerned at the time they made the contract as the probable result of the breach": European Bank Limited v Evans (2010) 240 CLR 432 at 438. 20 Ms Romero's claim for damages focussed on the second limb of the European Bank statement of principle. She argued that it must have been in the contemplation of the parties to her contract of employment that, if the obligations imposed on Farstad by the Policy were not fulfilled, she would have wasted the costs incurred in studying for her Masters certificate and would incur further costs in retraining for another career. 21 To be liable, the offending party need not contemplate the degree or extent of the loss suffered, nor the precise events giving rise to it, but only the "kind or type of loss" in question. In Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310, McHugh JA (as he then was) said: "In later cases … there has been a tendency to play down the distinction between reasonable foreseeability and reasonable contemplation as semantic only. However, I think that the difference is a real one which results in a significant narrowing of liability. The word "contemplation" seems to be used in Koufos in the sense of "thoughtful consideration" or perhaps "having in view in the future". It emphasises that, if the parties had thought about the matter, they would really have considered that the result had at least a "serious possibility" of occurring. … An important matter in ascertaining whether the loss or damage is too remote is the extent to which the parties may be taken to have contemplated the events giving rise to that loss or damage. The parties need not contemplate the degree or extent of the loss or damage suffered … Nor need they contemplate the precise details of the events giving rise to the loss. It is sufficient that they contemplate the kind of loss or damage suffered. The most difficult question in determining the relevant kind of damage concerns the level of classification of the damage which the parties must have contemplated. Clearly the level must not be so high that the parties are required to contemplate the very loss in question or the precise manner of its occurrence. Nor must it be so low that any loss or damage, no matter how unusual in nature or occurrence, would fall within the classification." 22 The Court will look to the facts rather than proceed upon an improbable factual hypothesis: TCN Channel Nine Pty Ltd v Hayden (1989) 16 NSWLR 130 at 154-6; McDonald v Parnell Laboratories (Aust) Pty Ltd (2007) 168 IR 375; TWU v K& S Lake City Freighters Pty Ltd [2010] FCA 1225. In McDonald, Buchanan J said at [70]: "Normally a party to a contract is entitled to perform the contract in a way which is open to it. Sometimes damages are assessed by reference to a principle that a defendant would have performed a contract, if not in breach, in the manner least burdensome to it. However, it is clear that such a principle does not operate as an automatic restriction on the quantum of damages (see TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 154-156; Amann at 93). Instead a court will look to the facts. It is not obliged, nor entitled, to proceed upon 'an improbable factual hypothesis'." (Emphasis added.) 23 In Van Efferen v CMA Corporation Ltd (2009) 183 IR 319 these principles were applied. An employee was found to be entitled to damages for an employer's failure to comply with a grievance procedure contained in an Australian Workplace Agreement ("AWA"). The damages for the breach of the AWA were calculated on the normal contractual basis. The breach of the grievance procedure was a proximate cause of the employee's loss of salary and benefits to which he was entitled under the contract. Had the employer complied with the grievance procedure, the contract would not have been terminated and the employee would have continued working until the completion of the project on which he was engaged. 24 The Policy was designed to ensure, insofar as was possible, that no Farstad employee experienced any form of harassment or discrimination in the workplace. The Policy also prescribed a range of procedural options to which an employee might have recourse in the event that the employee considered that he or she had been subject to harassment or discrimination. The Policy was a unilateral statement by Farstad but, nonetheless, was found by the Full Court to form part of the employment contract. Observance of the procedures by Farstad was to be treated as a "contractual promise[] given in exchange for employees being obliged to comply with the behavioural requirements imposed on employees by the Policy" (at 421). 25 The principal breach identified by the Full Court was Farstad's establishment and conduct of a formal inquiry in the absence of any formal complaint by Ms Romero under the Policy. Deficiencies in the manner in which the inquiry was conducted, such as inadequate record-keeping and the order in which interviews occurred, were also found to be contractual breaches. The Full Court said that, in the circumstances of "[t]he handling of the matter by Farstad in a manner entirely inconsistent with the Policy", it was "entirely probable and reasonable that Ms Romero would not wish to return to work with Farstad": see at 436. 26 Ms Romero submitted that the Policy was intended to provide peace of mind and that it must have been in the contemplation of the parties that, if the obligations were not fulfilled, she might become upset, stressed and disturbed. She referred, in particular, to the following passage in the judgment of Wilcox J in Nikolich, at [330]: "In the present case, as I have pointed out, the relevant contractual obligations are intended to provide peace of mind to existing and prospective GSJBWS employees. It must be taken to have been within the contemplation of the parties that, if the obligations were not fulfilled, the particular employee to whom the obligations were owed might become upset, stressed and disturbed. It is notorious that stress and disturbance of mind may lead to a psychological disability. It may be unusual for disturbance of mind to lead to a psychological condition as severe as that suffered by Mr Nikolich; there is no evidence on the point. However, that is a statement about the extent of the injury, not its type … This is a case of a mental disability that was a particularly severe manifestation of the very type of detriment that the [Policy] promises were designed to prevent." 27 The "kind of loss or damage suffered" (cf Alexander) identified by Ms Romero is loss or damage arising out of a complete change in career. Would the parties have had in contemplation that a (or any) breach of the Policy might lead to an employee suffering loss or damage by having to embark on an entirely new career? In my judgment, the answer is "no". 28 The authorities to which I have referred would, arguably, support a claim by Ms Romero for damages occasioned by her unwillingness to render further service to Farstad. That would have made it necessary for her to obtain alternative employment. Each of Ms Romero's heads of damage (which I have set out at [16]) were predicated upon Ms Romero losing confidence not only in Farstad but also, it appears, in all maritime industry employers. This broader reluctance was not explained. Had Ms Romero changed employers but remained in the maritime industry, her training towards a Master's certificate would not have been thrown away. The loss of wages during that training would not have been in vain. It would have been unnecessary for her to study for a law degree or undertake pre-admission practical legal training. Each head of damage has arisen only because Ms Romero has chosen to embark on a completely different career. 29 The nature and character of these breaches are not such as to suggest that, had the parties turned their minds to the potential consequences of them, at the time the contract was entered into, financial losses of the kind claimed by Ms Romero, would have been regarded as probable consequences. The costs associated with Ms Romero's professional qualification as a Master were only thrown away because she determined that she did not wish to undertake further work with Farstad or, for that matter, with any other shipping company. She gave evidence that she "couldn't work for Farstad ever again. [She] lost complete trust and faith in them … [She did not] believe it would have been possible for [her] to obtain employment in another company when [she] read the things that [had] been written about [her]." Under cross-examination, she acknowledged that she had not sought to work with another maritime employer, either on or off shore. Her pursuit of a law degree was a personal choice once she had ceased her employment with Farstad. The cessation of her employment in the maritime industry, however, cannot be regarded as the inevitable or probable consequence of the breaches of the Policy by Farstad.. 30 Ms Romero is only entitled to nominal damages for the breaches of contract identified by the Full Court. In my view an award of $100 is appropriate in the circumstances. This appears to me to be consistent with the principles relating to, and purposes of, awarding nominal damages, as discussed in (for example) Motium Pty Ltd v Arrow Electronics Australia Pty Ltd (Supplementary Decision) [2011] WASCA 65 at [6]-[7], State of New South Wales v Stevens (2012) 82 NSWLR 106 at [14]-[26] and [66]-[67], and Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 at 300-1, 305, 312.

REPUDIATION 31 The reasons for the remitter of the question of repudiation and associated issues for rehearing were explained by the Full Court in its reasons at 435-6: "111 The brief grounds of appeal and the succinct submissions do not specifically contend that the employment contract was repudiated, but they do contend it was breached. We were told in oral submissions that a contention was made before the primary judge that the contract had been repudiated. It seems clear that this contention is repeated on the appeal. Farstad rejected the contention at first instance and on appeal on the basis that the efforts to return Ms Romero to work made it clear that Farstad wanted the contract to remain on foot. That may be accepted. However it does not provide a complete answer. 112 A breach of a contract by repudiation occurs when a party evinces an intention no longer to be bound by it or to fulfil it only in a manner substantially inconsistent with the contractual obligations. Repudiation will arise where there is conduct consistent with a renunciation either of the contract as a whole or a fundamental obligation under it: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 at [44]. Repudiation of a contract is a serious matter and is not to be lightly found or inferred: Shevill v Builders Licensing Board (1982) 149 CLR 620 at 633. To amount to a refusal to perform the contract, the breach must be sufficiently serious: see, for example, Re Rubel Bronze and Metal Company Ltd [1918] 1 KB 315 at 322; The Product Star [1993] 1 Lloyd's Rep 397 at 407 and Suisse Atlantique Société d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 at 394, 429, 435. 113 The investigation of Ms Romero's complaints was scant indeed. There was no proper appreciation of the detail of her concerns. If there were to be an investigation, even though it was not requested, those details needed to be put to Captain Martin to ascertain his response. Any relevant witnesses needed to be interviewed in order to reach findings. Detailed records should have been kept. 114 A major complicating factor was that there were two parallel investigations in play. While that may not be particularly unusual, the vice was in the merging of the two rather than treating them separately in accordance with the standards applicable to each of the alleged complaints. 115 Ms Romero justifiably considered that she had been treated very unfairly and in a way that expressed to her a view that her employer was either not taking her complaints seriously or was misusing her complaints in a way that her own competence had assumed the major focus. Her reaction was entirely legitimate. 116 It may be that this engendered in Ms Romero an objectively justified view that Farstad had not complied, and would not thereafter comply, with its contract with her. 117 Although on a number of occasions Farstad indicated that it proposed that Ms Romero return to her duties at sea under a different master to regain confidence, the test as to repudiation is objective: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 431. The handling of the matter by Farstad in a manner entirely inconsistent with the Policy, was such that Ms Romero quite reasonably suffered a complete lack of confidence in her employer. In those circumstances, objectively viewed, it was entirely probable and reasonable that Ms Romero would not wish to return to work with Farstad. 118 It may be that Farstad repudiated the contract of employment by performing it in a manner fundamentally different from that agreed between the parties. The issue of repudiation was not dealt with by the primary judge (as he found no breach). It was barely touched on appeal before this Court. The question of damages must be remitted for trial. That trial should also encompass the question of repudiation. It may be that notions of repudiation are best analysed by properly characterising the nature of the terms in question; whether warranty, condition or intermediate term: Koompahtoo Local Aboriginal Land Council (at 137) per Gleeson CJ, Gummow, Heydon and Crennan JJ. Whether additional evidence should be permitted should be left to the trial judge. Such investigation should in no way compromise the existing findings of credit that involved Captain Martin. However, Ms Romero is entitled to have damages for breach of contract assessed, the measure of which may depend upon the character of the terms breached, and whether Farstad's conduct was repudiatory." 32 Ms Romero submitted that she had acquired a right to terminate the contract either on the basis that Farstad's conduct amounted to a repudiation or that the breach was sufficiently serious to justify termination by her. As I understood her submissions she did not suggest that the breaches found by the Full Court evinced an intention by Farstad not to be bound by the contract as a whole. Rather, she argued that the necessary repudiatory intention was to be found in the breaches of what were said to be fundamental obligations which fell on Farstad. 33 As the Full Court has foreshadowed, the first inquiry must be how the contractual terms, found to have been breached by Farstad, are properly to be characterised. 34 The available options were identified by the Full Court (at 436) as being "warranty, condition or intermediate term …". These categories were identified in the joint judgment of Gleeson CJ, Gummow, Heydon and Crennan JJ in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 ("Koompahtoo"). In dealing with the concepts of conditions and warranties (at 137) their Honours quoted with approval from the judgment of Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Limited (1938) 38 SR (NSW) 632 at 641-2 where his Honour said that: "The question whether a term in a contract is a condition or a warranty, ie, an essential or non-essential promise, depends upon the intention of the parties as appearing in or from the contract. The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor. If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight. If he contracted in reliance upon a substantial performance of the promise, any substantial breach will ordinarily justify a discharge." 35 The "intermediate" category emerged from later case law. As the plurality explained in Koompahtoo (at 138-9): "48 What Jordan CJ said as to substantial performance, and substantial breach, is now to be read in the light of later developments in the law. What is of immediate significance is his reference to the question he was addressing as one of construction of the contract. It is the common intention of the parties, expressed in the language of their contract, understood in the context of the relationship established by that contract and (in a case such as the present) the commercial purpose it served, that determines whether a term is "essential", so that any breach will justify termination. 49 The second relevant circumstance is where there has been a sufficiently serious breach of a non-essential term. In Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, the English Court of Appeal was concerned with a stipulation as to seaworthiness in a charterparty. Breaches of such a stipulation could vary widely in importance. They could be trivial or serious. The Court of Appeal held that to the accepted distinction between "conditions" and "warranties", that is, between stipulations that were in their nature essential and others, there must be added a distinction, operative within the class of non-essential obligations, between breaches that are significantly serious to justify termination and other breaches. This was a recognition that, although as a matter of construction of a contract it may not be the case that any breach of a given term will entitle the other party to terminate, some breaches of such a term may do so. Diplock LJ said that the question whether a breach by one party relieves the other of further performance of his obligations cannot always be answered by treating a contractual undertaking as either a "condition" or a "warranty". Of some stipulations "all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon the nature of the event to which the breach gives rise". 50 In this way Diplock LJ set the policy of the law favouring certainty of outcome through the classification of terms as conditions against that which encourages contractual performance and favours restriction of the right to terminate to cases where breach occasions serious prejudice. As it is put in the eleventh edition of Treitel: "[T]he policy of leaning in favour of classifying stipulations as intermediate terms can be said to promote the interests of justice by preventing the injured party from rescinding on grounds that are technical or unmeritorious." Perhaps the adoption of other taxonomies for contractual stipulations might achieve similar outcomes. However, Hongkong Fir was decided in 1961 and has long since passed into the mainstream law of contract as understood and practised in Australia. (Original emphasis; citations omitted.) 36 The terms of Ms Romero's contract which the Full Court found had been breached were all found in the Policy. The Policy was not specifically referred to in Ms Romero's letter of engagement. Both at trial and on appeal there was a dispute about whether the provisions of the Policy were incorporated in Ms Romero's contract of employment. The trial judge was not persuaded that they were so incorporated. The Full Court disagreed. It was an issue on which different views were legitimately open: cf the observations of Buchanan J in Westpac Banking Corporation v Wittenberg (2016) 256 IR 181 at 202-4. I am, of course, bound to accept and apply the Full Court's judgment. It is not, however, irrelevant for present purposes that the Policy does not appear to have been in the parties' contemplation at the time at which the contract was entered into and that, had they turned their minds to the issue at that time and sought advice, it is likely that they would have been told that some uncertainty attended the question as to whether the Policy was incorporated in the contract. 37 It is also to be borne in mind that it was not the Policy, as a whole, which was found to have been breached. Rather, Farstad was found to have failed to comply with a small number of procedural requirements contained in it. 38 Farstad's principal breach was its conduct of a formal inquiry when Ms Romero had not asked for one. Ms Romero had made serious allegations of bullying and harassment. Farstad treated them seriously. Although Ms Romero had not asked for a formal inquiry of the kind contemplated by the Policy she had certainly requested and expected that her complaints would be investigated. She advised Farstad, in her email on 7 December 2011, that she welcomed an investigation of her complaints and, on 29 January 2012, expressed dissatisfaction at the time it had taken for her to be advised about the outcome of that investigation. When told of the findings which had been made she did not complain that an investigation had taken place but rather that her expectation of a "proper and fair investigation" had not been satisfied. 39 There was, therefore, on both sides, a view that an inquiry should have been instituted. What was disputed was the form of the inquiry established by Farstad. It should not have been a formal inquiry under the Policy. Farstad did not, however, refuse to do something which the Policy required it to do. Nor did it do something which the Policy expressly prohibited it from doing. It embarked on the formal inquiry on the mistaken assumption that Ms Romero had requested it to conduct such an inquiry. 40 Its conduct of the investigation was found by the Full Court (at 436) to be "entirely inconsistent with the Policy". The details of Ms Romero's complaints had not been put to Captain Martin, all relevant witnesses had not been interviewed and detailed records had not been kept. Moreover the investigation had also taken into account the allegations made against Ms Romero by Captain Martin. This admixture of issues had led Ms Romero to consider that Farstad was not taking her allegations seriously and was using Captain Martin's complaints to undermine her. It was, therefore, according to the Full Court on the limited evidence before it, possible that Farstad's shortcomings in investigating her complaints "engendered in Ms Romero an objectively justified view that Farstad had not complied, and would not thereafter comply, with its contract with her" (at 435). It is notable, despite the mixing of issues, that the investigation report made no adverse findings relating to Ms Romero's competency as a second officer. 41 The contract provided for Ms Romero to serve Farstad as a Deck Officer on vessels controlled by the company. Notwithstanding Ms Romero's complaints against Captain Martin and his reflections on her professional competence, Farstad, on a number of occasions, made it plain to Ms Romero that it wished her employment with it to continue. Alternative postings were proposed. Although the investigation miscarried there was no allegation that the managers responsible for its conduct sought to use it as a vehicle to bring about the termination of Ms Romero's employment. 42 There is nothing in Ms Romero's contract (including the terms of the Policy) or in the relevant terms themselves which supports a conclusion that, had the terms not been incorporated, Ms Romero would not have entered into the contract. They were not "essential" promises. Indeed, it appears from [2]-[3] of Ms Romero's affidavit of 24 January 2014 that her first encounter with the Policy was during her induction process or aboard the Far Scandia - that is, after she had already commenced casual employment with Farstad. 43 It is to be borne in mind that, at the time Ms Romero entered into the casual contract (cf Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at [40]), she had not even seen the Policy. That tends against compliance therewith being treated as essential. Of course, the position was different when she entered into her permanent contract, but there seems to be little reason, in this particular case, for thinking that, whereas compliance with the policy was a non-essential element of the casual contract, it became essential in the subsequent permanent contract. 44 Further, it is sometimes the case (as the Full Court noted at 420-1) that employers have an ability unilaterally to vary workplace policies. In such a case, it would be hard to suggest that compliance with any particular term of the Policy was essential. The point was not argued. I will not pursue it further. 45 Whether the policies were amenable to variation or not, I cannot accept that the term requiring compliance with policies was, or the terms of the presently-relevant Policy itself were, sufficiently important that "any breach [would] justify termination" (Koompahtoo at [48], emphasis added). 46 There remains the question of whether the breaches found by the Full Court to have occurred can be regarded as sufficiently serious as to provide justification for termination by Ms Romero of her contract on the basis that Farstad had repudiated it. 47 Ms Romero gave evidence that the manner in which Farstad conducted the investigation undermined her faith in the company to the point where she felt unable to continue working for it. Her perception was that the company's inquiry had called her competence into question and she had not been afforded an opportunity to respond to this slight. She also complained that she was given little chance of discussing in full the events which would have formed the basis of any formal complaint. She claimed to have been put through an "unexpected interrogation under the guise of an investigation of a complaint." She disputed the inclusion of certain recommendations in Farstad's report, which she perceived as being retribution for the complaints she made against Captain Martin. 48 In the event, as the Full Court noted at 433, the investigation report made no findings or assumptions as to Ms Romero's competence, skills or experience. 49 In assessing the seriousness of breaches for the purposes of determining whether the offending party has repudiated the contract the court is concerned to form a judgment as to whether the breaches were "sufficiently serious as to change the character of the grant to, or of the obligations or entitlements of, the other party to the contract to such a degree that it can be said to be a commercially different bargain" and that the offended party "has been deprived of substantially the whole benefit of the contract (as originally agreed)": see Byrnes v Jokona Pty Ltd [2002] FCA 41 at [78]-[79] (Allsop J, as he then was). 50 Allsop J, in Byrnes, identified a number of factors relevant to the assessment of seriousness as follows: "Whatever be the most appropriate expression of the degree of seriousness required to amount to circumstances which entitle termination, it is also necessary to identify the kinds of factors to which the court will or may have regard, in addition to the question of interpretation and construction of the contract, in assessing the seriousness of any breach. The following are relevant considerations in assessing that seriousness: the adequacy of damages and the ability to quantify damages; any apparent injustice, including unjust enrichment of the innocent party, should that party terminate; the possibility of forfeiture by the party in breach; the uncertainty or not surrounding future compliance with the contract; the history of the standard of contractual compliance hitherto; the expressed or otherwise evident attitude of the party in breach to its obligations; the ability of either party to cure the breach; and, perhaps, the extent to which the behaviour of the party in breach comports with standards of good faith and fair dealing. These matters may not be exhaustive, but they may, in any given case, assist in an assessment of a breach as of sufficient seriousness or not to warrant termination. See generally Treitel, Remedies for Breach of Contract pp 356-60; Treitel The Law of Contract (7th Ed) pp 585-618; and the Restatement of the Law of Contract 2d. [241]." 51 In assessing whether the breach is sufficiently serious to justify termination, the court will take into account "the nature of the contract and the relationship it creates, the nature of the term, the kind and degree of the breach, and the consequences of the breach for the other party" Koompahtoo at 140 (per Gleeson CJ, Gummow, Heydon and Crennan JJ). The majority also added that "the adequacy of damages as a remedy may be a material factor in deciding whether the breach goes to the root of the contract". A breach without any proved loss is less likely to be serious: Carter v The Dennis Family Corporation [2010] VSC 406 at [165]. 52 I do not consider that the breaches of the Policy by Farstad even approached the required level of severity. As I have already observed, the allegations made by Ms Romero against Captain Martin were serious and warranted some form of investigation. The deficiencies in the investigation did not lead to any adverse findings against Ms Romero. The conduct of the inquiry and its outcome did not threaten in any way the continuity of her employment with Farstad. 53 Farstad's conduct did not give rise to a repudiation of the contract.

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Judgment (11 paragraphs)

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Legislation Cited (2)

Cases Cited (26)