Tasmania Development & Resources v Martin

KIEFEL J: 2 Mr Martin, the respondent to this appeal, applied to the Court for an award of damages for breach of his contract of employment with Tasmania Development and Resources ("TDR"), or damages flowing from TDR's contraventions of the Trade Practices Act 1974 (Cth). His Honour, the primary judge, held that the latter claim was unavailable, and there remains no issue about that on this appeal. His Honour did award damages for breach of contract in the sum of $125,810.22 against TDR. His Honour also ordered that TDR pay Mr Martin's costs, which were reduced by the sum of 20 per cent to make allowance for the time taken up with issues upon which he had failed. TDR appeals from those orders. Mr Martin has filed a notice of contention with respect to a critical aspect of his Honour's decision. 3 Mr Martin had been employed by TDR, a statutory authority under the Tasmanian Development Act 1983 (Tas), pursuant to a contract of employment, the relevant terms of which are set out below, for a period of three years from 6 March 1997. On 29 August 1998, a new government was returned following the Tasmanian elections, and shortly afterwards the existing thirteen government departments were restructured into seven, of which the Department of State Development ("DSD") was one. TDR was included within that Department. Mr Kelly, the second respondent on the application, against whom no orders were made, was appointed Secretary of the DSD and Chief Executive of TDR on 16 September 1998. At about the same time, the first budget was produced and the Treasurer made statements to the effect that there were no plans for forced redundancies and that any affected public service staff would be redeployed. 4 In early October 1998, Mr Kelly said that he had formed the view that the positions of Mr Martin and of a Mr Willmott were redundant. On about 14 October, Mr Kelly put in train the termination of the contracts. On 21 October 1998, Mr Martin's contract was terminated without notice. He was handed a letter, signed by Mr Kelly, which informed him that the Department had terminated his contract of employment pursuant to clause 12.3 of the contract, and that it was to take immediate effect. When Mr Martin enquired as to the reason for termination, the officer replied "for operational reasons". No other explanation was provided. He declined to sign a letter of resignation. The letter to him also advised that, in accordance with clause 12.4 he would be paid the amount set out in the schedule. Mr Martin was given a cheque for $48,008.

The contract of employment 5 Clause 12 of the contract of employment dealt with termination. Clause 12.3 provided: "TDR may terminate this agreement on grounds based on the operational requirements of TDR by giving one month's [sic] notice to the employee." 6 Clause 12.4 provided for the approval of a severance payment following termination effected under clause 12.3. Clause 12.6 then provided: "This clause operates subject to any provisions of the Industrial Relations Act 1984 (Tas) and the Industrial Relations Act 1988 (Cth) as amended from time to time in so far as they deal with termination of employment and also subject to the Termination of Employment Recommendation 1982 which the General Conference of the International Labor Organisation adopted on [sic] June 1982 as set out in schedule 10 and schedule 11 respectively of the Industrial Relations Act 1988 (Cth)." 7 It is convenient at this point to set out his Honour's explanation of the reference to the schedules in the contract of employment: "Before turning to the Termination of Employment Recommendation 1982 referred to in cl 12.6, I note my view as a matter of construction that the contract incorporates the relevant parts of the ILO Recommendation of 1982 itself; the reference to schedules 10 and 11 of the Industrial Relations Act 1988 is merely an indication as to where that document may be found. By contrast to the earlier part of cl 12.6, the latter part manifests an intention that the ILO Recommendation is to be contractually binding in its 1982 form and not as varied from time to time by Tasmanian or Commonwealth legislation. Thus it is not to the point that on 25 November 1996 Sch 11 of the 1988 Act was deleted by the Workplace Relations Act 1996 (Cth)." 8 Schedule 10 ("Convention Concerning Termination of Employment at the Initiative of the Employer"), article 4 provides: "The employment of a worker shall not be terminated unless there is a valid reason for such termination connected with the capacity or conduct of the worker or based on the operational requirements of the undertaking, establishment or service." 9 Neither the capacity nor the conduct of Mr Martin was ever relevant to the termination of his employment. Article 8 provides that a worker contending that his or her employment has been unjustifiably terminated is entitled to appeal to an "impartial body", such as a Court, labour tribunal, arbitration committee or arbitrator. By article 9 that body is empowered "to examine the reasons given for the termination and the other circumstances relating to the case …"; and article 9.3 provides that, in cases of terminations said to be for reasons based on operational requirements, the bodies have the power to determine whether the termination was so required, subject to certain conditions concerning implementation of convention provisions. It is not necessary to detail them. 10 Articles 13 and 14 of schedule 10 appear to relate to large scale redundancy programs, as his Honour found, and provide for notification of the workers likely to be affected and a written statement of the reasons for termination. Schedule 11, entitled "Recommendation Concerning Termination of Employment at the Initiative of the Employer" makes provision for "procedure prior to or at the time of termination" in articles 7 to 13. Articles 7 to 10 deal with termination for misconduct or unsatisfactory performance. Article 13(1) provides that a worker notified of termination of employment should be entitled to receive a statement of reasons for the termination on request. By article 19(1): "All parties concerned should seek to avert or minimise as far as possible termination of employment for reasons of an economic, technological, structural or similar nature, without prejudice to the efficient operation of the undertaking, establishment or service, and to mitigate the adverse effects of any termination of employment for these reasons on the worker or workers concerned."

The Decision Appealed from 11 The history recited by his Honour concerning the reason for the termination showed that there was no suggestion of any operational change apparent to Mr Martin when he returned from leave on 4 October 1998. Mr Kelly, who had said he had considered Mr Martin's redundancy, said that the termination of Mr Martin's position had nothing to do with an assessment of his performance in his position. The evidence before his Honour about this topic was supportive of Mr Martin's ability. There were two matters put forward as the bases for Mr Kelly's opinion that the position was no longer necessary: the first concerned a desire to "flatten" the management structure; the second referred to a change in focus to smaller, inward trade missions. Mr Martin had concentrated, successfully, on larger, outward missions. 12 His Honour also accepted as a fact, all but that numbered (i) of the factual propositions put forward by Counsel for Mr Martin (listed below) and made findings in those terms: "(i) the operational requirements of TDR as a whole had to be considered; (ii) the Corporate Plan listed many responsibilities of Mr Martin that continued to be an important part of TDR's functions; (iii) Mr Martin was effective, hard working and highly regarded by those within TDR and by clients; (iv) if the emphasis was to change from outward to inward trade missions, Mr Martin was already, under the Corporate Plan, the responsible officer for the latter and was well qualified to manage them; (v) in any case Mr Martin had wide ranging responsibilities, by no means confined to trade missions; (vi) at the date of the hearing all Mr Martin's tasks were still being carried out within TDR; (vii) there was no financial imperative; an extra $1 million was available for staff and the Premier's letter did not suggest financial stringency in the DSD's area; (viii) Mr Kelly did not consult the Corporate Plan and considered it as having no relevance; (ix) Mr Kelly was not aware of the Premier's letter; (x) Mr Kelly did not consult the budget review papers; (xi) Mr Kelly did not read Mr Martin's contract; (xii) Mr Kelly did not attempt to match up Mr Martin's duty statement with the reorganisation of TDR; (xiii) Mr Kelly made no enquiries as to Mr Martin's job performance; Mr Kelly considered that irrelevant; and (xiv) Mr Kelly did not consider redeployment of Mr Martin." 13 His Honour did not, however, accept that it followed that the grounds for TDR's termination of the contract were not based on its operational requirements. From the reasons which follow, the two bases referred to above were accepted by his Honour as amounting to operational requirements. In doing so, his Honour appears to have accepted as genuine Mr Kelly's evidence that he held these views, and in the case of his preference with respect to trade missions, held the conviction strongly. His Honour also considered the meaning to be attributed to "operational requirements", and held that the term should be given a meaning which provided considerable latitude to an employer to decide how an enterprise might be better run in the context of a contract such as Mr Martin's. In that respect, his Honour distinguished cases concerning that expression, as it appears in the Industrial Relations Act 1988 (Cth), where the ILO Convention is given effect to, as reflecting a traditional protective approach which had regard to the workforce at large, most of whom were not employed under contracts for a fixed term. His Honour considered that a different approach was required where the setting was a three year contract for employment at a relatively high remuneration, which had been individually negotiated with professional advice. 14 His Honour concluded that: "… had the requisite notice been given, there would have been grounds based on the operational requirements of TDR, within the meaning of cl 12.3". His Honour, however, found that notice was required to be given under that provision. Termination was to be effected "by" the giving of one month's notice. His Honour did not accept that the payment of money in lieu of notice satisfied contractual requirements. 15 His Honour also found that article 19(1) imposed a discrete obligation - a positive obligation of consultation. His Honour went on: "… It recognises the industrial reality that a person like Mr Martin, thought to be surplus to requirements, upon being consulted, might be able to contribute valuable information and insights which might lead to such a decision being reconsidered, thus averting the termination. There having been no consultation whatsoever with Mr Martin and no attempt to consider redeployment, I find the termination was in breach of the term constituted by article 19(1)." 16 In connexion with damages, his Honour rejected the argument that damages should be limited to the salary an employee would have received during the period of notice. His Honour accepted that such an approach would be appropriate where the employment is for an indefinite period terminated on a given period of notice; but in the present case the contract was for a fixed term. In his Honour's view: "Had the contract not been wrongfully terminated, Mr Martin would have enjoyed the benefits of the contract for the remainder of the term: Patterson v Middle Harbour Yacht Club (1996) 64 FCR 405." 17 His Honour went on to consider what flowed from the two breaches identified, from which it would appear that the opportunity to be consulted, which was denied, played a large part in the assessment of damages: "As I understood his argument, counsel for the respondents did not contend that if the termination was defective for want of notice and/or breach of article 19(1), then I should assess the damages on the basis that, if there were "operational requirements" (as I have found in fact), the result would be the same. However, even if that argument were put, the answer is that if TDR had complied with the contract and given a month's notice and/or given Mr Martin an opportunity to be consulted, pursuant to article 19(1), it would by no means necessarily follow that the result would be the same. On the evidence before me, Mr Martin had a powerful argument that even with the altered emphasis in TDR's operations there was ample scope for his talents, skills and enthusiasm. It is not to be assumed that Mr Kelly, a man with a background in scholarship as well as business administration, would shut his mind to new information and argument. By the same token I am not persuaded - indeed the respondents did not argue - that damages should be discounted to allow for the contingency that the contract might have been validly terminated under cl 12.3 at some future time prior to the end of the term." 18 The method of calculating the loss of benefits under the contract was not in dispute and no issue is taken with it on appeal. The figure reflected was $96,613.14, to which his Honour added $29,197.08 (an award of $20,000 grossed up to allow for a taxation component) for the loss of the chance that the contract might have been renewed.

Issues on the Appeal 19 TDR submitted that there was no relevant breach of the contractual provisions. With respect to the requirements of notice in clause 12.3, it submitted that they were modified by other provisions providing for compensation in lieu of notice. With respect to the finding of breach of article 19(1) of Schedule 11, it was submitted that clause 12.6, which has the effect of incorporating those provisions into the contract, did not apply to termination, on the basis of operational requirements, in an individual circumstance, but rather to large scale redundancies. Further, it was submitted that the Article, in its terms, does not oblige consultation and more likely has regard to the situation which comes after a decision to terminate has been made. 20 So far as concerns the damages awarded, TDR submitted that his Honour was in error in assessing them on the basis of a wrongful dismissal; and that damages for breach only of notice provisions would not exceed the salary for the period of the notice. The breach of article 19(1), on his Honour's reasoning, gave rise only to a possibility of loss, which is to say the appellant was thereby deprived of an opportunity to avoid the termination of his employment and he should have been compensated on that basis. His Honour should also have applied a discount for the contingency of valid termination within the term of the contract. 21 Mr Martin's notice of contention challenged his Honour's finding that the termination of employment was on account of operational requirements. It was submitted that it failed to take account of a definition provided by an officer of TDR shortly prior to Mr Martin signing the contract; and further that TDR's assertion as to the basis for the termination was indefensible, when regard was had to the facts. 22 It was accepted by TDR, on the hearing of the appeal, that if the grounds of the notice of contention were made out, his Honour's assessment of damages, which had regard to the remainder of the term, would be appropriate save that it should not take into account the loss of the chance for renewal. I will therefore deal now with the reasons attributed by TDR to the termination.

"Operational requirements" 23 Mr Martin relied on evidence as to what he had been told by the Human Resources Manager of TDR, in answer to his enquiry as to what the term "operational requirements" meant. This occurred prior to the parties' execution of the contract. The Manager replied that it meant major structural change, involving the abolition of the whole department or its activities. The submissions for Mr Martin were not based upon Mr Martin's reliance on this explanation, but upon the statement as reflecting what each of the parties had in mind when they entered the contract. 24 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 350-351, upon which reliance was placed, is not authority for the proposition that a meaning attributed to a term pre-contract will be taken to govern its meaning in the written contract. It recognises an exception to the parol evidence rule, concerning the meaning the parties would attribute to a contractual term, as arising where the term is capable of more than one meaning. In the present case, whilst there is a real question concerning the evidence that there were "operational requirements" which provided the basis for the need to terminate Mr Martin's employment, it could not be said that the term is ambiguous. The general meaning of the term can be readily discerned. The fact that it does not accord with the much wider definition given by the Manager does not establish two acceptable, but different, meanings. Further, the extrinsic evidence which is then allowed to be admitted is not of the meaning itself, but such as would show the facts which the parties would have had in their mind and from which it may be concluded that one meaning is pointed to. It is necessary then to consider what the term can generally be taken to comprehend. 25 The term "operational requirements" is not defined in the relevant legislation or Convention. The requirements are expressed to be those of the employer and in that sense the term is taken broadly to refer to the employer's enterprise and undertaking and how it is to function, for reasons which are thought desirable. In Nettlefold v Kym Smoker Pty Ltd (1996) 69 IR 370, Lee J referred to the term (at 373): "The Act does not define the term "operational requirements". Obviously it is a broad term that permits consideration of many matters including past and present performance of the undertaking, the state of the market in which it operates, steps that may be taken to improve the efficiency of the undertaking by installing new processes, equipment or skills, or by arranging for labour to be used more productively, and the application of good management to the undertaking. In general terms it may be said that a termination of employment will be shown to be based on the operational requirements of an undertaking if the action of the employer is necessary to advance the undertaking and is consistent with management of the undertaking that meets the employer's obligations to employees." 26 It may be accepted, that an employer is entitled to considerable latitude in determining the needs of its undertaking and how it should perform. There is nothing in cl 12.3 which restricts the nature of the strategy or change that is said to amount to operational requirements of TDR. What is, however, required by the provision is that there be a factual basis for a conclusion that there were requirements arising from the way in which the undertaking operated which, in turn, necessitated the termination of the employment the subject of the contract. It is difficult then to consider that it would ever be sufficient for an employer merely to rely upon the abolition of the position or cessation of the employment as the operational undertaking itself, since it should be able to say what requirements of finance or efficiency dictated the need for the termination. To say that the position of employment the subject of the contract is no longer required, is simply to state the conclusion. 27 TDR had the right to end the contract of employment, to deny the employee his rights under it and excuse itself from further performance, in only limited circumstances. Clause 12.3 operates to an extent like the doctrine of frustration, except that the events are foreseeable and provided for, and the employer is entitled to create the situation. It is, however, under an obligation to act in good faith both in determining its operational requirements and in terminating the employment on that ground. Articles 4 and 9 of Schedule 10, which were incorporated into the contract, require there to be a valid reason in fact for the operational requirements and envisage that the true reason for the termination may be the subject of determination between the parties. The schedule does not provide expressly that the employer in each case justify its claim, and the advantage taken of cl 12.3 (see eg Tradax Export S.A. v Andre & Cie S.A. [1976] 1 Lloyd's L Rep 416), though its provisions may be thought to go some way towards it. 28 In any event, even if one were to speak of the legal burden of proof as initially being cast upon the employee, a consideration of the shift of evidentiary onus shows that TDR came under an obligation to prove the factual basis for the reason of operational requirements. Mr Martin said that nothing had been said of any changes; there was no plan or strategy in existence; and no particulars were furnished to him when he was told of the termination. From that point it was encumbant on TDR to show that there were nevertheless, in fact, such requirements having regard to whatever plans, aims or objectives it had in mind and that the termination of his employment was thereby necessitated. The defence pleaded recognised this in its assertions, although the particulars provided, of some organisational change which seemed to refer only to Mr Martin's position, was not taken up by TDR's witnesses. 29 Mr Kelly, in his statement of evidence, said that he formed the view that the positions of Mr Martin and another employee were redundant. As stated and with no further explanation, it stands as little more than indicative of an intention to act; what it does not show is any connexion between such a view and the needs he saw on the part of TDR, with respect to its functioning. After having invited comment on this proposed course of action from the managers involved, about which nothing is reported, Mr Kelly went on: "I made the decision that the positions I have mentioned should be abolished. I took steps to that end …". He then went on to explain that the decision was taken by him "after due consideration of the organisational structure and the resources of TDR". It was in this connexion that he then identified the two bases for his decision to which his Honour referred as: "flattening" the management structure and a change of focus to inward trade missions. 30 With respect to the second basis, at no point did Mr Kelly identify how the difference in the type of trade missions, which may be taken to reflect a matter of policy, would affect how TDR would operate in the future and, in particular, how the position of Mr Martin then came to be unnecessary. Given the finding by his Honour, that Mr Martin was already the officer responsible for such positions under the Corporate Plan and was well qualified to manage them, this may have been somewhat difficult. It elsewhere appeared that Mr Kelly had not made reference to the Corporate Plan. If, as he suggested, it was not applicable to a new administration, he did not explain what replacement organisational structure was relevant to the new requirements of TDR. 31 It does not seem possible to me to conclude that Mr Kelly was speaking of the functioning of TDR and its "operational requirements" when he spoke of its organisational structure and the change he made to it by the act of termination of employment. The need for any change and the basis for it was not gone into at all in evidence. Mr Kelly's reference to his consideration of the organisational structure was that "the new structure has one less level," which states the obvious effect of his decision but not the rationale for it. That the "re-organisation" of the Department "did away with a function" takes the matter no further towards the conclusion TDR contended for. 32 In my respectful view, the evidence did not disclose a basis in fact for the termination being part of the operational requirements of TDR. Mr Kelly's evidence was that he had an intention, unexplained and not apparently related to some changes to the functioning or structure generally of TDR, to remove Mr Martin's position. Put at its highest it was equivocal, and called for further explanation. The policy shift to inward trade missions might have had some result in structure, but he did not descend to discuss this nor to connect it to Mr Martin's contract of employment. It was capable of being viewed as something of an afterthought. There was no other evidence capable of shedding light on any changes. An understanding of them, and the need to terminate Mr Martin's employment, apparently lay solely with Mr Kelly. 33 His Honour was obliged, in light of the issues raised, to make findings as to whether Mr Kelly had acted with malice in effecting the termination of Mr Martin's employment. He found that he did not and there was no challenge on the appeal to that finding. His Honour went on to accept the two bases given by Mr Kelly as reasons genuinely held by him. The evidence would not in my view have supported an inference that Mr Kelly was to be taken thereby to show that the reasons were in fact referrable to, or arose out of, operational requirements. I do not, however, think his Honour was intending to convey this. Rather, his Honour equated the purpose or the policy stated by Mr Kelly with operational requirements. For the reasons earlier given, in my respectful view, this was not sufficient for TDR to satisfy the obligation that the factual basis for the requirement and the causal connexion with the termination be shown. 34 His Honour had earlier indicated the need for there to be some difference of approach to the meaning to be given to the term in the context of an individual contract such as that in question; one which would give greater latitude to the employer in determining what the organisation required. That would not however, in my view, overcome the need for it to establish the matters referred to above. To hold otherwise would be to permit the employer to assert without challenge or further consideration, the conclusion to be reached. Insofar as his Honour's approach was affected by a difference of meaning, and not just of proof, in my respectful view there was no warrant for concluding that the parties intended a narrower meaning to be given to a term known to industrial law and which had a discernible meaning.

Damages 35 In determining the question of damages, his Honour allowed the sum of $20,000 as reflecting the loss of the prospect that the contract would be renewed, notwithstanding that there was no legal right to renewal, referring to the Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64. This figure was then grossed up to allow for the incidence of taxation. 36 TDR submits that Amann does not provide a foundation for awarding damages in a case such as this, where there was no contractual right to a further hiring. Clause 3.1 indicated a prospect for reappointment at the conclusion of the term, which lay within the discretion of TDR. 37 In Amann, as his Honour the primary Judge pointed out, Mason CJ and Dawson J (90-92) observed that the rule that a defendant is not liable in damages for not doing that which was not promised, is itself subject to the rule in Hadley v Baxendale (1854) 9 Exch 341, that a plaintiff is entitled to such damages as arise naturally from the breach or as may be supposed to have been in the contemplation of the parties, at the time they made their contract, as the probable result of the breach. If it was shown to have been in their contemplation, the plaintiff would be entitled to compensation. In that case, the prospect of renewal would arise by Amann's performance of the contract. It was a distinct benefit which accrued by reason of its performance. The corollary was that the parties must necessarily have contemplated the loss of that prospect as the probable result of a repudiation or fundamental breach on the part of the Commonwealth. 38 The question is then one of fact, applied to principle. His Honour found that if Mr Martin had performed the contract until the end of the three year term there would have been a real prospect of a renewed contract being offered, having regard to his skills. It is no answer to that finding, as TDR submitted, that it could be discerned from the events in question that TDR intended not to offer a further contract. The position with respect to the losses contemplated as flowing from TDR's repudiation are to be assessed by reference to what the parties must have had in mind when they entered the contract. If there was, apart from the wrongful conduct in terminating the employment, some real organisational changes or other basis upon which it could be inferred TDR would not in fact have renewed, that evidence was not gone into. Conclusion 39 The appeal should be dismissed with costs and the notice of contention upheld. The order of his Honour need not however be varied. It was not suggested that the reduction in

costs, of 20 per cent should be revisited. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel.

Associate: Dated: 5 April 2000 Counsel for the Applicant: Mr D J Porter QC

Solicitor for the Applicant: Office of the Director of Public Prosecutions