(i) Was the direction a lawful direction, entitling TPAust on non-compliance by Mr Purcell to terminate the Contract?
34 This raises a number of issues. First, was there any subsisting obligation under the Contract for Mr Purcell to attend work at TPAust which could be the subject of a lawful direction by TPAust after the termination of the employment relationship? Secondly, if so, was the direction itself validly issued (it being a direction from Mr Tullett as managing director (not the board)) and, in particular, was it issued (assuming that is necessary as a matter of law) in good faith by TPAust?
35 Senior Counsel for Mr Purcell, Mr Rushton, relies upon the proposition that disobediance to a direction given by a master to a servant will only amount to repudiation of an employment contract if the direction was lawful and reasonable (Laws v London Chronicle (Indicator Newspapers) Limited [1959] 1 WLR 698 at 700; Pastrycooks v Gartrell White (No 3) (1990) 35 IR 70).
36 In particular, reliance was placed on what Dixon J said in R v Dowling Island Stevedoring and Lighterage Co Limited; Ex parte Halliday & Sullivan (1938) 60 CLR 601 at 621-622:
If a command relates to the subject matter of the employment and involves no illegality, the obligation of the servant to obey it depend at common law upon its being reasonable. In other words, the lawful commands of an employer which an employee must obey are those which fall within the scope of the contract of service and are reasonable.
37 It was said that it was neither lawful nor reasonable for TPAust to direct Mr Purcell to return to work in circumstances where the employer/employee relationship was at an end and where there was no longer a place for him within the TPAust's business.
· Consequence of termination of the employment relationship
38 Mr Rushton submits that the consequence of the termination of the employment relationship is that the right of TPAust to issue a direction of the kind it gave in October 2008 had come to an end. This is because it is said that the effect of termination of the employment relationship is that any obligations contained in the Contract which are linked to the employment relationship (in the sense that they are obligations which are central to the concept of service) have come to an end. In this context, Mr Rushton notes that Brereton J had observed that it was not open to TPAust unilaterally to "reinstate" Mr Purcell. What his Honour said was:
The contract remains on foot. However, Mr Purcell's resignation had the effect of terminating the employer/employee relationship, and TPAust could not unilaterally reinstate it by electing to affirm and sending him on "gardening leave". (my emphasis)
39 Senior Counsel for TPAust, Mr Fernon, accepts that TPAust could not unilaterally reinstate the employer/employee relationship (nor, I might add, could Mr Purcell) but submits that TPAust has not sought to do so. Any reinstatement of the employment relationship, he concedes, required co-operation from Mr Purcell which was clearly not forthcoming.
40 The distinction between the contract of employment and employment relationship in a similar context was considered (though from the opposite perspective since there the wrongful conduct was on the part of the employer) most recently by the High Court in Visscher v the Honourable President Justice Guidice (2009) 258 ALR 651. There, the majority (Heydon, Crennan, Kiefel and Bell JJ) addressed the distinction between the concepts of termination of an employment relationship and discharge of a contract of employment, adopting the statement in Byrne v Australian Airlines Limited (1995) 185 CLR 410 at 427 that "a wrongful dismissal terminates the employment relationship notwithstanding that the contract of employment may continue until the employee accepts the repudiation constituted by the wrongful dismissal and puts an end to the contract", and quoting from Automatic Fire Sprinklers at 469 per Dixon J:
... there is nothing in the general law preventing the wrongful dismissal of a servant operating to discharge him from service, notwithstanding that he declines to accept the dismissal as absolving him from further performance but keeps the contract open and remains ready and willing to serve.
41 As I read Dixon J's comments (there in the context, unlike the present case, of a situation where the servant was the innocent party), the concept that wrongful dismissal operated to discharge the servant from service meant, in effect, that it was not necessary for the servant to tender performance of his services following the wrongful dismissal (it being sufficient that he or she remain ready and willing to serve) not that there was thereafter no subsisting obligation under the Contract on the part of the servant to perform those services if called upon to do so. The recognition that the servant could keep the contract of employment on foot as long as he or she remained ready and willing to serve suggests that the obligation of service was not discharged or extinguished but, in effect, suspended as a result of the employer's refusal to permit the servant to perform his or her services.
42 Transposed into the situation where the employer is the innocent party, this would suggest that the repudiation by Mr Purcell of his employment contract operates to discharge TPAust from its obligation to continue to tender performance of its obligations as employer relating to service under the Contract for so long as Mr Purcell refuses to perform his part of the bargain. If TPAust elects not to accept that repudiation and to keep the Contract on foot then it must remain ready, willing and able to continue to do so. (I note that there may be scope for some debate as to the precise content of TPAust's obligations as employer insofar as it was suggested in argument that it had an obligation to "provide work" for Mr Purcell. That may or may not be the case in the circumstances of an employment contract of this kind where, I would assume, brokers may have had a degree of responsibility to establish and maintain client relationships and might not have been entitled simply to sit back and expect clients to be "provided" or allocated to them for whom they could provide services on behalf of TPAust. However, that debate is not relevant for present purposes.)
43 On this analysis, if and when Mr Purcell were to choose to return to work (and on the assumption that the Contract had been kept on foot by TPAust in the meantime), TPAust would be in the position where it was then faced with a choice whether to accept Mr Purcell's return to the workplace. Mr Purcell would not be able unilaterally to reinstate the employment relationship by demanding that he be allowed to return to work (any more than TPAust could reinstate it by requiring that he return to work), but surely it would be open to him to contend that TPAust had itself repudiated the Contract if (he, in effect, having withdrawn his resignation and indicated a willingness to return to work) TPAust did not in those circumstances, permit him to return to work or did not comply with its contractual obligations when he did so.
44 This seems to have been contemplated by Dixon J in Automatic Fire Sprinklers (at 465-466), his Honour saying that:
By keeping his contract open, he may be able to resume his service without a new contract, if his employer is induced to retract the discharge . (my emphasis)
45 This was expressly referred to by the majority in Visscher (at 666 [59]):
In Automatic Fire Dixon J recognised the possibility that an employer might be induced to retract a discharge, where the employee kept his contract open, thereby allowing the employee to resume his services without a new contract.
46 The conclusion that the contractual obligations subsist (though they may be unenforceable) follows from the recognition in Visscher (at 644 [54]) that:
This is not to say that in a case of dismissal there will ordinarily be anything to be gained by employees refusing to accept the repudiation. Even if they keep the contract of employment on foot, they cannot receive remuneration after the dismissal, because the right to receive it is dependent upon services having been performed [and, read with in their Honours' earlier comments, the wrongful dismissal operates to discharge or absolve the employee from the obligation to tender those services]. Further, historically the courts would not grant specific performance of a contract of personal service, save in exceptional cases. This was largely because of perceived difficulties in supervision and because the courts were unwilling to compel employers to tolerate an individual employee whom they considered incompatible.
(footnotes omitted)
47 Their Honours noted (at 664 [55]) that in Byrne it had been said that for all practical purposes the contract of employment will be at an end upon dismissal and that in such a case the possible continuation of it will rarely be of significance. However, their Honours recognised that it remains the case that an unaccepted repudiation does not terminate a contract and that in the circumstances of any particular case that may assume importance (as it does here). Relevantly, their Honours said (at 664-665 [55]):
To view it [the contract] as automatically discharged would be to elevate a problem concerning remedies to a substantive principle concerning the termination of contracts.
48 The fact that a court would not be likely to compel specific performance of the direction to return to work issued by TPAust under that Contract is a matter which goes to the availability of a remedy for breach of the contractual obligation. For that to determine whether, under a contract of employment which has been held to remain on foot, it was open to TPAust to issue the direction it did and (if that direction not be complied with by Mr Purcell, as it was not) to elect afresh what remedy it seeks to take in relation to the new act of breach or repudiation constituted thereby, would seem to me to do what their Honours considered incorrect, namely to elevate a problem as to remedies to a substantive principle concerning the termination of contracts (and, I would add, thus to allow the availability of a specific form of relief to determine the subsistence of obligations under such contracts).
49 In Visscher, their Honours referred (at 665 [58]) to what was said by Lord Oliver of Aylmerton in Rigby v Ferodo Limited [1988] ICR 29 at 35:
I know of no principle of law that any breach which the innocent party is entitled to treat as repudiatory of the other party's obligations brings the contract to an end automatically. … I entirely fail to see how the continuance of the primary contractual obligation can be made to depend upon the subjective desire of the contract-breaker and I do not understand what is meant by the injured party having no alternative but to accept the breach. If this means that, if the contract-breaker persists, the injured party may have to put up with the fact that he will not be able to enforce the primary obligation of performance, that is, of course, true of every contract which is not susceptible of a decree of specific performance. If it means that he has no alternative to accepting the breach as a repudiation and thus terminating the contract, it begs the question. For my part, I can see no reason in law or logic why, leaving aside for the moment the extreme case of outright dismissal or walk-out, a contract of employment should be on any different footing from any other contract as regards the principle that 'an unaccepted repudiation is a thing writ in water and of no value to anybody'.
50 Mr Visscher's case was that he had kept the contract alive by his refusal to accept the rescission and that his employer had resiled from its threat to demote him. Their Honours recognised (at 665 [59]) that such an outcome was possible "for when a contract continues on foot it remains in force for the benefit of both parties and a party's refusal to perform may be withdrawn" (citing Peter Turnbull & Co Limited v Mundus Trading Co (Australasia) Pty Limited (1954) 90 CLR 235 at 250), which outcome would be inconsistent with the suggestion that contractual obligations of service were automatically terminated once and for all when the employment relationship was at an end.
51 Mr Rushton, however, placed weight on what was said by Brightman LJ in Gunton v Richmond-upon-Thames (at 475) seemingly contemplating that some contractual obligations could be extinguished once and for all when the employment relationship came to an end:
The relationship of principal and agent has been broken. I do not think it follows, however, from the rupture of the status of master and servant, or principal and agent, that the contract of service, or the contract of agency, has been terminated by the wrongful act of the master or the principal. What has been determined is only the status or relationship. So in the result the servant cannot sue in debt for his wages, which he is wrongfully deprived of the opportunity to earn; … As the relationship of master and servant is gone, the servant cannot claim the reward for services no longer rendered. But it does not follow that every right and obligation under the contract is extinguished. An obligation which is not of necessity dependent on the existence of the relationship of master and servant may well survive; such as the right of the master in Thomas Marshall (Exports) Ltd. v. Guinle [1979] Ch. 227 that the servant should not during the term of the contract deal on his own account with customers of the plaintiff company. (my emphasis)
52 In Rigby v Ferodo (at 34) Lord Oliver of Aylmerton noted the majority view in Gunton was that there was no reason in principle why the contract of employment should not "remain on foot and enforceable so far as concerns obligations which do not of necessity depend on the existence of the relationship of master and servant".
53 What was argued for Mr Purcell was that, although the Contract remained on foot, only those terms of the Contract which were not conditional or dependent upon the continued existence of the relationship of employer/employee could survive (and hence that the obligation to obey a direction to attend work did not survive the repudiation of the employment relationship - citing Rothman J in Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney (2007) 69 NSWLR 198 as to the centrality to the employment relationship of an obligation of obedience).
54 By supplementary submissions in response to a query I had raised (as to whether Mr Purcell's position meant that the Contract was no more than a mere shell), Mr Rushton submitted that what had survived the termination of the employer/employee relationship in this case were the restrictive covenants in clause 12, the restriction against using confidential information in clause 13 and the restriction against using the plaintiff's intellectual property in clause 14, but that what did not survive (and what could not be unilaterally reinstated) was the obligation to serve. This, it was said, did not leave the Contract a mere shell (although, at least in relation to the restrictive covenants in clause 12, it was conceded that there was little likelihood of a breach of occurring because TPAust had successfully obtained injunctive relief) but that what had happened was that those surviving covenants lost their practical utililty as a ground for termination because of the manner in which TPAust had elected in this case to proceed. (I consider the election/waiver arguments later.)
55 A distinction was drawn between the direction to go on gardening leave (which it was accepted survived the termination of the master and servant relationship but was said to do so only because TPAust was not required to provide work and Mr Purcell was not liable to render service) and a direction to return from gardening leave and recommence work (which obligation it was said was "of necessity dependent on the existence of the relationship of master and servant" and thus could not survive). The concept of an employment relationship, it was said, encompassed as a bare minimum the obligation to work and the duty to pay wages for that work, which obligations ended upon the repudiatory breach.
56 It seems to me that this argument rests largely on the significance to be drawn from the conclusion implicit in the statement of Brightman LJ extracted above that the end of the employment relationship automatically extinguishes those rights and obligations under the contract of employment which can no longer be specifically enforced. Such a conclusion runs counter to the distinction recognised by the High Court in Visscher between the availability of remedies and the termination of contracts and substantive rights thereunder.
57 The consequence of accepting Mr Rushton's submissions in this regard would be that, faced with a clear repudiation of his or her employment contract by an employee, the employer has a "once only" opportunity to bring that contract to an end, unless there is a subsequent breach of non-service related covenants of the contract of employment. That leaves the artificial prospect of the employment contract remaining on foot at a time when Mr Purcell had made it very clear (by not responding to the direction) that he had no intention of returning to work with TPAust (and indeed was by then working for its competitor).
58 It was submitted by Mr Fernon that to accept the submission that the obligation to attend at work had been discharged so that no lawful direction could thereafter be issued, would be to admit the possibility of a partial automatic termination of the contract on repudiation, the rejection of which theory was confirmed by the High Court in Visscher. I agree.
59 There is to my mind a difference between saying, as Brereton J did, that TPAust could not unilaterially reinstate the "employment relationship" by sending Mr Purcell on gardening leave (and accepting equally that it could not unilaterally later reinstate the employer/employee relationship by directing Mr Purcell to come out of the garden and return to work) and saying that TPAust could not thereafter have the right under the Contract to issue a notice requiring Mr Purcell to resume work. (Mr Purcell could, for example, have had a change of heart on receipt of the direction in which case he could have facilitated the bilateral re-establishment of the employment relationship.) Such a notice would not in all likelihood have been specifically enforceable. However, that does not of itself deprive the notice of force.
60 The prospect that TPAust might take such a step was one which had apparently been contemplated by Mr Purcell (and a matter relied upon in submissions made on his behalf) during the hearing before Brereton J. (There was no suggestion at that stage that it would have been beyond the power of TPAust to issue such a notice; indeed, the submission was to the very opposite effect.)
61 I see a difference between the employment relationship being discharged (and certain contractual obligations thereafter being unenforceable by way of specific performance) and saying that where the employment relationship is at an end those contractual obligations depending upon service automatically come to an end. The latter treats the existence of a particular remedy (of specific performance) in respect of a breach of the contractual obligation to attend work and provide services after the termination of the employment relationship as determinative of whether there is any such obligation at all at that stage. I do not think that is consistent with what was said in Visscher and if that is what was meant by Brightman LJ in Gunton, then I am bound to follow Visscher.
62 I am therefore of the view that the inability of TPAust unilaterally to reinstate the employment relationship does not have the consequence that there was no right thereafter on the part of TPAust to require Mr Purcell, in effect, to make a final decision (at the end of the period of "gardening leave" or earlier) as to whether he wished to resume the employer/employee relationship. If he did not (and chose not to comply with a direction to return to work) then it seems to me that that would constitute a fresh repudiation of the Contract (which had remained on foot up until that time) and, subject to TPAust being in a position to perform its obligations under the Contract at that time, would entitle TPAust to accept the repudiation so as to bring the Contract itself to an end (something it had chosen not to do when Mr Purcell first repudiated the Contract).
63 In that regard, it was submitted that TPAust's evidence fell short of establishing that it was ready, willing or able to perform the Contract had Mr Purcell complied with the request and returned to work on 7 October 2008, something necessary for it to establish in order to rely upon Mr Purcell's breach or repudiation to bring an end to the Contract (Foran v Wight (1988) 168 CLR 385). Following Mr Purcell's resignation, TPAust had taken immediate steps to ensure that other employees take over the responsibilities of Mr Purcell. Mr Tullett, who was cross-examined as to the steps taken within the company when Mr Purcell left on 4 April 2008, agreed that the telephone lines dedicated to Mr Purcell's clients were immediately passed over to other employees (T 6.46) (something hardly surprising if TPAust was to continue to provide services to those clients in Mr Purcell's absence). There was evidence that there were already arrangements in place to cover situations where the primary or principal broker for client was not available (there being a second broker to pick up that client line) (T 7.8).
64 Mr Tullett conceded that steps had not been taken prior to 7 October 2008 to reinstate dedicated telephone lines for Mr Purcell or to re-allocate clients to him. This does not suggest to me that TPAust was unable to accommodate Mr Purcell's return, had he wished to put TPAust to the test. Indeed, there is nothing to suggest that the speed with which steps were apparently taken to cover Mr Purcell's unforeseen absence from April 2008 could not have been mirrored on his return. Therefore, I consider that TPAust was in a position to accept a fresh repudiation by Mr Purcell as at 7 October 2008.
· Reasonableness of direction
65 Whether the direction was otherwise a lawful direction with which Mr Purcell was bound to comply is relevant in determining whether Mr Purcell's non-compliance entitled TPAust to terminate the Contract.
Direction by Mr Tullett not the board
66 An issue was raised by Mr Purcell as to the fact that the direction, as such, was issued by letter signed by Mr Tullett as managing director.
67 There was no formal board of directors meeting to consider and approve the issue of the direction to Mr Purcell. Mr Tullett said the issue of the direction was discussed in general ongoing conversation with the company's Asia legal manager, Mr Paul Kelly (T 16.11) (who is not a board member) and the question whether Mr Purcell should return to work was discussed with the Asia CEO, Mr Barry Dennahy and perhaps also with Mr Gordon Buchan, another board member, as part of general matters relating to the Sydney office (T 18.26-49). It was submitted by Mr Fernon that clause 11 permitted the company to assign duties and that it was an implied term of the contract that the managing director could issue such a direction as a matter of business efficacy.
68 I would have been inclined to the view that whether or not this was a formal direction of the board is not the issue; rather the issue is whether, by his conduct on receipt of the direction, Mr Purcell had unequivocally evinced an intention not to honour or be bound by the Contract. The question whether refusal to comply with a direction constitutes a repudiation needs to be judged having regard to all of the relevant factual circumstances. Whether or not the reasonableness or lawfulness of the direction is legitimately in dispute at the time of non-compliance may well be relevant to determining whether failure to comply with that direction evinces an intention no longer to be bound by the terms of the employment contract. (See, for example, Harrison v P & T Tube Mills Pty Limited [2009] FCA 220 at [309]-[312], where Dowsett J found no basis for asserting that the plaintiff "refused to comply with the direction because he considered it to be unlawful, or that he asserted a construction of his contract of employment which was inconsistent with that impliedly advanced … in giving the direction"; cf. Bechaz v Mariah Hovercraft Australia Pty Limited [2005] AIRC 252 where there was a live and contemporaneous dispute as to whether the defendant hovercraft company could direct the plaintiff to do cleaning and clearing tasks when he had been employed primarily as a boat builder or shipwright.)
69 Here, as a matter of commonsense, the direction issued by Mr Tullett can be seen as very clearly requiring Mr Purcell to indicate as at that stage whether he was prepared to return and resume an employment relationship with TPAust. His conduct in not responding to that direction, and in not returning to work, must have amounted to an unequivocal repudiation of the Contract which still remained on foot at the time. There was no suggestion at that stage that Mr Purcell was not complying with the direction on the basis of a legitimate dispute as to the direction but nevertheless intended to honour the Contract as it might be properly construed.
70 On that basis, I do not see that there would be any relevant difference between failure to comply with a formal direction by the board (or by Mr Tullett) for Mr Purcell to return to work and an outright rejection of an "invitation" extended to Mr Purcell to return to work, if in each case Mr Purcell manifested an intention not to honour any contractual obligation he had or might have had to do so. Both, it seems to me, would involve repudiatory conduct on the test indicated in Koompahtoo Local Aboriginal Council v Sanpine (2007) 233 CLR 115.
71 Viewed in that light, the question whether the direction was formally issued on behalf of the board, or was authorised by the board, seems to me to be somewhat of a red herring.
72 Even leaving that aside, the issue of a direction such as this would surely fall within the scope of Mr Tullett's ordinary authority as managing director of the company and I would infer that the issue of such direction, after discussion with board members, was one made on behalf of the board. I therefore consider the direction to have been a valid direction from a procedural point of view.