Willis Australia Group Services Pty Ltd v Mitchell-Innes

Court of Appeal (NSW)|2015-10-09|Before: Macfarlan JA, Ward JA, Leeming JA

Solicitors: Allens (Appellant) Paul Murphy & Associates (Respondent) File Number(s): CA 2014/376443 Decision under appeal Court or tribunal: District Court of New South Wales Jurisdiction: Civil Citation: [2014] NSWDC 250 Date of Decision: 8 December 2014 Before: P Taylor SC DCJ File Number(s): DC 2013/148638

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] By letter dated 14 November 2012 the appellant ("Willis") purported to terminate summarily the respondent's employment as Willis' New South Wales General Manager. The purported termination arose out of the respondent's alleged serious misconduct prior to and during a training course held by Willis in Melbourne for the purposes of training and assessing the sales staff of its insurance broking business (the "Sales 2.0" conference). The letter alleged that the respondent had been guilty of the following misconduct: "1. That you attended the Willis Melbourne office including Sales 2.0 training in a state of intoxication which was noticed by your peers and other Associates; 2. That you behaved in an unprofessional manner on Willis premises and in public by being intoxicated; 3. That you were asleep and intoxicated in the public space of a hotel." Willis had the power to summarily dismiss the respondent if the respondent was guilty of "serious misconduct" committed "in serious circumstances". In proceedings in the District Court the respondent claimed damages from Willis for wrongful termination of his employment. Taylor SC DCJ found in the respondent's favour and awarded him damages of $296,650.75 ([2014] NSWDC 250) holding that while the respondent's misconduct was serious it did not justify summary dismissal. The primary judge calculated damages on the basis that, had the respondent's employment not been terminated summarily, he would have been given notice of his termination on 31 July 2013, with his employment therefore coming to an end on the later date of 31 January 2014. Willis challenged this finding and a number of the primary judge's factual findings on appeal. Held, allowing the appeal in relation to damages (per Macfarlan JA, Ward and Leeming JJA agreeing): (1) The primary judge's finding that Willis' summary termination of the respondent's employment was in breach of contract was correct because although the respondent was guilty of "serious misconduct" it was not committed in sufficiently "serious circumstances" to warrant termination of his employment. Blyth Chemicals Ltd v Bushnell [1933] HCA 8; 49 CLR 66 and other authorities considered. (2) His Honour erred in his assessment of damages because he did not find, as the evidence required, that, but for Willis' invalid purported termination, Willis would have immediately terminated the respondent's employment on six months' notice. TCN Channel Nine Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 and other authorities considered.

Judgment

MACFARLAN JA: By letter dated 14 November 2012 the appellant ("Willis") purported to terminate summarily the respondent's employment as Willis' New South Wales General Manager. The purported termination arose out of alleged serious misconduct of the respondent prior to and during a training course held by Willis in Melbourne for the purposes of training and assessing the sales staff of its insurance broking business (the "Sales 2.0" conference). The letter alleged that the respondent had been guilty of the following misconduct: "1. That you attended the Willis Melbourne office including Sales 2.0 training in a state of intoxication which was noticed by your peers and other Associates; 2. That you behaved in an unprofessional manner on Willis premises and in public by being intoxicated; 3. That you were asleep and intoxicated in the public space of a hotel."
In proceedings in the District Court the respondent claimed damages from Willis for wrongful termination of his employment. After an 11 day hearing Taylor SC DCJ found in the respondent's favour and awarded him damages of $296,650.75 ([2014] NSWDC 250).
For reasons that appear below, I consider that although some of Willis' challenges to his Honour's factual findings are well founded, his Honour's finding that the respondent's employment was wrongfully terminated was nevertheless correct but that the damages to which the respondent is entitled are substantially less than those awarded. Willis' appeal should therefore be allowed insofar as it relates to the assessment of damages at first instance.

The respondent's employment history

The respondent has been employed as an insurance broker since 1990. He worked in South Africa, London and Fiji before commencing employment with Willis in Sydney in 2004. Willis appointed him as General Manager for New South Wales in April 2011. In the course of his employment by Willis he received a number of commendations for his work, bonus awards and salary increases. As General Manager for New South Wales, he was in charge of some 65 staff.

The contract of employment

The express terms of the respondent's employment were contained in a letter from Willis dated 19 September 2011 that appointed him to the position of General Manager for New South Wales.
The respondent's duties as a Willis employee were stated to include to: "(a) … (b) act in the best interests of Willis and the Willis Group at all times; (c) refrain from acting or giving the appearance of acting contrary to the interests of Willis and the Willis Group; (d) use your best endeavours to promote and protect the good name and reputation of Willis and the Willis Group … ".
His long service leave was stated to be in accordance with the relevant State legislation.
The letter also contained the following: "Policies and Procedures The Willis Group has policies and procedures including its Code of Work that are formulated for the efficient and fair administration of employment matters. A condition of your employment is compliance with any policies and procedures which the Willis Group has or may in the future adopt. Failure to comply with these policies and procedures may result in disciplinary action being taken against you. Termination of Employment Your employment may be terminated by either party giving the other 6 months notice of termination. Willis may, at its discretion, pay you in lieu of working out all or part of the notice period. However, if at any time during the term of your employment: (a) you are guilty of serious misconduct; (b) you neglect to give your whole time and personal attention to the performance of your duties or absent yourself from the duties without leave except in the case of illness or accident; or (c) you disobey or neglect any of our lawful orders or directions; then we may take disciplinary action or counsel you or, in serious circumstances, we may summarily dismiss you."

Willis' written policies

Willis' Code of Work, which the parties accepted formed part of the respondent's contract of employment, included the following: "12. Misconduct Misconduct which may lead to disciplinary actions may include, but is not limited to: physical abuse of any person; conduct intended to threaten imminent bodily harm; behaviours [sic] which endangers the health or safety of any person; conduct which is in breach of the Company Harassment Policy, including sexual harassment; obscenities, offensive language or the display of offensive material; malicious damage; inappropriate misuse of property; refusal to comply with any lawful order excessive ordering and/or distribution of alcohol intoxicated behaviour [sic]. 26.2 Alcohol and Drugs Willis employees comply with Legislation and do not use, possess or traffic in illegal drugs on Company premises. Any employee demonstrating signs of being under the influence or either alcohol or drugs in the workplace will be required to leave the premises immediately. Any issues occurring in the workplace that are alcohol or drug related will be viewed seriously and will be dealt with under the Willis disciplinary procedure and may result in termination of employment. If an employee acknowledges the existence of a problem and seeks professional help to resolve the problem, the Company will support the employee. All employees advise their manager/supervisor if they are taking prescribed medication to ensure any risks are highlighted and addressed."
The parties also accepted that Willis' Disciplinary Counselling Policy formed part of the respondent's contract of employment. It included the following: "4.5 Examples of Disciplinary Counselling … Negligence of duties; poor performance resulting from irresponsibility or disobedience indicates an unwillingness to abide by the contractual obligations. This includes refusal to carry out or act in accordance with reasonable instructions. Irresponsible behaviour; intoxication, frivolous, violent or threatening behaviour cannot be tolerated in the workplace as it affects the welfare of colleagues and business efficiency and might bring Willis into disrepute. … 5. Procedure The Manager is to investigate the offence committed; The Manager is to advise the employee of the alleged offence or breach of discipline and provide the associate with the opportunity to explain their actions; The Manager will decide which course of action is appropriate. The procedure for dealing with general misconduct will depend on the severity and/or frequency of the misconduct, as well as the general circumstances surrounding it. The associate is to always be given prior notice of a formal meeting. The procedure is as follows: Stage 1 Verbal Warning Stage 2 First Written Warning Stage 3 Final Written Warning Stage 4 Dismissal In most cases the procedure is followed step by step. However in serious cases of misconduct, negligence or incompetence the process may be condensed to a first and final meeting/warning. This action is subject to approval from Human Resources and the Chief Executive Officer. 6. Gross Misconduct As the term implies, this is the most severe type of misconduct and will be dealt with by summary dismissal, i.e. dismissal without notice. Listed below are examples of gross misconduct, but this list is not exhaustive: Theft from Willis, its staff or clients; Assault on any of Willis's staff or clients; Dishonest or fraudulent conduct, whether in connection with the associates work or general duties within Willis; Any objectionable behaviour towards clients or colleagues or members of the public where Willis considers such behaviour will bring it into disrepute; Any behaviour which is in breach of the duty of utmost good faith, a duty which Willis regards as being of paramount importance within the insurance industry; Any breach of legislation or regulation which may adversely affect Willis; Vandalism or wilful damage to property belonging to Willis or any of its staff or clients; Legal conviction of an offence which is detrimental to the reputation of Willis; Intoxication, use of illegal substances or other behaviour which endangers the wellbeing of Willis' staff or clients, or which could seriously damage Willis' reputation; Victimisation of any of Willis' staff or clients, including action arising from sexual or racial discrimination and harassment."

The Sales 2.0 conference

An email dated 3 October 2012 from Ms Tonya Welch, Willis' Sales Coordinator, advised State Managers and others of two Sales 2.0 training conferences to be held in Melbourne later that month. That of present relevance was scheduled to be held between 8.00am and 4.00pm on Monday, Tuesday and Wednesday 29 to 31 October 2012 at Willis' Melbourne office. "Table Coaches" and State General Managers were to be present from 6pm on Sunday 28 October. The conference was described as an "[i]ntensive 3 day Consultative Sales Selling Course presented and facilitated by FORUM (UK)". There were to be 30 participants and six "observers" at the conference, with 30 minute telephone conferences with State Managers and others to be held in advance to discuss what was to occur.
The itinerary for the conference provided for Table Coaches training from 4.00pm on the Sunday with a dinner at 7.00pm for Table Coaches, facilitators, guests and executives at the Alluvial Restaurant. Registration for the conference was to be at 7.45am on Monday with training commencing at 8.00am.
Willis' written submissions summarised the evidence concerning the purpose and structure of the conference as follows: "51. The chief purposes of the Sales 2.0 training sessions were to train select junior sales staff members on the new Willis global sales plan and strategy, and to increase employee skills in making sales to mid-market and corporate prospects using Sales 2.0 tools and processes, in an intensive 3 day consultative sales selling course. The sessions were organised as part of a Willis global initiative rolled out throughout all of its international offices including Europe, Asia-Pacific, North American and other locations. An overseas company called FORUM (UK) was engaged to fly in a facilitator, Mr Richard Napier, from overseas to conduct the sessions. The high level of importance that Willis assigned to the sessions as part of its global plans was acknowledged by the respondent. 52. The importance of the event was underscored by the significant preparations undertaken by participants including coaches, observers, facilitators and trainees before the Sales 2.0 conference. Three compulsory 30 minute telephone conferences were held on 19 October 2012, 22 October 2012 and 23 October 2023 to provide a basic understanding of Sales 2.0, the tools comprising Sales 2.0, the expectations placed on participants and to answer any questions. The respondent attended [one of these] conferences and was aware of their importance. 53. A number of Willis senior management team attended the Sales 2.0 conference on 29 to 31 October 2012 in the capacity of observers or table coaches including the respondent, Mr Paul French, Mr Bryan Leibbrandt, Mr Brent Lehmann and Mr Nigel Groome. The role did not involve mere passive observation of proceedings but required the respondent to help the junior sales team members during the sessions by answering questions and facilitating exercises, and to monitor the performance of the sales team members during the conference to identify the next generation of sales talent. 54. To ensure that the observers and table coaches understood the importance of their roles, the respondent, the other observers and the table coaches were required to travel to Melbourne to attend a pre-training session on the afternoon of Sunday 28 October 2012 at the RACV hotel. About 10 team leaders, including the respondent, and Mr Napier attended the pre-training session, lasting about 45 minutes" (citations omitted).

The drinking session at the Irish Times Bar

After the dinner at the Alluvial Restaurant on the Sunday night, most of the attendees visited the Irish Times bar for a period of some hours. The respondent and one or two others stayed until the early hours of the morning. At a time that was not able to be determined, but which appears to have between about 2.00am and 6.45am, the respondent and the other remaining participant, Ms Angela Usher, returned to the RACV Hotel where they and many of the group were staying. The respondent accompanied Ms Usher to the door of her room on the sixth floor, intending to return to his on the fourth floor. However, he got no further than a bench in a hallway area on the sixth floor, where he fell asleep.
Those who attended the restaurant and bar consumed a considerable amount of alcohol. The respondent conceded that he had 14 to 17 alcoholic drinks between 4.45pm on Sunday afternoon when he commenced drinking and his arrival at the conference at around 9.00am on Monday morning (approximately 16 hours). He conceded that he was intoxicated by the time that he left the Irish Times although he said that by 7.00am he was only marginally affected by alcohol and denied being intoxicated at the conference on Monday morning.
There was evidence of payment, including by way of the respondent's corporate credit card, for large numbers of alcoholic drinks supplied at the Alluvial Restaurant and the Irish Times. This evidence suggested that it was quite possible that the respondent drank considerably more than that which he conceded he drank but the primary judge, for good reason, was unable to find that the respondent in fact drank more than that quantity. Such a finding would in any event have been of little, if any, assistance given that it is well known that, depending on such factors as body type and drinking experience, the level of alcoholic consumption at which a person's behaviour is significantly affected varies greatly. The respondent's conceded alcoholic intake would have left some people heavily intoxicated. Whether it affected the respondent in that way (or whether he was intoxicated because he drank more than he conceded) must be determined by the evidence of his conduct.
The primary judge made the following findings concerning the respondent's conduct at the Irish Times: "88 By the time Mr Mitchell-Innes and Ms Usher left the Irish Times, Mr Mitchell-Innes was intoxicated. In this regard, I accept Mr Mitchell-Innes' concession, notwithstanding the contrary evidence of Mr Parashar. Willis submitted that drinks at the Irish Times were a work-related function. Willis met the cost of the alcohol consumed at the Irish Times (although some of this cost was apparently recovered from Ms Usher). However, I doubt whether Mr Mitchell-Innes and Ms Usher, remaining behind at the Irish Times until the early hours of the morning, and becoming intoxicated, can properly be regarded as becoming intoxicated at a work-related function. Whether that should have impacted upon reimbursement of the alcohol expenditure is a matter I do not need to decide. The drinking with Ms Usher was related to a work-related function in that it followed one earlier in the night. I do not think this suffices to constitute misconduct. Nor do I think the circumstances of privately getting intoxicated with a colleague after hours can fairly be described as serious misconduct."
On appeal, Willis submitted, contrary to the primary judge's doubt, that the respondent's attendance at the Irish Times was a "work-related function" and that his alleged "excessive ordering of alcohol" there and his intoxication in what was alleged to have been a public place constituted serious misconduct justifying his summary dismissal.
I reject these submissions.
First, the drinking session at the Irish Times was not a "work-related function". The work-related events and functions for the day had concluded. What occurred at the Irish Times was a drinking session involving work colleagues. This characterisation is not affected by the fact that they charged their expenses to their employer. The propriety of them doing so does not arise for consideration in these proceedings.
Secondly, although there was evidence that the respondent charged a large proportion of the cost of the drinks to his corporate credit card, it was not established that he engaged in "excessive ordering of alcohol" as described in clause 12 of Willis' Code of Work (see [9] above). The evidence did not reveal how many of those drinks he ordered for himself personally, as distinct from paid for for others. Although it can be inferred that he ordered a sufficient number to render himself intoxicated, that of itself cannot be regarded as "excessive ordering" in breach of Willis' Code of Work in the absence of an examination of his subsequent behaviour. Unless he was intoxicated at work, or at a work-related function, or his intoxication had the potential to impact upon his employer's reputation, such ordering of alcohol cannot be characterised as "excessive" such that, as Willis contended, it provided grounds for his summary dismissal.
Thirdly, whilst the public had access to the Irish Times, there was no evidence that the respondent's intoxication led to any misbehaviour there or damage to Willis' reputation. Indeed, Mr Nitin Parashar, who was in charge of the Irish Times on the night in question, said that the respondent did not appear to be intoxicated when he left the bar early on the Monday morning.

The events at the RACV Hotel

Mr Paul French, Willis' General Manager for Queensland, gave evidence that when he left his sixth floor hotel room at about 7.10am on the Monday of the conference to go downstairs for breakfast he "heard a very a loud noise coming from the hallway". He then observed the respondent lying on a bench in the hallway snoring. Mr French was unable to wake him. Mr French had not seen or heard the respondent earlier that morning when he had left for, and later returned from, the gym. This may have been because the respondent (and Ms Usher) did not return to the hotel until about 6.45am.
Mr Nigel Groome, Willis' National Development Manager, gave evidence that at about 7.00am he saw the respondent asleep on a couch in the corridor on the sixth floor of the hotel, "fully dressed and snoring very loudly."
Mr George Stratas, the RACV's duty manager at the time, gave evidence that, following a report from "one of [the] in-house guests", he found the respondent asleep on a backless lounge on the sixth floor. Mr Stratas said there was a strong smell of alcohol coming from the respondent and that, with difficulty, he woke him by shaking his leg and asking him questions. He had difficulty ascertaining the respondent's name however this appears to have been at least in part as a result of Mr Stratas mistakenly assuming that the respondent's first name was Mitchell and that his surname was Innes.
Mr Stratas continued: "So, he got up, he was extremely unstable on his feet, to the point where I was - I just made sure I was right next to him the whole time. I was just fearful that he was going to fall, or hurt himself. I then ushered him around the corner to the lift lobby, called the lift back down to the ground floor. Ushered him into the lift, we both entered the lift, he was leaning on the back - on the back wall, when we entered the lift, we went - both went downstairs. There was no communication between the two of us, this whole period. Got back down to the ground floor, we then exited the lift again, once again, the gentleman was extremely unstable on his feet. So I - I just tried to almost shield him, at that point, because that's - our ground floor's also where we have our bistro, and that opens at 6.30 in the morning, where member's are having breakfast. I-I didn't want them to see what was going on. And just trying to keep him in a straight line, because he was, sort of, going all over the place."
Upon arriving at the reception desk, the respondent found his room key in his pocket. Mr Stratas then escorted the respondent to his room on the fourth floor because he "definitely didn't feel comfortable with letting him walk by himself, still unstable on his feet. I wasn't sure if he'd even make it back up there." Mr Stratas described the respondent as "very incoherent." The impact of Mr Stratas' evidence was not diminished by his cross-examination.
The primary judge's conclusion in relation to these events was as follows: "77 Mr Stratas was the morning manager that day at the RACV. He … viewed Mr Mitchell-Innes at about 7am that morning. He found it difficult to wake Mr Mitchell-Innes, but when he did he thought Mr Mitchell-Innes was unstable on his feet and had difficulty communicating. In my view, this evidence was of limited assistance. Unsteadiness may be attributable to him being just awoken from inadequate sleep and the difficulty in communicating (apart from just being awoken) was partly attributable to Mr Stratas not understanding that the name 'Mitchell-Innes' provided by Mr Mitchell-Innes was only a reference to Mr Mitchell-Innes' surname. Mr Mitchell-Innes conceded that he was 'marginally' 'affected by alcohol' at 7am."
These findings do not adequately recognise the force of Mr Stratas' evidence which was relevantly unchallenged and clearly established that the respondent was intoxicated when Mr Stratas encountered him early on Monday morning. The respondent's instability, as observed by Mr Stratas, was so pronounced and continued for such a length of time that it could not reasonably be explained by the respondent having been woken from "inadequate sleep". Similarly, the incoherence described by Mr Stratas went well beyond the misunderstanding about the respondent's name. By referring in this context to the respondent's concession that he was "marginally" affected by alcohol at 7.00am, (see [15] above), the primary judge appears to have accepted that the respondent was only marginally intoxicated at this time. However, Mr Stratas' evidence established that the respondent's level of intoxication was significantly greater.

The respondent's conduct at the Sales 2.0 conference

The evidence of the respondent's behaviour

Mr French said that he, the respondent and Mr Bryan Leibbrandt (the General Manager for Western Australia at that time) were to attend the conference as "observers", with their role being "to act as a sounding board if the tables wanted to discuss an issue that arose in the course of the training exercises that they would be asked to do." The observers had a long table at the back of the room at which Ms Tonya Welch also sat.
Mr French said that the respondent arrived at the conference at about 9.00am, after Mr French had opened it at 8.00am. Mr French's evidence continued: "18. As soon as Donald sat down he started to talk to me. He was bright and chirpy. I could not stop him from talking. He seemed to have no appreciation of the fact that he was speaking loudly and disturbing others in the room. 19. When Donald arrived the Facilitator was still introducing the training. At various points I said words to Donald to the effect of: 'Hey mate, just keep it down a bit.' 'I'm just trying to listen.' I do not recall precisely what Donald was saying or doing as he sat next to me. I was trying to block him out and concentrate on what the facilitator was saying. 20. About 10 minutes after Donald arrived the facilitator said, 'Okay, kick off at your tables'. The attendees then started working on an exercise in groups at their tables. The Observers each picked a table and listened in on the discussion. 21. I did not see where Donald went initially. Later he appeared at the same table as I was sitting. Our table had an easel next to it, on which hung a bundle of butcher's paper for the attendees to write down their ideas. Donald sat down at the table for a few seconds before jumping up and saying words to the effect of 'This is what I reckon you should do'. He then grabbed the butcher's paper, flicked over some blank pages and started to scrawl on one of the pages. What he drew made no sense. He seemed to be clowning around, and would have been quite funny but for where we were. 22. At one point I looked up at Donald and said words to the effect of: 'Mate, how about you just go and sit down for a little while.' Donald then left that table and walked off. I did not see where he went. Later I saw him sitting in his seat at the back of the room, tapping away on his iPad."
In cross-examination, Mr French accepted that the respondent did not "actually write on the butcher's paper", although he volunteered to do so. Mr French's evidence was not otherwise challenged.
Mr Leibbrandt gave evidence that the respondent arrived at the conference at about 8.45am or 9.00am and continued: "33. He entered the room and sat down in the vacant chair next to me. He looked flustered and had one or two cuts on his face from shaving. He smelt very strongly of alcohol. I could smell the alcohol not only when he spoke but at all times. 34. Donald appeared to be in a relaxed and playful mood. As soon as he sat down, he started to talk to all three of us at the table. He was talking loudly - more loudly than was appropriate in the circumstances. A couple of people at the table in front of us turned around and told Donald to 'shush'. When he spoke I also noticed that he was slurring his words. 35. I tried to get Donald to quieten down because the facilitator was speaking at the time. Donald then pulled out his iPad and started to show me pictures of his recent safari in South Africa. As he pointed to the photos of the animals, he made animal noises. He held up the iPad so that Paul and Tonya could see the pictures as well. 36. After about 10 minutes the facilitator asked the attendees to start working on an exercise at their respective tables. Paul, Tonya and I left our table at the back of the room and went to sit with one of the other tables to listen to the discussion. Donald remained at the table and started to pick up lollies from a jar and throw them at the other attendees. I remember seeing one lolly hit Luke Ware in the back. Donald was smiling and laughing as he did this, and seemed to be enjoying himself. 37. At around 9.30am I went up to level five to find Erin Dann, the HR Coordinator from Melbourne, but she was not in her office. I wanted her assistance in dealing with this situation in the training room. Sherille Culvenor, Willis' Financial Services Manager, sits in the office directly opposite Erin's office and we had a conversation in words to the following effect: I: 'I'm looking for Erin?' Sherille: 'I'm not sure where she is. Can I help?' I: 'Donald Mitchell-Innes has turned up to the Sales 2.0 training session drunk and is causing a disturbance. He is even making animal noises at the back of the room. We need to get him out of there. There are a lot of young people involved in the training and he's setting a bad example.' Sherille: 'I need to see Donald about his financial reports anyway. I'll send him an email to ask him to come up and see me, and that way we can get him in front of HR. If he won't come I can always go down and get him in the morning tea break.' I: 'Good idea.'
In cross-examination, Mr Leibbrandt agreed that he had seen the respondent throw only one lolly but did not agree with the proposition that the respondent might have been hung-over rather than drunk.
Mr Groome, gave evidence that he was a "table coach" at the Sales 2.0 conference and that the job of the observers was to "supervise the conference and talk with each of the tables during break-out sessions."
He saw the respondent arrive at about 9.00am and sit at a table at the back of the room with the other observers. Mr Groome continued: "21. At approximately 9.30 am there was a break-out session in which each table worked on a case study. Donald came over and sat at my table and tried to intervene in the activity. He had changed his clothes since I had seen him asleep in the corridor of the RACV but he was obviously still drunk as he was slurring his words whenever he talked and there was a strong smell of alcohol on his breath. I felt uncomfortable having him at my table. After about three or four minutes he stood up and left our table. 22. I did not see Donald again until the morning tea break at around 10.30 am. I was not standing with him, but even from a distance I could see that he was unsteady on his feet. At one point, I saw him lose his balance and lean against a wall."
This evidence was not relevantly challenged in cross-examination.
Ms Sherille Culvenor, Willis' Financial Services Manager, gave evidence that shortly before 10.00am on Monday 29 October 2012, Mr Leibbrandt came into her office and said inter alia: "We've got a bit of a problem. Donald Mitchell-Innes appears to be under the influence of alcohol and is being a bit of an embarrassment in the training session. He's sitting at the back of the room making animal noises and being very disruptive. It's not a good look. I am trying to find HR."
To which Ms Culvenor replied: "We have to get him out of the room as quickly as we can. There are a lot of young people down there. I'll send an email asking him to come and see me. I need to speak to him anyway about his budgets. If that doesn't work, I'll come down there at the morning tea break and bring him back, so it doesn't look really obvious."
Ms Culvenor said that she then went to the conference room and, on the excuse of wanting to discuss budgets with him, removed the respondent from the conference. Her evidence continued: "10. As our discussion went on, Donald seemed to become more and more tired, and started to slur his speech and slouch and squirm in his seat. His eyes were red and he was yawning a lot. At least twice his phone and wallet fell out of his pocket onto the floor. Donald also looked dishevelled, which was very unusual for him. His shirt had become unbuttoned at the bottom near his belt. When we were in close proximity I was able to smell stale alcohol. 11. At some point during our conversation Erin Dann returned to her office. I kept Donald talking so that she hear and understand what was happening. After Donald and I finished up, Donald got up from his chair and went to rest his hand on the post of my door. However he missed the post and stumbled. Just as he was recovering, Erin shouted out 'Oh hi Donald, can I see you for a minute?' Donald then went into Erin's office."
In cross-examination, Ms Culvenor rejected the proposition that the respondent did not rest his hand on the door post near the door and stumble. There was no other material challenge to her evidence.
The respondent's evidence was that as he left Ms Culvenor's office on the Monday morning of the conference he was confronted by Ms Erin Dann, Willis' HR Manager, who asked him how many beers he had had the previous night. The respondent continued: "79. Approximately an hour and a half later Dann called me from the training room and suggested that I leave the session and return to my hotel room. I was surprised by this request and asked Dann for her reasons. Dann said to me words to the effect 'I can smell alcohol on your breath and you have trouble standing and walking. You are slurring your words.' There was good reason for inability to walk evenly as I had damaged the sole of my shoe the previous evening and I only brought one pair of working shoes to Melbourne. If I appeared to be slurring my speech it was because I had a severe laceration to my tongue induced by sleep apnea and navigating this laceration when speaking was painful. I was feeling fine and thought that Dann's comments were biased and out of kilter. I had been enjoying the training and, therefore, sought Dann's agreement to continue with the session, for a short while, and she readily agreed. I left the session at approximately 12.45pm and returned to my hotel room as requested by Dann. 80. As I left I advised Tonya Welsh (Training co ordination) that I needed to leave the sales training and 'attend to some matters'. Tonya asked me 'to stay'. I replied that I couldn't stay and subsequently left the training session. 81. I was not intoxicated on the morning of 29 October 2012 and there was no suggestion by anyone that I was intoxicated until my 12.15pm meeting with Wilkinson and Cripps on 31 October 2012. Had I thought or been told by Dann that I was going to be accused of intoxication, I would have volunteered an alcohol test on the morning of 29 October 2012."
In cross-examination, the respondent accepted that the conference was an important part of Willis' business but said that "there were a number of different courses rolled out at different times, and on this particular course it was a sales techniques and we were told as observers that we could spend as little or as much time as we chose to in the transition to observe those staff of ours and report it to us. So, in terms of the importance of it, it was one of a number of different things and aspects of training that companies go through."
The respondent also agreed that one of his duties as General Manager for New South Wales was to set an example for the sales staff that were at the conference and that if he had been intoxicated or otherwise behaved unprofessionally that that would have been setting a poor example. He likewise agreed that throwing a lolly at the conference was "not the best" example of behaviour. He said that after his arrival at the conference he did not believe that he was speaking "overly loud", although he acknowledged that Mr French told him to "shush".

The primary judgment

The primary judge reached the following conclusions concerning the respondent's condition and behaviour at the conference: "81 Although there were valid challenges to some of the evidence of the Willis witnesses, there was some consistency: smelling of alcohol (conceded by Mitchell-Innes), speaking loudly and inappropriately and slurred speech. I accept that the reliability of these recollections is lessened by the passage of time, and I should be cautious about them, especially when they are materially different from the accounts in Mr Cripps' report. 82 The lolly throwing was apparently one lolly, not the subject of complaint by the target, Mr Ware, and similar to other occasions when lollies had been used by Willis to engender involvement. The animal noises may have been a playful response at the back of the room to a question by another State General Manager about one aspect of a recent trip by Mr Mitchell-Innes to Africa that was a topic of conversation. 83 Taking all these matters into account, I am persuaded on the balance of probabilities that Mr Mitchell-Innes was, at least to some extent, intoxicated at about 9am when he arrived at the conference session. 84 However, I am not persuaded that the level of intoxication of Mr Mitchell-Innes at 9am, or the impact of intoxication on his behaviour, was significant, or that his behaviour was disruptive. His participation in the session may have been embarrassing for some for the short period he was involved, particularly because of his position as a State Manager."
I make the following observations concerning those findings.
First, the challenges to the evidence of the Willis witnesses were limited and, except to the extent that I have indicated, of no present significance.
Secondly, contrary to the primary judge's suggestion, there is no basis for concluding that the reliability of the witnesses' recollections was substantially lessened by the passage of time. Their evidence was not challenged on that basis and, with only minor exceptions, their evidence was not challenged at all. Their conduct confirmed their contemporaneous observations that the respondent was intoxicated at the conference. These witnesses observed that the respondent smelt strongly of alcohol, had bloodshot eyes, a flustered look, was slurring his speech and seemed unsteady on his feet.
Thirdly, the primary judge's comment that their accounts were "materially different from the accounts in Mr Cripps' report" was not warranted. Mr Paul Cripps, Willis' Australia and New Zealand Human Resources Director, prepared his report following an investigation he conducted on 29 and 30 October 2012. On appeal, the respondent accepted that no such inconsistencies were raised with the relevant witnesses in cross-examination. Moreover, the only inconsistency that the respondent's counsel could in fact point to in argument was that Mr Cripps recorded Mr Leibbrandt as saying that when the respondent arrived at the conference "his face was pale, he couldn't walk straight and he smelt of alcohol", whereas in his affidavit Mr Leibbrandt said that when the respondent entered the room he looked "flustered and had one or two cuts on his face from shaving. He smelt very strongly of alcohol" and he "appeared to be in a relaxed and playful mood." These observations are not inconsistent and, as I have indicated, no suggestion of inconsistency was put to Mr Leibbrandt in cross-examination.
Fourthly, the primary judge's reference to the throwing of lollies on other occasions was a reference to the respondent's evidence: "… that in training and in sessions with former CEOs, one of the CEOs in particular used to throw lollies at us staff in meetings and that was coming from a CEO. So to throw a lolly, there was nothing untoward and nothing that didn't happen within the organisation."
The respondent nevertheless agreed that the throwing of lollies was "[p]robably not the best example."
Fifthly, his Honour's reference to animal noises being a playful reference to the respondent's recent trip to Africa does not indicate that the making of the noises whilst the sales conference was in progress was justified.
Sixthly, the primary judge concluded that the respondent "was, at least to some extent intoxicated" (Judgment [83]). Elsewhere he referred to the respondent being in a "state of low-level intoxication" at the start of the conference (Judgment [89]).
In my view, the evidence to which I have referred above did not justify these characterisations of the respondent's intoxication. The evidence indicated that he was intoxicated to a significant extent at that time. His colleagues' contemporaneous responses to his behaviour, when they had no apparent reason for overstating the position, confirms their perception that his intoxication could constitute a significant barrier to the orderly and efficient conduct of a conference at which senior employees of Willis were required to set examples of appropriate behaviour for the more junior sales staff.

The respondent's dismissal

As indicated above, following the completion of the Sales 2.0 conference, Mr Cripps conducted an investigation and provided a report.
On 30 October 2012 Mr Roger Wilkinson, Willis' Chairman and Chief Executive Officer, gave the respondent a letter of suspension. He met with the respondent again on 31 October 2012 and gave him a copy of Mr Cripps' report. The respondent sought time to review and respond to the report, and to seek legal advice.
On 9 November 2012 Mr Wilkinson met with the respondent and with Mr Cripps. The respondent provided them with a letter responding to the allegations but, after a break to enable them to read and consider the letter, Mr Wilkinson indicated that the respondent's employment with Willis was terminated with immediate effect.
In his letter, the respondent denied that he was intoxicated at work on 29 November but stated that he was "very tired, as a result of socialising the night before, and that [he] did drink too much when [he] 'kicked on'." He then referred, by way of mitigation, to personal issues which he said had caused him to increase his alcohol consumption over the previous 18 months and which led to health issues. He said that any slurring of his speech may have been attributable to an injury to his tongue and that any apparent lack of balance may have been attributable to the loss of the sole of one of his shoes. The primary judge rejected these explanations (Judgment [79] and [80]). The respondent did not file a Notice of Contention challenging that rejection.
The respondent concluded his letter by saying that "I sincerely apologise for what has occurred. I ask that the Company take my service and the circumstances into account. It was a one-off and will not happen again".
The respondent submitted at first instance that Mr Cripps' investigation did not comply with the contract between the parties and that Willis' power to terminate needed to be, but was not, exercised honestly and not arbitrarily or capriciously. The primary judge did not deal with these issues as he found in the respondent's favour on other grounds. It is similarly unnecessary to deal with these issues on appeal as the respondent did not file any Notice of Contention asserting that the primary judge's decision could be supported on these grounds in the event that it was unable to be supported on the ground on which the primary judge relied.

THE APPEAL ON LIABILITY - WHETHER SUMMARY DISMISSAL JUSTIFIED

The primary judgment

The primary judge's reasons for finding that the respondent's conduct did not justify summary termination contained the following principal elements.
First, there was no evidence of any adverse effect on other staff or on staff morale, behaviour or discipline as a result of what his Honour had concluded was the respondent's "low-level" intoxication at the Sales 2.0 conference (Judgment [93]).
Secondly, the behaviour that Willis relied on as evidence of the respondent's intoxication was likely to have had little impact on the junior staff or the presenters because the respondent was at the back of the room and his loud talking and smell of alcohol may not have reached them at the front of the room (Judgment [94]). His throwing of the lolly and making of animal noises were of limited significance (ibid).
Thirdly, Willis had a relaxed approach to alcohol consumption whilst staff were at work or related events. There was some evidence that its policy was that its brokers should "follow the client" in this respect (Judgment 97]).
Fourthly, the respondent had minimal involvement in the Sales 2.0 conference (because he was asked to leave, Judgment [92]). He was also able to complete work on budgets with Ms Culvenor (Judgment [99]).
Fifthly, the respondent had not previously been disciplined for attending work intoxicated and there was no evidence that his behaviour on 29 October 2012 had ever occurred before (Judgment [100]).
Sixthly, his conduct did not impact on client relations (Judgment [102]).
Seventhly, the respondent did not engage in "excessive ordering" of alcohol at the Alluvial Restaurant or the Irish Times (Judgment [109]). Nor did the respondent's conduct in the lounge area of the RACV Hotel in the early hours of 30 October 2012 (and possibly at the Irish Times) constitute misconduct in a public place (Judgment [110]).
The primary judge concluded as follows: "104 A proper reading of the contract of employment, including the Willis policies, read in the context of Willis practices in relation to alcohol, indicates that intoxication at work, of itself, is not sufficient to warrant summary dismissal for gross misconduct. Something more is required, some aggravating conduct such as repetition of the intoxication, a severe level of intoxication, adverse impact on employee or client safety, violence, offensive conduct or offensive language, a serious impact on reputation or significant financial loss. But none of these features or other aggravating features existed in this case. Here there was a manifestation of low-level intoxication, without other consequences or behaviour of significance. Mr Mitchell-Innes spent most of the time at the back of the room, by himself working on his iPad. In my view, this behaviour, Mr Mitchell-Innes' condition at the conference, does not constitute a repudiation of the agreement, or other sufficiently serious misconduct enlivening a power of summary termination. It was not serious misconduct in serious circumstances."

Willis' submissions on appeal

First, Willis challenged the primary judge's finding that the respondent was at a low-level of intoxication at the start of the conference session. As I have indicated, this challenge succeeds. However, in my view, the respondent was intoxicated to a significant extent, rather than highly intoxicated as submitted by Willis.
Secondly, Willis submitted that the respondent's behaviour at the Irish Times took place at a work-related function and included excessive ordering of alcohol. I reject these two propositions (see [18]-[22] above).
Thirdly, Willis submitted that the respondent's behaviour at the Irish Times and the RACV Hotel occurred in a public place. Whilst this is to some extent accurate, the respondent's behaviour at the Irish Times did not constitute misconduct (see [23] above). Whether that in the hotel did will be addressed below.
Fourthly, Willis challenged what it said was a finding by the primary judge that the respondent's behaviour "merely involved him clowning around and caused minimal disruption at the conference". Rather, Willis contended, "the respondent's behaviour at the conference involved him speaking incoherently, scrawling incomprehensively during a breakout session, and engaging in other disruptive behaviour, in front of junior staff, at a significant training conference, causing significant disturbance."
Fifthly, Willis submitted that the respondent's conduct at the conference "took place at an important work event, before some 30 of the most promising young sales managers; this conduct was fundamentally contrary to proper behaviour of a manager setting an example to such employees, and this was so regardless of whether evidence was called from such employees; it constituted serious misconduct."
Sixthly, Willis submitted, contrary to the primary judge's finding (see Judgment at [90]-[91]), that Mr Wilkinson's statement to senior management at a meeting on 15 and 16 October 2012 that he expected them to be disciplined and would operate a three strike policy, was a general warning encompassing misconduct such as that alleged in these proceedings against the respondent.
Seventhly, contrary to the primary judge's finding, Willis submitted that the respondent's intoxication on 28 and 29 October 2012 was not to be regarded as "a solitary, one-off event" because the respondent had previously been warned about his practice of having long lunches and returning with obvious signs of alcohol consumption.
Eighthly, Willis challenged the primary judge's finding that intoxication at work was, of itself, insufficient to warrant summary dismissal and that some aggravating factor was required to justify that result.
In summary, Willis submitted that the following matters justified the respondent's summary dismissal: "(a) the respondent had been given a warning about intoxication at work and the need to demonstrate strict compliance with the Company's standards of behaviour; (b) the respondent's intoxication, and excessive ordering of alcohol, took place in public at the Irish Times and the RACV Hotel; (c) the respondent's behaviour created the risk of reputational damage; (d) the respondent's intoxicated behaviour resulted in him arriving at least one hour late at an important work event where he became a significant source of disruption to others; (e) the respondent could not fulfil properly his role as an 'observer' as he acted incoherently during the breakout sessions; (f) most importantly, the respondent's conduct was fundamentally inconsistent with setting a proper example for junior staff members."
Paragraph (a) was a reference, first, to evidence of Mr Lindhout, the respondent's superior, that in late 2011 Mr Lindhout had told the respondent that there was a perception that he was a "person who has long lunches with alcohol and that you might come back to the office and the effects are visible." Mr Lindhout said that he would be very concerned if he observed such conduct. Secondly, it referred to the statement to senior management described in [75] above.
The respondent's submissions, in addition to relying upon the primary judge's reasoning, emphasised the following:
First, he emphasised that he had given good service to Willis which Willis had recognised on many occasions (see [4] above).
Secondly, he referred to the personal issues described in his letter of 9 November 2012 (see [58] above) which led to an increase in his alcohol consumption in 2011 and 2012.
Thirdly, he referred to his evidence that Willis "had a culture of tolerating and encouraging excessive consumption of alcohol in a work context" and that Willis "routinely reimbursed alcohol expenses resulting from employee gatherings or entertaining clients" (see Judgment [6]).
Fourthly, he referred to evidence that Mr Wilkinson had told Mr Lindhout that he wanted "to get rid of" the respondent.
Fifthly, he submitted that there was no evidence that the Sales 2.0 conference "represented a significant event in the Willis work calendar".
Sixthly, he emphasised that his conduct had not had any adverse effect on other staff or staff morale, behaviour or discipline.

Relevant legal principles

The primary judge treated the general law of summary termination of employment as relevant to determining the proper construction of the contract between Willis and the respondent (Judgment [31]). On appeal, neither party suggested that there was any error in that approach.
In Blyth Chemicals Ltd v Bushnell [1933] HCA 8; 49 CLR 66, Starke and Evatt JJ said: "As manager for the appellant, the respondent was in a confidential position. And it is clear that he might be dismissed without notice or compensation if he acted in a manner incompatible with the due and faithful performance of his duty, or inconsistent with the confidential relation between himself and the appellant. The degree of misconduct that will justify dismissal is usually a question of fact" (at 72-73, citations omitted).
In support of the last sentence, their Honours cited Clouston & Co Ltd v Corry [1906] AC 122 in which there were allegations against the employee of "misconduct, drunkenness [and] the use of foul language in public" which were "virtually admitted" to be true (at 129). The House of Lords held that the case should be left to the jury because whether the facts proved justified the employee's dismissal was a question of fact. Their Lordships continued: "In the present case the tribunal to try all issues of fact was a jury. Now the sufficiency of the justification depended upon the extent of misconduct. There is no fixed rule of law defining the degree of misconduct which will justify dismissal. Of course there may be misconduct in a servant which will not justify the determination of a contract of service by one of the parties to it against the will of the other. On the other hand, misconduct inconsistent with the fulfilment of the express or implied conditions of service will justify dismissal. Certainly when the alleged misconduct consists of drunkenness there must be considerable difficulty in determining the extent or conditions of intoxication which will establish a justification for dismissal. The intoxication may be habitual and gross, and directly interfere with the business of the employer or with the ability of the servant to render due service. But it may be an isolated act committed under the circumstances of festivity and in no way connected with or affecting the employer's business. In such a case the question whether the misconduct proved establishes the right to dismiss the servant must depend upon facts - and is a question of fact. If this be so, the questions raised in the present case had to be tried by jury" (ibid).
In Blyth Chemicals Ltd v Bushnell, Dixon and McTiernan JJ said: "Conduct which in respect of important matters is incompatible with the fulfilment of an employee's duty, or involves an opposition, or conflict between his interest and his duty to his employer, or impedes the faithful performance of his obligations, or is destructive of the necessary confidence between employer and employee, is a ground of dismissal" (at 81, citations omitted).
These passages from Blyth Chemicals Ltd v Bushnell were cited with approval by the plurality of the High Court in Concut Pty Ltd v Worrell [2000] HCA 64; 75 ALJR 312 at [25].
Finally, in Rankin v Marine Power International Pty Ltd [2001] VSC 150; 107 IR 117 Gillard J said: "250 The authorities do establish that the employee's breach of contract of employment must be of a serious nature, involving a repudiation of the essential obligations under the contract or actual conduct which is repugnant to the relationship of employer-employee, before an employer may terminate the contract summarily. Isolated conduct usually would not suffice. Each case must be considered in the light of its particular circumstances, but nevertheless, the seriousness of the act of termination and the effect of summary dismissal are factors which place a heavy burden on the employer to justify dismissal without notice. The circumstances do not have to be exceptional, but nevertheless, must establish that the breach was of a serious nature."

Application of legal principles to the facts

Against this background, I turn to the terms of the contract between Willis and the respondent. For Willis' power to summarily dismiss the respondent to arise, the termination provision in the contract letter (see [8] above) relevantly required not only that the respondent be guilty of "serious misconduct" but also that that occur "in serious circumstances". The structure of the clause made it clear that proof of "serious misconduct" was not enough in itself to entitle Willis to dismiss the respondent.
Willis' Code of Work (see [9] above) specifically identified certain alcohol-related behaviour as amounting to misconduct. To make sense of the expression "refusal to comply with any lawful order excessive ordering and/or distribution of alcohol intoxicated behaviour" a comma should be inserted after the words "order" and "alcohol". For reasons that I have given above at [21], I do not consider that Willis established that there was "excessive ordering" by the respondent. However, it did establish that, in breach of its Code of Work, the respondent engaged in "intoxicated behaviour" on the Monday morning at the RACV Hotel and the Sales 2.0 conference. The word "behaviour" in the relevant provision indicates that intoxication in a purely private setting was not proscribed. In this case, the respondent's conduct was not in a purely private place as his intoxication affected his behaviour as observed by others at both places. The evidence did not however support a similar conclusion concerning his conduct at the Irish Times.
Willis' disapproval of intoxication in the workplace was emphasised by clause 26.2 of its Code of Work (see [9] above).
The same can be said of the "examples of disciplinary counselling" contained in clause 4.5 of Willis' Disciplinary Counselling Policy (see [10] above). Clause 5 of that Policy provided for a staged approach to disciplining employees, with it being possible to abbreviate the process in the most serious cases.
Clause 6 of the Policy, entitled "Gross Misconduct", stated that "the most severe type of misconduct" was to be dealt with by summary dismissal. The second last of the examples given of "Gross Misconduct" in that paragraph (see ibid) included "intoxication" but that reference was limited by the phrase "which endangers the wellbeing of Willis' staff or clients, or which could seriously damage Willis' reputation." In my view, this qualification was not satisfied in respect of the respondent's conduct on the morning of the Monday at the RACV Hotel and at the conference. His conduct did not endanger the well-being of Willis' staff or clients and was not such as could have seriously damaged Willis' reputation. His conduct at the hotel was, on the evidence, only observed by a limited number of people and whilst inappropriate would not have damaged Willis' reputation. Also, the evidence did not establish that the respondent's conduct at the conference damaged Willis' reputation in the eyes of its staff, its clients or others. There were no clients involved and those who observed his behaviour were principally senior staff.
As I see it, the contract of employment required a two-step approach to summary dismissal. The first step involved characterisation of the employee's conduct as "serious misconduct". In my view the respondent's conduct at the conference was of this character. To attend at the conference in an intoxicated state was itself serious misconduct. To behave in an inappropriate way by, for example, talking loudly, attending smelling of alcohol, making animal noises and throwing a lolly was serious because it resulted from his intoxication.
In my view, the respondent's conduct on the Monday morning at the RACV Hotel also constituted serious misconduct. It arose from his voluntary ingestion of alcohol. Whilst it is unnecessary to characterise the place where he was found asleep as a public place, it was clearly one where he was able to be observed, and was observed, by a number of people staying or working at the hotel. His condition when Mr Stratas took him to the ground floor of the hotel and then to his room had the potential to be observed by a large number of people, both employees of Willis and others, and to cause serious embarrassment to Willis and consequently damage its reputation if the respondent's identity was known, or became known, to such persons. The fact that, on the evidence, these consequences did not result was fortunate from both Willis' and the respondent's points of view.
The fact that consumption of alcohol was part of the culture of Willis' business did not justify the respondent's conduct. The evidence did not suggest that irresponsible or excessive consumption of alcohol was encouraged and its written policies made it plain that it was in fact proscribed. Those policies formed part of the respondent's contract and the respondent accepted in cross-examination that he was familiar with them because his responsibilities included supervising and disciplining employees junior to him in the organisation.
The second step to be taken is to consider whether the respondent's serious misconduct was serious enough to justify summary termination of his employment. As I have pointed out earlier, the question of what disciplinary action should be taken must arise "in serious circumstances" for the power to summarily dismiss to arise. The word "serious" in this phrase, and in the expression "serious misconduct", is a relative term having no precise meaning. The determination of whether misconduct is "serious" and whether the circumstances in which its consequences arise for consideration are "serious" involves a value judgment about which minds are likely to differ.
It is clear however that something more is required than just serious misconduct. Both under the contract of employment and the general law, the circumstances must justify the employer taking a step that usually has very severe adverse consequences for the employee, both from a financial and reputational viewpoint. As Gillard J said in Rankin v Marine Power International Pty Ltd (see [92] above), the burden on the employer to justify summary dismissal is heavy. The passage from Clouston & Co v Corry that I have quoted (see [89] above) highlights the "difficulty in determining the extent or conditions of intoxication which will establish a justification for dismissal." Their Lordships instanced a number of factors including the frequency or otherwise of the employee's intoxication, the degree of intoxication and the extent of interference with the employer's business. Particularly in light of this contract's use of the term "in serious circumstances", the employee's conduct must be considered not only in its immediate context but in the context of the relevant employment history and business. Thus, for example, intoxication in the workplace might be regarded as more serious if it occurs in the first week of employment than if it is the first occasion after years of good service.
Although I consider that the respondent engaged in serious misconduct, I do not consider that it satisfied the "in serious circumstances" requirement and therefore did not justify his summary dismissal. I have reached this conclusion by considering the context of his employment as a whole, in particular:

The respondent's many years of good service with Willis, for which he received appropriate commendations and financial rewards.
Whilst he had been told by Mr Lindhout not to engage in long lunches and return showing signs of intoxication, there was no evidence to conclude that he did not comply with that instruction. Moreover, whilst not excusing his returning to work showing signs of intoxication, the long lunches he had prior to this warning could well have been in pursuance of Willis' culture of entertaining clients and following their lead so far as food and alcohol consumption were concerned.
The evidence did not indicate that the respondent's condition at the RACV Hotel early on the Monday morning was observed by more than a limited number of people and it did not indicate that Willis' reputation was harmed.
The evidence did not indicate that Willis' reputation was harmed by the respondent's condition or conduct at the Sales 2.0 conference on the Monday morning. There were no clients present and there was no evidence that Willis' reputation was diminished in the eyes of its junior staff.
In his letter of explanation, the respondent apologised for what had occurred and undertook not to let it occur again.
There were personal circumstances that to some extent explained the respondent's conduct, although they did not justify it.
The respondent's role as an observer at the conference was intended to be (and was) a limited one. His evidence that the observers were free to come and go as they chose was unchallenged.
The timely response of the respondent's colleagues to his condition at the conference limited the time that it was observable to others.

Because Willis was not justified in summarily terminating the respondent's employment and it therefore breached its contract with him, it is necessary to consider Willis' appeal against the primary judge's assessment of damages.

The judgment at first instance

Having reviewed the authorities, the primary judge concluded that, in assessing damages, he should determine what was likely to happen if the respondent's employment had not been wrongfully terminated. This gave rise to the question of whether and, if so, when Willis would have exercised its right under the contract to terminate the respondent's employment, without cause, by giving six months' notice of termination (see [8] above).
His Honour concluded as follows: "137 Ultimately, the onus was on Mr Mitchell-Innes to establish his loss. Although I should not readily draw the inference that Mr Wilkinson would immediately terminate Mr Mitchell-Innes' employment by notice in November 2012 if he could not do so summarily, that does not mean that I should assume that Mr Mitchell-Innes would remain in employment indefinitely where his immediate supervisor wanted his employment terminated and had the power to do so on six months' notice. 138 Doing the best I can, and bearing all these matters in mind, I have assessed Mr Mitchell-Innes as having a 60% chance of remaining in employment for a further approximately eight and a half months without being given notice until 31 July 2013. 139 After 31 July 2013 I have assessed Mr Mitchell-Innes' prospects of not being given notice as declining below 50%, and declining with time. There is also the prospect that over time his present employment would become as valuable as his employment with Willis would have been. The base salary differential is small, and bonus arrangements and prospects for the future with his new employer, and with Willis, grow more uncertain the further one attempts to peer into the future. 140 In these circumstances, I propose to assess Mr Mitchell-Innes' damages as if he was given notice on 31 July 2013. His employment would thus cease on 31 January 2014. Accordingly, he, on this approach, would be awarded 100% of the anticipated benefits until 31 July 2013, 100% of the anticipated benefits that would accrue to a person on notice in the period 1 August 2013 to 31 January 2014 and none of the anticipated benefits thereafter. 141 While this exaggerates the loss until 31 July 2013, it understates the loss thereafter and in my view fairly calculates his prospects of lost benefits in the future. It also fairly represents what I assess to be the point where the likelihood of receiving notice of termination exceeds the likelihood of not receiving notice, and also represents the midpoint in the assessment of the declining loss over time. There is some artificiality in the date, but assessment of future loss is not an exact science, and in my view the date represents the best assessment the Court can do on the evidence available. 142 No issue was taken about liability as between the defendants, and Willis indicated no opposition to orders being made against both defendants. I recognise that some of the bonuses would have been paid by Willis companies other than the first defendant, but this is not a claim for unpaid bonuses but a claim for damages for breach of contract. The fact that, if Mr Mitchell-Innes remained in employment with Willis, the bonuses would be paid by another Willis company, or for that matter, a third party, does not diminish the entitlement of Mr Mitchell-Innes to recover those amounts lost as damages from the defaulting contracting party (cf Amann at 102 per Brennan J), so long as the rule in Hadley v Baxendale is satisfied."
His Honour awarded damages (before interest) of $265,895.01, representing lost salary, retention bonuses and lost long service leave entitlements.

Long service leave entitlements

One matter that can be disposed of immediately is his Honour's finding concerning the respondent's long service leave entitlements.
Pursuant to s 4 of the Long Service Leave Act 1955 (NSW), the respondent would lose any relevant long service leave entitlements if the reason for Willis' termination of his employment was properly characterised as because of his "serious and wilful misconduct."
His Honour found that the appropriate enquiry was as to the actual basis for termination rather than the reason that Willis gave to the respondent as its reason. Because Willis' purported summary dismissal of the respondent was not justified and was in breach of contract, his Honour held that the respondent's long service leave entitlements were not affected by the termination because the respondent had not in fact been guilty of "serious and wilful misconduct."
On appeal, Willis conceded that the respondent would retain his long service leave entitlements if it failed to justify his summary dismissal. As I have concluded that his summary dismissal was not justified, Willis' appeal must fail so far as it relates to the respondent's long service leave entitlements.

The submissions on appeal

Willis' written submissions on appeal stated that the primary judge should have, but did not, apply the principle discernible from the authorities that "the employer [is] presumed to have exercised its right to terminate without cause in circumstances where it [has] dismissed with purported, but not actual, cause." Alternatively, Willis submitted that that principle identifies "a strong starting presumption, subject only to clear evidence to the contrary".
In submitting that the presumption was not rebutted in the present case, Willis relied particularly upon the facts that it purported to summarily dismiss the respondent, that Mr Wilkinson had made it clear to senior executives that he expected them to strictly adhere to the standards of conduct and behaviour in the applicable policy documents (see [9]-[10], [75] above) and that Mr Wilkinson had, prior to 28 October 2012, evinced a desire to terminate the respondent's employment (see [84] above). Further, Willis submitted that the primary judge had not identified any sound or rational basis for concluding that Willis would not have given a notice of termination until 31 July 2013.
Willis submitted that, but for its wrongful termination, Willis would immediately after 29 October 2012 have given the respondent six months' notice of termination of his employment. Alternatively, Willis submitted that the primary judge should have made a significant deduction for the contingency that the respondent would have been dismissed prior to 31 January 2014 (the date when the period of six months from the assumed notice of 31 July 2013 expired) and an allowance for other vicissitudes of life in accordance with standard practice when assessing damages (see State of New South Wales v Moss [2000] NSWCA 133; 54 NSWLR 536 at [31]).
In response, the respondent relied upon the primary judge's reasoning and submitted that it was unlikely that Willis would have dismissed him on notice if it was not able to dismiss him summarily. He referred to his good service, satisfactory performance of his duties and the absence of termination of the employment of any other executives on notice.
He also relied on the fact that Willis did not call Mr Wilkinson to give evidence concerning his reasons for deciding to summarily terminate the respondent's employment. The respondent acknowledged that Mr Wilkinson had told Mr Lindhout that he wanted to "get rid of" the respondent on several occasions but submitted that Mr Wilkinson's inability to give effect to his repeated desire before 9 November 2012 was evidence that the chance of such termination was low.

Legal principles

In TCN Channel Nine Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 the question arose as to whether the damages payable by a party to a contract for its repudiation of the contract should automatically be restricted by that party's lawful right to terminate. In other words, if a party had a right to terminate a contract without cause on, for example, six months' notice but wrongfully purported to terminate the contract immediately, should the damages payable by it be limited to the six month period for which the party was contractually obliged to keep the contract on foot? In that case, Hope JA (with whom Priestley and Meagher JJA relevant agreed) held that there was no such automatic restriction, that the Court was not obliged to assess damages by reference to "an improbable factual hypothesis" and that regard therefore needed to be had to the facts of each case to determine whether the repudiating party, if it had not repudiated, would have exercised its lawful right of termination (at 154). His Honour continued: "In some cases, the evidence may be silent as to whether the defendant would have exercised the option apparently favourable to himself; in other cases, although not silent, the evidence may not justify a finding that the defendant would not have exercised it. In these cases it can be said that it is "a natural inference from the terms of the contract" that the defendant would have exercised that option which in terms benefits him: cf Evans Marshall & Co Ltd v Bertola SA [1975] 2 Lloyd's Rep 373 at 390 per Buckley LJ. It is not a natural inference when the facts point to the opposite conclusion. In my opinion, consistently with the many authorities which establish that regard can be had to evidence of facts between the time when a cause of action arises and the time of trial in order to produce certainty where there would otherwise be uncertainty, the general preference of the law for fact rather than hypothesis is applicable to the principle under consideration. That principle does not require the assessment of damages to be based on a fiction in disregard of the actual facts" (at 156).
Mason CJ and Dawson J approved this approach in Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; 174 CLR 64 where their Honours said: "Where compensation is sought in respect of the deprivation of a possible benefit which is dependent upon the unrestricted volition of another it may be impossible to say that any assessable loss results from the breach. However, this statement must be understood in the light of the principle that the mere existence of a contractual right in a party to terminate does not operate automatically to restrict the damages that can be awarded. The court does not reach a conclusion by reference to an improbable factual hypothesis. The court must have regard to the facts and evaluate the possible exercise of the right in all the relevant circumstances of the case. Moreover, in determining what is or would be beneficial for the defendant, the court does not confine its attention to the relationship between the plaintiff and the defendant; it would be wrong to reduce the defendant's legal obligations to the plaintiff on the footing that he or she would incur greater loss in other respects" (at 93, citations omitted; see also Brennan J at 114).
As authority for the proposition stated in the fourth sentence of this passage their Honours cited Hope JA's judgment in TCN Channel Nine v Hayden Enterprises at 154.
Subsequent cases in which this approach has been adopted include Tasmania Development & Resources v Martin [2000] FCA 414; 97 IR 66 at [37]; Walker v Citigroup Global Markets Australia Pty Ltd [2006] FCAFC 101; 233 ALR 687 at [84] and McDonald v Parnell Laboratories (Aust) Pty Ltd [2007] FCA 1903; 168 IR 375 at [79]-[80].
A different approach was taken in New South Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68 at 80-81 and Murray Irrigation Ltd v Balsdon [2006] NSWCA 253; 67 NSWLR 73 at [52]-[58]. This Court applied a different principle but did not refer to its earlier decision in TCN Channel Nine v Hayden Enterprises or to the High Court's approval of that decision in Commonwealth v Amann Aviation. In NSW Cancer Council v Sarfaty and Murray Irrigation v Baldson, the Court treated the legal entitlements of the parties, rather than the practical reality of what would have happened if repudiation had not occurred, as relevant. This was inconsistent with the authority and, in my view, sound reasoning of TCN Channel Nine v Hayden Enterprises and in Commonwealth v Amann Aviation, and should not be applied.

Determination of the appeal

It is therefore necessary to determine as a matter of probability whether, but for its wrongful summary dismissal, Willis would have given the respondent six months' notice of termination and if, so, when. This requires the Court, as was suggested in argument, to postulate a situation in which all the facts remained as they occurred but Willis formed the view that, or was advised that, it was not entitled to summarily terminate the respondent's employment. This does not mean that the respondent's conduct should be ignored or that Willis should be taken to have adopted a more benign approach to it.
If this approach is taken, it is to my mind clear, at least on the balance of probabilities, that Willis would have given immediate notice of termination. Its adverse view of the respondent's conduct would have been unchanged but it would have known that it could not summarily terminate the respondent's employment. There is no apparent reason why it would not have given effect to its adverse view of that conduct by dismissing him on notice. The evidence that Mr Wilkinson had on several occasions evinced a desire to "get rid of" the respondent confirms the likelihood of this occurring. It is true, as the respondent points out, that Mr Wilkinson had not given effect to this desire prior to the Sales 2.0 conference but the respondent's misconduct at that conference provided him with the opportunity to do so, and the excuse for doing so. It is not necessary, as Willis contended was appropriate, to conclude that there is a presumption in such a situation that such a contractual power would be exercised. It is sufficient to consider the issue as a matter of fact and regard the probability of Willis exercising its right to give six months' notice of termination as a "natural inference" in the circumstances (see TCN Channel Nine v Hayden Enterprises quoted at [117] above).
The respondent submitted that Mr Wilkinson's statement in the letter of termination that he no longer had trust and confidence in the respondent to perform his duties should not be given any weight. The respondent submitted that if Mr Wilkinson had been called to say that in evidence, it could have been "tested and assessed" and the respondent could have asked him about: 1. The consequences for his expressed opinion which would have flowed from Willis' woeful failure to conduct a thorough investigation; 2. The issue as to whether the respondent, a person of some prominence in the organisation, and with the organisation's clients, would have been publicly terminated without cause; 3. The issue as to whether London HQ might have intervened.
However, as to the first issue, if Willis' investigation was as inadequate, as the respondent submitted it was, that would not suggest that Mr Wilkinson would have been any the less likely to act on it to terminate the respondent's employment on notice rather than summarily. Furthermore, the second issue mentioned, concerning the respondent's prominence with the organisation and clients, did not deter Willis from summarily terminating the respondent's employment. It is difficult to see how it would have deterred it from doing so on notice. Likewise, as to the third issue, as "London HQ" did not intervene to prevent a summary termination, it is difficult to see why it would have done so if the termination had been on notice in respect of the same misconduct that was used to attempt to justify the summary termination.
Re-quantification of the respondent's damages in light of a finding that Willis would have immediately given six months' notice of termination should be able to be agreed upon by the parties without difficulty. They have sought the opportunity to do that.
The only other possible issue is one that the respondent raised in relation to the cross-claim by which Willis sought repayment of certain retention awards arising in the event of termination by Willis. The respondent submitted that this meant lawful termination in accordance with Willis' contractual rights. Willis did not contradict that submission, which is plainly correct.

CONCLUSION AND ORDERS

For the reasons above, I have concluded that the primary judge's finding that Willis' summary termination of the respondent's employment was in breach of contract was correct but that his Honour's assessment of damages was erroneous because he did not base it upon a finding that, but for Willis' invalid purported termination, Willis would have immediately after 29 October 2012 terminated the respondent's employment on six months' notice.
I propose the following orders: 1. Appeal in relation to the assessment of damages allowed. 2. Appeal on liability dismissed. 3. Set aside Orders 1, 2 and 3 made at first instance on 8 December 2014. 4. Direct that the parties file and serve written submissions concerning the quantification of damages and costs orders as follows: 1. The appellant within 14 days of this judgment. 2. The respondent within a further 14 days. 3. Any response by the appellant within a further 7 days.
WARD JA: I have had the opportunity of reading in draft Macfarlan JA's reasons. I agree with his Honour that the appeal should be allowed in relation to the assessment of damages. After some hesitation, I have also come to the conclusion that the appeal on liability should be dismissed. The reason for my hesitation in that regard is as follows.
There can be no real doubt, having regard to the evidence as to what occurred during the 16 hours or so before Mr Mitchell-Innes' attendance at the conference and the contemporaneous accounts of his appearance and behaviour at that conference, that Mr Mitchell-Innes was in a significant state of intoxication when he arrived at the conference. His denial of intoxication is completely inconsistent with the evidence.
Macfarlan JA has referred (at [15]) to Mr Mitchell-Innes' concession that he had consumed 14-17 alcoholic drinks prior to his attendance at the conference. That seems to be based on the primary judge's tally of the various drinks that Mr Mitchell-Innes agreed in the witness box he had drunk. On my tally of that evidence the correct figure is 15-18, though I accept that is not a material difference. Nevertheless, Mr Mitchell-Innes' concession should be understood as being that he drank "at least" that many drinks, since Mr Mitchell-Innes agreed that he could have drunk more than the "at least three to four glasses of wine" at the dinner that are included in that tally (T 76) and did not have a clear recollection (because he was not paying attention when the waiters were filling up the glass) (T 77) and agreed that he was drinking constantly throughout the evening.
I agree with Macfarlan JA that it amounted to serious misconduct for Mr Mitchell-Innes to have attended the conference in that state of intoxication and to have behaved as inappropriately as Mr Mitchell-Innes did at the conference. Mr Mitchell-Innes' attempt in the witness box to downplay the seriousness of his conduct (to some examples of which Macfarlan JA has referred), which is illustrated by Mr Mitchell-Innes' dismissive response at T112.26 ("I was taking it [the conference] as seriously as I thought necessary"), cannot be accepted. I also agree that it was serious misconduct for Mr Mitchell-Innes to have behaved as he did in the public area of the RACV Hotel while staying there in connection with the work conference.
Where I have had some misgiving is as to the conclusion that his conduct at the conference, though serious misconduct, was not serious misconduct "in serious circumstances". That there were no clients present and that his role at the conference was a limited one must be balanced against the fact that not only were there in attendance a number of senior staff for whom his conduct should have set an example but also that the session he attended was being facilitated by an external consultant from the United Kingdom. Mr Mitchell-Innes' conduct clearly had the potential to damage the reputation of Willis not only in the eyes of the senior staff, many of whom reported to him, but also in the eyes of the external facilitator. The fact that it may not have caused any or any lasting damage to Willis' reputation does not gainsay that it had the potential to cause such damage.
Nevertheless, as Macfarlan JA has noted, there was no evidence that Willis' reputation was diminished in the eyes of junior staff. Nor was there any evidence of the reaction of the facilitator to Mr Mitchell-Innes' conduct. That, and the fact that the response of Mr Mitchell-Innes' colleagues was to procure his relatively swift departure from the conference, has led me ultimately to agree with Macfarlan JA that this was not serious misconduct "in serious circumstances". However, I would not want it to be thought that simply because serious misconduct of this kind occurred in an internal staff training seminar in the absence of clients it could not in other circumstances have amounted to conduct sufficient to warrant summary dismissal under the applicable provisions of Mr Mitchell-Innes' contract of employment.
That said, I agree with the orders Macfarlan JA has proposed.
LEEMING JA: I agree with the orders proposed by Macfarlan JA. Subject to the following, I also agree with his Honour's reasons.
I agree that the purported summary termination of Mr Mitchell-Innes was wrongful. Although Mr Mitchell-Innes' conduct was, so far as the evidence discloses, a serious breach of his obligations as a senior employee, and more serious than was regarded by the primary judge, it was not shown that it was sufficiently serious so as to justify summary termination. The position may well have been different had Willis adduced evidence of damage to its reputation. I agree with the caution stated by Ward JA at [135] that, in other circumstances, comparable conduct might be sufficient to warrant summary dismissal.
I agree with what Macfarlan JA has said as to what the evidence disclosed would have happened had Willis been of the view that it could not summarily terminate Mr Mitchell-Innes. In those circumstances, it seems to me that it is not necessary to express a view about the cogency of the reasoning of Gleeson CJ and Handley JA in NSW Cancer Council v Sarfaty (1992) 29 NSWLR 68 at 80-81, because this is a case where the practical reality of what would have happened was the same as the parties' legal entitlements. In those circumstances I would prefer not to decide the point.

Amendments 03 December 2015 - Corrections to Coversheet and [118]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 December 2015

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Cases Cited (13)