Windrum and Anor v Matrix Healthcare Pty Ltd t-as Combined Pathology and Anor

CORAM: Boland J President; Haylen J; Backman J

Appeal - Leave to appeal - Unfair contract - Contract between pathologist and his service company and pathology company - Contract terminated summarily - Claim for relief dismissed at first instance - Whether first appellant consented to variation of contract - Whether first appellant overcharged respondents for services - Whether first appellant passed on confidential business information to a business competitor in breach of contract - whether first appellant's behaviour and work performance were such as to provide grounds for summary termination of the contract - Whether first appellant was accorded procedural fairness by the respondents in their decision to summarily terminate the contract - Unfairness found on appeal - Notice - Mitigation - Contract varied - Compensation ordered. CATCHWORDS: Unfair contract - Appeal - Contract between pathologist and his service company and pathology company - Contract terminated summarily - Claim for relief dismissed at first instance - Whether first appellant consented to variation of contract - Whether first appellant overcharged respondents for services - Whether first appellant passed on confidential business information to a business competitor in breach of contract - whether first appellant's behaviour and work performance were such as to provide grounds for summary termination of the contract - Whether first appellant was accorded procedural fairness by the respondents in their decision to summarily terminate the contract - Unfairness found on appeal - Notice - Mitigation - Contract varied - Compensation ordered.

LEGISLATION CITED: Industrial Relations Act 1996

Adami v Maison De Luxe Ltd (1924) 35 CLR 143 Bowman v Ricegrowers Limited (formerly Ricegrowers' Co-operative Limited) (2007) 167 IR 325 Briginshaw v Briginshaw & Anor (1938) 60 CLR 336 Clarke and Metropolitan Meat Industry Board [1967] AR 16 Concut Pty Ltd v Worrell & Anor (2000) 103 IR 160 CASES CITED: Laws v London Chronicle (Indicator Newspapers) Ltd (1959) 1 WLR 698 Milne & Anor v Attorney General for the State of Tasmania (1956) 95 CLR 460 Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567 Westfield Holdings v Adams (2001) 114 IR 241 Windrum & Anor v Matrix Healthcare Pty Ltd t/as Combined Pathology & Anor (No 2) [2007] NSWIRComm 310 Windrum & Anor v Matrix Healthcare Pty Ltd trading as Combined Pathology & Anor [2007] NSWIRComm 96

APPELLANTS Mr P M Kite SC with Mr Coleman of counsel Solicitor: Mr S Chapman TressCox Lawyers LEGAL REPRESENTATIVES:

RESPONDENTS Mr M J Kimber SC with Mr A Connolly of counsel Solicitor: Mr M Trisley Trisley Lawyers

GRAHAM WINDRUM AND ANOR v MATRIX HEALTHCARE PTY LTD T/AS COMBINED PATHOLOGY AND ANOR

Application by Graham Windrum and another for leave to appeal and appeal against a decision of Justice Staff given on 14 December 2007 in matter No. IRC2739 of 2005

1 From 1 July 2001, Dr Graham Windrum ("the first appellant") commenced providing pathology services as an independent contractor to Matrix Healthcare Pty Ltd t/as Combined Pathology ("Matrix" or "the first respondent"). From about January 2004, and at the request of a director and secretary of Matrix, Mr Peter Court ("the second respondent"), the first appellant provided his services through his company, Monkerai Pathology Services Pty Limited ("the second appellant"). In May 2005, the contract (as determined in the interlocutory proceedings in Windrum & Anor v Matrix Healthcare Pty Ltd trading as Combined Pathology & Anor [2007] NSWIRComm 96) between the appellants and the respondents was summarily terminated "primarily due to gross neglect of duty and a severe breach of confidentiality". The appellants sought relief pursuant to s 106 of the Industrial Relations Act 1996 ("the Act").

2 By their summons, Dr Windrum and Monkerai sought an order declaring void in whole or in part, from an appropriate date, the contract. An order was also sought that Matrix and Mr Court, jointly and severally, pay Dr Windrum and Monkerai a sum representing 12 months' remuneration under the contract.

3 In Windrum & Anor v Matrix Healthcare Pty Ltd t/as Combined Pathology & Anor (No 2) [2007] NSWIRComm 310, a judgment given on 14 December 2007, Justice Staff dismissed the appellants' claim for relief. The appellants now seek leave to appeal, and if leave is granted, to appeal against his Honour's decision.

4 The essential facts may be briefly stated. Due to staff changes and shortages, by the end of 2001/early 2002, Dr Windrum became the only full time pathologist providing pathology services to the respondents. He was appointed to the role of Supervising Pathologist in September 2002. 5 In January 2003, Dr Windrum, who was 76, suffered a heart attack and was absent from work for three weeks. In or about June 2004, it was contended by the respondents, at first instance and on appeal, that on his return to work Dr Windrum advised employees of the first respondent that he wanted to slow down and work less days per week. Dr Windrum denied this. On 23 February 2005 a meeting took place, with the respondents advising Dr Windrum that a Dr Simon Clark was to replace him as the Supervising Pathologist commencing in May 2005. Dr Windrum let his objections be known. Nevertheless, the respondents sent a letter to Dr Windrum on 24 February 2005 setting out Dr Windrum's reduced workload to take effect from 23 May 2005. It was Dr Windrum's evidence in the first instance proceedings that there were no discussions or negotiations regarding the termination of his appointment as Supervising Pathologist or the reduction in his caseload. 6 On 16 May 2005, the respondents summarily terminated the arrangement with the appellants. The reasons given by the respondents for doing so were that: Dr Windrum passed on confidential business information to a business competitor; overcharged for work; failed to be present in the laboratory for normal business hours; there were concerns over the quality of his work; and that Dr Windrum made offensive remarks to staff members. On 27 May 2005 the applicants filed their summons for relief under s 106 of the Act. DECISION AT FIRST INSTANCE

7 At first instance, it emerged there were two main issues for determination: (i) whether there had been a consent variation to the contract between the parties whereby it had been agreed Dr Windrum's workload and hours would reduce and a replacement Supervising Pathologist appointed; and (ii) whether Dr Windrum engaged in conduct which would justify summarily terminating his appointment. In respect of this second issue there were four sub-issues, namely: whether Dr Windrum had overcharged Matrix in 2004; whether Dr Windrum's behaviour and work performance were such as to provide grounds for summary termination of the contract; whether Dr Windrum passed on confidential business information to a business competitor; and whether Dr Windrum was accorded procedural fairness by the respondents in their decision to summarily terminate the contract. 8 With respect to the first main issue - whether there was a consent variation to the contract - it was contended by the respondents at first instance that Dr Windrum had requested a reduction in his workload and understood and accepted that in doing so he would necessarily have to relinquish his supervising role because that was a full time position. Further, that the meeting on 23 February 2005 and subsequent letter were merely the respondents' acceptance of Dr Windrum's offer to reduce his workload. Dr Windrum's evidence was that he never wanted to reduce his load or relinquish his position and that he believed that a new pathologist was to be hired to help with the potentially increased workload.

9 The respondents called six witnesses. They were: Mr Court; Dr Simon Clark; Ms Suzanne Pohlner, former General Manager of Matrix; Mrs Lynne Townsend, former Office Manager of Matrix (and later IT Manager); Ms Patricia Hagan, the Manager of Matrix between April 2002 and April 2003; and Ms Linda Harris, the Laboratory Manager at Matrix until June 2007.

10 According to Staff J, each of the six witnesses for the respondents were subject to vigorous cross-examination in respect of their evidence that Dr Windrum wanted to reduce his workload. His Honour found that: [65] The evidence of the witnesses called by the respondents is, and I find overwhelming, that Dr Windrum was unequivocal in his statements to the various witnesses about reducing his workload. I reject the suggestion by Mr Coleman that each of them were untruthful. Each of the respondents' witnesses had separate conversations with Dr Windrum, wherein he indicated his desire to reduce his workload. Dr Windrum could identify no documentary evidence that supported his position and called no witnesses to corroborate his contention that he never sought to reduce his workload.

[66] There is an objective and entirely understandable foundation for his stated intention to reduce his workload, namely, that he had been working six to seven days per week and performing as much as 70 per cent of the Matrix's pathology workload. He had a heart attack, although Dr Windrum asserts that his cardiologist never suggested that he should slow down as a consequence of this despite being 76 years of age at the time. None of the witnesses called by the respondents were undermined in cross-examination. Their credit in respect of Dr Windrum's stated desire and intention to reduce his hours (with consequential relinquishing of his supervising pathologist position) was not dented at the end of cross-examination. This is particularly so in light of Dr Clark's evidence which was that he had a conversation with Dr Windrum about this matter well before he was engaged by Matrix. I reject the applicant's contention that the respondents' witnesses conspired to concoct their evidence about Dr Windrum's alleged desire to reduce his hours and accordingly cause him to relinquish his position as supervising pathologist . 11 Having preferred the evidence of the respondents' witnesses to that of Dr Windrum as to whether or not he had indicated a desire to reduce his workload, his Honour found that there was a consent variation to the contract, and rejected as 'commercially fanciful' the claim by Dr Windrum that he thought an additional pathologist was hired because of the respondents' expectation of increasing their business.

12 In arriving at the conclusion that there was a consent variation to the contract, Staff J generally accepted the contentions put in that respect by counsel for the respondents: see [67]. In expressing his conclusions on this issue, Staff J stated at [68]-[69]: 68 Dr Windrum's behaviour after 24 February 2005 was much more consistent with the respondents' view of this matter than it is with the case now being pressed by Dr Windrum. If Dr Windrum's evidence was now to be accepted that what occurred on 23 and 24 February 2005 was, in effect, a fundamental breach of his contract with Matrix, then it is surprising that he took no steps at the relevant time to complain about the unilateral variation of his contract. During Dr Windrum's period with Matrix, he regularly wrote to Mr Court.

69 On a proper analysis of the evidence, I find that Dr Windrum sought a variation to his contract of employment which would enable him to reduce the number of cases that he did and relinquish the supervising pathology position. In consenting to the variation to the contract, the respondents provided Dr Windrum with three months notice of its variation. I do not find any unfairness in respect of Dr Windrum's contract or its variation. 13 The second main issue was whether there were grounds for the summary termination of the appellants' contract. In respect of the overcharging issue Staff J accepted evidence that Dr Windrum was charging for working on Sundays when the Laboratory was closed. His Honour noted that Dr Windrum's contention that the arrangement he had entered into with Mr Court in September 2003 was that he could charge for more than five days a week if he was doing an average of 100 cases per day over the seven day week. The overcharging related to the period between late 2003 and October 2004. His Honour recorded Mr Court's rejection of the suggestion by Dr Windrum that he agreed to any averaging of cases done per day, thereby allowing for Dr Windrum to charge over seven days.

14 At [73] the trial judge considered the reasons given by Mr Court for acquiescing in Dr Windrum's conduct in continuing to overcharge: Whilst it is true that Matrix acquiesced, both at that time and thereafter, in paying invoices rendered by Dr Windrum that were not in accordance with his agreement with Matrix, being based on an averaging, rather than on a proper application of the minimum number of cases per day as required by Mr Court, I accept Mr Court's evidence that such acquiescence was not based upon Matrix accepting Dr Windrum's practice in this regard was appropriate and fair, but rather on the basis that Dr Windrum's indispensability meant that Matrix was effectively hamstrung from taking any effective steps to correct Dr Windrum's unacceptable behaviour in this regard. Mr Court's evidence was that when he challenged Dr Windrum about overcharging, he "cut his feet off". He explained that by the use of this expression, he meant that he should not dare question what Dr Windrum said, or his method of charging. Mr Court explained that he formed the view at this time (2003) that if he had gone any further, he would have caused a huge row with Dr Windrum and he may have walked out on him. Mr Court's behaviour in respect of the overcharging is consistent with his approach to claims made by Dr Windrum for increases in remuneration. He said that he would not have dared reject outright any claim by Dr Windrum. Such was the strength of his bargaining position. Mr Court usually negotiated with him either agreeing with his argument that he should receive an increase or adopting a different method, as he did in October 2004, which resulted in an increase in remuneration for Dr Windrum. 15 At [75] Staff J found that "Such persistent overcharging after the events of 2003 constituted serious misconduct and was a proper basis for summary termination of Dr Windrum." As to Mr Court's acquiescence in the overcharging, Staff J noted the reliance by counsel for Dr Windrum on the decision of Kirby J in Concut Pty Ltd v Worrell & Anor (2000) 103 IR 160 at [51] and counsel's submission that as the overcharging (if the Court found there was overcharging) was "ancient in time", reliance could not be placed on this breach of the contract. His Honour rejected the submission, stating: [77] The difficulty I have with this submission is that firstly, as Kirby J noted "acts of dishonesty ... once discovered, ordinarily ... authorises summary dismissal." Furthermore, it is not correct to characterise the overcharging as ancient in time as such conduct occurred within six months of the date of dismissal. To rely on such conduct to terminate the contract does not manifest unfairness. In any event, when considered, together with the other reasons for summary termination, to which I now turn, in my view, the matters relied upon as a whole (sic) summary termination. 16 In relation to the poor work performance and conduct issue, there was evidence about the difficulties created by Dr Windrum's practice of commencing work early - at about 6.00 am - and leaving early - about midday. The difficulties were those created for other staff in matching such hours, the fact that the laboratory was left unsupervised for a significant proportion of the day and the problems caused by Dr Windrum being uncontactable after he left for the day. Staff J accepted evidence that the respondents had sought to address these problems with Dr Windrum, by saying to him that his practice of commencing early and leaving early was "unreasonable and risky". His Honour accepted that Dr Windrum was dismissive of the respondents' concerns. His Honour also appears to have accepted that the respondents were unable to take any action against Dr Windrum because of their concern about his threat to leave and the difficulties they would face in finding a replacement.

17 At [93] Staff J referred to a Statement of Duties of a Supervising Pathologist and the issue was whether such a statement had been provided to Dr Windrum setting out his hours of work. His Honour found that the statement was provided to Dr Windrum: [93] Attached to Dr Windrum's letter of termination was a statement of duties of the Supervising Pathologist. Dr Windrum says that he had not seen the statement of duties before receiving the letter of termination . The statement of duties stated that the hours for supervising Pathologists were 8.30 am to 5.00 pm and that the Supervising Pathologist was required to provide overall supervision of the laboratory and laboratory staff. It then set out a number of specific responsibilities. The respondents tendered a statement of duties bearing the name of Dr I Katz, who was the Supervising Pathologist prior to Dr Windrum. Mr Court's evidence was that it was company practice for a statement of duties to be provided to the Supervising Pathologist and for it to be signed by the pathologist. The statement of duties for Dr Katz that was tendered during the proceedings was unsigned. The statement of duties that Mr Court says was provided to Dr Windrum, although in identical terms, in respect of duties, responsibilities, etc., is set out in a different format to that provided to Dr Katz and does not bear the name of Dr Windrum alongside the area provided for a signature but contains the words "Supervising Pathologist". On balance, I prefer the evidence of Mr Court that Dr Windrum was provided with a statement of duties. I find accordingly.

18 Staff J considered evidence that Dr Windrum's conduct towards other staff was variously "derogatory", "offensive", "sexist", "arrogant", that he called Ms Pohlner "a liar, a cheat and said she was dishonest", that he "would regularly tell jokes oblivious to the sensitivities of those in the laboratory", that he was "very critical of the laboratory manager" and that he made "disparaging comments about professional capabilities of many…" professional colleagues.

19 At [102]-[103] Staff J found as follows: 102 The reality, however, as can be seen from the evidence of the respondents, was anything but pleasant. Mr Court's evidence is that as early as 2003, he raised informally with Dr Windrum, complaints he had received from staff regarding his attitude. He encouraged Dr Windrum not to annoy staff, not to make comments which were unsuitable or inappropriate and not to hassle them. He asked Dr Windrum to tone it down, otherwise he would have to possibly consider his options. Mr Court believed that he had a good relationship with Dr Windrum and thus chose to raise complaints he was receiving in informal discussions. Mr Court recognised that it was important to the business as it was heavily relying on Dr Windrum to keep him as suitably qualified pathologists were hard to come by. Mr Court's evidence is that he had to balance the complaints that he was receiving about Dr Windrum's behaviour with the need for the business to retain a fulltime pathologist. He therefore had to tolerate some aspects of what he considered to be inappropriate behaviour. He believed that he was at a severe disadvantage in these circumstances.

103 Mr Coleman submitted that the respondents' evidence did not make out a case justifying summary termination. Counsel submitted that if Dr Windrum was a poor performer and his conduct was as intolerable as suggested by (but not proven) by (sic) the respondents, then arguably more notice is required because it would be expected to take longer for him to find suitable alternative work. I reject this submission as such factors have never been a consideration in determining reasonable notice. In any event, as I have already concluded, taken as a whole, there were grounds for summary dismissal. 20 The final issue regarding Dr Windrum's conduct was the allegation that Dr Windrum had informed a Dr Krausz who worked for Matrix in 2005 (but who was not called to give evidence) that "numbers in the laboratory were down, the business was in trouble and the management had caused this situation to happen". At the relevant time Dr Krausz's primary work was for another pathology company, Histoderm.

21 Staff J considered that, "on balance", the disclosure of the information by Dr Windrum was "inappropriate". However, it would appear from what his Honour said at [107] that the trial judge did not place a great deal of weight on the confidentiality breach: [107] Mr Court's evidence was that by 16 May 2005, he had "had enough" of Dr Windrum. What he believed to be a breach of confidentiality on 14 May 2005 was a culmination of a series of events that led Mr Court and Dr Andrew Walker (the other Director of Matrix) to proceed with Dr Windrum's summary termination. In my view, even if the issue of breaching confidentiality was excluded, taking into account the balance of the matters relied upon, I find that the reasons for summary dismissal are made out. 22 Notwithstanding his Honour's findings in favour of the respondents, the trial judge found that the contract between the appellants and the first respondent was unfair as there had been a lack of procedural fairness. The respondents had failed to put allegations, the basis of the summary termination to Dr Windrum, and in turn had not provided an opportunity for Dr Windrum to respond to those allegations. However, his Honour found that the conduct of Dr Windrum, being the "inappropriate" disclosure of confidential information, the persistent overcharging and the conduct and work performance issues, which included offensive comments to staff, were a sufficient basis for the respondents to exercise their right to summarily terminate the contract. In his Honour's opinion, even if the allegations had been put to Dr Windrum, there was no evidence that he would have had any explanation or defence to the allegations. Accordingly, his Honour found the appellants had not made out a case to void or vary the contract. Consequently, there was no basis to make an order for payment in lieu of notice, or to order any further notice beyond the three months that was provided by the respondents. 23 His Honour dismissed the summons and ordered the appellants to pay the respondents' costs.

24 The grounds of appeal were as follows: (1) The finding of a consent variation of the contract was contrary to the evidence and weight of evidence and involved an error of law in that: (i) there was no evidence of an unambiguous offer to vary the contract by the appellants;

(ii) the proposal by the respondents made in February 2005 was a unilateral statement of their position which was not accepted by the appellants; and

(iii) at the time of termination the period of notice for the proposed variation had not expired; and accordingly,

(iv) there was no evidence to support a finding of a consent variation to the contract in accordance with ordinary contractual principles. (2) His Honour's finding that there was a variation by consent failed to take into account relevant considerations, in particular the evidence that: (i) post termination of the first appellant he sought and obtained a position as a full time pathologist with Mayne Health; and

(ii) at the close of the evidence, the first appellant had entered into a 3 year contract with Clinical Laboratories Pty Ltd as a full time supervising pathologist;

which factors are totally inconsistent with a desire by the first appellant to cease full time work.

(3) His Honour's finding that the first appellant took no steps to complain about the unilateral variation (as referred to in paragraph 68) was contrary to the evidence and weight of evidence.

(4) His Honour erred in that he failed to consider, separately from the common law contractual position, the fairness of the proposed variation including the period of notice required for such a change. (5) His Honor failed to apply or misdirected himself as to the proper application of the correct test for summary dismissal of an independent contractor, that being whether the conduct of the first applicant amounted to repudiation of his contract. (6) His Honour erred in finding that the conduct of the first appellant amounted to serious and willful misconduct so as to be grounds for summary dismissal in that he: (i) erred in finding that confidential information was inappropriately disclosed by the first applicant to Dr Krausz by failing to take into account the position that Dr Krausz held within the first respondent and failing to take into account Dr Krausz' ability to independently access the said confidential information.

(ii) failed to consider whether the alleged conduct by the first applicant in allegedly making sexual remarks, as set out in paragraph 97 of the Judgment, was conduct that amounted to repudiation of the contract.

(iii) erred in finding that the conduct of the first applicant towards Ms Pohlner, as set out in paragraph 109 of the Judgment, constituted a fresh breach of the direction given in the letter dated 24 February 2005.

(iv) erred by making findings about overcharging which have the flavor of a finding of fraud in circumstances where such a finding could not be supported by the evidence.

(v) failed to take into account that the respondents had long been aware of the alleged overcharging and had paid the applicants in accordance with the invoices rendered which disclosed the method of calculation.

(vi) failed to take into account that the alleged overcharging was dealt with by varying the method of payment in or about October 2004 to give certainty to both parties to the contract.

(vii) erred in acting upon the conclusion that the alleged overcharging persisted at the time of termination (paragraph 75).

(viii) erred by finding that Mr Court's expressed view that he had 'had enough', as referred to in paragraph 107 of the Judgment, was sufficient to indicate the first applicant had repudiated the contract.

(ix) erred in finding, at paragraph 107 of the Judgment, that the grounds for summary dismissal were made out. (7) His Honour's exercise of discretion not to make an order miscarried in that he failed to take into account relevant considerations including, in particular: (i) he failed to take into account the material change in bargaining power of the respondents from February 2005 when Dr Clarke was recruited (compare paragraph 102).

(ii) he failed to take into account that overcharging was not possible or alleged after October 2004. (8) His Honour's exercise of his discretion not to make any order for variation of the contract or for payment of money was affected by errors of law of the type identified above, in particular, he proceeded on the flawed assumption, at paragraphs 112 and 113 of the Judgment, that the grounds for summary dismissal at common law were made out. (9) His Honor erred by failing to make the orders sought in the Summons.

25 The appellants sought leave to amend the grounds of appeal to include an additional ground 8(a) that: 8. (a) His Honour erred in making order 2 that "the applicants are to pay the respondents costs" without affording the appellant the opportunity to be heard in relation to costs, without giving separate consideration to the reserved costs of the interlocutory motion on jurisdiction and in deciding that the appellants were liable for the respondents cost generally. Leave to amend was granted. LEAVE TO APPEAL 26 Other than the issue of whether or not Dr Windrum consented to the variation to the contract no important issue of law arises in this appeal. It is also difficult to see how an important issue of principle arises. 27 We have concluded, however, that his Honour erred in a number of significant respects in finding that the summary termination of the appellants' contract was justified and that no relief was warranted. The errors may be largely attributed to the trial judge's incorrect understanding or interpretation of the facts, which led to an outcome at trial that in the public interest and in the interests of justice cannot be allowed to stand. We, therefore, grant leave to appeal.

CONSIDERATION 28 In opening the appellants' case, Mr Kite SC identified the four main issues in the appeal: whether there was a consent variation to the contract and whether there was any unfairness surrounding the changes to the contract in that respect; whether there were grounds for summary termination of the contract; whether the trial judge erred in not ordering any relief despite a finding of unfairness; and whether there was an error in the costs order. We will deal with each of these issues.

Consent variation 29 We consider his Honour erred in finding that Dr Windrum consented to a variation to the contract between his company, Monkerai, and Matrix, the effect of which was to reduce his hours of work and to cause him to relinquish the role of supervising pathologist.

30 The evidence of the respondents' witnesses was to the effect that Dr Windrum made it known from about the middle of 2004 he wished to reduce his workload. Further, the evidence of Ms Pohlner was that Dr Windrum accepted that, as a concomitant of reducing his workload and, therefore, his working hours, he would have to relinquish his role as supervising pathologist because that was a full time position.

31 The highest the respondents' evidence got in relation to the specifics of the first appellant wishing to reduce his workload was the evidence of Mr Court: that on or around 14 October 2004 Mr Court had a conversation with Dr Windrum wherein the June understanding with Ms Pohlner was reiterated and wherein Mr Court said, "A three day week may be appropriate once we get another pathologist," to which Dr Windrum was said to have responded, "That sounds good. Let's hope we can get someone soon".

32 Dr Windrum denied that he wanted to reduce his working hours or give up the supervising role. His evidence was that he intended to continue with his current workload until he turned 80 and that if the respondents wanted to build up the business then they might want to consider finding another pathologist to cope with any increased workload.

33 The evidence regarding whether Dr Windrum did express a desire to slow down was distinctly at odds. Staff J preferred the evidence of the respondents' witnesses. We consider that this was open to his Honour, although we do regard it as odd that there was no documentary material in the form of correspondence or minutes of management meetings (held approximately monthly) that referred to the supervising pathologist relinquishing his role, notwithstanding the importance of such a role to the organisation and the difficulty of recruiting a replacement, and despite evidence from the respondents that the position of Dr Windrum was discussed at the meetings.

34 Despite this reservation, we do not consider the matters referred to by the appellants, and said to weigh in favour of Dr Windrum never raising the issue of a reduced workload, overcomes the weight of the evidence against Dr Windrum's position. Nor do we consider there was any conspiracy amongst the respondents' witnesses as to the evidence they would give in the proceedings - indeed, there is no indication of that having been the case.

35 Although we accept that it was open to Staff J to prefer the evidence of the respondents about Dr Windrum's desire to reduce his workload, it does not follow, when one considers the whole of the alleged transaction, there was a consent variation to the contract. A general statement by Mr Court that "a three day week might be appropriate", with a response by Dr Windrum that a three day week "sounds good" does not translate into an offer to vary the contract to the effect that Dr Windrum's caseload would be reduced to 250 cases per week, which is what the respondents say constituted their "acceptance" of Dr Windrum's "offer". It seems that the respondents unilaterally arrived at the figure of 250 having regard to the number of cases they considered that Dr Windrum could do in two to three days and also to accommodate Dr Clark (see [64]). But this was not in response to an offer, in the contractual sense, by Dr Windrum. We agree with the appellants' submission that the respondents' evidence regarding Dr Windrum's desire to reduce his workload was more in the nature of a statement of intention by the first appellant or an invitation to treat: Milne & Ors v Attorney General for the State of Tasmania (1956) 95 CLR 460 at 472-473. These were no more than general and preliminary discussions where possibilities were being put forward; they fell well short of establishing a concluded consent variation to the contract. Even if one regards the contracts as arrangements, and adopts a more practical or pragmatic approach to what constitutes a consent variation, regardless of any perception by the respondents about Dr Windrum's intentions and how well-founded they were, Dr Windrum made it quite clear that he was not agreeing with what was put to him regarding the changes to his role on 23 and 24 February 2005.

36 No reference was made in the letter of 24 February 2005 that it was in acceptance of Dr Windrum's proposal or even put in accordance with his wishes. Dr Windrum made it very clear - and the respondents acknowledged this - that the first appellant did not accept what he regarded as a unilateral variation of the contract. The evidence was that Dr Windrum was upset at the proposal. Both Mr Court and Ms Pohlner said he never agreed to it.

37 Dr Windrum expressed his opposition to the proposal strongly and immediately when it was conveyed, as the following evidence of Ms Pohlner shows: Q. It was quite clear to you wasn't it from the meeting with Dr Windrum in late February - that is the meeting, you and Mr Court and Dr Windrum had in late February that he was very unhappy with what you were telling him, you and Mr Court were telling him? A. Yes. Q. Very unhappy indeed? A. Yes.

Q. It appeared to you that he wasn't accepting? A. Yes.

Q. The proposals you were putting to him? A. Yes. … Q. Did Dr Windrum say anything in the meeting of 23 February that you understood him to be accepting any element of the proposal? A. No.

Q. And from 23 February up until his termination in May he said nothing to you that indicated to you that he was accepting of the changes that were being proposed? A. No 38 Mr Court also gave the following evidence: Q. It was clear to you, wasn't it, at the conclusion of the meeting on 23 February with Dr Windrum that he was unhappy with what you were proposing? A. Yes it was clear.

Q. That he didn't agree to it? A. That he didn't agree to it, yes.

Q. And he said to you words to the effect, "Why am I being replaced as supervising pathologist. What have I done?"? A. I believe that's what he said. May I say, I believe that's what he said in his affidavit, yes.

Q. I understood your answer to be in that context. I put to you that he said that to you? A. I believe he said to me, "You can't do this to me." Q. And you understood that to mean that he was opposed to what you were proposing? A. Yes.

Q. And he asked you why you were doing it? A. I can't say positively that - I don't know, I can't recall.

Q. You responded with the words to the effect, "Well you won't be with us forever. You've got to plan for the future"? A. What did I reply? Q. I'm suggesting you responded with words to the effect as you put in your own affidavit, "You will not be with us forever. You will leave us sooner or later. We have to plan for this"? A. Yes.

39 The first appellant, through his solicitor, later sought a meeting with the respondents to attempt to reach a workable arrangement. The respondents refused to meet with him and discuss the matter. In addition, Dr Windrum gave evidence that he had a conversation with Ms Pohlner after the meeting on 23 February 2005 in which he expressed the view that the proposal was impracticable and, indeed, impossible because what had been proposed in the letter of 24 February 2005 was that Dr Windrum could discharge his caseload of 250 cases in one or two days.

40 The fact that Dr Windrum continued to work for the respondents after being advised of the variation to the contract and until the summary termination of the contract, did not constitute his acceptance of the variation. The variation did not come into effect until three months after the notice had been given in the letter of 24 February 2005. By his conduct after having been given the notice, Dr Windrum made it clear the variation was not acceptable and that he wished to negotiate a different arrangement. Prior to the expiration of the notice period (23 May 2005), however, the appellants' contract was summarily terminated.

41 At [70], the trial judge quoted the letter terminating the appellants' contract with Matrix. The letter was in the following terms: The company has decided that your failure to fulfil the responsibilities of Supervising Pathologist at Combined Pathology constitutes a serious breach of our agreement and the agreement will be terminated effectively immediately.

You have not satisfied the National Pathology Accreditation Advisory Council (NPAAC) Requirements for Supervision of Pathology Laboratories. As Supervising Pathologist, you should be present in the laboratory during normal working hours and be available for telephone consultation at all other times. It has come to our attention that you are regularly leaving the laboratory between 11am and midday. This does not satisfy NPAAC requirements and leaves the laboratory inadequately supervised for the majority of the normal working day (9am to 5pm).

You have failed to provide timely advice to clinicians on the evaluation and interpretation of results of laboratory examinations. It is the responsibility of the Supervising Pathologist to provide a consultative service to the clinicians and this requires your presence in the laboratory, where you are able to review results and slides, during the clinicians' normal working hours.

You have failed to provide the hands on training, supervision and feedback expected of a supervising pathologist. The Supervising Pathologist is responsible for operational practices and staffing of the laboratory and as such we expect you to ensure that all staff and contracting pathologists are appropriately trained and able to carry out their duties competently. During a recent NATA accreditation visit it was brought to our attention that the cut-up training program implemented at Combined Pathology does not meet NPAAC Guidelines for the Performance of the Pathology Surgical Cut-up.

You have failed to meet NPAAC guidelines as supervising pathologist to ensure that medical, scientific and technical staff participate in continuing education. There has been no continuing education provided under your supervision for scientific and technical staff, nor is there any documented evidence of continuing education for the pathologists. This failure by you, as the supervising pathologist, to meet NPAAC guidelines was evidenced during the recent NATA accreditation visit.

You are not fulfilling all of the duties outlined in the Statement of Duties (attached) for the Supervising Pathologist or Combined Pathology which has applied to the position since 2001. These include: * Direct supervision of the daily cut-up

• Direct supervision of specimen reception/handling

• The development of a business marketing plan which incorporates future growth and development of the Practice

• Directly and actively market the Practice with a view to widening the referral base of private practitioners

• Report weekly, either by phone or email, to the Director in relation to the development and implementation of marketing practices and procedures Your absence from the laboratory in the afternoon makes it impossible for you to directly supervise the daily cut-up and specimen reception/handling. Also, there is no documentary or other evidence that you have developed or implemented any marketing practices or procedures or attempted to market the practice or widen the referral base of private practitioners. We consider this a breach of our agreement.

You have made unsolicited, unwarranted, and defamatory remarks about Matrix, its directors, and its management, to other members of staff. This behaviour is completely inappropriate for someone of your status within Matrix, and has created disharmony within the workplace that you have been entrusted with the responsibility to supervise. This has made it impossible for some senior staff members to continue to work and communicate with you effectively.

We have evidence that you have passed confidential business information to one of our competitors. We consider this to be a serious breach of confidentiality.

We have serious concerns regarding the time you are spending examining cases. It appears that you have greatly increased the rate at which you are examining slides since your remuneration changed to a per case basis and we believe this may present a significant risk to our business.

Recent scrutiny of the invoices provided by your company, Monkerai Pathology Services, has revealed that you have overcharged us for 47 days work since February 2003. This amounts to an overpayment by us to your company of $89,750.00 plus GST. 42 In their submissions on appeal, the appellants contended that it was the alleged breach of confidentiality that led the second respondent to summarily terminate Dr Windrum's contract when he did and that the other issues, such as overcharging and work performance, were secondary to this reason.

43 For their part, the respondents contended that the primary matters that constituted the basis of the summary termination were Dr Windrum's working hours and his behaviour towards other staff members. The issues relating to the breach of confidentiality and overcharging were "backup" reasons to the primary reasons. However, it was submitted that it was clear from the second respondent's statements that he had "had enough" of Dr Windrum, and that the reasons for summary termination were cumulative.

44 As for the trial judge's view, on the issue of overcharging his Honour said (at [75]): "Such persistent overcharging after the events of 2003 constituted serious misconduct and was a proper basis for summary termination of Dr Windrum". However, after dealing with the appellant's submission concerning Kirby J's observations in Concut, his Honour appeared to soften his view and stated: "In any event, when considered, together with the other reasons for summary termination, to which I now turn, in my view, the matters relied upon as a whole [supports] summary termination".

45 With respect to the alleged work performance and conduct issues, Staff J appears to have accepted the respondents' evidence: regarding Dr Windrum's practice of commencing work early and leaving about midday and the problems that caused for the laboratory and its staff; that Dr Windrum behaved offensively, or negatively in front of laboratory staff, that he was arrogant, and on occasions, short tempered; that Dr Windrum told sexist jokes; that Dr Windrum called Ms Pohlner a liar, a cheat and said she was dishonest; that Dr Windrum was constantly critical of Dr Simon Clark when he worked at Matrix; that Dr Windrum made disparaging comments about professional capabilities of many of their professional colleagues who were working outside Matrix; that Mr Court advised Dr Windrum that unless he behaved appropriately, his contract would be terminated and he could not keep warning him; and that Dr Windrum refused to accept the complaints were valid, saying that some of the staff were just trying to get rid of him and if that happened, he advised Mr Court he would sue him.

46 The trial judge also appears to have accepted (at [102]) the evidence of Mr Court that: [H]e raised informally with Dr Windrum, complaints he had received from staff regarding his attitude. He encouraged Dr Windrum not to annoy staff, not to make comments which were unsuitable or inappropriate and not to hassle them. He asked Dr Windrum to tone it down, otherwise he would have to possibly consider his options. Mr Court believed that he had a good relationship with Dr Windrum and thus chose to raise complaints he was receiving in informal discussions. Mr Court recognised that it was important to the business as it was heavily relying on Dr Windrum to keep him as suitably qualified pathologists were hard to come by. Mr Court's evidence is that he had to balance the complaints that he was receiving about Dr Windrum's behaviour with the need for the business to retain a fulltime pathologist. He therefore had to tolerate some aspects of what he considered to be inappropriate behaviour. He believed that he was at a severe disadvantage in these circumstances.

47 On the breach of confidentiality issue, Staff J took the view that the disclosure of the information, on balance, was inappropriate. At [107] his Honour concluded: [107] Mr Court's evidence was that by 16 May 2005, he had "had enough" of Dr Windrum. What he believed to be a breach of confidentiality on 14 May 2005 was a culmination of a series of events that led Mr Court and Dr Andrew Walker (the other Director of Matrix) to proceed with Dr Windrum's summary termination. In my view, even if the issue of breaching confidentiality was excluded, taking into account the balance of the matters relied upon, I find that the reasons for summary dismissal are made out. 48 We are inclined to agree with the respondents' analysis that the primary matters that supported the summary termination, in so far as the trial judge was concerned, were Dr Windrum's working hours, which meant that Dr Windrum was unable to fulfil his contractual obligations as a supervising pathologist, and his behaviour towards other staff members. However, the issues relating to the breach of confidentiality and overcharging, when considered in conjunction with the primary matters, clearly served to reinforce or add to his Honour's view that grounds existed to summarily terminate the contract, although the overcharging issue seems to have rated more highly with his Honour as a ground supporting summary termination than the confidentiality issue.

49 Ultimately, we think that whilst his Honour gave different weight to the issues considered by him relevant to summary termination, in arriving at his conclusion that summary termination was warranted his Honour had regard to the whole of the first appellant's conduct.

50 As to the breach of confidentiality, we note his Honour found the evidence to be "unsatisfactory" in supporting the allegations against Dr Windrum. Indeed, this was so. Although his Honour found that Dr Windrum discussed "Matrix numbers with Dr Krausz", any suggestion the information was confidential to the extent it was not accessible to persons working in the laboratory (which Dr Krausz did) is not sustainable. The evidence of Mrs Townsend was that the office in which the relevant information was held was open to the laboratory, the information was available in graphical form for ease of understanding and was available to anyone who worked in the laboratory, including Dr Krausz. In addition, the information was kept in Dr Windrum's office, which was used by Dr Krausz when he worked at the first respondent. Further, the volume of work passing through the business was available from the respondents' numbering system that was used and was easily ascertained by any person working in the business, including Dr Krausz. 51 There was no evidence that Dr Windrum passed the information recklessly or with the intention that it be used by Dr Krausz to harm the business interests of the first respondent. Indeed, both Dr Krausz and Dr Windrum were known to work for other pathology laboratories apparently without restriction or objection from the first respondent.

52 In our opinion, the confidentiality issue fell far short of supporting any decision by the respondents to summarily terminate the appellants' contract.

53 We turn to the overcharging issue. As the trial judge explained at [9], Mr Court's evidence was that he required Dr Windrum to deal with a minimum of 100 cases per day to generate an entitlement to his daily fee of $1,500, which was increased to $2,000 per day in October 2003. However, in a subsequent affidavit, Dr Windrum said he was only required to complete an "average" 100 cases per day, which formalised an arrangement that had already been in place. Mr Court disputed this.

54 The trial judge dealt with the overcharging issue at [72]-[77]. At [72]-[73] his Honour explained how the issue arose, the actions taken by Mr Court and Dr Windrum's response: 72 Mr Court's evidence was that on or about April or May 2005, it was brought to his attention by Ms Pohlner that she had reviewed Dr Windrum's reporting statistics and tax invoices and had discovered that Matrix had been overcharged by Dr Windrum in 2004. The review showed that Dr Windrum was charging for working on Sundays when the Laboratory was closed. Dr Windrum contended that the arrangement that he entered into with Mr Court in September 2003, was that he could charge for more than five days a week if he was doing an average of 100 cases per day over the seven day week. The overcharging related to the period between late 2003 and October 2004. Mr Court strongly rejected the suggestion by Dr Windrum that he agreed to any averaging of cases done per day, allowing for Dr Windrum to charge over seven days.

73 The issue in respect of overcharging had been raised with Dr Windrum in 2003 when three examples of overcharging had been brought to his attention. Whilst it is true that Matrix acquiesced, both at that time and thereafter, in paying invoices rendered by Dr Windrum that were not in accordance with his agreement with Matrix, being based on an averaging, rather than on a proper application of the minimum number of cases per day as required by Mr Court, I accept Mr Court's evidence that such acquiescence was not based upon Matrix accepting Dr Windrum's practice in this regard was appropriate and fair, but rather on the basis that Dr Windrum's indispensability meant that Matrix was effectively hamstrung from taking any effective steps to correct Dr Windrum's unacceptable behaviour in this regard. Mr Court's evidence was that when he challenged Dr Windrum about overcharging, he "cut his feet off". He explained that by the use of this expression, he meant that he should not dare question what Dr Windrum said, or his method of charging. Mr Court explained that he formed the view at this time (2003) that if he had gone any further, he would have caused a huge row with Dr Windrum and he may have walked out on him. Mr Court's behaviour in respect of the overcharging is consistent with his approach to claims made by Dr Windrum for increases in remuneration. He said that he would not have dared reject outright any claim by Dr Windrum. Such was the strength of his bargaining position. Mr Court usually negotiated with him either agreeing with his argument that he should receive an increase or adopting a different method, as he did in October 2004, which resulted in an increase in remuneration for Dr Windrum. 55 The appellants submitted that in circumstances where there was a disagreement between Dr Windrum and Mr Court as to what the remuneration arrangement was, and after the discussion the accounts, as presented, were paid and continued to be paid on that basis for the next year, without further comment or dispute, then it was clear that any disagreement about the method of remuneration between the two had been resolved. All accounts clearly showed the method of charging. Certainly, it was submitted, the first appellant was entitled to take that view. Further, it was submitted, if the reason for Mr Court conceding the matter in 2003 was the superior bargaining power of Dr Windrum at the time, then that does not turn an agreed position into one of dishonesty and misconduct by the appellant. Nor does the agreement turn on Mr Court's subjective position.

56 We agree with the thrust of this submission. The fact is that Mr Court acquiesced in Dr Windrum billing the second respondent on an averaging basis. He did not insist in unambiguous terms the averaging had to stop; he did not say to Dr Windrum that it was a continuing breach of the contractual arrangement; and he did not advise Dr Windrum that he only acquiesced under duress out of fear Dr Windrum would leave if Mr Court insisted that Dr Windrum not bill on an averaging basis.

57 Mr Court and Dr Windrum had a disagreement about the method of billing. Despite the disagreement the respondents continued to accept billing on an average basis and it was reasonable for Dr Windrum to conclude that the method of billing was agreed and did not amount to "overcharging" or breach of contract. That Mr Court accepted what Dr Windrum was doing only because he was afraid Dr Windrum might leave if he took the matter any further did not turn the disagreement into dishonesty on Dr Windrum's part. 58 The expression "ancient in time" used by Kirby J in Concut should not be taken too literally. It was in or about November 2003 that Mr Court questioned the appellant on three invoices where averaging had been used. It became apparent that there was disagreement between the two as to the remuneration arrangement. Dr Windrum explained his understanding to Mr Court. After the discussion the respondents acquiesced by paying the disputed accounts and continued to pay accounts put forward on an averaging basis until the method of remuneration was changed a year later. Then it was said to the first appellant in May 2005 in the letter from the respondents terminating the contract that: Recent scrutiny of the invoices provided by your company, Monkerai Pathology Services, has revealed that you have overcharged us for 47 days work since February 2003. This amounts to an overpayment by us to your company of $89,750.00 plus GST.

59 The reference to "Recent scrutiny…" was a reference to the fact that in or about April or May 2005, Ms Pohlner brought to Mr Court's attention that she had reviewed Dr Windrum's reporting statistics and tax invoices and had discovered that Matrix had been overcharged by Dr Windrum in 2004. Even if that were so, the respondents had been aware of Dr Windrum's method of billing since November 2003 and acquiesced in it until it came time to formulate the grounds for summary termination of the contract. It was not as though Dr Windrum's billing practice was a revelation in April or May 2005, thereby adding another ground supporting summary termination. Having acquiesced back in November 2003, the respondents took no steps to advise Dr Windrum that they were accepting his billing practice under protest. That is, Dr Windrum was not advised that the respondents regarded his billing practice as unacceptable or a breach of the contract and in those circumstances, as we have said, Dr Windrum was entitled to believe his billing practice was acceptable. After the discussion between Mr Court and Dr Windrum regarding overcharging in November 2003, Dr Windrum wrote to Mr Court saying that he felt Mr Court's questioning of three invoices based on an averaging approach indicated some "deep distrust" on Mr Court's part. Mr Court responded by saying "I don't distrust you and never have…" Nothing was said about any reservations Mr Court may have had about averaging or gave any indication the practice was unacceptable. 60 In these circumstances, the description by Staff J of "persistent overcharging" by Dr Windrum after 2003 is not supportable on the evidence. Where the first appellant was left with the belief that his practice of averaging was not in breach of any contractual term, the respondents waived any right to use the overcharging issue as a basis for summary termination of the contract: Clarke and Metropolitan Meat Industry Board [1967] AR 16 at 25. Accordingly, we consider his Honour erred in finding that Dr Windrum's "continued overcharging" constituted a "further basis for warranting summary termination".

61 That leaves the conduct and work performance issues. In order to rely on these matters (and the other matters we have addressed) as grounds for summary termination of the contract it must be demonstrated that the first appellant's conduct was repudiatory in nature. That is, by his words or deeds the first appellant evinced an intention not to be bound by the contract through disregard of its essential terms (Laws v London Chronicle (Indicator Newspapers) Ltd (1959) 1 WLR 698. See also Adami v Maison De Luxe Ltd (1924) 35 CLR 143 per Gavan Duffy and Starke JJ at 155). Kirby J observed in Concut at [51] in relation to an employment contract that it is "only in exceptional circumstances that an ordinary employer is entitled at common law to dismiss an employee summarily". We consider the observation applies with equal force to the contract here under consideration.

62 The conduct and work performance issues fall into three categories: (i) the first appellant's practices regarding working hours and the adverse effect of those practices on the staff and the operation of the laboratory; (ii) the first appellant's treatment of staff; and (iii) whether Dr Windrum was warned or counselled about the issues in (i) and (ii).

63 As to the first category, which concerns the hours worked by the first appellant, Staff J found that a supervising pathologist was required to be present in the laboratory during normal working hours and to be available for telephone consultations at other times, otherwise it had the potential to compromise the running of the laboratory "particularly as the National Pathology Accreditation Advisory Council ("NPAAC") provides for the need for supervision of pathology laboratories by a supervising pathologist". His Honour also found that the first appellant had been provided with a statement of duties, which stated that the hours for supervising pathologists were 8.30 am to 5.00 pm and that the Supervising Pathologist was required to provide overall supervision of the laboratory and laboratory staff. It then set out a number of specific responsibilities.

64 The trial judge found that the evidence "overwhelmingly" supported the finding that Dr Windrum regularly left the laboratory around noon each day. According to the trial judge, this amounted to a failure by the first appellant to carry out the full range of his responsibilities and "provided a clear basis for summary termination of his contracts with Matrix".

65 The appellants contended that the trial judge erred in finding that: there was sufficient evidence to show that the first appellant "regularly left the laboratory around noon each day"; the first appellant had a regular set of hours; that the first appellant had been provided with a statement of duties; or that the NPAAC required the attendance of the supervising pathologist for any particular hours or laboratory process.

66 It was the evidence of Mr Court, Mrs Townsend, Ms Harris and Ms Pohlner that the trial judge relied upon in finding that Dr Windrum regularly left the laboratory around noon each day. The evidence of Mr Court was that staff had informed him that they were not happy with Dr Windrum starting early. In late 2003 Mr Court said he spoke to Dr Windrum about this issue and the following exchange occurred: Court: This short cycle on the tissue processor is not working. The staff are not happy because they have to arrive at the lab extremely early in the morning. You are leaving by lunchtime to go to your other job and leaving the laboratory unattended by a supervising pathologist, and the difficult cases are being left to inexperienced staff. When anyone tries to ring you because they have a problem they can never get in contact with you either. This is very risky and unreasonable for the staff. Windrum: I don't care, it's my lab and I will do it how it suits me. If you go back to the old tissue processing method, I will leave and you be in an even worse position because you won't have a supervising pathologist. 67 Ms Townsend said she raised the issue of Dr Windrum's early starts with him on a number of occasions and the inconvenience it was causing to staff. Ms Townsend said the reply she received was that it was convenient for Dr Windrum to start early. 68 Ms Harris gave similar evidence to Ms Townsend. Ms Pohlner said that Dr Windrum was "putting pressure on staff to start work early to fit in with his desired working hours". Ms Harris, however, accepted the position at Matrix knowing she would be required to commence work at 5.00 am.

69 The fact that Dr Windrum's early starts may have caused some inconvenience to staff does not appear to have been the respondents' central complaint but rather that the first appellant was leaving the laboratory early and therefore unattended, despite his supervisory role. We note that the early start was coincident with the introduction of the short cycle tissue processor, an innovation approved by and agreed to by Mr Court, along with the early start. Ms Harris said in her evidence she directed Dr Windrum to come into the laboratory "later", but in cross-examination agreed she had no authority to give such a direction. We can see no evidence that Mr Court directed Dr Windrum to start later for the reason that his early starts were inconveniencing other staff. 70 The respondents' main concern about Dr Windrum's working hours was the fact that he left early on most days. The question is, however, whether that conduct was repudiatory in nature. Implicit in his Honour's decision is that it was because it was contrary to the first appellant's obligations under the contract, part of which his Honour found was the statement of duties prescribing the hours during which the first appellant was to be in attendance, and because it meant that the first appellant failed to carry out the full range of his responsibilities as supervising pathologist.

71 The evidence relied upon by his Honour in finding that Dr Windrum was provided with a statement of duties was that of Mr Court. Staff J dealt with the provision of the statement at [93]-[94]: [93] Attached to Dr Windrum's letter of termination was a statement of duties of the Supervising Pathologist. Dr Windrum says that he had not seen the statement of duties before receiving the letter of termination . The statement of duties stated that the hours for supervising Pathologists were 8.30 am to 5.00 pm and that the Supervising Pathologist was required to provide overall supervision of the laboratory and laboratory staff. It then set out a number of specific responsibilities. The respondents tendered a statement of duties bearing the name of Dr I Katz, who was the Supervising Pathologist prior to Dr Windrum. Mr Court's evidence was that it was company practice for a statement of duties to be provided to the Supervising Pathologist and for it to be signed by the pathologist. The statement of duties for Dr Katz that was tendered during the proceedings was unsigned. The statement of duties that Mr Court says was provided to Dr Windrum, although in identical terms, in respect of duties, responsibilities, etc., is set out in a different format to that provided to Dr Katz and does not bear the name of Dr Windrum alongside the area provided for a signature but contains the words "Supervising Pathologist". On balance, I prefer the evidence of Mr Court that Dr Windrum was provided with a statement of duties. I find accordingly.

[94] It seems to me that because the Supervising Pathologist was responsible for meeting all licensing and regulatory requirements in relation to the Health Insurance Commission/NATA and any other relevant governing authority which is referred to in the statement of duties, it is more likely than not that the respondents would have chosen to have such a matter recorded in a statement of duties and that statement of duties provided to its supervising pathologist. Furthermore, from 1 October 2003, Dr Windrum and Matrix entered into a formal written agreement headed "Deed to formalise his appointment as a supervising pathologist". This document makes reference to duties in paragraph 5 which, it seems to me more likely than not, was a reference to the duties contained in the statement of duties. 72 It may be seen that his Honour essentially preferred Mr Court's version over that of Dr Windrum in finding the statement was provided to the first appellant, but only did so "on balance". His Honour does refer to the Deed entered into by Dr Windrum and Matrix and the fact that the Deed referred to duties. It seemed to his Honour that the reference to duties was "more likely than not" a reference to duties contained in the statement of duties provided to the first appellant. In this respect the appellants submitted reference to "duties" in the Deed ("the Doctor will carry out his duties in a supervisory capacity…") was "highly indicative of the absence of such a document which surely would have been referred to by name in the Deed if it had been provided to Dr Windrum and formed part of the contract". Additionally, it was submitted, if such a document was provided at the time, then paragraph 3 of the Deed would be totally unnecessary. Paragraph 3 provided that: It is agreed between the parties that the Doctor will act in a supervisory role during his contract. 73 The reference to duties in paragraph 5 of the Deed does not assist in reinforcing Mr Court's evidence that he provided a statement of duties to Dr Windrum. Equally, however, we do not consider the reference is "highly indicative" of the absence of the document. The reference to duties in the Deed could mean what his Honour suggested or, equally, it could mean what the appellants submitted. The Deed is of no assistance in determining whether the respondents provided the first appellant with a statement of duties.

74 The appellants also submitted that it was noteworthy that neither the letter of offer to Dr Clark nor his contract made any reference to a statement of duties, which Mr Court said was usually provided, signed and filed as part of a company policy. Additionally: Mr Court was somewhat equivocal in cross-examination about his recollection of giving the statement to Dr Windrum; no copy of a statement with Dr Windrum's signature was produced in evidence (despite Mr Court saying that usually such documents were provided, signed and filed as part of a company policy and practice); the only statement in evidence was one bearing the name of Dr Katz, but no signature; and there was no evidence the statement of duties was referred to during the period from 2002 until 16 May 2005, even though Mr Court said he was raising with Dr Windrum allegations of neglect of duty. These considerations inject some degree of doubt into the reliability of Mr Court's evidence that a statement of duties was provided to Dr Windrum - evidence that Staff J accepted only "on balance".

75 In the result, the finding of the trial judge that Dr Windrum was provided with a statement of duties was a finding based on no more than preferring Mr Court's evidence to that of Dr Windrum. The reason for that preference, it appears, may be found at [6] and [95] of his Honour's reasons for judgment. At [6] his Honour indicated that he preferred, particularly for the reasons set out at [95], the evidence of the respondents' witnesses, to that of Dr Windrum in respect of any issue in dispute. At [95] his Honour said that he found Mr Court to be an "extremely credible and convincing" witness. We note that whilst his Honour preferred the evidence of the respondents' witnesses, no express criticism was made of Dr Windrum as a witness.

76 Summary termination is a serious matter. It can impact adversely on a person's reputation, particularly one in Dr Windrum's line of work given its professional status and the relatively small community of pathologists. The onus, therefore, on the respondents to prove their case was at the level laid down in Briginshaw v Briginshaw & Anor (1938) 60 CLR 336 at 362 per Dixon J. The court must be satisfied the summary termination was justified beyond a degree greater than the "merest balance of probabilities".

77 In the present case, it was only "on balance" that the trial judge found that Dr Windrum was provided with a statement of duties setting out his hours of work and responsibilities. That finding is not surprising when there was nothing more supporting it than the acceptance of one person's word over another. However, it was a fragile, indeed inadequate, foundation for determining summary termination was justified because Dr Windrum repudiated an essential term of his contract, namely, he refused to attend work to fulfil his obligations during the hours prescribed in the statement of duties.

78 Staff J found that the first appellant's general practice of leaving the laboratory on or around noon each day had the potential to compromise the running of the laboratory, particularly as the NPAAC provided for the need for supervision of pathology laboratories by a supervising pathologist. Such a pathologist, his Honour found, was also required to be present in the laboratory during normal working hours and to be available for telephone consultations at other times. The NPAAC Requirements for Supervision of Pathology Laboratories stated in relation to the relevant laboratory category: A pathologist(s), or senior scientist(s) with appropriate qualifications, will usually be present during normal working hours and will be available for telephone consultation at all other times. 79 His Honour found only that Dr Windrum's practice of leaving early "had the potential to compromise the running of the laboratory" not that it in fact did so. Further, the NPAAC requirement was for a pathologist, or senior scientist with appropriate qualifications, to be usually present during normal working hours. There was no contention by the respondents that the hours kept by Dr Windrum meant a failure by the respondents to comply with this requirement.

80 Staff J found that despite requests and warnings to carry out the full range of his responsibilities, Dr Windrum's failure to do so provided a clear basis for summary termination of his contracts with Matrix. It does not necessarily follow that because Dr Windrum regularly left work about midday that the first appellant failed to carry out the full range of his duties. There was no specific finding by his Honour about which aspects of his range of duties that Dr Windrum was said to have failed to carry out. The finding that the first appellant failed to carry out the full range of his duties appears to have followed solely from the finding that Dr Windrum regularly left work about midday. 81 Further, if a supervising pathologist "responsible for meeting all licensing and regulatory requirements in relation to the Health Insurance Commission/NATA and any other relevant governing authority" (see [94] of first instance decision) was neglecting or refusing to carry out the full range of his duties, the pathology company's licence or accreditation would undoubtedly be placed in jeopardy. It is most unlikely that could be tolerated even if the company was concerned about losing its supervising pathologist if it were to confront the pathologist. Yet from at least late 2003 until May 2005, the respondents tolerated Dr Windrum leaving work regularly about midday. 82 In making this observation, we are conscious of the affidavit evidence of Mr Court, which was accepted by the trial judge (see [88] of first instance decision), that at some time in 2004 Mr Court said to Dr Windrum: What also concerns me is that you are arriving to the lab extremely early and leaving it unsupervised when you leave by lunch time. This is driving the staff mad because they often have to get to the lab before 5 am, and means that you are not fulfilling your role as Supervising Pathologist. You know what is expected of you, you have the Statement of Duties and the NPAAC requirements. I must warn you that this cannot continue. This is an official warning. If you continue to behave inappropriately and fail to fulfil your duties we will have to terminate the contract.

To which Dr Windrum was said to have replied: I don't agree with what you are doing. You can't get rid of me and tell me what to do because you can't replace me. I don't care what you or the other staff say. 83 We do find it difficult to reconcile this evidence about an "official warning" (which we note was never reduced to writing despite the alleged gravity of Dr Windrum's conduct) and a threat to terminate the contract, with Mr Court's evidence that he took no action to upbraid the first appellant and threaten termination in respect of the overcharging issue out of a concern that Dr Windrum might leave. In any event, Dr Windrum did not change his working hours and the respondents continued to tolerate this until May 2005 notwithstanding that Mr Court was purportedly of the opinion that Dr Windrum was failing to fulfil critical contractual obligations.

84 It is apparent from his Honour's decision at first instance that the trial judge accepted that the first appellant failed to carry out the full range of his responsibilities and that this supported the correctness of the respondents' decision to summarily terminate the appellants' contract. However, we do not consider there was sufficient evidence to support a conclusion that Dr Windrum failed to fulfil his duties as a supervising pathologist to such an extent that it evinced an intention on his part not to be bound by the contract. 85 In this respect, the statement of duties listed the duties of the supervising pathologist. It was from this list that the respondents extracted a number of duties and cited them in the termination letter of 16 May 2005 as having not been fulfilled by the first appellant. Even if it were accepted that Dr Windrum had been provided with the statement of duties, the evidence that he failed to perform the duties listed was very weak. For example, in respect of the allegation in the termination letter that Dr Windrum failed to report weekly in relation to the development and implementation of marketing practices and procedures, Mr Court conceded in cross-examination there was no failure on Dr Windrum's part to provide the reports. The inclusion in the termination letter of a failure to provide weekly reports was without any reasonable foundation.

86 There was extensive material admitted into evidence that Dr Windrum was insensitive and rude to other workers and arrogant in his attitude. Whilst the appellants' complained that much of the admitted material was conclusionary, not in proper form, lacking in specificity and, therefore, inadmissible, we consider that despite its shortcomings the evidence, overall, was such as support a conclusion that the first appellant's conduct and attitude created disharmony and an unpleasant working environment. Consistent with the trial judge's findings, we are satisfied that Dr Windrum was rude, arrogant and, at times, offensive in his behaviour towards management and staff. 87 Mr Court gave evidence that he raised informally with Dr Windrum complaints he had received from staff regarding the latter's attitude. Staff J recorded at [102] that Mr Court: [E]ncouraged Dr Windrum not to annoy staff, not to make comments which were unsuitable or inappropriate and not to hassle them. He asked Dr Windrum to tone it down, otherwise he would have to possibly consider his options. Mr Court believed that he had a good relationship with Dr Windrum and thus chose to raise complaints he was receiving in informal discussions. Mr Court recognised that it was important to the business as it was heavily relying on Dr Windrum to keep him as suitably qualified pathologists were hard to come by. Mr Court's evidence is that he had to balance the complaints that he was receiving about Dr Windrum's behaviour with the need for the business to retain a fulltime pathologist. He therefore had to tolerate some aspects of what he considered to be inappropriate behaviour. He believed that he was at a severe disadvantage in these circumstances. 88 Apparently then, Mr Court did not regard Dr Windrum's conduct as being so bad that he was left with no choice than to terminate the contract summarily prior to May 2005; up to that time Mr Court was prepared to tolerate the inappropriate behaviour in order to retain Dr Windrum's services.

89 Although it was reasonably open to the trial judge to make the findings he did regarding Dr Windrum's behaviour, his Honour did not rely on that ground as justification, in itself, for the summary termination. As we earlier concluded, his Honour considered the summary termination was justified having regard to the whole of the first appellant's conduct, including overcharging and breach of confidentiality. 90 Having disposed of the overcharging and breach of confidentiality issues as not supporting a decision by the respondents to summarily terminate the appellants' contract, that leaves us to consider whether Dr Windrum's behaviour, alone, justified summary termination. Although the first appellant's behaviour was inappropriate, we consider it fell short of constituting, of itself, an exceptional circumstance justifying summary termination. Unfairness

91 It follows from our findings that the contract was summarily terminated in the absence of fair and proper reasons to do so. That is to say, the contract permitted termination to be effected summarily without requiring proper and fair reasons to be provided, thereby giving rise to unfairness. Further, as the trial judge effectively found, the contract permitted the respondents to summarily terminate the contract without providing to the appellants an opportunity to address any of the respondents' concerns about those matters that led to the summary termination, thereby denying the appellants procedural fairness. 92 However, the trial judge decided there were no grounds to vary the contract for unfairness (or provide compensation) because even if there had been a fair investigation of the matters that led to the summary termination, Dr Windrum would not have changed his view that he had done nothing wrong. In light of our findings, we consider his Honour erred in this respect. Dr Windrum was given no opportunity at all to address the breach of confidentiality allegations, which was said by Mr Court to have been the "last straw". As to the overcharging allegations, there was no ultimatum given to Dr Windrum to cease charging on an averaging basis and so he was entitled to proceed on the basis that he was not breaching any part of his contract in that respect. 93 As to the work performance allegations, a proper exploration of them, in consultation with the first appellant, would have led to a finding that they lacked substance - at least to the extent that there was nothing about them that justified summary termination of the contract. As to the personal conduct of Dr Windrum towards management and staff, a proper consultative process and investigation may have concluded that it was of such a nature as to terminate the contract on reasonable notice because of the strain it was placing on the relationship, particularly after 24 February 2005 when it was contended the conduct had worsened, but insufficient to sustain a conclusion that summary termination was justified. Notice

94 The effect of the respondents' letter of 24 February 2005 was to give the appellants three months' notice of termination of the contract and, at the same time, to propose the terms of a new contract to commence at the expiration of the notice period. Given the fundamental nature of the changes proposed by the respondents to the contract it does not seem to us the changes proposed were mere variations to the original contract: see Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567. 95 At the expiration of the three months' notice period the existing contract would have terminated. It would then have been a matter for the appellants as to whether they were prepared to accept the new terms. However, about one week before the contract was to terminate (23 May 2005) according to the notice given, the contract was summarily terminated. 96 The respondents contended that if the Full Bench were to find that the trial judge erred and summary termination was not justified, the appellants would be entitled to no more than the value of one week's notice (approximately $13,000) because at the time of the summary termination the contract only had a further week to run before it terminated according to the notice given in February 2005. 97 There is some force in this submission. However, it does overlook the options that would have been open to the appellants at the expiration of the notice period. As the respondents conceded in their submissions, the appellants could have accepted that the contract had been terminated and the relationship severed. Alternatively, the appellants, despite their opposition to the terms of the new contract offered by the respondents, could have decided to accept its terms. In the further alternative, the appellants could have continued the relationship with the respondents under the new terms, but sought to negotiate changes to the contract. We note in this last respect that the appellants had engaged lawyers to try to negotiate changes and had sought, unsuccessfully, to meet with the respondents on either 25 or 27 May 2005. That is, after the expiration of the three months' notice period. This indicates an intention on the part of the first appellant to continue with the relationship subject to what might be achieved in any negotiations. 98 The options of accepting the terms of the new contract or seeking to negotiate changes to it were denied to the appellants because the contract was summarily terminated on 16 May 2005. If Dr Windrum had continued working for the respondents after 23 May 2005 the contract that became operative on that date would have been terminable on reasonable notice, which in our opinion, having regard to the factors relevant to determining what is reasonable notice (see Bowman v Ricegrowers Limited (formerly Ricegrowers' Co-operative Limited) (2007) 167 IR 325 at [25]), would have been three months. Although Dr Windrum was 76 at the time of the termination, as a pathologist he was in high demand in an industry experiencing a shortage of pathologists. Moreover, the evidence suggested that three months' notice was the norm in the industry concerned. 99 The purpose of notice in the context of employment contracts was explained in Westfield Holdings v Adams (2001) 114 IR 241 at [138]: Notice provisions focus on the future of an employee and are intended to compensate, to the extent possible, for the disruption, cost and hardship caused by periods of unemployment that commonly follow termination. 100 The contract between the appellants and the respondents was something akin to an employment relationship and so the observations in Westfield are apposite. It is apparent that during the period from 24 February 2005 to 16 May 2005, Dr Windrum had not taken the view that he would need to find other employment upon the expiration of the notice period and, therefore, did not look for it. The summary termination of the contract precluded Dr Windrum from taking the opportunity of seeking other work. In those circumstances, the contract should be varied to provide that in the event the contract is summarily terminated without fair and proper reason and in the absence of a positive regime of fair investigative procedures the appellants shall be entitled to three months' notice or payment in lieu. 101 It should be recognised that there were unusual aspects of the relationship between the parties and that a consideration of only the terms of the contract does not necessarily address that reality. However, Pt 9, Division 1 of the Act, and s 106 in particular, allows the Court to look beyond the contract. Putting to one side the legal effect of the letter of 24 February 2005, even on the respondents' case, they were willing to continue the engagement of Dr Windrum after May 2005 and Dr Windrum wanted to continue the engagement although without diminution in its terms. The notice given on 24 February 2005, and looking at the arrangement in the broad, could be regarded in substance as directed to terminating Dr Windrum's supervisory role rather than terminating the engagement. As already noted, the terms of the arrangement were not able to be concluded before Dr Windrum was terminated. The termination of that arrangement, in all the circumstances, was unfair and the arrangement should be varied to provide three months' notice in the event of termination. Thus, it can be seen that whatever approach is adopted, Dr Windrum is entitled to appropriate notice. Mitigation

102 Section 106(6) of the Act provides that "in making an order under this section, the court must take into account whether or not the applicant (or person on behalf of whom the application is made) took any action to mitigate loss". 103 The evidence reveals that Dr Windrum was without full time employment from 16 May 2005 to 1 August 2005, when he took up a full time position with Mayne under a 30-month contract at the rate of $29,500 per month (exclusive of GST). In the period from 16 May 2005 to the end of July 2005 Dr Windrum earned approximately $17,000.

104 In making an order under s 106(5) of the Act that is just in the circumstances of the case, we consider that the respondents, jointly and severally, shall pay the appellants for the period from 17 May 2005 to 31 July 2005 on the basis that was applicable immediately prior to the summary termination taking effect, less any monies earned in that period. Interest is payable on the amount derived from the foregoing calculation. 105 As to the question of costs, the parties are required to file and serve written submissions as to costs at first instance (including the interlocutory proceedings) and on appeal. Unless either party wishes to be heard orally on costs the question will be determined on the papers.

106 The Full Bench makes the following orders: (1) Leave to appeal is granted. (2) The appeal is upheld. (3) The decision and orders of Staff J made on 14 December 2007 are set aside. (4) In consultation with the respondents the appellants shall prepare draft minutes of order reflecting the decision in this matter. (5) The draft minutes of order shall be filed within 14 days of the date of this decision together with any submissions by the appellants on costs. The respondents will have a further 14 days to file submissions on costs and unless either party applies to be heard on costs and/or the terms of the draft order, the Full Bench will determine any issues on the papers. _________________________________________

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