WT Partnership (Aust) Pty Ltd v Sheldrick

THE COURT: 1 The appellants ("WTP (Aust)", "WTP (Hong Kong)"), appeal from an order of a judge of this Court (Einfeld J) by which the respondent ("Sheldrick") obtained judgment against WTP (Hong Kong) in the sum of $253,000 and Sheldrick's claim against WTP (Aust) was dismissed with no order as to costs. The amount of the judgment against WTP (Hong Kong) consisted of $181,000 for damages for breach of contract and $72,000 for interest. 2 The appeal does not challenge findings of the trial judge in respect of liability. WTP (Hong Kong) contends that his Honour erred in the calculation of damages and interest and WTP (Aust) submits that his Honour erred in the exercise of his discretion with respect to the order that no costs be recovered from Sheldrick by WTP (Aust). 3 Sheldrick, in a purported cross-appeal, the competence of which was not challenged by the appellants, claimed that his Honour erred in failing to find that there was a contract of employment between Sheldrick and WTP (Aust) and in failing to find that WTP (Aust) and WTP (Hong Kong) engaged in conduct that contravened ss 51A, 52 and 53B of the Trade Practices Act 1974 (Cth). Sheldrick also claimed that his Honour erred in rejecting several heads of damage under which Sheldrick had sought recovery in the action before his Honour. 4 The appeal consisted of two main grounds, one relating to the impact of taxation upon an award of damages, and the other relating to the calculation of interest. 5 His Honour found that there was a contract of employment between WTP (Hong Kong) and Sheldrick and that WTP (Hong Kong) breached that contract by terminating Sheldrick's services summarily and without the effluxion of a three month period of notice of termination. At the time, Sheldrick was employed on a project in Kuala Lumpur and was paid in Malaysian currency. His Honour found that the amount Sheldrick would have received, if the contractual period of notice of three months had been observed, would have been equivalent to $A66,480. His Honour found that it was at least arguable that such a payment, when received by Sheldrick as an amount of damages, would attract liability to tax in Australia (at the marginal rate) and that an amount of $63,111 was required to offset the impact of that tax liability. To that sum his Honour added interest and a component for the impact of tax upon interest, arriving at a total amount under this heading, rounded down, of $170,000. 6 WTP (Hong Kong) submitted on appeal that before calculating the Australian equivalent his Honour should have deducted tax at either Hong Kong (15 per cent) or Malaysian (32 - 34 per cent) tax rates. That submission would not appear to be open on the findings made by his Honour. It was Sheldrick's case that remuneration under the contract was paid to him "tax free" and that the loss claimed for the breach of the obligation to provide three months notice of termination of the contract had been so calculated by the accountant (Mr Menzies) called by Sheldrick. Although his Honour referred to an assumption by Mr Menzies that salary received by Sheldrick would be taxed at the Hong Kong tax rate, the actual calculation made by Mr Menzies, as adopted by his Honour, was based on the amount paid to Sheldrick each month being "tax free". How WTP (Hong Kong) and Sheldrick arranged for remuneration paid to Sheldrick to be "tax free" was not an issue in the proceeding. By "basically" accepting the evidence of Mr Menzies, his Honour found, in effect, that the sum that would have been received by Sheldrick as remuneration during the period of notice, was the amount for which an Australian currency equivalent had to be calculated. 7 Further, WTP (Hong Kong) sought to submit that his Honour should have calculated under Pt III Div 2 subdiv AA (ss 27A - 27J) of the Income Tax Assessment Act 1936 (Cth) ("the Tax Act"), which relates to "Superannuation, termination of employment and kindred payments", the present liability of Sheldrick to pay tax in Australia on any amount paid to him by way of compensation for loss of earnings. 8 It was said that if the provisions of that subdivision applied to compensation ordered to be paid in respect of the further period of three months for which Sheldrick was entitled to be paid, such a payment would be "an eligible termination payment" when received by Sheldrick and would be either an "exempt resident foreign termination payment" or "exempt non-resident foreign termination payment" as defined in s 27A(1) of the Tax Act which, pursuant to s 25(1) and s 27CD, is not included in the assessable income of a taxpayer or, alternatively, an eligible termination payment included in Sheldrick's assessable income pursuant to s 27AB(1) and 27B(1) of the Tax Act. 9 It was submitted that if the latter circumstance applied, the rate of tax to be levied would be 31.5 per cent. How that rate was said to be the appropriate rate was not identified and no calculation was made by WTP (Hong Kong) applying an appropriate multiplier to show what amount would have to be included in the sum payable to Sheldrick to provide a net sum of $66,480 after payment of any liability for income tax on the gross sum payable to Sheldrick for this head of damage under the judgment. 10 In the hearing before his Honour it was accepted by WTP (Hong Kong), in the case it presented in cross-examination and in final submissions, that if his Honour found that WTP (Hong Kong) had breached its contract with Sheldrick and that a sum was payable to Sheldrick as damages for the denial of Sheldrick's contractual right to three months notice of termination of the contract, the sum payable would be liable to tax under the Tax Act, and that the appropriate multiplier to apply to the sum payable to Sheldrick, to provide for that liability, would be 1/0.513 (ie 1.9432). 11 The point now sought to be raised by WTP (Hong Kong) was not included in the grounds of the notice of appeal. It submits that it is a question of law able to be determined on appeal notwithstanding how the case was presented to his Honour. 12 An appeal to this Court under s 24 of the Federal Court of Australia Act 1976 (Cth) ("Federal Court Act") is an appeal in the strict sense and not an appeal by way of re-hearing. Section 28 of the Federal Court Act confirms that the Court has sufficient power in exercising its appellate jurisdiction to ensure that a decision given on appeal is just and not constrained by the technical form of the appeal. However, permission to argue a point on appeal, including a point of law, not taken at trial remains in the discretion of the Court and the exercise of that discretion will depend upon it being clear that facts relevant to the application of any question of law have been determined and that it is expedient and in the interests of justice that the point be decided. It may be necessary to show a risk of injustice if leave to argue such a point on appeal were denied and leave will not be granted where it involves the presentation of a different case from that presented at trial where the opposing party might have had an opportunity to augment its case to deal with the point. (See: Bell v Lever Brothers, Limited [1932] AC 161 per Lord Atkin at 216; Banque Commerciale SA en liquidation v Akhil Holdings Limited (1990) 169 CLR 279 per Mason CJ and Gaudron J at 284.) 13 We have some doubt that all facts relevant to the application of the submission in question have been determined but in any eventwe are not satisfied that it is either expedient, or in the interests of justice, to allow WTP (Hong Kong) to raise the point at this stage when it has conducted its case by accepting that the Tax Act would apply in the terms described by the witness whose expertise was relied upon in the case presented by Sheldrick. Furthermore, having regard to all the circumstances, we are not satisfied that there is a real risk that injustice would be suffered by WTP (Hong Kong) if it were not permitted to pursue this ground of appeal. WTP (Hong Kong) has been content since August 1997, when it made its closing submissions to his Honour, to accept that the Tax Act would apply to the circumstances of this case as submitted by both parties to his Honour. The belated change in position speaks more of enlargement by afterthought of points to be raised on appeal than any perception of an injustice. It should not be overlooked that WTP (Hong Kong) has not complied with the order made by this Court in September 1998 that WTP (Hong Kong) pay the judgment sum to Sheldrick. Such default by a party does not assist it when it seeks the exercise of a discretion of the Court in its favour. 14 The point sought to be argued by WTP (Hong Kong) is not a simple issue and at this stage it is not obvious that his Honour incorrectly applied the law relying upon the submissions made to him. 15 The part of the judgment to which this question is relevant is the calculation of the appropriate sum to be awarded as damages for the breach of Sheldrick's contract of employment with the appellant, under which Sheldrick was to be given three months notice of the termination of that contract. As was appropriate for the assessment of damages for breach of contract, his Honour calculated what would have been due to Sheldrick if the contract had been performed. In doing so his Honour had regard to the contract, which contains no provision for the payment of monies by WTP (Hong Kong) to relieve Sheldrick of his right, or duty, to continue to perform his obligations under the contract until expiration of the notice and termination of the contract at that time. WTP (Hong Kong), by its conduct, waived performance of duties by Sheldrick as a condition for such a payment. 16 Sheldrick has been compensated, having regard to the terms of the contract, for the loss suffered by him as a consequence of the denial of his right to continue to work for three months under the contract. (See: Sanders v Snell (1998) 72 ALJR 1508; G J McCarry, "Termination of Employment, Payment in Lieu of Notice, Garden Leave and the Right to Work" (1999) 12 AJLL 56.) 17 The payment is made as compensation for non-payment of a sum that would have been earned in the course of the contract but for the breach of the contract by WTP (Hong Kong). It may follow that such a sum has no greater connection with the termination of the employment than a payment made after termination for remuneration earned before termination. If that were the case it would be appropriate for his Honour to allow for tax to be paid on that sum at the rate payable by Sheldrick if that sum were included in the amount of his taxable income. 18 If the argument had been raised at trial, it would have led to additional questions arising as to the construction of the employment contract including implied terms. 19 It would be quite unsatisfactory to allow the point raised by the appellant to go forward on this appeal in the absence of an appropriate foundation of found facts. 20 The other ground of appeal in relation to quantum relied upon by WTP (Hong Kong), was in respect of his Honour's calculation of the appropriate sum to be included as "interest". His Honour calculated interest on the sum of $66,480 from the date of accrual of the action to the date of judgment and added to that calculation a sum to offset the impact on that sum of liability to taxation under the Tax Act. His Honour said that it was agreed that the "interest component" be "grossed up" in that way. WTP (Hong Kong) submitted that his Honour misunderstood submissions on that point, which had been to the effect that "grossing up" would not be justified because interest would have been taxable in Sheldrick's hands in any event. 21 Although expressed as a calculation of interest, what his Honour was undertaking was an attempt to put Sheldrick in the position he would have been in if the employment contract had been performed and not breached by WTP (Hong Kong). His Honour allowed $24,000 under that head. Although expressed in the terms of a calculation of interest it was, in fact, a calculation by way of damages for loss of use of money that should have been paid under the contract. The use of an interest calculation was to produce a sum to which consideration could be given as to whether it would represent an appropriate award of damages. So treated his Honour did not err in making the additional calculation to protect that sum from the impact of tax if the parties were agreed that it would be a component of the judgment liable to tax in the hands of Sheldrick. 22 Of more substance is the appellants' challenge to his Honour's further calculation of interest to the date of judgment on all of the elements of the award. Sheldrick submitted that this calculation should not be disturbed whilst agreeing that interest should not be calculated on any sum provided for "interest and interest grossing-up". 23 His Honour allowed $72,000 under this head which appears to include a calculation of interest on the "loss of use" and "grossing up" components. Sheldrick will not be required to pay tax until the amount of the judgment is paid to him and it will not be appropriate to compensate him by calculating interest on sums added to the judgment to discharge that tax liability. Given that the sum allowed under "loss of use" represents the worth of that sum as at the date of judgment, it would not seem appropriate to provide for interest to be calculated on that sum from the date of breach. 24 The calculation for damages sustained by non-payment of monies due under the contract is not the same as, and does not preclude interest being awarded as, further compensation for non-payment of those monies. Calculated in this way and applying the rates apparently adopted by his Honour in earlier computations, the amounts which should comprise the award assessed by his Honour would be as follows: i) Sum to be paid pursuant to contract $ 66,480 ii) Provision for liability for tax on that sum $ 63,111 iii) Damages for loss of use of sum due under the contract $ 24,000 iv) Provision for liability for tax on that sum $ 22,000 v) Damages for mental distress $ 1,000 vi) Damages for relocation and vexation $ 10,000 vii) Interest on items (i), (v) and (vi) $ 28,649 ________ $215,240 ________ 25 We turn now to the cross-appeal. 26 Sheldrick submitted that his Honour erred in failing to find that there was a contract of employment between Sheldrick and WTP (Aust) that had been breached by WTP (Aust); alternatively, in failing to find that as WTP (Aust) shared profits with WTP (Hong Kong), or held out that it was in partnership with WTP (Hong Kong), it was liable to Sheldrick for acts of the "partnership". Further, it was submitted that his Honour erred in failing to find that Sheldrick had suffered loss by reason of WTP (Hong Kong) failing to perform what his Honour had found was a term of its contract with Sheldrick, namely, that appropriate visas and work permits would be obtained for Sheldrick. Further, Sheldrick submitted that his Honour erred in failing to find that WTP (Aust) had engaged in conduct which contravened the Trade Practices Act. 27 Sheldrick is a cost engineer, but, perhaps, needed to be a "Philadelphia lawyer" to understand the convoluted interlocking relationships of the entities for which he rendered services. His Honour recorded that ignorance of the "group's structure" was common to almost all employees and directors of the various companies in the "group" all over the world, no matter their seniority or years of service.