CATCHWORDS EMPLOYMENT LAW - summary dismissal - contract of employment - construction - termination provisions of industrial award not applicable - contract for fixed term. DAMAGES - wrongful dismissal - damages taxable as eligible termination payment - allowance for taxation. NSW Cancer Council v Sarfaty (1995) 28 NSWLR 68 applied ALAN HARRY PATTERSON v MIDDLE HARBOUR YACHT CLUB & ANOR No. NG 678 of 1993 Coram:Whitlam J Place: Sydney Date: 20 March 1996 IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 678 of 1993 ) GENERAL DIVISION ) ALAN HARRY PATTERSON Applicant MIDDLE HARBOUR YACHT CLUB First Respondent ANTHONY DAVID HILL Second Respondent Coram:Whitlam J Place: Sydney Date: 20 March 1996 MINUTES OF ORDER THE COURT ORDERS THAT: The first respondent pay to the applicant $156,065.44. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 678 of 1993 ) GENERAL DIVISION ) ALAN HARRY PATTERSON Applicant MIDDLE HARBOUR YACHT CLUB First Respondent ANTHONY DAVID HILL Second Respondent Coram:Whitlam J Place: Sydney Date: 20 March 1996 REASONS FOR JUDGMENT Introduction The applicant, Alan Patterson, was formerly employed as the Secretary Manager of the first respondent, Middle Harbour Yacht Club ("the Club"), which is a company limited by guarantee. The business and affairs of the Club are managed by a Committee. The senior office on the Committee is that of Commodore. The second respondent, Tony Hill, used to be the Commodore of the Club. In this proceeding Mr Patterson claims against the Club for breach of his employment contract, and he also claims against both the Club and Mr Hill for contraventions of the Trade Practices Act 1974 and the Fair Trading Act 1987 (NSW) and for defamation in connexion with the termination of his employment. It is convenient to consider the cause of action in contract first. Although the Club purported to terminate Mr Patterson's employment by payment in lieu of notice, it has defended this proceeding on the basis that it was entitled to dismiss Mr Patterson without notice. Whilst an extensive list of complaints has been directed by the Club against Mr Patterson, the breaches of duty that are said to justify his summary dismissal boil down, as will be seen, essentially to three issues: white ants, George Miller and staff loyalty. The Warning Letter A litany of Mr Patterson's supposed shortcomings was set out in a letter to him dated 28 July 1993 on the Club's letterhead signed by Mr Hill as Commodore. The letter stated: "Dear Alan The committee have for some time been concerned with various aspects of your management of the Club and of your performance in carrying out tasks allotted to you. Some of these are outlined below. 1. The discovery of the white ant infestation of the marina has highlighted the lack of preventative maintenance which could have prevented this disaster. We believe that it is the responsibility of management to adequately maintain all of the Club's assets in a safe and serviceable condition. 2. The lack of preventive maintenance of "Feast Watson" has cost the Club far more in rectification than correct regular maintenance. The remarks in the preceding paragraph also apply here. 3. The Committee is concerned that the unsatisfactory level of stock losses took so long for remedial action to be taken. We believe it is your responsibility to maintain adequate stock controls that are preventive rather than curative. 4. We are concerned at the fall in bar trade and the apparent lack of success in reversing this trend. The complaints of many members, as recently as the Annual General Meeting, are that the Club lacks atmosphere and the shabby nature of the Club acts as a deterrent to their continued patronage. We believe that this area falls within your responsibility and we look to you to remedy these defects. 5. The Committee was disappointed that you took your holidays in April without preparation of any report for the April Board Meeting to be presented in your absence. The complete absence of any input from you largely negated any value from holding the meeting. We believe it is part of your duties to keep us adequately informed of matters for which your are responsible. 6. It is our perception that many tasks allotted to you at Board meetings only receive your attention as the succeeding meeting approaches. We believe it is reasonable that instructions given by the Committee be acted upon without delay. 7. The general lack of tidiness in your office which is highly visible to passing members is not impressive and could lead to [sic] members to lose confidence in your professionalism. 8. It has been suggested that you have misled the Committee as to the condition of the Northern wing of the clubhouse in that statements were made that the piles were rotten and falling over and that the building was about to be condemned. Subsequent surveys have proven these statements to be incorrect and misleading. 9. When calling tenders for the current repairs and redecking of the Club marina you ignored the Yachtmarinas report of 25 October 1990 which stated that "Decking is generally in poor to fair condition ... and (there is) rot in the top of the supporting stringers." The result of this is that we are in legal negotiations with repairs and have a half repaired marina. 10. At our June meeting the Committee made a specific, unanimous direction that George Miller's employment was to be terminated by you as soon as he returned from leave. This direction was not carried out. 11. The Boat Committee asked for a report on "the electrical wiring, motors etc." Some two months later we have received a report on the refrigeration which was not very specific and there is still no sign of a report on the general wiring which the Committee believed to be dangerous. 12. The Club's architect has tendered evidence that three copies of Drawing MW01 together with complete specification were sent to you by courier on 10th June. This was before the June Board meeting. This is contrary to your advice to the Committee and we believe that you may have misled the Committee. The mishandling of this matter has meant that the tender went out before it was even seen by the committee and our architects and consultants incurred unnecessary expense. Clearly the Committee believe that you are in breach of your contract and that the above constitute grounds for dismissal which option we wish to retain. Your resignation would certainly unanimously be accepted by the Committee. In the meantime the Committee propose that your performance in carrying out your duties as Secretary Manager be kept under review and it must be said that continued breaches of what we regard as reasonable performance and behaviour to be expected from a competent secretary manager can only place your continued employment in jeopardy." The Termination Notice On 7 August 1993 Mr Hill handed Mr Patterson another letter signed by him. It stated: "Dear Mr. Patterson, Notice is hereby given to you that your employment as Secretary/Manager of the Middle Harbour Yacht Club Limited is terminated as from Saturday 7th August, 1993. Pursuant to the provisions of Clause 27 of the Club Managers (State) Award four (4) weeks payment in lieu of notice will be made. In the Board's letter dated 28th July 1993, serious deficiencies in your performance as Secretary/Manager were brought to your attention, clearly placing you on notice that your employment was in jeopardy. There has been unsatisfactory attention by you with regard to the issues raised. Since giving of that warning, the Board has become aware of your conduct towards members of the clerical staff of the Club whom you have dealt with in a threatening way and caused those staff to be concerned about their job security. This is totally unacceptable behaviour for the senior executive of the Club. The Board has also become aware that there has been excessive and unauthorised use by you of the Club's telephone for purposes other than club business. In the Board's view there has been a complete breakdown in the relationship between yourself as the Secretary/Manager and the Board, which requires the Board to have full trust and confidence in you in the performance of your duties. The Board has no alternative therefore, but to terminate your services. You will be advised separately by the Administrator of the Clubplus Superannuation Scheme regarding your entitlements. You are also advised that the Club will make a contribution to your personal superannuation scheme for the period of notice of termination. Please find enclosed a statement and a cheque in the sum of $25,790.00 in payment of wages, award and statutory entitlements." White Ants The Club is, as its name suggests, a yacht club. Its premises are located in the Sydney suburb of Mosman on and adjacent to a point of land projecting into Middle Harbour called The Spit. The marina referred to in item 1 of Mr Hill's "warning" letter dated 28 July 1993 is known as the southern marina. In September 1992 the Committee of the Club resolved to seek quotations for the replacement of piles and decking in the southern marina. The Club subsequently accepted quotations for the works from Harbour Waterfront Developments Pty Ltd ("HWD") . It was arranged by Mr Patterson with HWD that the replacement of the decking should commence ahead of the piling work. On their first day on the job workmen noticed that the girders in the marina were badly affected by white ants. It is alleged that Mr Patterson was informed of this fact, and yet he instructed or allowed the workmen to carry on fixing the new decking. The new decking was almost entirely installed before the Committee was informed of the white ants problem and ordered the work to be stopped on 28 April 1993. The cost of this work turned out to be a complete waste of money for the Club as, following further investigations, the whole marina structure had soon after to be replaced. Mr Patterson denies being informed of the white ants problem prior to 27 April 1993. The labour to replace the decking was provided by two sub-contractors to HWD, Matthew Parnell and Garry Page. Mr Parnell was the first on the job, and he worked there for only two consecutive days. On the second of those days Mr Page commenced work with his employee Mr Gavin Morrison. Mr Page keeps a record of his jobs in a diary. By reference to his diary Mr Page is able to recall commencing this job on Friday, 2 April 1993. Mr Parnell does not recall "exact dates" beyond "the beginning" of April 1993, but I am quite satisfied that he commenced work on the marina on 1 April 1993. Mr Parnell says that on his first day on the job he was introduced to a person identified as "Alan Patterson". Mr Parnell twice took this person onto the marina and indicated to him that the piles and girders were infested with white ants. Mr Parnell asked whether the affected timber should be replaced, but was told by this man to carry on fixing the new decking. When giving his evidence, Mr Parnell agreed that he could not definitely be sure that Mr Patterson (who was in court) was the person to whom he spoke at the marina. On his first day on the job Mr Page also noticed that the stringers into which he was nailing the new decking were badly damaged by white ant infestation. He remarked on the fact to Mr Parnell. Later Mr Page became aware of a man observing his work. He found this annoying. Mr Morrison indicated that this man had a position of authority in the Club. When asked by Mr Page (no doubt facetiously) whether he could be of assistance, the man replied to the effect: "I'm running the show." Mr Page pointed to the infested stringers and said: "You've got a serious white ant problem here." The man shrugged his shoulders and walked away. Mr Page worked on this job off and on until 28 April 1993, including Monday 5 April and Tuesday 6 April. However, pressed in cross-examination, Mr Page recollects that this conversation occurred on his first day on the job, Friday 2 April. The Club refused to pay HWD's invoice for the decking work. At the suggestion of HWD's solicitors a meeting took place on 13 July 1993 to discuss this matter. Mr Page attended this meeting with HWD's representative and its solicitor. The Club was represented by Mr Patterson and three members of the Committee: Douglas Brooker, Peter Dally and Peter Sorensen. Mr Sorensen was also acting as the solicitor for the Club in this dispute. Mr Page told those present that his conversation with the unknown man had occurred "when we were first pulling up the deck". Mr Page says that at this meeting he recognized Mr Patterson as the person to whom he had spoken at the marina on his first day on the job. Mr Page also says that, at Mr Brooker's request, he pointed out to everyone present at the meeting Mr Patterson as the person to whom he had spoken. Finally, Mr Page further says that, when he identified him, Mr Patterson said: "No! It wasn't me!" A major event in the Club's calendar is the annual Sydney/Mooloolaba race. In order to assist with this event Mr Patterson travelled to Mooloolaba on 30 March 1993. He returned to Sydney on 4 April 1993 and attended for duty at the Club the next day, Monday 5 April. Mr Patterson denies ever having met Mr Parnell. Mr Patterson went on leave after 17 April. He denies that prior to that date he and Mr Page had any conversation at all on the marina or anywhere else. Whilst on leave, Mr Patterson visited the Club's offices on 27 April in order to sign the Club's wages cheque. He was then informed that a plumber engaged by the Club had found active white ants in the marina. Mr Patterson returned from leave on 3 May. Mr Patterson denies that Mr Page pointed him out at the meeting on 13 July. He also denies saying at that meeting what Mr Page says that he said. Neither Mr Brooker nor Mr Dally corroborates Mr Page's evidence that at the meeting on 13 July he identified Mr Patterson. Mr Brooker does say that at the meeting it was suggested that the "shape" of the man to whom Mr Page had spoken was the same as that of Mr Patterson. However, Mr Brooker's contemporaneous notes of the meeting do not record any identification of Mr Patterson by Mr Page. Mr Sorensen did not give evidence. The respondents also rely on an alleged admission by Mr Patterson. After the discovery of white ants by the plumber, the Club's premises were inspected a number of times by Bob Parkin, a pest controller. On 13 May 1993 he inspected the marina with Michael Thackray, a civil engineer. Immediately following that inspection, Mr Parkin reported to Mr Patterson that the number of piles requiring replacement was much greater than he had originally thought. Mr Parkin says that Mr Patterson appeared to be surprised and shocked and that part of his response included the words: "Alright it's my blue. I will wear that." Mr Patterson denies using those words. I find that Mr Patterson was not informed about the white ants by either Mr Parnell or Mr Page. It is possible that Mr Parnell was introduced to someone wrongly identified as Mr Patterson, but I think it more likely that he wrongly recollects that the person to whom he spoke had been so introduced. Mr Patterson was in Mooloolaba on the two days that Mr Parnell worked on the marina. The second of those days was the day that Mr Page started on the job. Mr Page recollects that day, 2 April 1993, as the day he had a conversation with the man who shrugged his shoulders and walked away. I find that that conversation did occur on that day. After all, Mr Page noticed the problem on his first day on the job and it seems likely that, having regard to the significance of the problem, a tradesman would recollect whether he discussed the problem that day or a day or two later. I find that Mr Page did not identify Mr Patterson at the meeting on 13 July 1993. Mr Brooker and Mr Dally would surely have remembered such a dramatic event, especially in the context of Mr Patterson's alleged protestation of innocence. Mr Page may have thought at that meeting that he recognized Mr Patterson as the man to whom he had spoken on the marina. If he did, he was mistaken. However, Mr Page now firmly links his recognition to the identification (which I find did not occur), and it seems to me more likely that Mr Page's recollection that he recognized Mr Patterson at the meeting on 13 July is wrong. So far as the alleged admission to Mr Parkin is concerned, even if it be accepted that Mr Patterson used the words alleged, they do not suggest an assumption of fault or responsibility that could possibly extend to an acknowledgment of the content of any conversations with Mr Parnell or Mr Page. I accept Mr Patterson's denial that he had those conversations. George Miller George Miller is referred to in item 10 of Mr Hill's warning letter of 28 July 1993. It is alleged that Mr Patterson refused to carry out a direction of the Committee to terminate the employment of Mr Miller. Mr Miller was employed by the Club as its boat and maintenance man. He was injured at work in November 1992, went off work on workers compensation on 31 January 1993, and returned to work on light duties on 23 February 1993. Mr Miller's performance was regarded as unsatisfactory by several members of the Committee, including Mr Brooker. Mr Patterson kept the Committee informed about Miller at its meetings in February and March 1993. Mr Patterson was on leave and did not attend the April meeting of the Committee. Mr Brooker prepared on behalf of the Club's Boats Committee a list of jobs for Mr Miller. Mr Patterson gave this list to Mr Miller early in May. Mr Miller took three weeks annual leave commencing 16 June 1993. The Committee met later that day. At that meeting Mr Brooker complained about Mr Miller's failure to execute the jobs on the Boat Committee's list. The meeting was attended by Elizabeth Pedler, who prepared the minutes of the Committee's meetings. She made a shorthand note: "George Miller not done list of jobs for six weeks. Secretary/Manager directed by Committee to terminate George Miller when he returns from holidays." The minutes prepared by Ms Pedler contain no record of such discussion. They do record a decision to advertise for a new "dockmaster maintenance" position. Ms Pedler explained that sensitive staff matters were not recorded in the minutes which were displayed at the Club's premises. Instead a private minute was prepared and placed only in the Club's minute books. However, in the present case no private minute of her shorthand note was ever made. Mr Patterson is adamant that he was not directed by the Committee in terms of Ms Pedler's note. He agrees that there was general dissatisfaction with Mr Miller's performance, but he says that he proposed the creation of a new position in place of Mr Miller's existing job as a way of avoiding having to dismiss Mr Miller for his performance. Mr Patterson says that he explained to the Committee his concerns that Mr Miller's precipitate dismissal might expose the club to liability. Mr Brooker, in particular, denies that any such concerns were expressed. Other members, in the main, simply do not recall whether such concerns were expressed. However, again apart from Mr Brooker, they seem to concede that the proposal to "re-classify" Mr Miller's job emanated from Mr Patterson. Mr Patterson says that he told the Committee that he would tell Mr Miller that he could apply for the new job. One member, Mr Wayne Parkes, agrees but says that he thought such application could be made after Mr Miller had been terminated. (This would rather defeat the whole purpose of inviting him to apply for the job.) Nonetheless, all the members of the Committee who were at the meeting and who gave evidence suggest that the tone of Ms Pedler's note is correct. A new Committee was elected on 13 July 1993. Mr Sorensen, Mr Parkes and Andy Brennan, all of whom had been at the meeting on 16 June, retired. Matters came to a head very quickly at the first meeting of the new Committee on 21 July 1993. Mr Brooker wanted to know why Mr Miller had not been sacked when he returned from holidays. The Committee instructed Mr Patterson to terminate Mr Miller's services forthwith. Mr Patterson did so the next day. Ms Pedler prepared a private minute of the Committee's decision, which was faxed to Mr Patterson on 28 July 1993. I do not doubt that the sentiments expressed by the Committee members in discussion are reflected in Ms Pedler's shorthand note of the meeting on 16 June 1993. At the same time I accept that Mr Patterson voiced the concerns that one would expect to be harboured by any experienced manager of a registered club familiar with the constraints of the New South Wales industrial system. It is not surprising that members of the Committee might not have had such concerns in the forefront of their minds and are not able to recall Mr Patterson's cautionary remarks. I also accept that Mr Patterson linked the facilitating of the separation of Mr Miller from the club's employment with the proposal that he should be invited to apply for the new position. The language of Ms Pedler's note is not, of course, that of a resolution. The minutes of the Committee do not employ a consistent style. Only occasionally are decisions recorded as "Motion carried". Frequently the minutes simply record discussion without any decision. What is important in the present case is that no private minute of the matters recorded in Ms Pedler's note was prepared and sent to Mr Patterson. A different and more formal course was subsequently taken in July. The ordinary minutes were routinely prepared in a way that showed by initials in the right-hand margin who was charged with the implementation of a decision. No doubt, it is not necessary that every decision of the Committee should be notified in writing to the secretary manager. But where an employee to be dismissed has just departed on three weeks holiday, and where (as I find here) the manager responsible for executing any such decision has voiced concerns about the potential liability of the employer, it would be prudent to have contemporaneously taken out the decision in writing and seen that its terms were conveyed to the manager charged with implementation . (Such a course of action would also be fair to the manager.) In order to refuse to do something, one must consciously decline to do that thing. Whatever words were used at the meeting in the presence of Mr Patterson, I am satisfied that he did not understand that his concerns had been overridden, that his suggested "reclassification" exit was not to be utilized, and that a partially incapacitated workers compensation claimant was to be immediately terminated upon his return from annual leave instead of being permitted to remain on light duties. It follows that Mr Patterson did not refuse to carry out a direction of the Committee to terminate Mr Miller's employment. Loyalty This issue relates to Mr Patterson's "conduct towards members of the clerical staff" mentioned in Mr Hill's termination letter of 7 August 1993. Specifically, it is alleged that Mr Patterson incited the Club's staff to be disloyal to the Committee. On the morning of 30 July 1993 Mr Patterson held a meeting with all the staff on duty. They were Tony Shaw, Robyn Campbell, Janet Winter and Samantha Gough. During the following week Mrs Campbell informed two Committee members about this meeting, and they then confronted Mr Patterson in the presence of the staff. When Mr Hill heard about this confrontation, he asked Mrs Campbell to let him have statements from her and Mrs Winter. These statements were faxed to him just before noon on 6 August 1993. In her statement Mrs Campbell said: "During the week ending 30th July before staff had time to put their bags down upon arrival, we being myself, Jan Winter, Samantha Gough and Tony Shaw were call [sic] summoned into Alan Patterson's office where he advised he was having problems with the Board and that he wanted the staff's loyalty - this request was made in threatening tones and body language to match. The other employees appeared stunned and agreed but I refused as something as valuable as "loyalty" should not be given under duress but earned which in my opinion he hasn't." In her statement Mrs Winter said: "Recently, we as office staff attended a meeting in Alan's office and were asked to pledge loyalty and also told that we need to stick together as a team against the Committee." Mrs Campbell, Mrs Winter and Miss Gough have all given evidence. Mr Patterson agrees that he individually asked each of the assembled staff for "your loyalty". He says that, before he did so, he told them: "The Committee and I are in a disputation. You shall each be totally frank and honest in answering any questions. The Club has to be thought of and continuity in doing your job is essential. I ask for your continued loyalty to the Club and to me as in the past." The other witnesses recall Mr Patterson saying that he was "having problems with the Committee", not that he and the Committee were "in disputation". I do not think anything turns on this difference in recollection. However, the other witnesses do not recollect the rest of what Mr Patterson says about his prefatory statement. Some consideration of the circumstances is required. The staff knew that Mr Patterson's job was under threat. Mrs Campbell did not get on with Mr Patterson. She subsequently left the Club's employment in January 1994. Mrs Winter and Miss Gough were well disposed towards Mr Patterson and are still happily employed at the Club. At the time, however, they were both concerned about their future employment. Mrs Campbell says that, when asked for their loyalty, both Mrs Winter and Miss Gough were upset and trembling. I did not get that impression from either of these witnesses. Mrs Winter says that Mr Patterson was showing signs of strain and that she was "surprised" by the question. Miss Gough explains that she was stunned because she did not expect to be asked such a question. I do not find that either of them were in any sense overborne by Mr Patterson at the meeting on 30 July. Mrs Winter deposed that Mr Patterson said that "we should all stick together as a team". She did not give evidence that Mr Patterson added the words "against the Committee". It is odd that she used those words in her statement faxed to Mr Hill. Had such an expression been used, I have no doubt that Mrs Campbell would have pounced on it. The tone of Mrs Campbell's own statement to Mr Hill is illuminating. It does not suggest that she found anything improper in Mr Patterson's request for loyalty, merely that he had not "earned" her loyalty. I find that Mr Patterson did not suggest that the staff should in any way act against the Committee. Mrs Winter and Miss Gough both confirm that it was never suggested by Mr Patterson that they should not perform their normal duties, including those directly required by members of the Committee. Mr Patterson's use of the word "loyalty" was unfortunate, especially when each staff member was asked: "Do I have your loyalty?" or "Will you give me your loyalty?" with apparent emphasis on the first person singular pronoun. I find that Mr Patterson did preface his questions by some such reference as "continued loyalty to the club and to me", but it is hardly surprising that the staff do not recollect such a statement. Plainly neither Mrs Winter nor Miss Gough considers that she did anything wrong in saying "yes". Nor was it apparently suggested after the event by any member of the Committee that they or Mr Shaw had done anything wrong. Even if Mr Patterson's question was construed as a request for personal loyalty (and the evidence leaves open a finding that this is how Mrs Winter understood it), no incitement to disloyalty towards the Committee would be involved. That would not be the logical corollary of such a request. The respondents submit that this conversation must be assessed by reference to both purpose and effect. It would be extraordinary, were Mr Patterson's intent to incite disloyalty, that he should behave this way in the presence of Mrs Campbell. He really was in dispute with the Committee and would have been mindful, no doubt, of Mr Hill's letter of 28 July, to which that very day his solicitors were replying on his behalf. He knew Mrs Campbell was no friend. Nor could such questions be regarded as calculated to have the effect of inviting disloyalty, even if those questioned did not register that a dual loyalty was being requested. The questions do not mean that each staff member is being invited to take Mr Patterson's side in either his "disputation" or his "problems" with Committee. It is clear that Mr Patterson did not invite the Club's staff to be disloyal to the Committee. Other Alleged Breaches of Duty The Club does not rely upon all the other matters mentioned in the warning letter of 28 July 1993 to justify the summary dismissal of Mr Patterson. Indeed, only one of those matters is pressed for this purpose. That is the topic touched on in item 12 of that letter. I mentioned earlier Mr Thackray's inspection of the marina. Following that inspection, he recommended the complete reconstruction of the southern marina. At its meeting on 19 May 1993 the Committee resolved to obtain quotations for removal and replacement of both arms of the marina. The Club's architect, Mr Michael Munro, was then asked to discuss the project on site with Mr Thackray and to prepare plans and a specification suitable for tender. Mr Munro prepared a draft specification which he faxed to Mr Patterson on 9 June 1993. The next day he sent by courier to Mr Patterson three copies of a drawing of the proposed reconstruction works together with a copy of the specification. Mr Patterson gave the specification to the members of the Boat Committee, Mr Dally and Mr Brooker, for checking. He did not give them the plans, which he produced for the first time at the meeting of the Committee on 16 June 1993. The Committee resolved to have Mr Brooker check the plans against the specification before going to tender. However, in the meantime on 15 June, Mr Munro had already issued invitations to tender for the work. Mr Brooker did not learn of this fact until 25 June when he received Mr Munro's response to his comments on the specification and plans. Mr Brooker was very upset. There followed extensive correspondence from Mr Brooker, Mr Munro and Mr Thackray whose firm was subsequently retained as project manager for the reconstruction work. The upshot was that the invitations to tender were withdrawn and then re-issued later in 1993. It is alleged that Mr Patterson told the Committee that he had not received the copies of the drawing until the day before the meeting on 16 June and that, as a result, invitations to tender were issued prematurely. It may be that Mr Patterson did tell the Committee that he received the documents in question on 15 June. That was the day, he says, that he "discovered" them in his office. If he did so (and he does not recall whether he did), he was mistaken and I accept that it would have been an honest mistake. The ensuing correspondence earlier mentioned makes it clear that Mr Munro did not think that the invitations to tender had been issued prematurely. He thought that there was plenty of time and opportunity to incorporate any amendments required by the Committee. Mr Thackray, on the other hand, said that the whole tendering process should be postponed until the consents required for the reconstruction work had been obtained from Mosman Municipal Council and the MSB Waterways Authority. Mr Thackray also suggested further amendments to the tender documents beyond those required by the Committee, including the addition of a bill of quantities. Mr Thackray's views prevailed with the Committee. Mr Patterson was guilty of an oversight in not realising that copies of the drawing had been forwarded with the specification by Mr Munro on 10 June. His error meant that the Boat Committee did not have an opportunity to consider the plans prior to the Committee's meeting on 16 June. Further, Mr Patterson's failure to appreciate his error meant that he very likely misinformed that meeting about when the plans were received. But such a mistake would not have led to the premature issue of the invitations to tender, which Mr Munro had already despatched. These errors are breaches of Mr Patterson's "duty of care and competency" (as the respondents describe it), but they do not, in my opinion, constitute negligence or neglect to a degree that would justify summary dismissal. Indeed, I do not understand counsel for the respondents to contend that, "isolated on their own", they amount to a sufficiently "gross breach". In addition to the matters I have already dealt with, the Club also alleges that Mr Patterson neglected his duties by devoting significant amounts of time during working hours to his private affairs, particularly the breeding and racing of horses. I regret to say that this is, in my view, a mean-spirited allegation. I do not doubt that, when Mr Hill's warning letter of 28 July 1993 was being settled, the Club and its advisers set out to trawl for every piece of material that could be put against Mr Patterson to justify his dismissal. No mention was made of his interest in horses in that letter, and the evidence discloses that Mr Patterson's well-known interest was never the subject of complaint by any member of the Committee. Of course, an employer is entitled to justify the summary dismissal of an employee by reference to facts which existed at the time of dismissal, but which come to its attention subsequently. Here, however, the evidence of Mrs Campbell and Mrs Winter does not remotely suggest any neglect of duty on the part of Mr Patterson. It is true that there is a tone of coyness in Mr Patterson's affidavits on the subject of horses. Mr Patterson and his wife obviously do have an interest in horses, in the pursuit of which they utilize available tax advantages. I was asked to find that, in answering questions on this topic, Mr Patterson exhibited a lack of frankness that reflected adversely on his credit. I decline to do so. On the contrary, I thought that Mr Patterson's answers, whilst somewhat guarded, reflected barely concealed outrage and resentment based on a view that his interest in horses was being unfairly and unnecessarily dredged up to be used against him. Award Provisions relating to Termination of Employment The Club contends that, even if the circumstances do not justify the summary dismissal of Mr Patterson, it was entitled to terminate his employment pursuant to the provisions of the Club Managers (State) Award ("the Award"). This is, of course, what it purported to do by Mr Hill's letter of 7 August 1993. Clause 27 of the Award provided: "27. Termination of Employment (i) During the first six months of employment termination shall be by one week's notice on either side or the payment or forfeiture of one week's salary, as the case may be, in lieu of notice. (ii) After the first six months of continuous employment the service of an employee may be terminated by either side giving four weeks' notice or the payment or forfeiture, as the case may be, of four weeks' salary in lieu of notice. (iii) An employee may be dismissed at any time without notice for serious misconduct or refusal of duty." It is common ground that the Award did not confer any statutory entitlement to terminate Mr Patterson's employment. Clause 35(iv) of the Award operated to exempt him from the application of clause 27 on account of the size of his salary. But a provision in an award may also be made a term of a contract of employment by agreement between the parties: Byrne v Australian Airlines Ltd (1995) 69 ALJR 797 at 800. That is what the Club says occurred in the present case. The terms of Mr Patterson's contract of employment were renegotiated at the end of 1992. The contract was concluded on 11 November 1992, when Mr Hill wrote to Mr Patterson on behalf of the Club as follows: "I refer to my letter of the 14th September, 1992 and your reply of the 19th October, 1992 and confirm in accordance with our conversation of the 30th October, 1992 that the conditions of employment as outlined in your letter are satisfactory for your continued employment as Secretary Manager of Middle Harbour Yacht Club." Mr Hill's letter of 14 September 1992 stated (inter alia): "It is my proposal that all aspects of your package as originally agreed to (with the exception of the bonus) and as outlined in your memo of the 26th February, 1991, to Keith Tierney and Stan Wachman, remain unchanged. This allows the following:- Holidays 6 weeks per annum being 5 weeks under the secretary managers award plus 1 week off in lieu of 12 rostered days off not taken. Motor Vehicle As per initial agreement. Telephone As per initial agreement. Meals As per secretary managers award." The reference in this letter to Mr Patterson's "memo" of 26 February 1991 is relied on by the Club to make clause 27 of the Award a provision of his contract of employment. In that memorandum Mr Patterson wrote to the Commodore of the Club to clarify his salary and bonus and to submit "agreed terms and conditions of past years". The memorandum stated "Conditions of Employment: As per Secretary/Managers Award" and then set out details relating to salary, superannuation, holidays, motor vehicle, telephone, meals and bonus. Mr Paterson acknowledged Mr Hill's letter of 14 September 1992. The relevant part of his reply dated 19 October 1992 stated: "In consideration of your offer and clarification of the existing privileges that I am currently enjoying, and with one adjustment I ask the following: Condition of Employment 1. Length of Contract : 3 years as per offer 2. Salary : $62,500 per annum 3. Bonus : 10% of Audited Membership Fees 30th April each year. 4) Annual Adjustments : CPI (Minimum) 5) Annual Leave : 6 weeks per annum as per offer 6) Annual Leave Loading : In accordance with Secretary Managers Clause 16 7) Long Service Leave : " " " 28 8) Public Holidays : " " " 17 9) Club Plus Superannuation : " " " 36 10) Sick Pay : " " " 18 11) Meals : " " " 23 12) F.B.T. : MHYC currently paying 13) Motor Vehicle : As per initial agreement 14) Telephone : As per initial agreement" These are the conditions of employment accepted by Mr Hill in his letter of 11 November 1992. It may be noted that Mr Patterson expressly singled out in conditions 6 to 11 inclusive set out above the award provisions that he wished to included in his contract. (The provisions referred to are those of the Club Managers and Club Secretaries (State) Award, which was rescinded and replaced by the Award with effect from 6 April 1993. The Award contained corresponding provisions.) This precision may be contrasted with his memorandum of 26 February 1991, where only the award provision relating to meals was expressly mentioned. That memorandum was not referred to at all by Mr Patterson in his letter of 19 October 1992. This is hardly surprising since the letter was plainly intended to address all the matters covered by the earlier memorandum. This time Mr Patterson referred specifically to the provisions of the award dealing with long service leave, public holidays, sick pay and meals. No doubt out of an abundance of caution, he even mentioned the provisions governing annual leave loading and "Club Plus" superannuation, although such provisions applied to him by virtue of the award irrespective of any agreement. Mr Hill's acceptance of 11 November 1992 does not refer specifically to Mr Patterson's memorandum of 26 February 1991. His prefatory reference to his letter of 14 September 1992 is hardly apt to place the terms of that memorandum at the core of an acceptance of "conditions of employment as outlined in your letter [of 19 October 1992]". The conditions plainly did not include the provisions of the award dealing with termination of employment, especially in view of the fact Mr Patterson had gone to the trouble of mentioning other award provisions that would continue to apply to him in any event. The Club's submission to the contrary is rejected. Duration of Contract Mr Patterson submits that his contract was for an express fixed term of three years from 11 November 1992. Mr Hill's letter of 14 September 1992 concluded: "The final component of the offer is that the terms and conditions as outlined above remain in force for three years which is sufficient time for both you and the Club to get on with the job and not be focused on an early renegotiation. I see no reason why the good relationship that has existed since your joining the Club should not continue and there is every reason to expect that at the end of the three years if both parties are in agreement the arrangement can continue at will." The length of the contract was, of course, addressed in condition 1 of Mr Patterson's reply of 19 October 1992. The meaning of this exchange seems perfectly clear. Early in 1993 the parties agreed to a variation of Mr Patterson's bonus. The terms of the variation are recorded in two letters from Mr Hill, dated respectively 25 March 1993 and 27 April 1993, which were agreed to by Mr Patterson. In the first of those letters Mr Hill set out the relevant condition of employment as "Term - 3 years from 11th November 1992". Again, that seems straightforward. The letter of 27 April 1993 stated: "Further to my letter of 25th March, 1993 I reiterate my verbal statement to you that the bonus component of your remuneration, that is the fixed bonus and discretionary bonus (if any) described in points two and three of my letter, I intended to have effect from the commencement of the financial year ending 30th April, 1993. Further in the event of your employment ceasing on a date other than 30th April in any year it is agreed that the abovementioned bonus would be paid on a pro rata basis having regard for the number of days worked until termination." The last paragraph above is said to acknowledge an agreement that Mr Patterson's contract of employment was not to continue until 11 November 1995. Of course, it did no such thing. It merely provided for the pro rata payment of his bonus in the event anticipated. Such a cessation of employment might occur prior to 11 November 1995 by death or by agreement, or after that date by reasonable notice. On the first day of hearing the Club amended its defence to allege an unusual construction of what I regard as the plain words of Mr Hill's letters of 14 September 1992 and 25 March 1993. It is alleged that the provision dealing with what Mr Patterson described as "Length of Contract" was, in effect, no more than a kind of consensual "No Extra Claims" provision in relation to salary and bonus. There is nothing in the correspondence to support such a strained, unnatural and tortured construction, which I unhesitatingly reject. It follows that, in my opinion, the Club and Mr Patterson agreed expressly that his contract of employment was to continue until 11 November 1995. Damages for Wrongful Dismissal The Club was not entitled to dismiss Mr Patterson summarily. Nor did it have the right to terminate his employment by payment of four weeks' salary. The Club wrongfully dismissed Mr Patterson, and he is entitled to damages for the Club's breach of contract in terminating his contract before the expiry of its fixed term. The measure of damages for such wrongful dismissal is the sum necessary to put Mr Patterson into the position in which he would have been had the contract been allowed to run its full term. In Kilburn v Enzed Precision Products Pty Ltd (1988) 4 VIR 31 O'Bryan J said (at 33): "The measure of damages for wrongful dismissal is, prima facie, the amount that the plaintiff would have earned had the employment continued according to contract, including the value of benefits such as allowance or bonus or car, subject to a deduction in respect of any amount received from any other employment which the plaintiff, in minimising damages, obtained." Mr Patterson was out of work for 20 weeks until 27 December 1993, when he secured employment with a club in Tamworth. His salary and benefits in his new employment are significantly less than he enjoyed under his contract with the Club. Nonetheless, I am quite satisfied that he took reasonable steps to mitigate his loss. There was a desultory cross-examination of Mr Patterson intended to suggest otherwise. But his position at the Club was quite rare. There are only a handful of prestigious clubs involved with yachting in Sydney, and they are obviously very different to other large registered clubs, which are dependent on gambling revenues. At the time of his dismissal Mr Patterson's contract provided for an annual salary of $62,500 (in respect of which he was entitled to be paid an annual leave loading of $1,262) and a fixed annual bonus of $30,000. These sums totalling $93,762 were payable to Mr Patterson after deduction of tax, leaving him a net annual amount of $58,637. In addition to this taxable remuneration, the Club was obliged to provide him with a motor vehicle and meals and to pay his home telephone account and superannuation contributions on his behalf. It is agreed by the parties that these benefits have an annual value of $11,845. Accordingly, Mr Patterson's after-tax earnings and benefits at the Club amounted to $70,482 per annum or $1,355.42 per week. In his new employment in Tamworth Mr Patterson earns a gross annual salary of $32,400. After tax his salary is $25,186.50. In addition, his new employer pays a total of $4,000 in annual superannuation contributions on his behalf. Mr Patterson's current after-tax earnings and benefits are thus $29,186.50 per annum or $561.26 per week. At the hearing the parties agreed that any damages for wrongful dismissal should be assessed in accordance with the decision in NSW Cancer Council v Sarfaty (1992) 28 NSWLR 68. In that case damages for wrongful dismissal were assessed by the trial judge on the basis of the after tax salary the plaintiff would have received had he continued in the employment of the defendant. It was common ground at the trial that any judgment would be an eligible termination payment and as such would attract income tax in the hands of the plaintiff. The plaintiff argued that the defendant should compensate him for this tax and that the judgment should be "grossed up" by adding to it a sum such that after the total had borne tax he would be left with the damages he would have received if the judgment had not been taxable. The trial judge awarded damages to compensate the plaintiff for the income tax on the judgment. The Court of Appeal dismissed an appeal against the allowance for the tax payable on the award. After judgment was reserved counsel for the applicant informed the Court by letter, copied to their opponents, of the decision in Grout v Gunnedah Shire Council (1995) 129 ALR 372. In that case Moore J, in the Industrial Relations Court of Australia, declined to follow the approach in Sarfaty and assessed damages for unlawful dismissal by reference to the applicant's gross income. (That decision has since been reversed on other grounds: Gunnedah Shire Council v Grout (1995) 134 ALR 156). His Honour relied, amongst other authorities, on Kilburn where O'Bryan J said (at 34): A further question arises whether the damages awarded in respect of loss of salary and allowance should be reduced by the tax for which the plaintiff would have been liable in respect of salary and allowance. Mr Greenberger submitted that the damages should be reduced, applying the principles of law in Cullen v Trappell (1980) 146 CLR 1. Mr Monotti submitted that damages assessed for salary and allowance should not be reduced by tax because the damages award will attract tax pursuant to the provisions of the Income Tax Assessment Act 1936. At common law the calculation of damages for a plaintiff's loss of earnings must take into account the tax which would have been payable upon them. In British Transport Commission v Gourley [1956] AC 185 the House of Lords decided that the principle that tax must be taken into account applied to the case of wrongful dismissal. In Cullen's case the High Court applied the principle stated in Gourley's case. In England, an amendment to the Finance Act in 1960 has meant that damages awarded for loss of earnings for wrongful dismissal are taxable and the effect is that courts no longer take taxation into account in calculating damages for loss of earnings in claims for wrongful dismissal because the damages will themselves be taxed. In my view, amendments made to the Income Tax Assessment Act in 1984 by Act No 47 whereby the assessable income of a taxpayer shall include the amount received by way of an "eligible termination payment", has the same effect and the Court need no longer take taxation into account in calculating the damages for loss of earnings in a claim for wrongful dismissal. The damages awarded to the plaintiff will probably attract tax as an "eligible termination payment" made by compulsion of law (s 27A(1) and (3) and s 27B)." Recently in Daniels v Anderson (1995) 16 ACSR 607 the Court of Appeal in New South Wales considered the vexed question of tax adjustment to damages. Clarke and Sheller JJA sounded a warning note about such adjustment and said (at 740): In most cases if damages to be awarded to a plaintiff are taxable taxation should not be taken into account in their assessment." However, their Honours earlier set out certain propositions that they derived from the cases. They expressed the third and fourth of these propositions this way: "(3) If a comparison between taxable receipts for which damages are recoverable and the taxability of the compensatory verdict are so uncertain and depend upon such imponderables as the degree to which the plaintiff can for example carry forward losses from previous years the appropriate course is to ignore taxation considerations. (4) If on the other hand it is unjust not to take account of identifiable and quantifiable taxation impacts both on the lost receipts and the compensatory damages then these may be taken into account in assessing damages." In the present case I propose to apply the method used in Sarfaty. It would, in my opinion, be unjust not to do so. The damages award will be taxable as an eligible termination payment. It is agreed that the tax rate (including Medicare levy) on such a judgment will be 31.4 per cent. If I "gross up" the relevant part of the damages by that percentage, that should provide just compensation to Mr Patterson for his loss of earnings and the value of his lost benefits. (I realize that, as noted in Sarfaty by Mahoney JA at 96, the method is not perfect.) The alternative approach, which is to ignore the impact of taxation on the damages awarded, requires that loss of earnings be calculated by reference to gross wages. This would result in an unnecessary windfall for Mr Patterson, since the loss in his gross annual earnings exceeds $60,000 and the vast bulk of this amount would have been taxed at a marginal rate of 47 per cent. Mr Patterson was unemployed for 20 weeks. He is entitled to recover $1,350 per week for that period. For the next 98 weeks from 27 December 1993 to 11 November 1995 Mr Patterson is entitled to recover the net loss in his earnings and benefits, which I allow at $790 per week. These figures are conservative. No adjustment has been made to reflect his contractual entitlement to annual salary adjustments in accordance with the consumer price index. The Club paid Mr Patterson at the time of his dismissal a net sum of $3,705 for salary in lieu of notice. The losses for the term of the contract may thus be calculated as: $1,350 x 20 $ 27,000 $ 790 x 98 77,420 $104,420 Less 3,705 $100,715 Had the contract of employment not been broken, Mr Patterson would have received that sum of $100,715 free of income tax. Now it will be taxable as an eligible termination payment. Accordingly, consistently with Sarfaty, I propose to include in his damages an allowance for income tax of 31.4 per cent of such sum, being $31,624.51. In addition, had Mr Patterson continued in employment at the Club for the duration of his contract, he would have received at 11 November 1995 an amount of $7,791.47 for long service leave over and above the amount he received on 7 August 1993 when he was dismissed. Such a payment would, in any event, have been taxable at the same rate as an eligible termination payment. The sum of $100,715 would have been received progressively over a period of 118 weeks. Interest for that period will be allowed at an annual rate of 5 per cent (being half the appropriate rate). Interest on the total amount of $108,506.47 ($100,715 + $7,791.47) will be allowed for the 18 weeks since 11 November 1995 at an annual rate of 12 per cent. These interest rates accord roughly with those applicable under the Supreme Court Rules 1970 (NSW) during the relevant periods. Mr Patterson's damages for wrongful dismissal are assessed as follows: Loss of earnings and benefits $100,715.00 Allowance for income tax 31,624.51 Long service leave notionally accrued 7,791.47 Interest up to 11 November 1995 11,427.27 Interest since 11 November 1995 4,507.19 $156,065.44 Misleading or Deceptive Conduct The causes of action based on the Trade Practices Act 1974 and the Fair Trading Act 1987 (NSW) do not now arise since I have held that Mr Patterson's contract of employment was for a fixed term that did not expire until 11 November 1995. Of course, if a different conclusion had been reached because Mr Hill did not have authority to write the relevant letters on behalf of the Club, his conduct may well have contravened these Acts. But Mr Hill's authority was, not surprisingly, never put in issue by the defences, although the respondents made a fleeting reference to the topic in their submissions. Defamation Mr Patterson complains of two publications. The first relates to what was said to him by Mr Ray Stone in the presence of Mr Dally in the foyer of the Club's premises on 23 July 1993. Mr Stone was a new member of the Committee, who had been elected on 13 July 1993. The Club is plainly not responsible for what Mr Stone said. Nothing more needs to be said about this publication. The second publication, which is put against both the Club and Mr Hill, involves the distribution of the warning letter of 28 July 1993 to the members of the Committee. Mr Patterson alleges that the letter conveyed eleven defamatory imputations. I shall not set out those imputations, which have been fairly predicably teased out of the twelve numbered paragraphs of that letter. These defamation counts have produced a cascade of written submissions incorporating a veritable treatise on aspects of the law of defamation. The respondents have defended them on several bases. However, even though I am prepared to assume that the pleaded imputations were conveyed and that they were defamatory, they may be disposed of upon the basis that the respondents have, in my opinion, made out their defences of qualified privilege, both under the principles of common law and under s22 of the Defamation Act 1974 (NSW). Mr Patterson concedes that the publication to the Committee was an occasion of qualified privilege, but contends that the respondents were actuated by malice so that the protection available to them was lost. The letter of 28 July 1993 was drafted by Mr Hill on 25 July 1993. Large parts of it were lifted holus bolus from earlier documents prepared by Mr Brooker, which are in evidence. The contents of the letter in its final form were settled by the Club's solicitors on 26 July. All the matters dealt with in the letter having been raised by some members of the Committee, Mr Hill plainly had a duty to inform all members of the Committee about these aspects of Mr Patterson's management of the Club. It may be accepted for present purposes that the letter of 28 July 1993 was published by Mr Hill both personally and on behalf of the Club. Mr Patterson submits that the letter contained concoctions known by Mr Hill to be false and that it was designed to cover up deficiencies in the stewardship of the Club's affairs by past and present members of the Committee. I reject this submission. The letter expressed conclusions which may be wrong, and some of the subjects mentioned are undoubtedly trifling. Mr Hill's evidence is unconvincing when he says that he had in mind Mr Patterson's interest in horses and personal telephone calls in relation to the matter mentioned in item 6. But Mr Patterson fails entirely to establish any express malice. So far from being improperly motivated, Mr Hill genuinely believed that it was in the interests of the Club that Mr Patterson should go and that the matters raised in his letter of 28 July 1993 should be put before the Committee. It does not follow at all that Mr Hill's object was to injure the applicant. Mr Patterson submits that Mr Hill's malice is made evident by his willingness to maintain false claims and to lie under oath. These are serious charges. I do not accept them. In particular, Mr Patterson relies upon Mr Hill's refusal to acknowledge during the trial of this proceeding his alibi in respect of 2 April 1993, on which date Mr Hill was also in Mooloolaba. Whatever the forensic reason may be for such a non-admission, it does not strike me as evidence of express malice in publishing the letter of 28 July 1993. Having regard to the material available to Mr Hill, it was reasonable in the circumstances to publish the synthesis of this material in the form of the warning letter settled by the Club's solicitors. The applicant's submissions on the defamation case did not descend to a detailed analysis of the evidence, and it is not necessary that I should do so either. The defamation counts are not made out. Conclusion One matter should perhaps be put into perspective at the end of this unhappy proceeding. Mr Patterson was accused in the warning letter of having failed to put in place a program of preventative maintenance in respect of the southern marina. The senior flag officers and a majority of the Committee are required to be yacht owners on the Club's register. Presumably they use the marina frequently. Even after the white ants infestation had been detected and the marina had been inspected by the Boat Committee, their report of 7 May 1993 did not suggest the extent of the deterioration subsequently revealed by Mr Thackray which led to the decision to replace the marina. Once that decision was made, the evidence shows that the Club was well served by its Committee in the subsequent replacement phase. In particular, the Club was fortunate in the attention to detail exhibited during the tendering process by Mr Brooker, who has a marine business background. No doubt, the Committee felt frustrated and disappointed that the Club had to spend over $300,000 on the replacement of the marina. However, the expectations of Mr Patterson's performance, which the Committee expressed after the event, required such a degree of perfection that it is not difficult to see why Mr Patterson feels that he was shabbily treated. There will be judgment for Mr Patterson against the Club in the sum of $156,065.44. The parties ask that no order for costs should be made until they have had an opportunity to be heard. My Associate may be approached to arrange a suitable date for this purpose. I certify that this and the preceding pages are a true copy of the reasons for judgment herein of the Hon. Justice A.P. Whitlam Associate: Date: 20 March 1996 Counsel for the applicant: J.J.G. Garnsey QC and B.A.M. Connell Solicitors for the applicant: Corrs Chambers Westgarth Counsel for the respondents: J.S. Wheelhouse and K.P. Smark Solicitors for the respondents: Piggot Stinson Stuart Thom Dates of hearing: 31 October, 1-4 and 18 November, 14 December 1994; 20-24 February, 15-16 March, 20 and 27 July 1995