FEDERAL COURT OF AUSTRALIA Hem, in the matter of Coulco Trading Pty Ltd (Subject to Deed of Company Arrangement) v Cant (Administrator of the Deed of Company Arrangement of Coulco Trading Pty Ltd (Subject to Deed of Company Arrangement)) [2007] FCA 81 EMPLOYMENT – constructive dismissal – whether unfounded accusation of theft sufficient to constitute DAMAGES – mitigation of loss – whether money earned in mitigation but which cannot be collected should be set off against damages Bassett v French 64 NY St Rep 292 (1895), applied Blaikie v SA Superannuation Board (1996) 65 SASR 85, cited Caulfield v Broken Hill City Council (1995) 60 IR 211, cited Courtaulds Northern Textiles Ltd v Anderson [1979] IRLR 84, cited Dyer v Peverill [1979] 2 NTR 1, cited Easling v Mahoney Insurance Brokers Pty Ltd (2001) 78 SASR 489, applied Isle of Wight Tourist Board v Coombes [1976] IRLR 413, cited Moores v Bude-Stratton Town Council [2000] IRLR 676, cited O'Donnell v GIO Insurance Ltd (1996) 64 IR 297, cited Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567, cited Rankin v Marine Power International Pty Ltd (2001) 107 IR 117, cited Robinson v Compton Parkinson Ltd [1978] ICR 401, followed Sheffield Oxford Controls Co Ltd [1979] ICR 396, followed Thomson v Orica Australia Pty Ltd (2002) 116 IR 186, applied IN THE MATTER OF COULCO TRADING PTY LTD (Subject to Deed of Company Arrangement) GEOFFREY HEM v ANTHONY CANT (Administrator of the Deed of Company Arrangement of COULCO TRADING PTY LTD (Subject to Deed of Company Arrangement)) VID 643 of 2005 FINKELSTEIN J 9 february 2007 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 643of 2005 IN THE MATTER OF COULCO TRADING PTY LTD (Subject to Deed of Company Arrangement) BETWEEN: GEOFFREY HEM Plaintiff AND: ANTHONY CANT (Administrator of the Deed of Company Arrangement of Coulco Trading Pty Ltd (Subject to Deed of Company Arrangement)) Defendant JUDGE: FINKELSTEIN J DATE OF ORDER: 9 February 2007 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The appeal be allowed. 2. The defendant admit to proof the plaintiff's debt of $75,000 being damages for unlawful dismissal. 3. Costs reserved. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 643 of 2005 IN THE MATTER OF COULCO TRADING PTY LTD (Subject to Deed of Company Arrangement) BETWEEN: GEOFFREY HEM Plaintiff AND: ANTHONY CANT (Administrator of the Deed of Company Arrangement of Coulco Trading Pty Ltd (Subject to Deed of Company Arrangement)) Defendant JUDGE: FINKELSTEIN J DATE: 9 february 2007 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 Mr Hem claims to be a creditor of Coulco Trading Pty Ltd (subject to deed of company arrangement) on two separate grounds. First, for damages of $75,000 which he says he sustained when the company unlawfully dismissed him from his position as its general manager and, secondly, for a debt of $172,824.74. He lodged proofs of debt for those amounts with the administrator of the company, Mr Cant, who disallowed the first proof in its entirety and admitted the second only to an amount of $85,064.39. The reason for rejecting the first proof was that Mr Hem had not been dismissed but had voluntarily resigned from his employment. 2 The notices of rejection of the proofs of debt informed Mr Hem that he had fourteen days within which to appeal the administrator's decision. In fact he had twenty-one days. However that may be, Mr Hem did not appeal within the prescribed period. On the other hand he did apply for an extension ten days after the time for appeal had passed. A registrar refused to grant the extension but, on appeal from the registrar's decision (technically the appeal was a rehearing), I granted the extension. It is not necessary to explain in detail why the appeal was allowed, save to say that, contrary to the views of the registrar, I was satisfied that Mr Hem had an adequate explanation for the delay and his appeal was not hopeless. Since the grant of leave, Mr Hem's appeal in relation to the debt claim has been compromised. All that remains is his claim for wrongful dismissal. 3 The history of the matter may be briefly stated. Coulco Trading, formerly known as Motorgear Parts & Accessories Pty Ltd, was a wholesaler and retailer of motor vehicle parts and accessories. The company was owned by Graham Coulson and his family. Mr Coulson was the company's sole director and its secretary. The company had operated for many years and most of the time its business was successful. 4 Mr Hem, then a 19 year old who had just completed a motor mechanic's apprenticeship, joined the company in 1980. He worked in sales for a few months and later as an area manager for seventeen years. In 1999 Mr Hem was appointed as general manager of the company. He was given wide-ranging responsibilities, which included the supervision of the company's sixty or so employees. He reported only to Mr Coulson. For the most part Mr Hem and Mr Coulson were on good terms. 5 In 2000 or thereabouts there was a decline in the company's fortunes. While turnover was around $10 million per annum, profitability began to drop. The company suffered a trading loss of about $900,000. It needed an injection of funds. In 2001 Mr Hem lent the company $220,000 without which it may not have survived. Mr Hem raised the money from his banker and put up his home as security. In return Mr Coulson agreed that in due course Mr Hem would receive 10 per cent of the capital. 6 In late 2003 Mr Coulson decided to put the business up for sale. Mr Hem in conjunction with another employee offered to purchase the business. Their offer was refused. Instead the business was sold to a third party, Burson Automotive Pty Ltd, with settlement to take place in early April 2004. Mr Coulson said that Burson's offer was superior to Mr Hem's. 7 Mr Hem was not warned that the business might be sold to Burson. When he found out he became extremely angry. He was particularly worried about the security of his loan. He pressed Mr Coulson again and again for an assurance that he be given 10 per cent of the purchase price. Mr Coulson would not agree. 8 From that point relations between the two took a turn for the worse. Each says that the other expressed hostility towards him. It is impossible, however, not to sympathise with Mr Hem's position. It was beginning to look like his loan could not be repaid and his home was at risk. As a result Mr Hem began pushing for a written assurance that Mr Coulson assume personal responsibility to repay the loan. Mr Coulson refused. 9 As the settlement date approached Mr Hem began to arrange for staff to obtain alternative employment. This angered Mr Coulson who wanted the staff to remain to ensure an orderly transfer of the company's business. This and other events caused serious disagreement between Mr Coulson and Mr Hem. Mr Coulson's attitude towards Mr Hem is evident from the following unguarded comment he made in the course of his evidence: "Q: You also started to question his ability in his role as general manager and assisting in the smooth transition, correct? A: I know he was drunk with power. Q: I beg your pardon? A: I know that he was drunk with power. He was totally out of control. HH: Did you tell him that? If he is out of control ie out of control in your business you must have said something to him, mustn't you? A: I did on the – yes I did. I did remind him that he was – he wasn't the owner of the business and I was the person that owned the business." 10 Things came to a head on 18 March 2004. On that day there was a conversation between Mr Hem and Mr Coulson which is at the heart of this dispute. They are at loggerheads regarding what was said. Mr Hem says he was dismissed. Mr Coulson says he resigned. I propose, in the first instance, to put each person's version and then consider the consequences. 11 Mr Hem said he was called into Mr Coulson's office and told that Mr Coulson no longer wanted him to remain with the company. Mr Coulson accused him of stealing a linishing machine. Mr Hem denied the theft. He said he had paid for the machine and produced some paperwork to prove payment. Then the conversation went as follows (here I quote from the transcript of Mr Hem's evidence): "He said, straight out, 'I want you to resign,' and I said 'Well, why do you want me to resign?' He said, 'I just don't trust you any more. I don't trust what you are doing. I want you out of the company.' And he said, 'Well, look, you know, I will give you a redundancy pay.' He said, 'I want you to sign a resignation now.' I said, 'I am not signing a resignation now, Graham.' He said, 'I want you to sign a resignation.' I said, 'The only way I will consider a resignation is if you pay me all my entitlements and a redundancy package.' … He said, 'I want you to go, I want you out of here now, pack your stuff. Go.'" During cross-examination Mr Hem gave the following additional evidence about the meeting: "Q: After he had accused you of stealing the linishing machine you told him it was better that you resign, didn't you? A: No, that is not correct. He asked me to resign. Q: You say you refused? A: I didn't refuse. He wanted me to sign a letter there and then. I refused to do that. Q: You refused to do that so you obviously appreciated the significance of resignation, didn't you? A: That wasn't over that. He asked me to resign. Q: Well answer the question. Did you appreciate the significance of a resignation? A: Yes I did." 12 This is how Mr Coulson related the conversation in his affidavit. He was called into Mr Hem's office. Mr Hem commenced the discussion by demanding to be given 10 per cent of the stock, goodwill and all other assets of the company. Mr Coulson responded that he could not give him 10 per cent of the assets as the net liabilities of the company were of approximately the same value. There was then a discussion about the contribution Mr Hem had made to the business. Mr Hem accused Mr Coulson of "doing the wrong thing by him" by selling the business. The conversation then became heated when Mr Hem continued to insist that he be given 10 per cent of the assets. Mr Coulson told him that he had lost his trust as he knew that he had been stealing from Coulco. Mr Coulson identified as one of the stolen goods the linishing machine which he had seen in the boot of Mr Hem's car. Mr Hem's response was that if Mr Coulson did not trust him it was better that he resign. Mr Coulson asked him not to resign pending completion of the sale to Burson. 13 In his oral evidence Mr Coulson added to what appeared in his affidavit. He said Mr Hem kept insisting that Mr Coulson write a letter that Mr Coulson would repay the money that Coulco owed to Mr Hem. Mr Coulson replied he could not do that because he "[did not] know what the wash-up of the business is going to be." He continued: "A: So he got aggro with me, and things come up about trust, and then I mentioned to him – well, about trust, I said 'How can I trust you when you have been stealing off me?' And that is when he said 'Well, better I resign then', and he just got up and walked out. I was just … Q: In the course of the discussion about trust, was there any particular mention of any machinery? A: I mentioned a linishing machine. Q: And what was said about that machine? A: I mentioned to him that I knew that he had taken it. He didn't respond, he just got up and walked out." 14 Following the conversation Mr Hem left the office. He spoke to Miss Ahern who worked in the administration section and was responsible for the payroll. He told Miss Ahern that he had resigned and asked her to make up his pay. Miss Ahern asked why he had resigned. Mr Hem replied "It's best that I go now", or something to that effect. Mr Hem also had a conversation with Mr Anthony, a co-employee with whom he ultimately set up a business. He told Mr Anthony that he had resigned from his employment. 15 A week later Mr Hem consulted his solicitors. He was accompanied by Mr Anthony who was also after legal advice. Ms Davies, one of the solicitors at the meeting made notes. According to her notes Mr Hem said: "They claimed that I resigned. They asked me to resign." 16 On 26 March 2004 the solicitors sent a letter of demand directed to Mr Coulson which included the following paragraphs: "Our client has instructed us that he has been constantly harassed and badgered into resigning from his position with Motorgear. As you are aware, our client is a longstanding and valued employee of Motorgear having in excess of 22 years of service with the company. The nature of your actions appear to have necessitated our client having to take mental stress leave. You are hereby put on notice that any assertion by you that our client has resigned his position with Motorgear is rejected outright and we have been instructed to commence immediate proceedings claiming unfair constructive dismissal." 17 There was a follow-up letter to Mr Coulson on 29 March 2004. The letter was written in response to the allegation that Mr Hem had resigned as general manager of Motorgear. In this letter the solicitors put their client's instructions: "Shortly after receiving notification of the sale, Mr Coulson's attitude to our client changed. He became aggressive and on a number of occasions requested our client resign. On 18 March 2004, our client was left with no choice, following a heated discussion, to verbally tender his resignation. It was not done voluntarily and clearly constituted constructive dismissal." 18 Returning to the conversation of 18 March, I am not prepared to accept that Mr Coulson in express terms dismissed Mr Hem. If that had occurred I am sure Mr Hem would have told his solicitors. I am confident that Mr Hem did tell his solicitors what appears in Ms Davies file note and what is recounted in their two letters, namely that he had been forced to resign. 19 I do not discount the possibility that Mr Coulson asked Mr Hem to resign. I rather think that something along those lines was suggested. Having accused him of theft it would not be surprising had Mr Coulson asked Mr Hem to resign. By the time of the conversation the ill-will between the two was significant. If Mr Hem had been asked to resign to avoid a dismissal that would be equivalent to an actual dismissal. In Sheffield Oxford Controls Co Ltd [1979] ICR 396, in delivering the judgment of the Employment Appeal Tribunal, Arnold J said (at 402): "It is plain, we think, that there must exist a principle, exemplified by the four cases to which we have referred, that where an employee resigns and that resignation is determined upon him because he prefers to resign rather than be dismissed (the alternative having been expressed to him by the employer in the terms of a threat that if he does not resign he will be dismissed), the mechanics of the resignation do not cause that to be other than a dismissal. The cases do not in terms go further than that. We find the principle to be one of causation. In cases such as that which we have just hypothesised, and those reported, the causation is the threat. It is the existence of the threat which causes the employee to be willing to sign, and to sign, a resignation letter or be willing to give, and to give, the oral resignation. But where that willingness is brought about by other considerations and the actual causation of the resignation is no longer the threat which has been made but is the state of mind of the resigning employee, that he is willing and content to resign on the terms which he has negotiated and which are satisfactory to him, then we think there is no room for the principle to be derived from the decided cases." 20 In the end it is not necessary for me to rule on any of the disputed aspects of the conversation between Mr Hem and Mr Coulson. The reason is that it is not in dispute that during the discussion Mr Hem was accused of being a thief. In the absence of any justification (and none was proffered) that accusation constitutes what in some cases is referred to as a "constructive dismissal". 21 As to the applicable principles I will refer to only two cases. The first is Easling v Mahoney Insurance Brokers Pty Ltd (2001) 78 SASR 489 a decision of the Full Court of the Supreme Court of South Australia. There Olsson J (who was in dissent on other grounds) said (at 514): "First it is necessary to address the concept of constructive dismissal. This was explored by me in some detail in Blaikie v SA Superannuation Board (1996) 65 SASR 85. I adhere to what I there said at pages 102-105. Suffice to reiterate that the notion of constructive dismissal implies the existence of conduct on the part of an employer which is plainly inimical to a continuance of a contract of employment according to its express or implied terms. The authorities establish the concept that there is implied in a contract of employment a term that the employer will not, without reasonable and proper cause, conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee. An intention to repudiate need not be proved. Rather, it is a matter of objectively looking at the employer's conduct as a whole and determining whether its effect, judged reasonably and sensibly, is such that the employee cannot be expected to put up with it." 22 The second case is Thomson v Orica Australia Pty Ltd (2002) 116 IR 186. In that case Allsop J described constructive dismissal in the following terms: "Constructive dismissal is an unlawful termination of the contract of employment in circumstances where the employee leaves, without an express act or enunciation of 'dismissal' by the employer. It will be taken to be a dismissal (hence the word 'constructive') if the employer has behaved towards the employee in a way that entitles the employee to treat the employment as at an end. How that behaviour of the employer is to be described is at the heart of the matter. One difficulty in a simple enunciation of the common law principle is the existence of legislation and caselaw on closely related topics. However, if one is to approach the matter in straightforward contractual terms there is ample authority for the implication of a term in a contract of employment that the employer will not, without reasonable cause, conduct itself in a manner likely to damage or destroy the relationship of confidence and trust between the parties as employer and employee." [citations omitted] Allsop J went on to state that: "Breach of that implied term will entitle the employee to treat himself or herself as wrongfully dismissed. " He cited with approval the judgments of Olsson J in Blaikie v South Australian Superannuation Board and in Easling v Mahoney Insurance Brokers Pty Ltd which he said: "expressed the principle with clarity." 23 As regards the application of the principles, there are several instances where a single incident of verbal abuse has given rise to a successful claim for constructive dismissal. So, in Isle of Wight Tourist Board v Coombes [1976] IRLR 413 a director said of his secretary: "She is an intolerable bitch on a Monday morning", leading Bristow J to find there had been a constructive dismissal. In Courtaulds Northern Textiles Ltd v Anderson [1979] IRLR 84 an assistant manager said to an employee: "You can't do the bloody job anyway", not believing this to be true. Again constructive dismissal was established. In Robinson v Compton Parkinson Ltd [1978] ICR 401 an employee who was falsely accused of theft was found to have been "constructively dismissed". Likewise in Moores v Bude-Stratton Town Council [2000] IRLR 676 where an employee was called: "a lying toe-rag". 24 This brings me to the quantum of Mr Hem's claim. It was not seriously disputed that Mr Hem was entitled to twelve months notice of termination. He had worked for the company for more than twenty years. He was its most senior employee. He received a salary of approximately $62,000 per annum together with a motor vehicle worth $15,000 per annum. He had put his own money into the company's business with the expectation of obtaining a 10 per cent interest. It was anticipated that he would remain with the company for the rest of his life. In the event he left, he would have difficulty finding alternative employment. Cases such as Dyer v Peverill [1979] 2 NTR 1; Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567; O'Donnell v GIO Insurance Ltd (1996) 64 IR 297; Caulfield v Broken Hill City Council (1995) 60 IR 211; Rankin v Marine Power International Pty Ltd (2001) 107 IR 117 show that in these circumstances a reasonable period of notice would be twelve months. 25 In a wrongful dismissal claim it is the plaintiff's duty to mitigate his loss by using reasonable diligence to find other suitable employment or income. The duty is not unduly onerous and does not require the plaintiff to be successful. He must, though, act reasonably. 26 Here Mr Hem did take steps to mitigate his loss. He and Mr Anthony set up a company to distribute motor vehicle parts and accessories to service stations. The company was called Service Station Suppliers Australia Pty Ltd and was incorporated on 4 March 2004. The question is whether he received any income from that company that must be set off against his claim. 27 According to Mr Anthony, when he and Mr Hem discussed setting up the new company Mr Anthony suggested that each be paid a weekly wage or commission of $1,100 until 30 June 2004 plus a car allowance of $200 per week. Mr Anthony also proposed that as from July 2004 their weekly remuneration should be increased to $1,250. Mr Anthony said that Mr Hem agreed. He produced a spreadsheet which he said had been sent by Mr Hem which shows that as at 30 December 2004 Mr Hem's loan account had been debited with consultancy fees for approximately $35,000. 28 For his part, Mr Hem denies the agreement to receive fees. He also denies sending the spreadsheet to Mr Anthony, accusing Mr Anthony of preparing the document containing false information. The two are involved in a dispute in the Supreme Court of Victoria about SSSA, so their disagreement is not surprising. 29 I incline to the view that Mr Hem is not being frank about the spreadsheet. Nor is he being frank about the agreement to be paid a fee by the new company. Nevertheless, that is not fatal to his claim. 30 The principle I intend to apply is that if a plaintiff earns any money which he is not able to collect, he is not to be charged with that money. I have not been able to find any Anglo-Australian authority on point but I did come across a decision of the New York Court of Common Pleas that is in point. The case is Bassett v French 64 NY St Rep 292 (1895). The action was for damages for wrongful dismissal. As regards the assessment of damages Pryor J said of the plaintiff: "He was bound only to reasonable diligence in quest of other employment, and the proof is that he fulfilled the obligation. Having credited the defendant with every dollar he actually received, he is not responsible for money he earned but could not collect." [citations omitted] 31 Although consultancy fees were credited to Mr Hem's account in the books of SSSA, the fees were not paid, the company is no longer in business, and it is unlikely to have assets to discharge the debt. At least Mr Cant, on whom the onus falls, has not shown otherwise. Thus, there will therefore be no deduction from the claim. 32 The appeal will be allowed and Mr Cant will be directed to admit Mr Hem's proof for $75,000. On the question of costs, I think that Mr Hem should have them on a solicitor and client basis save for the costs incurred on 3 October 2006. Not only was Mr Hem successful on the appeal, on the evidence available to Mr Cant he had no basis for rejecting the proof. I have excluded the costs of 3 October 2006 because they were incurred when Mr Hem applied for and was granted leave to reopen his case and tender additional evidence. The costs of that day (also on a solicitor and client basis) should be borne by Mr Hem. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein. Associate: Dated: 9 February 2007 Counsel for the Plaintiff: Ms A Kaitinis Solicitor for the Plaintiff: John Curtain & Associates Counsel for the Defendant: Mr A Sandbach Solicitor for the Defendant: Lennon Settle Mazzeo Solicitors Date of Hearing: 2 and 3 October 2006 Date of Judgment: 9 February 2007