DECISION NO:216/97 INDUSTRIAL RELATIONS COURT OF AUSTRALIA INDUSTRIAL LAW - assessment of compensation for unlawful terminations of employment - principles of assessment - factors capable of being taken into account when redundancy is expected or likely - the chance of redundancy in any event if the terminations of employment had not been unlawful - necessity to value such chances - imprecision necessarily attending such valuation - difficulty of disturbing valuation on appeal Industrial Relations Act 1988 (Cth), s 170DC, s 170DE, s 170EE Sharman v Evans (1977) 138 CLR 563 Warren v Coombes (1979) 142 ALR 531 KENEFICK & ORS v AUSTRALIAN SUBMARINE CORPORATION SI 1100, 1101, 1102 of 1996 RYAN, von DOUSSA AND MADGWICK JJ ADELAIDE 8 JULY 1997 IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SI 1100, 1101, 1102 of 1996 BETWEEN: TREVOR KENEFICK PETER HILL BRONTE NAGEL AUTOMOTIVE, FOOD, METALS & ENGINEERING UNION Appellants AND: AUSTRALIAN SUBMARINE CORPORATION Respondent RYAN, von DOUSSA AND MADGWICK JJ ADELAIDE 8 JULY 1997 MINUTES OF ORDER THE COURT ORDERS THAT: 1. The appeal in respect of each of the appellants, Mr Kenefick, Mr Hill and Mr Nagle be dismissed and the judgment of the trial judge be affirmed. IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SI 1100, 1101, 1102 of 1996 BETWEEN TREVOR KENEFICK PETER HILL BRONTE NAGEL AUTOMOTIVE, FOOD, METALS & ENGINEERING UNION Appellants AND AUSTRALIAN SUBMARINE CORPORATION Respondent RYAN, von DOUSSA AND MADGWICK JJ ADELAIDE 8 JULY 1997 REASONS FOR JUDGMENT THE COURT: These are appeals in two cases against allegedly inadequate awards of compensation and in one case against a failure to award such compensation. Background Facts The respondent built submarines for the Royal Australian Navy. The appellants were employed by the respondent as welders in its hull shop at Osborne, Port Adelaide. In the months preceding the termination of employment of the individual appellants, there was concern that there was insufficient work for all 546 production employees. On 30 November 1994 the Australian Government announced that it did not propose to order any additional submarines until at least 1996. This announcement prompted the respondent to make redundant 36 employees from different departments of its operation, including nine welders from the hull shop, among whom were the appellants. In total, the respondent had employed 170 employees in the hull shop, of which welders constituted an unspecified but large proportion. History of Litigation The appellants filed applications for compensation on the grounds that the termination of their employment was unlawful, being in contravention of s 170DE of the Industrial Relations Act 1988 (Cth) (the Act). The applications were initially heard by a judicial registrar, who upheld the appellants' claims on the basis that the respondent had failed to demonstrate that the selection criteria for redundancy had been fair (c.f. s 170DE(2)), and thus did not have a valid reason for terminating the employment of the appellants rather than that of others of the 170 employeesin the hull shop. The judicial registrar awarded compensation in amounts substantially higher than those awarded in the judgment now under appeal. The respondent sought a review of the judicial registrar's decision on the grounds that she had erred in law in relation to both ss 170DC and 170DE, and that the amount of compensation awarded to each employee was excessive. The trial judge held that the selection criteria had not been inappropriate and had not been implemented unfairly, and dismissed the appellants' applications. The appellants then appealed to a Full Court, which held that the terminations were indeed unlawful for breach of ss 170DC and 170DE(1) of the Act, and remitted the matter to the trial judge for determination of the appropriate amount of compensation (pending an application for leave to appeal to the High Court against the Full Court's decision). The trial judge awarded the individual appellants the following amounts in compensation: Mr Kenefick: $2,000 Mr Nagel: $3,520 Mr Hill: nil The review process as to the compensation issues The course had been taken by the parties on the original application for review of inviting the trial judge to deal with the matter "on the papers", that is, without the calling of further evidence. After the matter was remitted by the Full Court, the trial judge again enquired by way of telephone directions whether any party wished to call further evidence on the question of compensation. No party did. Thus, the issues relating to the quantum of any compensation had to be determined by the trial judge on evidence that had acquired some age. There was a possibility that inferences available on that existing evidence might in fact have been belied by subsequent actualities, of which the court would remain ignorant because of the choice of the parties not to call any further evidence. The fact that no further evidence was sought to be called by the appellants was relied upon by the respondent before the trial judge as a positive reason to award each of them nothing beyond the date when the last of the available evidence was heard. The judge, for reasons which he gave, declined this proposal. The evidence before the trial judge was, in general, far from full, and in some instances was, as he remarked, scanty. The consequence was that his Honour was left to do his best with the material such as it was. If there was any deficiency in the evidence of any appellant which might have been able to be remedied, that was a matter entirely of that appellant's own making and in no way the result of the processes of the court, let alone of any conduct of the respondent. It was argued that the trial judge erred "in approaching the assessment on the basis that the appellants had prejudiced their position by failing to call further evidence as to [their] individual financial circumstances". There was some suggestion that the appellants had been denied an opportunity to call further evidence but, as a matter of fact, that suggestion is quite wrong. In any case, the submission is simply based on a false assumption. The trial judge did not so approach the assessment. That he mentioned the matter at all was, quite evidently, only to illustrate the obvious difficulty that he felt in proceeding on the evidence in the state that it was. It is clear that his Honour was conscious that, in the result, the state in which the evidence had been left might cause some injustice. In fact, his concern was that some injustice might be caused to one or more appellants. But it was the choice of the appellants, as well as of the respondent, not to call further evidence. Arguments on the merits As to the actual merits of the matter, the appeal rests on two kinds of criticisms. The first applies to each of the appellants and the second relates to the particular cases of the individual appellants. The arguments of general application may be paraphrased in this way: in each case there was a breach of s 170DCof the Act, which provides: "170DC An employer must not terminate an employee's employment for reasons related to the employee's conduct or performance unless: (a) the employee has been given the opportunity to defend himself or herself against the allegations made; or (b) the employer could not reasonably be expected to give the employee that opportunity." and a breach of s 170DE(1) of the Act, which provides: "170DE(1) An employer must not terminate an employee's employment unless there is a valid reason, or valid reasons, connected with the employee's capacity or conduct or based on the operational requirements of the undertaking, establishment or service." The consequence of the finding establishing such unlawfulness is that there were no known valid criteria for the selection of the particular employees who were to be retrenched first. Therefore, the argument runs, there was merely something like a bare statistical chance (9:170) that, had valid criteria and procedure been applied, any of these appellants would have been chosen to be retrenched first. Hence, each appellant should receive something close to the full extent of what he would have earned from the time he was actually retrenched until the considerably later time in June 1996 when he would, in any event, almost certainly have been retrenched. Secondly, it was said that it was likely that to avoid illegality or for some other reason the respondent would first have chosen volunteers to be made redundant, and that was another reason why the appellants would not have been among those selected for early retrenchment. This matter may be shortly disposed of. The necessity for an employer to consider such an approach, and the ability to show a defensible rejection of it (if it is rejected) will vary from case to case. Where most employees are, to a tolerable extent, equally satisfactory, a failure to seek or accept volunteers for redundancy may be very significant: see Kenefick v Australian Submarine Corporation (No 2) (1996) 65 IR 366 at 372. In this case, however, the circumstances were such that the employer did not accept, for justifiable reasons, a rigid "volunteers first" policy. Hence, there was no necessity for his Honour to accord this matter any particular weight. Thirdly, it is said that the trial judge erred by attempting to value the chance that, even if the respondent had proceeded lawfully in relation to such number of terminations of employment as were necessary and as to the selection of those whose employment should be terminated sooner rather than later, each appellant might in any case have been selected for earlier rather than later retrenchment. It was really impossible to do that without a determination of whether the terminations were not also in breach of s 170DE(2) of the Act which provides: "170DE(2) A reason is not valid if, having regard to all of the circumstances of the case, including the employee's capacity and conduct and those operational requirements, the termination is harsh, unjust or unreasonable. This subsection does not limit the cases where a reason may be taken not to be valid." Only once it was possible to say that the selection criteria for those to be retrenched were reasonable, just and not harsh, could the likelihood of early selection be sensibly valued. In particular, each of the appellants had been included on an unofficial "discipline list", prepared some nine months before the terminations, and there had been no opportunity afforded for each appellant to say that a volunteer whose name was not on that list should be selected for early retrenchment before the relevant appellant. Whether the appellants ought to have had that right could only be determined by knowing the attitude of the court to the s 170DE(2) issues. Conclusions In deference to the arguments put to us, and in fairness to his Honour, we deal with this matter on the assumption that s 170DE(2) is constitutionally valid, even though this assumption was shown by the High Court in Victoria v Commonwealth (1996) 138 ALR 129 to be erroneous. There is, in our opinion, no substance in any of these criticisms. To deal with the last matter first, it was common ground that reinstatement was impracticable and, once it had been determined authoritatively by the Full Court that the terminations were unlawful, the appellants were entitled to compensation for any loss sustained by them up to the maximum provided by s 170EE. But if each appellant sustained a loss, he sustained only a single loss because of the unlawful termination of his employment. Once illegality had been determined to exist under s 170DC or s 170DE(1), there was no necessity, for the purposes of either the employer's liability to compensate the appellants or the ascertainment of the quantum of such compensation, to determine whether s 170DE(2) had been breached. If the question of a breach of s 170DE(2) was not necessary to determine liability in favour of the appellants, any difficulty in assessing compensation could not resurrect such a necessity. As to the question of valuing the loss, it is inescapable that, in order to properly determine the loss (if any) sustained by each appellant, there should be brought into consideration the chance that he would in any event have had his employment very soon terminated. That is logically so because what is really being compensated is each appellant's loss, predicated upon the chance that his employment would not have been so terminated had the employer obeyed the law. A chance that his employment would not have been terminated, but for the unlawful termination, cannot be separated from the chance that his employment would have been so terminated. The evaluation of those chances results in an assessment of whether the employment would probably have been otherwise terminated or not. Indeed, the appellants' own approach to the matter of how compensation ought to be assessed implicitly depends upon the notion that these competing chances must be valued. It was thus inevitable and correct that his Honour should proceed to value those chances. It was then said that his Honour erred by having regard to the particular factors which he did in valuing the chance that each appellant would have been retrenched early even if the respondent had proceeded without illegality. It seems to us that, in general, this criticism can only be made out if no employer in the position of the respondent could lawfully and reasonably have had regard to such factors in determining whether any and which of a number of employees would be retrenched for redundancy before the others. If an employer could thus have regard to such factors, there was no logical or practical reason for his Honour not also to have adverted to them. An appeal against assessment of compensation under the Act is in essence an appeal against an assessment of damages: it is now well-settled that compensation under the Act is to be approached by first assessing the appropriate recompense, according to the principles for assessment of damages for loss unlawfully caused to a person, and then applying the cap provided by s 170EE. The nature of an appeal against an assessment of damages ought not be forgotten: in Sharman v Evans (1977) 138 CLR 563, Barwick CJ said (at 565): ".... the fundamental principle is that the exercise of discretion by the trial judge in the estimation of damages ought not to be interfered with by an appellate court unless the trial judge has erred in point of law or in his approach to the assessment or unless the assessment itself, by its disproportion to the injuries received, demonstrates error on the part of the trial judge. Notwithstanding some views which have been expressed, the function of a court of appeal, in my opinion, is not to offer what in connexion with another discipline would be called 'a second opinion'. Such a court is strictly confined to the remedy of error in the trial or in the assessment of the trial judge. It cannot be too strongly said that a mere difference of opinion as to what ought to have been the proper award of damages does not indicate error on the part of the trial judge. This distinction between mere difference of opinion and error has been variously expressed, perhaps not always with satisfaction to the mind. But there is a radical distinction between the two situations whether the error be styled demonstrable or otherwise described. Suffice it for present purposes that mere difference of opinion on a matter of fact or assessment does not warrant a conclusion that the trial judge's view was mistaken or erroneous calling for a remedy by a court of appeal." The tenor of these remarks remains true notwithstanding later cases such as Warren v Coombes (1979) 142 CLR 531 which have reaffirmed the right and duty of an appellate court to intervene where it perceives error and no insuperable adjudicative advantage on the part of the trial judge. Respect and weight must be given to the approach of the trial judge, especially where, as here, the imponderables inherent in valuing a chance are involved. The matters his Honour took into account were: (a) on the basis of the projected reduction in orders envisaged by the respondent prior to the Government's announcement in November 1994, it was highly probable that the appellants would have been retrenched by June 1996, if they had not been retrenched in December 1994; (b) the reduction in the number of welders projected for July 1995 was the reduction that occurred in December 1994, so that, in effect, the retrenchments were brought forward six months as a result of the Government's announcement; (c) the respondent's failure to follow the procedure set out in s 170DC deprived each appellant of the opportunity of successfully arguing that his name should be deleted from the list of those selected for retrenchment, and it was necessary therefore to look to the circumstances of each appellant to assess the value of that chance, which his Honour did; and (d) whether the likely future medical vulnerability of two of the appellants would have influenced their placement on a list of "least valuable" employees (it was not argued that there was any breach, in this regard, of para (a) of subsection 170DF(1)). An employer in the position of the respondent might, in our view, have lawfully and reasonably had regard to those matters in deciding whether and which employees ought be retrenched before others. It follows that his Honour did not err in looking at such matters. Once it is accepted that, in each case, it was appropriate that a chance be valued, it is plain that the assessment had entered a realm of extreme difficulty. Accordingly, it will be the harder, in such a case, to show on appeal an error of such magnitude that excessiveness on its face is demonstrated. So it is here. It would be beside the point for us to express our view of what we might have done. In the absence of demonstrated error on the part of the trial judge, we are not here, in Barwick CJ's phrase, to give a second opinion. It suffices to say that, in our view, each of the assessments, properly understood and examined is such that it demonstrates no discrete error of principle nor, in the result, such a low assessment that one can say that it is wrong and therefore appellable. In the case of Mr Kenefick, he had suffered a back injury in late 1993 which had reduced his working hours, although he continued to receive his ordinary salary. After his retrenchment, Mr Kenefick received Workcover payments which, judged by the earnings of comparable employees, was about $100 a week less than he would have received if his employment had not been terminated. His Honour assumed that Mr Kenefick would have continued to receive Workcover payments from the date of his termination until June 1996, when he would have been retrenched in any event, and assessed the maximum amount of compensation payable at $7,800. So much, we think, is quite unexceptionable. However, his Honour then took into account that, given Mr Kenefick's medical condition, it was highly probable that he would have been selected for early retrenchment, even if the respondent had afforded Mr Kenefick an opportunity to argue against his retrenchment in accordance with the requirement in s 170DC. His Honour concluded that the financial loss suffered by Mr Kenefick as a result of his termination should be discounted to $2,000. Although high, the discount was made for a legitimate consideration. We do not think that it can be said to be appellably objectionable. In the case of Mr Nagel, his Honour considered that he would have earned close to $10,000 over a 15 week period if he had remained at ASC, but between the date of termination and the hearing before the judicial registrar, Mr Nagel earned $4,500 in casual employment. Assuming that Mr Nagel would have continued to suffer a loss at the same net rate for the next three months, his financial loss as a result of his termination totalled $8,800. However, his Honour considered that Mr Nagel had also suffered from health problems which caused him to be absent from work for a significant amount of time. His Honour considered that these absences would probably have "been fatal to his chances of avoiding retrenchment", notwithstanding s 170DC. His Honour discounted the $8,800 by 60% and awarded him $3,520. Again, we see no appellable error in what was done. As to Mr Hill, his Honour had regard to evidence given before the judicial registrar that he had not suffered any financial loss because he had since found comparable employment. With this in mind, and having regard to the fact that Mr Hill would most probably have been retrenched in any event by June 1996, his Honour found no justification for the award of any compensation, and dismissed his application. It was argued that there was in fact an arithmetical basis, on the wage figures before the court, which would justify a small award of compensation. However, the essence of assessment of damages in these cases, and particularly where a chance is being valued, is that a common sense and practical approach be taken. His Honour was well entitled to take the view, as a practical matter, that when Mr Hill gave evidence he was not complaining of loss, and to deal with the matter as de minimis, even if some small loss could arithmetically be demonstrated. In each case the appeal is dismissed and the orders of the trial judge affirmed. I certify that this and the preceding pages are a true copy of the Reasons for Judgment of the Court. Associate: Dated: 30 June 1997 Counsel for the Applicant: P Heywood-Smith Representative for the Applicant: Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union Counsel for the Respondent: S Walsh QC Solicitor for the Respondent: Ward and Partners Date of Hearing: 4 September 1997