Concut Pty Ltd v Worrell [2000] HCA 64

HIGH COURT OF AUSTRALIA

GLEESON CJ,

GAUDRON, McHUGH, GUMMOW AND KIRBY JJ

CONCUT PTY LTD APPELLANT

AND

IVOR WORRELL & ANOR RESPONDENTS

Concut Pty Ltd v Worrell [2000] HCA 64

14 December 2000

B85/1999

ORDER

1. Appeal allowed with costs.

2. Set aside orders 1 and 2 made by the Court of Appeal of the Supreme Court of Queensland on 5 February 1999 and in place thereof, order that the appeal to that Court be dismissed with costs.

On appeal from the Supreme Court of Queensland

Representation:

P A Keane QC with A K Herbert for the appellant (instructed by Hopgood Ganim)

J S Douglas QC with P D T Applegarth for the respondents (instructed by Mullins & Mullins)

Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

Concut Pty Ltd v Worrell & Anor

Contract – Employee under oral contract of employment executed written contract with employer – Employee guilty of serious misconduct before date of written contract justifying summary dismissal under oral contract – Employer summarily dismissed employee not knowing of misconduct – Whether written contract a new and discrete contract that entirely replaced oral contract or whether oral contract varied – Whether written contract removed employer's right under oral contract to dismiss employee summarily – Whether terms in written contract relating to dismissal had prospective operation only – Terms implied by law into contract of employment.

1. GLEESON CJ, GAUDRON AND GUMMOW JJ. This appeal raises issues respecting the application of general principles of the law of contract to the termination of an employment relationship. 2. At the relevant times, the appellant ("Concut") carried on in several States and the Australian Capital Territory the business of concrete sawing, concrete drilling, grooving of concrete and other surfaces, and the texturing of concrete and other surfaces. The respondents succeeded the Official Trustee in Bankruptcy in the administration of the bankruptcy of Geoffrey John Wells, a former employee of Concut. The affairs of Mr Wells had been administered by the Official Trustee from on or about 2 July 1997, after the commencement of the present litigation. The respondents were appointed joint and several trustees in place of the Official Trustee by resolution passed at a meeting of the creditors of Mr Wells' estate held on 28 April 1999. 3. In the period before 1980, Mr Wells was employed by a related corporation of Concut as a sales representative. He moved to Brisbane in November 1980 and became Queensland Branch Manager for Concut. At this stage, the terms of the employment relationship between the parties were not reduced to writing. However, on 1 December 1986, Concut and Mr Wells executed a document headed "SERVICE AGREEMENT" ("the Service Agreement"). Recital B thereof stated that Mr Wells "is an employee of and shareholder in [Concut]" and recital C stated that they "have entered into this Agreement to record the terms and conditions of the employees [sic] employment with [Concut]". At the same time, Mr Wells purchased part of the shareholding in Concut of another company. These further arrangements were recorded in a document styled "Shareholders Agreement" and dated 2 December 1986. 4. Clause 1.1 of the Service Agreement stipulated that Mr Wells was to serve as "Branch Manager Queensland" from 1 December 1986 until 30 November 1991 and, thereafter, for further consecutive periods of 12 months each. There was a proviso that either party might give at any time after 30 November 1991 at least three months' notice in writing of the intention to terminate "this Agreement" at the end of that period of three months. Clause 1.1 was designed to give Mr Wells some security of tenure, given his investment in the shares in Concut. 5. On 1 February 1988, Concut terminated the employment of Mr Wells as its Queensland Branch Manager. It did so without notice. The period stipulated in cl 1.1 then still had a substantial time to run. 6. In 1991, Mr Wells brought an action in the Supreme Court of Queensland for damages for wrongful termination of his employment. The action appears to have been transferred to the District Court, where it was heard by Trafford-Walker DCJ. His Honour dismissed Mr Wells' claim. 7. Concut resisted the claim on the footing that Mr Wells had breached his conditions of employment in a manner which gave Concut the right to dismiss him without notice and without the payment of any penalties. What the trial judge described as the most substantial ground put forward to justify Mr Wells' dismissal was his alleged misconduct by the use of Concut's employees and property in the construction of his house at Beaudesert. The trial judge found that, in a period which most probably occurred prior to 1 December 1986, Mr Wells had used Concut's staff and materials for his private purposes without Concut's permission, knowing that he was not entitled to do so, and that this constituted significant misconduct on his part. His Honour also found that Concut had not been aware of Mr Wells' misconduct when it terminated his employment, and that it only became aware of this later. There was a counterclaim by Concut for the cost of the improper use of its staff and property. The trial judge entered judgment for Concut on the counterclaim in the sum of $2,816. 8. The Court of Appeal confirmed the order made by the District Court on the counterclaim. However, by majority (McMurdo P and Thomas JA; Shepherdson J dissenting), it allowed an appeal by the Official Trustee and entered judgment against Concut in the sum of $383,333. The Court of Appeal held that the Service Agreement was "a new and discrete contract of employment, terminating and replacing the oral agreement"; that Bell v Lever Brothers, Limited[1] was "strong authority for the proposition that there is no duty on an employee to disclose his or her own past faults"; that, while the oral contract had contained a term implied by law that the employee refrain from conduct destructive of the necessary confidence between the parties, this contract "had been concluded" at the time of the employee's dismissal; that there had been no obligation under the Service Agreement for the employee to disclose his prior misconduct; and that there had been no breach of any term of the Service Agreement. 9. In this Court, Concut seeks an order setting aside the entry of judgment against it and the restoration of the order made by the trial judge dismissing the action against it for wrongful termination. 10. The relevant findings of fact in the District Court have not been challenged. The area of debate between the parties concerns the identification of the legal consequences of those findings, the construction of the Service Agreement and its place in the employment relationship between the parties. In particular, in this Court, as was done successfully in the Court of Appeal, the respondents place great weight upon the circumstance that the misuse by Mr Wells of his position occurred before the date of the Service Agreement and upon what they say is the prospective and exclusive operation of a provision in the Service Agreement for the dismissal of Mr Wells. 11. For its part, Concut stresses the anterior existence of the employment relationship whereunder, since 1980, Mr Wells had been its Queensland Branch Manager. It is common ground that Mr Wells remained Queensland Branch Manager before and after the date of the Service Agreement. Concut submits that the legal effect of what happened was that there was a contractual variation brought about by the execution of the Service Agreement so that thereafter the terms of the employment relationship were found partly, but not exclusively, in the written instrument. 12. The respondents complain that these submissions involve some departure from the legal characterisation previously attached by Concut to the state of affairs surrounding Mr Wells' employment as Queensland Branch Manager. It is by no means clear that this fairly describes the earlier conduct by Concut of the litigation. In any event, this is a case in the class identified by Mason J in O'Brien v Komesaroff[2] where it is expedient in the interests of justice that a question of law turning upon the construction of a document or upon facts either admitted or found beyond controversy should be argued and decided in this Court. It was not suggested by the respondents that the legal issues advanced in this Court were such that evidence could have been given at the trial which could have prevented the success of the appellant on those issues. 13. Clause 6 of the Service Agreement stated: