A ROYALE & CO (AUST) PTY LIMITED v HAROLD SCRUBY CONSULTANCIES PTY LIMITED SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL Hope, SAMUELS and PRIESTLEY JJA 8 and 12 April 1988, 12 April 1988 [1988] NSWCA 2 CONTRACT — appeal from District Court — contract of indefinite duration by which respondent agreed to make the services of its director available as general manager of the appellant — held term as to reasonable notice might be implied applying Australian Blue Metal Ltd v Hughes [1963] AC 74 — appeal dismissed. PRACTICE & PROCEDURE — duty of counsel to raise in cross-examination and give witness opportunity to answer any particular in which it is intended to contradict his evidence or impeach his credit — Browne v Dunn (1894) 6 R 67 discussed and explained (again!) — Cullen vy Ampol Petroleum Limited (Court of Appeal 20 October 1977 unreported); Seymour y Australian Broadcasting Commission) (Court of Appeal 3 June 1977 unreported) and Allied Pastoral Holdings Pty Limited vy Commissioner of Taxation [1983] 1 NSWLR 1 referred to. ORDER Appeal dismissed with costs. Samuels JA The respondent, Harold Scruby Consultancies Pty Limited, sued for damages before Badgery-Parker DCJ alleging breach of a contract by which it agreed to make available to the appellant, A Royale & Co (Aust) Pty Limited, the services as general manager of the appellant of its principal shareholder and director, Mr Harold Scruby. The respondent asserts an oral contract made on or about 11 April 1983 by which the respondent agreed to provide Mr Scruby's services as general manager for four weeks, followed on or about 13 May 1983, by either an oral variation or a new oral contract by which, in either case, the respondent agreed to provide Mr Scruby's services indefinitely. The respondent contended that, in breach of an implied term for termination only upon reasonable notice, the appellant brought the agreement to an end without notice on 25 July 1983. The conversations upon which the respondent relied took place between Mr Scruby and Mr Daryl Isles, the appellant's managing director, who gave an entirely different account of the transaction in question. He agreed that there had been an engagement which was, I interpolate, evidenced in writing, by which the respondent made Mr Scruby's services available for a trial period of four weeks from 15 April 1983. He denied any agreement for permanent employment but contended that the trial period had been in some way extended beyond its intended terminus of 15 May and was still in existence on 14 July, on which day the respondent withdrew Mr Scruby's services. The learned judge found in favour of the respondent, clearly preferring Mr Scruby's account to that of Mr Isles, of whose credit he was critical, and gave judgment for damages and interest in the sum of $29,060 2 UNREPORTED JUDGMENTS The appellant's notice of appeal took two grounds and when the appeal was opened it sought to add two more, one of which was rejected for reasons already given, and the other allowed. The first ground was that the judge erred in law in holding that the two documents comprising Exhibit F could not be taken into account in determining the primary issue of fact in the case, that is whether the appellant and the respondent, through their respective agents, agreed on or about 13 May 1983 that the respondent would provide Mr Scruby's services as general manager indefinitely. The trial commenced on 4 June 1985, continued on 5 and 6 June and on 27, 28 and 29 November when the evidence was, with a minor exception, concluded and the Proceedings adjourned to 21 March 1986 for addresses. On that day the learned judge reserved his decision which he delivered on 25 November 1986. On the first day, while Mr Scruby was in evidence in chief and dealing with a problem which he had had with an employee of the appellant, called Fraser, his counsel tendered by consent, so the transcript said, a letter from Mr Scruby to Mr Isles dated 11 June 1983, and a memorandum in reply dated 20 June. They were admitted and marked Exhibit F. I think that I must set out both these documents in full. "Harold Scruby Consultancies Pty Ltd (letterhead) ....Dear Daryl The events of yesterday have brought our agreement to a point where both of us have had to make a decision as to our future together. Before my association with A Royale is discussed, let me tell you that I Sincerely like you and thoroughly enjoy your company. Nevertheless, if we are to enter into any medium to long term business agreement I want to clarify my position. I hope that any decision that is made will not affect our social relationship. At no time have you advised in writing any of the staff at A Royale of my position, responsibility or authority. We are now on to the 7th attempt at putting together a line responsibility chart. No modern Company can operate efficiently without one and unless it is strictly adhered to you will not achieve even reasonable efficiency; delegation is the name of the game. At the moment your Company is run on crisis management People barge into one another's offices giving instructions at the drop of a hat. There are no long-term goals and each day appears to be that of putting out little bush-fires. You give instructions as they come into your head and then expect them to be completed yesterday. Every person on your staff believes that if he or she does not like a decision that I have made, they can ring you at home that night and you will overturn it. The situation that arose yesterday was quite intolerable. Whether I was or was not completely right in my instructions to Robert Fraser, it is vital that you support my decisions. It is not good enough to then tell us to sort it out. Please remember that you asked me to join your organisation. Whilst I am most grateful for the work, I did not ask you for a job. I am not there to be the Claytons general manager.... the General Manager you have when you are not having a General Manager. If you want an obsequious man-servant, you have contracted the wrong person. You are correct in your summation of me, I am aggressive, forceful and disciplined, In today's economy, I believe these qualities to be vital. If these are not the qualities you want in a GM, please say so now. If they are, please write to all your staff and advise them of my position and authority. If you want a well-organised Company which can make good profits, then I believe I can URBOYALE & CO (AUST) PTY LIMITED v HAROLD SCRUBY CONSULTANCIES PTS LIMITED (Samuels JA) (Samuels JA) accomplish this. If you want a Company where nepotism prevails, all salesmen are above the law and all others are incidental, then I feel sure you can manage very well without me. I do not subscribe to that philosophy and have proven recently to you, in spite of your trepidation, that without employees such as Robert Montgomery, we can operate quite comfortably without losing any major portion of our business. Please consider the above and give me your reply in writing. Best regards, Harold C W Scruby Director" "MEMORANDUM Date 20 June 1983 To Mr HCW Scruby From Mr D Isles Dear Harold, I acknowledge your letter dated 11th June for which I thank you, also for the cassette. Regarding our association, on a personal basis I also enjoy being with you and the times we have together. In regard to clarifying our business relationship, I do not believe that we have had enough time together for a final decision to be made regarding this. You are probably quite correct in your assumption of how the company is at present being run, though I do not think the correct term is crisis management, but people do barge into one another's offices. This isn't good and should be stopped. I agree with you that we should have long term goals and that is why I have given you a memo asking you, before you do anything else and make any decisions whatsoever, to do for me the report on where you believe we are at, and what direction we should be taking (the memo itself is self explanatory). Until that is done I do not believe I am in a position to make an ongoing decision. I believe you are, as you say, aggressive, forceful and disciplined. You have come into a company which you know nothing about and from what I have observed of your management decisions so far you make decisions as if everything is urgent. I think you should consider thinking things through more quietly and consulting more with the people who you can call on for advice and information who are experienced in our field. An example is the price you sold the ties to Grace Bros. I believe that decision has cost us $2000. I am sure if you had consulted with Robert Fraser and taken notice of his advice these ties would not have been sold at this price. I do not believe you have had enough experience to make a decision at what price merchandise should be sold at with your limited knowledge of the company. You should rely on people who have had years of experience until your own experience is expanded. Regarding having a company where nepotism prevails, yes, I do believe the salesmen are the most important ingredients we have because we are only a merchandising and selling organisation. It is in this area in our type of business that I believe Harold you have to rethink your attitude and develop more humanity in the way you handle people. Without orders coming in we do not have a business. Robert Montgomery 4 UNREPORTED JUDGMENTS Whether this was the right decision or not will depend on whether we can maintain the figures that he did. At this time on the buying side alone we have no-one that can buy the Boston Look that Robert Montgomery was able to buy. lam well aware of the shortcoming of the person. My emotions and feelings were the same as yours but I chose to put up with it because of the produced results. Whether the figures are maintained without him only time will tell. D. Isles" Mr Scruby was cross-examined on 4 and 5 June, on 29 November and briefly, before the addresses commenced, on 21 March. Apart from obtaining formal confirmation that Mr Scruby had written the letter, part of Exhibit F, counsel for the appellant did not cross-examine on those documents. However, he addressed first and submitted that Exhibit F was decisive of the case against the respondent on the ground that Mr Scruby's use of the words "if we are to enter into any medium to long term business agreement" was quite inconsistent with there being then in existence a permanent or indefinite agreement to the effect for which the respondent was contending, and counsel relied also on Mr Isles' observations in the memorandum that he did not believe that they had had enough time together to arrive at a final determination of the way in which the business was to be run. His Honour thought that there was force in this submission, a view which I must say I do not share. But, he reasoned, the inference which the appellant proposed to raise had never been put in cross-examination to Mr Scruby who had thus never been given the opportunity to explain, if explanation were needed, the language which he had used in his letter. In his Honour's view the appellant had thus failed to comply with the rule of fairness, as he put it, authorised by Browne v Dunn (1894) 6 R 67 and applied in cases in this State such as Cullen v Ampol Petroleum Ltd (Court of Appeal 20 October 1977 unreported), Seymour v Australian Broadcasting Commission (Court of Appeal 3 June 1977 unreported) and Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 (per Hunt J) Since he was far from satisfied that Mr Scruby could not, had he been given the opportunity, have explained any inconsistency between Exhibit F and his earlier evidence, the judge thought it unfair to regard Exhibit F as destructive of the respondent's case and therefore rejected the submission that it was. Browne v Dunn is well known. I will not recite the speeches but merely draw attention to what was said by Lord Herschell LC AT 71, by Lord Halsbury at 76 and to the remarks of Lord Morris at 79 where his Lordship declined to lay down "any hard and fast rule as regards cross-examining a witness as a necessary preliminary to impeaching his credit." I will not essay any fresh distillation of principle from the case, save for this: it is, it seems to me, designed to ensure as one incident of a fair trial, that a witness is given distinct notice by questions in cross-examination of any particular in which it is intended to impeach his credit or contradict his evidence and an opportunity to answer it, except in circumstances where that notice manifestly arises from other features of the case. Counsel who fail to give notice in this way may be precluded from challenging the witness's evidence upon the point. A judge may refuse to allow the challenge to be put to the jury, and if he is the tribunal of fact, may in fact reject it. Exhibit F consisted of two documents, as I have said: Mr Scruby's letter and Mr Isles' memorandum. The letter itself was probably not admissible on Mr Scruby's behalf, in the absence of any issue about whether Mr Scruby had in fact URBOYALE & CO (AUST) PTY LIMITED v HAROLD SCRUBY CONSULTANCIES PTS LIMITED (Samuels JA) (Samuels JA) written a letter in those terms, being, in other respects, a self-serving document. It was admissible in explanation of the memorandum which was itself admissible as an admission by Mr Isles, when read with the letter, that he had appointed Mr Scruby to the permanent - as opposed to the temporary or on-trial - position. Further the absence in the memorandum of any assertion that Mr Scruby was still on trial may itself be regarded as an admission that his employment was permanent The letter was also admissible in explanation of Exhibit G which was signed by Mr Isles, although Mr Isles asserted that it was prepared by Mr Scruby, and was entirely favourable to Mr Scruby's account of the matter. Hence, when it was put in, the letter was part of the proof of an admission by Mr Isles and an explanation or amplification of another admission in Exhibit G, the memorandum of 21 June. It was not, of course, offered by Mr Scruby as an admission against his own interests. There was, therefore, no occasion for his seeking to explain it in his own evidence in chief, even if such a course had been open, which it probably was not (see for example Prenn v Simmonds [1971] 1 WLR 1381. I do not consider that the letter is on its face, or after more detailed analysis, necessarily or obviously inconsistent with Mr Scruby's position that on 13 May he, on the respondent's behalf, had accepted permanent appointment as general manager, although the duration of the appointment had not been specified. Indeed, as I have already said, I do not think that the letter is in any degree inconsistent with that contention, but for present purposes it is relevant only to reject the view that it is a gross contradiction of what Mr Scruby had said. Since the interpretation which Mr Isles' counsel later sought to place upon the passage commencing with the words "enter upon" was not obvious, and might well not have been expected, let alone anticipated, by his adversary, he was in my opinion bound, as a matter of fairness, according to the principle in Browne v Dunn, to put it to Scruby in cross-examination. The letter was, on the construction urged by counsel for the appellant, an admission relevant to two issues. First, it tended to prove that as at 11 June Mr Scruby was not permanent general manager and thus contradicted his prior evidence. Secondly, it tended to deny his version of the conversation with Mr Isles on 13 May and, therefore, attacked his credit. There were therefore both elements present of the evidentiary circumstances which attract the rule. In a case such as the present the plaintiff has no reason to perceive the point until it is revealed in the adversary's address and at that stage the ordinary rules of evidence and procedure provide no means, and certainly no ready means, of dealing with it The explanatory evidence which the plaintiff might wish to offer cannot be tendered in reply to any evidence of the defendant since the point is based solely on an inference from the plaintiff's own evidence. In argument counsel for the appellant sought to persuade us that the whole matter might have been cleared up had his adversary only sought, by recalling Mr Scruby, to answer the submission made by directing questions to the witness. But the error, if I might say so, in this approach, is made manifest by the example which is advanced in the appellant's written submissions. Where, of course, a document identified, but not cross-examined upon, is tendered by the defendant, it is upon that evidence, that is to say evidence of the defendant, that the argument is based. In those circumstances there is evidence to which it is possible the appellant might wish, and might be able, to reply; but that is not the present case. The plaintiff certainly, in such a case as this, might seek to reopen his own case in chief, but if leave were granted, he would still face the evidentiary problem to which I have already referred. If, contrary to my inclination, the evidence 6 UNREPORTED JUDGMENTS contemplated were admissible, that is the evidence in explanation, the explanation might be sought not from a party but from a witness long since excused from the field. It might be a jury trial in which delays to recall witnesses might be a source of great inconvenience. Accordingly, in my opinion, the rule in Browne v Dunn is a rule of fairness which the case authorises as a necessary concomitant of our adversarial and evidentiary system. In my view, therefore, given the view he had formed of the letter, part of Exhibit F, the learned judge fell into no error in applying Browne v Dunn as he did. However, as I have already indicated, I myself see no inconsistency between the letter and Mr Scruby's prior evidence about the conversation of 13 May. I will not analyse the letter or offer detailed reasons for the conclusion to which Ihave come as to its fair meaning but reading it as a whole it seems to me to point inevitably in support of Mr Scruby's contentions and not against them. Indeed, I would venture to say that had the learned judge considered Exhibit F fully and concluded that it was contrary to Mr Scruby's evidence, I feel that he would have fallen into error on that account. The second ground of appeal complained that the respondent failed to tender any evidence of loss and thus failed to establish any but nominal damages. This ground was supported by the argument that the learned judge wrongly regarded the contract as a contract of service or as a contract of employment, which it was not, instead of what was described as an ordinary commercial contract, which it undoubtedly was. I cannot find any substance in this argument. The term as to reasonable notice which his Honour implied may easily be read into a commercial contract of indefinite duration (see Australian Blue Metal Ltd v Hughes [1963] AC 74 at 98). His Honour had the nature of the contract clearly in mind and explicitly categorised it not as a contract of service but as a contract between two companies, one of which had undertaken to make available its employee. He seems to me also to have applied the correct measure of damages, and the second ground of appeal must fail. Finally it was submitted that the period of notice which his Honour assessed as four months was excessive. His Honour carefully considered the circumstances in which the contract was brought to an end and the factors relevant to the assessment of a proper period of notice. Undoubtedly the two factors most salient in that consideration were first the time necessary to enable the respondent to redeploy Mr Scruby's services in other fields from which he had withdrawn because of the engagement to the appellant. Secondly the appellant needed time to seek another manager since there is no reason to suppose that Mr Isles had resiled from his evident intention to procure the services of someone who could run the company on his behalf. The selection of the precise period is a matter of which minds might differ but which an appellate court should be slow to review or reverse. Since I cannot see that his Honour fell into any error of principle in the approach he made to this ingredient, I do not think it is a case in which this Court should intervene. Indeed the period to me appears distinctly reasonable. The final ground of appeal therefore fails and in my judgment the appeal should be dismissed with costs. Hope JA I agree. Priestley JA I also agree with the orders proposed by Samuels JA, and generally with his reasons. For myself I wish to add a comment about the Browne v Dunn submissions in the case. The trial judge's criticisms of the disregard for UWRBOYALE & CO (AUST) PTY LIMITED v HAROLD SCRUBY CONSULTANCIES PTY LIMITED (Priestley JA) (Priestley JA) the rule in Browne v Dunn which became apparent in the conduct of the case for the defendant fell into two parts. (1) There were failures to cross-examine Mr Scruby in regard to matters about which contradictory evidence was later led in the defendant's case. This had two undesirable results. Mr Scruby did not have a chance at an appropriate time to deal with matters supposedly undermining his credit; and those conducting his case were likely to be misled about what was and was not in issue in the practical running of the case, thus affecting decisions upon the need or otherwise for calling further evidence on particular points. Although in the circumstances of this case it was possible for the judge to go a long way towards enabling those in charge of the plaintiff's case to overcome these consequences, the rule in Browne v Dunn requires that, both in the interests of fairness and the orderly conduct of litigation, such situations should not be allowed to come about. The second part of his Honour's criticism arising from failure to have regard to the rule in Browne v Dunn was the aspect upon which the appeal to this Court was particularly grounded That revolved around Exhibit F. I find this aspect of the case more difficult to deal with precisely in terms of Browne v Dunn than the other matters which his Honour dealt with under this heading, and prefer to reserve my opinion concerning the applicability of the rule in Browne v Dunn to the actual situation that arose in regard to Exhibit F, because it seems to me that the appeal can properly be dismissed without deciding this particular point. This is because it seems clear to me that the trial judge was over-impressed with the strength for the defendant that he saw on the face of Mr Scruby's part of Exhibit F I agree with what Samuels JA has said about the innocuousness of that document so far as the plaintiff's case and Mr Scruby's credit were concerned. I have little doubt that had the trial judge appreciated the lack of inconsistency between Mr Scruby's letter and the plaintiff's case generally, that would only have reinforced the views he had formed concerning the reliability of the various witnesses and only made more certain the result he arrived at on the issue of the terms of the agreement between the plaintiff and the defendant. In my opinion also the appeal should be dismissed with costs. HOPE JA: The orders of the Court are that the appeal be dismissed with costs. COUNSEL for the appellant: AB SHAND QC, S MOTBEY Counsel for the Respondent: TK TOBIN QC, BR McCLINTOCK SOLICITORS for the appellant: RI ROSENBLUM & PARTNERS Solicitors for the respondent: GLASSON GEMMELL & McGILL