Industrial Relations Commission of New South Wales in Court Session CITATION : Abboud v The State of New South Wales (Department of School Education) (No. 2) [2000] NSWIRComm 110 APPELLANT: Morris Abboud PARTIES : RESPONDENT: The State of New South Wales (Department of School Education) FILE NUMBER: IRC 6510 of 1998 CORAM: Wright J President at 1; Walton J Vice-President at 1; Schmidt J at 27 CATCHWORDS : Unfair Contract - Fixed term contract - notice provision - contract provided for 2 weeks notice - 10 years prior service - circumstances of termination found to be unfair - regard had to notice period - circumstances of dismissal - nature of termination and whether the contract would have been continued - contractual provisions found to operate unfairly - contractual notice provision varied - compensation awarded - level of compensation - finding that contract would probably have continued to end of fixed term - compensation fixed - interest awarded - calculation of interest LEGISLATION CITED : Industrial Relations Act 1996 ss105 & 106 Industrial Arbitration Act 1940 s88F Abboud v The State of New South Wales (Department of School Education) (1999) 92 IR 32 Day v Lumley Life Pty Limited (1999) 90 IR 70 CASES CITED : Harcourt Brace and Co (Aust) Pty Limited v Cory (1998) 81 IR 321 Thomas Nationwide Transport Ltd v Thomas & Anor (1990) 34 IR 378 Westfield v Helprin (1998) 82 IR 411 Brown v Rezitis (1971) 127 CLR 157 HEARING DATES: 05/14/1999; 12/17/1999 DATE OF JUDGMENT: 06/30/2000 APPELLANT: Ms E Brus of Counsel SOLICITORS: Simon James Dooley Dooley & Associates LEGAL REPRESENTATIVES: RESPONDENT: Mr A Moses of Counsel SOLICITORS: I V Knight Crown Solicitor JUDGMENT: - 1 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION FULL BENCH CORAM: WRIGHT J, President WALTON J, Vice-President SCHMIDT J Friday 30 June 2000 Matter No. IRC 6510 of 1998 MORRIS ABBOUD v THE STATE OF NEW SOUTH WALES (DEPARTMENT OF SCHOOL EDUCATION). Application for leave to appeal and appeal against a decision of Kavanagh J given on 19 November 1998 in Matter No. IRC 4884 of 1997. JUDGMENT OF THE PRESIDENT AND VICE-PRESIDENT 1 By judgment delivered on 15 October 1999 (see Abboud v The State of New South Wales (Department of School Education) (1999) 92 IR 32) the Court determined (by majority) to grant leave to appeal and to uphold the appeal from the judgment and orders of Kavanagh J made at first instance. The Court also determined that the contract between the appellant and the respondent was an unfair contract in terms of ss105 and 106 of the Industrial Relations Act 1996 ("the Act") and that it should be relevantly varied. 2 The Court gave directions that the parties file submissions and short minutes of order as to the orders the Full Bench should make in determining the appeal. Those submissions having been received, the Court now determines the orders appropriate to be made in this matter. 3 In the summons for relief, the appellant claimed as follows: (a) An order varying the contract or arrangement whereby the Respondent has terminated the services of the Applicant without cause and contrary to the terms of the contract. (b) An order that the Respondent compensate the Applicant for loss suffered as a result of the Respondent's actions. (c) An order that the Respondent pay the Applicant interest from 21 April 1997. (d) An order that the Respondent pay the Applicant's costs. 4 In the written submission filed for the appellant in relation to the orders to be made on appeal, the appellant submitted the following: (1) An order declaring the subject contract void, other than as to the benefits arising and thereunder to the Appellant, with effect from 21 April 1997, that is, the date that the Respondent suspended the contract. (2) An order for compensation of the economic loss suffered by the Appellant arising from the conduct of the Respondent on and after 21 April 1997, based upon the earnings the Appellant would have derived from the contract for the remainder of the 1997 school year. (3) An order for compensation of the economic loss suffered by the Appellant arising from the conduct of the Respondent, that the Appellant would have derived from a contract with the Respondent for the 1998, 1999 and 2000 school years. (4) An order for payment of interest calculated in accordance with the Supreme Court Scale as from 21 April 1997. Submissions for the Appellant 5 Relying substantially upon Day v Lumley Life Pty Limited (1999) 90 IR 70, the appellant submitted that the adverse consequences that flowed from the conduct of the respondent were extreme and that the unfairness arising from such conduct should be remedied in a similar fashion to that adopted in Day v Lumley Life Pty Limited. That is, relief equivalent to the economic loss suffered by the appellant due to the contract with the respondent being repudiated. 6 In assessing economic loss, the appellant submitted that the Court should have regard to : (a) At the time the Respondent terminated the contract, the parties had been in an ongoing contractual relationship (reviewed and renewed) annually for a period in excess of ten years. (b) The contract would have continued until the end of the 1997 school year. (c) In the event that the contract was satisfactorily completed in 1997, the contract would, in all probability, have been renewed in 1998. (d) The respondent was seeking to amend the yearly contract arrangement with a view to adopting two yearly contracts. (e) There was, in prospect, an increase in the contract rate. 7 It was thereby submitted that had the contract not been terminated on 21 April 1997, the appellant would in all probability have continued the contractual relationship with the respondent for the remainder of the school year and thereafter for a number of years. There was an increase in the rates payable sometime after October 1998 but the precise amount of the increase was not known. Submissions for the Respondent 8 The respondent submitted that it was appropriate for the Court to assess, pursuant to s106(5) of the Act, what would have been a reasonable period of notice in order for the appellant's contract to be terminated, to make an order which caters for the failure of the respondent to make payment in lieu of notice and to give a fair notice period. It was conceded that to the extent that any payment in lieu of a period of notice exceeds that afforded to the appellant in his contract, then the appellant was entitled to the benefit under an order of s106(5) of the Act. 9 The respondent also submitted that the termination provision contained within the contract should not be varied or avoided as: (a) The appellant was employed on yearly contracts with no guarantee of renewal; (b) The contract allowed either party to terminate (except for cause) on two weeks' notice. The fairness of this provision should be examined by looking at how much notice the appellant would be required to give the respondent should he have chosen to terminate the contract; and (c ) There was no evidence led by the appellant as to why the contract was unfair at the time that it was entered into by the parties. There is no suggestion of misrepresentation, duress or misunderstanding. 10 As to the question of mitigation, it was submitted that having regard to the principles in Harcourt Brace and Co (Aust) Pty Limited v Cory (1998) 81 IR 321, the Court should apply the principle of mitigation so that if an order was made exceeding six months notice, the Court should take into account the income earned by the appellant since that period. 11 If the Court were to find that the period of notice provided for in the contract was unfair, then the Court should determine reasonable notice having regard to the surrounding circumstances of the contract on the basis of the termination of the appellant. It was submitted that in this case (should the current notice period be held unfair) the appellant should receive no more than three months' notice. It was put that absent any question of breach of contract by the appellant and a finding that the current termination provision is unfair, a fair contract would have resulted in the appellant being paid three months contractual payments in lieu of notice of termination (minus operating expenses that the appellant would have incurred in order to earn those amounts pursuant to the contract). 12 In this respect the respondent submitted that: (a) The appellant was employed on yearly contracts with no guarantee of renewal. (b) The appellant worked a couple of hours a day for the respondent in return for a payment of approximately five to six hundred dollars per week. He was responsible for his operating expenses. (c) He was out of work for a period of six or seven months. 13 The respondent disputed the proposition advanced by the appellant that the appellant would have in all probability continued a contractual relationship with the respondent for the remainder of the 1997 school year and for a number of years thereafter. It was submitted that the only contract the appellant had with the respondent was the 1997 contract. There were no guarantees or promissory representations made to the appellant that he would obtain a 1998 contract. 14 It was submitted that the appellant could not seek an order declaring the contract void as the Court had found that the contract should be varied. The relief which is available should be restricted to assessing the appropriate period of notice. Any order made by the Court should be restricted to restitutionary relief and only such as is necessary. 15 It was further submitted that it was wrong to proceed on the basis that the appellant had a fixed term contract for 1997. The respondent had a right to terminate the contract upon two weeks' notice. The matter should be dealt with on the basis of whether this is fair or not. 16 In conclusion, it was submitted that the primary compensation for wrongful determination of the 1997 contract is equivalent to the income the appellant would have earned (minus the operating expenses) for the period it would have taken the respondent to lawfully terminate the contract. 17 With respect to the question of interest, it was submitted that interest could only be payable as at the date the appellant was lawfully entitled to receive money. Accordingly, if the Court restricted this award of compensation to the notice period, interest payable should be payable to the payment in lieu of notice as at 21 April 1997. If the Court, contrary to the submissions for the respondent, determined that moneys ought to be payable with respect to the years 1998, 1999 and 2000, then interest can only be awarded if and when those moneys are due. Consideration 18 In the summons for relief the appellant sought an order varying the contract to make it operate fairly in the circumstances of the determination of his contract. We do not consider that there is an appropriate basis upon which the contract should be declared void, as now sought in the submissions of the appellant. 19 The contract between the appellant and the respondent is contained within a document produced by the New South Wales Department of School Education entitled "Transport of Students with Disabilities-Operators and Contractors Agreement". That contract provides that there is no guaranteed period of engagement under the contract and that should either party determine to terminate the contract, a minimum of two weeks' notice must be given in writing There is also a condition permitting the termination of service without notice which is not applicable having regard to the findings in the judgment of the Court delivered on 15 October 1999. 20 Clause 8 of the contract is entitled "Termination of Contract/Discontinuation of Service". It relevantly provides: Should either party (the Department of School Education or the Contractor) wish to terminate the service, a minimum of two weeks notice will be given. ... In the case of misconduct, immediate termination or suspension may occur. Allegations of misconduct against a driver will result in immediate suspension and the initiation of an inquiry into the allegation. The suspended driver or escort will be informed within two weeks as to whether the suspension is to be lifted or the contract terminated, unless the investigation is in the control of the police. 21 The appellant had been contracted to drive disabled children to and from school by the respondent since 1987. As the appellant submitted, at the time the respondent terminated the contract the parties had been in ongoing arrangements to provide driving services for in excess of ten years. 22 The appellant was stood down from service on 21 April 1997. The contract was terminated on 28 April 1997. This termination was confirmed in writing in correspondence to the appellant dated 9 May 1997. 23 The Full Bench has already determined that the circumstances surrounding the termination of this contract were unfair for the purposes of s106 of the Act. We conclude that the termination provisions of the contract could and did, in the circumstances of this case, operate unfairly and should be relevantly varied. We consider also that it is appropriate, in deciding whether a remedy be provided and the extent of any remedy, to have regard to whether the period of notice provided under the contract was unfair. It is also appropriate to have regard to the circumstances giving rise to the dismissal, the nature of the termination and whether there was a proper basis to hold that the contract would continue for any period of time. 24 We conclude that the circumstances of this matter as found in the judgment of 15 October 1999 should result in compensation being awarded to the appellant. In assessing the level of compensation, we consider that it was more probable than not that, but for the respondent's termination of the contract, the contract would have continued until the end of its fixed term. We do not consider that there is any basis in this case for compensation to be granted in relation to potential loss for future years. Some allowance should be made for the appellant's running expenses and his obligation to mitigate his losses which he appears to have done, after his period without employment. We consider that awarding the appellant an amount equivalent to six months payment under the contract represents an appropriate assessment having regard to the various considerations referred to and the findings made. 25 As to the question of the interest that should be allowed to the appellant, we accept the approach of Schmidt J in her judgment in the matter, as an approach appropriate in the circumstances of this matter. We therefore conclude that the respondent should be required to pay interest to the appellant on the sum awarded calculated in accordance with the Supreme Court scale from the date of filing the application until today. 26 We would therefore accordingly order: 1. The contract shall be varied so as to require reasonable notice of termination of employment. 2. The respondent pay the appellant six months compensation calculated upon the basis of what the appellant would have earned under the contract from the date upon which payments thereunder ceased to be made, and after 28 April 1997, for a further period of six months. 3. The respondent pay interest upon this amount so calculated in accordance with Supreme Court rates as from the date of filing of the application until the date of judgment. 4. The respondent shall pay the costs of the appellant on the appeal as agreed or assessed. 5. The respondent pay the appellant's costs of the proceedings at first instance as agreed or assessed. 6. The appellant shall, within 14 days, file and serve minutes of order setting out final orders reflecting orders 1 to 4 above. INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION FULL BENCH CORAM: Wright J, President Walton J, Vice-President Schmidt J DATE: Friday 30 June 2000 MATTER NO IRC 6510 OF 1998 MORRIS ABBOUD v THE STATE OF NEW SOUTH WALES (DEPARTMENT OF SCHOOL EDUCATION) Application for leave to appeal and appeal against a decision of Kavanagh J given on 19 November 1998 in Matter NO. IRC 4884 of 1997 JUDGMENT OF SCHMIDT J 27 Judgment was given in this matter on 15 October 1999 (See (1999) 92 IR 32). I took the view, in a dissenting judgment, that the appeal in this matter should be dismissed (at p69). Their Honours, the President Wright J and the Vice-President Walton J, took a contrary view. The appeal was thus upheld. 28 Their Honours found that Kavanagh J had fallen into error in the approach which she adopted in relation to findings which she had made as to the credibility of the witnesses called and that it was not reasonably open to her Honour to reject the appellant's evidence. They found as to misconduct that the menacing of children would constitute a proper basis for such a finding, but conduct falling short of such behaviour may not and that a finding of misconduct based on the children's reaction to the conduct, rather than upon the conduct itself, was erroneous. They also found that the procedures which the respondents had adopted in investigating the alleged misconduct, were unfair. 29 Wright and Walton JJ also decided that the Full Bench should determine the matter, rather than adopting the usual approach of remitting the matter for retrial. Accordingly, they gave directions as to the filing of written submissions 'as to the nature and form of any orders for payment of money or for other forms of relief which should be granted pursuant to s106.' The nature of the orders which should be made in this case thus now arise for determination by this Full Bench. 30 The appellant sought orders different to those advanced below, seeking to have the contract declared void and money orders which reflected payments which he would have received for the balance of the 1997 contract, had it not been terminated, and for contracts made in the following years, 1998, 1999 and 2000. 31 The respondent's approach was that no orders should flow from the findings made, given the notice provisions of the contract and the circumstances of the termination, but that if the view was taken that 2 weeks' notice of termination was unfair, any orders should reflect the notice which it would have been reasonable to have required the appellant to give to terminate the appellant's contract, which should be no more than 3 months. As to the money orders, both the principles of restitution and mitigation were relied upon. 32 When the parties' positions are so understood, it follows that the question which now arises is whether the termination provision of the contract was unfair, as that term is understood under s105 of the Industrial Relations Act 1996 ('the Act'), in so far as it provided for termination upon a minimum of 2 weeks' notice, in circumstances other than misconduct. 33 If the view is reached that the contract was relevantly unfair, consideration must be given as to what a fair term would require and the monetary orders to be made under s106 of the Act, to reflect that conclusion. Clause 8 of the contract provided: 'Should either party (the Department of School Education or the Contractor) wish to terminate the service, a minimum of two weeks notice will be given. Where the special transport service has been contracted to a taxi co-operative or company following negotiations a minimum of two weeks notice will be given should either party wish to terminate the service. In other circumstances where permanent bookings have been made with taxi co-operatives or companies to provide certain services there is no fixed period of engagement and arrangements for a particular taxi service or services may be terminated, without notice if necessary, subject to payment of any approved booking fee and/or cancellation fee. Any notice of termination to or from contractors will be in writing. Contractors who break any clause of the contract may have their contract terminated without notice. In the case of misconduct, immediate termination or suspension may occur. Allegations of misconduct against a driver will result in immediate suspension and the initiation of an inquiry into the allegation. The suspended driver or escort will be informed within two weeks as to whether the suspension is to be lifted or the contract terminated, unless the investigation is in the control of the police. Where the driver is employed by a taxi co-operative or other company, advice will be forwarded to the relevant co-operative or company secretary. While the result of the inquiry is pending, arrangements may be made with the co-operative or company to appoint a different driver to continue the service.' 34 I agree with Wright and Walton JJ that it is too late at this stage of the proceedings for the appellant to seek orders declaring the contract void and that in any event, no basis for such an order was established. 35 I also agree that it is open to conclude that the termination provision of the contract, which provided for a minimum of 2 weeks' notice, could operate unfairly. I also agree that on the facts in this case, there was no basis established for monetary orders, just in the circumstances of the case, to have regard to potential earnings in future years after the 1997 contract came to an end. 36 I depart from their Honours, however, in the conclusion that the appellant should be provided with compensation, equivalent to 6 months' payment under the contract. 37 Relevant to my conclusion are a number of matters, commencing with the fact that here the appellant was stood down on 21 April 1997 in circumstances where serious allegations had been made against him. The contract was terminated on 28 April after an investigation which Wright and Walton JJ found deficient, rendering the contract unfair, as the result of the respondent's conduct. The contract had then been on foot for some 10 years and involved the appellant driving disabled children to and from school in a vehicle which he owned. 38 Despite their Honours' conclusions about her Honour's errors of fact and law, which led them to the conclusion that summary dismissal was not properly open to the respondent in the circumstances, the respondent persists in the view that termination of the contract was appropriate in all of the circumstances, even if summary dismissal was not warranted, and that the contract, which provided for a minimum of 2 weeks' notice was not unfair. The question which then arises is what notice should have been given in the circumstance? The respondent's case was 2 weeks' notice was adequate and that in the event that this was not accepted, fairness would have required no more than 3 months' notice. 39 Wright and Walton JJ have concluded that but for the termination of the contract, it would have continued until the end of its fixed term, that being a matter relevant to the assessment of compensation. 40 I take a different view, particularly having in mind the respondent's position which in this case cannot, in my view, properly be ignored. 41 In my view, the circumstances of this case which must be considered in determining the question of fair notice, also include the nature of the services which the appellant provided; the hours involved, (namely, several hours work per week during school time); the remuneration provided therefore, (namely, some $500 to $600 per week); the appellant's responsibility to meet his own expenses in providing the services in question and the years over which the contract had persisted, it having been renewed from year to year, without guarantee that it would be renewed in any particular year. Having those matters in mind, I take the view that justice could not require that 6 months' notice of the termination of this contract be given, some 7 months before its termination. 42 In my view, in all of these circumstances, a proper assessment of a fair period of notice, having in mind that the contract expressly provided for a two week investigation period if allegations of misconduct were made, was a period of 8 weeks. I do not regard the circumstances of this case to be at all akin to those considered by Hungerford J, in Day v Lumley Life Pty Limited (1999) 90 IR 70, where unfairness was found as the result of the respondent's failure to honour representations it made to the employee in question, with the result that his Honour found that the consequences of the conduct was 'extreme against the interests of the applicant and as striking at the fundamental nature of the employment relationship' (at p93). It was those circumstances which led to an order reflecting various economic losses. In my view such circumstances, or anything akin to them are absent in this case. 43 Having in mind the nature of this relationship and the appellant's obligations under the contract to meet his own expenses, I also take the view that it would be just to assess the monetary order having regard not only to the usual earnings of the appellant under the contract, but also the expenses the appellant did not incur as the result that work was not required to be performed during such a notice period. This approach would require that no account would be taken of standing expenses such as registration, insurance and the like, but running expenses such as petrol costs, would be deducted from the amount otherwise ordered. Having in mind, however, the respondent's submission that the principle of mitigation should in the circumstances of this case only be applied if more than 6 months' notice was awarded, I accept that it is a principle which should not be applied here. 44 As to the interest claim, there are, in my view, three possibilities, having in mind the nature of the claim advanced and the nature of the relief granted in this case. The first, is an order that interest be calculated as from the date of termination of the contract in April 1997; the second, the date upon which the s106 claim was brought in July 1998; and the third, that it be calculated from the date of judgment. 45 The role of an interest component in monetary orders made under s88F of the Industrial Arbitration Act 1940, a predecessor to s106, was discussed by two members of the Industrial Commission in Court Session in Thomas Nationwide Transport Ltd v Thomas & Anor (1990) 34 IR 378. That approach has since been followed by the Court and its predecessors. (See Westfield v Helprin (1998) 82 IR 411 at 443-4). 46 In Thomas, Bauer J dealt with the question of interest at p383 and Hungerford J at pp390-94. In the circumstances of that case, the money sum ordered included an amount of interest, calculated from the date of application to the date of judgment. Thereafter, in the ordinary way, that sum attracted interest according to the Supreme Court scale. Both Bauer J and Hungerford J discussed the concept of restitution which monetary orders under s88F effect, having regard to the approach of the High Court in Brown v Rezitis (1971) 127 CLR 157. As to money orders then made under a predecessor to s106, namely s88F of the Industrial Arbitration Act 1940, Barwick CJ observed at p165: 'But though there is a generality in the language employed in the sub-section the power to make an order for the payment of money is not, in my opinion, unlimited particularly as to the persons against whom such an order may be made. The problem is to ascertain the limitation by construction of the section. It seems to me that the expression "in connection with" the contract or arrangement varied or avoided provides the necessary limitation as to the nature of the orders for payment of money which can be made and as to the person against whom they may be made. The draftsmanship of the section is inadequate: but I think the expressed intention as to this limitation can be derived from the sub-section read as a whole. Whilst it can be said that the expression "in connection with" is of wide import, it does emphasize the need for a close connection between the order made and the contract or arrangement varied or avoided. In my opinion, the power to make an order for the payment of money is at best no more than a power to make such an order as can reasonably be thought to have a real connection with the making, variation or avoidance of the contract or arrangement which has been varied or avoided. It may in truth be limited to a power to make an order for payment of money which has in fact a real connection with the making, variation or avoidance of the contract or arrangement. However, in either case it will, of course, include power to make an order for payment of money which has been paid or which was payable under the contract arrangements themselves. But, in my opinion, the power will not be limited to the making of such orders. It will extend to ordering the payment of money where the order on the larger view of the jurisdiction given by the sub-section could be considered to be appropriate to effect wholly or partially the restitution of the parties to their former position upon the variation or avoidance of the contract or arrangement.' 47 It follows that the awarding of an interest component is a matter of discretion to be exercised in the particular circumstances of the case in order to discharge the statutory duty, now arising under s106(5), to make a monetary order in connection with the contract varied, 'just in the circumstances of the case'. This will not necessarily require that interest at commercial rates and for commercial reasons be awarded in every case, even those with a commercial flavour. 48 Following that approach, in my view, this is not a case where interest should run from the date of termination of the contract, having in mind the nature of the jurisdiction under s106 of the Act and the particular case brought here. The claim advanced was not, for instance, that the contract be declared void, so that restitution of the parties to a pre-existing position be effected, or where the contract was sought to be varied to give effect to promises made or to rectify misrepresentations, in which cases a proper basis could well be advanced for an order for interest from a date earlier than the date of judgment, as an appropriate exercise of the discretion given to the Court under s106(5). 49 Here, the question which now arises is whether the express provision for a minimum of 2 weeks' notice was unfair, where misconduct warranting summary dismissal has not been established, in the circumstances outlined. I take the view that the proper approach in the circumstances of this case is to make an order as to the payment of money 'just in the circumstances of the case', which requires that interest should flow from the date of application and no earlier. While there undoubtedly have and will be cases brought under s106 where the issue is notice and where a proper basis for making an order in relation to interest calculated from a date earlier than the date of application will be established, there was nothing advanced in evidence or submissions in this case, which would provide a proper basis for going beyond that date. 50 For all of these reasons, I would make the following orders: 1. The contract is varied to provide for notice of termination of 8 weeks, other than in cases of serious misconduct. 2. The respondent is to pay the applicant an amount calculated by reference to: (a) what the appellant would have earned under the contract from the date upon which payments thereunder ceased to be made, and after 28 April, for a further period of 8 weeks; and (b) interest on that amount calculated in accordance with the Supreme Court scale from the date of filing the application until the date of judgment. 3. The respondent to pay the appellant's costs as agreed or assessed. ------------------------ DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.