Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Martinez as trustee for Martinez HWL Practice Trust as representative of the partners trading as HWL Ebsworth Lawyers v Griffiths as trustee for the Griffiths HWL Practice Trust [2019] NSWCA 310 Hearing dates: 21 November 2019 Decision date: 17 December 2019 Before: Bell ACJ at [1]; Meagher JA at [2]; Barrett AJA at [66] Decision: 1. Appeal allowed in part. 2. Orders 1 and 2 made by Robb J on 6 June 2019 be set aside. 3. Judgment for the respondent as plaintiff against the appellant as defendant in the sum of $127,000, together with pre-judgment interest at the rate prescribed in UCPR, r 6.12(8) from 1 September 2015 to 6 June 2019, the latter being the date on which that judgment is to take effect in accordance with UCPR, r 36.4(3). 4. Direct that if the parties cannot agree as to the orders to be made for the costs of the proceedings at first instance and the appeal, they should exchange written submissions, in each case not to exceed 5 pages, and provide those submissions to the Associate to Meagher JA by 5pm on 24 January 2020. Any remaining questions as to costs to be decided on the papers. Catchwords: EMPLOYMENT AND INDUSTRIAL LAW – termination – common law – summary dismissal – whether justified because of lack of candour of employed solicitor in dealing with legal precedents of the firm – no question of principle CONTRACTS – remedies – damages – wrongful termination of contract of employment – assessment of damages – whether and when partners would otherwise have resolved to terminate and whether would have resolved to make payment in lieu of notice – whether opportunity to seek employment whilst serving out notice period lost and compensable as a valuable opportunity Cases Cited: Addis v Gramophone [1909] AC 488 Bartlett v Australia & New Zealand Banking Group Ltd (2016) 92 NSWLR 639; [2016] NSWCA 30 Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 Birrell v Australian National Airlines Commission (1984) 5 FCR 447; [1984] FCA 419 Byrne v Australian Airlines Ltd (1995) 185 CLR 410; [1995] HCA 24 Commonwealth Bank of Australia v Barker (2014) 253 CLR 169; [2014] HCA 32 Delaney v Staples [1992] 1 AC 687 Foran v Wight (1989) 168 CLR 385; [1989] HCA 51 Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145 Malik v Bank of Credit & Commerce International SA [1998] AC 20 Robinson v Harman (1848) 1 Ex 850; 154 ER 363 at 365 Sanders v Snell (1998) 196 CLR 329; [1998] HCA 64 Shaw v State of New South Wales [2012] NSWCA 102; (2012) 219 IR 87 Tabet v Gett (2010) 240 CLR 537; [2010] HCA 12 TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54 Willis Australia Group Services Pty Ltd v Mitchell-Innes [2015] NSWCA 381 Texts Cited: J D Heydon, Heydon on Contract (2019, Lawbook Co) Category: Principal judgment Parties: Martinez as trustee for Martinez HWL Practice Trust as representative of the partners trading as HWL Ebsworth Lawyers (appellant) Griffiths as trustee for the Griffiths HWL Practice Trust (respondent) Representation: Counsel: B W Walker SC / T Dixon (appellant) S R Donaldson SC / J Williams (respondent) Solicitors: HWL Ebsworth Lawyers (appellant) Pikes & Verekers Lawyers (respondent) File Number(s): 2019/206471 Publication restriction: N/A Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2019] NSWSC 664 Date of Decision: 06 June 2019 Before: Robb J File Number(s): 2016/386111 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] headnote [This headnote is not to be read as part of the decision] On 17 August 2015, the appellant, acting on behalf of the equity partners of a law firm, purported to dismiss summarily the respondent, a salaried partner of the firm. He subsequently sought alternative employment and was employed from 23 May 2016. He commenced proceedings in the Equity Division for damages for wrongful termination. The primary judge found that the appellant did not have delegated authority to terminate the respondent's employment. His Honour also found that there were no circumstances justifying the respondent's summary termination. In assessing damages on the basis that the firm performed the employment contract, his Honour considered that the most likely counterfactual that would have occurred was the firm would have terminated the respondent's employment at the next partners' meeting on 18 September 2015, and done so by resolving to give him three months' notice, rather than three months' pay in lieu of notice. In the result, his Honour awarded damages of $450,000 (rounded down) – $145,000 for lost salary and three months' notice and $305,375 for the lost opportunity to seek other employment whilst still working for the firm. The main issues in this Court were: (i) Whether the primary judge erred in not finding that the respondent's lack of candour regarding his use of the firm's precedents entitled the firm to terminate summarily his employment. (ii) Whether the primary judge erred in the assessment of damages. There were two sub-issues. The first was when it was most likely that the meeting of the firm's equity partners would have been held and whether it would have resolved to terminate the respondent by payment in lieu of notice. The second was whether the so-called "benefit of incumbency" was lost and was a valuable opportunity and compensable. Held (Meagher JA, Bell ACJ and Barrett AJA agreeing), allowing the appeal in part: As to issue (i): (1) The appellant's case was that the respondent printed out the relevant precedents because "he had a present intention to give them to his brother"; and that his failure to disclose that intention was a serious breach of his obligation of candour. The primary judge accepted the respondent's evidence that it was not his intention to do so, and accordingly found that there was no lack of candour justifying his summary dismissal. That finding was not challenged in the appeal. It followed that this issue must be resolved in favour of the respondent: [24], [26], [27]. As to issue (ii): (2) Addressing the first sub-issue, it was most likely in the counterfactual that the appellant as Managing Partner would have secured the support necessary to convene a teleconference meeting of the equity partners and would have called that meeting within a week or so after 17 August 2015; and that at that meeting the equity partners would have supported the appellant's recommendation that the respondent's termination be by payment in lieu of notice. Those conclusions required an adjustment to the damages award of $145,000 by reducing it by approximately two weeks' salary: [46]-[48]. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54; Bartlett v Australia & New Zealand Banking Group Ltd (2016) 92 NSWLR 639; [2016] NSWCA 30 applied. (3) Addressing the second sub-issue, as the firm would have performed the contract by terminating the respondent by payment in lieu of notice, he did not lose any opportunity to seek other employment "with the benefit of incumbency" and accordingly was not entitled to any damages on that basis, in circumstances where he had no contractual "right" to receive the notice period. Furthermore, the primary judge did not identify or make any finding as to the commercial or other advantage a "benefit of incumbency" provided, or how the respondent's prospects of securing alternative employment might have been adversely affected because he was not working out his period of notice: [52], [55]. Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145 applied. Judgment 1. BELL ACJ: I agree with Meagher JA. 2. MEAGHER JA: On 17 August 2015 the appellant, Mr Martinez, acting on behalf of the equity partners of the firm HWL Ebsworth Lawyers, purported to dismiss the respondent, Mr Griffiths, from his employment with that firm and with immediate effect. The respondent treated that conduct as a repudiation of his employment and accepted it as putting an end to his contract as a salaried partner: see Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 426-427; [1995] HCA 24. The primary judge upheld the respondent's claim for breach of contract, assessing damages at $450,000: Griffiths as trustee for the Griffiths HWL Practice Trust v Martinez as trustee for the Martinez HWL Practice Trust as representative of the partners trading as HWL Ebsworth Lawyers [2019] NSWSC 664. By this appeal, the appellant acting as representative of the firm challenges the holding that the respondent's conduct did not entitle the firm to terminate his employment summarily and the assessment of damages, especially in relation to an amount of $305,375 awarded for a lost opportunity to seek other employment whilst still working for the firm during his period of notice. The circumstances of the termination and issues in the appeal 1. At the commencement of oral argument, senior counsel for the appellant limited the arguments relied on in support of the two grounds of the amended notice of appeal then pressed, being ground 3 (errors relating to Mr Griffiths' summary dismissal) and ground 4 (errors relating to the assessment of damages, assuming repudiation is upheld). The dismissal and later employment 1. Before turning to the remaining issues raised by those grounds, it is necessary to describe briefly the relevant circumstances of Mr Griffiths' dismissal and later employment by another firm. His employment was subject to the terms of a deed of agreement dated 1 December 2009 (the December Deed). That agreement relevantly provided that either party might terminate the contract and employment relationship by giving three months' notice (cl 3.4) and in the case of the firm, in its "absolute discretion" with immediate effect by making a payment (equal to Mr Griffiths' fixed profit distribution for the relevant period) in lieu of that notice (cl 3.5). The firm was also entitled to terminate the relationship summarily for any cause which would justify summary dismissal at common law (cl 3.6). 2. The appellant was the long-standing Managing Partner of the firm. On 20 July 2015 he gave the respondent three months' notice of termination of his employment. The primary judge found, and it is not contested on appeal, that Mr Martinez was not authorised to give that notice on behalf of the equity partners of the firm and that Mr Griffiths was not estopped from denying that lack of authority (Judgment [446]-[587]). Those holdings were challenged by grounds of appeal 1 and 2, which are not pressed. 3. On 12 August 2015, and during the period of that notice, Mr Martinez sent an email to Mr Griffiths which, having referred to four matters about which he was "very unhappy", continued: "I do not want you in the practice any longer. I wish to propose you leave tomorrow and on a without prejudice basis [offer to] pay you a month's notice in full settlement of any other notice period". In accordance with Mr Martinez's directions, Mr Griffiths was required to and did leave the firm's premises on 17 August 2015 (Judgment [36], [37]). 4. Mr Griffiths subsequently sought alternative employment as a solicitor and from 23 May 2016 was employed in the role of Special Counsel by an international firm of solicitors in its Papua New Guinea office, for a salary of $300,000 per annum (Judgment [40]). At the time of his termination, his fixed profit share was $435,000 per annum. However that salary was set when the total fee earnings for which he was responsible, and his own billings, were significantly higher than they were at the time his employment was terminated. That was principally because about six months before Mr Griffiths' termination, his main client took the work it had been giving him in-house and his monthly billings "effectively collapsed" (Judgment [33]). Ground 3 1. Ground 3 as formulated challenges the primary judge's conclusion that there were no grounds supporting Mr Griffiths' summary dismissal in August 2015 (Judgment [196]-[445]). 2. The pleaded grounds said to justify that dismissal, which the primary judge rejected, are extracted at Judgment [301]. They are set out below except for the underlined paras 8(d) and (e)(iv), which were the subject of an opposed amendment application made after the close of final submissions and rejected by the primary judge at Judgment [52], [77]-[98]: 8. Based on the information the Defendant had on 17 August 2015 and on the further information the Defendant has acquired after that date, a proper basis existed as the Plaintiff had: a. improperly used resources of the Practice (being the Practice's email system and staff) for private purposes in spite of directions not to do so and in breach of policies of the Practice with which the Plaintiff was obliged to comply; b. after 13 July 2015, improperly continued to use resources of the Practice (being the email system) to advertise and promote the book he had written (the book) and its launch on 29 July 2015 in spite of a written direction, with which the Plaintiff was obliged to comply, not to link his HWLE email address to any advertising and to not link his HWLE email address to any non-HWLE matters; c. improperly used a significant number of paid working hours to advertise and promote the book and to organise its launch on 29 July 2015, being hours that were only to be used to undertake work for the Practice, in spite of directions, with which the Plaintiff was obliged to comply, not to do so; d. improperly provided legal services to his brother between 3 August and 11 August 2015 (including by not opening a client file in his name and by recording the work in an administrative file); and e. had breached his obligation of fidelity to the Practice by engaging in the above conduct and by not being honest and candid with the Defendant in his explanations as to his improper conduct, in that when confronted about that conduct he did not disclose and/or was dishonest about: i. the extent of his use of resources of the Practice to advertise and promote the launch of the book and the fact that he had linked the book to the Practice; ii. the real reason for printing off Practice Precedents on 12 August 2015, namely to give them to his brother for his brother's use; iii. the extent to which he had used working hours for which he was paid on personal matters, especially time spent on advertising and organising the launch of the book on 29 July 2015. iv. the fact that he had been improperly providing legal services to his brother. 1. The rejection of those amendments had the consequence that the pleaded grounds relied on to support Mr Griffiths' summary dismissal did not include either that the respondent had "improperly" provided legal services to his brother between 3 August and 11 August 2015 or that he had breached his obligation of candour in not disclosing the fact that he had been providing those services to his brother. The pleaded allegations did however include that in relation to the printing off of four practice precedents on 12 August 2015 Mr Griffiths breached his obligation of candour by not disclosing that he did so "to give them to his brother for his brother's use". 2. Ground 3(a) is that the primary judge erred in rejecting the amendments sought in proposed paras 8(d) and (e)(iv). Ground 3(b) contends that the primary judge erred in not finding that the following conduct gave rise to a right summarily to terminate the respondent's employment: (v) The lack of candour on the part of [Mr] Griffiths regarding: a. the work done for his brother; b. the use of the firm's precedents; and c. the work time and resources spent on the promotion of Mr Griffiths' book. 1. To the extent that the primary judge's findings as to the absence of any misconduct in these respects depended on credibility findings, ground 3(c) contends that the primary judge: (i) misused his advantage by acting on facts which were: a. inconsistent with the evidence; b. glaringly improbable; c. contrary to compelling inferences; and further or in the alternative (ii) failed to assess the reliability of Mr Griffiths' evidence against the objective facts, motives and overall probabilities of the case. 1. The only parts of ground 3 now pressed are ground 3(b)(v)b. – that the primary judge erred in not finding there was a lack of candour on Mr Griffiths' part regarding the use of the firm's precedents – and ground 3(c) to the extent his Honour found an absence of any pleaded misconduct in that respect. As appears above at [9] the only relevant pleaded lack of candour regarding the precedents was that the respondent did not disclose his "real" reason for printing them off, being "to give them to his brother for his brother's use". This limited ground necessarily includes a challenge to the primary judge's acceptance of Mr Griffiths' evidence that it was not his intention to do so (Judgment [424]). Ground 4 1. Turning to ground 4, the damages to which the respondent was entitled was the amount required to place him "in the same position… as if the contract had been performed": Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363 at 365. Had the contract been performed it would have continued subject to the exercise of the firm's right to terminate on notice or by payment in lieu of notice. 2. As Managing Partner, and contrary to his understanding and that of the firm at the time, Mr Martinez did not have delegated authority under the partnership deed to terminate the employment of a salaried partner (Judgment [450]). However the powers in cll 3.4 and 3.5 of the December Deed could be exercised by a majority resolution of the equity partners at a teleconference meeting convened on at least seven days' notice (Judgment [653]). The primary judge found that but for the wrongful repudiation, the most likely course of events was that a general meeting of the equity partners would have been held on 18 September 2015, and that at that meeting a majority would have resolved to terminate the respondent's employment under the December Deed by giving him three months' notice under cl 3.4 (Judgment [685]). 3. Neither party contended that the relevant counterfactual was that after the repudiation the parties would have proceeded on the basis that the earlier notice of termination of 20 July 2015 was valid (Judgment [641]). His Honour also rejected as a relevant counterfactual that but for the wrongful repudiation Mr Martinez would have given a further, and unauthorised, notice under cl 3.4 which also would have been invalid (Judgment [629], [630]). It followed that Mr Griffiths was not entitled to damages calculated on the premise that the firm never would have caused a valid three months' notice of termination to be given (Judgment [632]). That conclusion is not challenged on appeal. 4. The primary judge also awarded the respondent compensation for the "loss of opportunity to seek an alternative position with the benefit of having existing employment" or "the benefit of incumbency" (Judgment [677], [678]). That opportunity only arose in a counterfactual where in its "performance" of the contract the firm exercised its right to terminate and the respondent was given three months' notice of termination, rather than payment in lieu of that notice under cl 3.5. The opportunity is not one which the firm had promised to give to the respondent in the event of his termination, and could not arise in a counterfactual where the respondent would receive payment in lieu of notice. 5. In doing so, the primary judge held that that opportunity increased the prospect of local employment on a salary of $435,000 per annum commencing on 18 December 2015, the end of the three month notice period from 18 September 2015 when the primary judge considered it likely the partners' meeting would have been held (Judgment [685], [705]). He assessed the respondent's prospect of securing that outcome at 40% and accordingly as having a value for the five month period to 23 May 2016 of $72,500 (Judgment [707], [708]). His Honour then assessed the prospect of the respondent holding or securing local employment at that salary level from May 2016 until his retirement at age 65, a period of 69 months. He concluded that the respondent had lost a 30% chance of securing the opportunity to earn an extra $135,000 each year during that period, being the difference between his salary at the firm and his new salary in Papua New Guinea, which had a nominal value of $232,875 (Judgment [711], [712]). As is stated above, his Honour valued the lost opportunity at $305,375. 6. The appellant makes the following challenges to this assessment of damages. First, it is submitted that his Honour erred in not holding that the firm would have terminated the respondent's employment by a payment in lieu of notice following an equity partners' meeting held as soon as possible after 17 August 2015 (and not, as the primary judge held, waiting until 18 September 2015). The significance of the finding contended for is said to be that the respondent would have no claim to damages for any lost opportunity because in the performance of the contract he would not have worked at the firm during any period of notice. Secondly, it is submitted that there was no contractual right to the "benefit of incumbency" because the firm had the right to terminate in lieu of notice and without cause. Thirdly, it is submitted that the primary judge erred in treating the chance to seek other employment with the "benefit of incumbency" as a valuable commercial advantage. In this context the appellant emphasises, relying on the House of Lords decision in Addis v Gramophone [1909] AC 488, that the respondent was not entitled to damages for any loss due to the "manner of [his] termination". Whether lack of candour in relation to printing of practice precedents justified summary dismissal (ground 3) The primary judge's reasoning 1. This issue is dealt with at Judgment [378]-[425]. The four precedents printed off were a resignation of director form, a share transfer form, a deed of trademark assignment and an application to register a trademark assignment. The relevance of those documents to the work undertaken by Mr Griffiths for his brother between 4 and 11 August 2015 emerges from his evidence of a conversation between them, he having earlier drafted a short agreement which recorded the basis on which a joint venture to which his brother was a party was to be brought to an end. When sending his brother a second draft of that agreement, the respondent told him he should "get this fellow to sign a resignation as a director, he needs to sign a share transfer and there'd been a trademark which this fellow has put [in] his own name. I said you would need to get him to sign the trademark back to the company" (Judgment [420]). An email containing a message to the same effect was sent late on 11 August 2015 (Judgment [415]). 2. The respondent requested a graduate clerk to send him electronic copies of the four precedents and, having received them at 11.25am on 17 August 2015, sent an email to his secretary asking that they be printed out. About one hour later (at 12:20pm) he received Mr Martinez's email saying that Mr Martinez no longer wanted him in the practice. Mr Griffiths' evidence was that at the time he received Mr Martinez's email he had not looked at the precedents and that his purpose in printing them out was to "just have a look at what the documents actually comprise". The relevant cross-examination is extracted at Judgment [422]. The primary judge accepted Mr Griffiths' evidence that it was not his intention to give the precedents to his brother (Judgment [424]). 3. That finding was made in circumstances where the primary judge's "confident" assessment was that Mr Griffiths was "a witness whose credibility was in the first rank of witnesses that I have observed giving evidence in my time as a litigation lawyer" (Judgment [134]). His Honour continued at Judgment [135]: I found that, in giving his evidence, Mr Griffiths was attentive to the questions, responsive, immediate, careful, and appeared to me to be being entirely frank. That was equally true for subject matters that he would have expected and been prepared for, and subject matters that had not been raised by the pleadings. Mr Griffiths did not simply parrot his case, but gave carefully considered answers to each of the questions that were put to him. It appeared to me that, where circumstances required Mr Griffiths to adjust his evidence to concede that the manner in which he had expressed his recollection may have been flawed, he did so, even where against interest. 1. In his reasoning accepting the respondent's evidence on the question of his intention in having the documents printed, the primary judge had regard to the circumstances in which that printing occurred. He noted that Mr Griffiths had not told his brother the previous evening that he would supply the documents to him (Judgment [407]); that two of the documents – the trademark assignment form and application to record that assignment – were "relatively more complex" (Judgment [409]) and concerned a subject outside the respondent's field of expertise (Judgment [413]); and that the form of the precedents with their instructions for completion using hyperlinks within the firm's computer system meant that their usefulness to a layman was questionable, albeit a matter which might not have been apparent to the respondent until he looked at the documents (Judgment [412], [414]). Having done so, the primary judge concluded that it was not "strange", in the sense of being irregular or unusual, that the respondent might have "asked for the precedents to be printed out so that he could more properly understand what was involved", as was the effect of his evidence (Judgment [415]). Disposition of ground 3 1. This ground may be dealt with shortly. The appellant does not challenge the primary judge's finding that it was not Mr Griffiths' intention to give the precedents to his brother. Instead in his written submissions, issue is taken with the primary judge's description of the appellant's case theory as being that "Mr Griffiths had the precedents printed out because he had a present intention to give them to his brother" (Judgment [411]). And the appellant contends that his case was not that but rather "that Mr Griffiths had the precedents printed for an improper purpose, namely the purpose of further assisting his brother by engaging in unauthorised work". That submission is simply not correct. The appellant's pleaded case following the making of the amendment which became para 8(e)(ii), and the rejection of the appellant's late amendment application described above at [9], [10], was squarely dealt with at Judgment [378]-[425]. 2. Had the appellant sought to challenge his Honour's finding, which was obviously influenced by his assessment of Mr Griffiths' credibility, it would have been necessary to consider whether in the circumstances Mr Griffiths' evidence – that he had the documents printed out so that he could see what they "actually comprised" – was "glaringly improbable, "contrary to compelling inferences" or contrary to other incontrovertible facts or uncontested testimony: Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [29]. Ground 3(c) acknowledges as much. 3. The appellant's oral submissions strayed and stayed beyond the only relevant particular relied on as supporting there having been a lack of candour on Mr Griffiths' part in relation to the use of the precedents. It was said that Mr Griffiths' statement in his email of 13 August 2015 that there was "nothing improper" in relation to his request that copies be made of the precedents lacked candour, the "facts" being "brother, not being charged for, no file and during work time"; and if that was not so the appellant would "lose this point and our only [ground] on liability". It was also contended that Mr Griffiths' statement in a later email of 17 August 2015 that the "precedents were printed to see if I could assist my brother" also lacked candour because he "was already assisting his brother. He participated in drawing a deed. He'd given advice about the associated dealings involving instruments of the kind for which these were precedents". 4. Neither of these submissions addresses the only ground pressed in the appeal for overturning his Honour's finding that there was no dishonesty or lack of candour justifying the respondent's summary dismissal. The gravamen of each is an allegation of a lack of candour concerning the work done for Mr Griffiths' brother, the subject of the rejected amendment application and abandoned ground 3(a). 5. In the result, ground 3 should be dismissed. Whether error in finding as to when and how lawful notice of termination would be given (ground 4 (b)(ii)) The relevant principles 1. The respondent claimed damages on the basis that he lost the benefit of an employment contract which, unless terminated, was likely to have continued until he reached the age of 65 years (Judgment [597], [599]). The firm's response, accepting that Mr Griffiths was entitled to be placed in the position he would have been in had that contract been performed, was that the least onerous means of performance, consistent with the desire to bring the contract to an end, was to terminate with immediate effect by payment of three months' salary ($108,750) in lieu of notice (Judgment [607], [608]). 2. As Mason CJ and Dawson J observed in The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80; [1991] HCA 54: The onus of proving damages sustained lies on a plaintiff and the amount of damages awarded will be commensurate with the plaintiff's expectation, objectively determined, rather than subjectively ascertained. That is to say, a plaintiff must prove, on the balance of probabilities, that his or her expectation of a certain outcome, as a result of performance of the contract, had a likelihood of attainment rather than being mere expectation. 1. In assessing those damages the relevant principle is that where the defendant could have performed the contract in one of several ways "damages are assessed assuming performance in the way least onerous to the defendant. This mode of assessment will not be employed where the least onerous method of performance is in fact highly unlikely to have been selected by the defendant": J D Heydon, Heydon on Contract (2019, Lawbook Co) at [26.200]. 2. In TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 154, Hope JA said in relation to this qualification to what McHugh JA in Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 at 156 described as the "settled rule": The question thus arises whether the mere existence of this contractual right [in the defendant] operates automatically to restrict the damages which can be awarded… or whether regard can be had to the facts… I have concluded that the true principle does allow, indeed require, that regard be had to the facts, although of course the rights and obligations flowing from the contract are the starting point of the matter. In the first place the question of what is the least burdensome mode of performing the contract for the defendant is not to be tested by isolating the particular contractual provision and the defendant's rights under it from the rest of the relevant circumstances… and at 156: In some cases, the evidence may be silent as to whether the defendant would have exercised the option apparently favourable to himself; in other cases, although not silent, the evidence may not justify a finding that the defendant would not have exercised it. In these cases it can be said that it is "a natural inference from the terms of the contract" that the defendant would have exercised that option which in terms benefits him… It is not a natural inference when the facts point to the opposite conclusion. 1. And in Amann Aviation, Mason CJ and Dawson J said at 93, having referred to Hope JA in TCN Channel 9 at 150-156: … the mere existence of a contractual right in a party to terminate does not operate automatically to restrict the damages that can be awarded. The court does not reach a conclusion by reference to an improbable factual hypothesis. The court must have regard to the facts and evaluate the possible exercise of the right in all the relevant circumstances of the case. Moreover, in determining what is or would be beneficial for the defendant, the court does not confine its attention to the relationship between the plaintiff and the defendant; it would be wrong to reduce the defendant's legal obligations to the plaintiff on the footing that he or she would incur greater loss in other respects. 1. Their Honours had earlier (at 92-93) referred to the "settled rule" as a "manifestation of the principle that damages will not be awarded for not doing that which there is no legal obligation to do". 2. It has also been said that the damages "ordinarily" payable for wrongful termination where the employer is entitled to terminate by giving a period of notice are the amount which would have been payable had that notice been given: see Sanders v Snell (1998) 196 CLR 329; [1998] HCA 64 at [19] and Delaney v Staples [1992] 1 AC 687 at 692-693. That ordinary measure is the result of the application of these principles to contracts of employment, as the decisions of this Court in Willis Australia Group Services Pty Ltd v Mitchell-Innes [2015] NSWCA 381 and Bartlett v Australia & New Zealand Banking Group Ltd (2016) 92 NSWLR 639; [2016] NSWCA 30 illustrate. The primary judge's reasoning 1. The question for the primary judge was whether, had Mr Martinez not purported to dismiss the respondent immediately with one month's pay, the firm would have terminated his employment immediately by giving him three months' pay. The hypothetical in which that question is to be considered is one in which no other fact or circumstance is to be assumed to be changed other than that Mr Martinez acted to dismiss Mr Griffiths summarily: see Bartlett at [83], [101]. 2. The primary judge accepted that if the matter was left to Mr Martinez, he would have taken steps after 17 August 2015 to procure the termination of Mr Griffiths' contract, and have done so as quickly as that result could lawfully have been achieved (Judgment [649], [650]). However because the power to resolve to terminate was only exercisable by the equity partners in general meeting, his Honour concluded that there would have been a delay in the holding of the general meeting to 18 September 2015, and that it was probable that the partners would not have accepted Mr Martinez's recommendation that Mr Griffiths be paid in lieu of notice (Judgment [684], [685]). 3. In the absence of any evidence concerning the firm's practices in relation to holding teleconference meetings, the primary judge was not prepared to "assume" that a teleconference could have been arranged within a week or so by Mr Martinez as Managing Partner, notwithstanding that the partnership deed provided that with the support of at least 20% of the equity partners he could convene such a meeting by giving at least seven days' written or oral notice (Judgment [654]). Furthermore the primary judge considered it likely, because of the necessity to involve the equity partners, that Mr Martinez would have further investigated the events which he relied on as justifying the respondent's summary dismissal and put his resolution for Mr Griffiths' termination on the agenda for the next quarterly partners' meeting which his Honour inferred might happen on 18 September 2015 (Judgment [659]-[663]). In this context his Honour also considered there was a "substantial likelihood" that Mr Griffiths would have been permitted to put before the partners "at least a substantial part of the explanation" that he gave in evidence in relation to the conduct relied on by Mr Martinez as justifying his dismissal (Judgment [659]). 4. His Honour considered that at the partners' meeting, more probably than not a majority would have voted in favour of a resolution to terminate Mr Griffiths' contract under cl 3.4 (Judgment [664]). However he also considered that it was more probable than not that the partners would have allowed Mr Griffiths to work out his notice period "if only to act decently" (Judgment [684]). In this respect his Honour considered their decision would have depended on the attitude they took to the significance of Mr Griffiths' conduct in August 2015, that they would have taken a view favourable to Mr Griffiths in relation to that matter, and that they would have regarded it as a "relatively extreme step" to deny Mr Griffiths "the right to work out his notice period" in circumstances where not to do so would have been to some degree "disruptive" to the business of the firm and "potentially injurious to its reputation" (Judgment [683], [684]). 5. Accordingly his Honour assessed the respondent's damages at $145,000 being four months' salary, the first month representing the period from 17 August to 18 September 2015 during which Mr Griffiths' employment would have continued, and the balance being the period of three months expiring on 18 December 2015. Disposition of ground 4(b)(ii) 1. In substance there are two matters in issue. The first is whether the likelihood is that the general meeting would have occurred earlier, with the consequence that the damages awarded for the period from 17 August to 18 September 2015 should be reduced accordingly. The second matter, whether the termination would have been by payment in lieu of notice, only has significance for Mr Griffiths' award of compensation for the loss of the "benefit of incumbency". 2. Dealing with the second matter first, it is my view that the primary judge erred in assessing as more probable than not that the equity partners would have allowed Mr Griffiths the opportunity to work out his three month notice period. The inquiry as to when and how the firm would have exercised its right to terminate directs attention to the circumstances as they existed on 17 August 2015. 3. Mr Griffiths had received a notice of termination on 20 July 2015. That notice was given primarily because his position as a salaried partner was no longer financially viable. As outlined in [7] above, his monthly billings had "effectively collapsed" after February 2015 (Judgment [33]). In the four months from March to June 2015, Mr Griffiths' recorded billable time per month was significantly less than the amount of his monthly fixed salary. Mr Martinez's stated reasons for terminating his employment were that he was dissatisfied with Mr Griffiths' financial performance, as well as aspects of his ongoing conduct. The notice of termination was copied by Mr Martinez to the National Insurance Group Practice leader, Mr Battye, and the Sydney Insurance Group leader, Mr Bowyer. 4. Mr Martinez had since March 2007 been the only person at the firm and its predecessor firms who made decisions about the appointment and termination of salaried partners. He had terminated seven salaried partners before August 2015 and, excluding Mr Griffiths, a further three between then and 2 May 2016. He had done so either by notice or summarily and without recourse to any partners' meeting, or complaints from the equity partners. 5. In mid-August 2015 Mr Martinez decided that Mr Griffiths' employment should be terminated immediately, and was prepared to make a payment equivalent to one months' notice to achieve that outcome. At that time the respondent's billings were minimal and it was unlikely that his immediate termination would have any adverse consequences for clients or be disruptive to the business of the firm, his main client already having taken its work in-house. Furthermore in circumstances where Mr Griffiths had already been given a notice of termination, the respect in which his immediate termination could be "potentially injurious" to the firm's reputation is not apparent (cf Judgment [683]). Copies of the August email exchanges between Mr Martinez and Mr Griffiths were also sent to Mr Battye and Mr Bowyer, and in the absence of their intervention it may be inferred that Mr Martinez had their support in what he was doing. 6. The primary judge considered it likely that in the face of the need to have a meeting of the equity partners Mr Martinez may have permitted Mr Griffiths the opportunity to explain the matters referred to in his email of 12 August 2015. It is not obvious why that should be so. Rightly or wrongly Mr Martinez had decided that Mr Griffiths' contract should be terminated immediately, principally because Mr Griffiths' billings did not justify his continued employment. Furthermore there was no reason why it would be necessary for Mr Martinez to permit that opportunity where the termination was to be by payment in lieu of notice and without any need for justification, especially where the decision to terminate had been made in mid-July. In addition it is to be presumed that Mr Martinez continued to have the support of the senior partners in the respondent's practice group. 7. These circumstances make it most likely that the equity partners would have supported Mr Martinez's recommendation that the termination be by payment in lieu of notice, especially where Mr Griffiths did not have a "right" to receive notice instead of payment and there was no good reason why Mr Griffiths should be required to work out his notice period. 8. The only matter about which there could be doubt on 17 August 2015 was as to when a teleconference meeting of the partners could be arranged. The fact that the partnership deed included a provision for a teleconference meeting provides a sufficient basis for inferring that such a meeting was able to be arranged, if the circumstances were considered to justify it. Where Mr Martinez as Managing Partner had made a decision that Mr Griffiths' employment should be terminated immediately and that decision was supported by the senior partners in Mr Griffiths' practice group, the overwhelming likelihood is that Mr Martinez would have secured the support necessary to convene the meeting, and have done so within a week or so after 17 August 2015. 9. It follows that ground 4(b)(ii) should be upheld and the damages award of $145,000 reduced by $18,000. Whether the respondent was entitled to damages for the loss of the chance to seek other employment with the "benefit of incumbency" (ground 4(c)(i)) 1. The respondent contended, and the primary judge found, that his loss of the chance to seek employment during a further three months' notice period was the loss of a real commercial advantage and accordingly compensable. The general position is that a defendant is not liable in damages for not doing that which it has not promised to do. However that principle is subject to the rule in Hadley v Baxendale (1854) 9 Ex 341 at 354; 156 ER 145 at 151 which, as Mason CJ and Dawson J went on to observe in Amann Aviation at 91-92, entitles the plaintiff to recover such damages as arise naturally, that is according to the usual course of things, from the breach or as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach. 2. Here the breach was the wrongful termination of the respondent's employment contract. The damages which arise naturally from that breach are for loss of the benefits to which the respondent would have been entitled had the contract been performed: Foran v Wight (1989) 168 CLR 385 at 430 (Brennan J); [1989] HCA 51. Those benefits include any commercial advantages which would have been acquired as a result of performance of the contract but which have been lost by reason of the defendant's breach: Amann Aviation per Brennan J at 104. See also Mason CJ and Dawson J at 92-94. 3. However, for the reasons given above, performance of the respondent's employment contract would not have resulted in his securing the commercial advantage for which he contends because the firm would have performed by terminating him by payment in lieu of notice. It follows that an opportunity to acquire that advantage was not lost by reason of the firm's breach. Accordingly the primary judge erred in awarding damages for the alleged loss of the "benefit of incumbency". Ground 4(c)(i) should be upheld and the damages award for that loss set aside. Was the opportunity to seek other employment with the "benefit of incumbency" a compensable commercial advantage (ground 4(d)) 1. Although the question whether the so-called "benefit of incumbency" was in the circumstances of this case a commercial advantage or other contractual benefit does not strictly arise, I will address it briefly. In Amann Aviation, the commercial advantage was an opportunity, not amounting to a right, to obtain the renewal of an existing contract with the Commonwealth on its expiry. Mason CJ and Dawson J described that advantage: As we have seen, performance of the contract by Amann would have placed it in an advantageous position to secure a renewal of the contract with the benefits that would entail. The prospect of renewal was a distinct commercial benefit, inevitably contemplated by the parties as enuring to the advantage of Amann on, or by reason of, its performance of the contract. It was not an advantage which would accrue to Amann independently of performance of the contract or incidentally. (at 92) 1. And in Tabet v Gett (2010) 240 CLR 537; [2010] HCA 12 at [124], Kiefel J (Hayne and Bell JJ and Crennan J agreeing) said that so long as such "an opportunity provides a substantial and not merely a speculative prospect of acquiring a benefit, it can be regarded as of value and therefore loss or damage". 2. The primary judge does not identify what commercial or other advantage the benefit of incumbency involved or provided in circumstances where the respondent had received a three month notice of termination, was seeking other employment, and in doing so may or would have had to disclose to prospective employers his current position with the firm and the circumstances in which his employment had been terminated. Nor does the primary judge's analysis include consideration of employment opportunities that might have been available and whether the respondent's prospects of securing any of them were adversely affected merely because he was no longer working for the firm, rather than serving out a period of notice. 3. Rather, his Honour's assessment was directed to the manner in which the respondent's wrongful dismissal had taken place and the difficulties it presented for the respondent in seeking other employment. The question his Honour posed was whether Mr Griffiths would have achieved a better outcome than was in fact achieved "if Mr Martinez had not repudiated the December Deed… and forced [him] to vacate the Firm's premises… in the circumstances where Mr Martinez had asserted that Mr Griffiths had engaged in conduct that justified Mr Martinez in summarily dismissing him" (Judgment [696]). 4. In answering that question his Honour regarded as "self-evident" that summary termination for "an alleged breach warranting summary dismissal, would be likely to have a damaging effect on Mr Griffiths' prospects of obtaining a satisfactory alternative position". He considered that that damage would "necessarily be enhanced as a result of the summary dismissal occurring only one month after the issue to Mr Griffiths of a three months' termination notice, as prospective employers could only wonder about the seriousness of Mr Griffiths' conduct, if the Firm was not prepared to wait a further two months" for his notice period to expire. In that respect the primary judge noted that Mr Griffiths was "not even in a position to explain or attempt to defend himself, because the grounds given by Mr Martinez for the summary termination were cursory and inexplicable, apart from being unsupportable" (Judgment [702]). 5. In argument in this Court reference was made to statements made by the respondent in email communications to Mr Martinez on 12 and 13 August 2015 in which he asserted that in the context of his dismissal, to look for a new position "from an unemployed perspective will make the task very difficult" and that "it would be far easier and quicker to find a suitable position if I could do so whilst at HWLE". The assumptions and reasoning underlying those assertions were not explored in evidence. The respondent had retained job search firms in late July and early August 2015 but gave no evidence as to his ability to find comparable employment being impeded after 17 August 2015, either by dint of the fact that he "no longer had a position with the Firm, or otherwise because of the circumstances in which his [employment] had been terminated" (Judgment [691]). Nor was there evidence from the two job search firms (or any other witness) supporting the conclusion that the mere fact the respondent was working out a period of notice would have improved his prospects of obtaining alternative employment any earlier and on more favourable terms than he ultimately did. 6. It may be accepted that the substantial purpose of a notice provision in a contract of employment is to enable the parties to end their existing relationship and have a reasonable time in which to obtain either a substitute employee or other employment: Birrell v Australian National Airlines Commission (1984) 5 FCR 447 at 458; [1984] FCA 419. For the employee it provides an opportunity to secure ongoing employment, albeit with a different employer. However the fact that the employer is often given the election to make a payment in lieu of notice suggests that from the employee's perspective ordinarily there is no value difference between receiving a period of notice or payment in lieu of such notice. 7. Although the respondent did not formulate his claim for damages as one for financial loss arising from injury to reputation or from the manner of his termination, as the foregoing analysis shows the primary judge dealt with the claim by reference to such matters, and at the same time did not address whether the benefit of incumbency represented a substantial and not merely speculative prospect of securing a benefit. In these circumstances the loss of that prospect, had it occurred, was not the loss of a "distinct commercial benefit" which was compensable. 8. Had the respondent formulated his claim differently, it would have been necessary to consider the House of Lords decision in Addis. As this Court observed in Shaw v State of New South Wales [2012] NSWCA 102; (2012) 219 IR 87 (Barrett JA, Beazley, McColl, Macfarlan JJA and McClellan CJ at CL agreeing), the principle for which Addis stands was summarised by Lord Nicholls in Malik v Bank of Credit & Commerce International SA [1998] AC 20 as follows (at 38): The case is generally regarded as having decided, echoing the words of Lord Loreburn L.C., at p.491, that an employee cannot recover damages for the manner in which the wrongful dismissal took place, for injured feelings or for any loss he may sustain from the fact that his having been dismissed of itself makes it more difficult for him to obtain fresh employment. In particular, Addis's case is generally understood to have decided that any loss suffered by the adverse impact on the employee's chances of obtaining alternative employment is to be excluded from an assessment of damages for wrongful dismissal. 1. As is apparent from the passages from Malik extracted or referred to in Shaw at [68]-[71], the House of Lords accepted in Malik that financial loss might be recovered in connection with a wrongful dismissal where the manner of dismissal involved a breach of the "trust and confidence term" or some other such term; and also accepted that Addis did not preclude such a recovery. 2. Here the respondent did not rely on a breach of any such obligation of trust and confidence of the firm: cf Commonwealth Bank of Australia v Barker (2014) 253 CLR 169; [2014] HCA 32, where the implication of such a term was rejected. Conclusion 1. In the result, I propose that the following orders be made: 1. Appeal allowed in part. 2. Orders 1 and 2 made by Robb J on 6 June 2019 be set aside. 3. Judgment for the respondent as plaintiff against the appellant as defendant in the sum of $127,000, together with pre-judgment interest at the rate prescribed in UCPR, r 6.12(8) from 1 September 2015 to 6 June 2019, the latter being the date on which that judgment is to take effect in accordance with UCPR, r 36.4(3). 1. In relation to the costs of the proceedings at first instance and of the appeal if the parties cannot agree about the orders to be made they should exchange written submissions, in each case not to exceed 5 pages. Those submissions should be provided to the Associate to Meagher JA by 5pm on 24 January 2020. Any remaining questions as to costs should then be decided on the papers. 2. BARRETT AJA: I agree with Meagher JA. ********** Amendments 18 December 2019 - Replace "its" with "his" in [61]. 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. Decision last updated: 18 December 2019