Rankin v Marine Power International Pty Ltd [2001] VSC 150 (21 May 2001)

Last Updated: 25 May 2001

SUPREME COURT OF VICTORIA	Not Restricted
COMMON LAW DIVISION

No. 6972 of 1999

GEOFFREY R. RANKIN	Plaintiff

v

MARINE POWER INTERNATIONAL PTY LTD (ABN 003 100 007)	Defendant

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JUDGE:	Gillard J
WHERE HELD:	Melbourne
DATE OF HEA.R.ING:	18-20, 23, 24, 26, 27, 30 April and 1-4, 7 and 8 May 2001
DATE OF JUDGMENT:	21 May 2001
CASE MAY BE CITED AS:	Rankin v Marine Power International Pty Ltd
MEDIUM NEUTRAL CITATION:	[2001] VSC 150

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EMPLOYER - employee - common law claim for wrongful dismissal - proper notice of 12 months required - no justification for dismissal without notice - allegations of misconduct, failure to comply with reasonable directions and negligence not made out to justify dismissal - condonation of alleged wrong not established - entitled to Long Service Leave pursuant to Statute on total salary - not entitled to compensation under Bonus Scheme.

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APPEARANCES:

Counsel

Solicitors

For the Plaintiff

Mr R. Tracey QC with

Mr D. Murphy

A.S. Macken & Co

For the Defendant

Mr M. Dreyfus QC with

Ms M. Young

Anderson Rice

TABLE TIP: , OF CONTENTS

HIS HONOUR:

Before the court is a proceeding instituted by writ, in which a former employee is suing his employer for damages for alleged wrongful dismissal and money due for termination entitlements.

Parties

The plaintiff, Geoffrey Robin Rankin ("the plaintiff"), is 52 years of age, and is presently engaged in primary production. He was employed by the defendant, or an associated company, from December 1980 until 15 April 1999. He was employed in various capacities at a senior level. When he ceased his employment, he was a director of the defendant and occupied the position of General Manager, Business Development Asia, and was managing a project in China on behalf of the defendant.

The defendant, Marine Power International Pty Ltd ("the defendant"), is a company incorporated in the State of Delaware, United States of America, and registered in Australia under the Corporations Law. It is and was, at all material times, part of a Division of the world's largest recreation company, Brunswick Corporation, and operated throughout Australia and the Asia-Pacific region. The Division is the Mercury Marine Division, which manufactures and sells marine engines, boats and associated products. The defendant's general business was the importation and distribution of marine products, including motors, boats and associated products.

The Brunswick Corporation commenced business in 1845 and is located in the United States of America. It is a very large corporation employing some 24,000 employees around the world. It has a number of divisions. Other divisions include bowling alleys and associated equipment.

The defendant's Australian Asian-Pacific business unit is conducted from its Australian head office in Dandenong.

The defendant reports to the senior management of the Mercury Marine Division, which in turn reports to the Brunswick Corporation. At all relevant times, the senior person in Australia was Mr Theo Wiggill, who occupied the position of Vice President International, and his deputy in Australia was the plaintiff.

Whilst Mr Wiggill was responsible for the Australian Asia-Pacific part of the group, he was also in charge of the European, African, Latin American and Japanese units of the Mercury Marine Division.

The plaintiff reported to Mr Wiggill, who in turn reported to the President of the Mercury Marine Division. The senior personnel of the Mercury Marine Division located in the United States of America, were the President, Mr G. Buckley, and the Financial Controller, Mr J. Schroeder.

At all relevant times, the CEO of the Brunswick Corporation was Mr P. Larson.

Nature and History of Dispute

In 1994, Mr Wiggill was informed that parts of mainland China had been divided into ten tourism vacation zones, and that the zone committees were interested in joint ventures to develop the zones. He travelled to China and eventually in that year, agreed with the Suzhou Taihu National Tourism Vacation Zone Administration Committee ("Zone Committee") to enter into a joint venture to develop a site on the side of Lake Tai, China's third largest fresh water lake. The lake is situated some 70 kilometres south-west of Shanghai.

Initially, the project was to be the construction and operation of a large store selling Mercury Marine and other products. However, the project was changed in late 1995/early 1996 to the construction of a marina, warehouse, administration block, showroom, boat club and other sports and recreation facilities.

A joint venture company was incorporated, called Suzhou Taihu Mercury Club and Marina Co Ltd ("joint venture company"). Eighty five per cent was owned by the Brunswick Corporation and the balance was owned by the Zone Committee.

The defendant, at that time, sold its products in mainland China, through Singapore, and was not permitted by law to establish a distribution outlet in China. By entering into this project, the defendant was able to establish an outlet in China for its products.

Before a project could be commenced, it was necessary, within the Mercury Marine Division, to obtain approval for the expenditure for the project. A manual called "Capital Policies and Procedures" ("the Capital Manual") set out the procedures and policies which had to be followed.

As the joint venture project involved considerable expense, it was necessary for an Appropriation Request ("A.R.") to be prepared and approved.

The procedure involved was for a senior officer to prepare the A.R. It was then reviewed by that person's manager, followed by a review by the senior personnel in the Mercury Marine Division. Final approval was given after review by senior personnel in the Brunswick Corporation.

The first approval was granted in July 1995, and was to fund the development of a Mercury Marine superstore in the zone. The amount approved was US$4.273M.

The second approval was for the construction of a boat club, marina, boat storage, service and sales centre. The amount approved in June 1996 was US$6.0M.

At this time, the plaintiff was a director of the defendant and its Finance Director responsible for its financial matters.

On 1 July 1996, the plaintiff was appointed General Manager, Business Development Asia, and was given the task of managing the China project on behalf of the Mercury Marine Division in China. This was his main job with the defendant thereafter, although he did have responsibility in respect of a few areas concerned with superannuation and finance.

On 18 September 1996, the joint venture company entered into an agreement with Ausino Engineering Consultants Ltd ("Ausino"), pursuant to which it was appointed project manager of the development. Ausino was based in Hong Kong but operated also in Shanghai.

The works were divided up into a number of separate contracts.

In early 1997, works commenced on the marina.

In January 1998, the plaintiff prepared an Executive Report as a basis for an application for an increase in funds. The report was taken to America by Mr Wiggill, and formed the basis of an application, in February 1998, to increase the capital costs to US$6.8M. Approval was granted on 10 March 1998.

The works continued during 1998. On 19 October 1998, the opening of the marina warehouse, office and showroom complex was held.

In early 1999, the plaintiff was requested to prepare a report on the cost of the project. He presented his report to Mr Wiggill on 11 January 1999, which revealed that the estimated total construction cost of the project was US$9.526M, substantially more than the US$6.8M approved in March 1998.

The works had not been completed at that date, and the plaintiff had estimated the likely cost of completing the total works. The increase was in the order of US$2.7M.

The substantial increase in the cost of the project caused considerable consternation within the Mercury Division, in particular the President, Mr Buckley, and the Finance Controller, Mr Schroeder. It was alleged that the plaintiff had failed to comply with the clear instructions in the Capital Manual, and had failed to inform senior management that the cost of the project would exceed the last approved A.R. It was alleged that he knew or should have known, in mid 1998, that the costs of the project would substantially exceed the A.R. approved in March 1998.

At a meeting held on 15 January 1999, the plaintiff was informed by Mr Theo Wiggill, after some discussion, that his employment would be terminated as at 30 April 1999. It was indicated to him that he would be employed for a further period of three months, from 1 May, on full salary or six months on half salary.

On 29 January 1999, Mr Wiggill forwarded a letter to the plaintiff, which was later countersigned by the President of the division, Mr Buckley, and the Personnel Manager, Mr Hubbard, which confirmed the termination of his employment.

The letter, in effect, alleged that he had misled senior personnel by assurances given that the costs would be maintained within the budget.

The letter stated -

"It is unacceptable that there be such discrepancies in the Project costs and that the discrepancies remained unrecognised until now. I regret that I must confirm the advice given to you on January 15 1999, that your contract with Marine Power International will terminate on 30 April 1999. You are required to resign all your directorships held within the group and your position as trustee of the Marine Power Superannuation Plan."

The penultimate paragraph repeated the offer of continued employment from 1 May to 31 July 1999 on full salary.

The plaintiff was invited to attend the opening of the China complex on 28 March 1999. He was told, before the opening, that the wives of the defendant's employees were not invited to the opening.

The plaintiff took his wife to the opening on 28 March.

On 15 April 1999, the plaintiff was informed that because he had taken his wife to the opening and disobeyed a clear instruction to the contrary, his employment was to cease immediately. He left the employment on that day.

On the twenty second day of September 1999, the plaintiff issued the writ in this proceeding.

Issues

The rival contentions and pleadings established the following issues for consideration and determination.

(i) What were the nature and terms of the plaintiff's contract of employment with the defendant?
(ii) If either party could terminate the employment by notice, what was a reasonable period of notice to terminate the plaintiff's contract of employment?
(iii) Was the defendant entitled to summarily dismiss the plaintiff?
(iv) If the plaintiff was guilty of a breach of his contract justifying summary dismissal without notice, did the defendant condone the breach, thereby depriving it of its right to summarily terminate the contract?
(v) What termination benefits was the plaintiff entitled to?
(vi) Is the plaintiff entitled to damages, and if so, in what sum?
Facts

Most of the facts were not in dispute. There were disputes with respect to what was said at various meetings on particular days, but the resolution of many of these discussions is not necessary for the resolution of this case. I set out the facts as found by me. It will be necessary when considering the issues in detail to further consider some of the facts.

The plaintiff was born on 30 April 1949 and is presently aged 52 years. His present occupation is primary production.

The defendant is a company incorporated in the State of Delaware, in the United States of America, and registered in this country. It is owned by the Brunswick Corporation of the United States of America. The Brunswick Corporation has been in business since 1845, and some two years ago employed some 24,000 employees around the world. It has a number of divisions. One of them is the Mercury Marine Division, which is the division concerned with the manufacture, sale, distribution, service and maintenance of Mercury Marine engines and recently, the manufacture of boats.

The defendant is part of the Mercury Marine Division and is responsible for the Australian, Asian and Pacific regions. It had a number of directors who resided in Australia. It operated from its head office in Dandenong in this State.

At all relevant times, Mr Theo Wiggill was Vice President International of the Mercury Marine Division and was in charge of the defendant company. During the period from 1995 to 1999, he was also responsible for the Division's activities in Africa, Europe, Latin America and Japan; in other words, the Division's activities outside North America.

The CEO of the Brunswick Corporation at all relevant times was Mr P. Larson. The President of the Mercury division was Mr G. Buckley, who was appointed in or about August 1997. Mr Wiggill reported to Mr Buckley.

During the period from 1995-1999, the defendant's general business was the importation and distribution of marine products including motors, boats and associated products in the Australia and Asia-Pacific region.

The plaintiff has a Diploma of Business Studies and Accounting, is an Associate of the Institute of Chartered Accountants and a Fellow of the Certified Practising Accountants. He has been involved in finance and accounting from 1971.

He joined the defendant, or one of its predecessor companies, on 1 December 1980 and was employed as a financial controller/company secretary. He held those offices until mid 1982 when he was promoted to financial director. His duties at that time were reporting to the parent company management, involvement in personnel matters, being in charge of the computer department, acting as chief trustee of the superannuation scheme and general administration of the company.

In mid 1982, he was promoted to Finance and Administration Director of the company and was appointed a director. His duties were much the same as Financial Controller, except he was responsible for the financial controls of the company and involved in general management of the company. At that stage, there were only two resident directors in Australia and they reported direct to America.

He held that position from mid 1982 until 30 June 1996.

In the 1980s, the defendant was operating the business of importing and distributing Brunswick Corporation products in Australia. In about 1992, the defendant took over, from the parent company, the responsibility of distribution of the Mercury Marine products in the Pacific region, and in 1994, took over the responsibility of looking after Asia, which involved 37 distributors in 17 Asian companies. This resulted in the plaintiff undertaking more duties and responsibilities, which were aimed at establishing distribution outlets and improving the profitability of the distribution outlets in Asia and the Pacific.

The Division had been selling its goods in China from Singapore from the late 1980s. When the defendant took over the Asian distributors, the Singapore outlet became part of the defendant's activities. However, it was not possible to establish a distributorship in China and accordingly, the products that were sold went via Singapore.

The plaintiff had not done any business in China personally other than supervising the Singapore distribution, had not visited China and, more relevantly, had never been involved in any construction-type project. It would appear that nobody within the defendant company had been involved in building projects. Further, nobody within the Division in North America had been involved in construction jobs in Asia.

In 1994, Mr Wiggill was informed that the Chinese government had set up some ten tourism vacation zones, with the object of attracting overseas investment to develop the zones. A proposal was put to the Brunswick Corporation that the Division should enter into a joint venture to develop a tourist zone.

The plaintiff was also involved in putting the proposal together.

Discussions took place between representatives of the defendant and representatives of the Suzhou Taihu National Tourism Vacation Zone Committee.

The zone was situated on the side of Lake Tai, China's third largest fresh water lake. The lake is situated some 70 kilometres south-west of Shanghai, and some 20 kilometres from the city of Suzhou.

The initial project was to enter into a joint venture with the Zone Committee, which would contribute the land, and the defendant would build and operate a Mercury Marine superstore, which would sell Mercury Marine products and provide spare parts, service and maintenance.

Before any contract to spend substantial sums of money could be entered into by the defendant, it was necessary within the Division to obtain approval for funds for the project. During 1995-99 and earlier, the procedures and policies which had to be followed were contained in a manual called "Capital Policies and Procedures".

The Capital Manual, as at June 1996, comprised some 46 pages and set out the procedures for planning, approval and review for capital programmes. Capital programmes were defined to include the "acquisition of land, buildings, equipment and tooling".

The Capital Manual set out the approval process that had to be followed.

An appropriation request had to be prepared, and was the joint responsibility of a person who was designated as the "Person Responsible" together with the controller or financial services manager of each business unit.

The Capital Manual went on to provide that if there were overruns, a supplementary appropriations request must be completed.

Unauthorised spending was not permitted, and authority had to be obtained before spending over the approved A.R.

The Manual concluded -

"Unauthorised spending is defined as funds committed and/or spent without an Approved Appropriation Request. Confirmation of unauthorised spending as defined above is subject to discipline by Management."

In July 1995, the first appropriation was approved in the sum of US$4.273M for the development of the superstore.

During the following months, further discussions took place and the project was changed.

The Zone Committee and the Division agreed to enter into a joint venture to "develop a boat club, a marina, boat storage, retail sales and service of engines, parts, accessories and boats, service and technical training and other associated activities." The object of the exercise was to establish a regional distribution base for Mercury Marine in China.

Accordingly, a further A.R. was prepared in February 1996 by the plaintiff and reviewed by his immediate superior, Mr Wiggill, seeking approval for US$6M. The appropriation request was approved in June 1996 in that sum.

A joint venture company was incorporated in China, called the Suzhou Taihu Mercury Club and Marina Co Ltd, which was owned 85% by the Brunswick Corporation and 15% by the Zone Committee.

An engineering company was engaged to be project manager of the project. The company was Ausino Engineering Consultants Ltd ("Ausino"), which was a company located in Hong Kong with an office in Shanghai. The person who controlled the company was an expatriate Australian, Mr Kenneth G. Rippin.

On 18 September 1996, the joint venture company and Ausino entered into a contract engaging Ausino as project manager. The scope of the services to be supplied by Ausino were preliminary services, design and documentation, tendering, construction supervision and commissioning.

An Australian architect, Mr Bruce Allen, was engaged in 1996 and was to provide architectural services for the project, pursuant to a separate agreement.

Mr Allen, from the very outset, charged at an hourly rate, together with disbursements when he travelled to China.

On 1 July 1996, before any works had commenced, the plaintiff was appointed to the position of General Manager, New Business Asia, which resulted in him working on the China project. This coincided with the joint venture agreement which was executed on 23 June 1996.

It was a new position, although the plaintiff remained second in charge of the company and a director, but the position resulted in a change of his responsibilities.

On the same date, namely, 1 July, Mr Warren Ho took over the responsibilities, which had formerly been those of the plaintiff, in the finance area, save for superannuation and finance hedging. Mr Ho was responsible for the accounts and financial statements of the defendant. He was appointed Finance Director in January the following year.

The works were divided into a number of contracts. Contract 4.0 was subsequently divided into 4.0A and 4.0B.

Contract No. 1 was for the lake works, contract No. 2 was for the construction of the warehouse, the third contract was for the foundation pilings, contract 4.0A was for the construction of the office and service centre, and contract 4.0B was for the construction of the boat club. The latter contract was not awarded until the middle of 1998.

Construction commenced on 23 January 1997. The works were the lake works and the marina and some months later, the warehouse was commenced.

The marina and warehouse, save for a few offices inside the warehouse, were completed by September 1997.

In 1997, Mr Wiggill assumed more responsibilities and spent a long time out of Australia and in America. He stated that he spent about one-third of the year outside Australia. The plaintiff, for his part, during 1997, was travelling to the project site in China at approximately six weeks' intervals.

On 6 October 1997, the plaintiff told Mr Wiggill that the defendant would not know the actual cost of the project until near completion because of, the nature of the building contracts which often were not strictly priced, the difficulties of building in China using Chinese contractors and labour, the difficulties involved with Chinese administration, the standard of workmanship and the difficult weather conditions, especially in the months of February and March when the area suffered from extremely cold conditions.

Mr Wiggill expressed some concern.

Neither the plaintiff nor Mr Wiggill, nor any other person employed by the defendant or the Division, had any experience in large scale construction, let alone any experience building a marina in China. The defendant was very much in the hands of Ausino, which in turn had to deal with the Chinese builders and authorities. In addition, there was another problem. Mr Bruce Allen, the architect based in Melbourne, prepared the working drawings. His drawings were not accepted by the local authorities. As a result, the drawings had to be copied by Chinese architects from the Shanghai Design Institute and translated into the Chinese language. Many errors were made which resulted in delays, alterations and variations. Mr Allen had to travel to China to supervise the re-drawing.

During this conversation in October 1997, the question arose concerning the necessity to obtain additional funds.

On 8 October 1997, Mr Wiggill sent a letter to the plaintiff, referring to the conversation and noting that the construction of the warehouse and marina had come in under budget. He then wrote -

"Just want to make quite sure that we are both on the same wavelength that the total project cost should not exceed the A.R. as approved by Brunswick."

Mr Wiggill then went on to say that if after tenders were received, the costs would be over the approved A.R. amount, then he put forward two choices, namely, the architect redesigns the works to reduce the cost or, submit a new A.R. for the increase in cost. He made it clear that the current climate at Brunswick was such that it was unlikely that there would be an increase.

The conversation and the letter followed closely on the appointment of a new president to the Division, Mr G. Buckley. Mr Buckley was known to be a person who closely watched the finances, in particular expenses, and was known to demand strict adherence to financial controls and procedures.

In the latter part of 1997, Ausino put out to tender to seven construction companies, the construction of contracts 4.0A and 4.0B, and the results of the tenders, made known in early December 1997, revealed that additional funds had to be approved.

The plaintiff prepared a very long document called the Suzhou Executive Report ("Executive Report"), which was completed in January 1998. It is a document of some 275 pages, although the actual text occupied some 30 pages and the balance were attachments. The plaintiff said that he needed to prepare such a long document because there had been a management clean out at divisional level, and the new people had no idea of the background of the project.

After preparing the Executive Report, the plaintiff requested Mr Wiggill to read it, which he did, and he gave approval that it be sent to America. This was done in January 1998.

The report was discussed in America, and the plaintiff was informed by Mr Bob Miller, in late January 1998, that it was necessary to prepare a revised A.R. to seek a further US$800,000 to complete the project.

Mr Miller wrote -

"Frankly I am surprised that we got so close to the A.R. figure considering that this is our first venture in China. The bowling div often goes over and then they put in a revised A.R."

Application was made in February 1998 for an increase to US$6.8M, which was an increase of US$800,000. Mr Rankin prepared the A.R. It was supported by a number of attachments which set out a summary, a comparison with the original A.R. approved in February 1996 and a forecast budget setting out income, expenses, et cetera. The plaintiff was not responsible for the documents attached to the A.R. They were prepared by Mr Bob Miller and other personnel in the United States of America, assisted by Mr Wiggill, who was also there at the same time.

The heading to the summary stated -

"FINAL REVISION (February 10^th 1998)."

The text itself provided, inter alia -

"This represents the final revision for the project which is based upon finalised tender bids received for all construction to turnkey."

The plaintiff was not responsible for that representation, and it would appear that those who prepared the document in the United States of America came to that conclusion, based on the Executive Report.

The A.R. was approved on 10 March 1998 in the sum of US$6.8M.

The evidence established that, as at January 1998, both the plaintiff and Mr Wiggill were very keen to see the project successfully completed. Both had an interest in achieving that result. Mr Wiggill was instrumental in the move to establish a base in mainland China, and the plaintiff was managing the project on behalf of the Division.

At that stage, the building project was experiencing difficulties. The problems were numerous. By law, only Chinese architects and engineers could submit plans in China. They knew nothing about boat clubs and marinas. The Melbourne architect, Mr Allen, had to prepare drawings and then give them to the Chinese, who did their drawings to submit for approval. The latter misinterpreted a lot of information, which resulted in Mr Allen having to go to China. The Chinese construction company was on a steep learning curve because it had never done a boat club marina before, but more importantly, the Chinese were ignorant as to international standards. The project was aimed at a four star finish. That meant nothing to the Chinese and hence, a lot of work was done teaching the Chinese as to the standard of finishes and re-doing the work. There were difficulties with the Chinese culture, in that it was not part of their culture to meet deadlines. There was an appreciation that once the work was completed, the workers may be out of employment. They looked upon foreign companies as being wealthy and "fair game". In addition, the Chinese culture was such that in order to save face, a lie would be told rather than bad news. There were problems with ordering materials. In China, there was no such thing as credit. Payment had to be made. The Chinese construction company doing the bulk of the works, namely, Tongzhou Construction and Installation Co Ltd, ran out of money and hence, misleading information was given about ordering materials and the like. Climatic conditions came into play and during winter, the temperature could be minus five during the day. During summer, it was very hot and often very wet. In addition, the rules and regulations often were changed without notice, so that payments were made for approvals or the installation of public utilities, and further demands were made later. The construction company put in claims for a substantial number of variations.

The works continued throughout the first half of 1998. On 9 April 1998, the plaintiff, on behalf of the Division, accepted the tender for the construction of contract 4.0B, which was described as Stage 2 of the building of Tongzhou Construction Installation Co Ltd at a sum of local currency RMB22.788M, which was approximately US$2,745,642.

Contract 4.0B was entered into on the basis that there would be a third floor on the boat club building, an indoor swimming pool with roof garden and moving walls. There had been discussion earlier, involving the plaintiff and Mr Wiggill, as to whether there should be changes to the works to reduce the costs. Subsequently, changes were made.

By 10 August 1998, the contractor had submitted approximately 100 variations which, it was anticipated, would increase the cost for contract 4.0A by approximately US$75,000. A decision was made, by the plaintiff and Ausino, that it was wise not to deal with the variations at that stage, but to ensure that all the works were completed, and the variations would then be negotiated and finalised at the end of the project.

During 1998, a Mr Randall was engaged by the Division to work in China to promote and market the marina and the boat club. His services were terminated prior to August 1998.

On 18 August 1998, Mr Randall wrote a letter to the Chairman of the Brunswick Corporation, which set out in detail his views of the project. He set out in some detail his criticisms of the project, and all those involved, including the plaintiff.

Amongst his criticisms was the allegation that spending exceeded the budget. He asserted that approximately US$9M was spent on construction, consulting fees, salary, international travelling, and purchase of vehicles and expensive houseboats. He stated that the project had become a personal ego trip for some of the Australian executives. He alleged that the project general manager, which apparently referred to the plaintiff, had minimal experience in this type of project. He also asserted that a total of six vehicles, including "two luxury cars", were purchased. He further noted that some 15 houseboats were purchased.

Mr Randall sent the letter to the CEO of the Brunswick Corporation, who referred it to Mr Buckley, President of the Division, who in turn referred it to Mr Wiggill. Mr Wiggill asked the plaintiff to respond.

On 27 August, the plaintiff responded to Mr Wiggill and sent a copy to Mr Buckley. The plaintiff stated, under the heading "Current Situation", the following -

"As at August month end, the total amount spent on construction is US$5.0M versus a total construction budget of US$6.8M. The total project is covered by contract price of US$6.4M with a contingency of US$0.4M. I am not aware of any final unfavourable variances. We currently have approximately US$1.8M worth of boats in China which are financed by intercompany trading accounts. The bulk of the boats consist of 17 houseboats which are for sale or rent at the Mercury Club."

The plaintiff explained the necessity of having six vehicles. He also pointed out that of the 17 houseboats in China, six were unassembled, and stated that houseboat accommodation was a matter critical to the club's future success.

On 27 August 1998, Mr Wiggill also sent a report to Mr Buckley, in which he criticised the performance of Mr Randall whilst in China, conveying the view that he was a man whose services were terminated and who had a grievance.

He concluded by making the following observations -

"In the meantime (Michael Randall's comments aside) we will open the business facility on October 17, 18, 19 in spite of extreme rainfall, floods, working in a country that has never seen a boat club and marina and is writing the rules for us as we go. It is a communist country trying to be socialist or capitalist with wonderful interpretation of the rules. We will be successful, indeed we already are; (he set out the market share of the trading in China for the years 1994-1999 which showed a steady increase, and then concluded) And the A.R. will not be exceeded."

The plaintiff, on the following day, wrote to Mr Buckley and extended an open invitation to the parent company's audit department to audit the books, with respect to the China project, and on 29 August, Mr Buckley agreed it was a good idea and said that he would get it organised.

It was clear, at the end of August 1998, that the question was raised as to the cost of the project and whether it would exceed the budget, which was established by the March 1998 revised A.R.

The plaintiff stated that he thought the construction was within budget, and Mr Wiggill, Mr Ho, and Mr Buckley did not request the plaintiff to do a careful and detailed assessment of the situation at that stage, nor did the plaintiff consider that it was necessary.

It is necessary, next, to refer to the provision of the houseboats on the marina. This issue assumed some importance in the latter quarter of 1998, as did the issue of operating expenses.

In 1995, the plaintiff and Mr Wiggill thought it appropriate to acquire a houseboat from America and transport it to Australia. This was done, and the houseboat remained in the premises at Dandenong for some months before it was shipped to China. This was, in effect, a trial run to determine cost and ease of importing. Houseboats were later purchased.

The houseboats were purchased for a number of reasons. First, they would be available for sale or for rent and secondly, would be used for accommodation at the club.

By September 1998, there were some 17 houseboats in China. Twelve had been fully assembled and were on the lake, and some five were in the process of being assembled by local labour.

An issue arose, at the end of 1998, as to why it was necessary to purchase so many houseboats. Another issue that arose, in the last quarter of 1998, was the treatment of the cost of the houseboats in the accounts of the joint venture, and in particular, whether the cost should have been part of the A.R. which had been approved in March 1998.

Another issue concerned the start up expenses. By the end of September 1998, approximately US$1.3M in set up and preliminary expenses for the project had been incurred since September 1997.

Like the houseboats, an issue arose, in the last quarter of 1998, as to how the operating expenses should be treated in the accounts of the joint venture, and in particular, whether the expenses should have been also included in the A.R. approved in March 1998.

Both the houseboats' cost and the start up and operating expenses became the subject of spirited correspondence between Mr Schroeder, in America, as the financial controller of the Division, and the plaintiff, and to a lesser extent, Mr Wiggill.

The A.R. approved in March 1998, included in the US$6.8M, US$100,000 for start up expenses and US$200,000 for rental boats. The item for rental boats was an allowance for an amount for runabout-type rental boats, and was not to cover houseboats. Attached to the A.R. approval, and forming part of it, was a 10 year operating budget forecast. For the year 1998, total expenses of US$988,000 were allowed, and a sum of US$1,422,000 was allowed for inventory.

The plaintiff treated the houseboats as part of the inventory, and was of the opinion that it was not necessary to have A.R. approval for the cost. He thought the start up expenses were also not part of the A.R. approved sum because they were operating expenses, and were to be treated as such.

In November/December 1998, correspondence took place between Mr Schroeder and the plaintiff and Mr Wiggill, the former being of the view that both the start up expenses and the houseboats should have been part of the A.R. approved sum, and accordingly, the A.R. was exceeded. Mr Shcroeder's view was based upon the differing accounting standards in Australia, China and the United States of America. Because of the delay in the project, the operating expenses could not be treated as an expense, and it followed that they were a cost that should have been part of the approved sum. Mr Schroeder was of the view that the houseboats should not be included in inventory. The plaintiff and Mr Wiggill did not agree.

Whilst there was much discussion, during the case, about the issues of houseboats and start up and operating expenses, and whether they should have been in the A.R. approved in March 1998, in my opinion, they play little part in the resolution of the issues in this case.

The main object of the A.R. approvals in 1997 and 1998, was for approval for the construction of the marina and adjoining buildings. The criticism that is made against the plaintiff is that, he failed to inform his superiors when it was apparent that the cost of construction exceeded what had been approved, and he failed to promptly make application for a revision of the A.R. to take into account the substantial increase in construction. In my opinion, the changes in the treatment of the houseboat and sundry expenses items in the accounts were something that was beyond the control of the plaintiff, and could hardly be visited upon him as a failure on his part to discharge his duties as an employee of the defendant.

Their significance in this case is that, as a result of the debate in the latter few months of 1998 and Mr Schroeder's views, the March 1998 A.R. had to be revised, and this was made clear to the plaintiff and Messrs Wiggill and Ho in November 1998.

The opening of the marina, warehouse, office and showroom complex was fixed for 19 October 1998, and was described as a "soft opening". Mr Wiggill defined "soft opening" as a special term used by the Chinese, to describe an opportunity to show the public what you are doing, and get them excited, before you actually deliver on your promise later; in other words, a form of promotion.

Prior to the opening, Mr Schroeder requested the plaintiff to give him a report on the financial position of the project. The plaintiff sent a report on 7 October 1998, and gave copies to Messrs Wiggill and Ho. In the report, the plaintiff asserted that, as at 30 September 1998, the total funds spent on construction amounted to US$5.0M (as compared to the A.R. budget of US$6.8M). He attached to the document the subsidiary ledger, which was prepared by the defendant's accountant in China, Miss Sandra Howells, and which recorded the sums paid out each month with a running total. It showed that, as at the end of the financial period in September 1998 (not necessarily the end of the month), the total amount spent was US$5.01M.

The plaintiff went on to note that US$1.8M of the budget had not been spent, and he stated that that was represented by the balance of the costs of contract 4.0B, which he estimated at US$1.4M and added US$400,000, comprising sundry equipment, furniture and contingency. It is observed that the cost of contract 4.0B was the sum of US$2.745M and as at the end of September 1998, very little work had been done on that contract. According to the subsidiary ledger, as at the end of the period in September 1998, the total amount actually spent on that contract was US$124,753. It is observed at this date, that the subsidiary ledger did not take into account the claims for variations made by the builder in respect to contract 4.0A, and these exceeded 100. A reasonable assessment of the variations at that time, would have led to the conclusion that it was most likely the joint venture company would be liable for an increase in cost due to the variations.

On 19 October 1998, the "soft opening" took place and the plaintiff, Messrs Wiggill, Schroeder, Bob Miller and Ho attended. The 12 houseboats were on the water and were seen at the opening. The club, which was the subject of contract 4.0B, was barely started. The footings had been poured but very little else had been done.

In the latter part of October 1998, the plaintiff impressed upon Ausino Engineering and the others engaged in the project in China, that the works had to be completed promptly and to a proper finish and, in particular, that contract 4.0B had to be completed by the end of February 1999 for a grand opening in March 1999. A lot of work had to be performed by a lot of people to get the site into proper condition for the "soft opening". Last minute preparations were to be avoided at the grand opening.

On 29 October 1998, Mr Ken Clark, employed by the defendant and who was the senior manager on site, wrote a report concerning the fit out and completion of contract 4.0B. He highlighted in the report the difficulties that had been experienced with the contractor in relation to earlier contracts. He wrote -

"The current system where we wait for the contractor to complete unacceptable work before intervening must cease, all assistance must be given to the contractor to establish the finished requirements and once this has been established, there must be a daily quality supervision activity. It has to be kept in mind that in many cases the contractor is working with materials and systems that he is not familiar with. There is a need for more constructive dialogue between the contractors and the Ausino site management. The current method that involves abuse should not be accepted. This has resulted in the contractors coming to us for assistance and advice rather than working with Ausino. This should not be the case."

Mr Clark concluded -

"The final point I would like to make is that I believe it is a must for a Mercury Marine person to be on site to monitor the fit out and completion of Stage 2." ("Stage 2" is a reference to contract 4.0B.)

The plaintiff sent a copy of that report to Ausino Engineering and the architect, Mr Allen.

On 30 November 1998, the plaintiff reported to senior management in the Division and concluded, in reference to construction, by stating -

"Construction As usual numerous hours were spent on construction issues which is made more difficult by using cheap Chinese companies to build to international standards. Then again not much has changed in this regard after the last 18 months. We are still aiming for a 28^th February 1999 completion however it must be remembered we are heading into a short sharp cold winter which will no doubt slow progress."

On 20 November 1998, Mr Wiggill sent an e-mail to the plaintiff on the question of the houseboats. The e-mail provided -

"Please explain to me how it is that we have so many houseboats, I understand the figure is 17 units at +/-$85,000. As far as I can see five would have been too few, perhaps seven, eight, nine and ten would have been just right. But we have 17 and to my mind this sounds like we have over done it. Please explain to me, why did we go so many. What was the thinking. I need the answers so that when the questions are inevitably asked, probably quite soon, we have the rationale and answers at our fingertips."

The plaintiff responded by memorandum, dated 1 December 1998, in which he referred to a marketing survey in May 1996 that raised the question of providing accommodation at the club, and he went on to say that a decision was made to import and assemble boats at Lake Tai. By this time, the parent company was asking questions and there is no doubt Mr Wiggill was concerned.

However, I am quite satisfied that Mr Wiggill was fully aware of the decision to import the houseboats early in 1998 and further, was aware that in 1996, a houseboat was imported into Australia before it was sent off to China. The houseboats were seen by those who attended the "soft opening" in October, and others had viewed them earlier. The attempt to lay the blame wholly on the plaintiff reflects adversely on Mr Wiggill.

By mid December 1998, it was clear that it would be necessary to apply for a revision of the A.R., if for no other reason than, to cover the boat investments and the start up and operating expenses.

On 17 December 1998, Mr Schroeder wrote to Messrs Wiggill and Ho and the plaintiff, and stated -

"I reviewed a copy of the final A.R. revision for March 1998 that was approved by the D.C. and it included only $100,000 of start up expenses and made no mention of any boat investments. We now sit with $2.0M of start up expenses and $1.5M in boat investments which in my eyes have never been approved or authorised."

He concluded by writing -

"Do not take this message as a lack of support for the project. I am still supportive of the initiative but I am disappointed that the financials are so radically different than the A.R., that we spent capital $$ on boats without an A.R. approval and we had no communication or approval re: the dollar value and accounting treatment of the start up expenses. Please get back to me ASAP so we can develop a plan for resolution."

The e-mail prompted a response from the plaintiff as to which standards of accounting were to be applied, and correspondence passed in relation to how to deal with these matters.

On 21 December 1998, Mr Ho forwarded an e-mail which in fact had been prepared by the plaintiff. It was sent to Mr Schroeder, with a copy to Mr Wiggill. It set out, in tabular form, the position under the revised February 1998 A.R. and the position which is described as "actual December 1998". This e-mail was sent on or about 21 December 1998. The figure for construction was put at US$5.8M, but in fact was the figure to the end of November. It would not have been difficult to have ascertained the figure for December because the accounting period would have closed at that point, and an e-mail to Sandra Howells in China would have quickly ascertained the position. The figure of US$5.8M was to be compared with the US$6.5M in February A.R.

The plaintiff wrote -

"It is anticipated that the capital construction completion cost of Mercury Club and marina to Turnkey will be on budget (estimated completion date March 1999)."

In making that representation, the plaintiff did not carry out any exercise to determine the total cost, other than to note the amount in the subsidiary ledger. As became very apparent in early January 1999, the statement was incorrect.

On the following day, Mr Ho prepared another e-mail which he sent to Mr Schroeder, after showing it to the plaintiff. By this time, Mr Schroeder had also raised the question of the fact that US$300,000 had been spent on motor vehicles for the project, and no allowance had been made for motor vehicles in the approved A.R.

At the beginning of January 1999, Mr Wiggill raised the question of a revised A.R. with the plaintiff, and the plaintiff prepared a memorandum dated 6 January 1999.

In that memorandum, the plaintiff requested a revised A.R. and stated -

"As a result of certain uncontrollable events during 1998 combined with market driven decisions, a revision to the February 1998 A/R is requested. Attached is a reconciliation of our approved project spending and our final projected spending and the reason for the request."

The attachment revealed that the anticipated cost of construction would be in accordance with the revised March 1998 A.R. It was noted that there had been a considerable increase in start up expenses, and the cost of rental boats and motor vehicles. These items added some US$3.2M to the amount.

Mr Wiggill sent the plaintiff's memorandum, including attachments, to Mr Schroeder on 6 January 1999. Mr Schroeder had requested the background for a revised A.R.

On a careful reading of the documents, the position was being represented that the construction costs were within budget. At this stage, Mr Bob Miller, who was the Vice President International Market Development, was travelling to Australia to consider a number of matters, including the question of a revised A.R.

The plaintiff was requested to prepare a detailed report, setting out the costs to date and the anticipated final costs of the project. The request followed on from a very stern e-mail sent by Mr Buckley to Mr Wiggill on 8 January 1999, with a copy to Mr Schroeder. He indicated that he was extremely annoyed that there had been an approved A.R. for US$6.8M, and that the latest report showed that there was spending of US$10.8M. He was very critical of the plaintiff. He stated that he could not understand how it was that there was so much spent on salaries in China, in addition to the amount spent on vehicles and the excessive number of houseboats.

He was critical of Mr Ho, and pointed out that he had the responsibility "to blow the whistle if he thought something was wrong ... ". Mr Buckley went on to write -

"So now we have an A.R. that I have to take back to B.C. for $10.8M as against the $6.8M authorised. I can assure you, Peter Larson is going to go into outer orbit."

He stated that the plaintiff "engaged in rampant unauthorised spending, has embarrassed you, has embarrassed me, embarrassed Mercury in a good year and tainted a good project." He also stated -

"I have not decided finally what punishment should be meted out, but I think this is a discharge level offense for Geoff and a serious reprimand for Warren, including removal of his bonus this year. Nobody should imagine that this is anything other than the most serious offence possible, short of fraud. I'd appreciate some feedback on what you plan for remedial and punitive action against the offending partners."

The plaintiff was not made aware of the contents of Mr Buckley's e-mail.

The plaintiff prepared his report over the weekend of 9 and 10 January 1999, and on Monday 11 January, he tabled his report. Messrs Wiggill, Ho and Bob Miller were present. The plaintiff stated that he was surprised by the figures with respect to the cost of the construction. He stated that he was so shocked, "I nearly fell off my chair".

The report set out an analysis of the construction cost in US dollars.

The plaintiff set out each contract and revealed that what had actually been spent on the construction was US$6.2M, and that it was anticipated that the cost to complete the works would be US$3.326M.

In round figures, this represented an increase over the A.R. approved in March 1998 of US$3.296M for construction costs.

If it was necessary to add in the houseboats and start up and operating expenses, the increase would have been over US$6.0M. On any view, there was a substantial increase in the cost of construction, something in the vicinity of 50 per cent.

There is some dispute as to what was said at the meeting, but it is unnecessary to resolve it. Mr Wiggill was extremely annoyed as to the increase and the fact that he had not been alerted, nor had the senior personnel in the Division in the United States of America. Mr Wiggill spoke to Mr Buckley over the following few days, who informed him that he should get rid of the plaintiff. In this period, Mr Wiggill took advice from the defendant's lawyers, and also spoke to Mr Hubbard, who is a senior director in the Division in the United States of America handling, inter alia, employee matters.

On 13 January, Mr Wiggill spoke to the plaintiff by telephone and informed him that if there was trouble with the parent company concerning a revised A.R., then the plaintiff, as project manager, "can carry the can".

On 15 January, the plaintiff was summoned to Mr Wiggill's office, where he and Mr Ho were present. At the meeting, Mr Wiggill raised the question of the overrun of the cost of construction which exceeded the revised A.R. of the previous year, and asserted to the plaintiff that it was due to his sloppy bookkeeping, which the plaintiff denied.

Mr Wiggill then stated that the plaintiff's services were to be terminated, effective on 30 April. He stated that he would like the plaintiff to stay on and help with the completion of the project, and the opening of the club at the end of March. It was also said that since the plaintiff had given good service to the defendant, the defendant was prepared to employ him for a further six months on half pay.

Despite evidence from Mr Wiggill to the contrary, I am satisfied that he had made a decision before that meeting to terminate the employment. He gave evidence that he had not made a decision to that effect, and that he was giving the plaintiff an opportunity to explain his conduct to avoid termination. I am also satisfied that the plaintiff did not say it was due to his sloppy bookkeeping. His analysis report, tabled on 11 January, set out many reasons why the project had cost substantially more than the estimate given in the Executive Report.

The fact was that Mr Ho was the finance director at that time, who was the person responsible for the bookkeeping in relation to the project, and Miss Sandra Howells, the employee in China, was the person who actually prepared the financial statements concerning the project in China.

Subsequent to the meeting, Mr Wiggill made it clear to the plaintiff that he was not to make any decisions concerning the China project, and that moneys spent of any nature on the project had to be subject to Mr Wiggill's approval. He put Mr Steven Missen in charge of the project.

By mid January 1999, the builder had sought in excess of 300 variations to contract 4.0A and some 25 variations to contract 4.0B. On any view of the evidence, the probabilities were that the final cost of both contracts would be increased and by substantial sums.

On 20 January 1999, Mr Ho sent to the plaintiff a draft revised A.R., which showed that the construction costs were expected to increase by US$3.073M, and that the start up expenses which were to be included in the A.R. were US$1.842M, in excess of what had been allowed in the March 1998 A.R.

On 21 January 1999, an A.R. was prepared by Mr Ho, reviewed by Mr Bob Miller and Mr Wiggill, and forwarded to the Division for approval. The plaintiff did not see the document. Attached to the formal A.R. was a bundle of documents setting out the background and reasons for the application for a revised A.R., together with a budget. The amount sought for construction was US$9.053M, and US$970,000 for machinery and equipment, and expenses of US$1.728M, making a total of US$11.751M.

On 29 January 1999, the plaintiff was handed a letter, signed by Mr Wiggill, confirming the termination of his employment on 15 January 1999.

In the letter, Mr Wiggill asserted that the plaintiff was unable to give any reasonable explanation for the increase in the capital outlay to complete the project on 15 January 1999. This was incorrect, because it was clear from the plaintiff's analysis, tabled at the meeting on 11 January 1999, that there were a considerable number of reasons for the cost increasing. Mr Wiggill also asserted that the plaintiff had stated that his bookkeeping had been sloppy, but I accept the evidence of the plaintiff that he did not say that.

The letter concluded -

"It is unacceptable that there be such discrepancies in the Project costs and that the discrepancies remained unrecognised until now. I regret that I must confirm the advice given to you on January 15 1999, that your contract with Marine Power International will terminate on 30 April 1999. You are required to resign all your directorships held within the group and your position as trustee of the Marine Power Superannuation Plan. Having regard to your prior service and the close working relationship that we have enjoyed and on the basis that you will continue to work with the company in a spirit of mutual co-operation to resolve the difficulties we now find ourselves in, you will be paid a further three month's full salary (from May 1 - July 31 1999). This has been agreed to by Fond du Lac." The reference to Fond du Lac is the headquarters of the Brunswick Corporation.

The plaintiff continued his employment with the defendant, carrying out his duties with respect to the project and responding to requests, from amongst others, Mr Ho, concerning the claim for variations and the costings involved in the China project.

On 23 February 1999, the further revised A.R. was approved in the sum of US$11.751M.

The grand opening of the project was fixed for 28 March 1999. On 17 February 1999, Mr Wiggill sent an e-mail to a number of employees of the defendant, including the plaintiff, concerning the grand opening in March. The e-mail commenced with the following clear instruction -

"Please be advised that this is an [sic] without wives function."

The e-mail went on to provide that adherence to this instruction was "a must", and that the objective of the opening, amongst others, was to promote and sell memberships to guest couples who attended the function. Mr Wiggill stated that the only wives in attendance would be the wives of the president of the Division, Mr Buckley, the CEO of the Brunswick Corporation, Mr Larson, and a senior director of the Division.

On 11 March, a conversation took place between the plaintiff, Mr Wiggill and Mr Ho, concerning the presence of wives at the opening. The plaintiff informed them that he was taking his wife to China at his own expense, and that he was doing it because he had been away a lot during the early stages of the project while she was battling cancer and he had promised to take her to see the finished product. Mr Wiggill had no difficulty with the plaintiff taking his wife, but stated that she should not be at the opening.

On Saturday 27 March, the evening before the opening, a dinner took place at the club. Evidently, the topic of wives attending the function was raised and Mrs Buckley indicated that it was unfair that the wives could not attend. She spoke to Mr Buckley who then spoke to Mr Wiggill. According to Mr Wiggill, he explained to Mr Buckley that it would be unfair to allow wives because of the decision that had been made earlier. However, Mr Wiggill made a decision to allow Mrs Gauci to be present.

Mr Gauci was General Manager of the club and marina in China, and his wife performed many tasks in assisting him with that job, including some of the decoration for the opening. A conversation did take place between Mr Gauci and Mr Wiggill, in which Mr Wiggill stated that Mrs Gauci could attend.

The plaintiff gave evidence that Mr Gauci rang him, informed him of his discussions with Mr Wiggill, and that permission had been given for the plaintiff to take his wife. Mr Gauci, when he gave evidence, denied any such conversation.

The plaintiff took his wife to the opening on the Sunday, which was held some time prior to lunch time, followed by a luncheon.

At a dinner held on the previous night, Mr Larson spoke and acknowledged the plaintiff by name, and thanked him for his efforts, together with others, in completing the project.

Approximately 250 people attended the grand opening on the Sunday.

Mr Wiggill did not rebuke the plaintiff for taking his wife to the function, whilst they were in China.

The plaintiff returned to work during the first week of April, and Mr Wiggill returned on or about 12 April.

The plaintiff continued to carry out his duties. On 15 April, a meeting took place involving the plaintiff, Messrs Wiggill and Ho, and Mr Thompson, who was a director of the defendant. The meeting commenced by Mr Wiggill informing the plaintiff that it would be better if he left the company that day. He was asked for the reason, and stated that the plaintiff had disobeyed his instructions in taking his wife to the opening in China. The plaintiff stated that he had been told by Mr Gauci that the wives could attend, and in any event, other wives did attend. He also said that the whole thing was ridiculous. Mr Wiggill said that he had made up his mind and the plaintiff was to leave that day.

The plaintiff stated that there were still a lot of matters that he had to attend to, especially the variations, and he preferred to stay until the 30^th.. Mr Wiggill said he would get back to him later that day. Some three hours later, at another meeting, Mr Wiggill stated that he had been in touch with the defendant's solicitors and had spoken to Mr Buckley. He said that he, Mr Wiggill, felt uncomfortable having the plaintiff in the building and it was best that he leave that day.

The plaintiff pointed out that there were some 850 variations that had to be sorted out, and that if he had to leave, then the company would run the risk of paying too much. Mr Wiggill reiterated that the plaintiff had to leave and stated that he would be paid up to 30 April.

Later that day, the plaintiff received a letter, signed by Mr Wiggill, in which he stated that the plaintiff had disobeyed him with respect to his wife attending the opening, and that there was no longer a possibility of mutual trust and confidence. Attached to the letter was a calculation setting out the entitlements for salary, leave entitlements, annual leave and long service leave. The plaintiff received a cheque in the sum of $47,292.17. There is a dispute with respect to the calculations, and it will be necessary to further consider the calculations later.

After the plaintiff had considered the calculations, he rang the pay mistress of the defendant and informed her that errors had been made.

At the date of his termination, the plaintiff's base salary was $158,286 per annum. The plaintiff had entered into an agreement with the employer whereby a portion of his base salary, called a "salary sacrifice", was held back by the employer. The defendant paid FBT on the amount which was less than the rate paid by the plaintiff, and that sum was made available at 1 July each year to the plaintiff, to be used by him as he thought fit. When the calculations were done for annual leave and long service leave, the pay mistress made the calculation on the salary actually paid to the plaintiff, and ignored the amount which had been set aside as salary sacrifice. It is the contention of the plaintiff that both calculations should have been at least on the full base salary.

Most of the work was completed by the grand opening in March 1999, and the photographs adduced in evidence showed a very good quality marina, warehouse, Mercury Marine centre and club.

The works were eventually completed and, as at today, the total cost of the project for construction has been US$9.7M. This is less than the revised A.R. approved in February 1999. Negotiations are still continuing with the builder over variations, with the builder asking for US$500,000 and the defendant offering US$350,000. Mr Missen was reasonably confident that the matter would be compromised around US$350,000. This would mean that the total cost of the construction was in the vicinity of the approved 1999 A.R. sum.

A witness, Mr Brenton Barrett, who was employed by the Bowling and Billiards Division of the Brunswick Corporation from 1991 until August 1999, was based for a while in Hong Kong. He travelled often into mainland China. He saw the completed project and described the quality of the finish as "some of the finest that I had seen in any building in China", and opined the view that it was "a world class facility". Mr Barrett graphically explained the enormous difficulties of doing construction work in China and the propensity of the authorities to change the rules, especially in relation to the costs of services and the like.

It will be necessary to further consider the facts, and in more detail, in discussing the issues.

Nature and Terms of the Contract of Employment

There was no dispute between the parties that at all relevant times, the plaintiff was employed by the defendant.

He was employed from December 1980 until his contract was terminated by the defendant on 15 January 1999. His contract of employment was not the subject of any documentary evidence.

The evidence established that it was an oral contract of indefinite duration, which would continue until the parties brought it to an end or, as a result of either party ceasing to exist.

The general rule is that such a contract is irrevocable, unless there is something in the contract from which it could be implied that it was not irrevocable and could be determined by either party giving notice. See Llanelly Railway and Dock Co v London and North Western Railway Co (1873) LR 8 Ch App 942 at 949-50 and (1875) LR 7 HL 550 at 567; Crawford Fittings Co v Sydney Valve and Fittings Pty Ltd (1988) 14 NSWLR 438.

The law has developed exceptions to the general rule, and one of them is the contract of service. In the nineteenth century, the courts held that it was to be implied into a contract of service, in the absence of any evidence to the contrary, that either party could bring the contract of employment to an end by giving a reasonable period of notice to terminate.

In Creen v Wright (1876) 1 CPD 591, Lord Coleridge CJ, delivering the judgment of the Court, said at p.594 -

"As to the notice, we think the sound construction of the contract before us is, that, except in the single case provided for by its terms, there must be a reasonable notice before it can be put an end to by either party. The rule of construction must be the same for both parties to the contract."

See also Payzu v Hannaford (1918) 2 KB 348.

The term is implied by law.

The master-servant contract is one of a class of contracts in which terms are implied by law. See Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312 at 317. Such terms are implied in the absence of an expression of any contrary intention by the parties - ibid.

The plaintiff pleaded a term to that effect, which was admitted by the defendant.

I am satisfied that it was an implied term of the contract of employment that either party may terminate the contract by giving reasonable notice to the other party.

The plaintiff pleaded a number of other implied terms, which were admitted by the defendant. These terms were -

(a) that the plaintiff would be paid a remuneration package, including performance bonus arrangements established by the parent company, as determined from time to time;
(b) that in the event that the agreement was terminated, the plaintiff would be paid all outstanding accrued entitlements;
(c) that the defendant would maintain a relationship of trust and confidence in the performance of the agreement;
(d) that the defendant would do nothing to render it impossible for the plaintiff to carry out his duties under the agreement.

The defendant pleaded a number of implied terms, which were not admitted by the plaintiff, and in final address added two more. The terms relied upon by the defendant are also terms implied by law into a contract of employment, in the absence of any expression of contrary intention by the parties. No argument was advanced by the plaintiff, that the terms pleaded and advanced by the defendant were not terms of the contract.

I find that the contract of employment contained the following additional implied terms:

(a) that the plaintiff would honestly and faithfully serve the defendant;
(b) that the plaintiff would honestly and faithfully answer all reasonable enquiries from his superiors and provide relevant information as requested by his superiors;
(c) that the plaintiff would comply with the lawful and reasonable directions of his superiors;
(d) that the plaintiff would exercise due skill and care in performing his duties.

The following authorities support the implication of the terms - Robb v Green (1895) 2 QB 314, Sheppard v Felton Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359, Concut Pty Ltd v Worrell, supra, Turner v Mason [1845] EngR 777; (1845) 14 M and W 112, Adami v Maison de Luxe Ltd [1924] HCA 45; (1924) 35 CLR 143, Harmer v Cornelius [1858] EngR 939; (1858) 5 CB(NS) 236, and Lister v Rumford Ice and Cold Storage Co [1956] UKHL 6; (1957) AC 555.

The defendant's counsel also submitted that there was a term of the contract of employment to the effect that the plaintiff would manage and administer the China project, within the limits of the appropriation request approved by the defendant, and observe the procedures manual, including the requirement that a revision be submitted before funds were expended in excess of the approved amount.

In my opinion, these were not express or implied terms of the contract of employment. However, it is clear that the plaintiff was under an obligation to comply with the lawful and reasonable directions of his superiors, exhibit fidelity and good faith in carrying out his duties, and exercise due skill and care in the performance of his duties. In my opinion, those duties would require him to comply with the regulations of the company concerning the expenditure of capital on new works.

Counsel for the plaintiff did not contend otherwise.

Period of Notice

On 15 January 1999, the plaintiff was informed that his contract of employment was to terminate on 30 April 1999. He was given, in effect, three and a half months' notice. He contends that that was an inadequate period and accordingly, the defendant was in breach of contract. It was submitted on behalf of the plaintiff that the period of notice should have been 18 months, or in the alternative, 12 months.

The defendant, for its part, contended that the defendant was entitled to bring the contract of employment to an end by reason of the plaintiff's misconduct, and hence was not bound to give any period of notice. In final address, Mr Dreyfus QC, on behalf of the defendant, submitted that if notice had to be given, it was for a period less than 12 months.

The issue as to what length of notice is reasonable is a question of fact, to be determined after consideration of all relevant circumstances. There have been many decisions dealing with the issue but each case must be considered in relation to the particular circumstances. The cases do not lay down any rule of law. At best, they furnish a guide. But the tribunal of fact must be cautious of applying decisions which were made in different times, when attitudes to industrial relations were different.

In determining what is a reasonable period in respect to an employee, it must be steadily borne in mind what the primary purpose of giving a period of notice is. It is to enable the employee to obtain new employment of a similar nature. Some types of employment are readily available, whilst others are not. Those who are at the top or near the top of their chosen fields, invariably have very few opportunities to obtain similar employment and hence, the period of notice is usually many months to in excess of a year.

In Australian Blue Metal Ltd v Hughes (1963) AC 74, Lord Devlin, tendering the advice of the Judicial Committee, said at p.99, in discussing the termination of a commercial agreement -

"The implication of reasonable notice is intended to serve only the common purpose of the parties. Whether there need be any notice at all, and, if so, the common purpose for which it is required, are matters to be determined as at the date of the contract; the reasonable time for the fulfilment of the purpose is a matter to be determined as at the date of the notice. The common purpose is frequently derived from the desire that both parties may be expected to have to cushion themselves against sudden change, giving themselves time to make alternative arrangements of a sort similar to those which are being terminated." (Emphasis added).

Factors that have been taken into account vary, according to the circumstances, but the nature of the employment, the degree of responsibility and the required dedication to the job usually result in a longer period of notice being reasonable.

In the Law of Employment by Macken, McCarry and Sappideen, 4^th edition, the learned authors, at p.166, have listed relevant factors which have been taken into account in the cases, in determining what was a reasonable period of notice. The authors have listed the cases which support their list of relevant factors. The factors include the high grade of the appointment, the importance of the position and the size of the salary. Further, it is clear that the nature of the employment is a relevant factor. In addition, factors which pertain to the particular employee which are relevant are the length of service, his professional standing and his age, his qualifications and experience, and the expected period of time it would take for him to find alternative employment.

All these factors are relevant to the determination of the present case.

What is a reasonable period is to be determined at the date when notice is given or the contract is terminated without notice. There was some doubt expressed in the authorities as to the correct date but in Martin Baker Aircraft Co Ltd v Canadian Flight Equipment (1955) 2 QB 556, McNair J stated at p.581 -

"I should observe that, although it was challenged at one time, I have formed the view that the question of length of notice has to be determined having regard to the facts as existing at the time when the notice is given, and is not to be determined at the time when the contract is made."

That case was a commercial agreement, whereby one contracting party permitted another contracting party to manufacture aircraft ejection seats. The contract did not provide for determination.

In Logan v Otis Elevator Co Pty Ltd (1999) IR 218, the Full Court of the Industrial Relations Court applied that dicta in relation to a master-servant contract.

At p.229, the court said -

"We do not agree that the question of what constitutes reasonable notice is to be determined as if the court were considering what term ought to be implied into the contract of employment at the time it was made. In the absence of agreement between the parties on the subject, their contract is to be taken as importing a requirement of reasonable notice of termination. What is reasonable is a matter to be considered in the light of the circumstances applying at the date of notice, not the date of the original contract."

I respectfully agree with the decision of the Full Court. On proper analysis, it is clear that the period of reasonable notice must be determined at the date of the alleged breach. An employee may be engaged in a very lowly job at the commencement of his employment, and over a lengthy period, gain promotions to the point where he is the managing director of a large organisation. It would be absurd to consider what was a reasonable period of notice at the time when he entered into the contract. See also Crawford Fitting Co v Sydney Valve and Fittings Pty Ltd, supra, at p.444 and Australian Blue Metal Ltd v Hughes, supra.

The defendant did not raise a plea of mitigation. Despite the absence of the plea, the plaintiff adduced evidence as to his efforts to obtain employment after his services were terminated. He applied for a number of jobs during the months of June and July 1999, but with a complete lack of success. He then enrolled with E.P.R. Executive and Professional Register and underwent a course in August to train him for job applications, including presentation, dealing with questions and assistance with his CV. The training also involved assisting him to make contact with the unadvertised employment market. He applied for other jobs, but without success. In or about October 1999, he went into business with a doctor to provide computing services to medical practitioners. The business was eventually wound up.

The evidence of his efforts does demonstrate the difficulties which confronted the plaintiff when seeking employment, bearing in mind his age, his previous senior position and his expectation of obtaining employment in similar type jobs with comparable salary packages. His salary package at the date of termination was valued at least at A$203,021, with the prospect of obtaining an annual bonus up to A$50,000.

Factors which are of particular relevance in determining what was a reasonable period of notice to terminate the plaintiff's employment are, first, that the plaintiff had every expectation, having worked for the one employer for a period of some 19 years and having attained a very senior position, that he would continue his employment for many years to come. Secondly, the length of his service was substantial, namely, 19 years. Thirdly, he had reached a very senior position with the defendant, namely, as a director and second in charge in the company, which covered the Australian, Asian and Pacific regions. Fourthly, he was paid a substantial base salary of $158,286, together with other benefits of substantial value including non-contributory superannuation, a motor vehicle and telephone reimbursements. Fifthly, at the date of termination, the plaintiff was aged 49 years about to turn 50. Sixthly, the plaintiff's capacity to obtain alternative employment must of necessity be limited because of the number of jobs available in senior positions in this State. The evidence of his efforts to obtain employment confirm the limited opportunities available to him. Seventhly, the circumstances of his dismissal are relevant, not to compensate him for his distress and upset, but as relevant to obtaining alternative employment. An expert in the area of employment, Mr Timothy Orr, gave evidence that the absence of a reference for an applicant to a senior executive position was not a drawback, because invariably the prospective employer would make enquiries of the previous employer. Such an enquiry of Mr Wiggill would hardly have improved the plaintiff's prospects of employment in a senior position.

Finally, another factor which Mr Orr emphasised was that, employment with the one employer, although providing eloquent testimony to loyalty, is often considered in this day and age, as a drawback for senior executives. A prospective senior executive who had experience, in a variety of different employments, would be considered to be a better prospect than a person who had been employed in the one job.

I was referred to a number of cases by the plaintiff which demonstrated that courts in the past, going back over many years, had determined reasonable notice for senior executives was in the range of six to 12 months.

In Savage v British India Steam Navigation Company (1930) 46 TLR 294, Wright J held that the chief officer of an ocean passenger steamer was entitled to 12 months' notice. More recently, Ashley J, in Quinn v Jack Chia (Australia) Ltd [1992] VicRp 37; (1992) 1 VR 567, held that a senior person in a construction company was entitled to 12 months' notice. The plaintiff had been employed for a period of just in excess of two years, and was aged 52 years when his employment was terminated.

Each case must depend upon its own circumstances, and taking into account and weighing up the matters which I have referred to, I think the proper period of notice was 12 months.

Summary Dismissal?

The defendant, in its amended defence, pleaded that it was entitled to summarily dismiss the plaintiff from his employment by reason of the plaintiff's conduct, which was alleged amounted to a breach of the contract of employment.

A breach of the contract of employment by the employee may entitle the employer to terminate the agreement without notice.

The acts or omissions of the employee which constitute the breach may amount to misconduct, disobedience, incompetence or negligence. No doubt, misconduct would cover a multitude of sins. By way of example, conduct which results in a conflict between the employee's interest and duty to his employer, or impedes the faithful performance of his obligations, or is destructive of the confidence between employer and employee, may ground a right to dismiss without notice. See Blyth Chemicals Ltd v Bushnell [1933] HCA 8; (1933) 49 CLR 66 at 81 per Dixon and McTiernan JJ.

There is no rule of law that defines the degree of misconduct which would justify dismissal without notice.

In Clouston and Co Ltd v Corry (1906) AC 122, the Privy Council at p.129 stated -

"In the present case the tribunal to try all issues of fact was a jury. Now the sufficiency of the justification depended upon the extent of misconduct. There is no fixed rule of law defining the degree of misconduct which will justify dismissal. Of course there may be misconduct in a servant which will not justify the determination of the contract of service by one of the parties to it against the will of the other. On the other hand, misconduct inconsistent with the fulfilment of the express or implied conditions of service will justify dismissal."

The question whether the breach of contract justifies dismissal without notice, is a question of fact.

The onus of proof rests upon the defendant to establish that it had the right to terminate the employment without proper notice. See Blyth Chemicals Ltd, supra, at p.83.

It is well established that an employee may be dismissed if he wilfully disobeys any lawful order of his employer. See, by way of example, Bouzourou v The Ottoman Bank (1930) AC 271. Equally, a definite refusal by the employee to perform his duties gives the employer the right to terminate the employment without notice - see Adami v Maison de Luxe Ltd, supra, especially at p.153; also Pepper v Webb (1969) 1 WLR 514.

Counsel for the plaintiff submitted that it was only in exceptional circumstances that an employer could summarily dismiss an employee. Counsel relied upon what was said by Kirby J in Concut Pty Ltd v Worrell, supra, at p.322. His Honour, in summarising what he described as the applicable legal propositions, said -

"It is, however, only in exceptional circumstances that an ordinary employer is entitled at common law to dismiss an employee summarily."

His Honour cited what was said by Starke and Evatt JJ in the Blyth Chemicals case at pp.72-3 in support. What their Honours said does not support what Kirby J said. What constitutes a basis for terminating the contract of employment by the employer will depend upon the particular circumstances of each case, and whether misconduct is sufficiently grave to justify termination without notice is a question of fact. In my respectful opinion, the resolution of the issue does not depend upon proof of exceptional circumstances. None of the very many reported cases in this field, over the last 150 years, have raised the barrier to summary dismissal as high as "exceptional circumstances".

It cannot be denied that summary dismissal will have a detrimental effect upon the employee's reputation, and in some circumstances, may indeed be a very traumatic event. It may lead to psychological injury. Depending on the allegation, the employee may suffer a stigma which adversely affects his chances of obtaining other employment.

In Williams v Printers Trade Services (1984) 7 IR 82, Toohey J at p.85 made reference to the effect of a dismissal, when he said -

"The question is whether the employer was justified in taking the drastic step of summary dismissal, a step that not only has financial implications for the employee but carries with it a certain obloquy." (Emphasis added).

In Johnson v Unisys Ltd [2001] UKHL 13; (2001) 2 WLR 1076 at 1101, Lord Millett referred to the effect of a summary dismissal, when he said -

"But the common law does not stand still. It is in a state of continuous judicial development in order to reflect the changing perceptions of the community. Contracts of employment are no longer regarded as purely commercial contracts entered into between free and equal agents. It is generally recognised today that 'work is one of the defining features of people's lives'; that 'loss of one's job is always a traumatic event'; and that it can be 'especially devastating' when dismissal is accompanied by bad faith."

The authorities do establish that the employee's breach of contract of employment must be of a serious nature, involving a repudiation of the essential obligations under the contract or actual conduct which is repugnant to the relationship of employer-employee, before an employer may terminate the contract summarily. Isolated conduct usually would not suffice. Each case must be considered in the light of its particular circumstances, but nevertheless, the seriousness of the act of termination and the effect of summary dismissal are factors which place a heavy burden on the employer to justify dismissal without notice. The circumstances do not have to be exceptional, but nevertheless, must establish that the breach was of a serious nature.

It was also submitted, on behalf of the plaintiff, that the right to terminate for misconduct "will only arise" where the employee has conducted himself in a way to demonstrate a repudiation of the contract, by, in a sense, manifesting an intention not to perform contractual obligations in the future.

I respectfully disagree that that is the only occasion when an employer may terminate summarily.

The contract of employment, of course, is a contract, and the general principles concerning contracts apply. Hence, if the employee breaches an essential term of the contract and thereby repudiates the contract, then the employer, as the other party to the contract, may accept the repudiation and rescind it. But that is not the only basis upon which an employer may bring the contract to an end.

At common law, the authorities do establish that there is an interaction between the principles of contract law justifying rescission of a contract, and the rules established by the authorities over the last 150 years in relation to the type of misconduct justifying the dismissal of an employee without notice. It cannot be denied that in some cases, the courts do speak in terms of the basic principles of contract law (see, for example, Pepper v Nebb, supra), but in my opinion, it would be wrong to say, as was submitted on behalf of the plaintiff, that the right to terminate only exists where the conduct of the employee demonstrates repudiation of the contract, manifesting an intention not to perform the contractual obligations in the future. I do emphasise that many examples of conduct justifying termination would comfortably fit in with those principles. However, the authorities do establish that there are offences which justify dismissal but which would not, in themselves, show that the employee was intending not to perform contractual obligations in the future. There may be an example of a one-off serious act of misconduct which would justify dismissal, even though the probabilities were high that it would not occur again. This may be especially so when the employee is asked to explain his conduct, and shows remorse and gives an undertaking that the conduct will not occur in the future.

The Blyth Chemicals case, supra, is an example of a case where the justification for dismissal was based upon conduct said to be repugnant to the relationship, not a repudiation of it - see at pp.72-73 and 81-82.

In Sinclair v Neighbour (1967) 2 QB 279, the Court of Appeal was concerned with the summary dismissal of a shop manager who borrowed some money from the till and repaid it the following day. On no basis could it be argued that the manager repudiated the essential conditions of his employment and evinced an intention not to be bound by his contract. Nevertheless, his summary dismissal was upheld because his conduct, although not dishonest, was nevertheless conduct of such a grave and weighty nature as to undermine the relationship of confidence which existed between employer and employee.

Sellers LJ, at p.287, said -

"The whole question is whether that conduct was of such a type that it was inconsistent, in a grave way - incompatible - with the employment in which he had been engaged as a manager."

In Laws v London Chronicle Ltd (1959) 1 WLR 698, the Court of Appeal was concerned with the disobedience by an employee, which resulted in the employee being dismissed. The employee was present at a meeting at which her superior and the chairman of the company had an altercation, at which stage her superior left the room, requiring the plaintiff to follow. The chairman told the plaintiff to stay where she was, but she left the room. It was held that the single act of disobedience did not justify summary dismissal.

Lord Evershed MR, at p.700, referred to the application of the principles of contract law when he said -

" ... It follows that the question must be - if summary dismissal is claimed to be justifiable - whether the conduct complained of is such as to show the servant to have disregarded the essential conditions of the contract of service. It is, no doubt, therefore, generally true that wilful disobedience of an order will justify summary dismissal, since wilful disobedience of a lawful and reasonable order shows a disregard - a complete disregard - of a condition essential to the contract of service namely the condition that the servant must obey the proper orders of the master, and that unless he does so the relationship is, so to speak, struck at fundamentally."

That case is an example where the allegation was one of misconduct in failing to obey a lawful direction and where the contract principles applied. But it was not necessary to show that the acts repudiating the contract showed an intention not to perform them in the future.

The Court of Appeal held that the disobedience by the employee was not a ground for dismissing without notice.

The law concerning misconduct, constituted by failure to comply with a lawful direction, was summarised by the Court of Appeal in the Laws case, supra.

The Master of the Rolls cited with approval what was said in Halsbury's Laws of England, 3^rd edition. The principles may be summarised as follows -

(i) Wilful disobedience of the lawful and reasonable order of the employer justifies summary dismissal.
(ii) Misconduct, inconsistent with the due and faithful discharge by the employee of the duties for which he was engaged, is good cause for dismissal, but there is no fixed rule of law defining the degree of misconduct which will justify dismissal.
(iii) There is a good ground for the dismissal of an employee if he is habitually neglectful in respect of the duties for which he was engaged.
(iv) That a single instance of insolence would hardly justify dismissal.
(v) The question is whether the conduct complained of is such as to show that the employee has disregarded the essential conditions of the contract of service.
(vi) As a general proposition one act of disobedience or misconduct would not generally justify dismissal, but one such act may justify dismissal, "only if it is of a nature which goes to show (in effect) that the servant is repudiating the contract, or one of its essential conditions; and for that reason therefore, ... that the disobedience must at least have the quality that it is 'wilful': it does (in other words) connote a deliberate flouting of the essential contractual conditions."

As a general proposition, it is something more than ill advised conduct or omission to act, as a result of an error of judgment. See Gooley v Westpac Banking Corporation [1995] IRCA 658; (1995) 59 IR 262 at 276-9.

The cases establish that an employee may be dismissed summarily for incompetence in carrying out his duties, and also be dismissed for negligently performing his duties.

The cases involving incompetence are those where the employee holds himself out as having a particular skill, but when entrusted with the job, clearly does not have that skill. That is not relevant in the present proceeding.

On the other hand, there is a good ground for the dismissal of an employee if he is negligent in the course of his employment. However, it would indeed be a very grave case of negligence, causing substantial damage, to justify dismissal for a single act of negligence. As a general proposition, the neglect would have to be habitual.

In Baster v London and County Printing Works (1899) 1 QB 901 at 903, Darling J said -

"Neglect as often arises from forgetfulness as from anything else; and, if the forgetfulness is with respect to an important thing it may well, in my view, be good ground for dismissal of the servant without notice. I do not say that it would be a good ground for dismissal in every case. Some trivial acts of forgetfulness might not even justify a complaint or remark; but to forget to do a thing which, if not done, may cause considerable damage to the master, or to his property, or to fellow servants, may be a serious neglect of duty." (Emphasis added).

Equally, it would be a good ground for dismissal without notice where the employee habitually neglected to perform his duties which he was required to do in the course of his employment.

With those principles in mind, it is necessary to consider the plaintiff's conduct in the present matter.

At the outset, it is necessary to identify the "sin" which the employer complained of and upon which the employer justifies the dismissal. It is trite law to observe that the misconduct of the employee does not necessarily have to be known to the employer at the time of dismissal, and the employer may rely upon any information that subsequently came to his knowledge to justify the dismissal - see Shepherd v Felton Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359 at 377-8 per Dixon J.

Although Mr Dreyfus QC referred to this principle in the course of his submissions, he did not identify any later information to justify this dismissal.

In final submissions, Mr Dreyfus QC identified the "sin" as being the failure of the plaintiff to comply with the clear instructions of the Capital Manual concerning the capital costs of works, the failure to inform his superiors that the cost of construction would exceed what was approved in the March 1998 A.R., and the failure, when it was apparent that the cost would exceed the A.R., to make application for a revised A.R.. Mr Dreyfus QC emphasised that it was a rule of the company, stated in the Manual, that no expenditure would be permitted without an A.R. approval in respect of capital works.

It was submitted that the plaintiff's misconduct was serious, and that his acts and omissions were wilful, deliberate, dishonest and misleading, or grossly negligent.

Mr Dreyfus QC disavowed any suggestion that the "sin" committed by the plaintiff was the overrun of the costs of the project in China. Mr Dreyfus QC expressly stated that the defendant was not alleging this. In my opinion, the concession was a correct one.

The plaintiff had no experience or background in construction, let alone a big construction in a foreign country. The evidence clearly established the enormous difficulties of constructing a quality marina and adjoining buildings in China due to many reasons. Despite the obvious problems associated with the construction, the end result was a quality construction and ultimately within the revised A.R. approved in February 1999.

The question is, did the plaintiff breach his contract of employment?

In my opinion, he did breach the contract of employment, in that he failed to carefully and diligently perform his duties with respect to the cost of the project, and to comply with the A.R. approval rules of the company. The rules were set out in the Capital Manual.

He failed to inform the senior personnel of the Division, Messrs Buckley, Schroeder, Wiggill and Ho, that the likely cost of the project would exceed the approved A.R., and further, failed to take steps to apply for a revision of the A.R. approved in March 1998.

His failure to perform these steps arose because he did not do any analysis of the costings, when he should have. He said that he did not turn his mind to the question in 1998. He should have. It is no excuse that he was not asked to do a detailed costs' analysis during 1998. At the latest, he should have prepared a detailed and careful analysis in August 1998, when responding to the letter written by the former employee, Mr Randall. The earliest date when he should have turned his mind to doing an analysis was on 9 April 1998, when he gave approval for the entry into the contract for the works in contract 4.0B at a cost of US$2.745M. In the Executive Report prepared by him in January 1998, the estimated cost for contract 4.0B was US$1.8M. The substantial blow out in the contract sum cost should have alerted the plaintiff to the question of the approved A.R. being substantially exceeded, leading to him doing a proper, detailed and careful analysis of costings.

The plaintiff was aware at all times, prior to and after the date of his appointment as the China Project Manager, that the defendant, as part of the Mercury Marine Division of the Brunswick Corporation, was obliged to strictly comply with the provisions of the Capital Policies and Procedures Manual. He knew that the parent company expected all of its divisions to keep a close watch on, and exercise care, diligence and attention to the expenditure of capital. He knew that the purpose of the Manual was to enable the company to keep tight control of spending. He was also well aware that there would be a problem if the approved A.R. was exceeded, and that if it was likely to be exceeded, needed to be drawn to the attention of the management immediately. He knew that it was part of his duty to report to senior management if the A.R. was going to be exceeded, as soon as it came to his attention.

The plaintiff was aware that if the approved sum was likely to be exceeded, an application for revision of the A.R. was to be made immediately. He was also aware that the division was "costs conscious", and that the president, Mr Buckley, pursued a policy of keeping expenses to a minimum.

Upon his appointment in July 1996, the plaintiff assumed the responsibility of ensuring that the project's costs were within the approved budget, of keeping the cost to a minimum, of apprising his superiors if costs were likely to exceed the approved amount, and of initiating an application for a revision if the costs were likely to be exceeded. He appreciated and understood that he was the person within the Division who was in charge of the project, and who would be expected, by his senior colleagues, to keep costs within budget, to monitor the costs closely and carefully, and to alert them if the approved sum was likely to be exceeded. His responsibilities included the authority to incur costs, to authorise the entry into substantial contracts and to deal with variations to the contracts.

Whilst the plaintiff had other duties, such as responsibility for superannuation matters and foreign exchange hedging, the bulk of his duties were in respect of the China project. He clearly had a very detailed knowledge of the progress of the project and visited the site regularly. In the year 1997, he visited the site seven or eight times.

The scope of the Manual was set out on p.1 and provided, inter alia -

"This procedure covers the Planning Approval and Review for Capital programmes. The Programmes include the acquisition of land, buildings, equipment and tooling."

At p.15, the Manual deals with what is described as, "Overruns, Underspending, or Change in Scope."

The Manual provided -

"1. A supplemental Appropriation Request, which must include the total revised project investment and return, is prompted when the amount needed to expend on the project exceeds the approved amount or if the estimate of anticipated programme benefits is significantly lower than original projections. In addition, any significant change in scope that impacts the original project spending requires a supplemental Appropriation Request. (a) ... (b) Unauthorised spending, which includes verbal or written commitments is not allowed. A revision must be submitted and approved prior to spending any amount in excess of the approved amount. Emergencies will be handled on an exception basis with the approval of the Vice President of Central Manufacturing." (Bold type in original.)

The reference to the Vice President is a reference to a senior executive of the Brunswick Corporation.

The section dealing with overruns concluded as follows -

"3. Unauthorised spending is defined as funds committed and/or spent without an approved Appropriation Request. Confirmation of unauthorised spending as defined above is subject to discipline by management." (Emphasis added).

The plaintiff was obliged, pursuant to his contract of employment, to perform his tasks in accordance with the lawful directions of his employer, and was obliged to perform his work competently and with reasonable care and diligence.

In my opinion, once the stage had been reached that the costs of the project were likely to exceed the A.R. of March 1998, he was obliged to report that fact to senior personnel in the Division and initiate an application for a revision of the A.R., before the expense was incurred.

Defendant's counsel submitted that the plaintiff knew the true cost of the China project almost a year before his dismissal, or alternatively, that facts available, if investigated, would have revealed that in January-February 1998, the costs of the project were in excess of the A.R. application made at that time.

In January 1998, the plaintiff under the supervision of Mr Wiggill prepared the detailed and substantial Executive Report, which was used as the basis for seeking an additional US$800,000 revision to the previous approved A.R.. I do not accept the submission that the plaintiff knew, or ought to have known, at that time that the amount sought for the construction cost was wrong and likely to be exceeded.

On 9 April 1998, the plaintiff gave approval for the entry into the construction contract, for the works in contract 4.0B, which amounted to US$2.745M.

If he had performed an analysis of the costs to date and expected expenditure in the future, the result would have alerted him to the fact that the probabilities were indeed high that the A.R. revised amount of US$6.8M would be exceeded.

It is necessary to note that the A.R. approved in March 1998 for US$6.8M, was made up of construction of US$6.23M, US$470,000 for machinery and equipment, and US$100,000 for expenses.

The analysis, as at April 1998, would have revealed the following -

Cost of lake works -	$630,000
Warehouse construction -	$213,423 plus VAT 17% were applicable
Cost of footings -	$44,220
Cost of floating docks -	$415,000
Cost of foundations -	$38,916
Contract cost of works -	4.0A - $2.551M
Contract cost of works -	4.0B - $2.745M

Added to this were the fees for Ausino, which had been negotiated in 1996, of some $720,000, together with the architect's fees, which had been paid to the end of March 1998 and totalled US$70,295, and the grand total is US$7.427M.

This figure is compared with the figure in the A.R. approval of March 1998 of US$6.230M for construction.

Admittedly, in the costing of contract 4.0B, the works for the club management housing accommodation, the re-design of the swimming pool and the interior fit out fixtures were included, but on the most optimistic approach to those items, the difference would have been US$690,000 if they had been deleted or changed.

One should add to the analysis that the architect's fees would continue, which were in the order of some A$20,000 per month, and also that there was the issue of variations.

In my opinion, if the plaintiff had carried out the analysis as at 9 April 1998, he would have ascertained that the probabilities were extremely high that the A.R. approved in March 1998 would be substantially exceeded, and consideration would have to then be given to a further application for revision.

The plaintiff did not do an analysis of the total costs in April 1998, nor did he do a proper, careful and detailed analysis in August 1998, when responding to the allegations by Mr Randall that the budget had already been exceeded.

Each month, Sandra Howells sent to the plaintiff what was known as the subsidiary ledger, which set out all costs which had been paid to that date in respect of the project. As at the close of the September accounting period, the amount which had actually been expended was US$5.030M. At that time, very little had been done in respect of contract 4.0B, and it was clear that the works outstanding on both contracts 4.0A and 4.0B were in the order of at least US$4.1M. The plaintiff knew at that time that realistically, the maximum possible saving in respect of the deletion of the third storey to the club house was US$370,000. In addition, the plaintiff was aware that some 33 variations had been approved by Ausino, and as at August 1998, he was informed that there were up to 100 variations to contract 4.0A.

If the plaintiff had done a proper cost analysis, in response to the allegations made by Mr Randall in late August/early September, with as much detail and care as he did the analysis in January 1999, the exercise would have established beyond doubt that the costs of the project would exceed the approved A.R. by at least two and probably three US$M.

The plaintiff gave evidence that he did not do the cost analysis, that he was not requested by any senior officer to carry out such an analysis and he didn't really turn his mind to it. His excuses are not to the point. It was his duty, as part of his obligations as a senior executive in the Mercury Marine Division, to closely monitor the costs and to ensure that the cost did not exceed the approved A.R.. If there was a likelihood that they would, he was obliged to take steps to inform management and apply for a revision to the A.R.

I am satisfied that the plaintiff breached his contract of employment by failing to carry out a cost analysis, and that the breach occurred no later than the end of August 1998.

Under the terms of the contract, the defendant was entitled to bring the contract to an end upon giving a proper period of notice. The employer, at common law, does not have to prove a breach of contract in those circumstances. Absent proper notice, the defendant has to establish cause before termination.

It was submitted that he did know the true cost of the China project in August 1998, that he failed to provide senior management with truthful information concerning the cost, and that he concealed the information when reporting to senior management.

These are serious allegations. The defendant carries the burden of establishing that it was justified in dismissing the plaintiff without notice.

The case of Adami v Maison de Luxe Ltd, supra, was concerned with an employee manager who refused his employer's directions to perform his duties on a Saturday afternoon. The justification for his dismissal was the disobedience of a lawful order.

Isaacs ACJ, at p.151, said -

"It is no doubt a correct principle that, once the relation of employer and employee is established, obedience to lawful orders is, if not expressly, then impliedly, contemplated by the contract creating the relation, and mere disobedience of such orders is a breach of the bargain. But whether disobedience in a given case is of such a character as to justify a complete dissolution of the contract by one of the parties and, as here, a forfeiture by the other of valuable accruing rights, together with some degradation - altogether a severe penalty - is, in my opinion, quite a different matter. Such a justification requires the disobedience to be as phrased 'wilful disobedience of a lawful order.' That is, it must be not merely a breach but a radical breach of the relation, and inconsistent with its continuance." (Emphasis added).

I do not accept the submission. The plaintiff was clearly derelict in his duties. But I do not accept that he knew, in August 1998, that the cost would substantially exceed the A.R. approval, nor do I accept that he took any steps to mislead or deceive senior management when reporting.

In January 1998, the plaintiff, assisted by and under the supervision of Mr Wiggill, prepared and put forward a report which, as later events reveal, was overly optimistic as to the costs of the project. That is not surprising. Both men were very keen that the project should succeed, and were confident that they could complete the project within the amount estimated as the cost. But in addition, both men had no experience with large scale construction, let alone building in China, and had to rely upon government officials, builders and engineers in that country.

The plaintiff, during 1998, did not do a detailed and careful analysis, and stated that he did not turn his mind to it. The subsidiary ledgers which he received, even as late as December 1998, did not show that the cost of the works had exceeded the A.R. as approved in March 1998. The fact that he did not turn his mind to doing an analysis, and that he did not do one whilst not providing any excuse for the breaches of his contract of employment, nevertheless provide support for the conclusion that he did not breach the terms of his contract knowingly, wilfully and with any intention to deceive or mislead his superiors.

The evidence was that he was not asked to prepare a detailed analysis prior to the end of December 1998, and again, whilst that is no excuse for the breaches of contract, nevertheless is relevant to his actions and intentions.

He had no motive to conceal, mislead or deceive.

There is other evidence that supports that finding.

The plaintiff was not responsible for keeping the financial records, which ultimately was the responsibility of Mr Ho. The latter did obtain the information from China, and he could very easily have carried out an investigation himself to determine what the position was. In addition, Mr Schroeder, in the latter part of 1998, was in a position where he could have obtained all the information to enable him to make some assessment. The documents were, of course, also available to Mr Wiggill, if he chose to call for them. Messrs Wiggill, Schroeder and Ho had some responsibility in relation to the financial matters of the Division, and in particular the China project, and could have, at any point in time in 1998, taken steps to ascertain the position. It is not likely, in those circumstances, that the plaintiff would set out to deceive senior management in relation to the costings.

Further, there is the evidence that after the Randall allegations, the plaintiff invited Mr Buckley to carry out an internal audit. The offer was made on 28 August 1998, and Mr Buckley, on the following day, stated that he would organise an audit. The plaintiff's actions are hardly the actions of a person seeking to deceive or mislead.

Mr Wiggill gave evidence that there were no statements made by him in any of the documentation in the first few months of 1999, to the effect that the plaintiff was guilty of any dishonesty or negligence.

What the plaintiff did, he did for the benefit of the company, and on no view did he gain anything by failing to perform his duties properly and carefully during 1998. At that stage, he was extremely busy dealing with the myriad of matters and problems that arose out of the construction, and very concerned to ensure that the construction was completed on time and prior to the date contemplated for the opening.

The evidence revealed that Mr Schroeder knew, in October 1998, that it was necessary to apply for a revised A.R., not because of construction costs exceeding the approved amount, but because of the disputed items of houseboats and operating and start up expenses.

Senior officers of the Division attended the October "soft opening" and Mr Schroeder had been provided with documents relating to the expenses. Every one of the senior personnel attending that "soft opening", gained knowledge of the situation in China and had access, if requested, to any documentation.

The evidence established that Mr Ho, as the financial director of the Australian, Asia and Pacific part of the Mercury Marine Division, had responsibilities with respect to the financial matters and was expected to monitor and report on them. Indeed, that was the view taken by Mr Wiggill, and also Mr Buckley, in January 1999, when it was apparent that the cost had been exceeded and some blame was directed towards Mr Ho. Mr Ho's responsibility and the fact that he had access to all the documents in 1998 would have been evident to the plaintiff. In other words, if he set out to deceive or mislead, there were a number of senior personnel who had the means of doing a full investigation at any time. There was no evidence that the plaintiff did anything to cover up his failure to carry out a full analysis in 1998.

The fact was that the plaintiff had many duties to perform, in the course of managing the project. His focus was on keeping the project afloat, getting the work done and bringing it to a successful conclusion. He did experience numerous problems with respect to the project, which I have summarised. He was under extreme pressure to complete the project, and in the latter part of 1998, was dealing with the problems arising out of the accounting treatment of inventory and expenses. Further, although the plaintiff did know that there was scope to seek a supplementary A.R. and that it could be done, there was some degree of uncertainty as to the final costing. It would be inappropriate to seek a revision each time there was a concern that the costs may be exceeded. Finally, the plaintiff did believe that some of the issues concerning costs would be sorted out at the end of the construction, and believed that many of the variations were unjustified. Whilst all these matters do not in any way excuse the breaches of contract which I have found, nevertheless they do explain his state of mind and thoughts at the time, and lead to the conclusion that he was not guilty of any dishonest, misleading or deceptive conduct. The defendant has the burden of persuading the court as to those facts, and in my opinion, the defendant has failed to do so.

The plaintiff breached his contract of employment by failing to comply with the directions set down by the Division concerning capital works and approval of cost, and negligently performed his duties, with regard to the project, by failing to closely monitor the expenditure, failing to do an analysis of the total costs and failing to alert his superiors to the likely overrun.

In my opinion, his failure to comply with the directions of the Capital Manual was not wilful disobedience of the rules and regulations of the company, nor does his conduct amount to refusal to perform his duties. Further, his conduct in respect of those matters was not incompatible with the fulfilment of his duty to the defendant, did not involve an opposition or conflict between his interest and duty to his employer, nor did it impede his faithful performance of his obligations, nor was it destructive of the necessary confidence between employer and employee. See Blyth Chemicals Ltd, supra, at p.81, per Dixon and McTiernan JJ.

In my opinion, a proper analysis of his breaches of contract lead to the conclusion that he was negligent in the performance of his duties and obligations in the course of his employment. Defendant's counsel submitted that he was grossly negligent or reckless in the performance of his work.

An employee may be dismissed for the negligent performance of his duties in the course of his employment.

In Callo v Brouncker (1831) 4 C and P 518; [1831] EngR 332; 172 ER 807, Park J, at p.807, directed a jury that "habitual neglect" is a ground for dismissal without notice. But, as later authorities have established, a single act of negligence may in certain circumstances, if it is of a serious nature, constitute justification for dismissal without notice. But the general rule is, habitual neglect is necessary to justify summary dismissal.

"Habitual neglect or a definite refusal of a general kind to pursue the employer's lawful policy of business would afford such justification." Per Isaacs ACJ in Adami's case at p.153.

Neglect would have to be of a serious nature.

In Baster v London and County Printing Works (1899) 1 QB 901, Darling J said at p.903 -

"Neglect as often arises from forgetfulness as from anything else; and, if the forgetfulness is with respect to an important thing, it may well, in my view, be a good ground for dismissal of the servant without notice. I do not say that it would be a good ground for dismissal in every case ... but to forget to do a thing which, if not done, may cause considerable damage to the master, or his property, or to fellow servants, may be a serious neglect of duty." (Emphasis added).

In that case, the employee failed to properly adjust a machine, with the result that the machine, which was worth £800, was damaged, to a cost of £30. The court held that in those circumstances, there was evidence of negligence which would justify dismissal.

The main focus is on the seriousness of the negligence, and as a general proposition, this question does not depend upon the effect of the negligence.

In Savage v British India Steam Navigation Company Ltd (1930) 46 TLR 294, a valve on a vessel was opened and water flowed into the hole, damaging valuable Persian carpets. The captain and the chief officer were asked to resign, they refused and were dismissed. The valve in question was situated in a box, of which the Chief Officer Savage kept the key. At all relevant times, the box was locked, but it was established that it was possible to reach the valve even though the box was locked. How the valve came to be open was unknown. Wright J said, at p.295, when discussing the actions of the captain -

"Would that single lapse after many years of service justify the dismissal? An employer was entitled to dismiss a servant for a single act of misconduct or serious negligence. Determining the seriousness of an act of negligence, regard must be had, not to the consequences of the act, but to its nature." (Emphasis added).

His Lordship held that the captain was guilty of "gross negligence" and accordingly, was justifiably dismissed.

His Lordship's observation concerning consequences was appropriate in the circumstances of the case. The consequences of the negligent act could have been minimal, right up to catastrophic. However, in my respectful opinion, whilst the focus must be on the nature of the negligent act, the likely consequences of same are a relevant factor to consider, when considering the gravity of the negligent act.

That conclusion is supported by the case of Fillieul v Armstrong (1837) 7 Ad and El 557; [1837] EngR 1068; 112 ER 580, where a master delayed his return to school two days after the commencement of term. The business of the school was not thereby impeded, and was held not to justify summary dismissal.

In Re Rubel Bronze and Metal Co (1918) 1 KB 315, McCardie J described the negligence which would justify summary dismissal as "substantial negligence".

In my opinion, the plaintiff was not reckless in the performance of his work on the China project. There has been no suggestion that he did not perform his duties in supervising the project, ensuring its completion and making sure that the standard of finish was appropriate for a Division of the Brunswick Corporation. The negligence was that he failed to carry out an analysis earlier than he did, and alert the senior management that there would be a substantial costs overrun. I do not think he was reckless in failing to carry out the procedures required by the Capital Manual and in his responsibilities as project manager.

Equally, I am not persuaded by the defendant that the plaintiff was grossly negligent in performing his duties under his contract of employment.

When analysed, his negligence covered a period of at least five months, and maybe eight months. The effect of the negligence was, not that the defendant suffered any substantial damage as a result, but that senior management were not alerted earlier to the substantial costs overrun. The plaintiff was not to blame in any way for the final costs of the project. The costs would have been the same whether there had been a revision in July 1998, or in February 1999, to the approved budget.

Mr Dreyfus QC submitted that if the defendant had been alerted earlier, steps could have been taken to reduce the cost. But there is no evidence adduced by the defendant to that effect. Indeed, when it was apparent in early January 1999 that there would be a substantial costs overrun, there was no evidence placed before the court that any steps were taken to reduce the costs of the final construction. The deletion of the third floor of the club building had been discussed and considered early in the previous year, as were the proposed changes to the swimming pool. There were some changes to the swimming pool, which had some effect in reducing the costs. The third floor works did not proceed. Mr Dreyfus QC said that the failure by the plaintiff denied the defendant that opportunity of reducing costs. But there was no evidence as to what steps could have been taken. None were taken after 10 January, and the works were not completed until after the date of the opening at the end of March 1999.

In respect of the justification issue, the focus must be on the nature of the alleged negligent act, but the effect of the negligent act cannot be overlooked in determining the gravity of the negligent act. The reality is that, if the analysis had been done in August 1998, there would have been little to no reduction in the total cost of the construction. No evidence was called to suggest otherwise. Even if the actual effect is ignored, analysing the position in August 1998, the failure to alert the management at that stage to the costs overrun, would hardly lead to the conclusion that the negligence would result in considerable damage. If alerted, a revised A.R. would have been made.

Further, the plaintiff was permitted to remain with the defendant after 15 January for three and a half months, with an offer to stay for a further three months. The decision by his employer to permit him to remain for a period up to six and a half months reflects the view of the gravity of the offence by his employer. It could hardly be said in those circumstances that he was guilty of habitual negligence, or negligence which was calculated to seriously damage his employer's interests.

There is other evidence to support my finding that the plaintiff was not guilty of negligence which justified dismissal. There was no pattern of neglect by the plaintiff. There was evidence written by Mr Miller that, from time to time, the written policies of the Division were not strictly followed. This would lead the plaintiff into believing that the application for revision could be made later rather than earlier. The plaintiff had not been involved in a project of the type or nature that the Division was involved in, and neither had any other person then employed by the Division. The plaintiff had not been requested to do a cost analysis prior to January 1999. In the last quarter of 1998, it was clear that an application to revise the A.R. had to be made, because of the questions of inventory and expenses, and that the whole project had been delayed. In the latter part of 1998, the plaintiff was under considerable pressure, due to a whole host of reasons, to get the job completed on time and to deal with questions raised by Mr Schroeder.

In my opinion, the plaintiff was not guilty of negligence in the circumstances which justified his dismissal without notice.

The defendant has failed to prove that its dismissal of the plaintiff without giving him 12 months' notice was justified in the circumstances. Accordingly, the plaintiff is entitled to damages.

Condonation

As I have found that the plaintiff was not guilty of a breach of his contract of employment justifying dismissal without proper notice, it is unnecessary for me to determine the question whether the defendant condoned the breach of contract, thereby depriving it of its right to summarily terminate the contract. However, as this matter may go further, I propose to briefly consider and determine the question.

An employer who has full knowledge of the misconduct of an employee, and who makes a decision to continue to employ the employee, cannot at a later date, unless of course other facts come to his knowledge, dismiss him summarily on the basis of the employee's known misconduct. It is said that the employer has waived his right to dismiss the employee summarily, and thereby condones the misconduct.

In Phillips v Foxall (1872) LR 7 QB 666, Blackburn J said, at p.680 -

"Now the law gives the master the right to terminate the employment of a service on his discovering that the servant is guilty of fraud. He is not bound to dismiss him, and if he elects, after knowledge of the fraud, to continue him in his service, he cannot at any subsequent time dismiss him on account of that which he has waived or condoned. This right the master may use for his own protection."

It is noted that his Lordship used the words "elects", "waive" and "condone" as meaning the same thing. There has been much written in the past 100 years concerning those three expressions in the law, and it is not for me to add to the material, on what each word means and their application. It is clear that no such waiver, condonation or election can take place until the employer has full knowledge of the misconduct. Hence, it must follow that an employer would not be held to have condoned the wrongdoing, where he believed the employee's denial and subsequently found out the truth. See Federal Supply Co v Angehrn (1910) 103 LT 150 (PC).

In that case, the Privy Council said, at p.152 -

"The word 'condonation', though used in some of the authorities cited by most distinguished judges, is not quite happily chosen. In the cases of Phillips v Foxall and Boston Deep Sea Fishing and Ice Company, so much relied upon by the respondents, the word is used as applicable to a case where a master with full knowledge of a servant's misconduct continues to retain him in his, the master's, service. It is likened to the case of a man who, knowing he has a legal right to do either of two things, determines or elects to do one of them in preference to the other, and also likened to the case of a man who, knowing that a forfeiture has been worked, and that he has the legal right to take advantage of it, deliberately abandons that right - that is, waives the forfeiture. In these cases, however, to which 'condonation' is compared, the burden of proving that the election had been made or the forfeiture was waived would rest upon him who relied upon the one or the other, and so it is with condonation. The master must be fully aware that the servant has by his misconduct forfeited the right to be continued in his master's service, which is the correlative of the master's right to dismiss him, before he can be held to have waived that forfeiture." (Emphases added).

No effort was made by his Lordship to distinguish between the three concepts.

Consistent with the authorities, the plaintiff, who relies upon condonation in the present proceeding, would have to prove -

(i) that the employer had full knowledge of the employee's misconduct;
(ii) that with that knowledge, the employer retains the employee in his service;
(iii) that having made the election, he deliberately abandons his right to summarily dismiss the employee.

These are questions of fact.

Mr Tracey QC, in final address, identified the circumstances relied upon by the plaintiff as showing condonation, by reference to the fact that the plaintiff was given three and a half months' notice and permitted to remain in the service of the defendant and carry out his duties, albeit subject to closer supervision. It was submitted that in those circumstances, the defendant had elected to abandon its right to summarily dismiss the plaintiff and thereby deliberately abandoned that right.

As I have said, the question of election is a question of fact. In my opinion, the defendant did not elect to abandon its right to terminate the plaintiff's service without proper notice. On the contrary, it made it clear that it was terminating the plaintiff's employment for cause, that he was given three and a half months' notice to enable him to finalise the project of which he had intimate knowledge, and, as Mr Wiggill said, to give him the opportunity to obtain employment whilst holding down his job. None of that evidence leads to the conclusion that the defendant abandoned its right to summarily dismiss him without proper notice.

Mr Tracey QC submitted that the mere fact that the defendant allowed the plaintiff to continue for a period of three and a half months, showed that the defendant had elected to abandon its right to terminate without proper notice. In other words, if an employer has the right to dismiss summarily, the fact that the employer decides - and in this case with the consent of the employee - to permit the employee to remain for a certain period to perform certain duties amounts to an election to abandon a right. In my opinion, it does not.

My conclusion is to some extent supported by the Privy Council's decision in S.O.S. Kinderdorf International v Bittaye [1996] UKPC 11; (1996) 1 WLR 987. In that case, the employee made an unauthorised loan from the employer's funds to a friend. The employer learned from an accountant about the loan, and sent the employee on 120 days' leave at his request. When the period of leave expired, the employee did not return to his employment, nor did the latter ask him to do so. The Privy Council drew the inference that the employer dismissed the employee at the end of the 120 days' leave. There is no suggestion in the case that, by sending the plaintiff on 120 days paid leave, the employer had lost its right to dismiss the employee.

It follows that if the defendant had been entitled to dismiss the plaintiff on 15 January 1999 without proper notice, in the circumstances, it did not lose its right by giving him three and a half months' notice with an option to continue for a further three months.

Right to Entitlements

There is no dispute between the parties that the plaintiff on termination was entitled to be paid his entitlements in accordance with his contract of service and the law. The dispute between the parties during the trial was the method of calculation of those entitlements. The entitlements were accrued annual leave and long service leave.

In addition, the plaintiff claimed that he was entitled to a bonus which was claimed on a number of alternative bases. First, it was put that he was entitled, pursuant to his contract of employment, to be paid the bonus. Secondly, it was put that as part of his damages, he was entitled to recover damages for the lost chance to receive the bonus in the course of employment and finally, it was put in the alternative, that the defendant was in breach of the contract of employment in failing to procure the parent company, Brunswick Corporation, to pay the bonus.

As some parts of the claims overlap, it is convenient to consider all these claims under the heading of damages.

Damages

In considering the question of damages, it must be remembered that the plaintiff has the burden of establishing his damages, and that the damages flowed from the breach. The parent company, Brunswick Corporation, is not a party to the proceeding, and the defendant company is one of a number of companies that makes up the Mercury Marine Division of the Brunswick Corporation.

A. Damages for Inadequate Notice

There was no dispute between the parties as to the basis of calculating the damages payable to the plaintiff. The damages are to be calculated on the gross value of the plaintiff's salary package for the period in question, in this case, 12 months, less the three and a half months' payments made to the end of April 1999.

The most convenient course to adopt is to determine the daily amount of his salary package and allow that amount for 8.5 months, ie. the period from 1 May 1999 up to and including 14 January 2000, which is 259 days.

When the case was opened, Mr Tracey QC mentioned figures for 18 months and 12 months, and indicated that he believed there was no dispute as to the amounts. At no stage did Mr Dreyfus QC suggest that the figures were not appropriate. Whilst there is some doubt on the pleadings whether the defendant has in fact admitted the value of the package, although it has admitted the items that went to make up the package, in the way the case has been contested and the fact that Mr Dreyfus QC did not make any submission in final address that the package did not have a value of $203,021, I will calculate the damages on that amount which, when divided by 365, yields a daily amount of $556.22.

In final address, the plaintiff's counsel submitted that the value of the performance bonus shares and the Brunswick Corporation bonus scheme should also be added to the package, but in my opinion, they should not. It is clear from the pleadings that the defendant did not admit that it was obliged in any way to pay the bonus shares or reward scheme set up by the Brunswick Corporation, and in my opinion, they do not form part of the package.

It follows that the plaintiff is entitled to the sum of $144,061.47 by way of damages for inadequate notice.

B. Accrued Annual Leave

It was submitted that the plaintiff should be paid his accrued annual leave on the basis of his base salary and not the amount which was paid by way of pay roll, in other words excluding the amount set aside as sacrifice salary. It was put that accrued annual leave should be determined on the gross annual salary of $158,268 and not on the lesser sum as determined by the defendant.

It was conceded by plaintiff's counsel that if the plaintiff was entitled to 12 months' notice of termination and if the damages are calculated on at least the amount of his base salary, then he would be compensated for this loss by the assessment of damages. In other words, he would be compensated twice if an additional amount was allowed. It follows that he is not entitled to damages for this separate head.

In any event, in my opinion, he is not entitled to accrued annual leave on the basis of his total base salary because, in the two previous years, he had been paid his annual leave at a rate based upon the actual pay roll, excluding the salary sacrifice. His claim is based upon the terms of his contract of employment, and the terms of his contract of employment for the years 1997 and 1998 resulted in annual leave being calculated on the lesser sum.

C. Long Service Leave

On termination, the plaintiff was paid his long service leave based upon his pay roll salary, excluding the salary sacrifice. The case was fought on the basis that his long service leave payments should have been calculated on his base salary of $158,268 and not the lesser sum, as was the case.

In final address, it was submitted that his long service leave calculation should be based upon the value of his total package, which was put as somewhere in the vicinity of $203,021. Mr Dreyfus QC justifiably objected, at this late stage, to that course being adopted as it was never put in the course of the case, nor was it pleaded. Not only did the statement of claim seek payment on the base salary, but so did the further and better particulars of the plaintiff's statement of claim.

After some discussion, Mr Tracey QC did not press his application to amend the claim to claim an amount based on the total package. I made it clear, in the course of submissions, that I thought the defendant would be prejudiced by an amendment because the issue had never been raised in the course of the trial.

It follows that the issue between the parties is whether the long service leave should have been determined on his base salary, or whether it should have been calculated on his pay roll amount, ignoring the amount of sacrificed salary.

It was pleaded by the plaintiff that the contract provided that upon termination, he would be paid all outstanding accrued entitlements, and the defendant admitted that that was a term of the agreement.

In support of his claim for long service leave entitlements, the plaintiff prayed in aid the provisions of the Long Service Leave Act 1992.

It was submitted, on behalf of the defendant, that the statutory provisions are not imported into the contract of employment and accordingly, the plaintiff is not entitled to rely upon his contract of employment to recover the amount of the long service leave. It was submitted that it was clear that the contract of employment contained a term to the effect that the long service leave would be calculated on the basis of salary only. Reference was made to the High Court decision of Byrne v Australian Airlines [1995] HCA 24; (1995) 185 CLR 410 at 422-3 and 440-446, but in my opinion, what the judges said at those pages do not exclude the proposition that an employee may rely upon the statute law to recover his entitlements.

The purpose of the Act is set out in s.1, and that is to "make provision with respect to the long service leave entitlements of certain employees".

Under s.56 of the Act, an employee is entitled to a certain number of weeks of long service leave "on ordinary pay on completing 15 years of continuous employment with the one employer". Clearly, the plaintiff is an employee within the meaning of s.58 of the Act, and the defendant is the employer.

Under s.79, any provision in any employment agreement that "varies ... any provision of this division is of no effect, regardless of when the agreement was made." In my opinion, the plaintiff is entitled to an amount calculated in accordance with s.56 of the Act, and the question is what constitutes "ordinary pay" within the meaning of that section. Further, whilst the evidence did establish that his annual leave was calculated on the basis of his pay roll amount, excluding the sacrifice amount, the plaintiff did not agree to the suggestion that it also applied to his long service entitlement. I am not persuaded that the evidence established, in relation to long service entitlements, that it was a term of the agreement that the amount would be calculated on the pay roll amount, excluding the incentive salary.

I am satisfied that, under his contract of employment, he was entitled to long service leave entitlements, which were to be calculated in accordance with the Act. This comes back to the question posed above, what does "ordinary pay" mean in s.56 of the Act?

Section 64 defines ordinary pay. Sub-section (1) provides -

"For the purposes of this division, 'ordinary pay' means the pay an employee is entitled to receive at the time he or she takes long service leave for working his or her normal weekly hours at his or her ordinary time rate of pay."

In my opinion, the plaintiff was entitled to be paid at the time he would have taken the long service leave based upon his total pay, that is, the pay roll amount together with the amount of the sacrifice. The total base salary was in fact his pay. It follows that, in my opinion, he is entitled to have his long service leave entitlements calculated on the base amount.

The plaintiff gave evidence as to the calculation that had been made on termination, and what was a proper calculation. He pointed out that there had been an error made by the defendant in relation to an employee incentive account, which meant that he was overpaid in respect to that account. There was no contest in relation to these matters. It follows that, in my opinion, the plaintiff is entitled to an amount of $12,775.44, being the amount of the underpayment of $22,203.66 less the amount of the overpayment of $9,428.22.

D. Rewards Scheme Bonus

The Brunswick Corporation operated what was known as a Great Rewards Programme. Of the 24,000 employees around the world, approximately 400 were nominated to participate in the plan. The criteria for receiving the bonus, according to the plaintiff, was very much geared towards divisional performance, and there were predetermined objectives to be achieved for the financial year, which was the calendar year. Hence, the local business unit operated by the defendant in the Australian and Asia Pacific region had to achieve certain objectives, and if they were, then the managers under the programme would be paid a bonus.

The plaintiff was invited to join the programme in 1994, and did in the past receive rewards in the form of bonuses for the years 1996 and 1997. The plaintiff gave evidence that the objectives contained in the programme for the year 1998 had been achieved by the AAP business unit. The plaintiff was not paid any bonus for the year 1998.

On 19 October 1998, the plaintiff received from Mr Larson, the Chief Executive of the Brunswick Corporation, a letter informing him that he was a participant in the Rewards Programme for the year 1998.

The penultimate paragraph of the letter stated -

"I would like to take this opportunity to review your participation level in the 'Great Rewards' incentive compensation programme. Your participation in this programme is based on your contributions which can significantly influence our success. The attached schedule summarises your participation level in the programme."

The attached set out the purpose of the plan, the performance measures, and the plaintiff's likely entitlement, based on his salary in US dollars, which came to US$34,958 for the year 1998. It was noted also in that document the following -

"This plan is based upon the results of your business and your contributions directly impact your potential pay out under this plan. Your participation in this plan is shown in the table above." (Emphasis added).

Against the heading "payment", appeared the following -

"Bonus payments will be made after the year-end financial results have been reviewed and certified by Arthur Andersen LLP. Proposed bonus payments to the senior executives will be reviewed and approved by the Human Resources and Compensation Committee." (Emphasis added).

The evidence established that other participants in the rewards scheme were paid for the year 1998. The plaintiff did not receive a bonus for the year 1998, and was not told why he did not get it. However, he did raise the question with Mr Wiggill in February, and was told that he was not entitled to a bonus because his employment had been terminated.

The Human Resources and Compensation Committee was a committee set up and conducted by the Brunswick Corporation.

The evidence established that the process of deciding who should receive a bonus was determined in January or February following the previous year. The procedure involved Mr Wiggill making a recommendation, which was then considered by the Committee of the Brunswick Corporation. Mr Wiggill made a decision not to recommend that the plaintiff receive the bonus because of the plaintiff's conduct, in allowing an overrun of the costs and failing to alert the senior management to the additional costs.

As I have stated earlier, this part of the case was put on three bases.

The first was that the plaintiff was entitled to receive the sum from the defendant, pursuant to his contract of employment. In my opinion, it was clear that it was a bonus scheme set up by the parent company, the Brunswick Corporation, and was subject to a decision being made by that Corporation to pay the amount. The Corporation did not make a decision to pay the amount. It was not a party to the proceeding. There is no contractual basis entitling the plaintiff to payment by the defendant.

The second way the case was put was that it is part of the damages that flow from the termination of the plaintiff's employment without reasonable notice.

If an employee is dismissed without reasonable notice, then he does have a remedy in damages "against the master for breach of the contract to continue the relationship for the contractual period. He gets damages for the time he would have served if he had been given proper notice, less, of course, anything he has, or ought to have earned, in alternative employment." Per Lord Denning MR in Hill v C.A. Parsons Ltd (1972) Ch 305 at 314.

The normal principles for the assessment of damages in a breach of contract case apply. The general rule is that stated by Lord Blackburn in Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 at 39, where his Lordship defined the measure of damages as -

"That sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been if he had not sustained the wrong for which he is now getting his compensation or reparation."

The question is, if the plaintiff had been permitted to continue his employment for the year 1999, would he have received his bonus for 1998? The standard of proof is on the balance of probabilities. In my opinion, the scheme was clearly discretionary and dependent upon a decision being made by the Brunswick Corporation. The procedure involved Mr Wiggill making a recommendation. He did not do so. He did not do so because, in his opinion, the plaintiff had committed serious breaches of his contract of employment, and in those circumstances, he should not receive the payment under the scheme. In my opinion, if the plaintiff had been given proper notice and had remained in his employment for the year 1999, the defendant was under no obligation to require the Brunswick Corporation to make the payment, and was not obliged itself to pay him the bonus under the contract. The failure to receive the bonus was not a loss which flowed from the failure to give proper notice.

In the Court of Appeal decision of Lavarack v Woods of Colchester Ltd [1966] EWCA Civ 4; (1967) 1 QB 278, the court held that damages for wrongful dismissal could not confer, on an employee, extra benefits which the contract did not oblige the employer to confer, even though the employee might reasonably have expected his employer to confer them on him in due course.

The plaintiff's contract did not oblige the defendant to pay him the bonus. Further, in my opinion, the plaintiff did not lose any opportunity to obtain a bonus because it was a matter for the Brunswick Corporation. The evidence was silent as to what the Corporation did. The inference is that it declined. In my opinion, the wrongful dismissal did not deprive him of the opportunity to obtain a bonus. The bonus was not paid because first, a recommendation was not made by Mr Wiggill that he should be paid, and secondly, the Brunswick Corporation did not decide that he should be paid. They were the causes of the lost opportunity, and not the wrongful dismissal.

The final way the claim was put is found in the Reply of the plaintiff. As a general rule, it is not possible to make a claim in a Reply. The claim should be in the statement of claim. However, no objection was made. Indeed, objection could not have been made to any amendment of the statement of claim, because the defendant did have notice of how the plaintiff sought payment of the bonus, based upon an alleged breach by the defendant to procure the payment.

In paragraph 9 of the Amended Defence, the defendant stated that "the payment of bonus (was) wholly at the discretion of Brunswick Corporation."

In Reply, the plaintiff asserted in paragraph 4 -

"In reply to paragraph 9 the plaintiff says that if the terms of the remuneration package were as alleged then, in breach of its duty under the contract, the defendant, in the circumstances of the plaintiff's performance as set out in paragraph 2 hereof, has failed to act with trust and confidence to procure Brunswick Corporation to issue bonus shares and make a payment under the said terms of his remuneration package."

The reference to paragraph 2 of the Reply is an assertion that the plaintiff had, in carrying out his duties in relation to the China project, acted conscientiously.

In order to make good this claim, it would be necessary for the plaintiff to prove that under the terms of his contract of employment with the defendant, there was a duty to procure Brunswick Corporation to make the payment under the Reward Scheme. In my opinion, there was no such duty. It is correct that the defendant was under a duty to maintain a relationship of trust and confidence in the performance of the contract of employment, but that did not require Mr Wiggill in the circumstances to put forward a recommendation that the plaintiff should be paid the amount under the reward scheme. The defendant and senior personnel in the Division were of the view that the plaintiff had seriously breached his duty to his employer. In my opinion, the defendant was obliged, pursuant to the contract of employment, to act honestly and fairly, and this obligation meant that it should perform its obligations under the Rewards Scheme in that manner. This required Mr Wiggill to give consideration to making a recommendation. This he did. There is no evidence of wrongdoing on this part.

Indeed, if Mr Wiggill had made a recommendation, I have no doubt in the light of the correspondence that came from Mr Buckley, head of the Mercury Marine Division, that he would have refused to put the recommendation forward to the Brunswick Corporation. Mr Wiggill and Mr Buckley were of the opinion, in January 1999, that the plaintiff had committed breaches of his contract, that they were of a serious nature and that in the circumstances, he was not entitled to any bpmis imder the Reward Scheme. In my opinion, the said employees were quite entitled to adopt that stand and refuse to put forward his name. In my opinion, there was no breach of any duty owed by the defendant to the plaintiff in respect of that failure.

It follows that the claim for the bonus under the Rewards Scheme fails.

Conclusion

The plaintiff is entitled to a judgment of $156,836.91, being the damages for the failure to give him proper notice, together with the sum of $12,775.44 for long service leave entitlements. I will hear the parties on the questions of interest and costs.

Authorities Cited8

Referred to (8)