Automatic Fire Sprinklers Pty Ltd v Watson
[1946] ALR 390(Judgment by: Latham CJ)
Automatic Fire Sprinklers Pty Ltd
vWatson
Judges:
Latham CJRich J
Starke J
Dixon J
McTiernan J
Williams J
Legislative References:
Arbitration Act 1902 (NSW) - s 9(a); The Act
National Security Act 1939-1943 - s 10
Judgment date: 23 August 1946
Sydney
Judgment by:
Latham CJ
This is an appeal from a decision of the Full Court of the Supreme Court of New South Wales upon a case stated by an arbitrator under the Arbitration Act 1902 (N.S.W.) in an arbitration between G. J. M. Watson and two companies, Automatic Fire Sprinklers Pty. Ltd. and Independent Industrial Investments Pty. Ltd. Watson was employed by the companies as general manager under an agreement under seal dated 12th October 1938 which contained an arbitration clause. The agreement provided that after a term of six years had expired Watson could be dismissed upon three months' notice. The companies gave a notice of dismissal which was a day short of the three months' period and which was, therefore, ineffective to exercise the power of dismissal given by the contract. The contract also provided that if, in the opinion of the directors of the Automatic Fire Sprinklers Co., Watson should become unfit to act as general manager of the company, the directors might in their discretion determine the agreement by giving one month's written notice of termination or paying one month's salary in lieu of notice. The agreement provided that thereupon the agreement should be determined, but without prejudice to any existing rights of the parties. The directors of the Automatic Fire Sprinklers Co. passed a resolution declaring that they were of the opinion mentioned in the agreement and on 29th September 1944 gave him one month's notice of dismissal. Differences between the parties were referred to arbitration, the arbitrator found the facts as already stated, and further found that the directors of the company were not at any material time really of the opinion that Watson had become unfit to act as general manager. Therefore the dismissal of Watson on 29th September 1944, if a dismissal, was a wrongful dismissal.
The position was complicated by the fact that the business of each of the companies was a protected undertaking, and was therefore subject to the provisions of the National Security (Man Power) Regulations. Regulation 14 (1) of those Regulations provided that an employer carrying on a protected undertaking should not, except with the permission in writing of the Director-General or of a person authorized by him, terminate the employment in the undertaking of any person employed therein, and reg. 14 (2) provided that a person employed in a protected undertaking should not, without permission, change or terminate his employment. These regulations were in force on 29th September 1944, and the company made an effort to comply with them by stating in a letter sent to Watson informing him of his dismissal from the position of general manager that the determination of the agreement did not terminate his employment with the company, and that until further notice his position and duties in the companies would be New South Wales manager at a salary of £10 a week. The directors further informed Watson that it had been decided to give him six months' leave of absence.
The arbitrator found as a fact that Watson did not accept this dismissal as putting an end to the contract of employment and that he continued to offer his services as general manager. He attended the office of the companies and was ready and willing to perform the duties of general manager "and did perform some of the work previously done by him as general manager and maintained the attitude that his employment as general manager was still subsisting." The companies, on the other hand, "maintained the attitude that Watson's employment as general manager had been determined on the 29th September, 1944." The companies were willing to pay Watson a salary of £10 a week, but he declined to accept that salary, and in fact received no payment from the companies after September 1944.
On 19th September 1945, after the companies had ceased to be protected undertakings (so that the man power regulations were no longer applicable), Watson was excluded by the companies from their office, and the arbitrator found that on that date he was wrongfully dismissed from his employment as general manager under the agreement if that employment had not been terminated on 29th September 1944. The arbitrator stated his award in the form of a special case in which he submitted the following questions for the opinion of the court:-
"(1) Whether, on the facts as found by me, the purported dismissal of Watson by the companies on 29th September 1944 was ineffectual in law to terminate Watson's employment as general manager, by reason of: (a) reg. 14 of the National Security (Man Power) Regulations, or (b) Watson's non-acceptance of the purported dismissal as termination of his employment.
(2) If question 1 be answered: (a) No, (b) No, whether the measure of the damages to which Watson is entitled by reason of his wrongful dismissal on 29th September 1944 is limited, having regard to the facts stated in pars 7 to 16 inclusive of this case, to an amount equal to the remuneration he would have earned by the continuance of his employment for one additional day."
The Full Court answered questions 1 (a) and (b) in the affirmative. Paragraph 26 of the award states that if questions 1 (a) and 1 (b) are answered in the affirmative the arbitrator awards (1) that Watson is no longer the general manager of the companies; (2) that he ceased to be general manager on 19th September 1945 and was not thereafter employed in any capacity by either company; and (3) that the following amounts were due to Watson by the companies:-"(a) for salary, £830; (b) for other remuneration (including commission and expenses), £630; (c) for damages, £350"-a total of £1,810.
In the reasons for judgment of the Full Court emphasis is placed upon the well-established rule that a contract cannot be brought to an end by breach by one party or by unilateral repudiation of its obligations. The contract continues in existence notwithstanding such breach or repudiation unless the other party accepts the breach or repudiation as discharging the contract and the breach or repudiation is of such a character as to entitle him to do so. The Full Court has applied this principle in the following way: the contract of employment was not terminated by the wrongful dismissal of Watson on 29th September 1944, which was a unilateral repudiation of the contract by the employers; the contract continued in existence unimpaired; the servant, Watson, was always ready and willing to perform his contract, and therefore was entitled to his salary until 19th September 1945, when he claimed damages for wrongful dismissal (to which he was entitled) and so did then (but not before) treat the contract as discharged.
The Full Court further held that the National Security (Man Power) Regulations made it impossible in law for the employer to terminate the employment of the servant without the specified permission, which permission was never given, with the result that the employment, by reason of the Regulations, continued until 19th September 1945, when Watson was effectively, though wrongfully, dismissed.
On the first point the learned Chief Justice, with whom Street and Maxwell JJ. agreed, said (1): "The statement in Smith's Leading Cases, 11th ed. (1903), vol. II., p. 48, repeated by Higgins J. in Williamson v. The Commonwealth (2), that a servant who has been wrongfully dismissed cannot wait till determination of the period for which he was hired and then sue for the whole of his wages cannot be supported as a general proposition. It is correct only in cases in which, by the contract of employment, the actual doing of work is made a condition precedent to the right to wages."
The result of the decision of the Full Court is that Watson receives his full salary and other payments under the contract from 29th September 1944 to 19th September 1945, though there is no finding that he performed the duties of the position to which that salary and remuneration were attached; and, further, that he receives damages for wrongful dismissal upon the basis that he is entitled to three months' notice, which he did not receive when he was finally dismissed on 19th September 1945.
The wrongful dismissal of a servant is sometimes described as a repudiation of the contract of employment, as, for example, in In re Rubel Bronze and Metal Co. Ltd. v. Vos(1). "Repudiation" is a very ambiguous term, as is pointed out in Heyman v. Darwins Ltd.(2), where Lord Wright mentions six senses in which the term is used. Where, however, a servant is wrongfully prevented by his employer from performing the work which he was employed to do, there is, in my opinion, an actual breach of the contract, and not merely a statement of intention by the other party that he will not perform the contract. Such a breach goes to the root of the contract and entitles the other party to elect to treat the contract as discharged. Neither repudiation nor an actual breach in itself brings about a discharge of the contract independently of such acceptance: Heyman v. Darwins Ltd.(3). The servant need not accept a wrongful dismissal as discharging the contract. Generally, however, it would be immaterial whether he did so or not, because his rights and remedies would, in view of the special nature of contracts of personal service, be the same in either case.
But it might be important to him to accept the breach as discharging the contract in some cases in order to relieve himself of obligations by which he would otherwise be bound as, for example, a covenant in restraint of trade (see General Billposting Co. Ltd. v. Atkinson(4)). Again, where a servant is bound by a contract the terms of which are such that he is not entitled to claim any remuneration unless he serves for a specified period, and his employer wrongfully dismisses him before he has become entitled to be paid his wages, he is not entitled to any remuneration under the special contract because he has not earned it in accordance with its terms. He may claim on a quantum meruit for the value of the work which he has done in the broken period, but he can do this only if the special contract is no longer open, and therefore if he has exercised his right to accept the breach or repudiation by the master as discharging the contract: See Cutter v. Powell(5), Smith's Leading Cases, 13th ed. (1929), vol. II., p. 49, and the notes thereto (Lilley v. Elwin(6)).
But if a dismissed servant, as in the present case, does not accept his dismissal as a breach entitling him to regard the contract as discharged, he cannot ignore the wrongful dismissal and claim still to be the servant of his employer with the rights of a servant. The dismissal, though wrongful, is not a nullity. That this is the case is recognized to some extent in the judgment of the learned Chief Justice in the Full Court, where his Honour says (1) that, except where authority has been given of so special a kind as to be irrevocable, "there is nothing to prevent the employer from, effectively though wrongfully, withdrawing from the employee the legal right to act on his behalf in any respect." Thus the wrongful dismissal determines the relationship of master and servant created by the contract, even though the servant may not have accepted his dismissal as entitling him to regard the contract as discharged. Any other view would in effect grant specific performance of a contract of personal service, a remedy which the courts have always refused in such a case (see Lucy v. The Commonwealth(2), per Knox C.J.)
Therefore if an employer wrongfully dismisses a servant and persists in refusing to allow him to do the work for which his contract of employment provides, the position is that the only remedies which the servant has (apart from electing to regard the contract as discharged, and thereby releasing himself from any obligations of the contract, and, if he chooses, suing upon a quantum meruit where he has done work for which he has not been paid) are (1) an action for the enforcement of any rights which have accrued under the contract, e.g. for wages earned in accordance with the terms of the contract but not paid, and (2) an action for wrongful dismissal. There is authority that when he sues for wrongful dismissal an allowance may be included in the damages awarded which might, if the servant had so elected, have been recovered upon a quantum meruit upon an indebitatus count: Goodman v. Pocock(3).
In Williamson v. The Commonwealth(4), Higgins J. said: "There was for some time an impression that a servant could wait until the end of his term, doing nothing, but remaining ready and willing to work; and then sue for his wages for the balance of the term. This view seemed to rest on the theory of a status in the servant, such as could not be affected by a wrongful act; but the view has long since been exploded: 2 Sm. L.C., 11th ed. (1903), p. 48; Goodman v. Pocock(3)."
The law was stated in the same terms in Lucy v. The Commonwealth(5).
With respect therefore I do not agree that the statements quoted in the reasons for judgment of the Supreme Court from Smith's Leading Cases, 11th ed. (1903), vol. II, p. 48, and Williamson v. The Commonwealth(1) cannot be supported as a general proposition. The general rule is, in my opinion, as there stated, namely that a servant who has been wrongfully dismissed cannot wait until the determination of the period for which he was hired and then sue for the whole of his wages. It is only in an exceptional case, where the payment of money to the servant does not depend upon his doing work, that the servant can recover remuneration without doing work. He cannot remain idle, even though he truly alleges readiness and willingness to do the work, and claim wages or salary as if he had done the work. The rule that a dismissed servant is bound to mitigate his damages by obtaining other suitable employment, if available, is inconsistent with the view that he is entitled to do nothing and to sue for his full wages as if he had earned them. The duty to mitigate damages has never been held to depend upon whether the servant had accepted a breach or a repudiation of a contract as entitling him to regard the contract as at an end and upon his exercising this right. The respondent did not argue in this Court that at common law the dismissed servant remained the servant of the employer against the employer's will.
An agreement may amount to an agreement for an annuity or other periodical payment with an independent promise by the beneficiary to do work for the other party to the agreement, but the ordinary contract of employment is not of that character. The general rule with respect to contracts of employment was stated in Browning v. Crumlin Valley Collieries Ltd.(2), by Greer J. in the following words "The consideration for work is wages, and the consideration for wages is work." In O'Grady v. M. Saper Ltd.(3), MacKinnon L.J. in the Court of Appeal said: "It was rightly said ... by Atkinson J. (Petrie v. Mac Fisheries Ltd.(4)), 'The question must depend, as is indicated in the notes to Cutter v. Powell(5) (Smith's Leading Cases, 13th ed. (1929), vol. 11, p. 49), on the terms of the contract. "The right to wages depends upon whether the consideration therefor has been performed." It is submitted in the notes to that case, as I think rightly, that it must be ascertained from the contract whether the consideration for the payment of wages is the actual performance of the work, or whether the mere readiness and willingness, if of ability to do so, is the consideration."'
In the present case the contract between the parties (clause 5) provides for the payment of salary, expenses, bonuses and commission "as consideration for his" (Watson's) "services and for the faithful observance and performance of the terms and conditions of these presents by him to be observed and performed." It is therefore, I think, clear in the present case that Watson was not entitled to salary and other payments under the contract unless he did the work of general manager for which the contract provided. An attempt was made in this Court to argue that the arbitrator had found that he had in fact performed the work of general manager. If the arbitrator had meant so to find, it would have been very easy indeed to state the finding in unambiguous and unequivocal language. I have already referred to the findings of the arbitrator that Watson maintained that he was still general manager, that the company maintained the attitude that he was not general manager, but that he did some of the work which the general manager had previously done. In my opinion it would not be reasonable to interpret this statement as meaning that the arbitrator found that Watson had performed the duties of general manager of the companies up to 19th September 1945. Accordingly, in my opinion, in this case there can be no valid claim at common law for salary after 29th September 1944, because Watson did not do the work of general manager.
The first question submitted in the case stated asks whether on the facts as found by the arbitrator "the purported dismissal of Watson by the said companies on 29th September 1944 was ineffectual in law to terminate Watson's employment as general manager by reason of- ... (b) Watson's non-acceptance of the said purported dismissal as termination of his said employment." In my opinion, for the reasons which I have stated, this part of question (1) should be answered in the negative.
Question 1 (a) asks whether the purported dismissal was ineffectual by reason of reg. 14 of the National Security (Man Power) Regulations. This regulation provides-"An employer carrying on a protected undertaking ... shall not except with the permission in writing of the Director-General or a person authorized by him-(a) terminate the employment in the undertaking of any person employed therein." The National Security Act 1939-1943, s. 10, provides that a contravention of a regulation under the Act shall be an offence against the Act. The argument on behalf of the respondent is that the dismissal of any person in breach of the Regulations is a nullity, that is, that Watson simply could not be dismissed, and therefore never was dismissed, and accordingly still held his position as general manager until 19th September 1945, when the Regulations had ceased to operate. It was argued that if a statute prohibits the making of a contract the result is that the prohibited contract cannot be made-it would be void if persons attempted to make it. By analogy it is said that if the law prohibits the termination of an employment the result is that the employment cannot be terminated. It is true that a prohibition of the making of a contract has the result that any pretended contract in breach of the law would be void. As was said in Roach v. Bickle(1), "Where a Statute prohibits a transaction either expressly or by implication, no such transaction can be validly created." I call particular attention to the word "validly." But the fact that a statute prohibits the doing of an act under a penalty does not show that the act cannot be done.
In Cope v. Rowlands(2), Parke B. said: "It is perfectly settled, that where the contract which the plaintiff seeks to enforce, be it express or implied, is expressly or by implication forbidden by the common or statute law, no court will lend its assistance to give it effect."
It is only in this way that operation can be given to such a law. In that case the statute imposed a penalty upon brokers acting as such in the City of London without a licence. Brokers who had no licence sued for work and labour done as brokers within the City of London. It was held that they could not recover. But it could not be suggested that they had not done the work.
In the present case the regulation imposed a penalty upon the act of terminating the employment of an employee in certain circumstances. It would, in my opinion, be attributing a strange intention to the legislature to hold that the effect of penalizing an act was that it was impossible for any person to do the act which was penalized. The result of so holding would be that no person could ever be convicted for a breach of the regulation because he could say: "The act alleged against me is prohibited. It is true that I have purported to do it, but I was incapable of doing it. What I did was a nullity and therefore I did not terminate the employment and I cannot be convicted." An employer terminates the employment of a servant when he dismisses him, though, as I say hereafter, such a dismissal does not put an end to the contract between the parties. An argument that a dismissal because wrongful was a nullity was raised and rejected in both Williamson's Case(3) and Lucy's Case (4).
The meaning of the regulation, in my opinion, is that the employment cannot lawfully be terminated. If it is terminated unlawfully, certain criminal and civil consequences ensue. But even if the regulation means that what purports to be a dismissal is a complete nullity, so that it must be taken never to have happened, it still does not follow that the servant is entitled to wages without working. Let it be supposed that the dismissal never took place. The contract of employment is, upon any view, still in existence. But if, under the contract, wages cannot be earned without work, the continued existence of the contract cannot entitle the servant to wages without work.
It might have been provided in the regulation that the employment of a servant should continue in certain circumstances, notwithstanding any act of the employer which would, had the regulation not been passed, have been a dismissal and that, notwithstanding any such act, the servant should be entitled to his wages, or some other payment. There was a provision of this character in the order considered in the case of George v. Mitchell & King Ltd.(1), upon which the plaintiff relied very strongly. In that case the Court considered an Essential Work Order which provided that in certain undertakings employers should not terminate the employment of specified persons, except for serious misconduct, without the permission of a national service officer, and that a specified person should not leave his employment without such permission. In these particulars the order (except for the reference therein to serious misconduct) corresponded with reg. 14 of the Man Power Regulations. But the order also contained a provision entitling a specified person to payment by his employer if he was capable of and available for work. A specified person was dismissed by his employer without the permission of a national service officer. The dismissed employee remained available for service for a period and was paid for a time in accordance with the order, though he did no work. Then the employer stopped payments to him and, after a second period, during which he remained available for work, he took other employment. He was held to be entitled to payment in respect of the second period but not in respect of the period after he accepted other employment. So far the decision is plain enough and creates no difficulties and gives no assistance in the present case. The servant was held to be entitled to payments in accordance with the express terms of the order for the period during which he was available for work. But the case is relied upon as establishing that under such a provision as reg. 14 the employer is incapable (lawfully or unlawfully) of terminating the employment of a servant. The argument then proceeds-the contract between the parties continues to exist and the servant is therefore entitled to wages. In my opinion the case cited (1) should, for reasons which I proceed to state, not be regarded as an authority leading to or supporting the final conclusion.
The order which was under consideration in George v. Mitchell & King Ltd.(1) provided that an employer should in respect of every prescribed period (in the case in question every week) pay to every specified person (the plaintiff in the action was such a person) a sum which was not less than the normal wage for the prescribed period if that person was during the normal working hours capable of and available for work and willing to perform other reasonable services if his usual work was not available. Thus there was an express provision entitling the servant, not to wages, but to "a sum not less than normal wages." The actual decision of the court was only that, so long as the plaintiff was available for work, he was entitled to the payment of this sum.
But the respondent relies upon the following statement of Scott L.J.:-"The rights of the parties to dissolve their contract are not annulled; they are only subjected to conditions of written leave from the national service officer, and to the condition-or express reminder-that without such leave the obligation of the employer to go on paying 'the normal wage' will continue as long as both the employed person and his proper work continue to be 'available,' within the meaning of the Order"(2).
The obligation of the employer to pay, not "the normal wage" as stated, but "a sum which is not less than the normal wage," to which reference is here made, is plainly an obligation depending upon the express provision in the order that such a sum is to be paid if the employee is "available." There is no such provision in reg. 14. Goddard L.J. said: "If a statute says that a person shall not terminate a contract except with the permission of a third person, in my opinion it follows that he is incapable of terminating it without that permission. If he refuses to employ the person he commits an offence, but the contract is not terminated. I cannot see that there is any difference between saying a person shall not terminate an employment and an employment shall not be terminated. If the employment cannot be terminated, it remains in force with all its consequences; the employed person remains in the service, and consequently has a right to his wages, and it is only fair that he should have this right as he cannot enter employment elsewhere unless and until he gets permission of the national service officer"(3).
I agree that the contract cannot be terminated by a wrongful unilateral act, and that neither the employer nor the employee could lawfully terminate it without the necessary official consent, and that the regulation gave to a specified person who remained available & c. a right to be paid a sum of money. But I do not agree that the learned Lord Justice should be regarded as laying down as a rule of law that the fact that a contract of employment is not lawfully terminated gives the servant a right to wages whether or not he does any work. It was the express and very special provision of the regulation, and not the mere continuance in existence of the contract, which gave the right to the sum which is referred to, not with complete accuracy, as "wages."
The court held that the contract of employment was not brought to an end by the dismissal of the employee. This statement does no more than repeat the principle to which reference has already been made-that one party to a contract cannot by a wrongful unilateral act bring the contract to an end. If an employer wrongfully dismisses a servant he breaks, but does not terminate, the contract, whether or not such a provision as reg. 14 is applicable. In my opinion George v. Mitchell & King Ltd.(1) does not assist the argument of the respondent.
The respondent also relied upon the case of Adrema Ltd. v. Jenkinson(2), a decision of a Divisional Court upon a provision in an Essential Work Order prohibiting the termination of employment in scheduled undertakings except with the permission in writing of the national service officer. The only point decided in the case was that a change in the work to be done by a woman within the scope of her employment was not a termination of her employment.
The dismissal of an employee in a protected undertaking may be wrongful either because it is a breach of the contract of employment (e.g. because insufficient notice has been given or because there is no good cause for dismissal) or because the necessary permission of the Director-General or some other authorized person has not been obtained. In either case, in my opinion, the employee has his ordinary civil remedies. If he sues upon the contract for damages for wrongful dismissal it would not be a good defence for the employer to say that he had not dismissed him because he was incapable of dismissing him. The regulation should not, in my opinion, be read as depriving the employee of his right of action by making any dismissal (lawful or wrongful) impossible. Even if the permission of the proper officer for dismissal were given, the employee would still, in my opinion, have the right to sue for wrongful dismissal if the dismissal was wrongful under the terms of his contract. But if the permission of the officer is not given the dismissal is necessarily wrongful and the employee has all his civil rights according to his contract which, I entirely agree, is not terminated in the sense of "discharged" so as to be at an end, and the employer is also liable to a penalty. But none of these considerations displace the general rule that the servant cannot recover wages or salary unless he does the work for which wages or salary are the reward.
Of course the position would have been different if the Regulations included a provision for the payment of wages notwithstanding dismissal or of a sum equivalent to wages-as in the case considered in George v. Mitchell & King Ltd. (1). The Man Power Regulations do not ignore this kind of problem, but they make only a limited provision for solving it. Thus reg. 14 (3A) provides for cases of persons "stood down or suspended from duty otherwise than in pursuance of reg. 16A." On resuming duty they are entitled to be paid "remuneration as if they had performed their duties." Regulation 16A contains elaborate provisions relating to suspension for serious misconduct. The employer must report the grounds of suspension to the Director-General or other authorized person and the Director-General or such person or a Local Appeal Board may direct reinstatement with payment of wages for the period of suspension. These provisions were not applicable in the present case because there was no suggestion of serious misconduct or of suspension therefor. They are, however, important as showing that in that case, as in the case of suspension followed by resumption of duty (reg. 14 (3A), express provision has been made for payment of wages irrespective of the performance of work. In the case of a termination of employment which is wrongful and punishable as an offence by reason of reg. 14 (1), there is a conspicuous absence of any such provision and, in my opinion, there is no reason for implying it.
For these reasons I am of opinion that the question whether the purported dismissal of Watson on 29th September 1944 was ineffectual to terminate his employment by reason of reg. 14 of the Man Power Regulations should also be answered in the negative.
The second question enquires as to the measure of damages. It was argued for the appellant that as Watson was on 29th September 1944, being entitled to three months' notice, given only one day less than three months' notice, he was entitled to damages only in respect of one day. In my opinion there is no substance in this contention. Watson was entitled to three months' notice. Any less notice was ineffectual under the contract and did not affect his rights in any particular. He was therefore entitled to a full three months' notice and to damages upon the basis that he did not receive such notice. In my opinion the second question should be answered in the negative.
Upon the basis of the answers which in my opinion should be given to the questions, the result would be that the award of the arbitrator should be for an amount of £354 13s., as set out in par. 27 of the case stated.
In my opinion the appeal should be allowed and the order of the Full Court varied by declaring that all the questions asked should be answered in the negative.