WESTERN AUSTRALIAN INDUSTRIAL APPEAL COURT CORAM: KENNEDY J (Presiding Judge) ANDERSON J PARKER J Delivered: 7 October 1998 FILE NO/S: APPEAL IAC 2 of 1998 APPEAL IAC 7 of 1998 BETWEEN: MICHAEL WILLIAM HART Appellant (Applicant) and ROBOWASH PTY LTD Respondent (Respondent) JUDGMENT— KENNEDY J (Presiding Judge)— I would ask Parker J to deliver the first judgment. PARKER J— For reasons which I now publish, I would allow the appeal, but only in respect of ground 3, and I would remit the applica- tion to the Commission for the determination of the amount of the appellant’s entitlement to damages. Otherwise, the appeal should be dismissed. KENNEDY J— For the reasons given by Parker J, I agree with the orders which he proposes, and I publish a note to that effect. ANDERSON J— I agree with Parker J, for the reasons given by him that ground 3 of the appeal should be allowed and the matter remitted to the Commission as proposed by him. Catchwords— Industrial law (WA)—Contract of employment—Provision for redundancy payment—Whether conditions precedent had been fulfilled. Representation— Counsel: Appellant: Mr D W McLeod Respondent: Mr A J Randles (Agent) Solicitors: Appellant: McLeod & Co Respondent: — Case(s) referred to in judgment(s)— Allen v Carbone (1975) 132 CLR 528 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 Inland Revenue Commissioners v Rafael [1935] AC 96 Perth Finishing College Pty Ltd v Watts (1989) 69 WAIG 2307 Waroona Contracting v Usher (1984) 64 WAIG 1500 Welsh v Hills (1982) 62 WAIG 2708 Case(s) also cited— Federal Commissioner of Taxation v Applegate (1979) 27 ALR 114 Jones v Department of Energy and Minerals (1995) 60 IR 304 McCorry v Como Investments Pty Ltd (1989) 69 WAIG 1000 Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd [1990] VR 834 Upper Hunter County District Council v Australian Chill- ing and Freezing Co Ltd (1968) 118 CLR 429 KENNEDY J— I have had the benefit of reading in draft the reasons to be published by Parker J, with which I am in agreement. I would therefore allow the appeal IAC 7 of 1998 and substitute for para (2) of the order of the Full Bench of the Industrial Rela- tions Commission, delivered on 18 March 1998, the following paragraph— “(2). That the decision of the Commission in matter No 1661 of 1996 made on 12 May 1997 be set aside and that the matter be remitted to the Commission for determination of the amount of the benefit (if any) to which the respondent is entitled under his contract of service.” ANDERSON J— I agree with Parker J, for the reasons given by him, that ground 3 of the appeal should be allowed and the matter re- mitted to the Commission for the determination of the amount of the appellant's entitlement to damages and that the appeal should be otherwise dismissed. PARKER J— Two appeals were instituted in this matter. Appeal No 2 of 1998 was instituted after the Full Bench of the Western Aus- tralian Industrial Commission handed down its reasons for decision and Appeal No 7 of 1998 was instituted after the or- der of the Full Bench took effect. Before us the appellant WESTERN AUSTRALIAN INDUSTRIAL GAZETTE 78 W.A.I.G. 4308 correctly took the position that the effective appeal was No 7 of 1998 and Appeal No 2 of 1998 was, by consent, dismissed as incompetent. The appeal concerns the construction of a clause in a fixed term contract of employment. The issue arose originally when the appellant claimed in the Commission that at the termina- tion of his employment he had not been paid benefits to which he was entitled under his contract of employment. The appli- cation was heard in the first instance by the Senior Commissioner who determined that the respondent should pay to the appellant $18,930.25. That order was subject to other terms which are not presently relevant. On appeal, the Full Bench, by majority, quashed the deci- sion of the Senior Commissioner leaving the appellant without any success on his original claim. This appeal is against the whole of the decision of the Full Bench. Three grounds of appeal are advanced by which it is contended that the majority of the Full Bench erred in fact and law— 1. In holding that cl 10 of the contract between the ap- pellant and the respondent did not apply in the instant case and that the appellant was accordingly not enti- tled to the benefit provided for in that clause. In particular, the members of the majority erred in law in holding that the clause only applied when the ap- pellant's employment was terminated in circumstances where the respondent company was undergoing a merger, acquisition, re-arrangement, re- construction, liquidation or receivership. 2. In the alternative, in holding that there was no re- arrangement or re-construction in the instant case, within the meaning of cl 10 of the contract. 3. In the alternative having found the appellant was con- structively dismissed and cl 10 of the contract did not apply, in failing to hold that the appellant was entitled to receive payment for the balance of the term contract. The appellant was a tradesman welder who commenced employment with the respondent early in 1993. The respond- ent carried on the business of developing, manufacturing and servicing industrial cleaning machines. The business of the respondent increased and it employed additional staff which led, in February 1995, to the appellant’s appointment as pro- duction supervisor. In that capacity the appellant's employment was the subject of a written job description, but otherwise, initially, the terms of his employment were oral. This changed in May 1995 when the terms of his employment were reduced to writing and agreed. The appellant’s claim is founded in this written agreement. By May 1995 the respondent was experiencing financial difficulties and the view was taken by those responsible for conducting the affairs of the respondent that it was necessary to attract the investment of additional capital in the respond- ent for it to survive. It was against that background that inter alia the terms of the appellant’s employment were reduced to writing and agreed. In or about July 1995 two significant fresh investors, Mr Jaspar and Mr Bolto, acquired interests in the respondent and in January 1996 Mr Jaspar became the Managing Director. At Mr Jaspar's instigation the staffing levels of the respondent’s business were reduced significantly. It appears that a staff of some 28 came to be reduced to 10. On 1 November 1996 Mr Jaspar introduced changes in the respondent's management structure aimed at increasing prof- itability. Relevantly, the appellant's position as production supervisor was abolished, essentially, it appears, on the basis that there were no longer sufficient production staff to warrant a supervisor. Instead, it was proposed that the appellant there- after be employed in the workshop principally as a tradesman welder but continuing to receive the significantly higher level of remuneration he had enjoyed as production supervisor. Af- ter some discussions the appellant indicated he would not accept the employment then offered to him and he left the respondent’s employment on or about 12 November 1996. The Senior Commissioner found that the changes to the ap- pellant's employment proposed by the respondent in November 1996 involved such a significant change in duties and responsibilities that it constituted a constructive dismissal from his position of production supervisor. In the finding of the Senior Commissioner the appellant's position as production supervisor had been abolished and effectively the appellant had been made redundant. This led the Senior Commissioner to conclude that the appellant was entitled to receive a redun- dancy termination payment of $18,930.25, calculated in accordance with cl 10 of the contract of employment which had been entered into in May 1995. Before us the primary issues raised on appeal are confined to the construction and effect of cl 10 in the circumstances outlined. It was on the construction of cl 10 that the Full Bench came to divide and the majority differed from the view taken by the Senior Commissioner. In all other respects the Full Bench confirmed the findings of the Senior Commissioner. Ground 1 Clause 10 of the appellant's contract of employment is to be found in a letter of the respondent to the appellant dated 12 May 1995 which purports to set out the “principal arrange- ments” for the appellant's employment in the position of production supervisor. Altogether, 17 clauses were set out in the letter. These were accepted by the appellant on 17 May 1995. The letter was signed by the then General Manager of the respondent and, as the evidence confirms and the terms of the letter suggest, the letter was prepared without the benefit of legal advice and the language of the document is that of the then General Manager. Clause 10 provides— “10. Contract of Employment The commencing date of your employment under this agreement, is confirmed as 4th January 1993 with the conditions in this letter being from 1st May 1995. The term of appointment is for a period of two years. In addition the company has the right to dismiss any employee without notice for misconduct, becoming a bankrupt, becoming of unsound mind, being con- victed of a criminal offence, becoming permanently incapacitated by accident or illness or serious or per- sistent breach of the employee’s terms and conditions of employment. In the case of such breach only the Base Remuneration Package and benefits will be paid up to the time of dismissal. In the case of the company terminating your employ- ment other than by summary dismissal and where the company is subject to Merger, Acquisition, Re- arrangement, Re-construction, Liquidation or Receivership you will be entitled to receive a redun- dancy termination payment, but which will be not less than three (3) months Base Salary Package ap- plying at the time of termination, plus 4 weeks for every year of service.” The lack of legal advice and the lack of clarity of thought is apparent from the first paragraph of the clause. It is accepted for the purpose of this appeal, however, that the contract of employment was for a term of two years from 1 May 1995. It is the third paragraph of cl 10, however, on which this appeal depends. Although there was some contention in the course of sub- missions before this Court, in my view it is clear enough that the notion of “summary dismissal” referred to in the third para- graph is a reference to the right of the respondent to dismiss “without notice for misconduct....” and the other reasons stipu- lated in the second paragraph of cl 10. Thus, in my view, the constructive dismissal of the appellant in this case was not a “summary dismissal” within the meaning of that phrase in the third paragraph of cl 10. The essence of the primary point of contention in this ap- peal is whether, on the true construction of the third paragraph of cl 10, the appellant is entitled to a “redundancy termination payment” even though the respondent was not subject to “Merger, Acquisition, Re-arrangement, Re-construction, Liq- uidation or Receivership”? A secondary issue arises if that first issue is answered in the negative, namely, had the respondent undergone an Acquisition, Re-arrangement or Re-construction within the meaning of the third paragraph; this is the point of Ground 2. WESTERN AUSTRALIAN INDUSTRIAL GAZETTE 4309 78 W.A.I.G. There is no real difference between the parties as to the ap- proach to be taken to the task of construing cl 10. The principles are clear and settled. The task of construction of the contract is to determine the intention of the parties objectively from the agreement they have reached. As was indicated in Allen v Carbone (1975) 132 CLR 528 at 531— “The intention of the parties to a contract wholly in writing is to be gathered from the four corners of the in- strument”. Although— “...it is legitimate in the course of construing the docu- ment to have regard, where appropriate, to the subject—matter and surrounding circumstances.” As far as possible the court should be placed in the same position as the parties when they came to enter into the con- tract, DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 429, because the words used in the contract must— “...be construed with reference to the facts known to the parties and in contemplation of which the parties must be deemed to have used them.”: Inland Revenue Commis- sioners v Rafael [1935] AC 96 at 143. Apart from the subject—matter and surrounding circum- stances, the construction of the agreement is to be determined from the language of the parties. It is relevant and material that in the present case the docu- ment to be construed is not drawn with legal assistance and manifestly from its terms is not characterised by clarity, con- sistency or precision, whether of thought or expression. The background circumstances against which the document is to be understood in accordance with those principles in- clude the fact that at the time of the contract it was in contemplation that fresh capital would have to be attracted, a circumstance which could give rise to an anticipation of some structural change to the company. While a number of possibilities were explored in the course of submissions before this Court, in the end three competing views emerged as to the proper construction of the third para- graph. If the notion of summary dismissal is put to one side, the first and the second of these differ according to whether the word “and” which connects “terminating your employ- ment” and “where the company is subject to merger....” is to be read as disjunctive and providing for distinct and alterna- tive cases or whether it is conjunctive so that there must be both a termination and the company being subject to merger etc. These two alternatives may be rendered as follows, in each case the precise language being slightly adapted to make more clear the distinction in construction contended for and also some words are placed in parentheses for the same reason— (a) “In the case of the company terminating your em- ployment (other than by summary dismissal) and [also in the case] where the company is subject to Merger, Acquisition, Re-arrangement, Re-construc- tion, Liquidation or Receivership you will be entitled to receive a redundancy termination payment....”; or (b) “In the case of the company terminating your em- ployment (other than by summary dismissal) and where the company is subject to Merger, Acquisi- tion, Re-arrangement, Re-construction, Liquidation or Receivership you will be entitled to receive a re- dundancy termination payment....”. The third possibility is— (c) “In the case of the company terminating your em- ployment (other than by summary dismissal and where the company is subject to Merger, Acquisi- tion, Re-arrangement, Re-construction, Liquidation or Receivership) you will be entitled to receive a re- dundancy termination payment....”. Of these the appellant contends primarily for (a). In particu- lar it is submitted that it is only on this approach that all the circumstances in which termination of employment could oc- cur are covered by cl 10. It is submitted it would be a glaring omission from the third paragraph were the entitlement to payment on termination of employment confined to circum- stances where the company was also subject to merger etc. Construction (b) was that preferred by the majority of the Full Bench and is that primarily urged upon us for the respond- ent. It is submitted that this is the most naturally grammatical construction of the provision. Further, it is submitted that none of the stipulated events of merger, acquisition, re-arrangement, re-construction, liquidation or receivership of the company would necessarily involve the termination of the employment of an employee in the business carried on the by company. Hence, it was submitted, it would only where there was both a termination of employment and the company was subject to merger, etc, that the provision made sense. Construction (c) appears to be the least grammatically ap- propriate. It is also subject to some degree to a similar ambiguity as to the effect of the word “and” as that which gives rise to constructions (a) and (b). However, when linked with sum- mary dismissal in construction (c), “company merger” etc seems more readily to be stating a separate and alternative case from summary dismissal. Whichever view is taken of that ambiguity (and summary dismissal aside), with respect to (c) it is not immediately apparent why the parties should have intended termination in the case of company mergers etc to be excepted from what is otherwise an all encompassing entitle- ment to a redundancy termination payment. The language itself of the third paragraph of cl 10 provides little basis for choosing conclusively between these three al- ternative constructions. In my view it is necessary, therefore, to search more widely than the mere language used to deter- mine the intended effect of the provision. In particular, it appears to me to be most material that the provision finds its place in a term contract of employment. In such a contract, apart from what it describes as “summary dismissal”, any uni- lateral termination of employment by the employer would constitute a breach of the contract giving rise to an entitlement in the employee to damages, the measure of which would nor- mally be the wages due for the balance of the term of the contract (subject of course to the obligation of the employee to seek to mitigate his loss). Because of this, there is no need for the contract to provide for the employee's entitlement in cases of dismissal before the agreed term has expired and such provisions are not to be expected except, that is, to make clear the position where there is a summary dismissal for miscon- duct etc, ie those situations covered by the second paragraph of cl 10. Fixed term contracts are not to be expected to contain provisions dealing with the situation where one party breaches the contract by terminating the employment during its term. Contrary to the appellant’s submissions, therefore, it is not the case that it should be expected that cl 10 would make express provision for all circumstances where the contract of employ- ment might be terminated by the company. Accordingly, if situations of unilateral termination by the employer in breach of the contract are put aside, and cases of summary dismissal as expressly contemplated by the second paragraph of cl 10 are also put aside, it becomes possible to discern with some greater clarity what must have been intended by the appellant and the respondent. Viewed in this light, it appears to me that the third para- graph of cl 10 is directed to the case where there is a termination of employment of the appellant where the company is subject to merger, acquisition, re-arrangement, re-construction, liqui- dation or receivership. Although not necessarily universally the case, generally speaking, these may be seen to be situa- tions in which the intentions of those controlling the company at the time of the contract of employment might come to be overborne by other circumstances or forces; the possible ad- vent of such circumstances or forces being foreseen in this case in May 1995 by virtue of the financial situation of the company at that time and the then perception that additional capital must be attracted to the company failing which it would be unable to continue as it was. On this view, in short, the purpose of the third paragraph of cl 10 is to make special provision in favour of the appellant should such circumstances or forces lead to the termination of his employment. In all other situations, summary dismissal for misconduct etc aside, the appellant was left with the usual contractual rights and remedies. This view, of course, negates both interpretations (a) and (c) as posed above. WESTERN AUSTRALIAN INDUSTRIAL GAZETTE 78 W.A.I.G. 4310 In these respects, in my respectful opinion, the approach of the majority of the Full Bench was correct. Some further degree of confirmation of the correctness of this view is provided by the circumstance that, on the con- struction primarily urged by the appellant, the alternative case where the company is subject to merger etc, is surplusage. The phrase “...in the case of the company terminating your employment other than by summary dismissal....” would be satisfied in every case, summary dismissal aside, so that there would never be need to turn to the alternative “...where the company is subject to merger etc....”. In this regard there is a suggestion in the reasoning of the majority of the Full Bench that the reference to the company being subject to merger, etc, might have been intended to deal with situations where new forces had control of the company. But even then it is still “the company” which terminates the employment. Control of the company may have passed to dif- ferent hands but only the company could terminate the contract between the appellant and the respondent company. For these reasons, it is my view that the intention to be dis- cerned from the third paragraph of cl 10 is that identified as (b) above. Ground 2 That leads me to consider the second issue posed much ear- lier in these reasons, viz, whether in the circumstances of this case there was a merger, acquisition, re-arrangement, re-con- struction, liquidation or receivership within the meaning of the third paragraph of cl 10. In this respect it was the view of the Senior Commissioner, and it is urged upon us for the appellant, that there was an acquisition and also a re-arrangement or re-construction of the company. These views did not commend themselves to the majority of the Full Bench. It appears from the evidence that in or about July 1995 Mr Jaspar and Mr Bolto acquired more than a 50 per cent shareholding in the respondent. In this sense, appropriate as it is in the field of corporate management, there may be seen to be an acquisition of the company. But that was in or about July 1995. The termination of the appellant’s employment was in November 1996. The two events are connected only in the sense that by virtue of the July 1995 acquisition, Mr Jaspar came to be the Managing Director of the company in January 1996, which enabled him in November 1996 to make the deci- sion which effectively led to the termination of the appellant's employment. That statement of both the sequence and the tim- ing of events is enough to demonstrate, in my view, that in no sufficient sense can it be said that the termination of the appel- lant’s employment occurred “...where the company is subject to ... Acquisition....”. At the most the termination of employ- ment was a very remote and indirect consequence of the acquisition, far too remote and indirect for it to be within the scope of the third paragraph of cl 10. Next it is contended, as was the view of the Senior Commis- sioner at first instance, that the termination of the employment of the appellant occurred “...where the company is subject to ... (either or both) Re-arrangement or Re-construction”. The approach was urged that re-arrangement and re-construction should be understood in their everyday sense and not limited by any understanding relevant to the regulation of corpora- tions. In this everyday sense, it was submitted that the extent of the staffing and management changes and their purpose were such as to satisfy some ordinary understandings of at least re- arrangement, if not re-construction. The notions of re-arrangement and re-construction are each related in the third paragraph of cl 10 to “the company”. It is the company, rather than any business which it conducts, which by cl 10 is subject to re-arrangement or re-construction. The appellant's submission points to events and circumstances which, at most, might in an everyday sense be seen to be a re- arrangement, or less so a reconstruction, of the way in which the business conducted by the company was run. They do not identify a re-arrangement or re-construction of the company itself. Of even greater force, in my view, in their context in cl 10 which expressly relates to “the company”, each one of “merger, acquisition, re-construction, liquidation or receivership” are words of established usage and meaning. In some, but not all cases, they are also words with specific statutory meaning when used in relation to corporations. In this respect, while not all of them reflect the precise language of the present statutory regime established by the Corporations Law of the Common- wealth, they are either the language of present or past statutory regulatory schemes for corporations or words of usual usage with respect to them. Merger is long established as a word generally used with respect to the combination of two or more corporations which involves one acquiring the shares in or assets of another. Acquisition requires no further comment, although strictly speaking the acquisition is of the shares or assets of a corporation. With respect to re-arrangement and re- construction, it is sufficient to refer to chapter 24 of the 8th edition of Ford's Principles of Corporations Law which deals with corporate re—organisation. In particular, with regard to re-arrangement, reference may be made to para 24.011 and for re-construction to paras 24.020 and 24.050. Paragraph 27.010 is a sufficient reference with respect to liquidation and chapter 25 deals with receivership. It should be borne in mind that these words are used in a provision drawn by the then General Manager of the respondent, who was no doubt a person with some corporate and management experience, but unlikely to be a person used to precise statutory or other legal definition in these matters. Other provisions of the Contract of Employ- ment offer ready confirmation of that view. In view of this, in my view, there is strong and persuasive reason to read this collection of concepts in the third para- graph of cl 10, where they are used in the express context of “the company”, as comprehending not some at large everyday understanding, but the well known meanings appropriate to those concepts in the realm of corporate management and regu- lation. In my view both re-arrangement and re-construction are to be understood accordingly. So viewed, it is not possible to conclude that there had been either a re-arrangement or a re-construction of the respondent in the events relevant to this appeal. Some 18 months before the relevant time there had been an acquisition by two new shareholders of a majority interest in the existing shareholding. That is all. There was no acquisition of the company in or about November 1996 in any sense of that term and there had not been a re-arrangement or re-construction of the company itself, as those terms are used and understood in their applica- tion to corporate management and regulation. What occurred was that there were changes made in the manner in which the business conducted by the company was organised. That is not a change to the structure or arrangement of the company in the sense indicated. For these reasons, it is my view that there was not an acqui- sition, re-arrangement or re-construction within the meaning of the third paragraph of cl 10. None of the other terms in that collective grouping have any possible application. It follows, on the true construction of the third paragraph, that the appellant has no entitlement to a redundancy termina- tion payment pursuant to the third paragraph. Ground 3 In view of the decision reached in respect of Grounds 1 and 2 it becomes necessary to consider ground 3. The appellant submits, in the alternative to his earlier submissions, that the Full Bench failed to consider and award to the appellant the amount which he was entitled to be paid by way of damages for the loss of the remuneration to which he would have been entitled under the contract for the remaining term, ie the dam- ages to which he was entitled, subject to mitigation of loss, for his constructive dismissal in November 1996. For the respondent it was accepted that this constitutes a “benefit ... to which [he] is entitled under his contract of serv- ice” within the meaning of s29(1)(b)(ii) of the Industrial Relations Act: Welsh v Hills (1982) 62 WAIG 2708; Waroona Contracting v Usher (1984) 64 WAIG 1500; Perth Finishing College Pty Ltd v Watts (1989) 69 WAIG 2307. This is a matter which was not dealt with expressly in the reasons of the Full Bench. The Senior Commissioner had no reason to consider it given the basis for his decision. The appellant submits that damages should be remitted to the Commission for assessment. For the respondent it is sub- mitted that it is material that it is the evidence that at November 1996 the appellant had decided that, if accepted, he would undertake a full—time course in mechanical engineering WESTERN AUSTRALIAN INDUSTRIAL GAZETTE 4311 78 W.A.I.G. commencing at the beginning of 1997. He had applied to be admitted into this course at the Fremantle TAFE in September 1996. The evidence indicates he was admitted into this course on 20 January 1997 and on that date he advised the Common- wealth Employment Service that he was no longer looking for employment. Between 12 November 1996, when he ceased his employ- ment with the respondent, and 20 January 1997 it would appear that the appellant had in fact worked for some time as a welder with another employer for which it would seem that he earned $2,528. His entitlement under the contract of employment with the respondent for that period would have been $5,270. It is accepted that the appellant had a duty to mitigate his loss aris- ing from the breach of the contract of employment by the respondent. Hence, so that on the basis just indicated, it is the respondent's submission that the appellant’s entitlement is $5,270, less $2,528, which comes to $2,742. These matters were canvassed in the course of submissions for the respond- ent but were not the subject of submissions for the appellant. In the course of submissions before this Court, it was also contended for the respondent that it had already paid to the appellant some $3,296.70 pursuant to orders made consequen- tial on the original order of the Senior Commissioner, and before the Full Bench gave its decision. There is no formal evidence of that before this Court. In these circumstances it is inappropriate for this Court to attempt any final resolution of the position as between the parties. As a matter of form the original application should be remitted to the Commission for the determination of the amount of the appellant's entitlement to damages. In light of the ap- parent effect of the evidence, however, it may well prove possible for the parties to reach agreement without the need for a further hearing. For these reasons I would allow the appeal, but only in re- spect of Ground 3, and I would remit the application to the Commission for the purposes indicated. Otherwise the appeal should be dismissed.