Weibenga v Uta'atu [2004] TOLawRp 43; [2004] Tonga LR 285 (24 August 2004)

IN THE SUPREME COURT OF TONGA

Weibenga

v

Uta'atu

Supreme Court, Nuku'alofa
Ford J
CV 98/03

6, 8, 9 July 2004; 24 August 2004

Employment law – claim of wrongful dismissal – contract allowed dismissal without cause – claim failed

On 29 July 2002 the plaintiff commenced employment as an information technology specialist with the defendant's accountancy firm in Nuku'alofa. His contract of employment was terminated some six months later in January 2003. He claimed that the termination was wrongful and sought to recover compensatory damages in the sum of AUD $46,052.90 and general damages of AUD $10,000. The defendant denied that the dismissal was wrongful. She contended that she had the express right under the contract to terminate the plaintiff's employment without cause either on three months written notice or by a severance payment equivalent to two months salary and she complied with that latter provision. In the alternative, the defendant claimed that it was an implied term of the contract of employment that the plaintiff would achieve a certain number of billable hours per week and, as he failed to achieve that target, she was justified in terminating his employment.

Held:

1. The Court resolved the ambiguity in the contract by adopting the construction that would produce the most reasonable and commonsense result; that the preamble to paragraph 20 was nothing more than a rather clumsy attempt to highlight the fact that the contract could not be validly terminated except in one or other of the ways identified in that paragraph.

2. The defendant was able to terminate the contract without cause under the contract in the way she did by paying severance pay equivalent to two months salary and undertaking to bear the employee's repatriation expenses. The termination letter did include an offer to meet the repatriation expenses but the plaintiff elected to remain in Tonga and obtained other employment. The method of termination adopted by the defendant, therefore, was one specifically authorised by the contract and, consequently, the dismissal was not wrongful.

3. The Court did not find it necessary to go on to consider the plaintiff's further submissions relating to the natural justice issues. As the termination was not for cause, considerations of the principles of natural justice did not arise.

4. The plaintiff's claim failed.

Cases considered:

Airwork (NZ) Ltd v Vertical Flight Management Ltd [1999] 1 NZLR 641 (CA)

Quainoo v New Zealand Breweries Limited [1991] 1 NZLR 161 (CA)

Reda v Flag Ltd (Bermuda) [2002] UK PC 38 (11 July 2002)

Counsel for plaintiff: Mr Garrett
Counsel for defendant: Mr Niu

Judgment

The Claim

On 29 July 2002 the plaintiff commenced employment as an information technology specialist with the defendant's accountancy firm in Nuku'alofa. His contract of employment was terminated some six months later in January 2003. In this proceeding, he claims that the termination was wrongful and he seeks to recover compensatory damages in the sum of AUD $46,052.90 and general damages of AUD $10,000.

For her part, the defendant denies that the dismissal was wrongful. She contends that she had the express right under the contract to terminate the plaintiff's employment without cause either on three months written notice or by a severance payment equivalent to two months salary and she complied with that latter provision. In the alternative, the defendant claims that it was an implied term of the contract of employment that the plaintiff would achieve a certain number of billable hours per week and, as he failed to achieve that target, she was justified in terminating his employment.

The Formation of the Contract

The employment contract in question is dated 28 June 2002. The plaintiff is described in the preamble as being, "of legal age, a divorced Australian citizen and a resident of Australia." He told the court that he first met Mrs 'Uta'atu at a "Careers Day" in Nuku'alofa in March 2002. The Careers Day was part of an Ausaid sponsored In-Country Training Programme that was being conducted in both Tonga and Tuvalu by "Tafe Global". Although details of the arrangement were not described in evidence, it appears that Tafe Global is a division of the Tafe Illawarra Institute of New South Wales, Australia. Mr Weibenga had been a teacher of information technology at the Institute since 1998. He described himself as a contract teacher although a testimonial from the Institute refers to him as an employee. Mr Weibenga's employment credentials were produced to the Court; they are impressive. Amongst other achievements, he had been providing IT services to local businesses and large companies in Sydney for some seven years including accounting and law orientated organisations.

Mr Weibenga told the court that at the Careers Day in Nuku'alofa on 20 March 2002 he was approached by Mrs 'Uta'atu and asked if he would be interested in working for her accounting firm. He responded that he could well be interested but it would depend upon the conditions. They had another meeting a week later. It was not clear from Mr Weibenga's evidence exactly what matters were discussed at each of the respective meetings but he told how he explained to Mrs 'Uta'atu that his income at that stage was AUD $40,000 and, if he was to come to Tonga, he would require a salary of at least AUD $35,000. He said that he also explained to her how he would need to resign his job at the Tafe Institute and the Ausaid programme, surrender a lease he held over a 200 acre dairy farm and give up the use of a company vehicle which he had in Australia. For these reasons, he would require some sort of security of tenure. The proposal Mr Weibenga said he put to Mrs 'Uta'atu was that the term of the employment contract should be for two years and it should provide that it could not be terminated without good reason. He said that the defendant was willing to accommodate him and provide him with a secure job for two years. He said that she also agreed that his employment contract could not be cancelled without good reason.

Initially, the salary range Mrs 'Uta'atu proposed was something between AUD $20,000 and $25,000. The salary eventually agreed upon was AUD $25,000 together with a housing allowance of T.$600 per month and a company vehicle but Mr Weibenga told the court that, as a compromise, he was entitled, if he reached a certain target of "collectible billings", to receive a bonus and provision was also included for an annual salary review with a special one-off salary and job performance review scheduled to take place after the initial three months of employment.

In cross-examination, Mr Weibenga was challenged on many of these statements. It was put to him that Mrs 'Uta'atu had approached him at the Careers Day only to ask if he would agree to come to her office to conduct some in-house training and it had been he who had first raised the query about employment. It was also put to the plaintiff that nothing, whatsoever, had been discussed about security of tenure or the contract having to be for a two-year term. All these matters, therefore, were very much in dispute.

There were some e-mail exchanges before the contract was drawn up and signed. Mrs 'Uta'atu told the court that she drafted the contract from a "template" on her computer and, apart from the remuneration package and one or two other rather inconsequential provisions, it was very much a standard type form of employment contract which she used for all her "ex-pat staff". The contract was for a two-year term from 29 July 2002 with an option of renewal by mutual agreement. The contract also contained a comprehensive termination clause, which became the focus of attention during the hearing.

Initial Job Performance Review

On 13 November 2002 Mrs 'Uta'atu wrote a six-page letter to Mr Wiebenga, which followed on from the initial three months job performance review. The first paragraph under the heading "PERFORMANCE" set the tone for what was to follow:

"I must start by noting that I have been disappointed with your performance to date. As I advised last Friday, the upside to having employed you is the potential that you might add value to the firm. Unfortunately, after working with us for nearly three months now, you have not been able to demonstrate your ability to add value to the firm."

A feature of the employment contract in question was that Mr Wiebenga was expected to divide his time between administrative duties for his employer and billable work for clients. His duties and functions under each respective heading were listed in an appendix to the contract. In her letter of 13 November 2002 Mrs 'Uta'atu reviewed the plaintiff's performance under various headings. Invariably, the assessments were negative. Under the heading "CLIENT WORK", for example, she said:

"Your documentation of encounters with clients and potential clients has been poor, making it difficult to assess whether encounters you have had to date might result in client work in the future."

She also criticised the plaintiff's preparation of his time sheets. The conclusion under the "Client Work" head was: "Either way, your performance has been far below that expected of you."

Under the heading "ADMINISTRATIVE WORK", Mrs 'Uta'atu commented:

"In addition to your lack of chargeable hours, your care with administrative matters has been very poor. Your time sheets have been consistently late and without adequate details of what you are accomplishing."

After citing examples from the time sheets to illustrate the point she was making, Mrs 'Uta'atu concluded:

"This has now caused me to have to take the sad action of pulling you off administrative duties so that you can put your efforts and attention to client matters. It is disappointing that after having you on board this long that your inability to prioritise your time and/or determine how much time and attention to put to matters requires me to do this, however, I have no choice at this time."

The letter continued in this negative vein to deal with other alleged unsatisfactory aspects of Mr Wiebenga's performance relating to such matters as unjustified claims for overtime, alleged abuse of the privilege of having the use of a company vehicle and other problems relating to his use of the house for which the employer was paying the rental. I need not go into these matters. Then, after noting, "I could write pages and pages of details of items that I have found disappointing" Mrs 'Uta'atu concluded her performance report by turning to the future. She said:

"THE FUTURE

We must now determine two things:

1) whether you have oversold your abilities to us (in other words whether or not you can accomplish the work that you highlighted in your original letter of application), and

2) even if you have the skills you claim to have, whether you can turn those skills into billable hours for the firm.

As I have stated from the outset of our contract negotiations and as I reiterated on Friday, the firm cannot afford to pay you your existing salary package unless you can generate billable hours. You have been hired at the manager level, not at a clerk level and I suggest you do what you have to do, and find out what you need to find out, to accomplish this determination.

With respect to the matters noted above, please note that it has been determined that your employment cannot be confirmed and that your probation period is hereby extended for a further three months. However, if before the end of this three-month period we determined that you are unable to improve your work performance, we will provide you with notice of termination in accordance with your contract."

Mr Wiebenga's response

The reference to Mr Wiebenga being on probation is not something that was explored before me in evidence. Apart from making provision for the initial three month salary and job performance review that I have already referred to, there is no mention in the contract of a probationary period as such but in his letter in reply dated 28 November 2002, Mr Wiebenga does not challenge the allegation that he was on probation. He simply notes: ". . . I see that you have conducted the review. You have elected to extend my probationary period for a further three months."

Elsewhere in his letter in reply, Mr Wiebenga took issue with virtually all of the allegations made against him in relation to his work performance. There was evidence that at about the period of time in question, Mrs 'Uta'atu was proposing to move to new premises in a building in the centre of Nuku'alofa known subsequently as "Fund Management House". Mr Wiebenga told the court that much of the administrative work he was required to carry out related to the layout and design of the IT equipment for the new building. Thus, in his letter responding to the unsatisfactory performance allegations, he pointed out that he had been required by Mrs 'Uta'atu to carry out duties relating to the needs of the firm rather than billable matters. He also dealt with other billable issues and the question of his bonus. Because both items assumed some significance during the hearing, I set out that passage from his letter:

"Since I joined 'Uta'atu & Associates, you have not provided me with the volume of client work that you had previously indicated. I also advise that during our initial negotiations, I requested a base starting salary of $30,000 to $35,000. Your response was to provide me with a base salary of $20,000 to $25,000. We settled on a base of $25,000 given that your instructions were that I could easily obtain a bonus of 75% of collectable billings over what constitutes to be 18 hours of work, that is 75% of collectable billings over $900 per week. (This equates to 18 hours of work per week). Thus your advice was that I am to receive a bonus of 75% of the billable hours spent in excess of 18 billable hours per week. Thus far, I have not been provided with 18 billable hours per week. Neither the excess of those hours that would thus constitute receipt of a bonus. Thus it is evident that you may have overstated or perhaps over estimated the potential for a bonus . . . . I advise that since the volume of collectable billable hours is not forthcoming and as such has resulted in no bonus payments, that I request a review of my salary also be made and adjusted as per our initial discussion on this matter, as noted above and as noted in the contract."

Referring then to the other matters Mrs 'Uta'atu had raised, Mr Wiebenga made a concession that he had been in error in one of his claims for overtime; he apologised over an incident involving the use of the company vehicle and he responded to the query raised relating to the rental property. He concluded his six-page letter in response by recording that he had decided to seek legal advice but he expressed the hope, "that our current situation can be peacefully resolved and that we develop and foster a good relationship."

At this point, I should record that the contract contained a dispute resolution clause which set out a specific regime for dealing with claims and complaints relating to the employment contract including, if necessary, reference to mediation. For some reason that was not covered in evidence, that option was not exercised nor was it referred to in evidence. I opine that, with hindsight, it is perhaps a pity that time was not spent early on exploring the mediation option. The parties are obviously intelligent professionals who, with a little assistance from a trained mediator, ought to have been able to work through their differences in a face saving way.

The Termination

On 13 December 2002 Mr Garrett, as counsel for the plaintiff, wrote to Mrs 'Uta'atu confirming that he had been consulted regarding the issues that had arisen between them. He detailed some of Mr Wiebenga's complaints and concluded:

"Against all of that background, our client's wish is that the employment relationship between you should be a mutually satisfactory one. Clearly at this stage neither party is entirely happy with it. From our client's perspective, he is being set up for an eventual dismissal which you will justify as fair and reasonable. You should note that if that should occur, our client will not simply "go quietly"."

The next development occurred on Friday 17 January 2003. Mr Wiebenga said that he had been working out of a client's office that day, which was a Friday, and when he arrived back at his own office he was unable to operate his computer. He had also taken his vehicle to the garage for servicing and when he attempted to collect it he was told that he was not able to take the vehicle because Mrs 'Uta'atu had contacted the garage and left instructions that someone else would be collecting it. At some stage during the day, the timing was not disclosed in his evidence, Mr Wiebenga was handed a letter terminating his employment effective immediately. The letter stated:

"As we have discussed numerous times, there have not been sufficient billable hours generated on your IT work to cover the costs of your employment. Accordingly, the economics of your employment preclude us from continuing with your contract. In accordance with paragraph 20 of your contract, the firm hereby provides you with payment of separation/termination by equivalent to two (2) months salary. In addition we include one week's salary towards overtime worked, as we have agreed. The total paid is thereby T.$6066.90 representing 10 weeks pay . . ."

Income-tax and other deductions were then made from the gross figure including a deduction of $500 as security against any damage to the rented house. Mr Wiebenga was given two weeks to leave the house and the letter stated that the $500 would then be refunded to him.

The letter went on to say:

"In accordance with paragraph 17 of your contract, we shall repatriate you by providing an economy class air ticket to Australia. Please advise the date you wish to leave the Kingdom and the firm will arrange the ticket."

Initially, Mr Wiebenga refused to accept the severance cheque but later he changed his mind. A new cheque was, therefore, written out and handed to him 25 February 2003. The following day he filed his writ in this proceeding claiming that the dismissal was wrongful.

The Case for the Plaintiff

The thrust of the plaintiff's case is essentially threefold. First, it is alleged that it was an express term of the contract (paragraph 20) that it could not be terminated without just and valid cause. Secondly, it is claimed that the defendant's termination of the contract was a fundamental breach because the alleged justification for it was that the plaintiff had not achieved the required number of billable hours but "the contract contained no term requiring the plaintiff to achieve a certain number of billable hours or face termination" and, thirdly, it is alleged that by virtue of paragraph 20, "it was an implied term of the contract that the defendant was obliged to follow a fair process and accord the plaintiff natural justice before terminating the contract.

In his opening submissions, Mr Garrett described the proceeding as a "relatively simple case" involving the construction and interpretation of paragraph 20 (the termination clause). I set it out in full:

"20. Neither Employer nor Employee may unilaterally cancel the contract except for legal, just and valid cause.

a) Termination by Employer.

The Employer may terminate this contract, by serving a written notice to the Employee at least three (3) months before the intended date thereof or payment of separation/termination pay equivalent to two (2) months salary. The Employer shall bear the repatriation expenses of the Employee as outlined in Paragraph 9.

The Employer may also terminate this contract immediately without a minimum notice period should the Employee's conduct be of such a manner as to place the Employer's firm in jeopardy of legal action and/or on the following just causes: serious misconduct, wilful disobedience of Employer's lawful orders, habitual neglect of duties, absenteeism, or engaging in trade union activities and/or when Employee violates customs, traditions, and laws of the Kingdom of Tonga and/or terms of this agreement. In these circumstances, the Employee shall shoulder the repatriation expenses.

b) Termination by Employee.

The employee may terminate this contract by serving three (3) months in advance written notice to the Employer. If the Employee terminates the contract before the completion of one year, the Employee shall shoulder all expenses relative to his repatriation back to Australia.

The Employee may also terminate this contract without serving any notice to the Employer for any of the following just causes: serious insult by the Employer, inhuman and unbearable treatment accorded the Employee by the Employer and violation of the terms and conditions of the employment contract by the Employer. In these circumstances, the Employer shall shoulder the cost of repatriation expenses (as outlined in Paragraph 9).

c) Termination due to Illness.

Either party may terminate the contract on the ground of illness, diseases or injury suffered by the Employee. In this circumstance, the Employer shall shoulder the cost of repatriation."

The opening sentence of paragraph 20 is critical to the plaintiff's case. Mr Garrett referred to it as the "preamble" and submitted that the various subparagraphs must each be read subject to that preamble. In other words, as counsel put it, by whatever means the employment is terminated, there must be "legal, just and valid cause".

The Ambiguity

Whilst at first glance, the approach suggested by Mr Garrett seems to have some attraction, upon closer analysis it gives rise to ambiguity. Putting aside for one moment, the first sentence of paragraph 20, it is clear that the contract then envisages several different modes of termination. Thus, for example, under 20 (a) it may be terminated by the employer at any time during the contract period: (1) without cause (by three-month written notice or a severance payment of two months salary), (2) by the employee placing the employer's firm in jeopardy of legal action and (3) for cause (being misconduct of the type specified).

In the case of a termination without cause by the employer; termination with cause by the employee or termination resulting from illness etc, the employer is to bear the repatriation expenses of the employee (the reference to "paragraph 9" of the contract under this head is obviously a typographical error; repatriation is provided for in paragraph 17). In other cases of termination the employee is to meet the repatriation expenses.

As I understand Mr Garrett's submissions, he contends that none of the recognised modes of termination could ever be exercised lawfully unless there was some "legal, just and valid cause." That is what counsel means when he submits that the whole of paragraph 20 is governed by what is stated in the preamble. Exactly what this would mean in practice, however, was not explained by counsel in his submissions. On the face of it, it would mean that the necessary "legal, just and valid cause" referred to in the preamble would have to be something additional to the misconduct type of "just causes" referred to under paragraph 20 (a) but that would give rise to very strange results. Likewise, how could any "cause" in a misconduct sense be applied in a termination for illness situation? The very notion would seem to be a nonsense.

There are other obvious anomalies with Mr Garrett's approach. If some type of misconduct "cause" is required to be established before a two months salary severance could be effected under the first part of paragraph 20 (a) then it would mean that, even though the employee had been guilty of misconduct giving the employer just cause to terminate the contract, the employer would still have to pay the employee the two month's severance pay plus bear all the costs of his repatriation back to Australia. Such a conclusion flouts business commonsense. On the face of it, therefore, the first sentence in paragraph 20 is ambiguous.

The Legal Approach to Ambiguities

Mr Garrett submits that when the Court is faced with an ambiguity of this nature then the contra proferentem rule comes into play and the ambiguity is to be construed against the party responsible for the drafting of the ambiguity, in this case the defendant. No authority was cited, however, and I know of none, which requires the Court to invoke the contra proferentem rule even though it will result in an obvious absurdity. The better view is that in such circumstances it is for the Court to resolve the ambiguity as best as it can.

The test to be applied by the Court in cases of ambiguity has been considered more than once in recent years by the New Zealand Court of Appeal and the approach that has been adopted by that Court is apposite to this jurisdiction. In Quainoo v New Zealand Breweries Limited [1991] 1 NZLR 161 at p 165, the Court said:

"Often the words the parties use can have only one meaning, and then there is unlikely to be occasion to look beyond the contract itself. But where the words are susceptible of more than one meaning, even if one of them be an unusual meaning, the Court is entitled to look, indeed it must look, at the surrounding circumstances in order to ascertain from them, if it can, what the true intention was. This is quite different from listening to the parties' version of what they each meant. A contract must be construed objectively, but not in disregard of its factual context and its purpose."

That particular passage was subsequently approved and applied in Airwork (NZ) Ltd v Vertical Flight Management Ltd [1999] 1 NZLR 641 at p 651 where Salmon J. (now a member of the Tonga Court of Appeal) delivering the judgment of the Court of Appeal went on to say:

"The Court will have regard to the reasonableness of the result:

"The fact that the particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear" (L Schuler AG v Wickman Machine Tool Sales Ltd [1973] UKHL 2; [1974] AC 235 at p 251).

This reasonableness test overlaps with the modern practice of having regard to the apparent commercial purpose of a contract and to general business commonsense."

Meaning of Preamble to Paragraph

Applying the foregoing considerations to the ambiguity in the present case, it seems to me that the construction producing the most reasonable and commonsense result is that the preamble to paragraph 20 is nothing more than a rather clumsy attempt to highlight the fact that the contract cannot be validly terminated except in one or other of the ways identified in that paragraph.

The expression "legal, just and valid cause", in other words, is intended to be a summation of the various modes of termination that then follow. What the preamble says, in effect, is that if a termination is effected through any one of the methods described in subparagraphs (a) (b) or (c) then it will be recognised as a legal, just and valid cause. If a termination is effected by some other means, however, then it will be regarded as a breach of contract.

The word "cause" in this context equates with its meaning as a verb - "to bring about". It is not used in the misconduct sense as it usually would be when appearing in a contractual provision dealing with termination. To that extent, as I have already indicated, the wording as it appears in the preamble is inept and ambiguous but the interpretation I have suggested at least produces a sensible commercial result.

It follows from this construction of the words in question that, contrary to the plaintiff's assertions, the defendant was able to terminate the contract without cause under paragraph 20 (a) in the way she did by paying severance pay equivalent to two months salary and undertaking to bear the employee's repatriation expenses. The termination letter did include an offer to meet the repatriation expenses but, as it turns out, the plaintiff elected to remain in Tonga and he has now obtained other employment. The method of termination adopted by the defendant, therefore, is one specifically authorised by the contract and, consequently, the dismissal was not wrongful.

The Letter of Termination

Mr Garrett seemed to be critical in his submissions of the fact that the defendant had set out in the termination letter a reason for terminating the plaintiff's employment. If I understood his argument correctly, he seemed to suggest that the letter was in reality a thinly disguised attempt to dismiss for cause without going through the appropriate procedural requirements and, therefore, because it had this collateral purpose, it was somehow invalid.

As the Privy Council noted, however, in the recent case of Reda v Flag Ltd (Bermuda) [2002] UK PC 38 (11 July 2002), when there is a power to terminate an employment contract without cause, there can be no such thing as a collateral or improper purpose. The exercise of the power does not have to be justified. A power to dismiss without cause is a power to dismiss for any cause or none. The judgment states (p42):

Under the terms of the appellants' contracts, therefore, Flag had an express contractual right, which it exercised, to bring the appellants' contracts of employment to an end at any time during the contract period without cause. Their Lordships agree with Flag that that is an end of the matter. As the Court of Appeal observed, "the very nature of such a power is that its exercise does not have to be justified".

The principal ground on which, this was disputed by the appellants at trial was that the decision of Flag's Directors to bring their contracts to an end was vitiated by their "collateral purpose" in seeking to avoid having to grant the appellants stock options. But in the present context there is no such thing as a "collateral" or improper purpose; a power to dismiss without cause is a power to dismiss for any cause or none."

As the contract in the present case was terminable at will, Mrs 'Uta'atu did not have to justify or give an explanation for her decision to terminate. From her evidence, I gather that her election to mention in her letter that the termination was being made for economic reasons was based on her innate perception that that was the decent thing to do. I do not think that she can be criticised for that.

Conclusions

It follows from my conclusions that I do not find it necessary to go on to consider Mr Garrett's further submissions relating to the natural justice issues. As the termination was not for cause, considerations of the principles of natural justice do not arise.

For the foregoing reasons, the plaintiff's claim fails. The defendant is entitled to costs to be agreed or taxed. There was a query raised in evidence as to whether the $500 "security deposit" on the rented house had ever been refunded by the defendant. If the money has not yet been handed over then it needs to be taken into account in the costing exercise.