Virelala v Air Vanuatu (Operations) Ltd [2005] VUSC 14; Civil Case 014 of 2005 (18 March 2005)

IN THE SUPREME COURT OF
THE REPUBLIC OF VANUATU
(Civil Jurisdiction)

Civil Case No. 14 of 2005

BETWEEN:

JEAN PAUL VIRELALA
Claimant

AND:

AIR VANUATU (OPERATIONS) LIMITED
Defendant

Coram: Justice P I Treston

Mr. Morrison for Claimant
Mr. Kalsakau for Defendant

Date of Hearing: 14 March 2005
Date of Decision: 18 March 2005

RESERVED DECISION ON APPLICATION FOR INTERIM INJUNCTION BY CLAIMANT (INTER PARTES)

CLAIM

In a Supreme Court claim filed on 3 February 2005, the Claimant sought a declaration that the termination of his employment on 11 January 2005 was unjustified and/or unlawful and sought orders that he be paid outstanding remuneration and other benefits and severance under his existing contract of employment together with damages for such unlawful dismissal.

APPLICATION

The present application is for orders requiring the Defendant to continue to pay the Claimant his annual remuneration on a monthly basis under his employment contract and for an order requiring the Defendant to continue to provide benefits to the Claimant in accordance with that contract.

The application was opposed.

FACTS

The Claimant contended that he commenced employment with the Defendant on or about 23 January 1992 and, on or about 11 April 2003, entered into an employment contract with the Defendant whereby he would be employed in the position of Managing Director from 1 January 2004 for a period of 5 years. There was no provision for any period of notice to be given by the employer within that term and he would be entitled to sick leave and severance allowances.

At a board meeting on 11 January 2005, after he had presented a report to the board, the Claimant said that the Board purported to terminate his employment contract by letter.

The full text of the letter is as follows: -

"Air Vanuatu

Air Vanuatu (Operations) Limited

11^th January 2005.

Mr. Jean Paul Virelala

Air Vanuatu Operations Ltd

P O Box 148

Port Vila

Dear Sir,

REF: NOTICE OF TERMINATION OF CONTRACT

At the Board's Meeting today, 11^th January 2005, after giving consideration to your brief report presentation, and an overall consideration of the status of the company and Management, the Board has decided to terminate your Contract as CEO of Air Vanuatu and to pay three months lieu of notice, and any other entitlements. Accordingly your position as holder of AOC is also terminated.

Your termination is effective as of today. You are requested to give the keys and any company assets in your possession to the Board.

May I take this chance to thank you for your services provided.

Yours sincerely,

(sign)

--------------

Iauko Harry IARIS

Chairman

Cc: Prime Minister

Minister for infrastructure & Public Utilities

Minister of Finance"

Because of the nature of the dismissal and the terms of the contract, the Claimant sought the inteim relief that I have referred to.

SUBMISSIONS

The Claimant submitted that repudiation by one party to the contract gives the innocent party an election to affirm the contract and treat it as continuing or to accept the repudiation and treat the contract as at an end. The Claimant accepted that the basic rule is that if a person is employed under a contract for personal services and is wrongfully dismissed there is no claim for remuneration due under the contract after the repudiation and his only money claim is for damages for having been prevented from earning this remuneration. However, the English decision in Hill v C. A. Parsons & Co Ltd (1971) 3 W.L.R. 995 held that where an employer had sought to terminate an employee's contract by short notice, the contract would continue to subsist until the end of the period of proper notice required to terminate the contract. It was submitted that that was an exception to the ordinary rule and that that had been followed in an earlier case involving the Claimant and in a case of Moli v Malsungai [1996] VUSC 8, both in this jurisdiction.

The Claimant submitted that as there was no notice clause in the Claimant's contract which was due to expire on 31 December 2008, serious misconduct could be the only grounds for termination and as the Claimant was ready and willing to continue to provide services he should continue to be paid. The purported dismissal had caused hardship and the Claimant had little or no ability to mitigate his loss. It was submitted that the strength of the claim overrode the strength of the defence and the balance of convenience lay with the Claimant.

On the other hand, the Defendant submitted that in view of the sworn statement of Iaris Iauko, the current chairman of the Defendant, the best remedy available to the Claimant was an action for damages. The Defendant submitted that it had the right to terminate the employment contract in a case of serious misconduct and that an injunction should not be granted to enforce personal relations on unwilling parties.

The defence submitted that this was not a case of an exception to the general rule about employment contracts as would be the case where a majority of the Board wanted the Claimant to remain as Chief Executive Officer. It was submitted that the Court would ultimately need to adjudicate upon whether or not there had been proper renewal of the Claimant's contract, which had been completed before his previous one had expired.

Finally, the defence submitted there was delay in the Claimant seeking injunctive relief, which precluded him from that remedy.

LAW

The basic principle in relation to contracts of employment was set out in the case of Ridge v Baldwin [1963] UKHL 2; [1964] A.C. 40 where Lord Reid said: -

"The law regarding master and servant is not in doubt. There cannot be specific performance of a contract of service, and the master can terminate the contract of his servant at anytime and for any reason, or for none. But if he does so, in a manner not warranted by the contract he must pay damages for breach of contract."

As was said in Ford's "Principles of Corporation Law", 6^th Edition at paragraph 1424: -

"The removal of a Director by members of the Board, whether under the law under the articles, may in a particular case be a breach of contract on the part of the company for which the director may be entitled to sue for damages. Where removal is attempted in the absence of a power to remove or in a manner not authorized by the act or the articles, a director may apply for a declaration that the attempt is invalid and for consequential injunctions restraining any attempt to exclude him or her from office. However, declaration and injunction are equitable remedies, which will not be granted to enforce a personal relationship against the will of the parties. If therefore, it is shown that a majority of members do not want the Plaintiff as a Director, any available remedy in damages must suffice."

Lord Denning MR in the Hill case (above) said as follows: -

"In the ordinary course of things, the relationship of master and servant thereupon comes to an end: for it is inconsistent with the confidential nature of the relationship that it should continue contrary to the will of one of the parties thereto. As Viscount Kilmuir L. C. said in Vine v National Dock Labour Board [1957] A.C. 488, referring at p.500 to the ordinary master and servant case: "if the master wrongfully dismisses the servant, either summarily or by giving insufficient notice, the employment is effectively terminated, albeit in breach of contract". Accordingly, the servant cannot claim specific performance of the contract of employment. Nor can he claim wages as such after the relationship has been determined. He is left to his remedy in damages against the master for breach of the contract to continue the relationship for the contractual period. He gets damages for the time he would have served if he had been given proper notice, less, of course, anything he has, or ought to have earned, in alternative employment. He does not get damages for the loss of expected benefits to which he had no contractual right: See Lavarack v Woods of Colchester Ltd [1966] EWCA Civ 4; [1967] 1 Q.B. 278"

Lord Denning went on to say, however, that the rule is not inflexible and exceptions could be permitted. He held that in that case there would be an exception because the employers had purported to terminate the engagement of their servants who had not joined a powerful trade union.

In the earlier case involving this applicant namely Virelala v Air Vanuatu (Operations) Limited [1999] VUSC 15; Civil Case No. 029 of 1997 where the Claimant had been suspended from carrying out his duties in an earlier contract of employment for a term of five years, the Acting Chief Justice granted injunctive relief when the suspension of the Claimant was because he had seriously taken part in the Municipal campaign.

As I have said in that case the Supreme Court granted injunctive relief and found that there was no evidence that a majority of members of the Board of Directors of the Defendant did not want the Claimant as managing director so that damages would suffice. His Lordship found in addition that there was no contractual provisions for the Defendants to suspend the Claimant.

Section 50 (1) of The Employment Act CAP. 160 provides as follows: -

"In the case of serious misconduct by an employee it shall be lawful for the employer to dismiss the employee without notice and without compensation in lieu of notice."

Although the Claimant submitted that the test to apply to this application is that set out in the case of Wilson v Lini & Attorney General [1990] VUSC 3; [1980-1994] Van LR 483; CC 95 of 1990 (No. 1) with reference to American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] 1 All E. R. 504 and the questions of the claim being not frivolous or vexatious, and the balance of convenience, the law has moved on since the quoted cases with the passing of the Civil Procedure Rules No. 49 of 2002. Now the test is under Rule 7.5 (1) where it is provided that:

"A person may apply for an interlocutory order before a proceeding has started if:

(a) the applicant has a serious question to be tried; and
(b) the applicant would be seriously disadvantaged if the order is not granted"

And that is repeated in subsection 3 of that rule where it is provided that:

"The Court may make an order if it is satisfied that:

(a) the applicant has a serious question to be tried and, if the evidence brought by the applicant remains as it is, the applicant is likely to succeed; and

(b) the applicant would be seriously disadvantaged if the order is not made."

FINDINGS

It is clear that on 11 January 2005, when the Claimant's employment was terminated, the Board to which the Claimant had presented a "brief" report, had discussions concerning the Claimant for about 2 hours. Those discussions were in the Claimant's absence.

It seems that the catalyst for the discussions was the revelation that the company had made a capital loss of some VT280, 000, 000 in 2004 and that there had been no Board meeting where the Claimant had budgeted for such a loss. It now seems from the evidence that the loss was in fact closer to VT421, 335, 520. In addition the Board also discussed issues about nepotism where the Claimant had employed many of his own relations in the company without following established procedure for employment. There was further discussion about the Claimant's active involvement in politics that tarnished the image of the national carrier and the fact that the Claimant appeared to be having unfair control over the company.

It was in that context that the letter of termination was immediately forthcoming and the employment of the Claimant was terminated forthwith.

While section 50 (4) of The Employment Act CAP. 160 provides as follows: -

"No employer shall dismiss an employee on the grounds of serious misconduct unless he has given the employee an adequate opportunity to answer any charges made against him and any dismissal in contravention of this subsection shall be deemed to be an unjustified dismissal.",

The remedy for such an unjustified dismissal is in damages rather than in injunction or specific performance.

I am not of the view that this case is an exception to the general rule of master and servant contracts as in Hill's case (above) which dealt with outside influence and pressure from a powerful union to suspend non-members from employment. This is a different scenario altogether and although this dismissal may have been handled clumsily by the Defendant again the remedy is in damages and not in specific performance or injunctive relief.

Likewise the case is different from Virelala v Air Vanuatu (Operation) Ltd (above) where the suspension of the applicant was for the reason that he took part in a municipal campaign. That suspension was for matters outside his work activities and here termination was for alleged specific work related failings including failing to budget for a very substantial loss to the company and for nepotism. There may have been lack of proper detail to the termination given at the time but that is a matter for trial. Furthermore that case related to suspension where the contract did not provide any power to suspend but here under paragraph 13 of the present contract, the employer was given power to terminate the agreement in these terms:-

"The Employer may terminate this Agreement forthwith in the event of serious misconduct defined as follows:

(1) Where the Employee wilfully disobeys or neglects any reasonable written instruction of the Board of Directors or his/her supervisor in the course of duty.

(2) Where the Employee commits any substantive breach of this Agreement and which is notified to the Employee and which breach is not rectified within 14 days of receipt of written notice.

(3) Where the Employee is guilty of any other action which amounts to serious misconduct as generally defined according to the Law applicable to this Agreement."

A question for trial is whether that clause ousts the provisions of section 50 of the Employment Act (above).

In addition, in the Claimant's earlier case there was no evidence that a majority of the Board did not want him as Managing Director. Here there is evidence that the Directors decision to terminate the Claimant's contract with the company was unanimous (see paragraph 18 of the sworn statement of Iaris Iauko dated 14 March 2005). In accordance with the authorities any available remedy in damages must suffice in those circumstances.

It is clear from the evidence that should the Claimant be granted an interim injunction in this case the Court would be enforcing a contractual relationship between the parties against the will of one of the parties. There is little doubt that the prospect of reinstatement of the Claimant is effectively an impossibility and the Claimant does not seek that in any event. A replacement for him has been appointed and is already in office. To continue his remuneration and benefits until the determination of this case would thus be inappropriate. His remedy is in damages in accordance with the traditional approach of the Courts to the master and servant relationship and this case is clearly is not an exception to the "ordinary course of things" referred to by Lord Denning who went on to say that "the Court can in the proper case grant a declaration that the relationship still subsists and an injunction to stop the master treating it as at an end". That is simply not the situation here nor is that the remedy that this Claimants seeks in his claim. The nature and manner of his dismissal can of course give rise to damages (see Melcoffee Sawmill Limited & Croucher v. Jack George, [2003] VUCA 24, Civil Appeal Case No. 18 of 2003).

The Claimant has deposed that he is suffering hardship. Three months (salary) in lieu of notice was referred to by the Claimant. The Court understands that may not have been paid. It should be paid.

The Claimant also deposed that he remains ready and willing to serve the Defendant in its employ. As I have already said he did not seek reinstatement in his claim.

In his claim the Claimant also referred to the Defendant purporting to give the Claimant three months notice of termination of the agreement. In fact the letter that has been reproduced above terminated the employment of the Claimant immediately and agreed to pay three months (salary) in lieu of notice together with any other entitlements.

Even applying the earlier test for the grant of the interim relief that the Claimant seeks, while I am satisfied that the claim is not frivolous or vexatious, I cannot say in the circumstances that the balance of convenience lies in favour of granting the relief.

In addition under the Rules, while there is a serious question to be tried, I am not of the view that the applicant will be seriously disadvantaged if the order is not granted. He should receive his 3 months salary as set out in the letter, he has not applied for reinstatement and on reviewing the evidence so far adduced the strength of the claim seems equally balanced with the strength of the defence, even though some damages may ultimately flow. However, damages are different to a containing receipt of salary and benefits where there is little or no prospect of reinstatement. It is inappropriate for the Court to enforce a personal relationship against the unanimous will of one of the parties which would be the effect of the grant of the relief sought.

CONCLUSION

For the reasons above the application for an interim injunction is declined. I award costs to the Defendant against the Claimant at the standard rate as agreed or as determined by the Court.

Dated AT PORT VILA, this 18th day of March 2004

BY THE COURT

P. I. TRESTON
Judge