Brighouse v National Bank of Samoa Ltd [2004] WSSC 1 (27 January 2004)

IN THE SUPREME COURT OF SAMOA
HELD AT APIA

BETWEEN

ANTHONY JOSEPH BRIGHOUSE
of Apia, Samoa, Accountant.
Plaintiff

AND

NATIONAL BANK OF SAMOA LTD
a company duly registered in Samoa
carrying on business of commercial banking in Samoa.
Defendant

Counsel: PA Fepuleai for plaintiff
TK Enari for defendant

Hearing: 26, 27, 28 August 2003; 9, 21 October 2003
Judgment: 27 January 2004

JUDGMENT OF SAPOLU CJ

Introduction

There are two issues which are crucial to the outcome of the plaintiffs action for wrongful dismissal against his former employer, the defendant bank. The first issue is whether the plaintiff’s employment was terminated by the defendant bank in accordance with the written contract of employment that the parties had entered into. The second issue is whether the implied terms pleaded by the plaintiff can be applied to the written contract of employment. In deciding the two issues, it is essential to refer to the express terms of the contract. There are other issues which arise from this case, but they are ancillary to the two issues I have identified and are not crucial to the outcome of this case. It will therefore not be necessary to deal with the evidence or the pleadings at great length, except to the extent that they are relevant to the crucial issues or to provide the necessary background to what happened.

Evidence and pleadings

The plaintiff is a qualified accountant with a record of having held senior accounting positions in the University of the South Pacific, Price Waterhouse & Co Ltd, and private companies. At the time he took up employment with the defendant bank on 18 March 2002, he was operating a private accounting firm of his own. A written contract of employment was subsequently executed by the plaintiff and the defendant on 18 June 2002. Under the terms of the contract, the plaintiff was appointed to the position of manager finance and administration for a term of three years. One of the duties the plaintiff had to carry out was the preparation of accounts and financial statements for the defendant. The commencing salary was $70,000 per annum to be reviewed at the end of twelve months or as directed by the board of directors. The plaintiff was also entitled to benefits as set out in the contract. In the performance of his duties and responsibilities, the plaintiff was to be directly responsible to the defendant’s chief executive officer. The crucial clause in the contract for the purpose of this case relates to termination. It provides:

“This agreement may be terminated with two (2) weeks notice of termination given in writing by either party, or with payment in lieu of notice, or without notice subject to any breach by you of this agreement, non-performance or misconduct”.

At the time the plaintiff took up employment with the defendant, he raised with the then chief executive officer the issue of whether he had to give up the clients he had in his private accounting firm. He was told by the then chief executive officer (hereinafter referred to as “the chief executive officer”) that he could retain his clients so long as there was no conflict of interest with his position in the defendant bank. Apparently the plaintiff kept some of his clients. One of these clients is a company which, for convenience, I would refer to as RJM which is its abbreviated name used in these proceedings. This client opened an account with the defendant bank in March 2002, about a month after the plaintiff took up his new employment with the defendant bank. Perhaps as a result of what he was told by the chief executive officer, the plaintiff was frequently bringing in the bankings for his client RJM; it was about twice a week according to the evidence of the defendant’s manager for lending. Members of the defendant’s staff were aware of the plaintiff’s actions. However, it is not clear whether the chief executive officer was also aware that the plaintiff was frequently bringing in bankings for RJM. No one seemed to have questioned the plaintiff’s actions. Instead, as it appears from the evidence of the defendant’s manager for lending, if the staff wanted to know whether RJM was to make any bankings to its account they would ask the plaintiff.

As the evidence shows, the plaintiff was also the contact person in the defendant bank for RJM. If RJM had any queries concerning its account in the defendant bank, it would call the plaintiff on the phone and the plaintiff would provide the required information. Evidence given by the plaintiff himself and a former chief executive officer of the defendant is that this is a common practice within the defendant bank as part of its service to its customers. A customer who has any queries on a matter relating to an account may call on the phone an employee of the defendant that he or she knows. No distinction was made between a customer who is solely a client of the bank and a customer who is both a client of the plaintiff in his private capacity as an accountant and of the defendant as employer of the plaintiff. Much was said in the evidence of the chairman of the defendant’s board of directors, who is also a qualified and respected accountant, that the conduct of the plaintiff in this case involved a conflict of interest. Counsel for the defendant makes similar comments in his written submissions. On the other hand, counsel for the plaintiff says in his written submissions that if the plaintiff’s actions in bringing in bankings for RJM amounted to a conflict of interest then the defendant had condoned it because the chief executive officer had told the plaintiff when he first took up employment with the defendant that he could keep his clients and the defendant’s staff members had raised no objection even though some of them were aware that the plaintiff was frequently bringing in bankings for RJM. I have not found it necessary to reach any conclusion on the evidence regarding this issue of conflict of interest as it is not crucial to the outcome of this case.

The evidence also shows that RJM was granted an overdraft facility by the defendant. The limit of this overdraft facility was $100,000. It is not clear when that overdraft facility was first granted. The overdraft facility was utilised by RJM at times for the transfer of funds overseas to pay foreign suppliers of goods to RJM. On 13 January 2003 the plaintiff received a request from RJM for the transfer of NZ$40,000 to pay a supplier of goods in New Zealand. The plaintiff then referred RJM’s request to a bank officer in the defendant’s international department to process the transfer. This bank officer did the exchange rate calculations and informed the plaintiff that a transfer of NZ$40,000 would take RJM’s overdraft facility over its limit of $100,000. At that time the chief executive officer had issued an instruction the previous month that RJM’s overdraft facility was not to exceed its limit of $100,000; apparently RJM’s account had become something of a “problem account” as described by the defendant’s manager for lending. The plaintiff responded to the bank officer that RJM’s overdraft limit had been extended to $150,000 as he had sighted such an extension in a letter on the desk used by another bank officer. This letter turned later to be in relation to the overdraft facility for another client of the defendant and not RJM. In his evidence, the plaintiff said that he had thought that the letter related to RJM’s overdraft facility. I find this part of the plaintiff’s evidence unconvincing. I do not accept it. The plaintiff then made out a cheque which had been previously signed and prepared by RJM to cover the amount of the transfer requested by RJM utilising RJM’s overdraft facility. The funds were then remitted by telegraphic transfer to New Zealand on the same day. It turned out, according to the plaintiff, that as a result of this telegraphic transfer RJM’s overdraft limit was exceeded by the amount of $31,227.94. On the following morning, 14 January 2003, the excess was picked up by the defendant’s lending department and it was reported to the chief executive officer who called in the plaintiff together with the manager for lending. The plaintiff undertook to arrange for funds to bring back RJM’s overdraft within its limit. RJM then started making deposits to the defendant and in seven days the overdraft was back within its limit again. On 14 January 2003, the plaintiff was suspended from his position as manager finance and administration.

Following the plaintiff’s suspension, the defendant requested its external auditors to conduct an inquiry and report on the matter. The auditors interviewed the plaintiff and others involved. Their report was subsequently submitted to the defendant and it is critical of the plaintiff’s involvement in the transaction for the overseas transfer of funds which exceeded RJM’s overdraft limit. On 23 January 2003, the defendant’s chief executive called the plaintiff on the phone to meet with her. The plaintiff was not available until the next day, 24 January. When they met on that day, the chief executive officer invited the plaintiff to resign. When the plaintiff asked for reasons, the chief executive officer declined to give reasons. The plaintiff refused to resign. The chief executive officer then handed the plaintiff a letter of termination which is dated 23 January 2003. The termination letter gives no reason for the termination of the plaintiff’s employment. But it is clear from the letter that the plaintiff was paid all his entitlements under his contract of employment. These actions by the chief executive officer had the prior endorsement of the defendant’s board of directors.

In part of his evidence and pleadings, the plaintiff says that in his position as the defendant’s manager finance and administration, he had been legitimately critical of some of the actions and decisions which were taken by the chief executive officer in the performance of her duties and responsibilities. In consequence, his working relation with the chief executive officer had deteriorated to the point where they were no longer on speaking terms. By the time that RJM’s overdraft limit was exceeded that situation still remained. Counsel for the plaintiff has therefore submitted that the chief executive officer had used the RJM incident as an excuse to have the plaintiff removed when the real reason behind the plaintiff’s removal was his being critical of some of the chief executive officer’s actions. It is perhaps unfortunate that the chief executive officer did not appear to give evidence. On the other hand, the chairman of the defendant’s board of directors gave evidence of instances of alleged incompetence on the part of the plaintiff in carrying out his accounting duties as the defendants manager finance and administration. This evidence was strongly resisted by the plaintiff and his counsel. I have referred to these matters because they took up much time at the trial. But on the view I have taken of the law which applies in this case, those matters are not crucial to the outcome of the case. It is therefore not necessary to refer to that evidence in detail. Suffice to say that it has been submitted for the plaintiff that the allegation of incompetence was not relied upon by the defendant as a ground for the plaintiff’s dismissal at the time of the dismissal. It is said that the defendant only started to use this allegation when the plaintiff filed his claim. On the other hand, the chairman of the defendant’s board of directors testified that the board was conscious of the matter and the RJM incident involving the plaintiff was the last straw. If it had been necessary to decide on the admissibility of this evidence, I would have relied on Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR where Mason CJ states at p262:

“Shepherd v Felt Textiles of Australia Ltd (1931) 45 CLR 359 stands as authority for the general proposition that a termination of a contract may be justified by reference to any ground that was valid at the time of termination, even though it was not relied on at the time and even though the ground actually relied on is found to be without substance”.

It is clear from pp 377 – 378 of the judgment of Dixon J in Shepherd that this general proposition does apply to a contract of service.

An employment dismissal is wrongful at common law if it is in breach of an express or implied term of the contract of employment. The plaintiff’s action for wrongful dismissal does not rely on the breach of any express term of the written contract of employment between himself and the defendant. It relies on alleged breaches of implied terms pleaded in the statement of claim and further explained in the submissions of the plaintiff’s counsel. These implied terms are:

(a) that the defendant would not without reasonable cause conduct itself in a manner calculated to destroy or damage the relationship of trust and confidence between the defendant and the plaintiff;

(b) that the defendant would act fairly and reasonably in its treatment of the plaintiff and in particular would keep the plaintiff informed and give him adequate opportunity to answer any concerns that the defendant might have about the plaintiff’s performance before reaching any decision to dismiss him.

(c) that the defendant would be bound by the rules of natural justice and equity in all dealings with the plaintiff; and

(d) that the defendant would not dismiss the plaintiff in a manner likely to cause distress or loss of reputation without proper cause.

The defendant on the other hand has not only denied the case by the plaintiff but it has counterclaimed in damages for the costs it had incurred in recruiting a replacement for the plaintiff. What is being alleged is that the plaintiff was dismissed for negligence and incompetence as a result of which the defendant had to find a replacement. In so doing the defendant incurred substantial costs. The defendant counterclaims that the plaintiff should be responsible for those costs.

Termination of plaintiff’s employment

The employment relationship between an employer and an employee is founded on contract. It is therefore a contractual relationship. The contract may be oral, or in writing, or partly oral and partly in writing. In this case, the defendant as employer and the plaintiff as employee had entered into a written contract of employment and it is that contract which primarily governs their relationship. Any consideration of the plaintiff’s action for wrongful dismissal would therefore have to start with a consideration of the contract of employment. That should be so even if the plaintiff’s action does not rely on the breach of any express term but on alleged breaches of implied terms. The Labour and Employment Act 1972 and its termination provisions do not apply to the employment contract in this case because the plaintiff who held a managerial position with the defendant would not come within the definition of “worker” in that Act. Termination in this case is therefore solely governed by contract.

It is clear from the termination clause in the employment contract between the plaintiff and the defendant that the contract can be terminated in either one of three different ways. Firstly, either party may terminate the contract by giving the other party two weeks written notice of termination; secondly, either party may terminate the contract without notice provided payment is made to the other party in lieu of notice; thirdly, the contract may be terminated by the defendant without notice for any breach of the contract, non-performances or misconduct by the plaintiff which means summary dismissal. Under the first and second modes of termination there is no requirement that either party has to show cause. Termination may be effected without having to show cause. It is clear that the second mode of termination was the one that was applied by the defendant when it terminated the plaintiff’s employment without notice coupled with the payment of all the plaintiff’s entitlements under the contract. Thus the termination was in accordance with the express terms of the contract. Counsel for the plaintiff in his written submissions also points out that the plaintiff’s action is not based on the breach of any express term of the contract but on the breach of implied terms pleaded in the statement of claim and further clarified in counsel’s written submissions. The termination of the plaintiff’s employment is therefore not wrongful in the sense that it was not in breach of any express term of the contract of employment. The question is whether the termination of the plaintiff’s employment is wrongful in the sense that it was in breach of the implied terms pleaded by the plaintiff. But before that question can be answered, it is necessary to consider whether the terms which are sought to be implied can be implied into the contract. If the terms cannot be implied, then the question of whether they have been breached does not arise.

Implied terms

In the case of Keil v Polynesian Airlines Ltd [1980 – 1993] WSLR 395, the Court of Appeal dealt with the question of implied terms in the context of a contract of employment in an action for wrongful dismissal. In that case, a written employment contract was entered into between an airline pilot employee, the appellant, and an airline company employer, the respondent. Clause 4.2 of the contract, which was the termination provision, provided, as far as relevant, that the services of the employee shall be terminable by either the employer or the employee: (a) during the period of probation by 28 days notice in writing; (b) thereafter by two months notice in writing; (c) by the payment to the employee of twenty eight days salary or one months salary in lieu of the notice required in (a) and (b); (d) by the forfeiture by the employee of twenty eight days salary or two months salary in lieu of the notice required in (a) and (b). In other words, after the period of probation, either party to the contract may terminate the contract by giving two months notice to the other party. Alternatively, the employer may terminate the contract by paying to the employee one month’s salary in lieu of notice whilst the employee, on the other hand, may forfeit two months salary in lieu of notice. What happened was that the employer, in accordance with the contract, terminated the employee’s employment by giving to him a salary payment in lieu of notice. The employee then unsuccessfully brought in the Supreme Court a common law action for wrongful dismissal. He then appealed to the Court of Appeal and counsel for the appellant sought to imply into the employment contract a term that the respondent employer was under an obligation to act fairly and reasonably and in conformity with the principles of natural justice in terminating the services of the appellant. In dismissing the appeal, the Court of Appeal said at pp 398 – 399:

“As to the appellant’s first and third submissions referred to above we find that we are in complete agreement with the decision of the learned Judge in that it is quite inappropriate to imply a term as suggested by the appellant. The contract we find makes perfectly good sense as it stands and there is no justification for implying other terms. It provides to the employer two alternate methods of termination viz. by notice or payment in lieu of notice under paragraph 4.2; or disciplinary dismissal under paragraph 13. There are no fetters placed on the employer’s discretion to choose between the two methods.

Further it also provides to the employee two alternate methods of termination viz. by forfeiture or payment in lieu of notice under the same paragraph 4.2. Likewise there are no fetters placed on the employee. These are rights, privileges, and obligations which the parties to this master and servant relationship have negotiated; which in our view are clearly set out in the contract; which do not require further terms to be implied.....

Counsel for the appellant at the end of his comprehensive submissions to us, urged that a term should be implied into the contract to the effect that the appeal provisions in paragraph 13 should have been available to the appellant. He claimed this was an obligation on the second respondent to act fairly and reasonably and in conformity with the principles of natural justice. But a term that has not been expressed, should not be implied, simply because such a term might be regarded as reasonable; nor should a term be implied which might adversely affect those rights available to either or both, the appellant and the second respondent, in accordance with the provisions of paragraph 4.2.

The contract is clear and unequivocal.... A term will not be implied in a contract if the contract is effective without it. Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 558”.

The termination clause in the employment contract in Keil is in substance quite similar to the termination provision in the present case. The mode by which the employer terminated the contract in Keil by the payment of salary entitlement under the contract in lieu of notice is also similar to the mode by which the employment contract was terminated in this case. The Court of Appeal in Keil also rejected the submission on behalf of the appellant that a term should be implied that the respondent employer was under an obligation to act fairly and reasonably and in conformity with the principles of natural justice. Naturally, counsel for the defendant in the present case placed much reliance on Keil in support of the case for the defendant. It is needless to say that a decision of the Court of Appeal is binding on this Court. Application of Keil to the present case would resolve the question of whether a term should be implied in the employment contract in this case that the defendant was bound to observe the principles of natural justice in its dealings with the plaintiff in favour of the defendant.

Counsel for the plaintiff, however, has submitted that the implied terms pleaded in the statement of claim should be applied to the employment contract in this case. He relies on a number of New Zealand authorities on employment law in support of that submission. Counsel for the defendant, on the other hand, has submitted that much caution must be exercised in the application to Samoa of New Zealand authorities in the area of employment law because the social and industrial conditions in New Zealand as well as the legislative provisions which exist in that country are quite different from the social and labour conditions as well as the labour and employment legislation that exist in Samoa. Counsel for the defendant further submits that New Zealand has had a long history of trade unionism and collective bargaining which is reflected in its industrial and labour legislations whereas Samoa has not had such employment history or experience. Thus the social, industrial, and legislative environment which drives the attitudes of the New Zealand Courts in the development of employment law in that country is quite different from the environment we have in Samoa. There is of course a great deal of truth in the submissions by counsel for the defendant which is worth bearing in mind. We even have the Labour and Employment Act 1972 and its termination provisions which apply to every contract of service by a “worker” as defined in that Act.

The general common law position in New Zealand may be found as stated in the judgment of McGechan J in Stuart v Armourguard Security Ltd [1996] 1 NZLR 484 where His Honour says at p491:

“I approach the matter as follows: The traditional common law approach in relation to employment terminable by notice recognised the employer could terminate at any time and for any reason or for none (Ridge v Baldwin [1963] UKHL 2; [1964] AC 40, 65). However, if he did so in a manner not warranted by the contract – eg, if he did not give notice required by the contract, or dismissed summarily without proper grounds – it was wrongful dismissal. The employer would be liable for damages. He was not, traditionally, obligated to hear the employee in his own defence. Subject, to any express contractual terms, fairness and natural justice did not arise.”

“This approach at common law became too restrictive for modern industrial conditions and social thinking. A statutory dismissal and wider remedy the (so-called personal grievance procedure) developed in New Zealand for ‘unjustified dismissal’. The history is traced conveniently by Casey J in Ogilvy & Mather (NZ) Ltd v Turner p649. The term ‘unjustified’ is important. It contrasts with the traditional ‘wrongful. It is has never been specifically defined, but is regarded as looking at justifiability and fairness of the dismissal, rather than common law legalities (Auckland City Council v Hennessey [1982] ACJ 699 (CA). It requires consideration whether the dismissal was just and fair, even if given on notice or occurring for cause sufficient at common law. Procedural fairness, as to manner of decision, was and is an important aspect.”

“There is a powerful school of thought holding that the common law should develop and is developing, a similar implied term contractual requirement. Origins generally are traced back to obiter dicta in the Court of Appeal in Auckland Shop Employees Union v Woolworths (NZ) Ltd [1985] 2 NZLR 372, and particularly Marlborough Harbour Board v Goulden”.

To be added to the above passage is the observation by Cooke P in Ogilvy & Mather (NZ) Ltd v Turner [1994] 1 NZLR 641 where His Honour says at p644:

“Common law remedies for wrongful dismissal and common law implied terms are becoming closer to the redress given and the obligations recognised by the personal grievance procedure. That is sufficiently illustrated by Whelan v Waitaki Meats Ltd [1991] 2 NZLR 74 to damages for mental distress and Auckland Shop Employees Union v Woolworths (NZ) Ltd [1985] 2 NZLR 372 as to implied terms concerning trust and confidence and fair and reasonable conduct.”

It would be seen from the above passages cited that New Zealand common law with regard to implied terms in an employment contract has been in a state of active development. That development has been very much influenced by the existence of a statutory personal grievance procedure provided under the Employment Contracts Act 1991 (NZ). No such statutory procedure exists in Samoa. Social and industrial conditions in New Zealand must have influenced the enactment of legislation which provides for that procedure. The social, economic, and political conditions in Samoa are rather different. This does not mean that there should not be any development at all in our common law in the field of employment. In fact there has been such development as evidenced by the recognition by both the Supreme Court and the Court of Appeal in Keil of the applicability of implied terms to an employment contract even though no term was actually implied in that case. A rather cautious approach was taken in that case, no doubt with an eye on the employment conditions and environment that currently exist in Samoa.

In Keil v Polynesian Airlines Ltd [1980 – 1993] WSLR 222, Bathgate J in the Supreme Court said at p232:

“I cannot imply a term into the contract that would preserve such rights as it would clearly contrary to the express provisions of clause 4.2(c). That would be contrary to the express provisions of the contract. Under those circumstances there is no room for an implied condition or provision.”

That particular passage was cited with approval on appeal by the Court of Appeal in Keil v Polynesian Airlines Ltd [1980] – 1993] WSLR 395 at 397. The Court of Appeal further said at pp 398 and 399 that a term will not be implied into an employment contract if the contract is effective or makes perfectly good sense without it. I respectfully agree that in principle a term cannot be implied into an employment contract if it is contrary to or inconsistent with an express term. To do so will be tantamount to rewriting the contract for the parties. A term which is in direct conflict or undermines a right, obligation, or privilege expressed in a contract will be inconsistent with an expressed term. This principle of inconsistency as it applies to contractual implied terms in an employment context also appears from two of the New Zealand authorities cited by counsel for the defendant. In Andrews v Parceline Express Ltd [1994] 2 ERNZ 385 Tipping J, who delivered the judgment of the Court of Appeal, said at p392 in respect of an obligation to act fairly and reasonably sought to be implied by counsel for the appellant employee:

“[Counsel for the appellant employee] also argued that there was an implied term that [the respondent employer] would exercise its power of termination reasonably. The first and simple answer to that proposition is that no such implied term was pleaded. Such an implied term cannot reasonably be read into paragraph 11(c) either in itself or particularly in conjunction with paragraph 11(b) stating that the contract was subject to six months notice of termination. That point aside, there is absolutely no foundation for implying into a contract of this kind a term whereby a clear and express power to terminate on so many months notice is to be subject to a limitation that it be exercised reasonably. The scheme of the December 1987 contract was to provide separately and distinctly for termination without cause and then for termination for cause. The same must apply to the January 1991 contract. There is no basis for any implication to the contrary.” (emphasis mine)

In Stuart v Armourguard Security Ltd [1996] 1 NZLR 484 at 494, McGechan J in the High Court, expressly stated that he was bound to apply Andrews. In the next case of Air New Zealand v Raddock [1999] NZCA 6; [1999] 2 NZLR 641 the New Zealand Court of Appeal was also concerned with an action at common law by an employee for wrongful dismissal. The written employment contract in that case provided in clause 11 that either party to the contract may terminate the contract on one week’s notice and it further provided in clause 20 for redundancy. The Court differed on the effect that clauses 11 and 20 should have on the question of whether certain implied terms should be applied to the contract. However, the Court was in unanimous agreement that a term cannot be implied into an employment contract if it is inconsistent with an express term. Henry J in delivering the judgment of himself and Gault J says at p646:

“What is relied upon here is an implied term that the employee will not be dismissed unjustifiably. It is fundamental that an implied term cannot contradict or be inconsistent with an express term. In this case cl. 11(a) expresses the company’s (and Mr Raddock’s) right to terminate on one week’s notice. The employment is declared to be a weekly one, i.e., it enures from week to week unless terminated either summarily for misconduct, or by notice. To engraft on to the claim a further restriction on termination, namely it must be justifiable or for good reason, is patently inconsistent. The right is to give notice without cause. The first breach is said to be that the cause for giving notice, namely a desire to be rid of an embarrassingly critical employee, was insufficient or unjust. It is tantamount to saying that good cause is a prerequisite to the exercise of the right. That cannot be right”.

Thomas J who delivered a dissenting judgment takes a similar view on the issue that a term cannot be implied into an employment contract if it is inconsistent with an express term. He says at 660:

“Assuming for the purpose of argument, however, that Mr Raddock was dismissed on notice without cause, the introduction of the concept of ‘justifiability’ into a common law action for wrongful dismissal where the employment has been terminated in accordance with the contract between the parties cannot stand. The notion that a termination of employment on notice without cause must be justified for a cause is a contradiction in terms. With respect, the Judge went too far. To imply a term that the employer must justify for cause a termination given on notice without cause is clearly inconsistent and cannot be sustained. No implied term can be implied which would undermine the party’s right to terminate the contract on notice without cause. It should be plain, however, that this does not mean that the implied term of trust, confidence and fair dealing does not apply to a dismissal situation. What it means is that the implied obligation cannot be applied in a manner which would be inconsistent with the terms of the contract of employment”.

It is clear from the passage cited from the judgment delivered by Henry J and more particularly from the first sentence of the passage cited from the judgment of Thomas J, that the concept of ‘justifiability’ cannot be introduced into an action for wrongful dismissal where the employment was terminated in accordance with the provisions of the contract of employment which does not require just cause to be shown. In this case, the plaintiff’s employment was indisputably terminated in accordance with the express provisions of the written contract of employment. However, the evidence and the case for the plaintiff proceeded on the basis that even if the plaintiff’s employment was terminated in accordance with the contract, the termination was unjustified because in the plaintiff’s opinion it was unfair or unreasonable. Is that not tantamount to an attempt to introduce the concept of ‘justifiability’ into the plaintiff’s action for wrongful dismissal contrary to what is said in Raddock? Is that also not tantamount to an adoption of the concept of “unjustified dismissal” provided under the Employment Contracts Act 1991 (NZ)? These are important questions which call for further careful consideration. I turn now to consider the implied terms pleaded by the plaintiff.

(a) The defendant would not without reasonable cause conduct itself in a manner calculated to destroy or damage the relationship of trust and confidence between itself and the plaintiff.

One can see the reasons behind the argument that in an employment situation there is an implied term that an employer is under an obligation that he would not without reasonable cause conduct himself in a manner calculated to destroy or damage the relationship of trust and confidence between himself and an employee. But in my view that implied term cannot be imported into this case. The employment contract between the plaintiff and the defendant is clear and unequivocal as to how it can be terminated; either party may terminate the contract by giving the other party two weeks written notice of termination, or either party may terminate the contract without notice by making a monetary payment to the other party in lieu of notice. This is an express term of the contract and the defendant was entitled to terminate the plaintiff’s employment by making a monetary payment in lieu of notice. To engraft onto the defendant’s contractual right of termination an implied obligation that it would not without reasonable cause conduct itself in a manner calculated to destroy or damage its relationship of trust and confidence with the plaintiff in the exercise of that right, would amount to a variation of an express term in the contract. But a term cannot be implied into an employment contract if it has the effect of varying an express term. Such an implied term would be contrary to or inconsistent with the express term. As stated by Thomas J in Raddock, the implied obligation of trust, confidence and fair dealing cannot be applied in a manner which is inconsistent with the terms of an employment contract. His Honour also pointed out that the introduction of the concept of ‘justifiability’ into a common law action for wrongful dismissal where the employment was terminated in accordance with the contract cannot stand. The case of Turner v Ogilvry & Mather (NZ) Ltd [1994] 1 NZLR 641 where an obligation of trust and confidence was implied was not concerned with a formal written contract of employment where the terms of the contract were expressly stated in writing. Thus the issue of whether there was an inconsistency between an express term and a term to be implied did not arise in that case. The absence of an express and contrary provision on the issue of termination made it possible to imply the obligation of trust and confidence into the contract of employment in that case.

The plaintiff’s case is framed on the basis of constructive dismissal. It is pleaded in the statement of claim that the acts and conduct of the defendant in terminating the plaintiff’s services amounted to constructive dismissal. That pleading is followed by the pleading which sets out the implied terms alleged by the plaintiff to have been breached. What happened in this case was that the defendant’s chief executive officer invited the plaintiff to resign. The plaintiff refused. The plaintiff’s chief executive officer then handed the plaintiff a letter terminating his services. On those facts I am inclined to the view that what happened was a straightforward dismissal rather than a constructive dismissal. But see the discussion of the concept of “constructive dismissal” in Auckland Shop Employees Union v Woolworths (NZ) Ltd [1985] 2 NZLR 372 which was another case not concerned with a formal written employment contract. The issue, however, is not whether the plaintiff’s dismissal was constructive or not. The real issue is whether the implied term of trust and confidence can be applied to this case. I have decided that it cannot be applied.

(a) The defendant would act fairly and reasonably in its treatment of the plaintiff and in particular would keep the plaintiff informed and give him adequate opportunity to answer any concerns that the defendant might have about the plaintiff’s performance before reaching any decision to dismiss him.

This implied term overlaps with the implied term in (a) and with the next implied term in (c) which is that the defendant was bound by the principles of natural justice in all dealings with the plaintiff. It also overlaps with the implied term to be discussed in (c), i.e., the defendant would not dismiss the plaintiff in a manner which is likely to cause distress. To say that there is an implied obligation on an employer to act fairly and reasonably in its treatment of an employee is a broad obligation which encompasses all the other implied terms pleaded by the plaintiff.

I think it is necessary to remind oneself again that in this case, we are dealing with a written employment contract which has express terms of its own and contains express provisions on the issue of termination. The implied term which the plaintiff is seeking here to import into the contract of employment is similar to the implied term that the defendant employer would act fairly and reasonably in its treatment of the plaintiff which was pleaded in Turner v Ogilvy & Mather (NZ) Ltd [1994] 1 NZLR 641. But that was not a case of a written contract of employment with express provisions on termination. So there was no question in that case regarding express terms excluding the application of inconsistent implied terms into the employment contract. That is of course different from the present case where we are dealing with a written employment contract that contains express provisions on termination. In Andrews v Parceline Express Ltd [1994] 2 ERNZ 385, Tipping J, in a passage already cited, said that there was no foundation for implying into the employment contract a term whereby a clear and express power to terminate on so many months notice would be subject to a limitation that it be exercised reasonably. Again in Raddock, Thomas J said that the concept of ‘justifiability’ cannot be introduced into a common law action for wrongful dismissal where termination is in accordance with the employment contract.

As to the more particular implied term that the defendant would keep the plaintiff informed and give him adequate warning to answer any concerns that the defendant might have about the plaintiff’s performance before reaching any decision to dismiss him, this is tantamount to saying that the defendant was under an implied obligation to observe the principles of natural justice before it dismissed the plaintiff. In Keil v Polynesian Airlines Ltd [1980 – 1993] 395, the Court of Appeal was faced with an argument to imply into the employment contract a term that the employer when it dismissed the appellant employee was under an obligation to observe the principles of natural justice. The Court held that the principles of natural justice do not apply to a master and servant relationship. At p399 it is stated:

“As to the application of public law and principles of natural justice we find that “here all that existed was a pure master and servant relationship. The employer was not a public corporation or quasi-government body and the principle adverted to in cases such as Marlborough Harbour Board v Goulden [1985] 2 NZLR 389 simply have no application”.

The Court in Keil, however, was not concerned with the situation where an inquiry is being conducted into allegations of dishonesty made against an employee; so the Court in that case did not have to consider the applicability or otherwise of natural justice in such a situation.. The position in New Zealand as it appears from the authorities cited by counsel, is rather unclear as to whether the principles of natural justice can be implied into the dismissal of an employee under an employment contract in private law. This is explained in Stuart v Armourguard Security Ltd [1996] 1 NZLR 484. In that case the plaintiff’s third cause of action was that there was an implied obligation on the employer to comply with the principles of natural justice and that the plaintiff’s dismissal from his employment was wrongful because it was carried out in breach of that implied obligation. In dealing with this cause of action, McGechan J said at p495:

“I have my doubts whether such an obligation is recognised at law outside the contractual area and statute. The present dismissal is not pursuant to statutory powers attracting administrative law obligations open to judicial review, as in Marlborough Harbour Board v Goulden. There have been hints at appellate level as to recognition of some general natural justice basis for requirements for fairness in dismissal; vide Auckland Shop Employees Union v Woolworths (NZ) Ltd per Richardson J and Marlborough Harbour Board v Goulden per Cooke P as quoted above, p382. However, that possibility has not been faced squarely in its own right, independently of contractual considerations. It is perhaps the more contentious in light of the negative approach in Andrews v Parceline Express to a contractual counterpart. Why should natural justice obligations be recognised when implied contractual terms are considered inappropriate? The present case is not the moment for the exercise. The third cause of action was not the subject of separate submission, and was not actively pursued. It is dismissed.”

If the approach adopted in Andrews v Parceline Express had made the position in New Zealand “more contentious” as to whether a natural justice obligation should be implied into a dismissal situation pursuant to an employment contract in private law, then the approach that was subsequently adopted by the Court in Raddock with regard to the implication of terms does not make the position in New Zealand any less contentious. It is therefore not possible to find firm guidance on the present issue in the New Zealand authorities cited by counsel. In any event, the decision of the Court of Appeal in Keil is binding on this Court. The plaintiff in this case was also given an opportunity to be heard when he was interviewed by the auditor who conducted the audit inquiry. The plaintiff had also been confronted by the defendants chief executive officer with the unauthorised excess of RJM’s overdraft limit before the plaintiff was suspended from employment and subsequently dismissed. The pleaded implied term under discussion cannot be applied to this case.

(c) The defendant would be bound by the rules of natural justice and equity in all dealings with the plaintiff

I have already dealt with natural justice under (b) and conclude that an implied obligation for the defendant to observe the principles of natural justice when dismissing the plaintiff cannot be applied to this case following the Court of Appeal decision in Keil. As to whether a term should be implied that the defendant was under an obligation to observe equity in all dealings, I have not been able to find any authority in which it has been held that an employer is under an implied obligation to observe equity in all dealings with an employee. Equity is a very broad area of the law. In any event this particular implied term regarding equity is not pursued in the written submissions of counsel for the plaintiff. It is therefore dismissed.

(d) The defendant would not dismiss the plaintiff in a manner likely to cause distress or loss of reputation without proper cause.

It is pleaded in the statement of claim that the defendant was under an implied obligation not to dismiss the plaintiff in a manner likely to cause distress or loss of reputation without proper cause. The relevant circumstances have already been referred to and I need not refer to them again in detail. What must be pointed out again is that the method by which the defendant terminated the plaintiff’s employment is expressly provided in the employment contract, i.e., payment in lieu of notice. Counsel for the plaintiff also does not dispute that the termination of the plaintiff’s employment was in accordance with the express terms of the employment contract which are in writing. The manner of termination was that after the audit inquiry during which the plaintiff was interviewed by the auditor in relation to his actions in approving an overseas transfer of funds for RJM which exceeded RJM’s overdraft limit by a substantial amount, a report was submitted to the defendant’s chief executive officer. The chief executive officer then called a meeting with the plaintiff. In that meeting the chief executive officer invited the plaintiff to resign. When the plaintiff refused to resign, the chief executive officer handed him a termination notice. The plaintiff was also paid all his entitlements under the contract. I do not attach significance to the fact that the letter is dated the previous day. In any case, the chief executive officer called the plaintiff the previous day to meet with her but the plaintiff was only available the following day which was when the letter of termination was handed to him. I also attach no significance to the fact that the chief executive officer gave no reasons for the termination. The termination clause of the employment contract contains no such requirement from either party. In any case, the plaintiff must have been clear about the reason. He was suspended on 14 January 2003 following the discovery that he had on the previous day allowed an overseas transfer of funds for RJM which exceeded the limit of RJM’s overdraft by a substantial amount. That was contrary to a clear written instruction issued by the chief executive officer in December 2002 that RJM’s overdraft limit of $100,000 was not to be exceeded. In the audit inquiry carried out into that incident by the defendant’s external auditors, the plaintiff was interviewed about the incident. On 24 January 2003, ten days later, the plaintiff was handed the termination letter. So even though no reasons were given by the chief executive officer for the termination of service, it must have been clear to the plaintiff why his employment was being terminated. I do not see how the manner in which the plaintiff’s employment was terminated can be described as being high-handed, outrageous, or humiliating. In my opinion, the plaintiff’s employment was not terminated in an unacceptable and damaging manner. I accept that many, if not most, terminations of employment would inevitably result in distress to the employee concerned. The degree of distress experienced would vary from case to case depending on the circumstances. But not every such distress would be compensable with damages. I am not so sure whether as many employment terminations would inevitably result in loss of reputation to the employee; but I would accept that some employment terminations would have that result. That does not mean that every loss of reputation from termination would be compensable with damages. The plaintiff also testified that he has reopened his private accounting firm and it has “picked up”.

This part of the case for the plaintiff relies for support on two New Zealand cases cited by his counsel. These are the decisions of the New Zealand High Court in Whelan v Waitaki Meats Ltd [1991] 2 NZLR 74 per Gallen J and Stuart v Armourguard Security Ltd [1996] 1 NZLR 484 per McGechan J. In Whelan Gallen J held that there exists in law an implied term that an employer is under an obligation that he would not without reasonable and proper cause conduct himself in a manner calculated or likely to destroy or seriously damage the reputation of an employee or to cause to the employee undue distress, anxiety, humiliation, loss of dignity or injury to feelings. Such an implied term was accepted in Stuart by McGechan J following Whelan. In both cases, it was held that the implied term applied to the termination of the plaintiff employee’s employment. However, an important factor which distinguishes Whelan and Stuart from this case is that in those two cases, the Court was not concerned with a written employment contract. There was no express contractual provision on termination involved in those cases. In this case, there is a written employment contract which contains express provision on how the contract can be terminated by either party. The plaintiff does not dispute that his employment was terminated in accordance with the contract. I have also stated that in my opinion, the defendant did not dismiss the plaintiff in an unacceptable and damaging manner. If that had been done, I would have looked sympathetically to the implied term pleaded by the plaintiff. A case, which has already been mentioned, that is similar to the present case in that it dealt with a written employment contract which contained express provision on termination, is Air New Zealand v Raddock [1999] 1 NZLR 641. At p646 of the judgment which was delivered by Henry J for the majority, it is there stated:

“The company’s case does not turn on a rejection of the proposition that the relationship of confidence and trust is to be implied as a normal incident of an employment contract. Nor does it turn on the proposition that procedural unfairness can never found a common law claim for damages where there has been a dismissal on notice which complies with a contractual right. In the latter situation, we are content to leave open the possibility of a claim, for example where the right has been exercised in an unacceptable and damaging way, such as in a public and humiliating announcement of a notice of termination, designed to cause distress to the employee”. (emphasis mine)

It would appear from the passage just cited from Raddock that even if an employment contract is terminated in accordance with its express provisions, the employer could still be in breach of the implied term that the employer would not without reasonable and proper cause conduct himself in a manner calculated or likely to destroy or seriously damage the reputation of the employee or to cause the employee undue distress, anxiety, humiliation, loss of dignity or injury to feelings, if the manner by which the contract was terminated is “unacceptable and damaging”. In my respectful view, the manner by which the plaintiff’s employment was terminated in this case does not come within that description. The fact of dismissal may be “unacceptable and damaging” to an employee, but that is not the same thing as saying that the manner of dismissal is unacceptable and damaging.

Defendant’s counterclaim

Pleaded by way of a counterclaim, it is alleged by the defendant that because of the plaintiff’s negligence and incompetence in the performance of his duties and responsibilities, the defendant had to advertise for and interview applicants for a replacement for him; and the defendant had incurred costs in the exercise. This seems to be a novel cause of action in the area of employment law given the circumstances of the present case. No authority was cited for it and the counterclaim is not pursued in the written submissions of counsel for the defendant. It appears that the gist of the cause of action in the counterclaim is that because of alleged incompetence the plaintiff had to be replaced, and he should pay for the costs of his replacement. The law has not gone that far. I would require full submissions with appropriate citation of authorities before I would accede to this type of cause of action.

For the foregoing reasons, the plaintiff’s claim and the defendant’s counterclaim are both dismissed. Counsel to file submissions as to costs within ten days after they receive this judgment.

CHIEF JUSTICE

Solicitors:
Fepuleai & Schuster Law Firm for plaintiff
Kruse, Enari & Barlow Law firm for defendant