Waddell v mathematics.com.au Pty Ltd [2013] NSWSC 142

Supreme Court New South Wales

Medium Neutral Citation: Waddell v mathematics.com.au Pty Ltd [2013] NSWSC 142 Hearing dates: 30-31/01/2012, 01-02/02/2012, 16/02/2012, 21/03/2012, 04/04/2012 Decision date: 01 March 2013 Jurisdiction: Common Law Before: Rothman J Decision: (1) Damages awarded to Mr Waddell for breach, the damages being wages not paid up to 28 October 2010 and 46.6 days leave. (2) Defendant to pay the plaintiff's costs, as agreed or assessed and interest on judgment. (3) Plaintiff to provide minutes of orders to reflect reasons for judgment. (4) Parties have leave to address on terms of orders and any different or special order for costs or interest. Catchwords: EMPLOYMENT LAW - contract of employment - minimum service requirement - not fixed-term contract - factual dispute as to breach of employment contract - employee breach found - particular termination provision followed - wages, leave and shares not paid - employer breach in non-payment - damages awarded Cases Cited: Afovos Shipping Co SA v Pagnan (1983) 1 All ER 449 Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 Balog v Crestani [1975] HCA 16; (1975) 132 CLR 289 Downe v Sydney West Area Health Service (No 2) [2008] NSWSC 159; (2008) 71 NSWLR 633 Downer EDI Limited v Gillies [2012] NSWCA 333 Fletcher v Nokes [1897] 1 Ch 271 Gillies v Downer EDI Ltd [2011] NSWSC 1055; (2011) 218 IR 1 Green v Sommerville [1979] HCA 60; (1979) 141 CLR 594 Haley v Public Transport Corporation of Victoria [1998] VSC 132; (1998) 119 IR 242 Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 McClelland v Northern Ireland General Health Services Board [1957] 2 All ER 129 McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 Pan Foods Company Importers and Distributors Pty Ltd v Australia and New Zealand Banking Group Ltd [2000] HCA 20; (2000) 170 ALR 579 Randall v Aristocrat Leisure Limited [2004] NSWSC 411 Riverwood International Australia Pty Ltd v McCormick [2000] FCA 889; (2000) 177 ALR 193 State of New South Wales v Austeel Pty Ltd [2003] NSWCA 392 Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 Rawson v Hobbs [1961] HCA 72; (1961) 107 CLR 466 Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429 West v TWG Services Limited [2009] FCA 1052; (2009) 189 IR 97 Texts Cited: William Howarth, The Meaning of Objectivity in Contract (1984) 100 LQR 265 Category: Principal judgment Parties: Paul Gerard John Waddell (Plaintiff) mathematics.com.au Pty Ltd (Defendant) Representation: Counsel: A Britt (Plaintiff) A Rogers (Defendant) Solicitors: Colin Biggers & Paisley Lawyers (Plaintiff) Norwest Lawyers (Defendant) File Number(s): 2010/411107 Publication restriction: None

Judgment 1HIS HONOUR: The plaintiff, Paul Waddell, alleges that the defendant, mathematics.com.au Pty Ltd (hereinafter, "MATHS") has breached its employment contract with him and sues for damages, including lost opportunity damages.

Background and contract 2Mr Waddell first executed a written contract of employment on 16 December 2008 (hereinafter, "the First Contract") (Exhibit A, p 45) and commenced employment on 12 January 2009. The First Contract contained an express term that Mr Waddell would provide services for a minimum of 12 months commencing 12 January 2009 and that Mr Waddell and MATHS would discuss the extension of the contract no later than August 2009. 3By clause 6 of the First Contract, MATHS agreed that it would "issue to [Mr] Waddell 120,000 ordinary shares in MATHS (representing approximately 1.41% of the issued shares in the company at the end of 2009)". 4The terms of the First Contract that are most relevant are clauses 3, 4, 5, 6 and 9, which are in the following terms: "3. Paul Waddell hereby agrees to provide the services for a minimum period of twelve (12) months commencing from January 12 2009 on terms and conditions outlined in this agreement. 4. MATHS and Paul Waddell agree to discuss the extension of this contract no later than August 2009. 5. It is agreed that Maths will pay to Paul Waddell an annual base salary of $110,000 plus superannuation (at standard rate), with at least CPI annual increases to be negotiated, into an account nominated by Paul Waddell, payable on a fortnightly basis. 6. In consideration of providing such services, at the completion of each full twelve month period of service, MATHS will issue to Paul Waddell 120,000 ordinary shares* in MATHS (representing approximately 1.41% of the issued shares in the company at the end of 2009). However in the event that the company is sold, or this contract ceases for any reason, ordinary shares will be issued to Paul Waddell at pro-rata, i.e. calculated as follows: Number of ordinary shares = (number of days of service since last shares were issued)/365) x 120,000. * All shares are based on 8,000,000 ordinary shares being issued at start of 2009 to all present shareholders. ... 9. Paul Waddell will report directly to the Managing Director, Mr Patrick Murray, and shall at all times comply with all reasonable directions issued by the Board of Directors of MATHS." 5On 12 January 2010, Mr Waddell and MATHS executed a further written document (hereinafter, "the Second Contract"). Most relevant to the issues between the parties are the terms of clauses 2, 3, 4, 7, 9 and 10, which clauses are in the following terms: "2. Paul Waddell hereby agrees to provide the services for a minimum period of twenty-four (24) months commencing from January 12, 2010 on terms and conditions outlined in this agreement. MATHS and Paul Waddell agree to discuss the extension of this contract no later than July 2011. 3. It is agreed that Maths will pay to Paul Waddell an annual base salary of $150,000 plus superannuation (at standard rate), with at least CPI annual increases to be negotiated, into an account nominated by Paul Waddell, payable on a fortnightly basis. 4. In consideration of providing such services, at the completion of each full twelve month period of service, MATHS will issue to Paul Waddell 120,000 ordinary shares in MATHS. However in the event that the company is sold, or this contract ceases for any reason, ordinary shares will be issued to Paul Waddell at pro-rata, i.e. calculated as follows: Number of ordinary shares = (number of days of service since last shares were issued)/365) x 120,000. ... 7. Paul Waddell is entitled to 4 weeks paid annual leave p.a., with leave loading at the standard rate, at times as agreed by all parties concerned, and for every day necessarily spent away from home which involves a night away from home, he shall accrue 0.5 extra day's annual paid leave. A minimum requirement of 40 hours per week work is expected. ... 9. Paul Waddell will report directly to the Managing Director, Mr Patrick Murray, and shall at all times comply with all reasonable directions issued by the Board of Directors of MATHS. 10. This agreement may be terminated at any time by either party in the event that one of the parties has committed a breach of any of the terms of this agreement provided that the offending party shall have twenty-one (21) days from being put on notice in writing of its breach to rectify the same." 6As is apparent from the foregoing, under the Second Contract, Mr Waddell was to receive an annual base salary of $150,000 and 120,000 ordinary shares in MATHS at the completion of each full 12-month period of service. 7The annual leave provision is a little complicated and was an issue or relevant to an issue in the proceedings. Mr Waddell was entitled to four weeks' annual leave and in addition to that four weeks' leave Mr Waddell was entitled to an extra half-day for every night necessarily spent away from home. Mr Waddell was required to work a minimum of 40 hours per week. 8From 12 January 2009 until August 2010, Mr Waddell attended Directors' meetings of MATHS. MATHS provided to Mr Waddell a form, being a "Consent to Act as Director Form". Mr Waddell did not execute this form. 9On 18 May 2010, MATHS lodged with ASIC a form 484 purporting to register Mr Waddell as a Director of MATHS. Mr Waddell considered this registration as a Director was unlawful, as he had not at that time provided written consent. 10On or about 9 September 2010, Mr Waddell moved files that were stored on the drive of his laptop (and for which there was a desktop shortcut) into a different drive. This was not a deliberate act, nor an intended result. 11On the following day, namely 10 September 2010, Mr Waddell advised MATHS that he could no longer gain access to the data and files on his laptop. The defendant demanded that Mr Waddell return the laptop. 12On 11 September 2010, Mr Waddell attended the workplace and found that his access card no longer operated and that the premises were locked. 11 September 2010 was a Saturday. Mr Waddell, nevertheless, obtained access to the workplace. 13On 12 September 2010, Mr Waddell informed MATHS that he would return the laptop following its examination by an IT expert. He also informed MATHS that he required all material that he had retained in order to discharge his duties as General Manager. 14By letter dated 13 September 2010, the defendant's solicitor informed Mr Waddell that he was not to attend the workplace. 15MATHS served a notice to show cause on the plaintiff, alleging that Mr Waddell had failed to follow a direction from the defendant to deliver to the company the laptop computer; effected an unauthorised entry of the workplace premises; and failed to deal in a forthright and open manner with the defendant in that Mr Waddell failed to disclose that he retained certain company property on another computer or back-up device. This letter was the subject of a reply dated 28 October 2010. 16An IT expert reported that no data had, in fact, been removed from the aforementioned laptop, but was, instead, moved to a different drive and the shortcut on the desktop of the computer had been deleted. 17On 28 October 2010, the defendant purported to terminate the Second Contract. Mr Waddell asserts the defendant's termination of the contract was wrongful and claims damages as a consequence thereof. He also claims that he had a legitimate and reasonable expectation that the second contract would be renewed, and, as a consequence of that expectation and the failure to realise it, claims further damages, being loss of opportunity to a renewed contract of employment. 18Originally, a major issue between the parties was the failure by MATHS to issue the shares to which Mr Waddell was entitled. An original draft of reasons for judgment dealt, predominantly, with that issue. While judgment was reserved the shares were issued by MATHS and the plaintiff withdrew that part of the claim. The original judgment has necessarily been rendered almost useless and these reasons for judgment have been wholly redrafted. 19Notwithstanding the foregoing comment, it is necessary, at least in passing, to deal with the controversy relating to the issue of the shares.

Additional facts 20Despite the suggested intensity of the dispute between the parties, most of the facts were not in dispute. The foregoing background is essentially uncontroversial. During the first year of employment Mr Waddell was happy with the way his employment was conducted and, it seems, so too was MATHS. 21Despite or as a consequence of the position and title of Mr Waddell as General Manager, he did not perform the role of Chief Executive Officer. 22Mr Waddell had been working as head of mathematics in a non-government school and Mr Murray was the Executive Managing Director of MATHS. MATHS conducted the business of an on-line mathematics tutorial in which students could learn mathematics by use of the Internet. MATHS earned income by charging a fee for use of the tutorials that it provided to students on-line. 23When Mr Waddell was first employed, Stephen Murray also worked at MATHS. Stephen Murray is Patrick Murray's brother. 24Mr Waddell was offered shares in MATHS and purchased shares. His status as a shareholder affected the relationship between the parties, but it is otherwise irrelevant to the issues before the Court. 25Towards the end of the First Contract period, discussions occurred between Mr Patrick Murray and Mr Waddell relating to the employment of Mr Anthony Haines. There is some controversy as to the terms of the initial conversations, but, again, the terms of those initial conversations are not directly relevant to any issue in the proceedings. It is sufficient to note that some ideas were put forward by Mr Waddell to Mr Patrick Murray as to the nature of the employment, but those ideas were not implemented. Mr Murray (hereinafter I will refer to Patrick Murray as "Mr Murray" and his brother Stephen as "Mr Stephen Murray") indicated some terms of employment that were intended to apply to Mr Haines, which conditions were inferior to the conditions enjoyed by Mr Waddell. Mr Haines commenced employment with MATHS on 1 February 2010. 26On or about 16 March 2010, Mr Waddell indicated to Mr Haines that he was "not happy with many terms in [Mr Haines'] service agreement especially ... salary and bonus ... hours of work, ... duties, and the fact that [Mr Haines had] no probation period". Mr Haines' reaction was to decline to discuss the terms of his employment with Mr Waddell and to refer Mr Waddell to Mr Murray. 27On 15 March 2010, Mr Waddell emailed Mr Murray in relation to Mr Haines' employment agreement. The terms of the email are not directly relevant. It is sufficient to note that Mr Waddell complained about Mr Haines' salary and bonuses and about being excluded from information and/or agreement as to the terms upon which Mr Haines would be employed. Partly, the complaint seems to be about the effect that the contract will have on the earnings from the shares that Mr Waddell held in MATHS, while recognising that, because Mr Waddell was not a Director, Mr Murray was within his rights to do as he had done. 28Nevertheless, Mr Waddell considered that he had been "well and truly put in his place" (Exhibit A, at 53). 29It is also necessary to deal with the purported appointment of Mr Waddell as a Director of MATHS. The Board of Management of MATHS unanimously invited Mr Waddell to become a Director. He declined to become a Director, at least partly, because he was concerned that he was unable to be a Director in circumstances where his superannuation fund controlled shares in the company. 30As earlier stated, Mr Waddell was provided with a form to be completed in order for him to signify his consent to being a Director. The form was never completed. Notwithstanding the non-completion of the form, MATHS advised ASIC that Mr Waddell had become a Director and Mr Waddell attended and voted at meetings of Directors. 31When, on 13 August 2010, ASIC advised Mr Waddell, in the ordinary course, that he had been listed as a Director of MATHS, Mr Waddell seemed to take the view that some conspiracy was afoot and that he was being "setup" by the defendant. He contacted Mr Murray and expressed his concerns. Mr Murray's attitude was that it was an insignificant issue. Mr Waddell contacted ASIC. 32On 24 August 2010, Mr Waddell raised the issue of his directorship at a meeting of Directors and requested that he be removed, forthwith, as a Director. The other Directors seemed to be disquieted that Mr Waddell had raised the matter with ASIC. They agreed to rectify the situation and he was removed as a Director on 6 September 2010. 33On 3 September 2010, Mr Waddell wrote to ASIC (Exhibit B, at 577-578) informing them that he had made five phone calls to them since he had received the notification, seeking to ask them how it was possible for him to be installed as a Director in circumstances where he had not signed any consent and the unsigned consent form was still in his possession. This contemporaneous note of the occurrences on 24 August 2010 referred to the other Directors shouting out and abusing him, because he had informed ASIC that his installation as a Director was implemented without his consent. Mr Waddell requested ASIC to remove his name from the register as a Director because it was done without his consent. 34Further, the letter contains an implied allegation that the amount of money Mr Waddell and his wife had spent on shares in MATHS (approximately $440,000) had been used improperly or inappropriately by the purchase of a house by Mr Murray and renovations thereto. 35On 9 September 2010, Mr Waddell wrote, once more, to ASIC. On this occasion Mr Waddell requested an audit by ASIC of MATHS, to be conducted immediately. The reason, provided by Mr Waddell, for the urgency was that the books were being "cooked", "as we speak, records are being re-written, and fund transfers hidden". Mr Waddell again referred to Mr Murray's expenditure on his home and alleged that Mr Murray was engaged in tax fraud. 36At this stage, the Court should make clear that, by the time Mr Waddell gave evidence in the proceedings, he accepted that the amount he paid for shares was not paid to MATHS, but to other shareholders. The money, being a capital receipt by the individual shareholders, may or may not have occasioned Capital Gains Tax liability, but such matters were matters for the individual shareholders, not MATHS. 37On 9 September 2010, being the same date on which the earlier-mentioned further correspondence was sent to ASIC, Colin Biggers & Paisley, on behalf of Mr Waddell, sent a letter to Mr Murray, Mr Stephen Murray and Mr Anthony Haines. It is appropriate to repeat the terms of the letter. (Exhibit A, at 84): "We have been instructed to act on behalf of Mr Waddell. He has asked us to write to you with respect to ongoing concerns about his employment and the governance of the company of which he is a substantial shareholder, namely Mathematics.com.au (MCA). Appointment as director Mr Waddell instructs us that he was appointed as a director of MCA on 18 May 2010. We are instructed that at that time he did not provide a written consent as he was uncertain as to the effect of being made a director and wanted to seek advice. He has told us however that he has acted in an executive capacity quite apart from his employed role as general manager. He has attended meetings that have been described as directors' meetings. He has also told us that he has made a substantial investment into MCA, the investment which amounts to a sum of in excess of $400,000. We note that he has had 748,658 shares allotted to a company of which he is a principal namely Paul Waddell Holdings Pty Limited (PWH) however, a search of the records kept by the Australian Securities and Investment Commission (ASIC) shows currently that only an amount of $799.89 is recorded as paid up capital. In the circumstances we have told Mr Waddell that he should remain as a director of MCA. In the circumstances, in order to provide Mr Waddell with further advice as to his standing and the governance of MCA, would you please make available to him all of the following: 1. All accounts, profit and loss accounts, balance sheets and accounting records generally for the period from 1 January 2008 to date. 2. Copies of all tax returns for the financial years ending June 2007 to June 2009. It is essential that Mr Waddell have a proper understanding of the financial position of MCA as soon as possible. Employment Mr Waddell has instructed us that he executed a Service Agreement to act as MCA's general manager on 12 January 2010. We have a copy of the Service Agreement. We note that the Service Agreement is for a minimum period of 24 months. There have been suggestions by the managing director (Patrick Murray) that there is some dissatisfaction with his performance although no particulars have been provided. Would you please provide Mr Waddell with all appropriate particulars with respect to any dissatisfaction that you may have with respect to his performance. Mr Waddell denies any unsatisfactory performance. General Mr Waddell is dissatisfied with the way MCA has been run in recent times. From the records that appear to have been kept the governance of the company has been in his view unsatisfactory because of: o Improper records (especially financial records) o Inadequate risk management o Poor and improper record keeping of directors' minutes and directors' meetings o Absence of general meetings held by the company o Lack of information as to the security of his investment in MCA. We reserve Mr Waddell's rights. Such rights may include taking action in the Supreme Court under the Corporations Act 2001 (C/wlth) with respect to oppressive conduct towards him as a minority shareholder pursuant to Chapter 2F. Would you please provide us with the information requested in this letter as soon as possible. Yours faithfully" (Exhibit B, at 652-653) 38On 10 September 2010 at 7.12am, Mr Waddell sent an email to Mr Murray with a copy to Mr Waddell's solicitor. That email asserts that all of the files on Mr Waddell's laptop had been deleted overnight, by someone at MATHS, by use of "remote desktop software". According to the email, Mr Waddell was watching this as it occurred between 8.30pm and 9.15pm on 9 September 2010, when he was using the laptop and "watched the files disappear in real-time". 39Mr Waddell also asserted that, as a consequence of the file deletion, he could not perform his duties and respond to emails in following up school contacts through his spreadsheet records. Mr Waddell sought contact and direction on the issue and informed Mr Murray that "due to health issues concerning [Mr Waddell's wife]", Mr Waddell would not be in the office that day. 40The expert opinion before the Court satisfies the Court that the files, as previously stated, were not deleted by use of remote access software. Further, on 9 September 2010, that which Mr Waddell saw was the effect of what he had done. He had inadvertently (and unknowingly) deleted shortcuts to programs and documents and stored them in a different drive. 41Much was made, during the course of cross-examination and submissions, of the unreliability of Mr Waddell. I do not consider Mr Waddell's evidence unreliable. Nor do I consider Mr Waddell was dissembling, disingenuous or mendacious. Mr Waddell was genuinely mistaken as to the cause of the computer glitch: see, for example, Exhibit 2, which was a draft email typed by Mr Waddell, and never sent, because he believed Mr Murray (or one or more others from MATHS) could remotely read it on his laptop screen. 42Shortly after the foregoing email advice, Mr Murray spoke by telephone with Mr Waddell during which Mr Murray expressed the view that the deletion of files was a very serious matter; he could not believe that it had occurred; none of Mr Murray, Mr Stephen Murray or Mr Anthony Haines had, on their assurances, anything to do with the process; and the laptop needed to be examined forensically and that he would attend at Mr Waddell's house to collect it. 43Some little while later Mr Waddell rang Mr Murray and left two voice messages (Exhibit B, at 655). Those voice messages indicated firstly that Mr Waddell did not want any confrontations; that Mr Murray had no rights to Mr Waddell's laptop in accordance with the legal advice he had received. Secondly, that if Mr Murray were to enter Mr Waddell's property, he would call the police. Mr Murray heard the messages. 44Notwithstanding the foregoing messages, Mr Murray and Mr Haines attended at the premises of Mr Waddell. There is some disputation as to the terms of the conversation between them and the surrounding circumstances relating to it. 45In my view, the discrepancy between the two accounts is not significant and does not lead to the conclusion that any one of the witnesses was necessarily lying or even unreliable. I accept the following version from the various accounts of the attendance at Mr Waddell's home. 46Mr Murray attended with Mr Haines. They were greeted in the front of the house by Mr Waddell who told them: that he was getting the laptop forensically examined; that they were to leave the property forthwith; and, if they were not to leave, he would call the police. Mr Murray walked past Mr Waddell while this conversation was occurring in order to implement the decision to collect the laptop. Mr Waddell perceived, reasonably, that Mr Murray was, notwithstanding Mr Waddell's request, seeking to gain access to the house. The conversation was not convivial. 47Mrs Waddell, on Mr Waddell's request, filmed the incident. The film is not now available. I do not consider that any inference arises from the non-production of the film and I accept that the film was destroyed or deleted long before the hearing of these proceedings. I do not draw an inference based on the non-production of the recording either under the rubric of Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, or on any other basis. 48On leaving Mr Waddell's home, Mr Murray called the office of MATHS and instructed one or more persons to change the locks. Neither Mr Murray, nor MATHS, informed Mr Waddell of this step. 49By letter dated 10 September 2010, and sent by email, Mr Waddell's solicitor wrote again to Mr Murray, Mr Stephen Murray and Mr Haines (Exhibit A, at 86). The letter complained that the solicitor was not contacted after their earlier conversation in order that the solicitor could be forewarned of the intended visit to Mr Waddell's home. The letter, presumably on instructions, also asserts that Mr Waddell was informed by Mr Murray or Mr Haines that he [Mr Waddell] was "unwelcome" to return to the workplace and that he was not a director. 50The aforesaid letter asserts that Mr Waddell is, notwithstanding the assertion of Mr Murray in the conversation with Mr Waddell at Mr Waddell's home, a director and asserts that Mr Waddell has an entitlement, as such, to know "all of the company's dealings and affairs". The letter also alleges oppression of a minority shareholder, being Mr Waddell. 51As stated earlier, on the morning of Saturday 11 September 2010, Mr Waddell attended the MATHS' premises. Mr Waddell sent a text message to Mr Murray informing him that he went to the office and that the key would not work. Mr Waddell also informed Mr Murray that he had been required to change the locks and had left three copies of the key in Mr Murray's letterbox. Mr Waddell had called a locksmith to change the locks in order to allow him to gain entry. Mr Waddell thought that the locks had been changed (presumably by Mr Murray), but that it was within his rights to arrange for access to the premises. 52In the conversation at Mr Waddell's home, Mr Waddell had been requested to surrender his keys to the office. Mr Waddell had refused. Apart from being told that he was "unwelcome" on the premises at work, Mr Waddell was informed that he would be treated as a "trespasser" if he attended. 53On 12 September 2010 Mr Waddell informed Mr Murray that he would have the laptop examined by an information technology expert and that, after that examination, the laptop would be returned to MATHS. He also informed Mr Murray that all of the material retained by him was required by him in order to discharge his duties as General Manager. 54On 13 September 2010 MATHS, through its solicitor, formally directed Mr Waddell not to attend the workplace and agreement was reached between the parties in respect of an expert inspection of the laptop that was the subject of dispute. 55Shortly after these events Mr Waddell, through his solicitor, indicated that he would work remotely from home and that, in such circumstances, he was ready, willing and able to work (see Exhibit A, at 103, [9] and 108). 56By letter dated 23 September 2010 (Exhibit A, at 110), MATHS purported to give notice requiring Mr Waddell "to show cause why the Service Agreement dated 12 January 2010 ... should not be terminated". The letter purported to identify breaches described as follows: "The directors identify the following breaches: (1)Failure to comply with the reasonable direction of the directors of Mathematics.com.au Pty Ltd (clause 9). Particulars (a)Failure to deliver the company laptop computer to the directors of the company or in accordance with their direction arising from a breach of security on or about 9 September 2010. (b)Unauthorised entry into the work premises of Mathematics.com.au namely Suite 7, 4-10 Hillcrest Road, Pennant Hills, on or about 11 September 2010. (c)Failure by Mr Waddell to deal in a forthright and open manner with Mathematics.com.au Pty Ltd in that he failed to disclose that he retained certain company property on another computer or back up device." 57The Notice to Show Cause purported to require Mr Waddell to "show cause as to why the Service Agreement should not be terminated no later than 5:00pm 15 October 2010" and informed Mr Waddell that if the company were "not satisfied with any explanation provided by [him] by that date, then [the company] shall take steps to terminate the Service Agreement dated 12 January 2010". 58By letter dated 7 October 2010 (Exhibit A, at 114), Mr Waddell's solicitor wrote to MATHS seeking a response to its letter of 21 September 2010, noting that no response had yet been received and reiterating that while these matters remained unresolved, Mr Waddell was ready, willing and able to work in the office or, if MATHS preferred it, remotely. The letter notified MATHS of Mr Waddell's 10 percent shareholding in MATHS, through the company Paul Waddell Holdings Pty Ltd for whom the solicitors also acted. It then requested, in its capacity as shareholder, to see the yearly financial accounts and asking for notice of the convening of the annual general meeting of MATHS. 59On 14 October 2010, Mr Waddell replied to Mr Murray referencing the Show Cause letter. Mr Waddell, in that letter (Exhibit A, at 153): denied any breach of his employment agreement; stated his alarm and concern as to the files on his computer apparently disappearing; and gave that as the context for the appropriateness of an external expert's opinion on what had happened. The letter of 14 October 2010 acknowledged that the files had not been deleted but had been moved within the computer itself. The letter expressed the view of Mr Waddell that the computer "will be delivered to your [MATHS'] solicitor before close of business tomorrow". 60In the letter of 14 October 2010, Mr Waddell asserted that as the General Manager he had a right to attend the premises. He had not been informed that the locks had been changed and denied that for him, as General Manager, to gain access to the office could be a breach of clause 9 of his contract. Mr Waddell reiterated that he was "still ready, willing and able to continue to work for the company". 61Mr Waddell also denied that backing up material on his computer was a failure to deal with the company in a forthright manner. The letter otherwise denied any wrongdoing and also required MATHS to identify where Mr Waddell was said to be in breach of his Service Agreement. 62By letter dated 28 October 2010 (Exhibit A, at 155), MATHS purported to give notice of termination of the Agreement, being the second contract. The terms of that letter are short and deserve repeating: "Notice Of Termination Pursuant to notice to show cause dated 23 September 2010. (sic) The board of directors at its meeting of 19 October 2010 considered the response provided by you. The members of the board are not satisfied with the response to the notice to show cause and in the circumstances herby (sic) terminate the agreement dated 12 January 2010." (Exhibit A, at 155.) The foregoing letter was over the signature of Mr Murray, as Managing Director. 63On 3 November 2010, Mr Waddell's solicitor wrote to the solicitor for MATHS asserting that there was no basis for the termination of the employment and asserting that, apart from "an embarrassing statement in the letter dated 28 October 2010 that the directors are 'not satisfied' with Mr Waddell's response to the show cause letter, no reason is given for the termination of the employment". The letter of 3 November 2010 asserts: that the second contract was a "fixed term contract"; that Mr Waddell had not been paid for the fortnight ending 29 October 2010; and had not been paid any accrued statutory entitlements. The letter threatens damages for termination of the contract and asserts an eligibility for damages of $524,465 including, approximately, $260,000 for the three tranches of shares that had not issued. The letter reserved the right to claim further damages (see Exhibit A, at 142). 64In or about November 2010, there were discussions between the parties relating to mediation and on 10 December 2010 Mr Waddell filed his statement of claim. On 27 January 2011, Mr Waddell obtained alternate employment as a teacher at a salary of $82,525 per annum.

The terms of the contract 65The terms of both the First Contract and the Second Contract that are most relevant to the issues between the parties have already been recited. It is necessary, briefly, to state the principles upon which the terms of the contract ought be construed. 66The submission of the plaintiff is that the terms of the contract are to be determined objectively. This judgment is not the occasion to discuss the distinction between objective and subjective meaning. The statement is the generally accepted proposition in relation to construction of contracts, but is not totally accurate. 67The construction of a contract does not involve the determination of the subjective beliefs or understandings of the parties. It does involve a determination of the intention of the parties as objectively construed. In other words, the terms of the contract are construed in a way that a reasonable person in the position of the parties intended. The difference is usually not significant and, in this case, is not significant, but the process is one that is an objective determination of the intention of particular parties not an objective determination by a person who is not in the position of the parties. The task is not wholly objective. As the High Court has said: "In practice, as between the contracting parties, there is little difference in the result of the application of the two competing theories since allied with any assertion of the 'subjective theory' is acceptance of one manifestation of the doctrine of estoppel which would ordinarily operate to preclude one who had so conducted himself that a reasonable man would believe that he was assenting to the terms of a proposed contract, from leading evidence as to what his real intentions were." (Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422 at 428, per Mason ACJ, Murphy and Deane JJ.) 68The foregoing approach is applied both to the formation of the contract and to the terms of the contract. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at 179, the High Court said: "It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction." 69A more complete discussion of the distinction between subjective and objective theory in contract is to be found in other passages from Taylor v Johnson and in the judgment of McHugh JA in Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 336 and in William Howarth, The Meaning of Objectivity in Contract (1984) 100 LQR 265. 70Like any other document, in order to construe a contract, the contract must be read as a whole (Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641, per Jordan CJ; L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235. 71Further, construction of a contract must take into account the overall purpose of the contract and that it must be construed in a reasonable and commercial manner and not overly technically: Riverwood International Australia Pty Ltd v McCormick [2000] FCA 889; (2000) 177 ALR 193 at 204-205 and 217; Pan Foods Company Importers and Distributors Pty Ltd v Australia and New Zealand Banking Group Ltd [2000] HCA 20; (2000) 170 ALR 579 at 584; Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429 at 437. 72Some of the terms of the First Contract and the Second Contract are, to say the least, a little unusual. Notwithstanding the submission by Mr Waddell, the service agreement is not "for a fixed term". Nevertheless, the contract requires Mr Waddell to provide services "for a minimum period" of 12 months in the case of the First Contract and 24 months in the case of the Second Contract. 73Given the terms of the Second Contract and the fact that it deals with each of the issues dealt with in the First Contract, the Second Contract discharged the First Contract. 74Nevertheless, the requirement to provide shares and certain other benefits were accrued rights that were not discharged at the termination of the contract: McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 at 476-477, per Dixon J. I do not here deal with the claim that a collateral agreement varied the contract of employment so that the shares were not to be issued. 75The terms of the written agreement are, subject to certain common law rights, the entirety of the agreement between the parties. By clause 3 of the First Contract and clause 2 of the Second Contract, Mr Waddell agreed to provide services "on terms and conditions outlined in this agreement". 76However, the contract is not for a fixed term. It requires Mr Waddell to provide services for a minimum period. At least on its face, it does not require MATHS to utilise those services for the same minimum period. 77Leaving aside, for the time being, the issue of whether MATHS were required to employ Mr Waddell for minimum periods of 12 and 24 months respectively, the terms of the agreements specify that the agreements "may be terminated at any time" for breach. The words "at any time" include during the 12 and 24 month periods. 78As a consequence, if there were a breach of the agreement, the minimum term, provided by clauses 3 and 2 of the First Contract and Second Contract respectively, would not operate to exclude the capacity to terminate in accordance with the agreed termination procedure. 79It is necessary to recite, shortly, some of the common law duties and rights to which no reference is made, and some to which reference is made. 80Interestingly, from an academic perspective, the parties expressly acknowledged that each has a "fiduciary duty to the other in the performance of this agreement". It is apposite to refer to the judgment of the Court of Appeal in Downer EDI Limited v Gillies [2012] NSWCA 333, particularly to the judgment of Allsop P (with whom Macfarlan and Meagher JJA agreed) at [83], where the Court said: "With the exception of one aspect, the parties were not in dispute as to the proper test for the assessment of whether conduct was sufficiently serious to warrant summary dismissal. In Concut Pty Ltd v Worrell [2000] HCA 64; 176 ALR 693 at [25], the plurality referred to, amongst other cases, Pearce v Foster (1886) 17 QBD 536 at 539, Blyth Chemicals Ltd v Bushnell [1933] HCA 8; 49 CLR 66 at 72-73 and 81-82 and Malik v Bank of Credit and Commerce International SA (in liq) [1998] AC 20 at 34-35 and 45-46. From these cases, it can be taken that the conduct must be incompatible with the due or faithful discharge of the employee's duty or inconsistent with the relationship of trust and confidence between employer and employee. Repugnance between the conduct and the relationship must be found. As the plurality noted at [26], referring to Prof. Finn's work Fiduciary Obligations (Sydney: Law Book Co, 1977) at 267, these formulations of the contractual duty are a re-expression of equitable obligations. The expression of the matter thus recognises that, to a significant degree, the assessment or characterisation of the conduct is to be made objectively: see especially Malik v BCCI at 35 and 47." 81The parties were in dispute as to the proper construction of clause 9 and clause 10. Mr Waddell submits that the contract draws a distinction between reporting to the Managing Director and complying with the reasonable directions of the Board of Directors. Thus, according to the submission of Mr Waddell, in order for Mr Waddell to be required to comply with a reasonable direction, it must be issued by the Board of Directors. 82Such an interpretation would be to some significant extent impracticable. Further, it would draw a distinction between the Managing Director and the Board of Directors in a way that persons in the position of Mr Waddell and MATHS could not have contemplated. Mr Murray, the Managing Director of MATHS, was the majority shareholder. It was a private company. The drawing of such a distinction is highly unlikely in those circumstances. 83More importantly, apart from directions given to Mr Waddell at a board meeting, how would Mr Waddell ever know whether the Managing Director was expressing directions issued by the Board of Directors? 84There are far more obvious reasons why such a distinction ought not be drawn. Reasonable directions in the context of a contract of employment include many ancillary and mundane matters. Should the employee work from home? Should the employee ring a particular client? Should the company car provided to the employee be taken in for service? 85It cannot seriously be suggested that reasonable directions dealing with such mundane matters would issue from the Board of Directors at a meeting convened to deal with such issues or as an ancillary aspect of a meeting otherwise convened. 86Such matters would arise in emergent circumstances and it would be wholly uncommercial, unreasonable and impracticable for the contract to be construed in a way that required the Board of Directors to convene to issue reasonable directions in all matters in order to require Mr Waddell's compliance. 87The dispute in relation to the termination provision (clause 10) essentially rests upon the proposition that Mr Waddell submits that the clause should be construed so that this method of termination is the only method of termination available to either one of the parties. 88There are a number of reasons why this cannot be so. Firstly, as already stated, the contract is not for a fixed term. The contract will not terminate by the effluxion of time or the happening of a particular event. As a consequence, absent breach, a construction of clause 10, as submitted by Mr Waddell, would involve the proposition that he had been employed for life. Life employment is not unknown, but will not be the proper meaning to be given to a term of a contract unless there is the clearest intention: Haley v Public Transport Corporation of Victoria [1998] VSC 132; (1998) 119 IR 242 referring to McClelland v Northern Ireland General Health Services Board [1957] 2 All ER 129; West v TWG Services Limited [2009] FCA 1052; (2009) 189 IR 97 at [34], per Gray J. 89It is therefore necessary to accept that there are means by which the contract of employment may be terminated, other than for breach. In that regard, the Court would look to the common law, which implies, into a contract of employment, a right to terminate on reasonable notice. In my view, there is a right by each of the parties to this contract of employment to terminate the contract on reasonable notice. 90Nevertheless, express terms of a contract override the common law. The terms of clause 10 of the contract restrict the rights of the parties to terminate for breach. At the same time, the clause extends the rights of the parties to terminate for breach. The contract provides for a right to terminate for any breach of the terms of the agreement or, as expressed, "a breach of any of the terms of this agreement" whether or not the term is an essential term or is a sufficiently serious breach of an intermediate term: see the discussion, at first instance, in Gillies v Downer EDI Ltd [2011] NSWSC 1055; (2011) 218 IR 1 at [156]-[171]. 91Further, the provisions of clause 10 of each contract limit the right of the party to terminate the contract before the offending party had been given 21 days' notice, in writing, of its breach in order to rectify the breach. 92Ordinarily, notice of a breach of that kind must be conveyed with reasonable certainty both as to the nature of the breach and that termination will ensue if there is a failure to rectify it: Balog v Crestani [1975] HCA 16; (1975) 132 CLR 289 at 299-300; Fletcher v Nokes [1897] 1 Ch 271 at 274; State of New South Wales v Austeel Pty Ltd [2003] NSWCA 392. Further, the party in breach must be given the period specified in the contract (or, in the absence thereof, a reasonable period) to rectify the breach, and the right to terminate cannot be exercised in advance of the time specified in the contract: Rawson v Hobbs [1961] HCA 72; (1961) 107 CLR 466; Green v Sommerville [1979] HCA 60; (1979) 141 CLR 594; Afovos Shipping Co SA v Pagnan (1983) 1 All ER 449.

Application of principles to these circumstances 93MATHS submitted that the correspondence by Mr Waddell to ASIC was a breach of the contract of employment. I do not need to deal with such an issue and the effect, if any, of such an issue on the terms that form part of the incidents of the contract of employment, being, particularly the effect, on the relationship of trust and confidence and the requirement, expressed in this contract, of fiduciary responsibilities. 94Nevertheless, when Mr Murray and Mr Haines attended on Mr Waddell at his home on 10 September 2010, they informed Mr Waddell that he was not welcome and that he ought not attend. They informed him that he would be treated as a trespasser. 95It is unnecessary to determine whether that direction was reasonable, or whether, because it was given by two Directors, rather than the subject of a Board of Directors' resolution, it bound Mr Waddell as described in clause 9 of the Second Contract. 96On 11 September 2010, Mr Waddell attended work. He was locked out. Mr Waddell then altered the electronic locks and gained access to the work premises. There is no suggestion that part of his duties or responsibilities involved the alteration of locks and the gaining of access to the premises of MATHS inconsistently with the steps taken by Directors to exclude him from those premises. 97If, as claimed by Mr Waddell, he was entitled, as an employee in his position, to have access to the work premises, then MATHS were in breach of the contract in excluding him. His recourse was to utilise the provisions of clause 10 of the contract or the courts. Mr Waddell was not entitled to change the locking mechanism in order to gain access to the premises. Mr Waddell, at that point, had taken his rights into his own hands and asserted his right to enter the premises ahead of the Managing Director's right to alter the locks on the premises. 98If that were not a breach of a reasonable direction of the Board of Directors, it was a breach of the requirement imposed by the terms of the contract and the nature of the relationship between Mr Waddell and MATHS. Breach of the contract can occur otherwise than by failing to act as directed. 99The aforesaid conduct was incompatible with the due or faithful discharge of the employee's duty or inconsistent with the relationship of trust and confidence between employer and employee: see Downer EDI Limited v Gillies, supra, at [83]. As a consequence, at that point, Mr Waddell was in breach of the contract or a term of the contract. 100Further, Mr Waddell was directed to deliver to the company the laptop computer in his possession. Again, Mr Waddell took into his own hands the assertion of his rights ahead of his duty to comply with the reasonable directions of the company and to ensure its capacity to operate in a secure and appropriate environment. Whether or not the return of the laptop was a direction from the Board of Directors, the incorrect allegations, made by Mr Waddell, that his computer had been sabotaged together with his failure to provide, on request, the laptop for investigation was a breach of his duty to the employer and a breach of the contract of employment. 101On 23 September 2010, MATHS served the notice, recited above. The continued assertion of Mr Waddell, through his solicitor, that he was ready, willing and able to work was irrelevant to the notice provided on 23 September 2010. It was not suggested that a breach had occurred because Mr Waddell was not ready, willing and able to work. 102By letter dated 15 October 2010, Mr Waddell denied any wrongdoing and returned the laptop. The return of the laptop may have been a step that rectified the breach associated with non-delivery of the laptop when required. Nevertheless, no rectification occurred, or could occur, of the unauthorised entry to the workplace. 103The provisions of clause 10, notwithstanding the submission of Mr Waddell, do not permit the Court to revisit a decision of MATHS to dismiss, simply because the breach was "reasonable". In the context of a discussion involving whether clause 10 dealt with all breaches, for example, an employee who shot the Managing Director in the leg, Mr Waddell submitted that the shooting may have been self-defence and therefore allowed. That submission does not deal with the relevant issue. 104If an employee shot her or his supervisor in self-defence, it may not be a breach of contract at all. It is unnecessary to deal with it, but I suspect that it would not be. Clause 10 deals with a breach of contract. There is either a breach of contract or there is not. Thereafter, if breach has occurred, it is a matter solely for the employer (or the notifying party in another case) to determine whether termination will be effected. Yet, if rectification were to occur, no termination could be effected. 105In this case, the break and enter into the premises of MATHS was a breach of the duties imposed upon Mr Waddell by the Second Contract. Neither the letter in response to the notice of breach, nor any conduct of Mr Waddell, rectified that breach. The reasonableness of the breach is, in that sense, irrelevant, except to the extent that conduct that is reasonable may not be a breach of the contract at all. 106It is necessary, albeit not central to the determination of these matters, to deal with the reasonableness of the direction not to attend work. In other proceedings, I have dealt at length with the capacity of an employer to "suspend" or direct not to work or not to attend work for a limited period: see Downe v Sydney West Area Health Service (No 2) [2008] NSWSC 159; (2008) 71 NSWLR 633. An employer is entitled, for a limited period pending an investigation or the determination of issues, to require an employee not to attend for work. In the circumstances pertaining to this employment, such a direction was reasonable. 107I turn then to the question of damages.

Damages 108I have deleted from this second judgment significant discussion of the question of the shares. 109It is sufficient for present purposes to state two conclusions. Firstly, the alleged agreement or collateral contract the effect of which, it is submitted by MATHS, was to vary the terms of the written contracts, was not a collateral contract at all. It was inconsistent with the original contracts and not binding. Further, the terms of the alleged agreement were, if one accepted its terms, not binding. Thirdly, I do not accept that any such agreement was made. The terms of the contracts, insofar as they dealt with the issuing of shares, operated. 110The parties have resolved that aspect, well after the conclusion of the proceedings, and shares have now issued. I therefore do not award damages for the non-issuing of the shares. I make it clear, however, that shares were required to be issued for the year ending 11 January 2010 (120,000 shares) and pro-rata for the period from 12 January 2010 until 28 October 2010. 111The provisions of clause 10, as earlier stated, operate to restrict the right of the employer to dismiss summarily for breach: see Gillies v Downer EDI Ltd, supra, and in particular at [167] and following, referring to Randall v Aristocrat Leisure Limited [2004] NSWSC 411, per Einstein J. If breach were to occur, the provisions of clause 10 operate so that termination of employment can be effected at a time not before 21 days after the providing of notice. MATHS gave notice on 23 September 2010. The termination of employment was effected on 28 October 2010 and operated forthwith. 112As a consequence of the foregoing, MATHS are required to pay wages up to and including 28 October 2010. 113MATHS submits that summary dismissal could have been effected and, if so, clause 10 would not operate. It is unnecessary to resolve the issue finally. I am inclined to the view, as earlier stated, that clause 10 governed all breaches. 114The effect of clause 10, whatever it may be, on summary dismissal does not affect the conclusion in these proceedings. Termination was effected on 28 October 2010. 115I have determined that the termination on 28 October 2010 was lawful, i.e. in accordance with the contract. The rights to shares, wages and leave are not affected by whether Mr Waddell had engaged in misconduct of a kind that warranted summary dismissal. Nor are they affected by whether MATHS had a right to dismiss summarily. 116On one view, MATHS have dismissed summarily. It has terminated employment on 28 October 2010, effective immediately. It has been able to do so because Mr Waddell has an "unrectified" breach of contract. No further notice is required, but accrued rights remain an obligation for which damages run. 117As a consequence of the foregoing, no occasion for loss of opportunity damages arises. In Gillies v Downer EDI Ltd, supra, I said: "[187] Damages for loss of opportunity is recoverable in contract when the contract as a whole is such as to promise an opportunity to obtain a benefit and where the loss of that opportunity arises because of the breach of the contract: see Silverbrook Research Pty Ltd v Lindley [2010] NSWCA 357 at [2], per Allsop P (with whom Beazley JA agreed), and the cases cited therein and, in particular, the reference to J W Carter, E Peden and G J Tolhurst, Contract Law in Australia, 5th Ed, (2007), LexisNexis Butterworths, at 856-858. As Allsop P said: 'The task is to identify and characterise what, in substance, was promised and what has been lost or denied by the breach of contract.'" 118Damages are awarded for breach. The only breach is the non-payment of accrued entitlements: shares, wages and leave. There is no breach by MATHS that truncated the period of employment and there is no loss of opportunity damages that arise. 119I accept Mr Waddell's evidence of his entitlement to 46.6 days leave at the date of his termination, based upon leave that had accrued and an allowance for time spent away that required Mr Waddell to stay overnight away from home: see Exhibit C. Exhibit C is the only documentary record of leave and is accepted by the Court. 120The plaintiff will provide minutes of orders. The defendant shall pay the plaintiff's costs, as agreed or assessed. The defendant shall also pay interest from 28 October 2010 until the date of judgment at the rate prescribed in the Uniform Civil Procedure Rules. Thereafter, interest after judgment will accrue. The parties have leave to address on the terms of the orders and on any different or special order for costs and interest.

********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 March 2013