HEUGH -v- CENTRAL PETROLEUM LTD [No 5] [2014] WASC 311 (22 October 2014)

Last Updated: 23 October 2014

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION : HEUGH -v- CENTRAL PETROLEUM LTD [No 5] [2014] WASC 311

CORAM : LE MIERE J

HEARD : 15-17, 20-24, 29 JANUARY 2014

DELIVERED : 5 SEPTEMBER 2014

FILE NO/S : CIV 1493 of 2012

BETWEEN : JOHN PHILLIP HEUGH

Plaintiff

AND

CENTRAL PETROLEUM LTD

Defendant

Catchwords:

Termination of employment - Termination was not for ulterior purpose - Plaintiff committed serious breach of employment contract - Plaintiff remedied breach - Termination was not a reasonable exercise of discretion - Termination not justified by plaintiff's misconduct in the course of employment - Plaintiff wrongfully dismissed



Assessment of damages - Loss of remuneration for balance of contract - Loss of opportunity to earn higher remuneration from salary review - Loss of opportunity to receive performance based bonuses - Loss of long service entitlements - Loss of opportunity to renew contract - Mitigation of loss

Legislation:

Long Service Leave Act 1948 (WA), s 8(2)

Supreme Court Act 1935 (WA), s 32

Result:

Judgment for the plaintiff for $1,520,248 and interest of $78,050

Category: B

Representation:

Counsel:

Plaintiff : Mr M L Bennett & Mr K Malhotra

Defendant : Mr J N West QC & Mr R P V Carey

Solicitors:

Plaintiff : Bennett + Co

Defendant : Jarman McKenna

Case(s) referred to in judgment(s):

LE MIERE J:

1 The defendant, Central Petroleum Ltd (Central), is an oil and gas exploration company listed on the Australian Stock Exchange. The plaintiff, Mr Heugh, was its managing director. His duties included investigating and negotiating farmout agreements. At a board meeting on 2 February 2012 Central's directors, against the opposition of Mr Heugh, resolved to assign the authority and responsibility for farmout dealings to the exploration manager, Mr Shortt, and form a farmout committee of the board, with the committee members to be Dr Askin, the chairman, and Mr Dunmore, a nonexecutive director.

2 The next day Mr Heugh met with Mr Shortt. Mr Shortt says, and Mr Heugh denies, that Mr Heugh said he was not happy with Mr Shortt being responsible for the farmout arrangements and he had a plan to show the board that Mr Shortt was too busy to take on responsibility for farmouts. Mr Shortt also says that Mr Heugh said he would send Mr Shortt a caution.

3 The following day Mr Heugh sent two letters to Mr Shortt. The first, the warning letter, said that in Mr Heugh's opinion Mr Shortt lacked an adequate level of professionalism in certain areas of performance, invited Mr Shortt to discuss the matter and said that a minimum of three warnings about inappropriate performance was required before any further action may be taken concerning Mr Shortt's employment. The second letter, the farmout responsibility letter, informed Mr Shortt of the board's resolutions, asked Mr Shortt whether he would like to take on these additional responsibilities and whether he thought some alternative arrangement might be better. On the same day Mr Heugh had telephone conversations with Mr Shortt. Mr Shortt says, and Mr Heugh denies, that Mr Heugh said that he was sending the letter of warning to show the board that Mr Shortt did not have enough time to take on responsibility for farmouts and the letter could be withdrawn after the farmout business was over.

4 Dr Askin convened a further board meeting on 17 February. The directors resolved that Mr Heugh had not complied with the requirements of his employment contract and had persisted in attempts to circumvent the board's decision to assign responsibility for farmout efforts. The board resolved that a letter should be sent to Mr Heugh requiring him to remedy those breaches within 14 days and that the remedy would be considered completed on receipt of a written assurance (of which a form would be provided) that he would comply with his duties including public support of any direction by the board. The board further resolved that Mr Heugh had sought to enlist the support of the exploration manager in efforts to circumvent the directions of the board concerning farmout responsibilities and in so doing had subjected the exploration manager to unacceptable workplace pressure which was in contravention of Mr Heugh's employment contract and the company code of conduct. The board resolved that a letter would be issued requiring Mr Heugh to remedy this breach within 14 days and that the remedy would be considered completed when the letter of warning to the exploration manager was unconditionally withdrawn and a full apology tendered to the exploration manager.

5 On 21 February Dr Askin, on behalf of the company, sent a letter to Mr Heugh informing him of the board's resolutions and that in order to remedy the breaches the company required him to provide to the company a signed letter in the form enclosed with the notice and a further letter to Mr Shortt in the form enclosed withdrawing the letter of warning and apologising to Mr Shortt for unacceptable workplace pressure. Mr Heugh signed and returned to the company a letter in the form of the letter to the company enclosed with the notice. Mr Heugh signed and sent to Mr Shortt a letter stating that he withdrew the letter of warning and apologised but in a form different from that enclosed with the notice.

6 On 18 March the directors, other than Mr Heugh, signed a circular resolution of directors which resolved that the chairman be authorised to enter into discussions with Mr Heugh regarding Mr Heugh resigning his employment and as a director and subject to those discussions to give Mr Heugh a notice terminating his employment and notice of intention to move a resolution at a general meeting of the company to remove him as a director. On 22 March Dr Askin and another nonexecutive director, Mr Faull, met with Mr Heugh and informed Mr Heugh that unless he resigned his employment would terminated. Mr Heugh did not resign. His employment was terminated by a letter of 22 March 2012.

7 Mr Heugh says that Central was not entitled to terminate his employment and in doing so breached and repudiated his contract of employment. Central says that it was entitled to terminate Mr Heugh's employment on the grounds expressed in the 21 February 2012 letter and the termination letter. Further, Central says that it was entitled to terminate Mr Heugh's employment because of his misconduct in connection with procuring a private investigator to undertake an investigation into Mr Shortt's background, experience and qualifications, which misconduct Central became aware of after the termination of Mr Heugh's employment.

8 Mr Heugh is a geologist. In 1998, together with Mr Faull, he incorporated the defendant company which was then known as Merlin Synergy NL. Mr Heugh was the executive chairman. The role of Mr Faull, who was the only other director, was mainly to ensure that the company's legal and financial requirements were satisfied. In 2005 the company changed its name to Central Petroleum Ltd. Mr Heugh became managing director, Dr Askin became nonexecutive chairman and Mr Dunmore became a nonexecutive director. Dr Askin is a geophysicist who had retired from Shell and lived in Melbourne. Mr Dunmore is a petroleum reservoir engineer who carries on an independent consultancy practice and lives in Scotland. In 2006 Central was listed on the Australian Stock Exchange.

9 Central held tenements or licences over large tracts of land in central Australia. Shortly after Central's listing on the ASX, the board resolved that Mr Heugh was to negotiate farmout deals on as much of the ground as Mr Heugh believed prudent.

10 Mr Shortt was employed by Central in July 2011 and commenced work in about August 2011. Mr Shortt was recruited through a recruitment agency and was interviewed by Mr Heugh before he was employed. Mr Shortt is a Canadian geophysicist who was living in Canada at the time of his recruitment.

11 Central's annual reports for 2007, 2008, 2009 and 2010 show that the company had sufficient cash or cash equivalents to meet its expenditure commitments. This was brought about largely as a result of capital raisings in excess of $10 million in 2008, $29 million in 2009 and $26 million in 2010.

12 The company's 2011 annual report disclosed that for the financial year ending 30 June 2011:

• current expenditure commitments (including contingent commitments) were $11,634,000;
• cash or cash equivalents at the beginning of the year had been $37,529,579;
• cash by the end of the year was $9,436,949;
• exploration expenditure for the year had been $31,342,975; and
• net cash outflow from operating activities for the year was $34,160,537.

In the 2011 financial year only $5 million was raised from capital raisings.

13 When Mr Dunmore came to Perth for the February 2012 board meeting he was concerned that the company's commitments were increasing and its funding capacity seemed to be falling. It was getting more difficult for junior explorers like Central to raise funds. Central needed to achieve farmouts which it had not been able to achieve in the previous seven years.

14 Dr Askin was concerned that the company did not have the funds to meet its expenditure commitments and was at risk of losing part of its exploration permits if it did not carry out such work. In his opinion there was a critical need to conclude funding arrangements by way of farmouts.

15 On 31 January 2012 Dr Askin and Mr Dunmore arrived in Perth for a board meeting scheduled for 2 February. On 1 February Dr Askin, Mr Dunmore, Mr Faull, Mr Shortt and a number of other staff and consultants attended a technical committee meeting at Central's offices. Mr Heugh was present for part of the meeting. Either prior to the technical committee meeting or prior to the board meeting the following day, Dr Askin, Mr Dunmore and Mr Faull met with Mr Shortt. There was a discussion about whether Mr Shortt was able and willing to run a farmout process for Central. Mr Shortt said that he was.

16 The board meeting took place on 2 February. There was extensive and vigorous debate concerning farmout negotiations. Dr Askin proposed that the exploration manager should have sole authority and responsibility for farmout negotiations subject to consultation with a farmout committee of the board and approval of the board. The exploration manager would report directly to the farmout committee. Mr Heugh said that he strongly resented that the board wanted to remove him from the farmout process and only allow him to have input once the committee had recommended a deal. Mr Heugh said that in his opinion Mr Shortt was not well qualified to conduct a comprehensive farmout process and did not have the time or resources to do a proper job of it. The board resolved to assign the authority and responsibility for farmout dealings to the exploration manager and form a farmout committee of the board with the committee members to be Dr Askin and Mr Dunmore. Dr Askin, Mr Faull and Mr Dunmore voted in favour. Mr Heugh voted against. It was determined that a letter advising Mr Shortt of the resolution would be sent but there was no resolution about who would draft or send the letter. Mr Heugh stated that despite his opposition he agreed to cooperate with these new arrangements.

17 The following day, Friday 3 February, Mr Shortt was at home moving in furniture which had just arrived from Canada. Mr Heugh telephoned Mr Shortt and asked to meet him. Mr Heugh says that Mr Shortt said he was not dressed suitably to attend the office and so Mr Heugh proposed they meet at Coco's Restaurant which is in the building below Central's offices. Mr Shortt says that he met Mr Heugh at Central's office and Mr Heugh then said that they should go to Coco's because he did not want to be overheard. In any event, they went to Coco's. Mr Shortt says that Mr Heugh said he was not happy with Mr Shortt being responsible for the farmout arrangements and he had a plan which was to show the board of directors that Mr Shortt was too busy to take on the farmout role. Mr Shortt says that as Mr Heugh was leaving he said words to the effect that he would send Mr Shortt a caution.

18 Mr Heugh denies that he says that he had a plan. Mr Heugh says that, amongst other things, he told Mr Shortt that he was of the view that Mr Shortt's performance of his duties was lacking in certain areas and therefore he should think about taking on the additional duties very seriously, that he would send Mr Shortt a letter setting out the board's resolution of a formal offer to him and it was up to him to accept or reject the offer and even though he disagreed with the resolution passed by the board he would abide by it and give it his full support and actively assist Mr Shortt if he accepted the offer. Mr Shortt denies that Mr Heugh expressed any concerns about his work performance.

19 The next day, 4 February was a Saturday. Mr Heugh composed two letters to Mr Shortt and then emailed them to him by two separate emails sent one immediately after the other. The first was the warning letter to which I have already referred. The email to which the letter was attached stated, 'Trevor need to discuss this when convenient, thanks'. The second, the farmout responsibility letter to which I have also referred, was attached to an email which stated 'Also need to discuss this'. The emails were sent at 10.15 am.

20 After he had sent the emails Mr Heugh telephoned Mr Shortt. Mr Heugh says that he told Mr Shortt that he had emailed him a letter setting out what they had spoken about the previous day and Mr Shortt replied to the effect that he did not want a caution letter on his file, to which Mr Heugh replied that the letter would not be put on his file until they had discussed the issues raised in it. Mr Shortt says that during the telephone conversation Mr Heugh said that he would send Mr Shortt a letter of caution, that the caution could be withdrawn at any time and expunged from his file because it was only on Mr Heugh's computer and he had not shown it to anyone else. Mr Shortt says that Mr Heugh said that he was sending this letter to try to show the other directors that Mr Shortt did not have enough time to take on the farmout role. Mr Shortt says that in response he said that he would quit if Mr Heugh gave him the letter of caution and Mr Heugh responded, 'I'll have to think of something else'.

21 After the telephone conversation Mr Heugh sent another email at 10.33 am. The email states that its subject is 'notice' which is the same description on the email which attached the letter of warning. The email states:

Trevor, I have thought through this and believe that the matters therein should be brought to your attention. However, after we discuss this on my return, I am prepared to expunge this from your records if our discussion concludes that such a caution is not required. This is entirely a legitimate process. I warn you, I can withdraw it and expunge from all files. No other records have been kept apart from a soft copy on my desktop and nothing on the various other server hard drives. No other person has any knowledge of this. This is a discreet matter and not to be confused with any other communication or discussion that may be extant.

22 On Tuesday, 7 February Mr Heugh sent an email to the other directors and to Mr White, the company's general counsel and together with Mr Elsholz the joint company secretary and to Mr Shortt on the subject 'Trevor Shortt Assignment Dispute'. The email attached the letter Mr Heugh had sent to Mr Shortt on 4 February concerning his new farmout role, that is the farmout responsibility letter. In his email Mr Heugh said that he had 'not noted the perfidy of the board in approaching Trevor first just before the board meeting on Thursday 2nd February 2012, before even discussing the matter with me'. The email went on to express further criticism of the board and then stated 'Trevor will not be able to manage an ordered comprehensive global disposal of assets via farmout successfully; no single person could. I think Trevor needs to consider this very seriously before advising what he wants to do'. Mr Heugh went on to say that he had lost faith in the integrity of the board of directors.

23 In response to that email the following day Mr Shortt sent an email to Mr Heugh, copied to the other board members, saying that he felt it was vital to the success of the farmout process that Mr Heugh be closely involved in all aspects of it and he felt that Mr Heugh should be part of the farmout subcommittee and urged the board to consider adding him.

24 Mr Heugh responded with a further email to Mr Shortt and the other directors. The email was critical of the board resolution to assign responsibility of farmouts to Mr Shortt, of the board and in particular Dr Askin. The email stated, amongst other things, that the company 'would be the laughing stock of the junior oilfield if news of this clumsy, inappropriate, disruptive and treacherous process is allowed to proceed'.

25 At about this time, 8 or 9 February, Mr Heugh had a conversation with Mr Shortt when they were driving to collect Mr Heugh's Mercedes. They spoke about the matters raised by Mr Heugh in the letter of warning and Mr Shortt explained that the reports there criticised were prepared by subordinates and it would not happen again. Mr Heugh said words to the effect 'don't worry about it, let's just get on with it'.

26 On 9 February Dr Askin telephoned Mr Shortt. In response to questions from Dr Askin about how matters were between Mr Shortt and Mr Heugh, Mr Shortt informed Dr Askin of Mr Heugh's emails sent to him on 4 February and the telephone conversation that day.

27 On Friday, 10 February Mr Shortt sent an email to Dr Askin to which he attached the warning letter and the farmout responsibility letter sent to him by Mr Heugh on 4 February. In the email Mr Shortt said that the letters were accompanied by a phone call stating that the caution was part of Mr Heugh's plan to show the board that Mr Shortt was too busy to take on farmout roles and that Mr Heugh had also stated that the caution could be withdrawn after the farmout business was over. The email said that Mr Shortt had threatened to resign at which point Mr Heugh had backed down and said he would have to think of something else.

28 On Sunday, 12 February Dr Askin sent an email to Mr White, copied to the other directors, requesting that a board meeting be convened on Friday, 17 February when the sole agenda item would be 'The Managing Director'.

29 On 12 February Mr Heugh sent to Central's other directors and to Mr White and to Mr Elsholz a notice stated to be notifying a dispute pursuant to cl 16.1 of Mr Heugh's employment contract. Clause 16.1 of the employment contract provides that if a dispute arises in connection with the agreement, a party to the dispute must give to the other party to the dispute notice specifying the dispute and requiring resolution under that clause. The clause goes on to provide for the dispute to be submitted to mediation. The notice of dispute was subsequently considered by the board at a meeting on 17 February. At that meeting the board resolved that the company did not recognise that a dispute existed and did not agree that mediation was required. Mr Heugh sent a copy of his notice of dispute to Mr Shortt attached to an email which stated 'Trevor to keep you in the loop, I trust you are keeping your cool, we will get this worked out sensibly before not too much longer I believe'.

30 Mr Heugh and Mr Shortt were due to attend the North American Prospect Expo in Houston and arrangements had been made for them to leave Perth on 19 February. On Sunday, 12 February Dr Askin sent an email to Mr Heugh in which he referred to the board meeting scheduled for the following Friday and requested that Mr Heugh not accompany Mr Shortt to the Expo. Over the next two days Mr Heugh sent emails to Dr Askin and the other board members saying that it would be difficult for him not to attend the Expo and he was not sure if the board could prevent him attending.

31 On Tuesday, 14 February Mr Shortt sent an email to the board members saying that he would accept being solely responsible for farmout opportunities.

32 In the week leading up to the board meeting Mr Heugh asked for more details of the proposed agenda item concerning the managing director, asked for an adjournment of the meeting and asked whether he could have independent legal counsel to assist him. Dr Askin refused those requests. On Wednesday, 15 February Mr White sent by email to the directors a briefing note drafted by Dr Askin for the agenda item 'Conduct of the Managing Director'. By letter of 16 February Mr Heugh appointed Mr Babington as his alternate.

33 The board meeting was attended by Dr Askin, Mr Faull, Mr Babington as alternate for Mr Heugh and the joint company secretaries, Mr White and Mr Elsholz. Mr Dunmore attended by telephone. The board discussed each item of the briefing note. The following resolutions were passed with Dr Askin, Mr Faull and Mr Dunmore voting in favour and Mr Babington against:

That the Managing Director has not complied with the requirements of clause 5.1(a) of his employment contract to 'assume and exercise the powers and perform the duties from time to time vested in or assigned to him by the Board or its nominee and will comply in all respects with the directions and regulations given or made by the Board, or its nominee' and has persisted in attempts to circumvent the Board's decision to assign full authority and responsibility for the management of CTP's oil & gas farmout efforts.



A letter is to be issued forthwith under the provisions of clause 14.1(a)(iii) of the Managing Director's employment contract requiring these breaches to be remedied within 14 days.



The remedy will be considered completed on receipt of a written assurance (of which a form will be provided) that the requirements of 5.1(a) will in future receive full compliance including public support of any direction given by the Board.

and

That the Managing Director has sought to enlist the support of the Exploration Manager in efforts to circumvent the directions of the Board concerning farmout responsibilities and so doing has subjected the Exploration Manager to unacceptable workplace pressure.



This is also in contravention of clause 5.1(a) of the Managing Director's employment contract as well as the Company Code of Conduct.



A letter will be issued under the provisions of clause 14.1(a)(iii) of the employment contract requiring this breach to be remedied within 14 days.



This remedy will be considered completed when the letter of warning to the Exploration Manager is unconditionally withdrawn and a full apology tendered to the Exploration Manager, these to be in written form.

34 Dr Askin said his understanding was that the NAPE attendees would be Mr Dunmore and Mr Shortt. The board also resolved, with Dr Askin, Mr Faull and Mr Dunmore voting in favour and Mr Babington against, that in response to the managing director's request for mediation the company did not recognise a dispute existed and did not agree that mediation was required.

35 A letter dated 21 February from Central to Mr Heugh was delivered to Mr Heugh on 22 February. The letter was drafted by Mr White and signed by Dr Askin. The letter referred to the board's resolution concerning responsibility for farmouts and said that Mr Heugh had attempted to circumvent the board's decision to assign responsibility for farmouts to the exploration manager and such actions were a persistent breach of his employment contract. The letter said that in order to remedy the persistent breach the company required Mr Heugh to cease handling farmout dealings and to provide public support of the board resolution and a proper handover to the exploration manager. The letter said that in order to provide the company with assurance that the persistent breach had been remedied, Mr Heugh was asked to provide a signed letter in the form which was provided in attachment C within 14 days. Attachment C was drafted by Dr Askin.

36 In relation to the treatment of Mr Shortt, the letter said that Mr Heugh had sought to enlist the support of Mr Shortt in efforts to not comply with the board's resolution and in so doing had subjected Mr Shortt to unacceptable workplace pressure as a result of circumstances and issues raised against Mr Shortt surrounding the issuance of a warning letter. The letter stated that this was a serious breach pursuant to cl 14.1(a)(iii) of Mr Heugh's employment contract. The letter said that in order to remedy the serious breach the company required Mr Heugh to:

(a) provide the Exploration Manager (ie Mr Trevor Shortt) a written unconditional withdrawal of the warning letter and to expunge the letter from Mr Shortt's human resource file; and



(b) tender a full written apology to Mr Shortt for the unacceptable workplace pressure imposed on Mr Shortt in respect to the circumstances and issues raised against Mr Shortt surrounding the issuance of the warning letter.

The letter said that in order to provide the company with an assurance that the serious breach has been remedied, Mr Heugh was asked to provide a signed letter to Mr Shortt in the form provided at attachment D within 14 days. Attachment D was drafted by Dr Askin. Neither the letter nor its attachments were read or approved by Mr Faull or Mr Dunmore before they were sent.

37 On 22 February Mr Heugh responded by saying that he would be seeking legal advice, requested a copy of the minutes of the meeting of 17 February and noted that he had received no response to his notice of dispute. By email sent at 7.36 pm on 22 February, Dr Askin responded saying that the minutes were not currently available and the company did not recognise that a dispute existed. Dr Askin further said that termination was not an underlying objective and the notices provided specific remedies relating to compliance with employment conditions which if followed would result in satisfaction of the employment contract conditions and no further action would be required.

38 After the board meeting on 17 February Mr Dunmore flew to Houston where he met with Mr Shortt. Mr Dunmore and Mr Shortt represented Central at the NAPE conference. At the conference Mr Dunmore met Niraj Pande. Mr Pande had been engaged by Central, through his company Geoscience Resource Recovery LLC (GRR), as a consultant in connection with Central's efforts to find a farmin partner or investor in Central's projects. Although the formal agreement between GRR and Central had expired by the time of the conference, Mr Pande continued to act in the capacity of a consultant to Central.

39 In his evidence Mr Pande alleged that certain statements were made by Mr Shortt and Mr Dunmore about Mr Heugh. Mr Pande says that during a telephone conversation with Mr Shortt on 15 February in which Mr Shortt told Mr Pande that Mr Heugh would not be attending the expo, Mr Shortt said that Mr Heugh was 'fixing to exit the door' and Mr Heugh's employment with Central was in the process of being terminated with the board taking away his farmout responsibilities as the first step. Mr Pande says that on 21 February, in the presence of himself and Mr Dunmore, Mr Shortt said words to the effect that the board and employees of Central were not naïve and were aware that under the table fees or gratuities to Mr Heugh may have been arranged between him and potential farmin partners. Mr Pande says that on 24 February when Mr Dunmore was on his way out of the door after making a presentation to Conoco Phillips, Mr Dunmore said words to the effect that the current managing director of Central was on his way out the door.

40 Mr Shortt and Mr Dunmore each deny making the alleged statements or any statements to that effect. I do not accept the evidence of Mr Pande. I found him to be an unsatisfactory witness. Mr Pande gave evidence from the United States where he lives. He was crossexamined by Mr West QC, senior counsel for Central. At times it appeared that Mr Pande was not answering the questions put to him or was being deliberately uncooperative. Mr West's manner of speech was very different from that of Mr Pande. That gave rise to communication difficulties between them and explains some of the apparent uncooperativeness of Mr Pande. Nevertheless I found Mr Pande's evidence to be unsatisfactory and unconvincing.

41 I accept the evidence of Mr Dunmore. He was a truthful witness trying to assist the court and did not purport to have any recollection that he did not have. Counsel for Mr Heugh, Mr Bennett, accepted that Mr Dunmore's evidence was basically sound.

42 I reject Mr Pande's evidence that Mr Dunmore said that Mr Heugh was on his way out the door. That is contrary to Mr Dunmore's evidence. It is contrary to the contemporaneous documentary evidence. Dr Askin's email sent to Mr Heugh at 7.36 pm on 22 February which said that termination was not an underlying objective and that if Mr Heugh complied with the notices no further action would be required was copied to Mr Dunmore who was then in Houston. At the same time Dr Askin sent an email to Mr Dunmore and Mr Faull recommending that an external lawyer be retained to handle the process being undertaken with Mr Heugh. Mr Dunmore sent an email to Dr Askin and Mr Faull saying 'could one of us make an "off the record" call to John at this point?' Mr Dunmore did not at that time phone Mr Heugh. But the following week, on 2 March, Mr Dunmore sent an email to Mr Heugh saying: 'I am currently on holiday but if you felt an off the record chat could be helpful for you let me know'. Mr Heugh did not respond to that email. The sentiment manifested by Mr Dunmore's emails is inconsistent with the opinion Mr Pande alleges Mr Dunmore expressed.

43 I do not accept Mr Pande's evidence that Mr Shortt made the statements attributed to him. In any event, Mr Shortt was not a participant in the board's decisions and there is no evidence that, or from which it can be inferred, that any views expressed by Mr Shortt were those of the board or any of its members. There is no evidence he was repeating views expressed to him by a director of the company.

44 On 6 March Mr Heugh's solicitor, Ian Tait, responded to the company's notice of 21 February. Mr Tait's letter said that whilst Mr Heugh disagreed with the board resolution of 2 February he had at all times been and remained willing to comply with the board's direction in the board resolution. The letter enclosed a letter signed by Mr Heugh in the form of attachment C to the company's notice of 21 February. In relation to the treatment of Mr Shortt the letter said as follows. Mr Heugh denied that he sought to enlist the support of Mr Shortt in efforts to not comply with the board's direction and that in so doing had subjected Mr Shortt to unacceptable workplace pressure as result of circumstances and issues raised against Mr Shortt surrounding the issuance of a warning letter to him; Mr Heugh had concerns with Mr Shortt's professionalism and performance prior to the board meeting on 2 February and the warning letter was issued as a result of those concerns although with hindsight Mr Heugh accepted 'that the timing of the issuance of the warning letter was such as to leave his motives open to be misconstrued by Mr Shortt (and indeed the Board)'. Mr Tait's letter said that Mr Heugh would provide Mr Shortt with a written unconditional withdrawal of the warning letter and expunge the letter from Mr Shortt's human resources file, and would tender a full written apology to Mr Shortt for issuing the warning letter in circumstances that may have led Mr Shortt to believe that unacceptable workplace pressure was being imposed on him. Mr Heugh had modified the wording of the letter from that contained in attachment D 'as that wording does not recognise that [Mr Heugh] had concerns with Mr Shortt's professionalism and performance from well prior to the Board meeting on 2 February 2012'. The letter attached a copy of the letter which Mr Heugh proposed to provide to Mr Shortt.

45 Mr Heugh signed and sent to Mr Shortt a letter dated 6 March 2012. The letter said that the warning letter was unconditionally withdrawn and would be permanently expunged from Mr Shortt's file. The letter then says:

Please accept my unreserved apology for issuing the warning letter in circumstances that may have led you to believe that unacceptable workplace pressure was being imposed on you.



I look forward to working with you in a cordial and positive atmosphere regained. If you would like to express your perspective on this matter, please do not hesitate to contact me.

After receiving Mr Heugh's solicitor's letter and the letters from Mr Heugh, Dr Askin communicated with Mr Shortt and the other board members.

46 On 9 March the company's solicitors, Ashurst, wrote to Mr Heugh's solicitors saying that the company was considering Mr Heugh's response, and noting that Mr Heugh did not provide a signed original of the letter which was attachment D to the company's letter of 21 February and had chosen not to remedy the serious and persistent breaches of his employment contract and the code of conduct in the manner required by the company in its letter. Mr Heugh's solicitors responded on 15 March stating that Mr Heugh had instructed them to reiterate that he wished to comply with his employment contract in all respects and to that end would like to attempt to resolve the issues which the company had with his conduct as soon as possible. Mr Heugh's solicitors asked if there would be any benefit in a meeting to attempt to resolve those issues. On 19 March the company's solicitors wrote to Mr Heugh's solicitors stating that the company had been continuing to consider Mr Heugh's response, noting his solicitor's proposal for a meeting and stating that the company wished to meet with Mr Heugh on Thursday, 22 March 'to discuss matters relating to his employment and his position as Managing Director'.

47 On 18 March, on the instructions of Dr Askin, Mr White circulated to the directors, other than Mr Heugh or his alternate, Mr Babington, a circular resolution in accordance with r 15.10 of the company constitution entitled 'Removal of Managing Director'. The resolution was signed by each of Dr Askin, Mr Faull and Mr Dunmore. The resolution recited that the board had determined that Mr Heugh had not remedied the breaches of his contract as required and in particular had not provided a letter of apology in the form required by the board and continued to deny any wrongdoing. The recital further stated that the board was of the view that it was in the best interests of the company that Mr Heugh ceased to be a director. The directors resolved, amongst other things, as follows:

The Chairman, Henry Jan Askin:



be authorised to enter into discussions with Mr Heugh regarding Mr Heugh resigning from his position as director of the Company, his employment with the Company, and his appointment as Managing Director; and



subject to the outcome of the above discussions:



(a) give Mr Heugh a notice of termination of his contract of employment, upon receipt of which, the termination of his employment and appointment as Managing Director will become effective, on the proviso that Mr Heugh will be paid three months' salary in lieu of three months notice, as per clause 14.2(b) of his contract of employment;



(b) give Mr Heugh a notice of intention to move a resolution at a general meeting of the Company to remove him as a director of the company; and



(c) authorise the company secretary to do all things necessary under the Corporations Act 2001 (Cth) and the Company's constitution to call a general meeting of company to consider the resolution referred to in the preceding subparagraph.

48 On 22 March Mr Heugh attended Ashurst's office together with his lawyers. Dr Askin and Mr Faull were present together with lawyers from Ashurst. Dr Askin told Mr Heugh that his employment with Central had come to an end but he was giving Mr Heugh an opportunity to resign and gave Mr Heugh 30 minutes to make a decision. Mr Heugh asked for time to consider the matter and left the meeting room with his lawyers and moved into another room at Ashurst's office. Mr Heugh then left Ashurst's offices without speaking further to the company's representatives. Later that day Mr Heugh received an email which attached a letter from Central terminating his employment. The termination letter stated that Mr Heugh had not remedied the breaches of his employment notified in the company's letter of 21 February and in particular in relation to the serious breach concerning his treatment of the exploration manager, Mr Heugh did not provide a letter of apology in the form required by the company and continued to deny any wrongdoing. The letter stated that the company considered therefore that Mr Heugh had not remedied the breaches of his employment contract within the applicable time period and gave notice of termination of his employment.

49 Later on 22 March Mr Heugh's solicitors informed the company's solicitors that there was no valid basis for the purported termination of Mr Heugh's employment contract in that Mr Heugh had not breached the terms of the contract and even if he had he had remedied the breaches by signing the letter attached as attachment C to the company's letter of 21 February, withdrawing the warning letter to Mr Shortt in the manner the company demanded and by apologising to Mr Shortt. Further, the solicitors stated that the apology suggested by the company in attachment D was not reasonable and the company's conduct in demanding it was inconsistent with the company's code of conduct. The letter said that Mr Heugh's employment contract was still on foot. The company's solicitors responded by stating that the termination was effective.

50 Mr Heugh now accepts that his contract of employment has been terminated. He says that by purporting to terminate his employment on 22 March the company repudiated the contract. Mr Heugh now accepts that repudiation.

51 On the morning of Friday, 17 February, the date of the board meeting, Mr Heugh telephoned Harry Lake of Introspec and asked Mr Lake to investigate Mr Shortt's background and confirm his experience and qualifications. Introspec is a firm of corporate investigators and security consultants with its head office in Toronto. At 10.04 pm on 17 February Mr Heugh sent an email to Introspec asking that firm to undertake an investigation into the background, experience and qualifications of 'a recent hirer from Calgary who is about to be thrust into the international spotlight as manager of all farmouts, joint ventures etc'. The email requested that the firm not contact any other person at Central. On 20 February Mr Heugh received an invoice from Introspec for $10,000 which was to be a deposit for its investigation. Mr Heugh paid the invoice using his corporate credit card.

52 Central says that the conduct of Mr Heugh in procuring Introspec to undertake a detailed investigation into Mr Shortt's background, experience and qualifications, directing Introspec not to contact any person on behalf of the company apart from Mr Heugh regarding its investigation, paying Introspec $10,000 on or about 21 February and a further $5,000 on or about 12 March to conduct the investigation, not informing the company about the nature of, or the purpose behind the investigation and not having the permission of the company to procure investigation on behalf of the company constituted misconduct by Mr Heugh in the course of his employment or was in breach of the express terms of his employment contract. Central says that that misconduct is a lawful ground for termination of Mr Heugh's employment notwithstanding that it was not relied upon by Central at the time it terminated Mr Heugh's employment.

53 Mr Heugh says that Central was not entitled under the express, alternatively the implied, terms of the employment contract, to terminate his employment in the manner it did. First, he says that the matters said to constitute breaches were not serious and/or persistent breaches giving rise to a right to terminate. Secondly, he says that if he did commit serious and persistent breaches, he remedied those breaches to Central's reasonable satisfaction. Thirdly, he says that in terminating his employment in the way it did, Central failed to exercise a reasonable discretion, as it was required by the express terms of the contract to do, alternatively that it breached the contract's implied terms which required Central to not, without reasonable cause, act in a manner likely to destroy or seriously damage the relationship of mutual trust and confidence between it and Mr Heugh, and which required Central to give Mr Heugh the benefit of the contract and to act in good faith.

54 Finally, Mr Heugh says that the resolutions of the board to reduce his responsibilities were calculated to so diminish his role as managing director so as to bring to an end his employment in that capacity. Mr Heugh says that the issuing of the notice of 21 February in response to his opposition to the actions of Central's board was calculated to give effect to the board's predetermined plan to remove him from his position, and to do so in a way that would avoid the need to pay the contractual cost of termination of his employment without cause, that is seven times his average annual salary of the preceding three years. Mr Heugh says that this constituted a breach of the express and implied terms of the employment contract. Mr Heugh says that the purported notice of termination of 22 March was a repudiation of the contract which, despite Mr Heugh's willingness and ability to continue to perform his duties as an employee under the contract, ended the employment relationship. He says that by issuing the notice and by its conduct and omissions thereafter, including its termination of the employment relationship, Central also breached the express and implied terms of the contract, and that those breaches, alternatively Central's repudiation, caused him loss and damage.

55 Central denies that its notice of termination was a repudiation of the employment contract. It says that it was entitled to terminate, and did terminate, the contract in accordance with its terms on 22 March. Central denies that it has breached any express term and denies that any of the implied terms pleaded by Mr Heugh operated upon the contractual relationship in connection with Mr Heugh's termination, or the processes leading to his termination, or if they do so operate, denies that they were breached. Central also claims that Mr Heugh breached the employment contract by conduct unconnected with the matters on which it relied to terminate and was therefore entitled to terminate in relation to that conduct in any event - the Introspec investigation. Further, Central denies that Mr Heugh has suffered any loss or damage and says that if he did suffer loss he failed in his duty to mitigate such loss.

56 I will first deal with Mr Heugh's contention that the board passed the farmout resolutions at its 2 February meeting, resolved at its 17 February board meeting to issue him with a letter requiring him to remedy his breaches of contract and terminated his employment for an ulterior purpose. Mr Heugh pleads that at the 2 February 2012 board meeting, alternatively at the time Central, by Dr Askin, sent to Mr Heugh on 21 February notice under cl 14 of his employment agreement, Central's directors, other than Mr Heugh, had already determined to terminate his employment or to take steps to diminish his role as an employee and director so as to bring to an end the employment relationship between Mr Heugh and Central. Mr Heugh says that the directors, other than Mr Heugh, moved and voted in favour of the resolutions to make Mr Shortt responsible for farmout dealings and for him to report to a committee of the board comprised of Dr Askin and Mr Dunmore for or in furtherance of the ulterior purpose. Mr Heugh says that Central issued to him its notice of 21 February pursuant to cl 14 of the employment agreement and terminated his employment for or in furtherance of that ulterior purpose and to achieve the purpose without having to pay him seven times his average annual salary which he was entitled to under the contract of employment if he was terminated without cause.

57 I find that the directors of Central did not vote for the resolutions at the 2 February board meeting, cause the 21 February notice to be sent to Mr Heugh or terminate his employment for the ulterior purpose or purposes alleged. Dr Askin and Mr Dunmore voted for the board resolutions at the 2 February board meeting because they were concerned for the company's financial position, considered that farmouts needed to be progressed and that it was in the best interests of the company that farmouts be pursued by Mr Shortt and that he report to a committee consisting of Dr Askin and Mr Dunmore.

58 Dr Askin and Mr Dunmore did not vote for the resolution at the 17 February board meeting to give Mr Heugh notice to remedy his breaches of employment for the alleged ulterior purpose. Dr Askin's briefing note circulated to the directors shows that he was concerned about Mr Heugh's failure to properly implement the board's resolutions, Mr Heugh working against the board resolutions and his behaviour towards Mr Shortt. In his email of 15 February to Mr White in relation to the briefing note Dr Askin said: 'I believe the board is looking for compliance, not his job'. I have already referred to Dr Askin's email of 22 February to Mr Heugh in which he said that termination was not an underlying objective and that if Mr Heugh complied with the notices then no further action would be required. I have also already referred to Mr Dunmore's email to Dr Askin and Mr Faull of 22 February where he said: 'could one of us make an "off the record" call to John at this point?' and Mr Dunmore's subsequent email to Mr Heugh inviting an off the record chat. Those emails are consistent with seeking to have Mr Heugh comply with his employment duties and not to use the board's farmout resolutions and the matters arising from them as part of a predetermined plan to terminate Mr Heugh's employment. In response to Mr Dunmore's email of 22 February Dr Askin replied:

I have no objection whatsoever to any party concerned to call John and try to lead him to seeing common sense. I have said many times to those involved that the board is not looking for termination. John has put enormous effort into this company, and deserves every consideration. But rogue behaviour in an MD cannot be condoned ... All John needs to do is agree to comply with board decisions and apologise to Trevor for pretty outrageous behaviour. If he does so, then the way forward is clear cut and he remains MD.

I find that that email reflects Dr Askin's attitude. There was no predetermined plan or ulterior purpose.

59 The principal evidence relied upon by Mr Heugh to establish the alleged ulterior purpose is the evidence of Mr Pande of the statements made by Mr Shortt on 15 and 21 February and by Mr Dunmore on 24 February at the NAPE conference. I do not accept that Mr Shortt or Mr Dunmore made the statements attributed to them by Mr Pande.

60 Central says that it lawfully terminated Mr Heugh's employment on the grounds expressed in its 21 February letter and the termination letter or alternatively because of Mr Heugh's misconduct in relation to the Introspec investigation. The 21 February letter alleged two breaches of the employment contract. The first was that Mr Heugh had sent emails demonstrating his opposition to comply with the board's direction and the board resolution by attempting to circumvent the board's decision to assign authority and responsibility for farmouts to the exploration manager. That breach, if any, was remedied by Mr Heugh in the manner specified by the company in its letter of 21 February and was not relied upon by the company in its letter of termination. In those circumstances it is not necessary to give any further consideration to that alleged breach of contract.

61 The second breach alleged in the company's letter of 21 February is Mr Heugh's treatment of the exploration manager. It is that breach, and Mr Heugh's failure to remedy it, which is relied upon by the company in its letter of termination. It is necessary to determine whether the company was lawfully entitled to terminate Mr Heugh's employment on that ground. Before doing so it is convenient to consider some relevant terms of the contract of employment.

62 Central says that Mr Heugh's treatment of the exploration manager was a breach of his obligations arising under cl 5.1(a) of the employment contract and his obligations arising under cl 5.2(d) of the employment contract and the code of conduct. Clause 5.1 provides that Mr Heugh will:

(a) assume and exercise the powers and perform the duties from time to time vested in or assigned to him by the Board or its nominee and will comply in all respects with the directions and regulations given or made by the Board or its nominee.

Clause 5.2 provides that the duties of Mr Heugh include:

(d) ensuring the proper implementation of the Company's policies, procedures and systems.

It is common ground that the company's policies, procedures and systems include its code of conduct. The code of conduct provides that all directors and employees are required to meet the following standards of ethical behaviour:

• To maintain a safe and fair working environment.
• To treat with respect all those that we deal with.
• To act fairly and honestly in our dealings with all parties.
• To exercise care and diligence in carrying out our duties.

63 Mr Shortt commenced employment with Central in July 2011 but did not commence his duties until August 2011. Mr Heugh says that he noticed that Mr Shortt did not pay attention to detail in preparing his reports and correspondence and after a short period asked Mr Shortt to send him a copy of his reports before sending them out. Mr Heugh amended or corrected some of Mr Shortt's letters. Mr Heugh says that in late October or early November 2011 he spoke to Mr Shortt and said words to the effect that Mr Shortt needed to take his time and be careful in preparing his reports and letters so that he would not make the mistakes that Mr Heugh had had to correct in his reports. Mr Shortt agrees that Mr Heugh amended or corrected his letters from time to time but disputes that Mr Heugh made any criticism of his work performance before 4 February 2012.

64 On 3 February 2012, that is the day after the board resolved that Mr Shortt was to take over responsibility for farmouts, Mr Heugh telephoned Mr Shortt. Mr Heugh says that he requested they meet at Coco's Restaurant as Mr Shortt was not dressed for the office because he was at home unloading a furniture container that had arrived from Canada. Mr Shortt says that Mr Heugh asked him to meet at Central's office, Mr Shortt attended Central's office and there Mr Heugh said that he wanted to speak in private so they went to the nearby Coco's Restaurant. I find Mr Shortt's explanation of how the meeting came to occur at Coco's to be more plausible than Mr Heugh's and I found Mr Shortt's evidence on the point to be more convincing than Mr Heugh's. I accept that the meeting took place at Coco's because Mr Heugh said that he wanted to speak to Mr Shortt in private.

65 There is a difference between Mr Heugh and Mr Shortt about what was said at the Coco's meeting. Mr Shortt's account is as follows. Mr Heugh said he was not happy with Mr Shortt being responsible for the farmout arrangements and he had a plan to show the board of directors that Mr Shortt was too busy to take on the farmout role. As he was leaving Mr Heugh said something about a caution. Mr Shortt says that Mr Heugh did not express any concerns about Mr Shortt's work performance. Mr Heugh says he told Mr Shortt that the board had resolved that Mr Shortt was to take over management of farmout negotiations and that he was to report not to Mr Heugh but to a farmout committee of the board of which Mr Heugh was not a member. Mr Shortt said that Dr Askin, Mr Faull and Mr Dunmore had spoken to him before the board meeting and asked whether he was willing and capable of taking on the farmout duties. Mr Shortt had said that he felt they had caught him out and he was on the spot so he felt obliged to say 'I guess so'. Mr Shortt said that Central should use external consultants and that Mr Heugh should be intimately involved with the whole farmout process. Mr Heugh said he did not believe Mr Shortt or any single person could do the farmout role, in his view Mr Shortt's performance of his current duties was lacking in certain areas and therefore he should think about taking on the additional duties very seriously. Mr Heugh would send Mr Shortt a letter setting out the board resolution and a formal offer to him and it was up to him to accept or reject the offer. Mr Heugh disagreed with the resolution but would actively assist Mr Shortt if he accepted the offer and there was no pressure on him to accept the offer to take on additional duties. Mr Heugh denies he said that he had a plan.

66 On 4 February Mr Heugh composed the warning letter and the farmout responsibility letter and emailed them to Mr Shortt. Mr Heugh telephoned Mr Shortt after he had sent the emails but before Mr Shortt had read them. Mr Shortt's account of the telephone conversation is as follows. Mr Heugh said that he would be sending Mr Shortt a letter of caution, that the caution could be withdrawn at any time and expunged from his file because it was only on Mr Heugh's computer and he had not shown it to anyone else. Mr Heugh said that he was sending the letter to try to show the other directors that Mr Shortt did not have enough time to take on the farmout role. Mr Shortt said that if Mr Heugh gave him a letter of caution he would quit. Mr Heugh said words to the effect 'I'll have to think of something else'. Mr Heugh says he said that he had emailed Mr Shortt a letter setting out what they had spoken about yesterday and Mr Shortt replied with words to the effect that he did not want a caution letter on his file. Mr Heugh replied with words to the effect that the letter would not be put on the file until they had discussed the issues raised in it.

67 After the telephone conversation Mr Heugh sent Mr Shortt another email. The email referred to the warning letter and said:

I have thought through this and believe that the matters therein should be brought to your attention. However, after we discuss this on my return, I am prepared to expunge this from your records if our discussion concludes that such a caution is not required. This is entirely a legitimate process. I warn you, I can withdraw it and expunge from all files. No other records have been kept apart from a soft copy on my desktop and nothing on the various other server hard drives. No other person has any knowledge of this. This is a discrete matter and not to be confused with any other communication or discussion that may be extant.

68 On Monday, 6 February Mr Heugh sent to Mr White a copy of the farmout responsibility letter. Later that day Mr White told Mr Heugh that Dr Askin was chasing him up about the letter to Mr Shortt. On Tuesday, 7 February Mr Heugh sent an email to the other directors, Mr White and Mr Shortt which attached the farmout responsibility letter and said, amongst other things:

I have not noted the perfidy of the board in approaching Trevor first just before the board meeting on Thursday, 2nd February 2012, before even discussing the matter with me and asking me at least what my recommendation was ... At the risk of repeating myself, we need external consultants to run a process on farming out with deadlines, data rooms, brochures etc. Trevor will not be able to manage an ordered comprehensive global disposal of assets via farmouts successfully; no single person could.



I think Trevor needed to consider this very seriously before advising exactly what he wants to do.



Because of this breach of good faith, I am suffering stress and extreme personal anguish and I have lost much of my previous faith in the integrity of this board of directors.

In response to that email Mr Shortt sent an email on 8 February to the board saying that in answer to the letter from the board regarding being responsible for farmouts, he felt it was vital to the success of the farmout process that Mr Heugh be closely involved in all aspects of it, that Mr Heugh should be part of the farmout subcommittee, urged the board to consider adding him and said that without Mr Heugh's input he did not think he could do an adequate job in the position. Mr Heugh responded with a further email to the board members, Mr White and Mr Shortt which thanks Mr Shortt for his comments which Mr Heugh described as 'a glimmer of light towards resolving what I believe is an unworkable solution' and proceeded to criticise the board resolution concerning farmout responsibility and added, 'we would be the laughing stock of the junior oil field if news of this clumsy, inappropriate, disruptive and treacherous process is allowed to proceed'. Mr Heugh said that Mr Shortt does not have the time, resources or skill set to launch an effective farmout process. The same day Mr Heugh sent an email to Mr Shortt saying:

Although I am pushing for a process to be managed by external consultants, nothing prevents you or I from continuing to push with our personal contacts and connections on trying to find appropriate farm out partners while the bullshit continues.

69 On 9 February Dr Askin telephoned Mr Shortt. On 10 February Mr Shortt sent an email to Dr Askin which attached the warning letter, the farmout responsibility letter and the third email which Mr Heugh had sent Mr Shortt on 4 February. After referring to the three letters or emails Mr Shortt said:

They were accompanied by a phone call stating that while he had to caution me. He then said that it was part of his plan to show the board that I was too busy to take on farm out roles. He also stated that this caution would be withdrawn after the farm out business was over. These cautions were not discussed with me until the letter showed up.



Needless to say, I care deeply about my professional reputation and I felt that I was being intimidated into refusing the farm out position. At best, I considered this a gross misuse of his MD responsibilities and at worst, criminal blackmail.



At that point, I threatened to resign. John then backed down and said 'I will just have to think of something else then'. He then said that he was 'fighting for his life'.

70 On 16 April 2012 Mr Shortt swore an affidavit at the request of Central for use in opposing an application by Mr Heugh for interlocutory relief. Mr Shortt's principal witness statement was based upon that affidavit. The affidavit and subsequent witness statements were prepared by Central's solicitors after telephone conversations with Mr Shortt. There are some inconsistencies between the affidavit, the principal witness statement, Mr Shortt's supplementary witness statement and his evidence in crossexamination. This is a result of the way in which the affidavit and witness statements were prepared. They are not an exhaustive statement of Mr Shortt's recollection of relevant events. In some instances Mr Shortt did not take sufficient care to see that his recollection of events was accurately or fully set out in the affidavit or statement. Mr Shortt's recollection of the sequence and timing of events is in some instances inaccurate.

71 Notwithstanding those matters I accept the substance of Mr Shortt's critical evidence that in his telephone conversation with Mr Heugh on 4 February Mr Heugh said words to the effect that he was giving Mr Shortt a caution as part of his plan to show the board that Mr Shortt was too busy to take on the farmout role and that the caution could be withdrawn after the farmout business was over. That is the substance of Mr Shortt's email to Dr Askin on 10 February 2012.

72 I do not accept that Mr Shortt made up what he said in his email of 10 February 2012. In crossexamination counsel for Mr Heugh suggested to Mr Shortt two possible motives for such behaviour. The first is that Mr Shortt wanted Mr Heugh's job or the job of chief operating officer that had become vacant. The second is that Mr Shortt perceived a split between Mr Heugh and the nonexecutive members of the board and sought to align himself with the nonexecutive directors. Mr Shortt emphatically rejected both propositions. There is not a skerrick of evidence to support the proposition that Mr Shortt coveted the job of managing director or chief operating officer. There is evidence that Mr Shortt sent confidential communications to Dr Askin. However, these communications were initiated by Dr Askin. The evidence does not establish that Mr Shortt sought to discredit Mr Heugh so as to curry favour with Dr Askin or the nonexecutive directors. Indeed, on 8 February, the day before Mr Shortt told Dr Askin about the letters from Mr Heugh and the telephone conversation on 4 February, Mr Shortt sent his email of 8 February to the board in which he supported Mr Heugh being 'closely involved in all aspects' of the farmout process and being a part of the farmout subcommittee and saying that without Mr Heugh's input he did not think he could do an adequate job in the position.

73 Mr Shortt's email of 10 February was sent six days after the telephone conversation of 4 February. It is common ground that the 4 February telephone conversation concerned a caution to be given to Mr Shortt. A conversation about a caution letter is the sort of matter which Mr Shortt is likely to have remembered six days later.

74 Furthermore, the content and timing of the warning letter and the farmout responsibility letter of themselves suggest such a plan. The warning letter was attached to an email saying 'need to discuss this'. The farmout responsibility letter was attached to an email saying 'also need to discuss this'. The farmout responsibility letter asked Mr Shortt whether he would like to take these responsibilities on in addition to his existing workload. Mr Shortt could not have failed to connect that statement with the statement in the warning letter that 'my belief is that perhaps you have too much to do and perhaps too little time to do it'. The farmout responsibility letter discouraged Mr Shortt from accepting the new role. Mr Heugh said that the resolution was against his wishes and in effect, contrary to the norm in the industry.

75 Mr Heugh committed a serious breach of his employment contract. He sought to put pressure on Mr Shortt to not accept responsibility for farmouts and thereby undermine the board's resolution that the exploration manager assume responsibility for farmout dealings. Mr Heugh did this by the two emails on 4 February and in the telephone conversation which followed them. In that telephone conversation Mr Shortt said that he would quit if Mr Heugh gave a caution. Mr Heugh then said he would have to think of something else. The third email on 4 February was the first step by Mr Heugh to separate the employment warning from the assumption of the farmout role. Mr Heugh ceased putting pressure on Mr Shortt to refuse the farmout role by holding the threat of a warning over him in the Mercedes conversation on or about 8 or 9 February.

76 Mr Heugh breached cl 5.1(a) of the contract by failing to comply with the directions of the board by putting pressure on Mr Shortt not to accept responsibility for farmouts. Mr Heugh breached cl 5.2(d) of the contract by failing to ensure the proper implementation of the company's policies, procedures and systems and in particular its code of conduct. In putting pressure on Mr Shortt and trying to coerce him into not accepting responsibility for farmouts by linking accepting responsibility for farmouts with a formal caution, Mr Heugh failed to maintain a safe and fair working environment for Mr Shortt, failed to treat Mr Shortt with respect and did not act fairly and honestly with him in breach of the company's code of conduct.

77 The company terminated Mr Heugh's employment under cl 14 of the employment contract for a reason specified in cl 14.1(a)(iii). Clause 14.1(a)(iii) relevantly provides:

The Company may at its reasonable discretion terminate the Employment ...



(a) if at any time the Executive:

(iii) commits any serious or persistent breach of any of the provisions contained in this Agreement and the breach is not remedied within 14 days of the receipt of written notice specifying the breach from the Company to the Executive to do so.

78 The contract does not specify the manner in which the breach must be remedied or cured. It might be argued that Mr Heugh could not remedy the breach because he could not undo his conduct towards Mr Shortt. However, that is not the proper construction of cl 14.1(a)(iii). In L Schuler Ag v Wickman Machine Tools Sales Ltd [1973] UKHL 2; [1974] AC 235, 249 Lord Reid said, in relation to a clause which provided that a party may determine an agreement if the other shall have committed a material breach of its obligations and shall have failed to remedy it within 60 days:

The question then is what is meant in this context by the words 'remedy'. It could mean obviate or nullify the effect of a breach so that any damage already done is in some way made good. Or it could mean cure so that matters are put right for the future. I think that the latter is the more natural meaning. The word is commonly used in connection with diseases or ailments and they would normally be said to be remedied if they were cured although no cure can remove the past effect or result of the disease before the cure took place. And in general it can only be in a rare case that any remedy of something that has gone wrong in the performance of a continuing positive obligation will, in addition to putting it right for the future, remove or nullify damage already incurred before the remedy was applied. To restrict the meaning of remedy to cases where all damage past and future can be put right would leave hardly any scope at all for this clause. On the other hand, there are cases where it would seem a misuse of language to say that a breach can be remedied. For example, a breach of clause 14 by disclosure of confidential information could not be said to be remedied by a promise not to do it again.

79 What the promisee is entitled to require the promisor to do in order to remedy the breach is a question of construction. I think that in cl 14.1(a)(iii) of the employment agreement 'remedy' means cure so that matters are put right for the future rather than obviate or nullify the effect of a breach so that any damage already done is in some way made good. I hold that view for the reasons stated by Lord Reid to which I have referred. To restrict the meaning of remedy to cases where all damage past and future can be put right would leave hardly any scope for the opportunity to remedy given by cl 14.1(a)(iii). Most potential serious or persistent breaches of the terms of Mr Heugh's employment contract could not be remedied in the sense of obviating or nullifying the effect of the breach or breaches.

80 If the promisee gives a notice which requires certain steps to be taken by the promisor to remedy his breach and the promisor complies with those steps then the promisee will not be entitled to terminate the contract. Whether or not the promisor has complied with the steps required by the promisee is a question of fact. Where the promisee specifies steps to be taken by the promisor to remedy the breach, the promisor may remedy the breach even though he fails to comply with the steps required to be taken by the promisee. Whether or not the promisor has remedied the breach is a question of fact. The promisee cannot limit what might be done by the promisor to remedy the breach by specifying the steps to be taken by the promisor to remedy the breach.

81 In this case, Central specified the breach and what it required Mr Heugh to do to remedy the breach. However, upon the proper construction of the employment contract, it was open to Mr Heugh to remedy the specified breach without necessarily complying with all of the requirements specified by Central.

82 I find that Mr Heugh did remedy the serious breach. First, he ceased trying to enlist the support of Mr Shortt in efforts to not comply with the board's direction. Secondly, he carried out the board's direction to provide a proper handover to Mr Shortt by giving Mr Shortt a hard drive containing all of his data in relation to farmouts and cooperating with Mr Shortt to enable Mr Shortt to investigate and progress possible farmouts. Thirdly, he ceased subjecting Mr Shortt to unacceptable workplace pressure by withdrawing the warning letter and ceasing to put pressure on Mr Shortt to not accept responsibility for farmouts. Fourthly, he apologised to Mr Shortt in writing.

83 In its notice Central specified that in order to remedy the serious breach, it required Mr Heugh to do two things. The first was to provide Mr Shortt a written unconditional withdrawal of the letter of warning and expunge it from Mr Shortt's human resource file. The second was to tender a written apology to Mr Shortt for the unacceptable workplace pressure imposed on him in respect of the circumstances and issues raised against Mr Shortt surrounding the issuance of the warning letter. Central said that to provide the company with assurance that the serious breach had been remedied it asked Mr Heugh to provide a signed letter to Mr Shortt in the form which was at attachment D. Mr Heugh sent a letter to Mr Shortt which unconditionally withdrew the letter of warning and expunged the letter from Mr Shortt's human resource file. Mr Heugh did so by incorporating in his letter to Mr Shortt the first paragraph of the draft letter (attachment D) which dealt with that issue. So far as tendering a written apology to Mr Shortt is concerned, Mr Heugh did so but not in the terms set out in the draft letter at attachment D.

84 Central submits that Mr Heugh did not offer Mr Shortt any apology capable of being properly so described. Central says that the letter sent by Mr Heugh's solicitors demonstrated that he was not apologising for anything other than 'the timing of the issuance of the warning letter'; he was not apologising for issuing the warning letter as such, nor for any aspect of his conduct towards Mr Shortt, nor was he apologising for his emails containing statements about the members of the board. The last matter should be dismissed from consideration. The serious breach which Mr Heugh was called upon to remedy was his treatment of Mr Shortt, not emails containing statements about members of the board.

85 I will repeat for convenience the apology offered by Mr Heugh to Mr Shortt:

Please accept my unreserved apology for issuing the warning letter in circumstances that may have led you to believe that unacceptable workplace pressure was being imposed on you.



I look forward to working with you in a cordial and positive atmosphere again. If you would like to express your perspective on this matter, please do not hesitate to contact me.

I find that that was a sufficient apology in the circumstances. The words of apology must be read together with the withdrawal of the warning letter and its expungement from Mr Shortt's file. That was a retraction of the allegations of inadequate or inappropriate performance by Mr Shortt. The letter did not include the following paragraphs from the draft letter at attachment D:

My actions were a lapse of judgment that was truly disrespectful, inappropriate and unprofessional.



Central Petroleum Limited and its staff all deserve better from me as Managing Director in handling matters where I might have a disagreement with the Board of Directors.



I commit in the future I will practice better restraint to prevent the lapse of judgment that caused the uncomfortable and unprofessional situation which placed unacceptable workplace pressure on you.

The apology proposed by Central is inappropriate. The purpose of apologising in this situation is to heal any hurt to Mr Shortt and repair damage to their working relationship. Mr Heugh's letter remedied his breach in that sense.

86 Mr Heugh remedied the serious breach. He had already told Mr Shortt in effect that the warning letter was withdrawn. Mr Heugh carried out the board's direction by directing farmout enquiries to Mr Shortt and providing Mr Shortt with relevant information. In his apology letter Mr Heugh formally withdrew the warning letter and informed Mr Shortt and the board of that. Mr Heugh gave an apology. He did not acknowledge any improper motive in putting unacceptable workplace pressure on Mr Shortt and apologise for that, but nevertheless he apologised for sending the warning letter.

87 If, contrary to my finding, Mr Heugh failed to remedy the serious breach then cl 14.1 of the employment contract provided that the company 'may at its reasonable discretion' terminate his employment. Central did not have an unrestrained discretion to terminate. The discretion was expressly qualified by the requirement that it must be 'reasonable'. The discretion should be understood against the proper scope and content of the contract. Properly construed cl 14.1 of the employment contract displaced the company's common law right to summarily dismiss Mr Heugh. In Concut Pty Ltd v Worrell (2000) 75 ALJR 312 Kirby J stated that the terms of a contract which deal with the circumstances which may justify termination will not, in the absence of clear intention, displace the common law right to summarily dismiss. However, in my view, the wording of cl 14 of the employment contract is a clear indication that common law rights were intended to be displaced and that the grounds for termination are restricted to the specified grounds on which employment may be terminated, and the steps required to effect termination, and no others. There would seem to be little purpose in setting out the grounds, and steps required for termination, if that is not how the employment contract is to be read: Carter v Dennis Family Corporation [2010] VSC 406 [22] - [23] (Habersberger J). The common law right of the company to summarily dismiss Mr Heugh for misconduct is inconsistent with the company's contractual right to dismiss for gross misconduct. Gross misconduct is defined in a way which is narrower than misconduct at common law. For example, the conduct must have the direct effect of causing material damage or discredit to the company's business. Further, the company may only terminate for gross misconduct if Mr Heugh failed to rectify it within seven days of receipt of notice.

88 The employment contract was for the employment of Mr Heugh as the managing director of a listed public company. As a director he had responsibilities and duties in addition to those of a chief executive officer. The contract was for a long term appointment. The initial contract was for a term of four years with an extension of four years at the option of the company or three years at the option of Mr Heugh. By an amendment in 2008 the term of the contract was extended for five years to 7 March 2015. The contract constrained the circumstances in which the company could terminate it. The company could terminate for gross misconduct as defined and, as a matter of construction, not for misconduct which might otherwise have justified summary dismissal at common law. The company could terminate for any serious or persistent breach of the contract but only if Mr Heugh failed to remedy the breach within 14 days of notice from the company specifying the breach. The effect of cl 14.1(b) and (d) is that the company could terminate Mr Heugh's employment by giving three months' notice where there is a reasonably valid and lawful reason to terminate but it must make a payment equivalent to seven times Mr Heugh's annual average based salary. The entitlement of the company to terminate Mr Heugh's employment in the specified circumstances 'at its reasonable discretion' is in contrast to cl 14.3 which provides that Mr Heugh may terminate the employment 'at his sole discretion' if the company commits any serious or persistent breach of the agreement which is not remedied within 28 days of notice.

89 The purpose of qualifying the company's discretion to terminate by the requirement that it be 'reasonable' is to ensure that the company did not terminate Mr Heugh's employment without giving proper consideration to matters relevant to the exercise of that discretion. The decision to terminate must be reasonable. A decision to terminate may be unreasonable without being dishonest, capricious, arbitrary or made for an improper purpose: see, for example, Mallone v BPB Industries Plc [2002] EWCA Civ 126 [33] - [39] (Rix LJ). That does not mean that the court should substitute its own view for that of the employer. The court must consider whether on the evidence before it, it was reasonable for Central to terminate Mr Heugh's employment.

90 The requirement of reasonableness has both a subjective and objective element. The subjective element looks at the board's reasons for terminating. The board said that Mr Heugh had failed to remedy by signing the letter which was attachment D to the board's letter. The board resolution did not require Mr Heugh to sign a letter in that form or indeed in any form provided. Secondly, the attachment D letter was grovelling and it was unreasonable to expect Mr Heugh to sign it. Mr Heugh gave a letter to Mr Shortt which unconditionally withdrew the warning letter and expunged it from Mr Shortt's human resource file as Central had requested him to do. Mr Heugh's letter apologised to Mr Shortt for his conduct in sending the warning letter in the circumstances he did although Mr Heugh did not admit that his motive in sending the warning letter was to put pressure on Mr Shortt not to accept the farmout responsibility role. Mr Heugh's letter incorporated the last paragraph of the draft attachment D:

I look forward to working with you in a cordial and positive atmosphere again. If you would like to express your perspective on this matter, please do not hesitate to contact me.

Furthermore, Mr Heugh, by his solicitor's letter of 15 March 2012, reiterated that he wished to comply with his employment contract in all respects and to have a cooperative and constructive working relationship with the board and to that end would like to attempt to resolve the issues which Central had with his conduct. Mr Heugh, through his solicitors, proposed a meeting to attempt to resolve those issues. It was unreasonable for Central to proceed to terminate Mr Heugh's employment because he had not apologised to Mr Shortt in the terms drafted by or on behalf of the board.

91 The objective facts to be taken into account include Mr Heugh's position, his history and the circumstances of the breach. The breach was serious. It consisted of conduct foreshadowed by Mr Heugh on 3 February and engaged in by Mr Heugh on 4 February and remained operative until the conversation which occurred on 8 or 9 February in the course of collecting Mr Heugh's Mercedes. However, it thereafter ceased. Mr Heugh had ceased enlisting the support of Mr Shortt to not comply with the board's direction. He had withdrawn the letter of warning and expunged it from Mr Shortt's file. He had given an apology to Mr Shortt. In crossexamination Mr Shortt agreed that until March 2012 he was keeping Mr Heugh in the loop, Mr Heugh was sending him emails, they were working together and had a functional and tenable working relationship. The board considered Mr Heugh's apology to be inadequate but Mr Heugh had offered to meet and try to resolve any outstanding issues. Mr Heugh was the long serving managing director. The company had no complaints about his conduct or performance prior to the issues arising from the farmout resolution. In all the circumstances the decision of the board made by its circular resolution of 18 March was not a reasonable exercise of the company's discretion to terminate Mr Heugh's employment.

92 It is not necessary to consider the implied terms pleaded by the plaintiff. The plaintiff said that it is only necessary if the court rejected the plaintiff's argument that the company must exercise the discretion to terminate reasonably. On a proper construction of the employment contract, the company must exercise the discretion to terminate reasonably.

93 Central pleads an alternative case of justification for the termination of Mr Heugh's contract of employment. Central says that termination was justifiable for a valid reason unknown or undisclosed at the time of the termination but which did exist then Mr Heugh's conduct in relation to the Introspec investigation which was misconduct in the course of his employment entitling Central to terminate his employment pursuant to cl 14 of the contract of employment.

94 Under the common law a summary dismissal can be supported by any legal justification which in fact existed at the time of termination, irrespective of whether the justification was known or relied upon: Shepherd v Felt & Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359; Concut Pty Ltd v Worrell; Downer EDI Ltd v Gillies [2012] NSWCA 333. However, an employer is not entitled to justify termination for misconduct not relied upon at the time of termination if the employer condoned the misconduct or waived its right to terminate on the ground of that misconduct. An employer who has full knowledge of the misconduct of an employee and who makes a decision to continue to employ the employee cannot at a later date dismiss him summarily on the basis of the employee's known misconduct: Rankin v Marine Power International Pty Ltd [2001] VSC 150. It is said that the employer has elected to continue the employee in his service or waived his right to dismiss the employee summarily and thereby condoned the misconduct. However, no such waiver, condemnation or election can take place until the employer has full knowledge of the misconduct: Rankin [354] (Gillard J).

95 Central says that Central was justified in terminating Mr Heugh's contract of employment for the following reasons. Mr Heugh retained Introspec at Central's expense yet without the knowledge of its board or any of its directors, apart from Mr Heugh himself, to carry out enquiries into the background of Mr Shortt. This conduct was to be a step in the process of destabilisation of Mr Shortt. Mr Heugh was behaving in an intransigent fashion and was not cooperating with the board and the implementation of the new system for handling farmouts. Central says that that conduct was a serious breach of the provisions of the employment contract which entitled it to terminate Mr Heugh's employment for a serious breach pursuant to cl 14.1(a)(iii) of the employment contract. Central disavowed reliance upon any common law right of summary dismissal or any right to terminate for gross misconduct under cl 14.1(a)(v).

96 I find that Mr Heugh's conduct in retaining Introspec to investigate Mr Shortt at the expense of the company and not disclosing the investigation, and the reasons for it, to the board is capable of being a serious breach of the provisions of the contract. I find that Mr Heugh caused the investigation to be undertaken to obtain material to persuade the board that Mr Shortt should not be entrusted with responsibility for farmouts. It is apparent from Mr Heugh's email to Introspec on 17 February 2012 and a report forwarded by Introspec to Mr Heugh on 11 May 2012 that the investigation extended to any material that might discredit Mr Shortt. At the board meeting on 2 February Mr Heugh had argued that Mr Shortt was not well qualified to conduct the farmout process. The board resolved to assign responsibility for farmout dealings to Mr Shortt. Mr Heugh stated that despite his opposition he agreed to cooperate with these new arrangements. As a director of the company Mr Heugh was entitled to maintain and express his opinion that Mr Shortt was not well qualified to assume responsibility for the farmout dealings. However, as the company's chief executive officer he was not entitled, without notice to the board, to cause an investigation into Mr Shortt with a view to showing that he was not qualified to assume the responsibility which the board had determined he should.

97 Mr Heugh's conduct was a breach of cl 5.1(a) of the employment contract. Mr Heugh failed to comply in all respects with the direction made by the board to assign the authority and responsibility for farmout dealings to Mr Shortt. It was a serious breach because it was a considered action by Mr Heugh contrary to an express resolution of the board and contrary to his statement to the board that despite his opposition he agreed to cooperate with the new arrangements. It was also a breach of cl 5.2(d) which required Mr Heugh to ensure the proper implementation of, amongst other things, the company's code of conduct. Mr Heugh's conduct in initiating the Introspec investigation, for the reasons he did, was a breach of the obligation to act fairly and honestly in his dealings with the board. It was a serious breach because he acted contrary to the board's direction notwithstanding his statement that he would cooperate with the new arrangements.

98 Mr Heugh's conduct was a serious breach of the provisions of the contract contrary to cl 14.1(a)(iii). However, I find that Mr Heugh's conduct did not entitle Central to terminate Mr Heugh's employment under cl 14.1 of the contract of employment. Under cl 14.1(a)(iii) Central is only entitled to terminate Mr Heugh's employment for a serious breach of the provisions of the contract if the breach is not remedied within 14 days of notice specifying the breach. Central gave no notice to Mr Heugh of a serious breach of the provisions of the employment contract in relation to the Introspec investigation or any opportunity to remedy it.

99 In its written closing submissions Central says that the notification procedure was defeated by Mr Heugh's own wrongful conduct in not disclosing the investigation to the board thereby rendering the process of notification of no use or application. Central says that it was unaware of what Mr Heugh had done because of his own lack of candour. Central submits that Mr Heugh cannot take advantage of his own wrongdoing. In his closing oral submissions senior counsel for Central, Mr West QC, elaborated:

His conduct was a breach. He can't take advantage of a provision requiring notice where he defeats it by reason of his own illegal conduct: Mackay v Dick. You can't take advantage of your own breach of contract. In the same [way] that you are obliged to do everything you can do to allow the other party to have the full benefit of the contract under its terms, you can't deny the party the full benefit of the terms by your own conduct ... that renders the notice provision of no application whatsoever. And the company was entitled to have the benefit of its right to terminate which it could exercise.

100 I do not accept the defendant's argument. Where the performance of the contract cannot take place without the cooperation of both parties, it is implied that cooperation will be forthcoming. In Mackay v Dick (1881) 6 App Cas 251, 263 Lord Blackburn said:

... as a general rule, ... where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect.

In Butt v M'Donald (1896) 7 QLJ 68, 70 71, Griffiths CJ said:

It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract.

This principle has been applied many times by the High Court, notably in Secured Income Real Estate (Australia) Ltd v St Martins Investment Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, 607 608 and more recently in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 [169]. The extent of the implied obligation is governed by the express terms of the contract: Secured Income (607 - 608). A duty to cooperate cannot be imposed on a party so as to compel them to do something which the contract on its true construction would relieve them from doing. As the plurality observed in Campbell:

... care must be exercised in identifying both the content and operation of an implied obligation to cooperate lest it be at odds with the terms upon which the parties have expressly agreed [168].

101 As best I can understand Central's submission, it is that the relevant wrongdoing by Mr Heugh was his failure to disclose to anyone at Central that he had instigated the investigation at the expense of the company. That, in essence, is a submission that the relevant wrongdoing was Mr Heugh's failure to disclose to Central that he had breached his contract. An employee is not under a duty to disclose to his employer his own breaches of contract: Concut v Worrell [36] (Gleeson CJ, Gaudron & Gummow JJ).

102 A related principle to that stated in Mackay v Dick is that a contract will be construed so far as possible in such a manner as not to permit one party to it to take advantage of their own wrong. Lewison and Hughes The Interpretation of Contracts in Australia at [7.09] cite numerous authorities for the proposition that the principle is a principle of construction which may be displaced by the words of the contract, rather than a rule of law applied irrespective of the intention of the parties. The cases principally concern claims that a contract has been terminated by the wrongful act of a party, for example, New Zealand Shipping Co Ltd v Societe Des Ateliers Et Chantiers [1919] AC 1; Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418; Cheall v APEX [1983] 2 AC 181. In Drinkwater v Caddyrack Pty Ltd [1997] NSWSC 431 Young J considered the history of the maxim 'a man cannot be permitted to take advantage of his own wrong' and the categories of cases in which it has been applied. None are analogous to this case.

103 The principle is a principle of construction. It is excluded by a clear contrary intention. In general, the principle may prevent Mr Heugh from gaining a benefit as a result of a breach of the employment agreement. However, the contract expressly provides that Central may only terminate the contract if Mr Heugh fails to remedy the breach after receiving notice. The contract cannot be construed so as to provide that the company may terminate Mr Heugh's employment, without giving notice, or an opportunity to remedy the breach for a breach of which it is not aware.

104 In Drinkwater Young J said that one of the limitations upon the principle is that the wrongdoing must be the cause of the nonfulfillment of the condition. There must at least be some causal link between the guilty party's wrongdoing and the nonfulfillment of a condition by the innocent party. Insofar as the cause of the nonfulfillment of the condition that the company give notice of the breach and an opportunity to remedy it is said to be Mr Heugh's failure to disclose to Central that he had breached his contract, that is not relevant wrongdoing. As I have said, at common law an employee is not under a duty to disclose to his employer his own breaches of contract. The employment contract does not require Mr Heugh to disclose to Central any breach of contract by Mr Heugh.

105 If, contrary to my conclusion, it was open to Central to terminate the contract for a serious breach of which it did not give notice or an opportunity to remedy, then in any event the company knew about Mr Heugh's conduct in relation to the Introspec investigation of which it complains before it terminated his employment. Dr Askin's evidence is that on 22 March 2012 he became aware from an email from Mr Faull that debits were made on Mr Heugh's credit card in favour of an overseas detective agency. Mr Faull was chairman of the audit committee. The email was sent by Mr Faull at 12.33 am on 22 March. The inference is open from the emails that Mr Faull and Mr Elsholz, and therefore the company, knew about Mr Heugh's Introspec investigation before Mr Heugh's employment was terminated.

106 Neither Mr Faull nor Mr Elsholz gave evidence. The rule in Jones v Dunkel is that the unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party's case. The failure to call a witness may also permit the court to draw with greater confidence, any inference unfavourable to the party that failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn: Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361; Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 86 ALJR 522. I draw the inference that before Mr Heugh's employment was terminated, Mr Faull and Mr Elsholz knew that Mr Heugh had retained Introspec to investigate Mr Shortt, had paid by use of his credit card and had not informed the other members of the board of what he had done.

107 At common law if evidence of serious misconduct comes to light only after a dismissal, the employer may rely on it as a basis for termination: Concut Pty Ltd v Worrell. But where the employer is aware of breaches and has chosen to ignore them, it will be treated as having waived any right to terminate for those breaches. Central was aware of Mr Heugh having retained Introspec but did not to terminate on that ground. The Introspec allegations are not a basis for terminating Mr Heugh's employment.

108 The company wrongfully terminated Mr Heugh's employment. Central was not entitled to terminate Mr Heugh's employment for the reasons stated in the termination letter because Mr Heugh remedied the serious breach of contract relied upon and further Central's decision to terminate Mr Heugh's employment for that reason was not a reasonable exercise of its discretion to terminate the employment. Central cannot justify the termination by reason of Mr Heugh's breach of contract in relation to the Introspec investigation because it did not give Mr Heugh notice of that breach and an opportunity to remedy it and furthermore Central, through Mr Faull and Mr Elsholz, was aware of the breach at the time of the termination but did not rely upon it.

109 Mr Heugh put forward two different methods of assessment of damages. The first is that Mr Heugh is entitled to an amount equal to seven times his annual average base salary in the three years preceding his dismissal, being the amount Central was contractually obliged to pay him if it terminated his employment 'for a reasonably valid and lawful reason' pursuant to cl 14 of the employment contract. The second measure assumes that Central would not have terminated Mr Heugh's employment contract at the time that it did. On that assumption, Mr Heugh says his damages are to be assessed on the basis of the income he would have earned had his employment continued for the duration of the contract plus any other benefits pursuant to the contract. Central submits that damages recoverable by Mr Heugh do not exceed the sum total of the balance of his salary and benefits to the end of the nominated term of the contract, that is to 7 March 2015.

110 The general rule is that an employee who is wrongfully dismissed can recover as damages pecuniary loss resulting from failure to terminate the employment in accordance with the terms of the contract. In the usual case where the employment is terminable by notice, damages will be equivalent to wages for the period of proper notice. The basis of this rule is that the employer is entitled to perform the contract in the manner least disadvantageous to the employer. Mr Heugh submitted that assumptions as to what Central might have done had it not wrongfully terminated the employment contract must yield to evidence of actual intention if this can be determined. Counsel for Mr Heugh, Mr Bennett, submitted that the evidence discloses that Central's intention was to terminate the relationship with Mr Heugh despite the absence of a valid ground and damages should be assessed on the basis that Central would have terminated Mr Heugh's employment by giving notice.

111 Clause 14.1(b) of the employment contract provides that the company may at its reasonable discretion terminate the employment by giving three months' written notice to Mr Heugh where there is a reasonably valid and lawful reason to terminate. Clause 14.2(d) then provides that when the company decides to terminate the employment for that reason it must make a payment equivalent to seven times the annual average of Mr Heugh's base salary for the period of three years prior to the termination of employment. That is not an appropriate measure of damages for two reasons. First, it has not been established that the company had a reasonably valid and lawful reason to terminate Mr Heugh's employment. Secondly, the evidence of Dr Askin and Mr Dunmore, which I accept, is that prior to sending its letter of 21 February 2012 the company was not seeking to terminate Mr Heugh's employment, it was seeking to have him comply with his contract.

112 Damages should be calculated on the basis that the employment contract would have continued until it expired on 7 March 2015. It is appropriate to include the loss of director's fees because the employment contract provides that Mr Heugh will, in addition to his salary, receive a director's fee from the company during such period as he serves as a director and the intention of the parties was that Mr Heugh would remain a director during the currency of his employment. It is appropriate to include the loss of superannuation contributions. Clause 7.1 of the employment contract provides that the company will make superannuation contributions on behalf of Mr Heugh in accordance with all relevant legislation.

113 Mr Heugh's annual remuneration pursuant to the contract of employment as at the date of termination of his employment was $433,275, comprised of a base salary of $337,500, director's fees of $60,000 and superannuation contributions of $35,775. The term of the contract was to 7 March 2015. The remuneration payable from the date of termination until the end of the term at the rate applying of the date of termination would be $1,283,206, being the amount of 1,081 days at the rate of $433,275 per year. From that sum should be deducted the amount of $106,968 for the three months' remuneration paid in lieu of notice and three months' director's fees. Therefore, the plaintiff's loss is $1,176,238.

114 Mr Heugh claims damages for the lost opportunity to remuneration at a rate higher than that applying at the date of his termination. A plaintiff may recover damages for loss of any chance or opportunity of benefit that can be causally linked to a breach of contract. Allsop P (with whom Beasley JA agreed) dealt with the question of damages for loss of opportunity in Silverbrook Research Pty Ltd v Lindley [2010] NSWCA 357 at [2] and following. His Honour said at [2] that damages for loss of an opportunity will be recoverable in contract where the contract as a whole or its particular provisions promise an opportunity of benefit. Further, his Honour said, such damages will be recoverable where a commercial opportunity is lost, within the rules of remoteness, as the consequence of a breach of contract. In those circumstances, his Honour 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'. In that case, the plaintiff claimed to have lost the bonus which was expressed to be payable 'entirely within the discretion of' her employer. As Allsop P said at [5], the task was thus to assess both the prospect that the bonus would have been paid, and the amount likely to have been paid. That in turn focused attention on the nature of the discretion, the purposes of the contract tendered to be served by the promise of a bonus, and the question of whether the discretion could be exercised capriciously or arbitrarily or unreasonably.

115 At the time of his termination Mr Heugh's annual salary was $337,500. He also received a director's fee of $60,000. Clause 6.1 of his employment contract provides that his salary will be reviewed annually by the company in accordance with the policy of the company for the annual review of salaries. Clause 6.2 provides that Mr Heugh will, in addition to his salary, receive the director's fee. Clause 6.4 provides that in addition to the salary review the company may at any time pay to Mr Heugh a performance based bonus over and above his salary and that in determining the extent of any performance based bonus, the company shall take into consideration the key performance indicators of Mr Heugh and the company, as the company may set from time to time, and any other matter it deems appropriate. Mr Heugh's salary had been increased in 2007, 2008 and 2010 but had not changed since 2010. The company had not determined to pay Mr Heugh any performance based bonus.

116 The decision whether to increase Mr Heugh's base salary upon annual review was within the discretion of Central. However, Central was not entitled to exercise that discretion capriciously or arbitrarily or unreasonably. The discretion is to be exercised honestly and conformably with the purpose of the contract: Silverbrook at [5], [6]. The employment contract provided that Mr Heugh's salary was to be reviewed annually by the company 'in accordance with the policy of the Company for the annual review of salaries'. Central's directors' report of 30 June 2012 stated that the remuneration policy of the company was to pay its directors and executives amounts in line with employment market conditions relevant to the oil exploration industry. The policy further stated that salaries and directors' fees were reviewed at least annually to ensure they remain competitive with the market but there was no guaranteed base pay increase included in any executive's contract.

117 The plaintiff led expert evidence from Chris Ryan concerning Mr Heugh's likely remuneration. Mr Ryan analysed a number of factors relevant to Mr Heugh's likely remuneration. They included Mr Heugh's remuneration history, the remuneration of his successor, internal relativities with other Central employees and Mr Ryan's consideration of the remuneration of managing directors of eight companies that Mr Ryan considered to be comparative with Central and Mr Ryan's consideration of market movements in executive remuneration in 2012 and 2013. Mr Ryan concluded that at the most conservative level, it could be assumed that Mr Heugh's fixed remuneration would have increased 5% from $433,275 to $454,938 in 2013 and by a further 4% to $473,136 in 2014 but that level of remuneration was not a market competitive level of remuneration and is not consistent with Central's stated remuneration policy of paying executives in line with employment market conditions.

118 Mr Heugh's successor was Richard Cottee who was seconded by Freestone Energy Partners Pty Ltd to Central to carry out the role of Chief Executive Officer. Mr Cottee, through Freestone, received a base salary of $500,000 and a director's fee of $60,000. The comparable fixed remuneration average of the eight companies considered by Mr Ryan of $488,111 in 2012 was similar to the $500,000 paid to Mr Cottee. Therefore, Mr Ryan said, it would be an appropriate view that the remuneration package provided to Mr Cottee is the amount of remuneration which Mr Heugh would have received in July 2012. Further, fixed remuneration would have increased from $500,000 to $525,000 in 2013, $546,000 in 2014 and $567,840 in 2015.

119 The executive remuneration of the eight companies chosen by Mr Ryan as comparable are not readily comparable with the remuneration paid by Central to Mr Heugh. Mr Ryan said that he selected 'a basket of comparative companies ... based on their participation in oil and gas exploration and production and within a market capitalisation range of $50 million to $180 million'. In crossexamination Mr Ryan did not disagree that Central's market capitalisation of $68 million was at the bottom range of the comparable companies he selected. The remuneration of the managing directors of the comparable companies chosen by Mr Ryan ranged from $389,231 to $604,679. Mr Ryan was not able to specify which of the comparable companies he selected had market capitalisations closer to that of Central than a market capitalisation of $180 million. Mr Ryan did not base his selection of comparative companies on any criterion other than that they had a market capitalisation of between $50 million and $180 million and were engaged in the oil exploration and production industry. Having regard to the wide range of salaries paid to their managing director by the comparable companies selected $398,231 to $604,679 and the lack of information about the circumstances of each of those companies and the role and experience of their managing director it is not possible to draw any inference other than the remuneration paid to the managing directors of those companies ranges from $389,231 to $604,679.

120 The remuneration paid to Mr Cottee, or to the company which provided his services, cannot be readily compared to the remuneration Mr Heugh is likely to have received had he remained as Central's managing director. The company engaged Mr Cottee in circumstances where it needed a chief executive officer within a relatively short timeframe. Furthermore, the particular attributes and experience of Mr Cottee were relevant to the remuneration paid to him.

121 Mr Heugh's annual remuneration of $433,275 at the date of his termination was within the range of salaries paid to managing directors of Mr Ryan's comparative companies. Three of the companies were paid less than Mr Heugh.

122 Having regard to all of the circumstances, particularly Mr Heugh's remuneration history and the company's poor financial situation in 2012, I adopt as the remuneration increases which Mr Heugh was likely to receive if he had remained employed by Central to be those which Mr Ryan assessed as a reasonable and conservative forecast of the increase in managing director remuneration from July 2012 to July 2015. That assumption was an increase of 5% or $21,663 in 2013, a further 4% or $18,198 in 2013 and a further increase of 4% or $18,925 in 2014. That is a total increase of $56,000. Counsel for Mr Heugh proposed a contingency discount of 20%. I allow $45,000 damages for loss of opportunity to earn higher remuneration as a consequence of annual salary reviews pursuant to the contract.

123 Clause 6.4 of the employment contract provides that the company may at any time during the term of the contract pay to Mr Heugh a performance based bonus over and above the salary. In determining the extent of any performance based bonus, the company shall take into consideration the key performance indicators of Mr Heugh and the company, as the company may set from time to time, and any other matter that it deems appropriate. There is no evidence that the company set any key performance indicators. It was not obliged to do so by the contract. The director's reports for 2011 and 2012 each stated that no bonus scheme had been established for any director or employee. The chance of Mr Heugh receiving a performance based bonus is too speculative to be taken into account in assessing damages.

124 Mr Heugh was entitled to long service leave on a pro rata basis after four years of continuous service in accordance with the laws of Western Australia. Mr Heugh commenced his employment with Central on 9 July 2004 and would but for his wrongful termination have remained in continuous employment until 7 March 2015, a period of 10 years and 240 days. The plaintiff calculated Mr Heugh's long service leave entitlements under the Long Service Leave Act 1948 (WA) s 8(2) to be $96,611.68. That calculation was not challenged by the defendant and I accept it. At termination of his employment Central paid Mr Heugh $43,484 in respect of accrued long service leave entitlements. Therefore, long service leave entitlements lost by Mr Heugh are $53,127.

125 Mr Heugh says that he has a reasonable expectation, but for his wrongful termination, that the term of his employment contract would have extended for a further term from 7 March 2015 of three years, or alternatively two years. Mr Heugh says he has lost the chance to earn income from a renewed contract of employment. Mr Heugh calculates the value of his lost opportunity as follows.

126 In making those calculations Mr Heugh has assumed a different remuneration package than I have assessed. I have assessed that Mr Heugh's likely annual remuneration at the expiration of his contract on 7 March 2016 would have been $491,765. Further salary increases beyond June 2015 are too speculative to be calculated. On that basis the calculation of the value of a renewal of Mr Heugh's contract for two years would be $983,530 and for three years would be $1,475,295.

127 I must assess the probability that Mr Heugh would have been offered a renewed contract from 8 March 2015, would have accepted it and would have completed the contract. Two factors weigh against the likelihood that Mr Heugh would be offered and complete a renewed contract. First, Mr Heugh will be 65 years old in 2014. Secondly, there was a significant difference between Mr Heugh on the one hand and the other directors on the other hand concerning the management and direction of the company. In February 2012 the directors, other than Mr Heugh, were concerned about the financial position of the company and the impact of its financial obligations. There was a difference between Mr Heugh and the other directors concerning the urgency with which the company's financial position needed to be addressed and how farmouts should be approached.

128 Mr Heugh's performance and conduct are relevant to the probability that he would be reappointed. Mr Heugh was a cofounder of the company. He had served as Chief Executive Officer for more than seven years. However, in 2012 there was a serious difference between Mr Heugh and the remainder of the board. Notwithstanding my finding that Mr Heugh's contract of employment was wrongly terminated, he breached the terms of his contract of employment. His actions in resisting and seeking to undermine an important resolution of the board was a serious matter. Furthermore, Mr Heugh's retaining Introspec to investigate Mr Shortt would likely have been another cause for conflict between Mr Heugh and the other members of the board.

129 Having regard to all of those matters, I assess the probability of Mr Heugh being offered a renewed contract in 2015 as being no more than 25% that he would be offered a further two year contract. I assess damages for the loss of opportunity to renew his employment contract after 7 March 2015 to be 25% of $983,530, that is $245,883.

130 Central pleads that Mr Heugh failed to mitigate any loss and damage by failing to actively seek alternative employment, whether in an executive role or otherwise, thereby preventing him from receiving a salary or other remuneration, including superannuation contributions, to offset any loss of salary and superannuation contributions payable under the contract.

131 An employee who has been wrongfully dismissed is under a duty to mitigate his loss. The test is an objective one, requiring the employee to take reasonable steps only. The duty to act reasonably to mitigate damage does not generally require the employee to take employment with a level of remuneration or status less than that previously enjoyed by the dismissed employee: Yetton v Eastwood Froy Ltd [1967] 1 WLR 104; Whittaker v Unisys Australia Pty Ltd [2010] VSC 9.

132 Mr Heugh gave evidence of his attempts to find alternative work after the termination of his employment with Central. He has not been able to obtain alternative employment. The only evidence adduced by Central in relation to Mr Heugh's alleged failure to mitigate his loss was in the course of crossexamination when Mr Heugh was asked whether he had ever suggested to the recruitment agency he approached after his termination that he would be prepared to look at a position other than chief executive officer or managing director of a company in the petroleum prospecting industry. Mr Heugh responded that he received a couple of suggestions that he could work as an exploration manager, but he had been too long from the coalface to do that. He also said that he had tried to get positions as a nonexecutive director and engaged in some discussions with a couple of companies but for the last 20 years the only positions of significance he has held have been in companies he has created himself and so he figured that it was more expedient and he had a higher chance of success to start off another company as he had done on two occasions before. That is what Mr Heugh has done but so far he has not received any remuneration from those endeavours. The onus is upon Central to prove that Mr Heugh has failed to mitigate his loss. Central has failed to do that.

133 I assess damages as follows:

134 Mr Heugh claims interest on damages awarded pursuant to Supreme Court Act 1935 (WA) s 32. The reason for awarding interest is to compensate the plaintiff for having been kept out of money which theoretically was due to him before the date of judgment. Mr Heugh should not receive interest on the damages for loss of the opportunity to renew the employment contract because any benefit the plaintiff would have received from a renewed contract would not have been received prior to the date of judgment in any event. Damages for loss of remuneration for the term of the contract, loss of opportunity to earn higher remuneration from salary reviews and loss of long service leave entitlements, which I will refer to collectively as current contract damages, represent compensation for the loss of payments or benefits which Mr Heugh would have received in part before the date of judgment and in part after the date of judgment. Mr Heugh should receive interest only on that part of the current contract damages that relate to payments or benefits Mr Heugh would have received prior to the date of judgment.

135 If Mr Heugh's employment had not been wrongfully terminated, his remuneration for the balance of his contract would have been paid between 22 March 2012 and 7 March 2015 a period of 1,081 days. Mr Heugh should receive interest on that part of the current contract damages that relates to the payments Mr Heugh would have received between 22 March 2012 and the date of judgment, 5 September 2014 - a period of 897 days. Interest on that part of the current contract damages may conveniently be assessed by calculating it at the full rate of interest, 6% per annum, for half of the period to which it relates a period of 449 days. Interest on current contract damages should be calculated as follows:

136 I find that Central wrongly dismissed Mr Heugh. I assess damages in the sum of $1,520,248, together with interest of $78,050, making a total of $1,598,298.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION : HEUGH -v- CENTRAL PETROLEUM LTD [No 5] [2014] WASC 311 (S)

CORAM : LE MIERE J

HEARD : 9 SEPTEMBER 2014

DELIVERED : 22 OCTOBER 2014

FILE NO/S : CIV 1493 of 2012

BETWEEN : JOHN PHILLIP HEUGH

Plaintiff

AND

CENTRAL PETROLEUM LTD

Defendant

Catchwords:

Practice and procedure - Costs - Order removing costs limits fixed in any relevant costs determination - Turns on own facts

Legislation:

Legal Profession Act 2008 (WA), s 280(2)

Result:

Application allowed

Category: B

Representation:

Counsel:

Plaintiff : Mr M L Bennett & Mr K Malhotra

Defendant : Mr J N West QC & Mr R P V Carey

Solicitors:

Plaintiff : Bennett + Co

Defendant : Jarman McKenna

Case(s) referred to in judgment(s):

1 LE MIERE J: On 5 September 2014 I delivered reasons for judgment in this matter: Heugh v Central Petroleum Ltd [No 5] [2014] WASC 311 and ordered that judgment be entered for the plaintiff against the defendant in the sum of $1,598,298. I ordered that the defendant pay the plaintiff's costs of the action including any reserve costs with such costs to be taxed with an allowance for the expert costs of Mr Christopher Ryan. The plaintiff sought an order pursuant to s 280(2) of the Legal Profession Act 2008 (WA) that its costs be taxed on the basis that the limits on costs fixed in any relevant costs determination are removed. I reserved my decision on that application. These are my reasons for deciding that question.

2 Legal Profession Act s 280(2) empowers the court, if it is of the opinion that the amount of costs allowable in respect of a matter under a cost determination is inadequate because of the unusual difficulty, complexity or importance of the matter to, amongst other things, remove limits on costs fixed in the determination.

3 Section 280(2) requires a two step process. First, the court must form a view that the costs allowable in respect of a matter under a cost determination are inadequate. The requirement of inadequacy will be demonstrated if the application shows that there is a fairly arguable case that the applicant's costs may tax at an amount which is greater than the limit that would be imposed by the relevant cost determination: Heartlink Ltd v Jones As Liquidator of HL Diagnostics Pty Ltd (in liq) [2007] WASC 254 (S) [16] (Martin CJ). An applicant often demonstrates an arguable case to the effect that its costs may tax above the amount prescribed by the relevant determination by presenting a draft bill of costs. The plaintiff did not do that in this case. It is not necessary. Whether or not the amount of costs allowable under a Costs Determination is inadequate because of the unusual difficulty, complexity or importance of the matter is to be addressed as a matter of impression rather than detailed evaluation. In some cases, it may be necessary to prove the inadequacy by presenting a draft bill of costs or other specific evidence. In other cases, the court may be able to form a view from its own knowledge of the case: Frigger v Lean [2012] WASCA 66 [81] (Allanson J with whom Newnes and Murphy JJA agreed).

4 I case managed this action as well as hearing the trial. The trial was substantial. It lasted nine days. The plaintiff was represented by two counsel. In my opinion the briefing of second counsel was reasonably necessary in the circumstances of this case but it is no longer necessary to certify for second counsel. The plaintiff called two witnesses in addition to the plaintiff himself. The plaintiff's witness statement was relatively lengthy as might be expected in a case of this sort. The only other nonexpert witness called by the plaintiff, Mr Pande, lives in the United States and that fact would have added to the cost involved in preparing his witness statement, although his evidence was not extensive. The third witness called by the plaintiff was an expert witness, Mr Ryan. I have made a separate order that the plaintiff's costs are to be taxed with an allowance for the expert costs of Mr Ryan.

5 The plaintiff says that it is fairly arguable that a taxing officer may allow an amount which is greater than the limits imposed by the costs determination having regard to the following matters:

1. the importance of the outcome of the litigation to the plaintiff in his particular circumstances as an individual litigant (the plaintiff refers to and relies in this regard on his affidavit sworn on 19 September 2013 in opposition to the defendant's application to vacate the trial dates):
2. the late success of the plaintiff in obtaining leave to enforce the issue of subpoenas against the directors of the defendant and the need for urgent evaluation of the hundreds of documents produced in written response to the subpoena;
3. the late provision of witness statements by the defendant's witnesses;
4. the length and contents of the plaintiff's opening submissions (126 paragraphs/42 pages). In that regard, the opening submissions dealt comprehensively with the difficult questions of law posed by Commonwealth Bank v Barker;
5. the length and complexity of the plaintiff's closing submissions (188 paragraphs/63 pages);
6. the hours the Court sat especially to take evidence from witnesses by videolink from outside Australia;
7. the length and complexity of the Court's judgment;
8. finally, the fact that the Legal Practitioner (Supreme Court) (Contentious Business) Costs Determination 2012 was replaced after the conclusion of trial but before the delivery of judgment with the Legal Profession (Supreme Court) (Contentious Business) Determination 2014 Cost Determination allowing significantly higher allowances for existing scale items, and the introduction of a new scale item 20(g), which makes allowance for preparation of written closing submissions, and which prior to the 2014 determination would need to be accommodated within the limits of scale item 20(a).

6 Having regard to those matters and my knowledge of the matter gained as case manager and trial judge, I find there is a fairly arguable case that the plaintiff's costs may tax at an amount which is greater than the limit that would be imposed by the relevant costs determination and hence I have formed the opinion that the amount of costs allowable in respect of this matter under the relevant costs determination is inadequate.

7 Having formed the opinion that the plaintiff's costs may tax at an amount which is greater than the limit imposed by the relevant costs determination it is necessary to determine whether or not that inadequacy flows from the unusual difficulty, complexity or importance of the matter. The plaintiff relies only on the importance of the matter. Whether the costs allowable are inadequate and whether they are inadequate because of the unusual difficulty, complexity or importance of the matter are interrelated questions. In CMA Contracting Pty Ltd v John Holland Pty Ltd [2011] WASC 249 Allanson J said:

The two questions are interrelated: the difficulty or complexity or importance of the issues at stake to the parties is relevant to the degree of work that may be properly and reasonably done in preparing for and presenting the case [2].

8 The word 'unusual' does not qualify the word 'importance'. The criterion of importance may be met having regard to the interests of the parties only. To paraphrase George Orwell, all cases are important to the parties but some are more important than others. Whether or not a case is sufficiently important depends on the nature and circumstances of each case. I am satisfied that this action was of great significance to the plaintiff because of the cause of action, the relief sought and the effect on the plaintiff of the outcome of the trial. The plaintiff is a geologist. He has been an executive director of an exploration company for the last 20 years. He was in effect summarily dismissed by Central. He has not been able to obtain remunerative employment since. He is in difficult financial circumstances. The plaintiff is 65 years old. He has been awarded damages of $1,598,298. He claimed damages greater than that. The outcome of this action is of great significance to the plaintiff's financial wellbeing and his future. Whether or not he was lawfully dismissed is of significance to his professional standing and future prospects of gaining a directorship or employment as an executive.

9 I am of the opinion that the amount of costs allowable in respect of this matter under the relevant cost determination is inadequate because of the importance of the matter. The costs should be taxed on the basis that the limits on costs fixed in any relevant cost determination are removed. It will be for the taxing officer to determine whether or not the limit in relation to any particular item should be raised and if so to what amount.