[2016] FWC 2823

The attached document wholly replaces the document previously issued with the above code on 5 May. The changes are the subject line, which now reads:

“Application for relief from unfair dismissal - doctrine of frustration of contract”

and a couple of minor formatting issues which do not make any changes of substance to the decision.

Associate to Commissioner Ryan

Fair Work Act 2009
s.394—Unfair dismissal

Khodr Zeiter
v
Melway Bin Hire & Demolition Pty Ltd T/A Melway Bin Hire & Demolition
(U2015/15160)

Application for relief from unfair dismissal - doctrine of frustration of contract.

[1] Is it unfair to be dismissed for using your mobile telephone whilst driving your employer’s truck while your licence is suspended? Mr Zeiter, the Applicant, certainly thinks so!

[2] The Applicant identified the date of his dismissal as 10 November 2015 and the Respondent identified the date of dismissal as 2 October 2015. The Applicant filed an application in the Fair Work Commission on 18 November 2015, which is within 21 days of the date of dismissal identified by the Applicant, but is well outside the 21 day time limit if the dismissal occurred on 2 October 2015.

[3] The Respondent in its Form F3 did not raise any challenge that the application was filed outside the 21 day period specified by s.394(2)(a). The Respondent did raise an objection to the application on the basis that there was an effective frustration of the contract of employment because the Applicant had been employed as a driver and had his licence suspended. At the time the Respondent filed its Form F3 no Respondent representative was identified.

[4] Subsequently the Respondent was legally represented and material filed in accordance with the Directions issued by the FWC repeated in further detail the contention of the Respondent that there was an effective frustration of the contract due to the Applicant having his driving licence suspended. Whilst the Respondent maintained in both its written contentions and through the witness statement of Mr El Hawli that the dismissal took effect on 2 October 2015, nothing was put to the Commission in relation to the application being filed out of time.

The date of dismissal

[5] Given the requirements of s.394 it is necessary to determine the date of dismissal of the Applicant.

[6] The contention of the Respondent is that the date of dismissal is the day before the Applicant was stopped by the police on 3 October 2015 for using a mobile phone while driving. It was only when the police checked the Applicant’s licence that the Applicant became aware that his licence had been suspended as from 28 July 2015 for a period of 3 months. The Applicant contacted the Respondent on 4 October 2015 to advise the Respondent of his inability to attend work on 5 October 2015 due to problems with his licence. Despite further communications between the Applicant and the Respondent between 5 October 2015 and 10 November 2015, and despite the Applicant attending the workplace on 7 October and 9 November 2015, it was not until 10 November 2015 that the Respondent advised the Applicant: “You didn’t have a job here since the day you lost your licence.”

[7] For the purposes of s.394(2)(a) an unfair dismissal application must be made within 21 days after the dismissal took effect. The authorities make it clear that a dismissal takes effect when the employee is notified of the dismissal. 1 In the present matter the Applicant was only notified of the dismissal on 10 November 2015. The application in this matter is within the time limit set by s.394(2)(a).

Frustration of the Employment Contract

[8] The Respondent contends that termination of employment occurred because the Applicant’s drivers licence had been suspended. The Respondent contended that “the facts here disclose a frustration of the employment relationship rather than dismissal.

[9] The practical consequence flowing from the Respondent’s contention is that if the employment contract terminated due to frustration then there would not have been a dismissal of the Applicant.

[10] Section 386(1)(a) provides that an employee is dismissed if “the person’s employment with his or her employer has been terminated on the employer’s initiative”.

[11] If the contract of employment has been terminated due to frustration then the employee has not been dismissed.

[12] The Respondent relied on the following decisions: Ives DP in Gidon v Isis Primary Care Ltd, [2010] FWA 2101 at [25]; a Full Bench in Smith v Moore Paragon Australia Ltd (PR942856) at [48]; Lawrence DP in Cooper v ATO [2014] FWC 7551 at [33].

[13] To the extent that these decisions discuss the concept of frustration of contract they do not help the Respondent as none are on point with the issues in this matter.

[14] An authorative text book on contract of employment is Mark Irving’s “The Contract of Employment”, 2012 and Chapter 12 is devoted to “Termination by Frustration”. The learned author says at 12.6 (page 750):

“12.6 Employees and employers are often required to possess various licences and governmental authorities to carry out the contract. The failure to possess these licences or authorities can give rise to special problems. Whether such a failure frustrates the contract depends on the reason for the failure and the terms of the contract concerning the effect of such a failure. The contract will not be frustrated when a party fails to hold a licence that he or she has promised to hold under the contract, such as a drivers licence. The failure to possess a licence in such a case will usually be a breach. In other cases the failure to obtain a licence may result in failure of a condition precedent to the formation of the contract. The contract is not thereby frustrated; it fails because of the non-fulfilment of that condition.” [Bold and emphasis added]

[15] In support of the proposition emphasised above the learned author relied on the decision of the Saskatchewan Court of Appeal in Thomas v Lafleche Union Hospital Board. 2 That case concerned a hospital employee whose employment was terminated because he had lost his status as a registered nurse and where his registered nurse status was crucial to his position with the hospital. The judge at first instance said:

“His registered nurse status was crucial to his position with the defendant.

And

In my opinion, the plaintiff’s loss of his registered nurse status was an event that frustrated the contract of employment. Registered nurse status was at the root of his position, without it he could not perform the duties expected of him, and for which he was employed.”

[16] The judge went on to conclude that the contract had been frustrated.

[17] The Court of Appeal said:

“[9] However, the sole ratio used by the trial judge was frustration.

[13] There are, however, two other ratios readily available to achieve the same result in this case. Once the findings of fact of the trial judge, as set out above, are accepted it becomes apparent that the appellant also committed a fundamental breach of his contract once he lost his professional status. The trial judge did not turn his mind to this question, but there is no other logical or reasonable conclusion which could follow after findings of fact than that he had fundamentally breached the contract. The Hospital Board may indeed have acted first, but, of course, in the case of fundamental breach the injured party is entitled to rely upon the doctrine of anticipatory repudiation.

[14] Finally, even assuming the contract were still in existence, there is, as counsel for the appellant fairly admitted, an implied ability to dismiss for just cause. Here the loss of professional qualifications rendered impossible and, indeed, illegal the performance of the vast majority of the appellant’s duties under the contract. He accordingly would have been in breach of contract, and certainly could not in any way have met the onus on him of showing that the Hospital Board breached its contract by terminating his employment in the face of such incapacity.

[18] The Respondent relied on the decision of Ives DP in Gidon v Isis Primary Care Ltd. That decision does not help the Respondent. The relevance of that decision to the present matter is that in Gidon the employer argued that the contract of employment had been frustrated due to the employee’s driver’s licence having been suspended due to an accumulation of demerit points. Ives DP correctly acknowledged that frustration of a contract of employment can occur and where it does occur then there is no termination of employment at the initiative of the employer. 3 But having done so Ives DP very properly identified the critical issue: “The issue to be decided here is whether the doctrine of frustration can be properly ascribed to the circumstances of the termination of the Applicant’s employment.”

[19] In his decision Ives DP considered two English authorities Marshall v Harland & Wolff Ltd, [1972] 2 All ER 715 and Tarnesby v Kensington and Chelsea and Westminster Area Health Authority (Teaching), [1981] IRLR 369. After having considered these authorities Ives DP concluded:

“Based upon a proper consideration of Tarnesby it is difficult to see how suspension of the Applicant’s driver’s licence could frustrate her employment contract.” 4

[20] The second decision relied on by the Respondent is the Full Bench decision in Smith and Kimball v Moore Paragon Australia Ltd (Moore Paragon). This decision was not a decision about frustration of contract or even dismissal of employment. The only issue before the Full Bench was an appeal against a decision at first instance that reinstatement was not appropriate in the case of the two Appellants who had been found by an earlier Full Bench to have been unfairly dismissed. The Full Bench in Moore Paragon raised the issue of frustration of contract only in the context of considering the capacity of the two Appellants to perform the duties of their substantive positions and it was only raised as part of a broad consideration as to whether the remedy of reinstatement was appropriate or inappropriate.

[21] The Full Bench in Moore Paragon at [48] and [49] quotes from both Marshall v Harland & Wolff Ltd, [1972] 2 All ER 715 and from the decision of Wootten J in Finch v Sayers and then at [50] identifies 3 decisions which have applied Finch v Sayers and concludes with an endorsement of the approach of Wootten J in Finch v Sayers.

[22] The endorsement of the decision in Finch v Sayers by the Full Bench in Moore Paragon is as unremarkable as it is sound.

[23] A caution is warranted in relation to the decision in Moore Paragon. The Full Bench only quoted what it needed to from the decision of Donaldson J in Marshall v Harland & Wolff Ltd, [1972] 2 All ER 715 and from the decision of Wootten J in Finch v Sayers. As the Full Bench was not dealing with the issue of frustration of a contract of employment it did not need to quote further from either of those two decisions. But in each of those two decisions there are important statements which form part of those decisions and which explain the operation of the concept of frustration of contract in the context of the matter before court.

[24] In relation to the decision of Donaldson J in Marshall v Harland & Wolff Ltd there are two further statements which are relevant and which were specifically considered by Wootten J in Finch v Sayers. Donaldson J said:

“The ending of the relationship of the employer and employee by operation of law is, by definition, independent of the volition or intention of the parties. A tribunal is, however, entitled to treat the conduct of the parties as evidence to be considered in forming a judgement as to whether the changed circumstances were so fundamental as to strike at the root of the relationship.”

And

“Once a contract of employment has been proved, it is for the party alleging that it has been determined to prove it. Thus it is for the employee to prove that it has been determined by dismissal, but it is for the employers to prove determination by frustration.”

[25] The final decision relied on by the Respondent was the decision of Lawrence DP in Cooper v ATO, [2014] FWC 7551. That decision concerned a dismissal of an employee who was in prison. The ATO contended that the employee was not dismissed because the imprisonment resulted in termination of the employment contract by reason of its frustration. The decision in that matter was that frustration of the contract did not occur because the employment contract was still in operation at the time of the dismissal by the ATO. The ATO had suspended the employee and the suspension was re-confirmed by the ATO after the employee had been sentenced to imprisonment and whilst the suspension and imprisonment were in place the employee co-operated with the ATO in an investigation consistent with his obligations under the contract of employment.

[26] An important observation needs to be made in relation to the contentions of the Respondent as made through the Respondent’s solicitors and counsel. Trying to cobble together an argument that frustration occurred in the present matter by relying on selective quotes from the reported decisions of the Commission which in turn contain selective quotes from earlier court decisions is insufficient.

[27] The law around the doctrine of frustration of contract and especially in relation to employment contracts is complex and difficult. An appreciation of the proper operation of the doctrine of frustration is not gained by looking only at the quotes from various decisions. It is imperative that any employer who intends to argue that the doctrine of frustration is at play in a particular matter must read the original decisions in their entirety in order to understand the development of the law. Text books such as Mark Irving’s “The Contract of Employment” are an invaluable starting point but nothing beats reading the original decisions. In the modern world the internet is king and if something cannot be found on the internet then for many people it doesn’t exist. Unfortunately, for internet reliant persons, two of the decisions which are commonly quoted in relation to frustration of an employment contract: Marshall v Harland & Wolff Ltd, [1972] 2 All ER 715, [1972] 1 WLR 899 and Finch v Sayers [1976] 2 NSWLR 540 are not on the internet. A visit to a law library is necessary.

[28] It is ironic to note that in this case as in others the authorities relied on to support a contention that there has been a frustration of the employment contract are cases in which there was no frustration of the employment contract. The care taken by Donaldson J in Marshall v Harland & Wolff Ltd and by Wootten J in Finch v Sayers to explore and explain the doctrine of frustration was part of the process of making it clear that in each of those case there was no frustration of the employment contract.

[29] In this matter I have selectively quoted from the Court of Appeal decision in Thomas v Lafleche Union Hospital Board but a full reading of that decision is useful. Another issue floating in the background in that case was the concept of self-induced frustration. Reading both the decision of the Court of Appeal and the relevant section on self-induced frustration in Mark Irving’s “The Contract of Employment” makes it very clear that the present matter is not an appropriate matter to consider self-induced frustration.

[30] I note that the issue of self induced frustration was considered by another Canadian court following the Court of Appeal decision in Thomas v Lafleche Union Hospital Board. In Tolpa v. Flint Engineering & Construction Ltd., 1996 CanLII 7193 (SK QB), Allbright J was asked to consider whether an employee’s imprisonment met the doctrine of frustration of contract. Allbright J quoted extensively from Thomas v Lafleche Union Hospital Board but concluded:

“The concept of self-induced frustration might well have application to the benefit of the employer in this situation. However, as I have concluded, for the reasons set forth earlier, that the employer, on an alternative basis, had just cause for the dismissal of
Mr. Tolpa, I do not find it necessary to specifically decide its applicability.” 5

[31] There does appear to be a well deserved reluctance by courts and tribunals to use the doctrine of frustration of contract when other more obvious options are available to the court or tribunal to decide the matter before them.

[32] In the present matter I am satisfied that doctrine of frustration is not relevant to the present matter.

[33] This conclusion flows from the legal operation of the doctrine of frustration. When an intervening event occurs which frustrates the contract of employment the contract ends by operation of law as result of that intervening event. The employer and the employee need do nothing to terminate the contract of employment. The contract terminates because of the intervening event.

[34] In the present matter the Respondent’s contends that the contract of employment was frustrated by the Applicant having his licence suspended. If this was so then the contract terminated on 28 July 2015 when the Applicant’s driver’s licence was suspended. Yet the Respondent continued to treat the Applicant as an employee and to take the benefit of the Applicant’s work for the Respondent through to 3 October 2015. It would appear that an employment relationship continued even after the termination of the employment contract by frustration. That continuing employment relationship effectively ended on 4 or 5 October 2015. It is the ending of the employment relationship that is the subject of the unfair dismissal application.

[35] The ending of the employment relationship can and should be dealt with on the basis that the employment relationship was terminated at the initiative of the Respondent when the Respondent became aware of the misconduct of the Applicant.

[36] The misconduct of the Applicant provides a valid reason for the dismissal of the Applicant. The Applicant drove the Respondent’s vehicles whilst his driver’s licence was suspended. Further, the Applicant drove one of the Respondent’s vehicles whilst using a mobile phone. Dismissing an employee who is employed as a driver for driving whilst his licence was suspended and for driving while using a mobile phone is sound, defensible and well founded. 6

[37] In considering the process adopted by Mr El Hawli to dismiss the Applicant on 4 or 5 October 2013 and to notify the Applicant of his dismissal on 10 November 2015 the politest way to describe Mr El Hawli’s conduct is arrogant, contemptuous of the Applicant, totally lacking any sense of professionalism and despicable and appalling!

[38] Neither the small size of the Respondent’s business nor the lack of in-house HR expertise excuses the conduct of Mr El Hawli.

[39] Each of the criteria under s.387(b) to (g), to the extent that they are relevant all weigh strongly in favour of a finding that the dismissal was harsh, unjust or unreasonable.

[40] However, the strength of the valid reason outweighs matters under s.387(b) to (g).

[41] The unfortunate reality of this case is that the Applicant was the architect of his own downfall.

[42] I am satisfied that the dismissal of the Applicant was not harsh, unjust or unreasonable.

[43] The application in this matter is dismissed.

COMMISSIONER

Appearances:

K. Zeiter on his own behalf.

R. Millar of Counsel for the Respondent.

Hearing details:

2016.

Melbourne:

April 4.

 1   Burns v Aboriginal Legal Service of Western Australia (Inc) (unreported, AIRCFB, Williams SDP, Acton SDP, Gregor C, 21 November 2000) Print T3496 [24].

 2   1991 CanLii 8039 (SK CA).

 3   Gidon v Isis Primary Care Ltd, [2010] FWA 2101 at [25].

 4   Ibid at [39].

 5   1996 CanLII 7193 (SK QB).

 6   Selvachandran v Peteron Plastics Pty Ltd (1995) 62 IR 371, 373.

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