Ogilvy and Mather (New Zealand) Ltd v Turner CA16/95 [1995] NZCA 248; [1996] 1 NZLR 641; [1995] 2 ERNZ 398; (1996) 5 NZELC 98,381 (19 December 1995)

Last Updated: 22 April 2013

_{IIN THE COURT OF APPEAL OF NEW ZEALAND CA 16/95}

IN THE MATTER of a claim for damages for breach of employment contract

BETWEEN OGILVY AND MATHER (NEW ZEALAND) LIMITED

Appellant

AND MARTYN GREGORY TURNER Respondent

Coram: Cooke P Richardson J Gault J McKay J Thomas J

Hearing: 18 and 19 September 1995

Counsel: J F Timmins and D S Alderslade for Appellant

P J Bartlett and Penelope Ryder-Lewis for Respondent

_{Judgment: 19 December 1995}

_{JUDGMENT OF THE COURT DELIVERED BY McKAY J}

This appeal is brought under section 135 of the Employment Contracts Act

1991. That section confers a right of appeal from any decision of the Employment Court other than a decision on the construction of any individual employment contract or collective employment contract. The appeal is limited to questions of law. The proceeding in the Employment Court was a claim for wrongful dismissal. It was brought as an action at common law, and not as a personal grievance claim for

unjustifiable dismissal under section 27(1)(a) of the Act. The employer moved at an early stage in the proceeding to strike the claim out on the ground that it could only be brought as a personal grievance, and could therefore only be brought in the Employment Tribunal. That application was dismissed by Judge Castle, and his decision was upheld on appeal to this Court: Ogilvy & Mather (New Zealand) Ltd v Turner [1994] 1 NZLR 641. This Court held that the Act did not abolish the common law action for wrongful dismissal, and that an employee can choose either to invoke the personal grievance procedure or to sue in the Employment Court at common law. The matter proceeded as a claim at common law, and Judge Castle gave judgment in favour of the appellant in the total sum of $547,421.83 plus costs. The employer appeals from that judgment.

The relevant facts

Ogilvy & Mather is a worldwide advertising agency with offices in 50 countries. It is part of the largest advertising group in the world. In 1970 it established an agency in New Zealand at Wellington, and Mr Turner accepted an invitation to join it as a founder employee in the role of an account manager. He had at that time some seven year's experience working for other advertising agencies. From 1973 to 1975 he was transferred to Ogilvy & Mather's Sydney office, returning to New Zealand late in 1975 as account director. In 1976 he was appointed a director of the New Zealand company, and in 1979 managing director of the Wellington operation. In 1984 he became chairman of the New Zealand company. In this role he had four heads of operation reporting to him, respectively responsible for the advertising offices in Wellington and Auckland, a direct marketing business in Auckland and a public relations business in Wellington. From 1984 until January

1992 he was virtually in charge of the whole New Zealand operation by virtue of his position as chairman. He reported to the chairman of the Asia/Pacific Region, who in turn reported to the chairman and chief executive officer of Ogilvy & Mather

Worldwide in New York. His total remuneration package in 1991, exclusive of medical insurance and a variety of other benefits, was $299,219.

In 1984 Ogilvy & Mather acquired the Auckland advertising agency of a Mr Meredith. Mr Meredith became joint managing director of Ogilvy & Mather's Auckland agency, and later that year, on Mr Turner's recommendation, sole managing director. The relationship between Mr Turner and Mr Meredith was not a happy one. Mr Turner recognised Mr Meredith's skills in many areas, but had reservations in others. By mid 1991 Mr Turner had decided that the company's interests would be best served by replacing Mr Meredith as head of the Auckland office. He discussed this with Mr Brody, the President of Ogilvy & Mather Worldwide. In August 1991 he informed Mr Meredith that he would be replaced as head of the Auckland office, and would be appointed to a new position responsible for relationships between Ogilvy & Mather New Zealand and its multi-national trans-Tasman clients. This new position was acceptable to Mr Meredith, who refrained from comment on the question of his replacement as managing director of the Auckland office. Mr Turner discussed the proposed changes with senior executives of the company in Auckland, who were also directors, with the chief executive officer of the Australian company, and with the chief executive officer in New York of Ogilvy & Mather Worldwide. Apart from one of the Auckland executives who wished to delay the appointment of a new managing director in Auckland, all indicated their approval of the changes. Mr Peter Spencer, who had recently joined the Auckland operation as manager advertising, agreed to become managing director Auckland in the new year. The changes were approved by the new President Worldwide.

In January 1992 Mr Turner was informed by Mr Fletcher, financial director Auckland, that Mr Meredith had told him of an alleged discussion between Mr Turner and another Auckland executive, Mr Owen. According to Mr Meredith,

Mr Turner was reported to have told Mr Owen that his long term objective was to remove Mr Meredith from the New Zealand company. Mr Meredith was extremely angry, and had said he would leave the company if Mr Turner did not do so. Mr Meredith had said that if he left, some multi-national clients would also leave the company. Mr Turner interrupted his holiday to go to Auckland the following day, where he spoke to Mr Meredith. Mr Turner denied, as he did later in his evidence, that any such conversation with Mr Owen had taken place. Mr Meredith maintained his position that he was not prepared to work with Mr Turner. Mr Turner telephoned to Mr Wright in New York, who had been appointed as recently as August 1991 to the position of Asia/Pacific manager, and who was Mr Turner's immediate superior. Mr Turner explained the situation which had developed and sought assistance. Mr Wright had already scheduled a visit to New Zealand in late January, and said he would look into the matter.

Mr Meredith and other executives also telephoned Mr Wright prior to his arrival in New Zealand in late January. On arrival Mr Wright had discussions with Mr Meredith and other senior executives of the company in Auckland, having previously asked Mr Turner not to be present in Auckland for these discussions. He travelled to Wellington on 31 January, and in a brief private discussion with Mr Turner informed him that in the best interests of the company he would be required to leave. If he were to remain, Mr Meredith and possibly others would leave, and there would be a high risk of multi-national clients leaving, which was not acceptable. The following morning there was further discussion. Mr Wright suggested that Mr Turner could remain with the company as non-executive chairman for six months. Mr Wright then left Wellington, and two days later wrote from Hong Kong confirming the decisions conveyed during his visit.

He wrote two letters. The first was a formal letter confirming that Mr Turner was to cease executive responsibility with immediate effect. He could retain the

position of non-executive chairman for 6 months, i.e. until July 31, and was to leave Ogilvy & Mather at that date. He was to write to Mr Wright as to any issues he might have "in any settlement", and Mr Wright could come back to him with "a proposed settlement", after checking on worldwide policy and on New Zealand law. The period from now until July 31 was considered to be part of the "settlement period". The second letter was a personal one. It expressed concern at the difficult situation created for Mr Turner, but said the company must come first. It then listed six points of very strong criticism of Mr Turner's performance. It suggested he needed to think hard about his management style, and needed to learn from the mistakes he had made.

One can well understand the concern and distress these events must have caused for Mr Turner. He had been chairman of the New Zealand company for seven years without encountering any such criticism. The recent decisions he had made in respect of the Auckland operation had been made after full discussion with and apparent acceptance by his fellow directors and senior officers overseas. His employment of over twenty years was terminated without any prior discussion or opportunity for explanation. It was terminated by the new Asia/Pacific manager appointed only four months previously, on his first visit to New Zealand and after only a couple of days discussion with the Auckland executives.

In the event, Mr Biggs replaced Mr Turner from 1 February 1992 as New Zealand managing director. Mr Meredith was then appointed to head New Zealand advertising operations, but from 29 April resigned from his position as managing director and was appointed a consultant working on trans-Tasman client relations. Mr Spencer took over his position as head of advertising. Mr Myles, another of the Auckland executive directors, resigned on 1 May 1992, and about that same time Mr Meredith was dismissed. Mr Turner remained as non-executive

chairman until 12 June 1992, but was then paid the equivalent of his normal salary up to 31 July 1993, that is 18 months after his dismissal.

Pleadings

In his statement of claim, Mr Turner alleged breaches of three implied conditions or terms of the contract, namely:

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

(b) that the company would act fairly and reasonably in its treatment of the plaintiff and, in particular, would give him adequate opportunity to answer any concerns that the company might have about his performance before reaching any decision to dismiss him;

(c) and that reasonable notice of termination of his employment would be given by the company.

The statement of claim alleged that reasonable notice in Mr Turner's case was not less than three years, and had not been given. He claimed as special damages the loss of salary and employment benefits for three years, plus a bonus for the 1991 year. He also claimed damages for the loss of the right to participate in the bonuses for the following three years, and for the loss of the opportunity to participate in a share option allocation scheme operated by the parent company in the group. Finally, he claimed $75,000 as general damages for mental distress, humiliation and injury to his feelings.

The statement of defence denied the existence of the first two implied terms, but admitted the third as to a requirement of reasonable notice. It denied all the allegations as to damages. The company did not assert that it was justified in

summarily dismissing Mr Turner for cause. Its defence was that reasonable notice, or the equivalent in money terms, had been given. As a further defence it pleaded an implied term of the contract of employment

"that it could be terminated upon the giving of reasonable notice of termination or payment in lieu of notice to (Mr Turner)".

If, contrary to the company's pleading, the Court were to hold that the first two terms alleged by Mr Turner were implied in the contract, the company denied any breach of them. As a further defence, it alleged breach by Mr Turner of his obligations under the contract and negligence in the performance of his contractual obligations, and claimed that any damages should be reduced as a consequence of contributory negligence.

The Judgment of the Employment Court

The Employment Court held that all three of the implied conditions alleged by Mr Turner were present and formed part of the contract. The Judge held, on the basis of the evidence given before him, that the period of the reasonable notice required to terminate the contract was a minimum of three years. He agreed with the company's contention that this should be calculated from 31 January 1992, and calculated special damages on that basis. He allowed the claim for $100,000 as the bonus in respect of the 1991 year. He disallowed, as being too remote, the claims to compensation for the loss of the chance to participate in the bonuses for the following three years. He also disallowed, as speculative, any claim for the loss of opportunity to take up share options in the parent company.

The Judge treated the claim to special damages as a claim for breach of the implied term as to reasonable notice. He went on to consider the claim for general damages, based on breach of the first two of the implied conditions in the contract. He regarded the case as a particularly bad one, which would have fully warranted an

award of the $75,000 claimed but for the other substantial sums already awarded. Taking that aspect into account, he awarded $50,000 as damages for humiliation and distress.

The company's claim for reduction of any damages on the basis of contributory negligence was dismissed.

The Issues on the Appeal

There was no cross appeal. In this Court Mr Timmins for the company seemed to accept that the first two of the terms alleged were implied in the contract, but he contended that they were irrelevant to the question of what was reasonable notice. He accepted that even where reasonable notice is given to terminate a contract of employment, the fact of termination must be conveyed to the employee in a reasonable manner, and that a failure to do so may result in a liability for damages. He contended that the implied term as to reasonable notice was in the wider terms pleaded in the statement of defence, and allowed dismissal on shorter notice accompanied with payment for the period of reasonable notice. He contested the Judge's decision in respect of the bonus, and his award of general damages.

Because the appeal to this Court is limited to questions of law, it is not open to us to review the findings of fact in the Employment Court. It is only if those findings are made in the absence of evidence which could reasonably support them that this Court can intervene and rule, as a matter of law, that the findings are unsustainable: Edwards (Inspector of Taxes) v Bairstow [1955] UKHL 3; [1956] AC 14; Cozens v Brutus [1973] AC 855; Commissioner of Inland Revenue v Walker [1963] NZLR

339 (CA); Mt Albert City Council v NZ Municipalities Co-operative Insurance Co

Ltd [1983] 191 (CA) per Cooke J at 194.

In the result, the only issues of law raised in this Court were:

1. Whether there was evidence on which the Judge could properly find that the period of reasonable notice was three years;

2. whether there was evidence on which the Judge could properly find that

Mr Turner was entitled to $100,000 as a bonus for the 1991 year;

3. whether there was evidence on which the Judge could properly find a liability for general damages, and assess those damages at $50,000.
   

The Period of Reasonable Notice

It was admitted in the pleadings that it was an implied term of the contract of employment that reasonable notice of termination would be given by the employer. Both counsel accepted that the implied term required a period of notice which was reasonable at the time it was given, not a period assessed at the time the contract was made. They recognised that this view appeared to be inherent in the various Court decisions in which the appropriate period of notice has been considered, and the Court has taken into account matters subsequent to the date of the contract, such as length of service. We agree that this is a logical approach, and that the term to be implied requires a period of notice which is reasonable in the situation as it exists at the time notice of termination is given.

Counsel differed as to whether the implied term allowed termination not only by notice, but also with a payment in lieu of notice. The traditional view has been that reasonable notice should be given, and failure to do so will give rise to a claim for damages. The damages are calculated on the basis of the loss of earnings for the period of what would have been proper notice, less any earnings gained or which should have been gained elsewhere by the employee acting properly to mitigate his loss. On this basis a payment in lieu of notice is a payment on account of damages or in satisfaction of damages. The position is as stated by Lord Browne-Wilkinson in Delaney v Staples [1992] 1 AC 687, in a judgment with which the other members of the House agreed, at 692:

"The phrase "payment in lieu of notice" is not a term of art. It is commonly used to describe many types of payment the legal analysis of which differs. Without attempting to give an exhaustive list, the following are the principal categories.

(1) An employer gives proper notice of termination to his employee, tells the employee that he need not work until the termination date and gives him the wages attributable to the notice period in a lump sum. In this case (commonly called "garden leave") there is no breach of contract by the employer. The employment continues until the expiry of the notice: the lump sum payment is simply advance payment of wages.

(2) The contract of employment provides expressly that the employment may be terminated either by notice or, on payment of a sum in lieu of notice, summarily. In such a case if the employer summarily dismisses the employee he is not in breach of contract provided that he makes the payment in lieu. But the payment in lieu is not a payment of wages in the ordinary sense since it is not a payment for work to be done under the contract of employment.

(3) At the end of the employment, the employer and the employee agree that the employment is to terminate forthwith on payment of a sum in lieu of notice. Again, the employer is not in breach of contract by dismissing summarily and the payment in lieu is not strictly wages since it is not remuneration for work done during the continuance of the employment.

(4) Without the agreement of the employee, the employer summarily dismisses the employee and tenders a payment in lieu of proper notice. This is by far the most common type of payment in lieu and the present case falls into this category. The employer is in breach of contract by dismissing the employee without proper notice. However, the summary dismissal is effective to put an end to the employment relationship, whether or not it unilaterally discharges the contract of employment. Since the employment relationship has ended no further services are to be rendered by the employee under the contract. It follows that the payment in lieu is not a payment of wages in the ordinary sense since it is not a payment for work done under the contract of employment.”

Lord Browne-Wilkinson then referred to the analysis of a payment in the fourth category by Lord Donaldson in Gothard v Mirror Group Newspapers Ltd [1988] I.C.R. 729, 733:

"If a man is dismissed without notice, but with money in lieu, what he receives is, as a matter of law, payment which falls to be set against, and will usually be designed by the employer to extinguish, any claim for damages for breach of contract, i.e. wrongful dismissal. During the period to which the money in lieu relates he is not employed by his employer."

Lord Browne-Wilkinson then continued:

“In my view that statement is the only possible legal analysis of a payment in lieu of the fourth category. But it is not, and was not meant to be, an analysis of a payment in lieu of the first three categories, in none of which is the dismissal a breach of contract by the employer. In the first three categories, the employee is entitled to the payment in lieu not as damages for breach of contract but under a contractual obligation on the employer to make the payment."

Lord Browne-Wilkinson’s first category, which he says is commonly called “garden leave”, involves a termination on notice, continuation of remuneration for the period of the notice, and a dispensation by the employer from the obligation to work. If the period of notice is reasonable, there will be no breach of contract. What is less clear is whether the employer can not merely tell the employee that he need not continue to work, but can require him not to work. If the contract does not give the employee a right to work, but merely a right to remuneration, then the employer could without being in breach deny work to the employee: Turner v Sawdon & Co [1901] 2 KB 653 (CA). In many situations, however, employees are interested not only in remuneration, but in the opportunity to use and maintain or enhance their skills. They expect to enjoy the status associated with their employment, and the other amenities incidental to their position. Neither party has contemplated that the employee may be deprived of work so long as the pay is continued, and that the employee will remain bound to the employer. In some cases the employer may undertake a positive obligation to provide work, for example to an actor or actress or to an opera singer, to a person employed on commission or piecework, or to a person engaged to fill a particular senior position: Collier v Sunday Referee Publishing Co [1940] 2 KB 647. In other cases the employer may have the lesser obligation not to

completely withhold work which is available, as by requiring a manager to stay away from his office and then having his work done by someone else. Such action will then be a breach on the part of the employer, and may amount to a repudiation of the contract. Each case will depend on the terms of the particular contract, including those terms properly to be implied into it.

There is considerable attraction in Mr Timmins' argument that the term which is to be implied in a contract of employment at senior executive level should not be limited to providing for termination on reasonable notice, but should provide the alternative of payment in lieu of notice. This would place the contract in the same position as the second of Lord Browne-Wilkinson's categories. It will be rare that an employer will wish a senior executive to continue to perform his duties after being given notice of termination, although the position can be at least partly met by the "garden leave" alternative. That alternative leaves the employer as the holder of his position until the notice period expires, and would thereby postpone the appointment of his successor. It is arguable that the term which is implied should be wide enough to include what is common practice, rather than treat that practice as a breach of contract and any payment as being by way of damages. The practical result, however, will in this case be the same, so it is unnecessary to decide the precise nature of the term to be implied. If compensation can be paid as an alternative to giving notice, it was accepted that the compensation must be equivalent to the remuneration which would be paid if notice were given.

Mr Timmins submitted that the Judge had erred in law in finding that the implied term as to preserving trust and confidence overruled the company's right to terminate on notice, and in finding that the term as to fair dealing and providing the employee with an opportunity to answer any concerns about him had any relevance where the dismissal was on notice and not for cause. We do not read the judgment as disclosing any error in either respect. The Judge treated the dismissal as being made

in reliance on what was claimed to be reasonable notice, or compensation in lieu. He fixed the period he considered appropriate and assessed special damages solely on that basis. The first two implied terms played no part in those assessments. He held there had been breaches of those implied terms, for which damages could be awarded. Mr Timmins conceded that the manner in which a notice of termination was given could amount to breach of an implied term, and could in a proper case result in liability for damages.

The real issue is the Judge's finding that the period required for reasonable notice was in this case three years. That period is longer than has been allowed in any of the reported cases cited to us both from New Zealand and overseas. The standard New Zealand text, Mazengarb’s Employment Law (serviced to October

1995) in paragraph 1048 refers to the cases on discharge by notice, but cites none where a New Zealand Court has held that the appropriate period was in excess of

12 months. In the present case, the Judge listed a number of factors which he considered relevant in arriving at his decision:

1. He referred to Whelan v Waitaki Meats Ltd [1991] 2 NZLR

74, Brandt v Nixdorf Computer Ltd [1991] 3 NZLR 750, Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567 and Stevens v Globe and Mail (1992) 86 DLR (4th) 204, in the first three of which a 12 month period of notice was held appropriate, and in the last 21 months. He noted that in each of these cases the employee reported to local supervisors, whereas Mr Turner reported to top level executives of a multi-national organisation.

2. Mr Turner's salary was substantially greater than in any of these cases and reflected his senior position.

3. There was some guidance to be obtained from the decision of this Court in Horsburgh v NZ Meat Processors IUW [1988] 1

NZLR 699, on a claim for loss of earnings resulting from wrongful expulsion from a trade union. Guidance was also to be found in Trotter v Telecom Corporation of NZ Ltd [1993]

2 ERNZ 659, where "the period of notice was assessed at 19½

months".

4. Mr Turner was 46 years of age, and in an industry where senior retirements did not normally take place before the early

50's.

5. Mr Turner said that he had expected to continue working for Ogilvy & Mather at least until he reached 50 years of age. For the previous 20 years his life had been Ogilvy & Mather.
   

The matters referred to in paragraphs 1 and 2 above are clearly relevant. We do not see how the cases referred to in paragraph 3 can offer any guidance. Horsburgh's case involved the assessment of the loss in fact suffered as a result of the union's action. It was not concerned with the period of notice which the employer might give to terminate the employment, but with the different question of the period for which the appellant's employment as a cleaner would otherwise have continued, making due allowance for contingencies. Trotter's case involved a discretionary assessment of compensation for loss of earnings in a personal grievance claim for unjustifiable dismissal. The period of 19½ months was allowed, not as being the period required for reasonable notice, but as being the likely period from the date of dismissal to the obtaining of other employment following his vindication by the Court (see at page 695). We also regard paragraph 5 as irrelevant. Even if both employer and employee expect the employment to continue, either has the right to terminate on reasonable notice.

The Judge went on to list the factors which he took into "particular account". These were Mr Turner's long period of uninterrupted employment; the prominent positions held by him particularly from 1984 onwards, and his professional standing, qualifications and experience; the absence of any clear prospect of obtaining similar employment or successfully setting up business on his own account; and his age, and his reasonable and very real expectations of continuing service.

These considerations do not readily translate into a specific period. Earlier in his judgment the Judge referred to the evidence called by the parties. He relied particularly on Mr Peebles, called to give evidence for Mr Turner, and said he derived no real assistance from Messrs McGill and Inch, called on behalf of Ogilvy

& Mather. It is necessary to look at the evidence, not with a view to fixing an appropriate period of notice, but solely to see whether it could support the conclusion reached by the Judge.

Mr Peebles has had long experience in the executive recruitment market and said that his company places approximately 40% to 60% of "top end" executive recruitments in New Zealand in any one year, these being at the level of chief executive or managing director placements in major firms. He has been personally involved in a number of such placements in the advertising industry, which is a very small industry in New Zealand, with very few senior positions. If he were setting up an employment contract for such a position in the industry, he would consider 12 months' notice a minimum notice period for a three to five year contract. If the contract had just been rolled over he would expect the executive to be paid out the balance. We take this to mean that an executive on a fixed term contract would be entitled to be paid for the full period if the contract were terminated for cause, but not less than one year if the contract had less than that period to run, or had continued after expiry without a further fixed term. In Mr Turner's case, where he was required

by his employer to leave for commercial reasons after more than 20 years service, Mr Peebles said he would expect at least two to three years' notice to be given.

Mr Peebles said Mr Turner had consulted him in late 1992 after his dismissal to seek help in obtaining another position. His chances were almost non existent. Given the size of the industry, it was inevitable that everyone would know he had been dismissed, and an executive even at managing director level who has been dismissed is virtually unemployable. If he did obtain employment it would not be in the advertising industry and would be on significantly reduced remuneration.

In his oral evidence, Mr Peebles said his expectation of two to three years' notice was not a generalisation from experience but was based on specific instances. Mr Peebles was asked to give examples, and referred to two instances in which he had been involved over the previous two months. The first concerned a chief executive of a very successful publicity listed company, with a long period of service and no recognisable tertiary qualifications, and thus similar to Mr Turner. He was given the equivalent of three years salary by way of forgiveness of obligations in respect of shares. The second was a chief executive with another public company, probably one of the most successful in New Zealand in marketing. The executive had been with the company for over 20 years, and again had no tertiary qualifications. He received approximately $1million, again through payment of shares, and this was equivalent to about three times his annual remuneration.

Mr Peebles was asked about the period of 12 months notice he had described as a minimum notice for a chief executive or managing director. He agreed that in an ordinary contract, not for a fixed term, 12 months notice was "fairly standard" as the accepted term being offered in the market place for a chief executive. He gave another example where the chairman of a company had consulted him on the renewal of the three year contract of a chief executive, the concern being to cover the position

in the event of sale or change of ownership. He agreed that his period of two to three years was based on the first two examples in his oral evidence and on what had been negotiated by way of settlement. Mr Peebles was understandably reluctant to break confidentiality by disclosing the identity of the persons involved or other details of the cases he referred to, and the Judge quite properly did not require him to do so. It was thus not possible to test Mr Peebles' conclusions from these cases, or to identify what other considerations may have influenced the parties. The Judge said this was a matter to be taken into account by him in assessing Mr Peebles' credibility.

The Judge was clearly impressed by Mr Peebles. He described him as "a man of considerable qualifications and experience in the present context", and said he gave "strong, convincing and persuasive evidence that in the light of Mr Turner's long service and other factors he would expect at least two or three years notice to have been given". We have no reason to question the Judge's assessment of Mr Peebles’ expertise and reliability, and in any case these were matters for the Judge. He appears to have overlooked, however, that Mr Peebles' conclusion as to the term of notice was based on what had been negotiated by the parties following similar terminations, and does not necessarily correspond to the period of reasonable notice which such a contract requires. It may reflect a company's desire to treat generously, or a desire to avoid the cost and diversion of management time that would be involved in litigation. Nor does the Judge explain why he adopted the upper limit of three years, where Mr Peebles' expectation was "at least two to three years". The Judge does not appear to have taken account of Mr Peebles' evidence that a 12 months notice provision was "fairly standard" as an acceptable contract term for chief executives in the market place.

The Judge said that the evidence on behalf of the defendant by Messrs McGill and Inch, with no disrespect to either, was of no real assistance to the Court, because neither had had to consider a retirement situation in circumstances approaching those

of this case. He does not suggest that they were other than competent and reliable in matters within their experience. Mr Inch, a marketing consultant with some 47 years involvement in the marketing industry, both in New Zealand and elsewhere, claimed wide experience in reviewing and formulating terms of employment of senior executives within the advertising industry. He said notice provision in contracts commonly ranged from a minimum of one month to a maximum of six months. The period chosen depended very much on the nature of the position. He did not offer a view as to the appropriate period for Mr Turner.

The Judge appears to have dismissed Mr Inch's evidence as being irrelevant to the question of reasonable notice in a situation such as the present. The weight and significance of the evidence were matters for him, but we think he was wrong in law to treat it as irrelevant. Just as he was entitled, in determining what was reasonable notice, to look at negotiated settlements in cases of early determination, so also he should have taken account of the terms of notice agreed in those cases involving senior executives in the same industry where provisions as to notice were fixed in advance. In both cases what has been agreed reflects the market's view of what is reasonable.

Mr McGill was described as a senior consultant and manager of the survey unit of Price Waterhouse. The unit conducts extensive surveys and produces reviews on a range of matters including remuneration and terms of employment. The Judge accepted that the information collated by the unit from surveys is no doubt of great value when relevant. He found it of no assistance because Ogilvy & Mather were not participants in the survey, and nor apparently were any other advertising agencies. Many organisations did not respond, and little response was received from media organisations. We accept that these are valid considerations when assessing the weight to be given to the evidence, but they are not, with respect, reasons for disregarding it totally. The specific instances on which Mr Peebles relied to support

his expectation of two to three years notice both involved chief executives of publicly listed companies, but he did not suggest that either was an advertising company or news media company. His further example was identified as being a State Owned Enterprise. If these three cases merited consideration, so also must the wider spectrum of information obtained from the surveys.

Accepting that questions of credibility and the weight to be accorded to particular evidence were matters for the Judge, the question remains whether his conclusion can be supported on the evidence before him. He has rejected the evidence of the defendant's witnesses, not on the grounds of credibility or on the basis of weight, but on the basis of relevance. We think their evidence was clearly relevant, and therefore entitled to be given consideration. The Judge gave great weight, as he was entitled to do, to the evidence of Mr Peebles. That evidence was first that for an ordinary contract not having a fixed term, a period of 12 months notice was a fairly standard provision in the market place for a chief executive. Secondly, Mr Peebles' view was that in Mr Turner's situation he would expect at least two to three years notice to be given, based on the settlements negotiated in the cases to which he referred. This does not really provide a foundation for the Judge to reach the view that the proper period is the higher figure of three years. The Judge recognised that he had to bear in mind, in assessing Mr Peebles' evidence, that because of confidentiality it was impossible to test or explore the particular circumstances on which he relied. Some conservatism was thus appropriate. Mr Peebles' "at least two to three years" is not the same as "three years' notice", and must also be read with his acknowledgment that 12 months was fairly standard where the term of notice was agreed in advance. In addition, the Judge put to one side the evidence of Messrs Inch and McGill, which was relevant and should have been considered.

We think these matters go beyond the area of a finding of fact, and disclose an error of law. The Judge has, with respect, looked at the matter too narrowly in considering only evidence based on two post termination settlements, particularly where the details could not be explored. He was not entitled to put to one side the evidence of Messrs Inch and McGill as being of no assistance as to the question in issue, as it was relevant evidence which should have been at least considered. He was entitled to give due weight to Mr Peebles' view, having regard to his wide experience. But he was not entitled, on the whole of Mr Peebles' evidence, to translate that evidence to a finding at the upper limit of Mr Peebles' range. We therefore allow the appeal.

The question remains as to what is the proper period. That is essentially a question of fact, to be determined in the Employment Court by applying the proper legal principles and weighing the evidence that is relevant to the proper question. The question is what period of notice will satisfy the contractual requirement that the contract was terminable only on reasonable notice. Evidence relevant to that question includes not only Mr Peebles' evidence of post termination settlements, his expectation based on these, his further example where he advised a State Owned Enterprise, and his confirmation that 12 months was a standard provision in the market place in employment contracts for a chief executive. The evidence to be considered includes also that given by Messrs Inch and McGill as to the contract terms commonly accepted in the market place.

These considerations would suggest that on the evidence in this case the period should be less than two years, although not less than 12 months. In the ordinary way, we would refer the matter back to the Judge for his assessment in the light of the whole of the evidence. The untimely death of the Judge has made this impossible. It could be referred back to the Employment Court for some other Judge to make himself familiar with it, but we think the better course is to avoid imposing

on the parties the further expense and delay this would involve. Section 135 of the Employment Contracts Act 1991 enables an appeal to this Court on the ground of error of law, and subsection(3) expressly empowers this Court in its determination of any appeal to confirm, modify or reverse the decision appealed from or any part of that decision. Subsection(1) also states that section 66 of the Judicature Act 1908 is to apply to any such appeal. That section in turn applies the provisions of the Court of Appeal Rules 1955, including the power under rule 41 to draw inferences of fact, and the power under rule 42 “to give any judgment and make any order which ought to have been made, and to make any such further or other order as the case may require”. This Court accordingly has jurisdiction to modify the decision of the Employment Court in order to give effect to our decision on the question of law raised by the appeal, and in the circumstances of this case it is appropriate that we should do so. We accordingly modify the decision by fixing the period required for reasonable notice at 18 months.

The 1991 Bonus

The claim to a bonus for the 1991 year was pleaded as follows:

“12. THE plaintiff was also entitled to participate, as a condition of his employment, in a profit share bonus scheme. For the 1991 financial year the profit share bonus which could be allocated to Wellington staff was $174,000. Of such sum the plaintiff could reasonably have decided to authorise an allocation of not less than $100,000 to himself.”

Mr Turner gave evidence to this effect. He referred, as did the Judge, to a memorandum of 6 February 1992 issued by Mr Fletcher as New Zealand director of finance, which included the statement “Wellington Advertising is the only Division to meet our agreed incentive bonus plan ... Wellington Advertising bonus equals NZ$174,000”. It was later decided that no bonuses were to be paid for 1991, and that the bonus accrual of NZ$174,000 for Wellington Advertising should be used as

part of the settlement moneys paid to Mr Turner. This was recorded in a letter of

5 February 1992 sent by Mr Fletcher to Mr Wright. The Judge said this clearly showed that the company had initially accepted that a bonus was payable in respect of Wellington Advertising, but had second thoughts. Mr Turner had intended to apply $100,000 of that amount to himself, and he had denied that Mr Wright had the authority to cancel the bonus. The Judge said he allowed the claim because the

$100,000 “had been identified as being due, if not belonging to, Mr Turner”.

This goes further than the pleading that Mr Turner “could have” reasonably decided to allocate $100,000 to himself, and the similar statement in his written brief. In examination in chief he was asked whether he had formed “any actual or tentative view” as to what his recommendation as to bonuses would be, and gave the equivocal answer “yes”, saying he would have expected “to receive on the formula approximately $100,000”. That was no more than his tentative view of what he might have recommended. It falls short of any act on the part of the company identifying that amount as due, or as actually belonging, to Mr Turner.

Under cross-examination, Mr Turner accepted that if an operating division reached or exceeded its budget, a bonus might be payable, but even though the bonus formula had been agreed no bonuses could be paid in New Zealand until approved by Ogilvy & Mather Worldwide. He assumed it was totally within their power to say no. Correspondence between senior personnel in New Zealand and in New York discussed the basis on which bonuses might be calculated, but fell short of any final commitment. Mr Fletcher, New Zealand Finance Director at the time, said he thought no bonuses would be payable if the country as a whole, taking all six divisions together, failed to meet budget. This was the case in 1991, but a letter which he sent to Worldwide on 6 January 1992 assumes that Wellington Advertising would still be eligible for its bonus. Mr Fletcher explained his 5 February letter on the basis that there had been merely an accrual made in the accounts in anticipation

of the possibility of a bonus, and when not so required the moneys were available to be used as part of the settlement payment.

Mr Wright, who at the time was Chairman of the Asia/Pacific Region, said he would certainly not have approved a bonus of $100,000 for Mr Turner, and that he would regard such an allocation as “rather greedy”. No bonuses were in fact approved by Worldwide for any employees of the New Zealand company in respect of the 1991 year, although a payment of $12,000 was made in anticipation to Mr Biggs on the basis that it would be repaid if not approved, and repayment was subsequently waived. Mr Wright and Mr Fletcher both said that the decision not to pay bonuses was not related to the termination of Mr Turner’s employment.

The Judge was not bound to accept all or any of the above evidence, but there is nothing contained in the evidence which could support his finding that $100,000 had been identified as due or as belonging to Mr Turner. Nor is there any evidence which could support his further finding that but for his dismissal Mr Turner would have received that sum as bonus. We therefore allow the appeal on this point, and set aside the judgment in respect of the bonus for 1991.

General Damages

A sum of $75,000 was claimed as general damages for Mr Turner’s alienation from the advertising industry, mental distress, humiliation and injury to his feelings as a result of the breaches of contract. The Judge was critical of the suddenness of Mr Turner’s dismissal, the absence of any real opportunity for him to explain his side of the matter, his high profile in the industry and the hurt and embarrassment which he suffered. He noted that the amount claimed appeared higher than any awards previously made under the Employment Contracts Act. He considered the present to be a particularly bad case, however, which would fully warrant the full amount

claimed but for the substantial awards made to Mr Turner on the other aspects of his claim. Taking that into account, he awarded $50,000 as general damages.

The claim was based on all three of the implied terms of the contract which had been pleaded and found by the Judge. That there can be a claim for general damages in such a case has been recognised in Whelan v Waitaki Meats Ltd [1991]

2 NZLR 74 and by this Court in its earlier decision in the present case, [1994] 1

NZLR 641 at 644, 648-9 and 653-4. The limited scope of such damages at common law and the need for firm restraint to be kept on the quantum of awards was referred to in the judgment of this Court in Andrews v Parceline Express Ltd [1994] 2 ERNZ

385 at 398. These matters were said to apply equally to common law damages and to damages awarded under the Employment Contracts Act for such things as humiliation, loss of dignity and injury to feelings. In that case a sum of $10,000 was awarded to a worker on contract, not an employee, whose contract was wrongfully terminated.

It was submitted that the factors relied on by the Judge as the basis for his award all flowed directly from the fact of termination and not from any shortness of the period of notice. They were largely due to or increased by the suddenness of the termination and the manner in which it was notified. It was clearly open to the Judge to make an award of general damages on the basis of breach of the conditions which he found to be implied into the contract, based on the relationship of trust and confidence, and the obligation to act fairly and reasonably. In arriving at the amount which he awarded, the Judge does not appear to have placed any reliance on his finding that the period of notice should have been longer than the 18 months for which salary was paid.

The amount awarded of $50,000 is a very large sum of damages in a case arising from the dismissal even of a chief executive, but there were features of the

employer’s action which make this a bad case of its kind. The Judge said that he would have awarded the full amount of $75,000 claimed, but for the other substantial sums already awarded, and for this reason he fixed the damages for humiliation and distress at $50,000. The reduction in the period of reasonable notice and the elimination of the 1991 bonus will remove the Judge’s reason for reducing the general damages to $50,000, but we regard any higher figure as going beyond what could be justified on the evidence. The damages are to compensate for the breaches of contract, not for the loss inherent in a proper termination on reasonable notice. We are not persuaded, however, that the Judge’s final figure of $50,000 is itself so high as to be outside the range which was properly open to him in the circumstances of this case. We are unable to disturb this part of the decision.

Conclusion

We allow the appeal, except in regard to the award of general damages, where the judgment should be confirmed. The period of reasonable notice required to terminate the employment should be fixed at 18 months, with any consequent recalculation of the damages under that head. The award of special damages for the loss of bonus for 1991 should be set aside, there being no basis for any such award. The order for costs in the Employment Court should be set aside, and in its place there should be an order in favour of Mr Turner for $20,000 including disbursements. In this Court the appellant has succeeded, and should be allowed costs in the sum of

$7,000 together with disbursements, including the costs of preparation of the case and the reasonable costs of travel and accommodation of one counsel.

Solicitors

Chapman Tripp Sheffield Young, Auckland, for Appellant

Macalister Mazengarb Perry Castle, Wellington, for Respondent