Executive wins $3.7 million for breach of employment contract

The Federal Court has awarded a former executive of an ASX-listed mining company more than $3.7 million after his employer breached his employment contract by failing to correctly pay his salary, superannuation, and leave entitlements – and his membership of the Union, University and Schools Club.

Justice Anna Katzmann agreed to make the award in US dollars, which was the currency denominated in the employment contract, and calculated the amount at $US2,648,112, which is worth about $A3.7 million at today's rates.

She also accepted that the executive was entitled to interest on half the award made, and said she would make a final determination after submissions from the parties on the interest calculation and costs.

However, the extent to which the executive can recover the judgment is questionable, because the entity that formerly employed him, Indochine Mining Limited, went into administration this year.

An entity in the Indochine Resources group engaged experienced mining and finance sector executive Robert Coghill in 2008.

Indochine owned some mining leases in Cambodia and planned to raise capital on the ASX to exploit them.

Coghill took up the roles of chair and chief financial officer "for an initial term of five years, commencing from 1 May 2008, renewable with at least six months' notice "on substantially the same terms" for "perpetuating" five-year periods. The role required frequent travel to Cambodia.

He started on a salary of $US240,000 a year, and his contract included benefits such as car allowance up to $US20,000 , travel and living away from home expenses, airfares for him and his family, and membership of the Union, University and Schools Club and Fitness First.

The contract included provisions to increase the salary by 20% each year.

During the company's progression towards an ASX listing, its board sought to cut its costs, and reduced salaries for all employees by half.

Coghill's remuneration dropped to $US120,000 per year. The Board said salaries would be returned to their contract levels following a capital raising and all arrears would be paid.

The company summarily terminated his employment in June 2010, alleging "serious misconduct".

He subsequently took action against the company for allegedly breaching his employment contract and the Fair Work Act.

In the initial hearings of the matter, the company had legal representation and rejected all of Coghill's claims, but its lawyers subsequently ceased to act for it, and it declined to contest the case.

Coghill sought payment for all his entitlements under the contract until the termination of his employment, and also sought liquidated damages under the terms of the contract for five years of salary, superannuation and allowances.

Justice Katzmann said she found Coghill's evidence "not inherently implausible" and added that: "In all but a few respects, he also made out his claim for damages."

She found the company had breached his contract by failing to restore his salary or pay the arrears after the capital-raising.

It also failed to pay his contracted salary increases, his proper rate of superannuation and his correct leave entitlements.

In assessing damages, Justice Katzmann considered the damages clause in Coghill's contract for its termination without proper cause, and conceded it would result in an "extremely generous" amount.

But she noted that "it has never been the law that merely because a clause provides for payment of a sum which exceeds the damages recoverable at common law the clause is necessarily penal rather than compensatory. An agreed damages clause may not be penal even if it produces a windfall".

Justice Katzmann said the correct test was whether the sum payable was "out of all proportion" to the loss, or "extravagant, exorbitant or unconscionable" in comparison with the greatest loss that could conceivably be proved to have followed from the breach.

In this case she said the contract was for a fixed term of five years and the parties proceeded on the basis he would be employed for successive terms.

She said Coghill was "not a young man" and conceivably might not have been able to obtain other work, so: "In those circumstances it is conceivable that his loss could have been as great as that for which the clause provided."

She awarded the full amount of liquidated damages sought — $US2,307,890 — as well as amounts that should have been paid between the salary reduction in October 2008 and his dismissal in 2010 (roughly $US340,000).

Justice Katzmann also found Indochine had breached the Fair Work Act by failing to pay annual leave required under the NES and also failed to pay him notice or his accrued leave when it terminated his employment.

She awarded damages for breach of the employment contract.

Coghill v Indochine Resources Pty Ltd (No 2) [2015] FCA 1030 (17 September 2015)