This case provides useful insight into when a serious breach of a contract will be remedied, in this case in the context of an employment contract which did not specify the manner of remedy.  The Court found that a breach will be remedied where matters are put right for the future, and does not require that all damage, past and future, be removed or nullified.  Mere dissatisfaction with the manner in which the party in breach remedies the breach is not sufficient.  If contracting parties wish to prescribe the manner in which a breach may be remedied, such steps should be clearly set out in the contract.

Mr Heugh was the managing director of Central Petroleum Ltd (Central).  Dissatisfied with the board’s decision to assign parts of his responsibilities to Mr Shortt, Mr Heugh sent two letters to Mr Shortt,the first being a warning letter regarding Mr Shortt’s work performance and the second asking whether he would like to take on the additional responsibilities ordered by the board or if some alternative arrangement might be preferable.

The Central directors then:

  • resolved that Mr Heugh had persisted in attempts to circumvent the assignment of responsibilities and in so doing, had subjected Mr Shortt to unacceptable workplace pressure in contravention of his employment contract and the Central Code of Conduct; and
  • requested Mr Heugh to remedy the breaches including by providing a letter of apology to Mr Shortt in the form of the template provided by Central.

The form of written apology issued by Mr Heugh differed from the Central template.  Central then resolved to remove My Heugh as a director and terminate his employment contract pursuant to clause 14.1 which provided that:

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.’

Le Miere J in the Supreme Court of Western Australia found that while there had been a serious breach of Mr Heugh’s employment contract, Central had wrongfully terminated the contract because:

  • while the contract did not specify the manner in which the breach was to be remedied or cured, the proper construction of clause 14.1(a)(iii) was that to remedy a breach means to cure so that matters are put right for the future rather than to obviate or nullify the effect of a breach so that any damage already done is in some way made good;
  • whether or not a breach has been remedied is a question of fact. Where the promisee specifies steps to be taken to remedy the breach, the promisor may remedy the breach even though he fails to comply with those steps.  The promisee cannot limit what might be done to remedy the breach by specifying the steps to be taken to the remedy the breach (ie a form of letter of apology);
  • Mr Heugh’s letter of apology achieved the purpose of healing any hurt to Mr Shortt and repairing damage to their working relationship, and thus remedied the breach; and
  • even if Mr Heugh’s letter did not remedy the breach, Central did not have an unrestrained discretion to terminate, but rather a discretion that was qualified by a requirement that it be ‘reasonable’.  Reasonableness has both an objective element (which looks at the Central board’s reasons for terminating) and an objective element (which looks at Mr Heugh’s position, his history and the circumstances of the breach).  The template apology provided by Central was grovelling and it was unreasonable to expect Mr Hugh to sign it.  His Honour also took into account that Mr Heugh was a long-serving managing director and that Central had no prior complaints about his performance.  On this basis, Le Miere J found that the Central board did not exercise “reasonable discretion” in terminating the employment contract.

ee the case.