Senior responsibilities and an agreed termination payment: Schembri v National Orchestra

The Court of Appeal confirmed that National Orchestra Limited had to honour a contractual payment equivalent to three years’ salary following Brian Schembri’s termination. The judgment connects three recurring issues in senior exits: the effect of renewal provisions, the contractual allocation of management responsibilities and the reason recorded when the employer ends the relationship.

The contractual dispute

Schembri was engaged as Artistic Director and Principal Conductor. His contract prescribed a 36-month term, provided for automatic renewal and allocated substantial responsibility for artistic programming, guest artists and recruitment. It also required a full three-year payment if the Orchestra terminated the agreement. A separate provision governed termination by Schembri, including six months’ notice.

As the original term approached its end, the employer proposed a further contract. Schembri maintained that the existing agreement already renewed automatically. He continued working and receiving his salary after the original expiry date, while negotiations over revised terms continued.

Those negotiations concerned more than pay. The proposed arrangements would have changed the basis of his engagement and reduced the functions attached to the artistic directorship. The evidence included instructions excluding him from artistic decisions because he had not accepted the new terms. The board subsequently recorded that it was terminating the current contract because the proposed amendments had not been accepted.

The employer defended the claim by alleging, among other matters, abandonment of duties in connection with a concert. It also brought a counterclaim.

The Court’s reasoning

The Court rejected the attempt to avoid the agreed termination payment. It considered that the argument over whether the renewed relationship had become indefinite did not alter the applicability of the payment clause. It also noted that the particular classification argument had not been advanced before the first court.

The contractual responsibilities mattered independently of remuneration. The Court accepted the evidence of interference with Schembri’s artistic functions and the written objections made on his behalf while the dispute was unfolding. The employer’s operational explanation did not displace the finding that responsibilities assigned by contract had been undermined.

The board minutes were particularly important. They identified refusal to accept the amendments as the reason for termination. The Court regarded the later reliance on the concert incident as an attempt to justify a decision taken for a different recorded reason. The employer’s own documents contradicted its denial that the refusal to accept new terms had caused the termination.

The Court characterised the three-year payment as a pre-agreed penalty. It did not need to decide whether the clause would apply even where termination was justified, because the termination in this case had not been justified. The employer’s appeal failed and the monetary award remained in place.

Significance for executive exits

The case shows why a proposed leadership reorganisation should begin with the existing agreement. A board may wish to revise reporting lines, redistribute authority or replace employment with a consultancy arrangement. The financial consequences depend on the rights already granted and the mechanism available for changing or terminating them. Employers planning such changes can find more in restructuring advice for employers.

The judgment also makes the documentation of the decision commercially significant. A termination resolution, the communication to the executive and the defence later advanced in litigation need to be understood together. An explanation developed after the event may be difficult to reconcile with contemporaneous minutes.

For exit negotiations, the agreed payment was the central liability. It was not an award calculated by applying a general three-year compensation rule. The decision therefore supports close analysis of the particular termination clause, its trigger and the duties attached to the role when assessing the cost of a senior departure: the starting point of an exit review. The best time to agree such a clause is before the role begins, which is the purpose of an incoming executive review.

Related: Exit review · Incoming executive review · Camilleri v Allied Newspapers