From: Neil Foster <neil.foster@newcastle.edu.au>

Sent: Wednesday 11 December 2024 03:22

To: obligations@uwo.ca

Subject: ODG: HCA on contract damages for psychological harm, dismissal

Dear Colleagues;

The second major private law case I want to note today (see my previous email on Pafburn for the others handed down today) is Elisha v Vision Australia Limited [2024] HCA 50 (11 Dec 2024). The case involved the question whether an employee who suffers a diagnosed psychological injury resulting from the manner of their dismissal (which amounted to a breach of contract), can recover damages for such. By majority the High Court concludes that such an action is available in the circumstances of this case (GAGELER CJ, GORDON, EDELMAN, GLEESON AND BEECH-JONES JJ; JAGOT J concurring in a separate judgement; STEWARD J dissenting.)

Mr Elisha was accused of inappropriate behaviour towards the owner of a hotel he had been staying at while on duty. Vision Australia (VA) had a disciplinary process which the court held had been incorporated into his contract of employment. Contrary to that process an investigation did not really put to him all the reasons for his dismissal which influenced the decision-makers. (The trial judge was scathing about the process, calling it a sham and a disgrace - see [25].) He was dismissed and later suffered from psychological problems which were found to have been caused by both the process and the fact of the dismissal. He succeeded in receiving a settlement for a statutory damages claim for unfair dismissal - see [22]; but when his condition did not improve he sued VA for breach of contract and in the law of negligence.

The majority conclude that there can be an award of damages for diagnosed psychological harm flowing from breach of contract of employment in dismissing an employee. They say at [51] that an alleged rule to the contrary in Addis v Gramophone Company Ltd [1909] AC 488 is not what that case stands for (as comments there relating to mere distress did not preclude a recognised psychological condition), and in any event should no longer be applied. They note at [59] that

In Baltic Shipping Co v Dillon,in the context of discussing liability of a defendant for mental distress consequent upon a repudiation of a contract with an object of providing enjoyment and relaxation, Mason CJ (with whom Toohey J and Gaudron J agreed on this point) and McHugh J recognised psychiatric injury as part of a class of physical or personal injury for which damages were recoverable. There was no suggestion that there was any class of contract for which recovery of physical or personal injury lay beyond the scope of contractual duties. And, absent the authority of Addis, Vision Australia did not suggest that there is any justification to impose upon every express term concerning the manner of dismissal in every employment agreement an assumption that recovery for psychiatric injury falls beyond the liability that the parties might fairly be regarded as having been willing to accept.

They then discuss whether the harm suffered here was too remote under contractual principles. The test to be applied is

[65] That general type of damage and general manner of occurrence must have been within the reasonable contemplation of the parties, at the time of contract, as a serious possibility.

They conclude on this issue:

[69] The precise psychiatric injury suffered by Mr Elisha need not have been contemplated at the time of the 2006 Contract, but it was reasonable to expect that Mr Elisha would have been so distressed by the manner in which Vision Australia breached the 2006 Contract and by the consequences of the breach for him, including his dismissal for alleged misconduct from the employment that he had held for nearly a decade, that there was a serious possibility that Mr Elisha would suffer a serious psychiatric injury.

Hence the claim should succeed. On that basis, they say that more argument would have been needed to decide the question as to whether there should also be a duty of care in the law of negligence which implied an obligation not to cause psychological harm in dismissing an employee. Finding such a duty, they say at [77], would involve consideration of how that would interact with relevant statutes and the law of contract. (They note in [75] that the decision finding no such duty in New South Wales v Paige (2002) 60 NSWLR 371 involved consideration of relevant statutes in the area.)

So they decline to rule on that question.

In general Jagot J agreed with the majority- see [125], [130], [138]. Steward J disagreed on the question of remoteness, saying that this damage was too remote to have been in the contemplation of the parties. Since his Honour then needed to comment on the duty of care issue, he would have followed Paige and found no duty.

Regards

Neil

NEIL FOSTER

Associate Professor, School of Law and Justice

College of Human and Social Futures,

University of Newcastle, NSW

T: +61 2 49217430

E: neil.foster@newcastle.edu.au

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