Are damages for psychiatric injury for a breach of contract to be regarded as too remote to permit recovery? Apparently not.
In the decision of Elisha v Vision Australia Limited [2024] HCA 50 which may sound alarm bells for employers, (as well as parties to commercial contracts in a broader context) the High Court has allowed an appeal from a decision which concerned the availability of damages for psychiatric injury to an employee in circumstances where he was dismissed following a disciplinary hearing that was described by the primary judge as a “sham”.
Facts
- The Plaintiff was an employee who was dismissed from employment.
- His contract of employment contained his duties and incorporated workplace disciplinary policies.
- Concerns were raised about events and occurrences said to be serious misconduct based on aggressive and intimidating conduct towards others while at work.
- The Plaintiff was stood down as a result of those events and asked to attend a discipline meeting.
- At the meeting, at which the Plaintiff had a union support person, the allegations against him were denied, and his employment was subsequently terminated.
Damages for Psychiatric Injury
Following the termination of his employment, the Plaintiff was diagnosed with a major depressive disorder, as well as an adjustment disorder with depressed mood. He was found to have no capacity for work in the foreseeable future. One of Mr Elisha’s treating psychiatrists gave evidence that Mr Elisha “had not given any indication of issues with anger and frustration prior to the termination of his employment”. Another psychiatrist, called by Vision Australia, observed that there had been “a very obvious and significant change in [Mr Elisha’s] demeanour and his way of relating and his behaviour” since his termination.
Discipline Meeting a “Sham”
Mr Elisha was not given any notice of, or opportunity to respond to, the allegation of a history of aggression and excuse-making in the discipline meeting and was not told of the role of that allegation in the decision to terminate his employment.
The primary judge held that the process which led to Mr Elisha’s termination was “unfair, unjust and wholly unreasonable” and that “from the point at which Ms Hauser became involved to the sending of the termination letter by Ms Eagle on 29 May 2015, the process adopted by [Vision Australia] was nothing short of a sham and a disgrace”.
Mr Elisha succeeded in his claim for damages for breach of contract. Vision Australia was ordered to pay damages of $1,442,404.50.
Appeal
On appeal to the High Court of Australia, in relation to breach of contract, the questions that arose were:
- Whether the particular contract of employment incorporated the employer’s disciplinary policies as terms of the contract;
- Whether liability for psychiatric injury caused by the employer’s breach of that contract is beyond the scope of the employer’s contractual duty concerned with the manner of dismissal; and
- Whether liability for psychiatric injury was too remote in the circumstances of the particular contract.
The answers to each of those questions were:
- The particular employment contract did incorporate the employer’s disciplinary policies as terms of the contract;
- Subject to the particular terms and context of any particular contract, liability for psychiatric injury is not beyond the scope of a contractual duty concerned with the manner of dismissal; and
- Liability for psychiatric injury was not too remote, particularly in the serious (and unchallenged on this appeal) circumstances of breach that were found by the primary judge.
Summary
The High Court’s ruling is one of the most significant decisions of this year for employers.
In the employment context, it must surely alert employers to carefully consider the duties and obligations of any terminations from employment and ensure that any contractual or implied term requiring a set process and procedural fairness is afforded in all aspects of investigations and the disciplinary process. The High Court’s decision serves as a reminder that “sham” reasons and processes for dismissal are especially risky, and may cause more trouble (and expense) then they are worth.
Special care must be taken where an employee has any pre-existing condition or predisposition indicating that damages for psychiatric injury may follow a dismissal from employment.
The Future of Damages for Psychiatric Injury
In a broader commercial context, there are many contracts, where the wrongful termination by a party could cause a foreseeable psychiatric injury.
Consider for instance, where a party is emotionally invested in the subject matter of a contract, such as a house purchase or building contract, a celebratory event, a trip of a lifetime or a cosmetic surgery. The list of potential contracts where a termination or a breach can foreseeably and reasonably lead to damages beyond and more than economic loss is very broad.
It remains to be seen whether, and how quickly the lower Courts will apply the decision of the High Court in Elisha v Vision Australia Limited. The decision does however appear to open a new avenue of damages for aggrieved employees where their employment has been wrongly terminated and without procedural fairness to pursue against their former employer.
If you are a party to a contract and considering termination, seek sound and commercial legal advice before doing so. It could save you a lot of time and money.
Rostron Carlyle Rojas Lawyers has an experienced commercial law team that can assist you. Contact Michael Sing today to discuss your circumstances.
The blog published by Rostron Carlyle Rojas is intended as general information only and is not legal advice on any subject matter. By viewing the blog posts, the reader understands there is no solicitor-client relationship between the reader and the blog published. The blog should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult RCR on any legal queries concerning a specific situation.
