Elisha v Vision Australia Limited

HIGH COURT OF AUSTRALIA

GAGELER CJ,
GORDON, EDELMAN, STEWARD, GLEESON, JAGOT AND BEECH‑JONES JJ

ADAM ELISHA  APPELLANT

AND

VISION AUSTRALIA LIMITED  RESPONDENT

Elisha v Vision Australia Limited

[2024] HCA 50

Date of Hearing: 16 October 2024
Date of Judgment: 11 December 2024

M22/2024

ORDER

1.Appeal allowed with costs.

2.Set aside orders 2 to 6 of the orders of the Court of Appeal of the Supreme Court of Victoria made on 28 November 2023 and, in their place, order that the appeal be dismissed with costs.

On appeal from the Supreme Court of Victoria

Representation

P D Herzfeld SC with E Makowski and S D D Puttick for the appellant (instructed by Arnold Thomas & Becker Lawyers)

P M O'Grady KC and S E Gladman SC with L R Howard for the respondent (instructed by IDP Lawyers)

Notice:  This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

Elisha v Vision Australia Limited

Damages – Assessment – Breach of contract – Scope of contractual duty – Remoteness – Where appellant employed by respondent – Where incident involving appellant occurred during travel for appellant's work duties – Where appellant provided with "stand down letter" outlining allegations arising from incident – Where previous reports of appellant's aggressive behaviour – Where disciplinary meeting held for appellant to respond to allegations in stand down letter – Where employment terminated – Where decision to terminate employment based upon allegations of previous aggressive behaviour not put to appellant contrary to respondent's disciplinary procedure – Where appellant diagnosed with major depressive disorder – Whether liability for psychiatric injury caused by employer's breach beyond scope of employer's duty concerned with manner of dismissal – Whether rule in Addis v Gramophone Company Ltd [1909] AC 488 precludes recovery of damages for breach of contract in respect of psychiatric injury caused by manner of dismissal – Whether damage too remote.

Contract – Incorporation of terms – Employment contracts – Policies and procedures – Where employer's disciplinary procedure in enterprise agreement and policy document – Where contract of employment required employee to agree to comply with employer's policies and procedures – Whether disciplinary procedure incorporated as term of employment contract.

Negligence – Duty of care – Whether employers owe duty to employees to provide safe system of investigation and decision-making with respect to discipline and termination of employment.

Words and phrases – "common intention of the parties", "duty of care", "general manner in which the damage occurred", "general type of damage", "incorporation", "manner of dismissal", "mental distress", "on the cards", "psychiatric injury", "reasonable contemplation of the parties", "remoteness of damage", "safe system of work", "scope of contractual duty", "serious possibility", "willing to accept".

GAGELER CJ, GORDON, EDELMAN, GLEESON AND BEECH-JONES JJ.  

Introduction

1. This appeal concerns the availability of damages for psychiatric injury to an employee in circumstances where the employee was dismissed following a disciplinary hearing that was described by the primary judge as a "sham". The issues concern damages for breach of a contractual term concerning the conduct of the disciplinary hearing and for the tort of negligence. In relation to breach of contract, the questions that arise are: (i) whether the particular contract of employment incorporated the employer's disciplinary policies as terms of the contract; (ii) 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 (iii) whether liability for psychiatric injury was too remote in the circumstances of the particular contract.

2. The answers to each of those questions are: (i) the particular contract did incorporate the employer's disciplinary policies as terms of the contract; (ii) 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 (iii) 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.

3. For the reasons below, the appeal should be allowed and orders should be made restoring the primary judge's orders for damages for the psychiatric injury suffered by the employee. It is unnecessary to consider the further issue raised on this appeal concerning the liability of an employer for psychiatric injury of an employee based on the tort of negligence.  

   Background facts and procedural history

4. From 2006, the appellant, Mr Elisha, was employed by the respondent, Vision Australia Limited ("Vision Australia"), as an adaptive technology consultant. Mr Elisha's employment with Vision Australia was governed by a written employment contract signed on 27 September 2006. That contract was referred to on appeal as the "2006 Contract". Mr Elisha's employment duties involved setting up or assisting with software and hardware systems for the vision impaired. In the performance of his employment duties, Mr Elisha visited homes and workplaces across Australia.

5. Between December 2014 and July 2015, Mr Elisha was treated by a general practitioner and a psychologist for anxiety and depression. The psychologist considered that Mr Elisha had "significantly heightened sensitivity to particular sounds", "chronic workplace stress" and "interpersonal difficulties with particular staff members". On 23 and 24 March 2015, Mr Elisha was involved in an incident while he was staying in a hotel in rural Victoria during travel for his work duties. The incident concerned one of the hotel's proprietors, Ms Trch. The circumstances of the incident were disputed but the essence of the incident involved allegations that Mr Elisha had telephoned the reception of the hotel at around 12.30am and complained of a noise emanating from outside his room. Mr Elisha was moved to another room at around 1am.

6. Mr Elisha subsequently went on a family holiday. While Mr Elisha was away, two other employees of Vision Australia stayed at the same hotel and were informed of Ms Trch's account of the incident. Ms Trch alleged that Mr Elisha had been aggressive and intimidating during the incident, including while checking out of the hotel the next morning. The two employees reported the matter to their manager, Ms Deshayes. The matter was then escalated to Mr Elisha's manager, Ms Hauser.

7. Since 2011 or 2012, Mr Elisha's relationship with Ms Hauser had been strained. Mr Elisha's evidence was that Ms Hauser had been "micromanaging" and "in general unpleasant to communicate with". On 8 May 2015, after being informed of the hotel incident, Ms Hauser informed the Human Resources Manager of Vision Australia, Mr Van Dyk, and a member of Vision Australia's "People and Culture" department, Ms Eagle. In informing the others, Ms Hauser's email included the following:

   "Unfortunately, whilst this should surprise me, it doesn't. I have had verbal reports to me about [Mr Elisha's] aggressive behaviour in the past, and I have had conversations with him over the years, but he has always managed to make excuses and explain his actions. Most recently, I sent him an email requesting that he stop parking in the visitors car park, and he responded to me very aggressively. However, in this instance, there is no excuse."

8. On 10 May 2015, following an earlier conversation between Ms Deshayes and Ms Trch, which Ms Deshayes related to Ms Hauser and Ms Eagle, Ms Hauser emailed Mr Garwood, the General Manager of Vision Australia, informing him of the incident and saying:

   "I have been aware for some time that [Mr Elisha's] behaviour has deteriorated (and I have addressed minor issues with him as they arose), but this is something else entirely. [Mr Elisha] is on annual leave until the 18^th May, and [Ms Eagle] is happy that she has some time to speak with [Ms Trch] and decide what action to take. I feel that this is gross misconduct and should be addressed accordingly."

9. On 12 May 2015, Ms Eagle interviewed Ms Trch. This interview was followed by a letter to Ms Trch from Ms Deshayes and Ms Hauser asking Ms Trch to accept their "sincere apologies" and undertaking that Mr Elisha would not stay at the hotel for Vision Australia business in the future. 

10. On 19 May 2015, the day that Mr Elisha returned from annual leave, Ms Hauser met with Mr Elisha and told him that there was a "serious" complaint against him. Ms Hauser gave him a letter, which was described at trial and on appeal as the "stand down letter". The stand down letter told Mr Elisha a decision had been made to stand him down and required Mr Elisha to attend a meeting two days later, on 21 May 2015, to respond to "a complaint ... alleging your serious misconduct". Mr Elisha said that he "begged [Ms Hauser and] said 'this is just not true, none of this happened'" and asked to sort it out with Human Resources. But Ms Hauser replied "it doesn't matter, you have to go home, you'll have a meeting and you can respond to it then".

11. The allegations in the stand down letter were that Mr Elisha had breached a number of Vision Australia's policies which were annexed to the stand down letter. The allegations were confined exclusively to misconduct during the hotel incident. It was alleged that during the hotel incident Mr Elisha intimidated and humiliated Ms Trch. Mr Elisha was said to have used aggressive and loud tones and said words to Ms Trch to the effect of "[y]ou're the Manager you have to fix it, are you not able to do your job, are you not able to do any job, are you incapable of doing anything". When Mr Elisha was moved to a different room he was alleged to have said "goodnight" but not thank you. It was also alleged that on checking out of the hotel he had thrown the room keys on the reception desk in a rude and dismissive manner and left without saying anything. The stand down letter alleged that Ms Trch had felt humiliated by this behaviour.

12. The stand down letter explained that at the upcoming meeting ("the discipline meeting") Mr Elisha would be asked to respond to these allegations. Mr Elisha was told that he must not speak with any staff member regarding the matter, unless that person was his "support person" at the meeting. He was told not to approach any person in any way whatsoever if he believed that the person may also be involved in the matter. The consequence of violating these instructions would be summary dismissal. The instructions were said "to ensure procedural fairness applies to the proceedings and to all involved in the matter". The stand down letter concluded:

    "Please note that this meeting is being conducted in accordance with the Due Process Clause (47.5) of the Vision Australia Unified Enterprise Agreement 2013 (refer Appendix 1). Please note that disciplinary action up to and including summary dismissal may be an outcome of this meeting."

13. Clause 47.5 of the Vision Australia Unified Enterprise Agreement 2013 ("the Vision EA") was "in very similar terms"[1] to those contained in a policy entitled "Vision 2015 Disciplinary Procedure" ("the 2015 Disciplinary Procedure"), said to be effective from April 2015, and enclosed with the stand down letter.

    [1]Elisha v Vision Australia Ltd [2022] VSC 754 at [414].

14. Prior to the discipline meeting, Mr Elisha provided a written response to the allegations in the stand down letter in which he said that he "vigorously" denied any of the alleged misconduct, that he "never behaved in any verbally aggressive nor intimidating manner" and that he never raised his voice. 

15. The discipline meeting was held on 26 May 2015. Under the 2015 Disciplinary Procedure, Mr Elisha chose Mr Nunns, a branch organiser with the Australian Services Union, to attend as his support person. Ms Eagle and Ms Hauser also attended. Mr Elisha read out his written response. Ms Eagle asked Mr Elisha why Ms Trch would complain and Mr Elisha referred to a potential discrepancy in the bill arising from his previous stay at the hotel. There was discussion about "serious misconduct". Mr Elisha and Mr Nunns were told that they would be advised of the result of Vision Australia's deliberations.

16. A file note of the discipline meeting was prepared by Ms Eagle and Ms Hauser. It included the statement "[Mr Elisha] made further statements along the lines of he's been here 9 years without any history of aggressive behaviour". The file note ended with the following:

    "[Ms Hauser's] observations

    [Ms Hauser] thought [Mr Elisha] presented himself very arrogantly and showed no remorse. [Ms Hauser] thought [Mr Elisha] seemed shocked to be told that we would be considering the matter further and he wouldn't be going back to work.

    [Ms Eagle's] observations

    [Ms Eagle] agrees that [Mr Elisha] showed no remorse because in [Ms Eagle's] opinion [Mr Elisha] truly doesn't think he has done anything wrong. He appears quite comfortable with the idea that the staff member has fabricated it all because 'people do things others don't understand'. He seems to be quite confident that as it can't be proven nothing will happen. Of course [Mr] Nunns is supporting him."

17. On 26 May 2015, at 6.08pm, Ms Eagle emailed the General Manager of Victorian client services, Mr Gow-Hills, and the General Manager, Mr Garwood, and also Mr Van Dyk and Ms Hauser. The email provided "documentation" for their meeting the next day to consider Mr Elisha's fate. The documentation included the file note prepared by Ms Hauser and Ms Eagle.

18. On 27 May 2015, a meeting was held between Ms Hauser, Ms Eagle, Mr Van Dyk and Mr Gow-Hills. Ms Eagle recommended that Ms Trch's account of the events on 23 and 24 March 2015 be preferred over Mr Elisha's account. That recommendation was accepted. It was determined by Mr Gow-Hills, together with Mr Van Dyk, Ms Eagle and Ms Hauser, that Mr Elisha's employment should be terminated. One of the reasons for the decision was, as Ms Hauser put it, that Mr Elisha "was extremely aggressive" during the hotel incident and Ms Trch's account "needs to be honoured"; it was not "something that you can say, oh, that's not the case, that's exactly what [Mr Elisha] does" (emphasis added). Mr Gow‑Hills also relied upon what he had "previously heard in relation to Mr Elisha's behaviour".

19. On 29 May 2015, in email correspondence between Mr Van Dyk and Mr Gow-Hills, it was determined that Vision Australia would "argue that [Mr Elisha's] aggression [on 23 and 24 March 2015] is serious in itself" and that:

    "It is the latest example in a pattern of aggression that [Ms Hauser] can attest to. We do need to get those previous examples and pattern on the record. In addition [Mr Elisha] demonstrates no awareness that he was/is aggressive. Which adds to the unacceptable risk.

    [The Australian Services Union] will argue we can't expand the matters we are considering but that is our choice not theirs.

    We need to organise a phone meeting with them today to hear them out on our 'pattern of aggression' judgement. Phone meeting because [Mr Nunns] will declare himself unavailable to attend a in person meeting. He may also try that with a phone meeting. I guess if they dodge the meeting we should terminate without their response.

    [Mr Van Dyk] do you think you need to step in and take over from [Ms Eagle]? She clearly wants 'out' and she might go to pieces."

20. No phone meeting occurred. Instead, Mr Elisha's employment was terminated on the same day by a letter which was described at trial and on appeal as the "termination letter". The termination letter included the statement that "Vision Australia considers that on the balance of probability you did behave in the manner described by [Ms Trch]. [Ms Trch] reported this behaviour caused her to feel intimidated and humiliated. Vision Australia considers this behaviour to be serious misconduct". The letter explained that "[i]n accordance with Clause 47.2.5 of the Vision [EA] payment in lieu of notice will not apply in the case of serious misconduct".

21. Following the termination of his employment, Mr Elisha was diagnosed with a major depressive disorder, as well as an adjustment disorder with depressed mood.[2] 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.

    [2]Elisha v Vision Australia Ltd [2022] VSC 754 at [256].

22. In June 2015, Mr Elisha commenced unfair dismissal proceedings against Vision Australia in the Fair Work Commission. The proceedings settled on 9 July 2015 after Vision Australia agreed to pay Mr Elisha $27,248.68, being the maximum amount to which he was entitled in respect of an unfair dismissal proceeding.[3] Mr Elisha commenced these proceedings on 27 August 2020 in the Supreme Court of Victoria.

    [3]Compensation for unfair dismissal is capped at 26 weeks' pay: Fair Work Act 2009 (Cth), s 392(5)-(6).

    The primary judge's findings

23. The primary judge (O'Meara J) made findings in favour of Mr Elisha concerning the hotel incident. The primary judge noted the inconsistencies in the different accounts of the hotel incident given by Ms Trch and described Mr Elisha as "doing his level best to give honest evidence, and in often extremely difficult circumstances".[4] At the time of the hotel incident Mr Elisha had a sensitivity to noise and symptoms of anxiety and depression and Mr Elisha had "spoke[n] in tones of annoyance fuelled by a fear that if the problem were not fixed he would not be able to get any sleep and would spend the night awake and unwell". Nevertheless: Mr Elisha had not yelled or shouted; he was not aggressive or threatening during the incident; and when leaving the hotel Mr Elisha did not throw the room key towards the desk in an aggressive or threatening manner.[5] 

    [4]Elisha v Vision Australia Ltd [2022] VSC 754 at [67].

    [5]Elisha v Vision Australia Ltd [2022] VSC 754 at [145].

24. The primary judge found that prior to the discipline meeting Ms Trch's account of the hotel incident had already been accepted by Ms Hauser and Ms Eagle. The primary judge also found that, apart from Ms Hauser (who had a strained relationship with Mr Elisha), the other people at the meeting where it was decided to terminate Mr Elisha's employment had "rarely if ever dealt with" Mr Elisha but that they had been told by Ms Hauser that Mr Elisha "was aggressive and apt to engage in untenable excuse making".[6] Further, "the claimed history of [Mr Elisha's] aggression and excuse making" was the "real reason" that Mr Elisha's employment was terminated[7] although that claimed history "lacked any proper foundation or real substance",[8] "was all hopelessly vague and insubstantial" and was "most likely exaggerated by Ms Hauser for the purposes of initially seeking to blacken [Mr Elisha] and subsequently seeking to defend her actions in the context of the present proceeding".[9] Mr Elisha was not given any notice of, or opportunity to respond to, the allegation of a history of aggression and excuse making and was not told of the role of that allegation in the decision to terminate his employment.

    [6]Elisha v Vision Australia Ltd [2022] VSC 754 at [182].

    [7]Elisha v Vision Australia Ltd [2022] VSC 754 at [214], [234].

    [8]Elisha v Vision Australia Ltd [2022] VSC 754 at [235].

    [9]Elisha v Vision Australia Ltd [2022] VSC 754 at [241]; see also at [242].

25. 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".[10] This conclusion was found to be underlined by the events of the unfair dismissal proceeding before settlement with Mr Elisha for the maximum amount, including the email on 29 May 2015 in which Mr Gow‑Hills sought to "get the examples of previous aggression referred to by Ms Hauser 'on the record' in order to establish that there had been a 'pattern'". Nevertheless, the conduct of the unfair dismissal proceeding by Vision Australia "continued to guard and therefore compound the secret at the heart of why [Mr Elisha] had really been dismissed from his employment".[11]

    [10]Elisha v Vision Australia Ltd [2022] VSC 754 at [226], [236].

    [11]Elisha v Vision Australia Ltd [2022] VSC 754 at [238]-[240], [243].

26. The disciplinary process conducted by Vision Australia was found to breach cl 47.5 of the Vision EA and the 2015 Disciplinary Procedure, both of which were held to have been incorporated into the 2006 Contract. Vision Australia failed to comply with the due process requirements set out in cl 47.5.2 of the Vision EA and paragraph 2 of the 2015 Disciplinary Procedure by failing to provide Mr Elisha with a letter, prior to the discipline meeting, containing the allegations made against him (including the allegation as to a pattern of aggressive behaviour) upon which Vision Australia ultimately acted in terminating his employment.[12]

    [12]Elisha v Vision Australia Ltd [2022] VSC 754 at [428]-[430].

27. The primary judge found that if a proper process had been undertaken then: "Ms Hauser would not have made the secret slurs against [Mr Elisha]" concerning his alleged aggression and excuse making; those slurs would not have prejudiced the conduct of the discipline meeting; and Mr Elisha's employment would not have been terminated. Even if those slurs had been expressed at the discipline meeting, Mr Elisha would have "had an opportunity to expose their essentially insubstantial nature"; a proper consideration of the hotel incident would have led to the conclusion that the events probably involved no element of harassment or bullying; whether or not the slurs were articulated by Ms Hauser, Mr Elisha's employment would not have been summarily terminated; and Mr Elisha would not have developed the serious psychiatric injury from which he suffers.[13]

    [13]Elisha v Vision Australia Ltd [2022] VSC 754 at [536].

28. As to the effect of the disciplinary process on Mr Elisha, the primary judge referred to Mr Elisha's evidence that "without any exaggeration, it's been catastrophic, there's been not one single aspect of my life that hasn't been either destroyed or obliterated"[14] and found that "[t]here was a quality of acute bewilderment" in Mr Elisha's evidence about the disciplinary process as Mr Elisha could not "understand what had really occurred to him and why" despite ruminating over the details of the events and seeking to interpret and to make sense of them.[15] The primary judge held that:[16]

    "It was very clear that the unfathomable nature of what had occurred contributed very significantly to the disturbance of [Mr Elisha's] mind and, consequently, the chronic psychiatric illness of which various medical witnesses gave evidence ...

    [T]he psychiatric illness and disability of [Mr Elisha] likely built as time passed and as he continued to ruminate over what had occurred."  

    [14]Elisha v Vision Australia Ltd [2022] VSC 754 at [248].

    [15]Elisha v Vision Australia Ltd [2022] VSC 754 at [250].

    [16]Elisha v Vision Australia Ltd [2022] VSC 754 at [250]-[255].

29. The primary judge concluded that the possibility that termination could result in distress or even psychiatric injury was acknowledged "certainly by the relevant witnesses at trial" and that "there is nothing to suggest that the position would have been any different in September 2006". Further, Vision Australia had "anticipated that risk by providing access to counselling and support".[17] The primary judge thus concluded that the parties should "be taken reasonably to have had in contemplation that distress and potential psychiatric illness was a risk that was a 'serious possibility', 'not unlikely' or 'on the cards' in the event that the protective processes directly contemplated by the terms of the contract were not followed and [Mr Elisha's] employment was therefore wrongly terminated".[18] For those reasons, the primary judge held that Mr Elisha succeeded in his claim for damages for breach of contract. Vision Australia was ordered to pay damages of $1,442,404.50. Mr Elisha's alternative claim for damages for breach by Vision Australia of a duty to take reasonable care was said to rest upon a duty of care that was "not presently recognised by the common law".[19] 

    [17]Elisha v Vision Australia Ltd [2022] VSC 754 at [567(d)]-[567(e)].

    [18]Elisha v Vision Australia Ltd [2022] VSC 754 at [568].

    [19]Elisha v Vision Australia Ltd [2022] VSC 754 at [529]-[532].

    The Court of Appeal

30. Vision Australia's grounds for leave to appeal relevantly included claims that: (i) cl 47.5 of the Vision EA and the 2015 Disciplinary Procedure were not incorporated as terms of the 2006 Contract; (ii) if those terms were incorporated, Vision Australia had not breached them; (iii) damages were not available for any psychiatric injury suffered by Mr Elisha; and (iv) damages for the psychiatric injury suffered by Mr Elisha were too remote. Mr Elisha filed a notice of contention in the Court of Appeal contending that the primary judge had erred by holding that Vision Australia did not owe a duty of care to Mr Elisha "to take reasonable care to avoid injury to [Mr Elisha] in its implementation of the processes leading to and resulting in the termination of [Mr Elisha's] employment".

31. The Court of Appeal (McLeish, Kennedy and Macaulay JJA) granted leave to appeal and allowed the appeal. The Court held that cl 47.5 of the Vision EA had not been incorporated into the 2006 Contract but the relevant terms of the 2015 Disciplinary Procedure had been incorporated, and that Vision Australia had breached an incorporated term by failing to give Mr Elisha notice of, and afford Mr Elisha the opportunity to respond to, the allegations of patterns of aggressive behaviour and excuse making.

32. Nevertheless, the Court of Appeal held that damages for psychiatric injury were not available for the breach of contract by Vision Australia for two reasons. First, the Court of Appeal held that damages for psychiatric injury were unavailable for a breach of contract other than where the psychiatric injury was consequent upon physical injury caused by the breach of contract or where the very object of the contract was to provide enjoyment or relaxation.[20] Secondly, the Court of Appeal held that damages for Mr Elisha's psychiatric injury could not be recovered because the psychiatric injury was too remote from the breach of contract by Vision Australia.[21] The Court of Appeal dismissed Mr Elisha's notice of contention on the basis that an employer owes no duty of care to avoid injury to employees in the implementation of processes leading to and resulting in the termination of employment.[22]

    [20]Vision Australia Ltd v Elisha (2023) 328 IR 299 at 344-346 [204]-[217].

    [21]Vision Australia Ltd v Elisha (2023) 328 IR 299 at 340 [190].

    [22]Vision Australia Ltd v Elisha (2023) 328 IR 299 at 353 [253], 354 [255].

    The grounds of appeal and notice of contention in this Court

33. Mr Elisha relies on two grounds of appeal in this Court, broadly corresponding with his claim based on breach of contract and his claim based on the tort of negligence. The ground concerning breach of contract compendiously asserted that the Court of Appeal erred in concluding that damages for the psychiatric injury suffered by Mr Elisha were not recoverable in a claim for breach of contract. The ground of appeal concerning the tort of negligence asserted that the Court of Appeal erred in concluding that Vision Australia did not owe a duty to take reasonable care to avoid injury to Mr Elisha in the implementation by Vision Australia of the processes leading to and resulting in the termination of his employment.

34. Vision Australia initially relied upon three grounds of contention, which, at the hearing before this Court, were reduced only to a contention that the 2015 Disciplinary Procedure was not a term of the 2006 Contract. Vision Australia abandoned a contention that any duty of care in tort to provide a safe system of work was not engaged because the risk of recognised psychiatric injury was not foreseeable, or that any such duty had not been breached.

    The incorporation of the 2015 Disciplinary Procedure

35. It is necessary to begin with the contention that the 2015 Disciplinary Procedure was not incorporated as a term of the 2006 Contract. There was no dispute as to the principles to be applied in determining whether the 2006 Contract had incorporated terms by reference. There was no challenge in this Court to the conclusion of the Court of Appeal that neither the Community Employment, Training and Support Services Award 1999 ("the 1999 Award") nor the Vision EA was incorporated by the term of the 2006 Contract which provided that Mr Elisha's engagement was governed by the 1999 Award.[23] The issue concerning the subject matter of the terms incorporated was confined in this Court to whether the Court of Appeal was correct to conclude that the "Other Conditions" clause of the 2006 Contract had incorporated the 2015 Disciplinary Procedure. The issue concerned only the interpretation of the terms of the 2006 Contract and whether those terms gave contractual effect to the 2015 Disciplinary Procedure.

    [23]Vision Australia Ltd v Elisha (2023) 328 IR 299 at 322-323 [92]-[96].

    The meaning of the terms of the 2006 Contract

36. The 2006 Contract by which Vision Australia employed Mr Elisha took the form of a letter of offer executed by Vision Australia which included, on the last page, provision for acceptance by Mr Elisha. The letter relevantly provided:

    "Conditions of Employment

    Your engagement will be governed by the terms of this letter and the [1999 Award].

    ...

    Other Conditions

    In addition, Employment Conditions will be in accordance with regulatory requirements and Vision Australia Policies and Procedures. Breach of the Policies and Procedures may result in disciplinary action."

37. The acceptance on the last page of the letter was as follows:

    "ACCEPTANCE:

    This contract may be amended from time to time by mutual agreement between the parties.

    I have read and fully understand the terms and conditions of employment detailed in this contract. I agree to comply with these terms and conditions of employment and all other Company Policies and Procedures.

    I certify that the details in my application/curriculum vitae are true and correct; and that I have no knowledge of any fact or circumstance, which may prevent fulfilment of the terms of this contract."

38. The meaning of the terms of the 2006 Contract, like any other contractual term, "is to be determined by what a reasonable person would have understood [the terms] to mean".[24] This requires consideration of the common intention of the parties by reference to the object and text of the provision as well as the surrounding circumstances.[25] The common intention of the parties is "to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement".[26]

    [24]Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40].

    [25]Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462 [22].

    [26]Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40].

39. Contrary to the submissions of Vision Australia, the "addition[s]" to the "Employment Conditions" contained in the "Other Conditions" clause would be understood by a reasonable person in the position of the parties as creating contractually binding obligations, particularly since the clause provided that breach by Mr Elisha of the "addition[al]" policies and procedures "may result in disciplinary action". Further, as the primary judge and the Court of Appeal held, at the time of entry into the 2006 Contract the expectation of the parties was that employees would be required to act in accordance with certain values and would be subject to disciplinary action under existing written policies if they did not.[27]

    [27]Vision Australia Ltd v Elisha (2023) 328 IR 299 at 324 [100]; see also Elisha v Vision Australia Ltd [2022] VSC 754 at [375].

40. The common intention of the parties that Vision Australia's policies and procedures would be contractually binding to the extent to which they imposed obligations is further reinforced by the terms of Mr Elisha's "Acceptance", by which he undertook, in promissory terms, to "comply with ... all other Company Policies and Procedures". As the Full Court of the Federal Court of Australia said in Romero v Farstad Shipping (Indian Pacific) Pty Ltd,[28] the existence of clear language with sufficient emphasis upon the need for compliance with the terms of a company policy indicates an intention that such terms will be contractually binding.

    [28](2014) 231 FCR 403 at 420 [55].

41. Also contrary to the submissions of Vision Australia, the commercial object of the 2006 Contract was not to create an employment relationship with a "one-sided obligation on Mr Elisha" to obey lawful directions from Vision Australia. Rather, as the Court of Appeal held, "the object of the 2006 Contract was to regulate the employment relationship in connection with Mr Elisha's position".[29] This included the creation of rights for, and the imposition of obligations on, both parties. It would "defy both logic and common sense" to suggest that an employer who was subjecting an employee to disciplinary action according to contractual policies would not similarly be bound by those policies.[30]

    [29]Vision Australia Ltd v Elisha (2023) 328 IR 299 at 322 [90]; see also at 326 [110].

    [30]Vision Australia Ltd v Elisha (2023) 328 IR 299 at 325 [104], quoting Foggo v O'Sullivan Partners (Advisory) Pty Ltd (2011) 206 IR 87 at 119 [116]. See also Riverwood International Australia Pty Ltd v McCormick (2000) 177 ALR 193 at 213 [106]; Romero v Farstad Shipping (Indian Pacific) Pty Ltd (2014) 231 FCR 403 at 420 [56].

42. Vision Australia submitted that an interpretation of the 2006 Contract that incorporated Vision Australia's policies and procedures as binding on both parties would undermine the contractual goal of certainty since those policies and procedures could change from time to time. But the loss of some certainty is not a reason to deny the clearly expressed intention of the parties that those things that answer the description of a policy or a procedure, from time to time, will have contractual effect.[31] A reasonable person would understand the intention to incorporate into an employment contract those policies and procedures as they might change from time to time, instead of requiring formal amendment to the contract every time those policies or procedures are varied. More difficult questions might arise if the power of unilateral amendment of a policy by Vision Australia were exercised to create substantially new or onerous obligations. But no question of the extent of such a power of unilateral amendment, or of any constraint (such as reasonableness) in the exercise of the power,[32] arises because the relevant obligations in the 2015 Disciplinary Procedure are imposed upon Vision Australia, not Mr Elisha, and the primary judge found that there was nothing to suggest that the applicable disciplinary procedures in the 2006 Contract were "qualitatively any different" from the applicable procedures in the 2015 Disciplinary Procedure.[33] 

    The 2006 Contract incorporated the 2015 Disciplinary Procedure with contractual effect

    [31]Riverwood International Australia Pty Ltd v McCormick (2000) 177 ALR 193 at 199 [39].

    [32]Riverwood International Australia Pty Ltd v McCormick (2000) 177 ALR 193 at 223 [152].

    [33]Elisha v Vision Australia Ltd [2022] VSC 754 at [381]; see also Vision Australia Ltd v Elisha (2023) 328 IR 299 at 338 [176].

43. In applying the meaning of the terms of the 2006 Contract, the remaining issue concerns the "Policies and Procedures" that were incorporated into the 2006 Contract.

44. Vision Australia submitted that even if the 2015 Disciplinary Procedure was incorporated into the 2006 Contract, the terms of the 2015 Disciplinary Procedure would not be understood by a reasonable person in the position of the parties as intended to be contractually binding. Vision Australia further submitted that the 2015 Disciplinary Procedure should be taken only as intended to "facilitate compliance with the [Vision] EA".

45. It is necessary to set out the 2015 Disciplinary Procedure in full:

    "Disciplinary Procedure

    Vision Australia recognises that during the employment relationship, there may be occasions where an employee's behaviour or work performance requires disciplinary action.

    Vision Australia is committed to communicating the expectations and standards regarding workplace behaviour and work performance, and seeks to emphasise the corrective and educative role of disciplinary action.

    Vision Australia is committed to a fair, equitable and consistent approach to disciplinary action, and to act in accordance with this procedure, as well as all relevant industrial instruments and contract provisions, for all employees who have completed the minimum employment period as defined in the Fair Work Act 2009.

    When is Disciplinary Action appropriate?

    Disciplinary action may occur where there is a concern with respect to an employee's performance or conduct in the workplace.

    Examples of behaviour that may lead to disciplinary action include, but are not limited to, issues of under performance, lack of punctuality, failure to adhere to the policies of Vision Australia, failure to model Vision Australia's values at all times, and failure to adhere to lawful and reasonable directions.

    Serious Misconduct

    Disciplinary action should occur in cases of serious misconduct.

    Serious misconduct is defined in accordance with the Fair Work Act 2009 and includes:

    •Wilful, or deliberate, behaviour by an employee that is inconsistent with the continuation of the contract of employment; and

    •Conduct that causes imminent, and serious, risk to the health, or safety, of a person, or to the reputation, viability or profitability of the employer.

    Depending on the facts, summary dismissal may be justified in situations such as, but not limited to:

    •The employee committing theft, fraud or assault (for example, stealing the property of the employer or another employee, or intentional abuse of a customer or other employee).

    •The employee being affected by drugs or alcohol while at work.

    •The employee refusing to carry out a lawful and reasonable instruction that is consistent with the employee's contract of employment.

    •Persistent failure to comply with occupational health and safety policies.

    Disciplinary Procedure

    1.Where there is a concern with an employee's performance or conduct, the first step, if appropriate, will be an informal counselling session between the employee and their immediate manager. The employee will be advised of the concern, and an agreed strategy for dealing with the concern will be negotiated. The situation will be reviewed within an agreed timeframe.

    2.Where informal counselling is not appropriate or where the concern is of a more serious nature, a formal disciplinary meeting will occur. Prior to the meeting, the employee will be provided with a letter containing a written outline of the allegations. The letter will request that the employee attend a meeting to respond to the allegations, and indicate that the employee may have a support person present. The letter will also indicate that disciplinary action up to and including termination may occur if the response is not satisfactory.

    3.The meeting will be attended by up to two management representatives (one of whom may be a legal or industrial representative of Vision Australia). One of these parties will act as note-taker to record events. At the meeting, a discussion will occur and the employee will be given an opportunity to respond to the allegations.

    4.Following the meeting, Vision Australia will make a decision as to whether the employee should be issued with a formal written warning, a final warning or termination of employment, or whether other appropriate action should be taken (ie training), or whether no action should be taken at all.

    5.Vision Australia will advise the employee of their decision. A written record of the decision will [be] placed on the employee's file. If a formal written warning is given, the employee will be informed that any further instance of poor performance or unacceptable behaviour/conduct in the workplace may result in further disciplinary action up to, and including, termination of employment.

    Investigations

    In some cases, it may be necessary for Vision Australia (at any time) to arrange for an investigation into the allegations. The investigation will be conducted in accordance with the principles of natural justice. During an investigation an employee may be placed on leave with pay if necessary in the circumstances."

46. It can be accepted that some parts of the 2015 Disciplinary Procedure are merely aspirational and do not purport to have contractually binding effect. For instance, the opening paragraphs are effectively recitals of the broad commitments, recognitions, and goals of Vision Australia in implementing the disciplinary procedure. But, as both the primary judge and the Court of Appeal correctly concluded,[34] those broad recitals do not detract from the very specific assurances and promises made by Vision Australia in the 2015 Disciplinary Procedure, including, in particular, the provisions in numbered paragraphs 2 and 3 that "where the concern is of a more serious nature" a specific procedure will be followed, including convening a "formal disciplinary meeting" prior to which "the employee will be provided with a letter containing a written outline of the allegations" and, subsequently, "[a]t the meeting, a discussion will occur and the employee will be given an opportunity to respond to the allegations".

    [34]Elisha v Vision Australia Ltd [2022] VSC 754 at [420]; Vision Australia Ltd v Elisha (2023) 328 IR 299 at 325-326 [109]-[110].

47. The provisions of the 2015 Disciplinary Procedure cannot be reasonably understood as merely designed to ensure compliance with the Vision EA. It is unnecessary to set out some of the similar provisions of the Vision EA because even accepting that there are some similar terms in the 2015 Disciplinary Procedure and the Vision EA, the 2015 Disciplinary Procedure must have been intended by the parties to have separate contractual effect for three reasons. First, as explained earlier, the 2015 Disciplinary Procedure was not qualitatively any different from the applicable procedures at the time of the 2006 Contract, which predated the Vision EA. Secondly, the 2015 Disciplinary Procedure makes no reference to the Vision EA and the relevant terms are expressed as independent promises. Thirdly, the 2015 Disciplinary Procedure is not expressed to be confined to, or co-extensive with, the coverage of the unfair dismissal regime under the Fair Work Act 2009 (Cth).

    Damages for a breach of contract concerning the manner of termination

    Limits to liability based on the scope of contractual duties

48. A central strand of Vision Australia's submissions was that, independently of considerations of remoteness of damage, an employee is "precluded" from recovering damages for breach of a contractual duty concerning the manner of their dismissal. Unlike issues of remoteness of damage, the scope of a defendant's contractual duty does not depend upon the damage that might reasonably have been contemplated by the parties but rather upon the nature of liability that, in light of the parties' agreement, the parties might fairly be regarded as having contemplated and been "willing to accept".[35]

    [35]Wenham v Ella (1972) 127 CLR 454 at 466; Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 368.

49. Vision Australia relied on the principle that treats mental distress as generally unrecoverable as a head of damages.[36] Even where the circumstances known to the parties are such that mental distress is likely to occur as a result of a breach of a contractual obligation, without express provision to the contrary the mental distress suffered is not generally recoverable as a separate head of damages unless the duty that was breached had the object "to provide enjoyment, relaxation or freedom from molestation".[37] The reason for this is that without express provision otherwise, the liability of one contracting party for the mental distress of another upon breach, even if that mental distress is a likely result, is one that is "not ... part of the business risk of the transaction".[38] As Mason CJ said in Baltic Shipping Co v Dillon,[39] because "anxiety is an almost inevitable concomitant of expectations based on promises ... a contracting party must be deemed to take the risk of it".

    [36]See Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 at 374 and Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1 at 37, both citing Addis v Gramophone Company Ltd [1909] AC 488.

    [37]Young v Chief Executive Officer (Housing) (2023) 278 CLR 208 at 235 [69], quoting Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 365.

    [38]Fidler v Sun Life Assurance Co of Canada [2006] 2 SCR 3 at 16 [36], 20 [46]. See also Young v Chief Executive Officer (Housing) (2023) 278 CLR 208 at 235 [70].

    [39](1993) 176 CLR 344 at 362, quoting Treitel, The Law of Contract, 8th ed (1991) at 878.

50. The submissions by Vision Australia were not put on the basis that the avoidance of psychiatric injury was beyond the scope of Vision Australia's contractual duties due to the particular terms and context of the 2006 Contract. Instead, Vision Australia's submission, adopting the reasoning of the Court of Appeal, was effectively that, like damages for mental distress, there was a rule that damages for psychiatric injury were generally beyond the scope of any contractual term concerning the manner of termination of an employment contract.

51. The submissions by Vision Australia, and the reasoning of the Court of Appeal on this point,[40] were substantially based upon the decision of the House of Lords in Addis v Gramophone Company Ltd ("Addis").[41] The reliance upon that decision was misplaced for three reasons. First, the case did not decide that damages can never be recovered for psychiatric injury arising from the manner of termination of a contract of employment. Secondly, the case was decided more than a century ago in a different social context and has been overtaken substantially by more recent decisions in the United Kingdom and Australia. Thirdly, four members of this Court in Baltic Shipping Co v Dillon[42] held that damages for psychiatric injury were available for breach of contract without any suggestion of an exception for employment contracts.

    [40]See Vision Australia Ltd v Elisha (2023) 328 IR 299 at 342-346 [197]-[217].

    [41][1909] AC 488.

    [42](1993) 176 CLR 344 at 362 fn 95, 383, 387, 405.

52. Addis was a case involving a jury award to a plaintiff manager of £600 for wrongful dismissal and £340 for excess commission that the plaintiff would have earned, above the commission earned by the plaintiff's successor as manager, if the plaintiff had remained acting as manager. The House of Lords set aside the award of £600 on the basis that part of that award may have included a "head of damages [that] cannot be allowed to stand".[43] In the leading speech of Lord Loreburn LC, with whom Lord James, Lord Atkinson, Lord Gorell and Lord Shaw concurred, his Lordship said[44]:

    "To my mind it signifies nothing in the present case whether the claim is to be treated as for wrongful dismissal or not. In any case there was a breach of contract in not allowing the plaintiff to discharge his duties as manager, and the damages are exactly the same in either view … I cannot agree that the manner of dismissal affects these damages. Such considerations have never been allowed to influence damages in this kind of case …

    If there be a dismissal without notice the employer must pay an indemnity; but that indemnity cannot include compensation either for the injured feelings of the servant, or for the loss he may sustain from the fact that his having been dismissed of itself makes it more difficult for him to obtain fresh employment."

    [43]Addis v Gramophone Company Ltd [1909] AC 488 at 491.

    [44]Addis v Gramophone Company Ltd [1909] AC 488 at 490-491.

53. Vision Australia sought to identify three independent strands to the ratio decidendi of Addis precluding the recovery of damages for a breach of contract by dismissal of an employee: (i) where the damages concerned the manner of dismissal; (ii) where the damages were for hurt feelings; and (iii) where the damages were for any loss that the employee sustained from the fact that their dismissal made it more difficult to obtain fresh employment. This appeal does not concern strand (ii) or (iii) (the latter of which may no longer be the law in England and Wales,[45] as conceded by Vision Australia in oral argument). And it is doubtful whether the Lord Chancellor in Addis should be taken to have been expressing any rule as suggested in strand (i) independently of strand (ii). The concern of the Lord Chancellor, reflecting the argument in the case, related only to a head of damages for "hurt feelings" or "difficulty in finding employment" following wrongful dismissal or wrongful refusal to permit the discharge of employment duties.[46] The focus upon hurt feelings rather than what is today recognised as an independent claim for psychiatric injury is also evident from the description of the claim by Lord James as "aggravation of the injury in consequence of the manner of dismissal",[47] and by Lord Atkinson as "the shape of exemplary damages".[48]

    [45]Johnson v Unisys Ltd [2003] 1 AC 518 at 546 [70], referring to Mahmud v Bank of Credit and Commerce International SA [1998] AC 20.

    [46]Addis v Gramophone Company Ltd [1909] AC 488 at 489.

    [47]Addis v Gramophone Company Ltd [1909] AC 488 at 492.

    [48]Addis v Gramophone Company Ltd [1909] AC 488 at 493; see also at 496.

54. In any event, over the last century a great deal of water has passed under the bridge of Addis in the United Kingdom. As Lord Nicholls observed in Eastwood v Magnox Electric plc,[49] the Parliament of the United Kingdom acted in 1971 to give effect to the recommendations of the Donovan Commission[50] by establishing legislation to protect employees against unfair dismissal.[51] This prompted a development in the common law to recognise an implied contractual term that an employer will not, without reasonable and proper cause, act so as to destroy or seriously damage the relationship of confidence and trust between employer and employee.

    [49][2005] 1 AC 503 at 521-522 [2]-[6].

    [50]United Kingdom, Royal Commission on Trade Unions and Employers' Associations 1965-1968: Report (1968) Cmnd 3623 at 141-154 [520]-[567], 268-269 [1056]-[1060].

    [51]Industrial Relations Act 1971 (UK); for the present law see Employment Rights Act 1996 (UK), Pt X.

55. The subsequent focus in the United Kingdom has generally been upon the boundaries of the implied duty of trust and confidence rather than upon the scope of the decision in Addis. Hence, in Johnson v Unisys Ltd,[52] the House of Lords refused recovery for any psychiatric injury due to the limited scope of the implied term, although Lord Hoffmann expressed the ratio decidendi of Addis in terms that did not include psychiatric injury: "an employee cannot recover damages for injured feelings, mental distress or damage to his reputation, arising out of the manner of dismissal". Lord Nicholls later said of that refusal to further develop the implied term at common law that, "however desirable [that development] may be", it could not "co-exist satisfactorily with the statutory code regarding unfair dismissal".[53] The restriction upon recovery for breach of the implied term, known as the "Johnson exclusion area", was described by Lord Nicholls as a restriction that "produces ... strange results" and which "merits urgent attention by the Government and the legislature" due to the "interrelation between the common law and statute having ... awkward and unfortunate consequences".[54]

    [52][2003] 1 AC 518 at 541 [44].

    [53]Eastwood v Magnox Electric plc [2005] 1 AC 503 at 524 [12].

    [54]Eastwood v Magnox Electric plc [2005] 1 AC 503 at 528 [27], 529 [32]-[33].

56. These developments in the United Kingdom illustrate the extent to which the reasoning in Addis has been overtaken over the last century by legislation and case law. But the United Kingdom case law cannot be transplanted to Australia. In Commonwealth Bank of Australia v Barker[55] this Court held that no generalised implication should be made of a duty of trust and confidence in employment contracts in Australia, particularly where the statutory circumstances were not the same as those in the United Kingdom, and the introduction of such an implied term would "intrude a common law policy choice of broad and uncertain scope into an area of frequent, detailed and often contentious legislative activity".[56]

    [55](2014) 253 CLR 169 at 195 [41], 216 [115].

    [56]Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at 217 [118].

57. The decision of the Supreme Court of the United Kingdom in Edwards v Chesterfield Royal Hospital NHS Foundation Trust,[57] upon which Vision Australia placed much reliance, was based upon the different legislative and case law context in the United Kingdom. In that case, a majority of the Supreme Court held that damages for loss of reputation and inability to secure alternative employment could not be recovered for a breach, in relation to the manner of dismissal, of an express term of an employment contract. The reasoning of all the judgments was based upon the scope of the Johnson exclusion area,[58] a consideration which does not apply in Australia. In dissent, Baroness Hale confined the Johnson exclusion area to the implied term of trust and confidence and, with the benefit of an express rather than an implied term, would have permitted the recovery of damages by the claimant employees.[59] 

    [57][2012] 2 AC 22.

    [58]Edwards v Chesterfield Royal Hospital NHS Foundation Trust [2012] 2 AC 22 at 30 [2], 44-45 [49]-[51], 46-48 [55]-[61], 50 [74], 53 [88], 54 [94], 69-71 [148]-[156].

    [59]Edwards v Chesterfield Royal Hospital NHS Foundation Trust [2012] 2 AC 22 at 62 [121]-[122].

58. Once it is appreciated that an analysis of the scope of contractual duties in an employment contract in Australia is unaffected by questions concerning the relationship between a generalised implied term developed by the common law and particular statutory provisions, the scope of the contractual duty falls to be considered by reference to the usual considerations of the nature of the liability that, in light of the parties' agreement, the parties might fairly be regarded as having been willing to accept.

59. In Baltic Shipping Co v Dillon,[60] 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[61] (with whom Toohey J and Gaudron J agreed on this point[62]) and McHugh J[63] 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.

    Remoteness of damage

    [60](1993) 176 CLR 344.

    [61]Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 362 fn 95.

    [62]Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 383, 387.

    [63]Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 405.

    Remoteness of damage is separate from scope of duty

60. At some points in its submissions Vision Australia conflated questions of remoteness of damage with the scope of the contractual duty. So too, at points in its reasoning concerning remoteness of damage, the Court of Appeal relied upon issues concerning the scope of contractual duty, such as the suggestion that a contractual term designed to ensure fair process was not "inherently designed to prevent psychological injury".[64] But remoteness of damage in contract is separate from the scope of a contractual duty.

    [64]Vision Australia Ltd v Elisha (2023) 328 IR 299 at 338 [180].

    The test for remoteness of damage in contract

61. The test for when a loss will not be too remote to be recovered as damages for breach of contract contained two limbs in the original expression of the test given by Alderson B in Hadley v Baxendale.[65] That test starts with the facts of the breach of contract that occurred and asks whether, assessed at the date of contract, it could be said that the damage from that breach arose "according to the usual course of things" or whether the damage could "reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it". In European Bank Ltd v Evans,[66] this Court referred to the reasons of Mason CJ and Dawson J in The Commonwealth v Amann Aviation Pty Ltd[67] and said:

    "the two limbs of the rule in Hadley v Baxendale represent the statement of a single principle and ... the application of that principle may depend on the degree of relevant knowledge possessed by the defendant in the particular case. Lord Reid had used the expression 'on the cards'".

    [65](1854) 9 Ex 341 at 354 [156 ER 145 at 151].

    [66](2010) 240 CLR 432 at 438 [13].

    [67](1991) 174 CLR 64 at 92.

62. Two issues arise in the application of the principle in Hadley v Baxendale by reference to circumstances which the defendant knows or must be taken to know. First, at what level of generality should the damage, and the process by which it occurred, be described for the purposes of assessing whether the damage could reasonably have been contemplated as "on the cards"? Secondly, how demanding is the requirement that the degree of relevant knowledge or contemplation be that the damage is "on the cards"?

63. As to the first issue, since the issue of remoteness is assessed by looking forward from the date of the contract, not looking back from the date of breach,[68] it is well established that the precise damage and the precise manner of occurrence of the damage need not be contemplated.[69] However, the more particular the description of the type of damage and the manner of its occurrence, the more likely it will be that the damage arising from the breach will be found to be too remote, so that the plaintiff will be required to bear that loss.[70]

    [68]European Bank Ltd v Evans (2010) 240 CLR 432 at 438 [13]; Cessnock City Council v 123 259 932 Pty Ltd (2024) 98 ALJR 719 at 743 [114]; 418 ALR 304 at 332.

    [69]South Coast Basalt Pty Ltd v R W Miller and Co Pty Ltd [1981] 1 NSWLR 356 at 364; Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 365-366; Romero v Farstad Shipping (Indian Pacific) Pty Ltd [No 3] [2017] FCAFC 102 at [87].

    [70]Compare H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791 at 801, 804 with 812-813. See also Burrows, Remedies for Torts, Breach of Contract, and Equitable Wrongs, 4th ed (2019) at 94-95.   

64. As to the second issue, the expression "on the cards" was used by Lord Reid in Koufos v C Czarnikow Ltd,[71] where his Lordship observed that there is a "wide gulf" between, on the one hand, a test of whether an event is "not unlikely" or "quite likely to happen" and, on the other hand, whether the event is "a serious possibility", "a real danger", or "on the cards". His Lordship explained that most people would consider the possibility of a nine of diamonds being the top card in a pack ("the odds are ... 51 to 1 against") as a "serious possibility" or a "real danger", even though most people would not consider this event "likely".[72] The expression "on the cards" has been criticised for being colloquial and imprecise.[73] There is force in that criticism, although when used in this context the phrase is not meant to convey anything other than that damage of the kind that occurred is a "serious possibility";[74] that is the better formulation. Although some authorities might be understood as supporting an assimilation between the degree of likelihood of damage in the test for remoteness of damage for breach of contract and the reasonable foreseeability limit in the law of torts,[75] the present law treats the requirement of a serious possibility as something that is more stringent than merely a reasonably foreseeable possibility that is not far-fetched or fanciful.[76]   

    [71][1969] 1 AC 350 at 390. For earlier use, see Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 at 540.

    [72]Koufos v C Czarnikow Ltd [1969] 1 AC 350 at 390.

    [73]Koufos v C Czarnikow Ltd [1969] 1 AC 350 at 399, 415, 425; Wenham v Ella (1972) 127 CLR 454 at 471. See also Cartwright, "Remoteness of Damage in Contract and Tort: A Reconsideration" (1996) 55 Cambridge Law Journal 488 at 494 fn 23, preferring the expression "realistic level of foreseeability" (at 494, 496).

    [74]Monarch Steamship Co Ltd v Karlshamns Oljefabriker (A/B) [1949] AC 196 at 233, 234; Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 at 540; Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 at 657-658; Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 365; Attorney General of the Virgin Islands v Global Water Associates Ltd [2021] AC 23 at 35 [29], 36 [32].

    [75]See Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516 at 523; Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 at 672-673.

    [76]Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 365. See also Astley v Austrust Ltd (1999) 197 CLR 1 at 27-28 [60].

    Application of the test for remoteness of damage  

126. The rule in Hadley v Baxendale[193] continues to govern questions of remoteness of damage for breach of contract. Leaving aside knowledge by the parties of special circumstances, the first limb of the rule permits recovery for damage for breach of contract as "may fairly and reasonably be considered [as] arising naturally, ie, according to the usual course of things, from such breach of contract itself".[194] The second limb of the rule permits recovery for damage "as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it".[195] As the Court of Appeal noted in this case, it was not suggested that Mr Elisha's psychiatric illness would arise "according to the usual course of things",[196] the relevant issue being what would have been within the "contemplation of the parties" at the time at which the contract was entered. The degree of "contemplation of both parties" of the kind of damage satisfying the second limb has been expressed in a variety of terms,[197] but one description that has not found favour in Australia or (ultimately) in the United Kingdom is that the kind of damage caused merely be "on the cards".[198] The formula that best expresses the requisite degree of contemplation is that, at the time of entry into the contract, the parties should reasonably have contemplated as a "serious possibility" that breach of the relevant term could result in the kind of damage claimed.[199] Importantly, as McHugh JA said in Alexander v Cambridge Credit Corporation Ltd:[200]

     "An important matter in ascertaining whether the loss or damage is too remote is the extent to which the parties may be taken to have contemplated the events giving rise to that loss or damage. The parties need not contemplate the degree or extent of the loss or damage suffered ... Nor need they contemplate the precise details of the events giving rise to the loss. It is sufficient that they contemplate the kind or type of loss or damage suffered.

     The most difficult question in determining the relevant kind of damage concerns the level of classification of the damage which the parties must have contemplated. Clearly the level must not be so high that the parties are required to contemplate the very loss in question or the precise manner of its occurrence. Nor must it be so low that any loss or damage, no matter how unusual in nature or occurrence, would fall within the classification."

     [193](1854) 9 Ex 341 [156 ER 145].

     [194]Hadley v Baxendale (1854) 9 Ex 341 at 354 [156 ER 145 at 151].

     [195]Hadley v Baxendale (1854) 9 Ex 341 at 354 [156 ER 145 at 151].

     [196]Vision Australia Ltd v Elisha (2023) 328 IR 299 at 337 [172].

     [197]eg, Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 365.

     [198]Wenham v Ella (1972) 127 CLR 454 at 471; Koufos v C Czarnikow Ltd [1969] 1 AC 350 at 390, 399, 414-415, 425.

     [199]Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 365.

     [200](1987) 9 NSWLR 310 at 365-366.

127. This observation about the test for remoteness of damage requires consideration of the relationship between the breach and the kind of loss or damage caused. What is required at the time of entry into the contract is that the parties should reasonably have contemplated as a serious possibility that the kind of breach that, in the event, occurred could cause the kind of injury, harm or loss that, in the event, occurred.

128. The relationship between the concepts of the kind of breach that occurred and the kind of resulting injury, harm or loss to the employee being in the reasonable contemplation of the parties as a serious possibility at the time of entry into the contract is critical. Assume, for example, a hypothetical case in which Vision considered that certain alleged employee misconduct was sufficiently serious to make informal counselling inappropriate. Assume Vision arranged a meeting under its disciplinary procedures but, instead of "up to two management representatives" attending the meeting in accordance with its disciplinary procedures, three management representatives attended the meeting. Whether or not the meeting results in summary dismissal of the employee, it would be impossible to conclude that, at the time of entry into the contract, the parties should reasonably have contemplated as a serious possibility that this kind of procedural breach of Vision's disciplinary procedures (in having three rather than two management representatives attend the meeting) could cause harm in the form of psychiatric illness. In a case in the United Kingdom, in part involving a claim of this kind, Moore‑Bick LJ (with whom Hallett LJ and Carnwath LJ agreed[201]) concluded that the parties to the employment contract in that case "would have been astonished" if, at the time of entry into the contract, it was suggested to them that the employee might suffer psychiatric illness because a disciplinary panel comprised two rather than three members,[202] three members being the required number under the disciplinary procedures in question.[203]

     [201]Bristol City Council v Deadman [2007] IRLR 888 at 895 [51], [52].

     [202]Bristol City Council v Deadman [2007] IRLR 888 at 894 [46].

     [203]Bristol City Council v Deadman [2007] IRLR 888 at 894 [43].

129. No doubt, absent some special circumstances known to the parties at the time of entering the contract, the same conclusion would apply to a similarly minor kind of breach of the contract of employment between Vision and Mr Elisha insofar as it incorporates aspects of Vision's disciplinary procedures. But that is not this case. In this case, the primary judge found that Vision's management representatives: (a) purported to notify Mr Elisha in writing of the allegations of an unacceptable type of conduct on his part, and (b) purported to give him an opportunity to respond to those notified allegations in purported compliance with its disciplinary procedures when, (c) in fact, Vision had not notified him and given to him an opportunity to respond to other allegations of earlier unacceptable conduct of the same type, in circumstances where (d) Vision proposed to and did use those other allegations to reject Mr Elisha's version of events regarding, and explanation for, the notified allegations; and (e) summarily and unlawfully terminated Mr Elisha's employment on this improper basis.

130. This highlights that the relevant question in the present case is not whether, at the time they entered the contract, Vision and Mr Elisha should reasonably have contemplated as a serious possibility that Vision acting in breach of any contractual term of its disciplinary procedures in any manner could result in Mr Elisha suffering any psychiatric illness. The relevant question is whether, at the time they entered the contract, Vision and Mr Elisha should reasonably have contemplated as a serious possibility that Vision acting in serious breach of its disciplinary procedures in a way that worked a serious injustice to Mr Elisha could result in Mr Elisha developing a serious psychiatric illness.

131. This highlights also that the limit that the concept of remoteness of damage imposes on an employer's liability for breach of a contractual term (recalling that contractual causation requires only that the breach be a material cause of the loss, not the sole cause of the loss[204]) results from the relationship between the kind of event giving rise to the breach and the kind of resulting injury, harm or loss to the employee. Irrespective of whether the actions of Vision's management representatives appeared to them to be reasonable and fair at the time given the information they had about the hotel incident, their actions, objectively characterised, involved a serious breach of Vision's contractually binding disciplinary procedures. The actions fundamentally undermined the very purpose of those procedures – to enable an employee's side of the story to be heard and taken into consideration. The primary judge conveyed the reality of the resulting unfairness and its impacts on Mr Elisha in recording that Vision's management representatives: entered the meeting believing Mr Elisha had demonstrated a "pattern of aggression" based on the earlier allegations of his manager that were not notified to Mr Elisha before the meeting; and wrongly believed that they could use that belief of a "pattern of aggression", without having put the allegations on which that belief was based to Mr Elisha, to conclude that his version of the hotel incident was not to be believed. The management representatives then informed Mr Elisha that he was being summarily dismissed because of the hotel incident when that was but one part of the real reason for his summary dismissal. Mr Elisha, for his part, was left "shocked" and "confused" as to how what he considered to be "gossip" from the hotelier could have led to his summary dismissal, his evidence conveying, in the words of the primary judge, "acute bewilderment" at the "unfathomable nature of what had occurred".

     [204]eg, Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 315, 357-358, 360.

132. The objective character of the actions involved in Vision's breach of its disciplinary procedures is such that, at the time of entry into the contract, the parties should reasonably have contemplated as a serious possibility that a serious breach of Vision's disciplinary procedures, involving serious unfairness to an employee, could cause the employee to develop a serious psychiatric illness. No doubt "injury to feelings is a common‑day experience and is something distinct from [psychiatric] illness".[205] Equally, the law of remoteness should recognise that there are differences in type and not merely degree between psychiatric illnesses. To do otherwise, as McHugh JA cautioned against in Alexander v Cambridge Credit Corporation Ltd, would pitch the type of damage which the parties should have contemplated at too "low" a level of classification.[206] For example, the relevant type of damage in this case should be characterised as a "serious psychiatric illness" because that is the type of illness from which Mr Elisha in fact suffers and which was found by the primary judge to have been caused by the breach. Once it is accepted, as it must be, that the parties in this case should reasonably have contemplated as a serious possibility serious psychiatric illness resulting from the kind of breach of Vision's disciplinary procedures that occurred in this case, the test for remoteness is satisfied. That Mr Elisha's major depressive disorder has proved resistant to treatment cannot transform damage of a type that is not too remote into damage of a different type when in fact the difference is merely one of degree (for example, there is no difference in type between a "serious psychiatric illness" and a "refractory serious psychiatric illness", as the latter description reflects only the susceptibility of the psychiatric illness in the particular individual to effective treatment, not the type of the psychiatric illness). Doing otherwise would, as McHugh JA also cautioned against, pitch the "classification of the damage" at too "high" a level.[207]

     [205]Essa v Laing Ltd [2004] ICR 746 at 780 [117].

     [206](1987) 9 NSWLR 310 at 366.

     [207]Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 366.

133. There are many different forms of psychiatric illnesses, with different diagnostic criteria. The focus of the law of remoteness on the contemplation of the "type" of injury rather than the specific injury caused by the breach reflects a common‑sense approach to the limited scope of human imagination and the unlimited scope of human experience. In the context of psychiatric illness caused by a breach of contract, it is one thing to accept that there is no difference in type between a serious psychiatric illness and a refractory serious psychiatric illness. It may be another, however, to accept no difference in type between, for example, contemplation of any diagnosable psychiatric illness, no matter how mild in nature (eg, a mild and transient anxiety disorder), and of a serious psychiatric illness (eg, major depressive disorder, schizophrenia). That parties to a contract should reasonably have contemplated the former as a serious possibility consequent on a kind of contractual breach does not, for the purposes of the test of remoteness, necessarily bring the latter within the parties' contemplation. The observation of Wilcox J in Nikolich v Goldman Sachs J B Were Services Pty Ltd, that it "may be unusual for disturbance of mind to lead to a psychological condition as severe [or resistant to treatment] as that suffered ... However, that is a statement about the extent of the injury, not its type",[208] should not be understood as proposing that reasonable contemplation of a serious possibility of any psychiatric illness resulting from a contractual breach necessarily encompasses reasonable contemplation of every resulting psychiatric illness.

     [208]Goldman Sachs JBWere Services Pty Ltd v Nikolich [2007] FCAFC 120 at [74], quoting Nikolich v Goldman Sachs J B Were Services Pty Ltd [2006] FCA 784 at [330].

134. Further, that Mr Elisha in fact (and unbeknownst to Vision) suffered from a less serious psychiatric illness for which he was treated with anti-depressant medication before his summary dismissal is also immaterial on the findings of the primary judge (that the manner and fact of the summary dismissal, which was unlawful and would not have occurred but for the breach of the employment contract, caused the serious psychiatric illness that Mr Elisha subsequently developed).

135. Rowe v McCartney,[209] a negligence case – where the test of remoteness is the less stringent standard of reasonable foreseeability – is not comparable. It depended on findings about the cause of the plaintiff's psychiatric illness. The plaintiff had permitted another person (the defendant) to drive her car on the condition that the other person be careful. While driving the car that person had an accident that caused him serious life‑changing injury and the plaintiff, a passenger in the car, less serious injury. The plaintiff also developed a depressive illness.[210] The cause of that depressive illness, however, was not the accident or the physical injuries that the plaintiff had suffered, but feelings of guilt for allowing the other person to drive the car with the result that he suffered a life‑changing injury.[211] In considering the test of remoteness of damage in that factual context, Moffitt P characterised the case as one in which the plaintiff's physical injury and presence in the car were irrelevant to the psychiatric illness she developed, as that illness "could equally have occurred if she had lent her car to the defendant and gone on a holiday".[212] On that basis, Moffitt P considered that the plaintiff's psychiatric illness had to be placed in a more particular category than "physical damage inflicted by the negligent act, psychiatric damage which arises by reason of such physical damage, and psychiatric damage which arises by reason of relevant nervous shock".[213] That more particular form of psychiatric illness was held to not be reasonably foreseeable. Translated to the circumstances of Mr Elisha's psychiatric illness, it would be as if his illness had been caused not by the manner and fact of his unlawful summary dismissal but by anxiety and distress at, say, his parents' reaction to his unlawful summary dismissal.

     [209][1976] 2 NSWLR 72.

     [210]Rowe v McCartney [1976] 2 NSWLR 72 at 77.

     [211]Rowe v McCartney [1976] 2 NSWLR 72 at 77, 89-90.

     [212]Rowe v McCartney [1976] 2 NSWLR 72 at 75.

     [213]Rowe v McCartney [1976] 2 NSWLR 72 at 75. See also Samuels JA at 89-90.

136. Given that remoteness of damage is a question of fact,[214] it is necessary to identify error in the reasoning of the Court of Appeal, not a mere difference of opinion about that fact. In the context set out above, two errors are apparent. First, the Court of Appeal considered that the evidence of Associate Professor Doherty (a psychiatrist), that it was "extraordinary" and not "reasonable" that Mr Elisha had responded to "a sense of being terminated wrongly" by developing a serious psychiatric illness, supported the conclusion that this form of damage was too remote.[215] On the findings of the primary judge, however, Mr Elisha's employment was in fact unlawfully terminated in circumstances where the wrong done to him meant that, at the time of termination and no doubt until at some time during the proceedings, he also did not and could not understand why he had in fact been terminated.[216] Accordingly, Associate Professor Doherty's opinion was not based on a proper characterisation of the nature of the contractual breach.

     [214]See, eg, Wenham v Ella (1972) 127 CLR 454 at 466; Rowe v McCartney [1976] 2 NSWLR 72 at 78, citing Richards v Victoria [1969] VR 136 at 146.

     [215]Vision Australia Ltd v Elisha (2023) 328 IR 299 at 339-340 [185]-[189].

     [216]See, eg, Elisha v Vision Australia Ltd [2022] VSC 754 at [250].

137. Second, the Court of Appeal also characterised the breach of the contract of employment as a "failure to put allegations to" Mr Elisha.[217] On that basis, their Honours concluded that the mere "possibility", at the time of entering the contract, that an employee could suffer "some psychological impact" because of that breach was insufficient to satisfy the test of remoteness of damage in contract.[218] This characterisation of the breach is also incomplete and inaccurate. Vision did not merely fail to put allegations of alleged earlier misconduct to Mr Elisha. As described, it purported to comply with its disciplinary procedures by putting allegations to Mr Elisha concerning one incident (the hotel incident) but intended to and did use other allegations of similar conduct at earlier times both to support its rejection of Mr Elisha's version of the hotel incident and to conclude that his employment should be summarily terminated. This process placed Mr Elisha in an impossible position in relation to the disciplinary procedure in respect of his alleged misconduct and involved serious unfairness to him. The degree of seriousness of the breach influences the likelihood of the resulting kind of damage that should reasonably be contemplated. Therefore, the characterisation of Vision's breach as a "failure to put allegations to" Mr Elisha is expressed at an impermissibly high level of generality. It is apparent that a serious breach of disciplinary procedures involving serious unfairness to an employee of a kind that occurred in this case involved a serious possibility of causing the development of a serious psychiatric illness, which should reasonably have been contemplated by the parties at the time they entered the contract.

     [217]Vision Australia Ltd v Elisha (2023) 328 IR 299 at 338 [176], 340 [188].

     [218]Vision Australia Ltd v Elisha (2023) 328 IR 299 at 340 [188].

     Negligence

138. I agree with Gageler CJ, Gordon, Edelman, Gleeson and Beech‑Jones JJ that, given the conclusions about the contractual cause of action, no consideration should be given to the claim in tort.

     Orders

139. I agree with the orders proposed by Gageler CJ, Gordon, Edelman, Gleeson and Beech‑Jones JJ.