No award for damages not contemplated by the parties at the time of contract

date
18 December 2023

Successful appeal of a decision awarding damages in favour of an employee terminated for 'serious misconduct', in circumstances where the employee was not afforded due process in the termination process causing psychological injury.

Damages were too remote and not within the parties’ contemplation at the time the contract for employment was entered.

In issue

  • On 15 December 2022, the Supreme Court of Victoria Ordered Vision Australia Ltd (Vision) to pay damages in the sum of $1,442,404.50 to Mr Adam Elisha for breach of contract causing psychiatric injury. Vision subsequently sought leave to appeal on the basis that the trial judge erred in incorporating certain procedures (of Vision’s) into Mr Elisha’s employment contract, and also on the basis that the damages for psychiatric injury were too remote.

The background

Vision is a not-for-profit organisation which provides services to persons with impaired vision. Mr Elisha was employed by Vision from 2006 as an 'adaptive technology consultant', which required him to visit homes and workplaces throughout Victoria to assist clients.

On 29 May 2015, Vision sent a letter to Mr Elisha terminating his employment on the basis that Mr Elisha had engaged in ‘serious misconduct’ in relation to an interaction with an employee of the Bairnsdale International Hotel that occurred on 23 March 2015.

On 27 August 2020, Mr Elisha commenced proceedings against Vision in the Supreme Court of Victoria seeking damages for breach of contract and/or negligence. Mr Elisha alleged that Vision breached contractual terms that required Vision to ensure ‘due process’ when exercising the right to terminate and to provide Mr Elisha a safe work environment, which breaches caused psychiatric injury to Mr Elisha.

The decision at trial

Mr Elisha was largely successful at trial and Vision was ordered to pay damages in the sum of $1,442,404.50 to Mr Elisha for breach of contract (Orders).

The issues on appeal

Vision sought to appeal the Orders on the basis that the trial judge erred in finding that Vision’s Disciplinary Procedure formed part of Mr Elisha’s employment contract (and that Vision breached those terms of the contract), and also on the basis that the awarded damages were too remote.

The decision on appeal

The Court of Appeal determined that Vision’s Disciplinary Procedure did form part of Mr Elisha’s contract on the basis that Vision promised to act in a very specific way in the event it took disciplinary action. However, in considering the issue of remoteness, the Court referred to the English case of Hadley v Baxendale (1854) 9 Ex 341 noting that the rule consists of two limbs: the first relates to losses arising 'naturally' or 'according to the usual course of things'; the second concerns losses as 'may reasonably have been supposed to have been in the contemplation of both parties, at the time that they made the contract, as the probable result of the breach of it'.

However, the Court noted that these two limbs essentially form one overarching principle, and that the application of that principle may depend on the degree of relevant knowledge possessed by the defendant in the particular case. In this case, the Court of Appeal found that the type of damage suffered by Mr Elisha was not such as may be reasonably supposed to have been in the contemplation of the parties as a result of the breaches identified by the trial judge at the time the parties entered into the contract of employment in 2006.

The Court held that at the time the parties entered into the contract of employment, there was no evidence that Vision had any knowledge of any vulnerability on the part of Mr Elisha. Nor was there any evidence to indicate that Vision employees were concerned about the impact on Mr Elisha’s physical or psychological wellbeing in the context of a potential breach of disciplinary procedures. In those circumstances, the Court held it could not reasonably have been supposed to have been in the contemplation of the parties, at the time of the making of the 2006 contract, that psychological or psychiatric injury to Mr Elisha would be ‘on the cards’ if Vision failed to provide him with due process.

The Court of Appeal therefore allowed the appeal and set aside the orders for damages. In a subsequent judgment, the Court of Appeal decided that an award of nominal damages was prohibited by s340(c) of the Workplace Injury Rehabilitation and Compensation Act 2013 (Qld), and that, as to the costs of the appeal, although Vision Australia had succeeded in obtaining the orders it sought on appeal, it was appropriate to make some allowance for the fact that Mr Elisha succeeded on two grounds, which were both matters of substance to which significant argument was devoted. Therefore, Mr Elisha was ordered to pay 80 per cent of Vision Australia's costs of the application for leave to appeal and the appeal.

Implications for you

The decision indicates that while a party may suffer some form of damages as a result of a breach of contract, an award for damages on that basis may not be granted in circumstances where such damages were not within the parties’ contemplation at the time the contract was entered by the parties.

Vision Australia Ltd v Elisha [2023] VSCA 265

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