Elisha v Vision Australia Limited [2024] HCATrans 71 (16 October 2024)

Last Updated: 17 October 2024

[2024] HCATrans 071

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M22 of 2024

B e t w e e n -

ADAM ELISHA

Appellant

and

VISION AUSTRALIA LIMITED

Respondent

GAGELER CJ
GORDON J
EDELMAN J
STEWARD J
GLEESON J
JAGOT J
BEECH‑JONES J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 16 OCTOBER 2024, AT 10.02 AM

Copyright in the High Court of Australia
MR P.D. HERZFELD, SC: Your Honours, I appear with MR E. MAKOWSKI and MR S.D.D. PUTTICK for the appellant. (instructed by Arnold Thomas & Becker Lawyers)

MR P.M. O’GRADY, KC: If the Court pleases, I appear along with MR S.E. GLADMAN, SC and MR L.R. HOWARD for the respondent. (instructed by IDP Lawyers)

GAGELER CJ: Yes, thank you, Mr O’Grady. Mr Herzfeld.

MR HERZFELD: As your Honours will have seen, this matter arises from the termination by the respondent of its employment of the appellant. The primary judge and the Court of Appeal concluded that that termination was in breach of contract. Could your Honours take up the core appeal book please and turn to page 245. Your Honours will see here the “2015 Disciplinary Procedure” and it was in that that the contractual terms found to have been breached are contained. If your Honours turn over to page 246, your Honours will notice, in particular, in point 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 . . . and indicate that the employee may have a support person present.

And your Honours will also notice clause 3, in the last sentence:

At the meeting, a discussion will occur and the employee will be given an opportunity to respond to the allegations.

The respondent contends that those terms were not part of the party’s contract, but assuming they were, the breach of those terms is no longer in controversy before this Court. That is because, in short, while what was put to the appellant concerned his allegedly aggressive behaviour towards a hotel staff member on a specific occasion on 23 March 2015, there was, in fact, taken into account a claimed history of aggression and excuse‑making on the part of the appellant, which was never put to him, and which, in fact, had no substance at all.

Your Honours will see the findings of the primary judge at core appeal book page 70, if your Honours will turn to that, please. Your Honours will see the critical findings on that page at paragraphs 234 and 235. They are the factual findings which give rise to the breach. And your Honours will see the judge’s conclusion of breach on page 120, in paragraphs 429 and 430. Your Honours will see how those findings in paragraph (a) and (b) reflect the two clauses to which I drew attention.

The primary judge also found that, had the contract been properly performed, the appellant’s employment would not have been terminated. If your Honours turn to page 149, your Honours will see in paragraph 536, in the steps set out from (a) to (i), the primary judge found that, had the contract been properly performed, the appellant’s employment would not have been terminated, and the appellant:

would not have gone on to develop the serious psychiatric illness from which he presently suffers.

Your Honours will see, without going to it, the detail of the finding of illness at page 80, paragraph 280. As I said, there is no need to go to it. In light of that illness and its consequences for the appellant’s work prospects, the primary judge awarded the applicant damages of over $1.4 million, again without ‑ ‑ ‑

STEWARD J: Mr Herzfeld, can I ask you a very basic question. Was your client’s illness caused by the fact of his termination, or was it caused by him finding out later on that matters had been withheld, or what?

MR HERZFELD: The causation finding is set out in most detail in paragraph 536, which is the one that I took your Honours to.

STEWARD J: But in short order, what is the answer?

MR HERZFELD: The fact is that it is not – it is expressed as “the termination of the plaintiff’s employment”, so if your Honour turns to page 80 – which I said unwisely it was not necessary to go to – at paragraph 280, your Honours will see that paragraph (a) begins with:

the termination of the plaintiff’s employment has had a devastating psychiatric effect upon him;

So, it is not a case which might be hypothesised where the only causally potent thing was the denial of due process, if I can put it that way. This is a case in which the denial of due process led to a termination and the termination in those circumstances was the thing which caused the psychiatric illness.

STEWARD J: Can I ask you a related question. Is there a finding that when he found out what had been withheld that his illness got worse?

MR HERZFELD: I will have to check that; I am not sure. I cannot presently recall such a finding, but I will check, and if there is one, we will let your Honours know.

STEWARD J: But I presume he found out at some point.

MR HERZFELD: Yes.

STEWARD J: Yes, I see.

MR HERZFELD: If there is any finding which goes to that question, we will let your Honours know.

STEWARD J: Thank you very much.

MR HERZFELD: As I said, the Court of Appeal upheld the primary judge’s finding of breach of contract and, in the course of doing so, it rejected the respondent’s contention which is pressed again in this Court that the terms of the disciplinary procedure did not form part of the contract. But the primary judge’s award of damages was overturned by the Court of Appeal, and was overturned on two bases – one was a supposed rule from the House of Lords’ decision in Addis, and also on the basis that the damages were too remote – and we contest both of those propositions.

Separately, the Court of Appeal and the primary judge – although in the latter case evidently with some misgivings – rejected the alternative case which the appellant brought in negligence and they did so on the basis that the employer’s duty of care to its employees, it was held, does not extend to processes concerning dismissal. We contend that that proposition was wrong as well. I am going to deal with the contract claim first and then I will come ‑ ‑ ‑

GORDON J: That is your appeal ground 1?

MR HERZFELD: It is ground 1, but I am dealing with them in a reverse order, which is the order we dealt with them in the written submissions because the contract claim was the one on which we succeeded at trial but failed on appeal. So, I am going to deal with contract first and then come back to negligence.

Starting with the contract claim, logically the first question is whether the terms to which I have referred formed part of the contract, and that matter was addressed comprehensively by the Court of Appeal. The respondent’s arguments before your Honours really do no more than simply repeat arguments put to and rejected by the Court of Appeal. Would your Honours take up the core appeal book and turn to page 190, please. Your Honours will see that from paragraph 7 on that page down to paragraph 13, the key terms of the employment contract were set out by the Court of Appeal. Would your Honours notice a term in paragraph 8:

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

Then in paragraph 11 there is reference to “Other Conditions” clause:

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

Your Honours will also notice in paragraph 13 the acceptance clause of the contract which the appellant signed, or signed underneath, and it included his agreement in the second paragraph:

to comply with these terms and conditions of employment and all other Company Policies and Procedures.

The relevant reasoning of the Court of Appeal concerning incorporation of terms begins on page 210 of the book. Your Honours will notice in paragraph 91, the Court of Appeal referred to some findings made by the primary judge which were relevant to this aspect of the case. The first was that, though the appellant:

was not provided with any award or policy at the time the 2006 Contract was made, although the policies and procedures were available on Vision’s intranet.

Without going to it, the reference for that finding is paragraph 366 of the primary judge’s reasons. Your Honours will also see the second finding referred to:

at the time of the making of the 2006 Contract, and thereafter, employees were required to act in accordance with certain specified values or behavioural norms and could face disciplinary action in the event of a failure to do so, but that written policies would regulate the conduct of any such disciplinary action.

Without going to it, that finding from the primary judge is at paragraph 375 of his Honour’s reasons. May we also interpolate a slightly later finding in the Court of Appeal’s reasons. If your Honours turn to paragraph 176 on page 227 of the book, your Honours will see a reference in the second sentence to the finding of the primary judge that:

there was nothing to suggest that the applicable disciplinary procedures were ‘qualitatively any different’ between September 2006 –

That is, the making of the contract:

and May 2015.

Your Honours will see the footnote reference to the primary judge’s reasons. So, in that context, the Court of Appeal’s dispositive reasons for incorporation are back on page 211, beginning at paragraph 97. Your Honours will see there that the Court of Appeal focused on the “Other Conditions” clause. Their Honours focused on the language of “will be in accordance with” having a promissory character.

Dropping from there to paragraph 99, their Honours directed attention to the Vision Australia policies and procedures. From there, the reasons for the incorporation, generally, of the policies and procedures as contractual terms are for the three reasons set out at paragraphs 100 to 102, each of which we embrace.

At paragraph 103, there is a rejection of the respondent’s emphasis on the prospect of amendment to the contract by mutual agreement, which was possible, but rather a recognition that the terms referred to were apt to encompass policies and procedures from time to time – and I will say something more about that in a moment. At paragraphs 104 to 105, there was a rejection of the suggestion that these terms were intended only as a “one‑sided” obligation for the employee to be bound, but the employer not.

Then, at paragraphs 106 to 107, there was a rejection proposition that these terms were only to facilitate compliance with the unfair dismissal regime and not to have contractual effect, and therefore there was the conclusion, at 108, that the Vision policies and procedures were, as a general matter, incorporated as part of the contract, but only insofar as the individual policies and procedures themselves were intended to have contractual effect. What their Honours were addressing was the fact that some policies and procedures may not be apt to generate contractual obligations.

At 109, there was an explanation as to why this particular disciplinary procedure cast in terms of what will be done by the employer was apt to have contractual effect. The promises in it were not merely discretionary or aspirational, they were precise and expressed in the language of promise, and that led to the conclusion at 110.

As I said, we wholly embrace that reasoning and, save for one matter – to the extent it is necessary – we will address the respondent’s attack in reply. The one further matter is this: it is not necessary in this case to confront any difficulty which might arise in other cases about the incorporation of policies or procedures which can be varied, unilaterally, by the employer. Contracts can, of course, give a power to one party to vary the terms in certain respects without thereby becoming illusory. Here, there were obviously express terms with which any policies and procedures could not be inconsistent, so that, itself, would impose a limit on what variations, unilaterally, would be possible.

It is not necessary for your Honours, in this case, to decide what, if any, further limits might be imposed on the employer’s ability to vary the policies and procedures, whether that is good or reasonableness. There are two reasons it is not necessary. The first is that the relevant policy here actually imposed obligations on the employer. So, we are not dealing with a case where, after contracting, an employer varies some policies so as to impose new obligations on an employee.

The second point is that the primary judge found that there was nothing qualitatively different between the disciplinary procedures at the time of contracting and at the time of the 2015 policy, in any event. So, it is sufficient here, even if the policies could not vary qualitatively from those in place at the time of contracting, that is sufficient for us here. So, it is not necessary, in this case, to confront anymore difficult questions about unilateral variation of policies.

That is what we would seek to say about the notice of contention. Before I move on, just to answer your Honour Justice Steward’s question, page 74 of the book, paragraph 255, perhaps addresses not quite what your Honour was raising, but the question of worsening psychiatric condition over time. It does not quite address your Honour’s question of finding out, but if there is anything else, we will come back to it.

STEWARD J: Thank you.

MR HERZFELD: So, may we then move, firstly, to the supposed rule in Addis [1909] AC 488. Would your Honours take that up, please? That is volume 3 of the authorities, tab 18. We have in our written submissions subjected this case to very close analysis from paragraphs 23 to 32. It will, I hope, please your Honours that I am not proposing orally to duplicate that analysis – although, of course, we rely upon it. What I want to do is pull out some key points from it.

GAGELER CJ: The analysis is longer than the case, I think.

MR HERZFELD: That, perhaps, says something about the – no, I am not going to pursue that – I am going to just ‑ ‑ ‑

GAGELER CJ: Go ahead.

MR HERZFELD: Thank you, your Honour. I was tempted, but it will not. Would your Honours, please, first of all, focus on the headnote, which is shorter than the case. Your Honours will see that that states, in very decided terms, a rule which has taken on something of a life of its own. One aspect of the rule is that, exceptional cases aside, damages for breach of contract will not go to compensate for mere injured feelings or mere disappointment caused by the breach of contract. We do not challenge that proposition, upon which this Court proceeded in Baltic Shipping v Dillon – and I will come back to that case.

But another aspect of the supposed rule is that damages cannot include compensation for the manner of dismissal, but that aspect of the holding has to be understood in the context of the reasons and issues in the case. Would your Honours please turn to the speech of Lord Loreburn starting on page 489 of the appeals cases. Your Honours will see there the plaintiff described as being employed by the defendants at a salary and also a commission:

He could be dismissed by six months’ notice.

Now, he was given six months’ notice, but he was, in fact, replaced much earlier than that, and so he brought an action for two things:

an account and damages for breach of contract.

The account being for the commission, it seems, that the replacement made which he said that he ought to have made. If your Honours turn over the page, your Honours will see that:

The jury for the plaintiff in respect of wrongful dismissal –

for £600 – that is the damages – and also damages for £340:

in respect of excess commission over and above what –

the successor earned. That is, what the successor earned was the subject of the account, and then the finding was that the plaintiff, if he had been there, would have actually made more commission than his successor in the amount of £340.

One of the controversies that emerged on appeal about that award can be seen near the end of the third paragraph on the page, beginning in the second‑last sentence:

A further controversy ensued, whether the 600l. was intended to include salary for the six months, or merely damages because of the abrupt and oppressive way in which the plaintiff's services were discontinued, and the loss he sustained from the discredit thus thrown upon him.

Your Honours will see that down the bottom of the page, over to the top of the next page, Lord Loreburn said that the damages to which the plaintiff was entitled were whatever:

the plaintiff was entitled for the six months . . . together with the commission –

which he lost. His Lordship then said:

I cannot agree that the manner of dismissal affects these damages.

What his Lordship meant was that one did not get more compensatory damages simply because the manner of dismissal was abrupt or oppressive, as his Lordship had referred to earlier. This is what had been suggested by Lord Coleridge in Maw v Jones, as your Honours will see in the footnote, and that was what the Lord Chancellor was rejecting. If your Honours look at the next paragraph:

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.

Because it was unclear how much of the £600 damages was to compensate for that kind of purported injury, it was disallowed entirely and simply substituted with a crediting of his salary in the accounting.

His Lordship’s speech, with which the other members of the House of Lords each agreed – although they all then gave additional reasons as well – does not stand for a general proposition that, if the breach of contract is of provisions regulating the manner of termination, no damages can go at all. It stands from a much narrower proposition that damages for breach of an employment contract by wrongful dismissal are not increased merely because the manner of the breach causes injury to the employee’s feelings or reputation. The reputation point can be put aside for present purposes.

As we have explained in our written submissions which the Chief Justice has already complimented, none of the reasons of the other members of the House support any broader proposition. And, indeed, that reasoning is extremely fractured – some members of the House of Lords focused on exemplary damages and others on overlap with defamation – but, for our purposes, the basic point about Addis is that it does not stand for a general proposition that damages are unavailable for breach of contractual provisions regulating the manner of termination.

EDELMAN J: The way that you would confine the reasoning in Addis to a rejection of an increase in damages for the manner of the breach, is that any different from saying that aggravated damages are unavailable in those circumstances?

MR HERZFELD: It is not any different, recognising that the increase being spoken of was mere injury to feelings – that is the kind of thing which aggravated damages could go for.

EDELMAN J: And was the Supreme Court then wrong in George v Cannell?

MR HERZFELD: I cannot answer your Honour’s question. I would need to look at it in more detail because the outcome might be right depending on the circumstances and things may have moved on from Addis on that topic. It is one way of rationalising the result – aggravated damages not being available. There may be other ways of rationalising the result. So, the answer to your Honour’s question is maybe, but that is too general a question, with respect, to answer in the way that your Honour is perhaps putting to me. For our purposes, it is sufficient that Addis does not stand for a broad proposition that damages are unavailable for the manner of termination if that is in breach of express terms of the contract.

The real issue is whether, when there is a breach of express terms of a contract concerning the manner of termination, the damages can extend to compensation not just for mere injury to feelings but rather to psychiatric injury. Of course, Addis did not deal with that question, because it was not in issue. It is not surprising it was not in issue in 1909. Even if the plaintiff had suffered today what would be regarded as a psychiatric injury, it is almost certain it would not have been something that was pressed in 1909. There has obviously been a considerable development in medical and legal understanding of mental injury since 1909.

Your Honours, Justice Windeyer’s famous comment from Mount Isa Mines v Pusey about the law marching with medicine but in the rear and limping a little, which his Honour was applying to an 1888 decision, applies equally to a 1909 decision. But, in any event, nothing in Addis dealt with the question about whether psychiatric injury was something which could be compensated in a breach of contract case where, relevantly, for our purposes, the psychiatric injury is caused by termination in breach of provisions regulating the manner of termination.

GORDON J: There has been criticism of Addis that it, in effect, treated the employment contract as an ordinary commercial contract entered into by ordinary commercial parties, and that that premise has, in effect, moved on, because time has moved on, because we have realised the employment relationship is different. Are you saying anything different to that?

MR HERZFELD: I am certainly saying that, and I am also saying that even on a narrower view, Addis just does not deal with the question with which this case deals with. But I will return to your Honour’s proposition, particularly when I come to the question of remoteness – but I am not disavowing what your Honour is putting to me.

EDELMAN J: Another way of putting your submission is to say that aggravated damages, or damages for the manner of a dismissal, are really concerned with the exacerbation of an existing head of damages, whereas psychiatric injury is a head of damage in itself, and that is something that, at least, in this country, was only fully recognised in Tame and Annetts.

MR HERZFELD: What your Honour puts to me is right. In fact, it was recognised – as I am about to show your Honours – in Baltic Shipping v Dillon [1993] HCA 4; 176 CLR 344, if your Honours would take up that case, please. That is authorities volume 2, tab 13.

GAGELER CJ: Are we at item 4 of your outline, now?

MR HERZFELD: Yes.

GAGELER CJ: Thank you.

MR HERZFELD: If your Honours, in Baltic Shipping v Dillon, first turn to the reasons of Chief Justice Mason, and turn to page 360 of the CLR print, your Honours will see about halfway down the page after the block quote, his Honour referred to the case to which his Honour had just referred as standing:

for the proposition that damages for anxiety suffered by the plaintiff may be recovered in an action for breach of a contract which promises freedom from anxiety.

That was ultimately the dispositive issue in Baltic Shipping v Dillon. Your Honours will notice that that statement and also the statement and passages from the English cases quoted immediately below that and over the page all refer to disappointment or anxiety or distress or mere inconvenience. That is because of the general rule to which the Chief Justice referred in the middle of page 361, that:

damages for anxiety, disappointment and distress are not recoverable in actions for breach of contract –

Subject to certain exceptions. The point in Baltic Shipping v Dillon, of course, was one of those exceptions, namely a contract which promised relaxation or pleasure. But the Chief Justice was very careful to distinguish mere disappointment or distress from psychiatric injury, and your Honours will see that on page 362. Page 362, first full paragraph, refers to:

the fundamental principle on which damages are awarded –

That is:

that the injured party is to be restored to the position (not merely the financial position) in which the party would have been had the actionable wrong not taken place.

There are limitations on that; principles of remoteness are an example, and we accept that principles of remoteness, of course, are applicable. Another limitation is that certain kinds of harm of themselves are not recognised as actionable, so exceptional cases aside, in contract, mere injury to feelings is not a form of compensable harm itself, and we do not cavil with that. But notice in the catalogue of exceptions down the bottom of 362 the Chief Justice’s second exception:

Secondly, it is beyond question that a plaintiff can recover damages for pain and suffering, including mental suffering and anxiety, where the defendant’s breach of contract causes physical injury to the plaintiff.

And your Honours will see footnote (95):

Damages for pain and suffering consequent upon physical injury caused by breach of contract may be awarded –

But then the last sentence:

The class of physical injury for which damages are available includes nervous shock –

And so, this passage from the Chief Justice was expressly recognising that damages can go for breach of contract which causes a psychiatric injury.

Justices Toohey and Gaudron agreed with the Chief Justice’s reasons on the question of damages, and Justice McHugh likewise reasoned that the exclusionary rule for precluding, generally, damages for mere disappointment did not apply in cases of psychiatric injury. So, if your Honours turn to page 405 of the CLR print, your Honours will see in the last sentence of the second full paragraph:

Furthermore, because damages for personal injury may be recovered in an action for breach of contract and because psychiatric illness constitutes personal injury, damages for mental distress associated with a psychiatric illness or physical injury must also be recoverable in an action for breach of contract.

Now, the Court of Appeal thought it was only Justice McHugh who took that view in Baltic Shipping v Dillon, but as I have shown your Honours, in fact, it was also the Chief Justice with whom Justices Toohey and Gaudron agreed, so it was in fact four judges of this Court. Now, that was not an issue in Baltic Shipping v Dillon, but it is not the case that we are, in this case, arguing for the first time with no supporting Australian authority that damages for psychiatric injury can go for breach of contract – far from it. A majority of the Court in Baltic Shipping v Dillon had already said that that was the position.

So, far from Baltic Shipping v Dillon being against the position for which we contend, in fact, it strongly supports it. There is no reason of principle for an a priori preclusionary rule preventing recovery of damages for psychiatric injury for breach of contract. Not only is that out of step with the fundamental compensatory rule – to which the Chief Justice referred – as well as modern understandings of physical and psychiatric injury, it is also particularly marked as being discordant with other authority in the employment context, and that is because it is well accepted that the employer’s duty to ensure their employees’ safety, which is a duty that takes effect not only as a tortious duty but as an implied term of the contract, extends not only to physical harm but also to psychiatric harm.

Would your Honours please take up this Court’s decision in Kozarov [2022] HCA 12; 273 CLR 115, authorities volume 2, tab 15. If your Honours turn first in the reasons of Chief Justice Kiefel and Justice Keane to paragraph 6, their Honours refer there to the aspect of the employer’s duty of care extending to employees’ psychiatric safety. In the reasons of your Honour the Chief Justice and your Honour Justice Gleeson, if your Honours turn to paragraph 28, your Honours refer to the obligation extending to psychiatric injury. In the reasons of your Honours Justices Gordon and Steward, in paragraphs 82 to 83, there is reference to – relevantly, to this case – the duty:

to take all reasonable steps to provide Ms Kozarov with a safe system of work.

In paragraph 83, that is referred to as including her psychiatric health. Then, in the reasons of your Honour Justice Edelman, starting at paragraph 100, there is a discussion there about the:

employer’s duty of care to prevent psychiatric injury to an employee –

being capable of arising both from:

“a voluntary undertaking independent of contract” –

and also by imposition of law. So, focusing specifically on the employment context, a rule that one could not recover for breach of contract causing psychiatric injury would be particularly discordant because the employer’s duty of care – which, as I say, is a tortious duty but also a duty which takes effect as an implied contractual term – extends to psychiatric health.

The respondent seeks to resist these contentions by pointing to the existence of the unfair dismissal regime. I will say something more about that when I come to the tort aspect of our case. But, for the present, may we make these points. If there has been a breach of an expressed term of a contract, as here, there is no principled basis to deny recovery of compensatory damages on the basis of the existence of a statutory scheme which, in some circumstances, will provide a remedy which, to some extent, overlaps. That, as a matter of principle, would require a conclusion that the statutory scheme, by necessary implication, abrogated a contractual right. There is no basis for that in the unfair dismissal regime.

The respondent calls in aid English authorities restricting the scope of the implied term which has been recognised there – the implied term of mutual trust and confidence. The United Kingdom cases have restricted the scope of that term so as not to cover dismissal because of the existence of the unfair dismissal regime. There may be a principled basis to do that because the scope of any implication only extends so far as is necessary. So, one could conclude that the implication there recognised is not necessary in the case of dismissal because the unfair dismissal regime exists. Whether that is right or not, that is, at least, a conceptually open, principled train of reasoning. It, in fact, leads to demarcation disputes between what is in and what is out – and I will come back to that.

GORDON J: Will you come back to the contention that it leads to, in effect, two different systems ‑ ‑ ‑

MR HERZFELD: I will.

GORDON J: ‑ ‑ ‑ one system where the employees are subject to the statutory scheme and those employees who are not?

MR HERZFELD: I will – and I will come back to deal with that when it is in the question of the duty of care. But, for our purposes, there is a more fundamental problem with the respondent’s attempt to deny contractual recovery on the basis of the existence of the unfair dismissal scheme, which is that there is simply no principled basis to deny recovery if there is a breach of an expressed term of the contract; there is a head of damages which is recognised; the existence, or otherwise, of a statutory scheme which, in some circumstances, overlaps with that – just provides no principled basis to deny recovery, unless one concludes that the statute has either expressly or by necessary implication abrogated a contractual right, and there is just no basis to reach that conclusion. There is also ‑ ‑ ‑

STEWARD J: Sorry, Mr Herzfeld, when you deal with this issue again, you will deal with the Fair Work Act?

MR HERZFELD: I will. I will come back and deal with the detail.

STEWARD J: And to the explanatory memorandum in the Fair Work Act and its reference to Addis, and so on?

MR HERZFELD: I will, I will.

STEWARD J: Thank you.

MR HERZFELD: The reason that I am dealing with it there is that, at the level of principle, we accept that it is conceptually relevant in deciding how far a duty of care extends that it coheres with statute. But it is not conceptually relevant at this point in the argument if, as we say, there is a breach of an express term of the contract and a recognised head of injury – just irrelevant that there is an overlapping statute unless there is an abrogation of contractual rights, which there is not.

It is also suggested by the respondent in writing that the Court should not depart from the understanding that there is a preclusionary rule, because that would affect contractual certainty. Of course, if the parties to a contract wish to negotiate express terms excluding or limiting recovery, they can do so.

The respondent asserts that there may be some existing employment contracts which have been negotiated on the basis of an assumption about the scope of the rule in Addis. That is simply an assertion which is questionable at best, because, of course, there has been no decision of this Court about the matter. But in any event, the fact that parties may have made arrangements based on what they think the law might be has never been a good basis for this Court to decline to correct an erroneous assumption about the scope of the common law, and that is particularly so when one is dealing with an anomalous exception, because that is what – for the reasons we have explained – the rule in Addis, upon which the respondents rely, would be.

A good example of this Court having no hesitation in abandoning anomalous exceptions is the abandonment of the highway rule in Brodie v Singleton Shire Council. Just as in that case, if Parliaments consider that some anomalous exception should be reintroduced, then they can take that step if they wish.

The real question then, in our submission, is not whether the appellant’s claim was barred by a preclusionary rule stemming from Addis, it is whether the damages in the particular circumstances here were too remote, in accordance with ordinary principles. We accept that it will not always be the case that the person suffers a reaction of the kind at issue here as a matter of ordinary course if their employment contract is breached in the way that it was here. We accept that it is correct to analyse this question through the second limb of Hadley v Baxendale.

BEECH‑JONES J: The way you phrase that there does seem a little bit different to the causal way – you seem to have got to the endpoint with damages, which, from my understanding, what you said to Justice Steward was that the reasoning was breach of procedure, further finding that but for breach of procedure would not have been dismissed, fact of dismissal.

MR HERZFELD: Yes. I was not seeking to depart from that. Of course, our arguments actually would all be the same even if the finding was simply breach of procedure.

BEECH‑JONES J: Causing.

MR HERZFELD: Causing psychiatric injury. I was just pointing out to your Honours that in this case, it is actually starker. As a matter of principle, the arguments would be the same. I was not seeking, in assessing or setting up my remoteness submissions, to depart from what I had said.

BEECH‑JONES J: I may have jumped in early. I think you were about to tell me how one frames the inquiries. I will be quiet.

MR HERZFELD: I think I am about to frame it and have a bet each way. I think that is what I am about to do. In fact, it is, because what I was going to do as a set‑up point was to remind your Honours about that which your Honour and I have just had an exchange, that the finding here was not simply that there was a breach of a procedural provision, where, had the contract been properly performed, the employee would have been terminated anyway.

Our argument survives on either case, but actually, that was not the finding here. It was a case where, on the primary judge’s finding, had the contract been properly performed, the appellant’s employment would not have been terminated at all. So, in that context ‑ ‑ ‑

GLEESON J: He also would not have experienced the process that led to the termination in the way that it was conducted.

MR HERZFELD: Precisely. Even if it had been a termination, it would have had to be on notice, and there would not have been meetings where the truth was kept from him, effectively. In that context, there are really three difficulties with the Court of Appeal’s analysis of the remoteness question.

EDELMAN J: Just before you get into them, it seems to me there is a bit of a slide between two different senses in which remoteness is being used. One sense I think you are addressing is the sense in which it is used in Hadley v Baxendale, it is remoteness of consequences. The other sense is in the sense of the scope of the duty itself, which is whether or not the scope of the contracted duty was one that extended to protection against consequences that might be psychiatric injury.

MR HERZFELD: Yes. I think Lord Hoffmann, from memory, was quite keen on re‑characterising certain things in that way. I apprehend that the way in which the Court of Appeal caused us to lose was a traditional remoteness analysis. I accept that, at the level of concept, one could conclude that a contract has either expressly or as a matter of its construction excluded certain kinds of loss, but that has not been suggested here. And, for the reasons we have already been through, there should not be an a priori rule that in employment contracts psychiatric injury caused by the manner of dismissal is outside the scope of the contractual promise.

EDELMAN J: No, it is not. I do not think it is suggested there is an a priori rule, but the question is whether the particular obligation that is breached in this case, which is effectively an obligation of due process, was one that had within its scope the possibility of damages for psychiatric injury.

MR HERZFELD: Yes. And I think some of the points I am about to make about a more traditional Hadley v Baxendale analysis will engage with that question as well. Because, in a sense, the question of what was within the reasonable contemplation of the parties at the time of contracting is another way of asking that kind of question.

STEWARD J: Just before you go on, you said psychiatric injury caused by the manner of dismissal, but the finding here, is it the fact of dismissal which was causative?

MR HERZFELD: Yes.

STEWARD J: I understand the way you put it. You say but for the manner of dismissal, he would not have been dismissed and therefore he would not have suffered mental illness.

MR HERZFELD: Yes. That is the finding here, but what I am about to say – and what I hope I have already said – would be equally applicable if the finding had been there was a breach of the provisions. Had there been no breach, he would have nonetheless been terminated through the notice provision, but he would not have suffered a psychiatric illness. If they were the findings, everything that we have said and are about to say would apply equally.

STEWARD J: I understand.

MR HERZFELD: Your Honours are right that – let me put it this way. However loose my language may be about to be, I am seeking to encompass the primary judge’s findings here. There are three difficulties with the Court of Appeal’s analysis of the remoteness question. The first is that the Court of Appeal’s reasons rather tend to ignore the matter that I have been having an exchange with your Honours about, that the primary judge’s finding that one was dealing with the case whether the employee would not have been terminated at all.

So, if your Honours turn to the core appeal book, please, at page 229, your Honours will see the Court of Appeal’s conclusion at paragraph 188. Your Honours will see, for example, in the third sentence:

Having considered that evidence, it may be correct to state . . . that there was a ‘possibility’ of some psychological impact as a result of a failure to put allegations to an employee.

Now, that is a very incomplete statement of what occurred here. On any view, even if the view had been he would have been terminated anyway, as your Honour Justice Gleeson put to me, it would have been a radically different process. So, the whole of the Court of Appeal’s analysis was framed far too narrowly by reference to the matter which your Honours can see in that third sentence, which then continues on in the rest of the dispositive conclusions. So, that is the first difficulty with the Court of Appeal’s reasons.

If one lifts one’s focus a little to the primary judge’s finding, if one asks, was it within the reasonable contemplation of the parties at the time of contracting that termination of an employee in breach of disciplinary procedures where that termination would not otherwise have occurred at all, might that cause an employee to suffer a psychiatric injury, in our submission, that is plainly a serious possibility, or a possibility if it is on the cards, to pick up the language which is relevant in remoteness cases.

Even if one is dealing with a narrower finding – is it a serious possibility, is it on the cards that terminating an employee in this manner, compared to through a notice provision, might that cause a psychiatric injury? Is that on the cards? Again, with respect to the Court of Appeal, the answer is obvious, and one of the reasons the answer is obvious is the manner that your Honour Justice Gordon raised with me earlier. Given the extent to which a person’s employment is not just a commercial contract, it is ordinarily tied to livelihood, financial security, and, even to some extent, self‑identity and self‑worth, it was plainly a serious possibility that a wrongful termination of an employee after a failure to comply with the disciplinary processes could cause them to suffer a psychological reaction serious enough to qualify as a psychiatric injury.

STEWARD J: Is that how the question was put to the experts before the primary judge?

MR HERZFELD: I will come back to the expert evidence in a moment. I accept one of the things that the Court of Appeal dealt with was the expert evidence, and I will come back to it.

GAGELER CJ: Mr Herzfeld, can I just ask a very simplistic question. The termination itself was a breach of contract, as I understand it.

MR HERZFELD: Yes, because the termination had to follow the disciplinary procedure.

GAGELER CJ: Is the question of remoteness different depending on why the termination is a breach of contract, or would it be the same in any event?

MR HERZFELD: Well, at the general level there may be differences. But relevantly here, there may be no difference, and perhaps that was the point I was inelegantly making, that it does not make a difference whether the question is framed in the way that the primary judge’s reasons allow it to be framed, or whether it was framed in a narrower way.

EDELMAN J: I am not sure you can answer it in that way on the particular facts, because if one puts the Chief Justice’s question into a framework of the scope of the duty, you have to be able to assess what the scope of the duty is before you know the exact facts by which the duty was breached. Lord Hoffmann’s example that you were alluding to, the patient that goes to the doctor for advice about the knee, it is not within the scope of the doctor’s duty to advise the patient as to any – or as to the consequences of a rope breaking, even if it is in reasonable contemplation by the party that the patient might get injured from the mountaineering.

MR HERZFELD: Yes. I think that is why I was answering the Chief Justice’s question that as a general matter it might make a difference, because obviously one’s inquiry about what is the scope of the promise is asked knowing what the facts of the case were. One does not answer an abstract question about the scope of the promise. One is confined, at least to some degree, by the facts of the case.

EDELMAN J: But the breach that you would rely on in that sense, that would be much more closely tied to a scope of duty that would include psychiatric harm – would not be the termination, it would be the breach of the obligations of duty process, would it not?

MR HERZFELD: Which is why I said that the termination here was a wrongful termination because of the failure to comply with the disciplinary procedures. So, if there had been – I am taking a hypothetical example. Suppose there was a termination which was wrongful only because the notice period was not long enough. That might lead to a different answer about reasonable foreseeability.

BEECH-JONES J: That would be a different contractual power, I assume, would it?

MR HERZFELD: It would be, but it would still be a wrongful termination. So, that is why I did not answer the Chief Justice’s question in an absolute way, that all you need to know is the contract was terminated wrongfully, because that might affect both the question of the scope of the promise or questions of remoteness. For our purposes, we are obviously dealing with a termination that was wrongful because it was in breach of this disciplinary procedure when that was part of the promise. That is, the contract contained promises by the employer that they would comply with this disciplinary procedure, and so the question of remoteness or scope of duty is framed by reference to those promises, not a more abstract question about wrongful termination.

GORDON J: So, does that mean, just so I am clear, we have an incorporation of terms which include a method for termination. You say that is incorporated into the terms of the contract and therefore provides the scope of the duty?

MR HERZFELD: Exactly.

GORDON J: Then, second, when the primary judge makes findings that the termination was wrongful one is, in effect, to – not substitute, but to read as if it is addressing those two questions?

MR HERZFELD: Precisely.

GORDON J: Or those two matters.

MR HERZFELD: Precisely.

GORDON J: Then the question which then arises is whether or not the damages which are claimed are remote, having regard to the incorporation, scope of duty, and breach.

MR HERZFELD: Yes. It is because of the focus on those provisions, that the submissions that we have made would be the same and with the same outcome whether the further finding the primary judge made that there would not have been termination at all, whether that finding is made or not because the critical thing is the ‑ ‑ ‑

GORDON J: Wrongful termination.

MR HERZFELD: Yes. So, the Court of Appeal’s focus in this paragraph – paragraph 188 – was much too narrow because, although it was on the provisions, it did not recognise that the failure to put allegations – while that was the specific matter – was, actually, part of a wrongful termination, and that informs the scope for remoteness analysis. It is the first criticism we make of the Court of Appeal’s analysis.

GORDON J: I do not quite understand that. Is that to say, as a matter of fact, it is right that there was a possibility of some – so, what is the error in it?

MR HERZFELD: So, the error I am pointing to is just that all the Court of Appeal focused on here was the very narrow question of some psychological impact as a result of a failure to put allegations to an employee. What the Court of Appeal seemed not to have focused on was that that failure to put allegations to an employee was part of a process by which that employee was terminated because of the failure to put allegations to them, and on the primary judge’s findings, the termination would not have occurred but for that wrong.

BEECH-JONES J: So, is that saying that the proper characterisation of the breach was a wrongful termination for alleged misconduct, rather than a failure to put an allegation?

MR HERZFELD: That is one way of understanding it. Of course, factually, what happened was the failure to put the allegation, but the Court of Appeal’s focus here was just too narrow.

STEWARD J: But are they not just really focusing on what the primary judge held to be the breaches of contract? That is how they put it at the end of 190.

MR HERZFELD: Yes, they were, but ‑ ‑ ‑

STEWARD J: And that was that the breaches arose from the failure to put the allegation.

MR HERZFELD: But the consequence of the failure to put the allegation was a termination that would otherwise not have occurred.

STEWARD J: So, they must have had that in mind.

MR HERZFELD: With respect, if one has that in mind, then one cannot reach the conclusion that the Court of Appeal reached in paragraph 188.

STEWARD J: All right.

MR HERZFELD: Our submission is that 188 reflects to narrower focus by the Court of Appeal – that is the first criticism. The second criticism we make of the Court of Appeal’s remoteness analysis, is that it contains a number of factual errors. If your Honours turn page 163 ‑ ‑ ‑

GORDON J: So, are the factual errors being found in 188?

MR HERZFELD: No, I am about to shoe your Honours the factual errors. So, if your Honours turn to paragraph 163, the Court of Appeal extracted the primary judge’s process of reasoning towards a conclusion that the damages were not too remote. One of the features upon which the primary judge focused is that set out in paragraph (e), at the top of page 225:

the evidence also suggested that [Vision] anticipated that risk by providing access to counselling and support – and, again, there was nothing to suggest that the position would have been any different in September 2006.

Now, the Court of Appeal criticised that finding at paragraph 181. Their Honours said:

the provision of access to counselling and support might be of some consequence if it was clearly directed to those subject to a disciplinary hearing.

In fact, the material showed that the provision of access to counselling and support was directed to those the subject of a disciplinary hearing. The first way that that is so is that the disciplinary procedure provided, as I showed your Honours, for an employee to have a support person present during the interview. The Court of Appeal had found, as I showed your Honours – rather, the primary judge had found that the disciplinary procedures were not qualitatively different at the time of the contract.

The presence of a support person at the interview is precisely the kind of support directed to a person the subject of disciplinary procedures, which the Court of Appeal said:

might be of some consequence if it was clearly directed to those subject to a disciplinary hearing.

Well, the presence of a support person is. Further, Mr Van Dyk’s evidence was to the effect that counselling and support was directed to those subject to a disciplinary hearing. If your Honours go to the reasons of the primary judge at core appeal book page 126, please, your Honours will see at paragraph 446(b), the primary judge records Mr Van Dyk saying that:

‘people can be upset’ and, consequently, ‘we provide support’, including an employee assistance program –

Now, it is true Ms Hauser said that that program was available in other circumstances as well, but that does not deny the force of there being a support system in place for employees going through the disciplinary process. There is a further ‑ ‑ ‑

STEWARD J: I think the Court of Appeal distinguished the observation that people can be upset from people having serious mental illness.

MR HERZFELD: I will come back to that point – the third point, I am about to come to, but so far I am just dealing with an error by the Court of Appeal of fact in the significance in the Court of Appeal’s view of any absence of counselling and support directed to disciplinary processes. In fact, there were such things in the form of the support person present and the counselling available, to which Mr Van Dyk referred.

The third difficulty, which will address your Honour Justice Steward’s question, was an erroneous legal approach. There only needed to be a serious possibility of damage of the kind in question, even if that occurs to an unanticipated degree – and I am using the language in McGregor here. We have given your Honours, in our oral outline, references to the 21st edition, which was the edition that was current at the time the joint bundle was put together. The 22nd edition came out shortly afterwards, so we have given your Honours the parallel references.

So, the question here was: at the time of contracting was there a serious possibility that a person who was terminated because of a breach of disciplinary procedure would suffer harm of the same kind as the appellant? The evidence summarised by the Court of Appeal at page 228, paragraph 182, showed an actual awareness on the part of the employer of the possibility of a psychological impact on a person the subject of wrongful termination.

This subjective evidence is only relevant insofar as it gives an insight into what reasonable parties at the time of contracting would have contemplated. In that context, it is immaterial that these non‑expert individuals did not use the expression “psychiatric illness” as being a possibility.

It is sufficient for the purposes of remoteness that the evidence demonstrates that a person in the position of an employer – this employer – would reasonably foresee as a serious possibility a psychological impact on a person as the consequence of these kinds of matters. That is sufficient to render the suffering of that thing to an unanticipated degree – that is, psychological impact amounting to a psychiatric injury – as not too remote.

That is demonstrated by the fact that – as your Honours may know – an adjustment disorder is a recognised psychiatric illness, and consists essentially of a normal reaction to an event, but the extent or duration of the reaction is in excess of that which is usually to be expected. That is just the suffering of a psychological reaction to an unanticipated degree. In fact, there is some contemporaneous evidence that those involved knew that the whole process was one that could affect the mental health of those involved.

If your Honours turn back to the primary judge’s reasons at page 63 of the core appeal book, your Honours will see at page 63, paragraph 211, there is an extract of an email from Mr Gow‑Hills, who was the general manager of people and culture, which he sent on the morning of the day of the termination letter went. Over the page at 64, at the end of that email, Mr Gow‑Hills asked in the last paragraph:

Mike do you think you need to stop in and take over from S? She clearly wants “out” and she might go to pieces.

“S” is a reference to Suzanne Eagle, who was a member of the people and culture department, who was one of the people involved in deciding whether to terminate the appellant. That is obviously not about the appellant’s mental health, it is about the mental health of Ms Eagle. But the fact that it was foreseen that Ms Eagle might go to pieces, it is plainly on the cards that the person the subject of the inquiry might also go to pieces.

Of course, this is after the time of contracting. This does not directly bear on what a reasonable employer would have thought at the time of contracting, but it is some evidence of what a reasonable employer would have contemplated at the time of contracting.

GLEESON J: Mr Herzfeld, some of the primary judge’s reasoning seems to suggest that he thought it was fairly obvious that this risk would be within the contemplation of the parties – I have in mind paragraphs 462 and following, where he talks about the possible impacts of conducting a sham process. That does not seem to be picked up in 163 of the Court of Appeal’s reasons as part of the reasoning process.

MR HERZFELD: To be fair, I think that is because this part of his Honour’s reasoning is dealing with reasonable foreseeability in the context of the tort claim. Your Honours will see, going back to 433, this is all under the section whether the defendant owed the plaintiff a relevant duty of care. So, his Honour was here addressing the question of not farfetched or fanciful at the time of the breach. So, to be fair to the Court of Appeal, this reasoning is not, in terms, directed to the contractual remoteness question at the time of contracting, but it is all consistent with respect that the first criticism we make of the Court of Appeal’s reasoning process.

To come back to the point that I promised Justice Steward that I would, there was some expert evidence on which the Court of Appeal relied. Would your Honours turn to that at page 229, please. Your Honours will see at the top of the page that the Professor was asked:

whether Mr Elisha’s response could be considered to be a plausible, if not ‘expected’, outcome of someone who had perceived their termination of employment as being wholly unlawful –

And he gave the reply there. There are two problems with that.

STEWARD J: Who called Professor Doherty?

MR HERZFELD: He was called by the respondent.

STEWARD J: Thank you.

MR HERZFELD: There are two problems with this. The first is the question and how it is picked up in the answer:

you know, understandable effect of a sense of being terminated wrongly.

This case does not involve just a sense of being terminated wrongly, it is the fact of being terminated wrongly because of this entirely defective process. That is the first point. The second point is this evidence was, really, focused on questions of degree. What the Professor said was “extraordinary” was the degree of, or the extent of, the appellant’s reaction. He said:

that’s extraordinary and not in keeping with the reasonable and, you know, understandable effect –

It is not about what is a reasonable and understandable effect. This evidence is all about degree, which does not engage with the question of contractual remoteness when properly understood.

GLEESON J: So, do we take it that he was not actually asked what he thought was a reasonable and understandable effect?

MR HERZFELD: I will have to check the transcript. I think the answer is yes, but I want to check the transcript, and I can see the time so I will do that over the adjournment.

GORDON J: Is that to say that added evidence is irrelevant?

MR HERZFELD: Yes, on the two bases that I have identified.

GORDON J: That it is addressing the wrong question?

MR HERZFELD: It is addressing the wrong factual question and also the wrong legal question.

GORDON J: Thank you.

GAGELER CJ: We will take the morning adjournment.

AT 11.17 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.31 AM:

MR HERZFELD: We do not think there is another more precise question to Associate Professor Doherty. Your Honours, that completes what we want to say orally about the breach of contract claim.

EDELMAN J: Just before you move on from the breach of contract claim, are there any, apart from exceptional, circumstances where it would be likely that psychiatric injury following a termination of employment would be too remote? If your submission is right, it would only be in the exceptional cases that psychiatric injury would not be within the scope of duty and not too remote.

MR HERZFELD: Two answers to that. The first is that it is possible, as I said earlier, that if the wrongful termination is termination with a shorter notice period than required, that may be a case where a psychiatric injury is too remote, because it does not involve anything like the kinds of breach of obligations at issue here. That is possible, but the second answer is this. That even if it is the case that ordinary psychiatric injury from termination is something to be expected, there is no problem with that because of the ‑ ‑ ‑

EDELMAN J: It is no problem in the sense that, on your submission, it is a recognised head of damage, but the question is, is that a head of damage that is contemplated as one that would be within the scope of liability for a mere termination?

MR HERZFELD: Yes. As I said, I think I have quarrelled with your Honour about mere termination as a general category, that is my first point. My second point is that, even if it is the case that in general in employment contracts that is a recoverable head of damage, then there is no problem with that and is in fact just a recognition of the development in the understanding of one psychiatric illness. Secondly, to go back to a point your Honour Justice Gordon raised with me, the nature of an employment contract being radically different from a contract for the sale of hammers. If that is the consequence, that is the consequence.

EDELMAN J: Yes.

BEECH‑JONES J: It has to be a wrongful termination, and the present context is a wrongful termination for an allegation of misconduct.

MR HERZFELD: Which is why I ‑ ‑ ‑

BEECH‑JONES J: I mean, there are a lot of others – redundancy, notice, loss of business, economic circumstances – where your case does not necessarily flow into.

MR HERZFELD: First of all, if termination is not unlawful then there is no breach and there is no problem, but even if termination is unlawful, there may be different reasons for termination being unlawful and I was picking one which might be thought to be more anodyne: you were given three weeks’ notice instead of four. Depending on the particular contract, it might be that the parties should have reasonably understood that four weeks’ notice rather than three was absolutely critical because of the particular circumstances of the contract.

EDELMAN J: But you would fail on causation in almost every case in that example anyway, before you even get to questions of scope or remoteness, because the likelihood would be that if the reason why a person suffers psychiatric injury is because of the loss of their livelihood, the loss of the really fundamental aspect of their employment, then they would have suffered that psychiatric injury regardless of whether it was three weeks’ or four weeks’ notice.

MR HERZFELD: That may be so, although the fact that the cause of action might fail at two elements in particular circumstances does not mean that the elements have no work to do in other cases. What your Honour says is right, but there may not be. It may be the case that in a particular circumstance the three versus four weeks is actually terribly important for a particular reason and that might mean that it is within the scope of the promise.

EDELMAN J: The point that I am making to you, though, is the reverse of that. It is that in every situation if you met the causal requirements – in almost every situation – it must be, on your submission, within the contemplation of the parties that a consequence so important as the loss of your livelihood could lead to psychiatric injury.

MR HERZFELD: Well, I think I have made my two points in response to that, which in short were, for the reasons that I have given, I do not accept that it is always the case. The second point is, even if it is, that that is not a problem. If obviously we are talking about employment contracts, it would not follow that psychiatric injury would be a reasonably foreseeable consequence or within the scope or promise in a contract for the sale of hammers. So, even if it is in most employment contracts, that is not a problem either. This is not a submission which means that in every contract case psychiatric injury will be within the scope of the promise, or reasonably foreseeable.

STEWARD J: Mr Herzfeld, I am not sure your anodyne example really works. The loss or damage here did not arise from the putting of the allegation about the alleged incident in Gippsland to your client, nor, as we have established, was it the failure to tell him about the earlier allegations which he may have learnt about later. It is the fact of termination, and if it is the fact of termination, it should not matter how you are terminated. This is just on the remoteness issue only.

MR HERZFELD: I understand. Even if that is right, for the reason I have already given, that is not a problem, but the findings of the primary judge do not really divide up the facts in the way that your Honour is contemplating.

STEWARD J: The critical finding, really, here is not just a breach of the process but his Honour’s finding that he would not have been dismissed, and that is how on your case you get home.

MR HERZFELD: Well, I think I have said a couple of times that our submissions are the same even without that finding.

STEWARD J: I understand that.

MR HERZFELD: But in the passage to which I took your Honours earlier in the note that screwed up that I have to now unfold to find the paragraph number – 255 – if your Honours turn back to 255 ‑ ‑ ‑

STEWARD J: In the primary judgment?

MR HERZFELD: In the primary judgment. That was the passage I drew attention to. His Honour there said:

not inconsistent with the other evidence to which I have referred –

What his Honour is referring to is paragraph 248 and following and part of that reasoning, part of the evidence – and your Honours will see the primary judge summarising this in 250:

was a quality of acute bewilderment in that evidence: from the beginning, the plaintiff had not been able to understand what had really occurred to him and why.

So, it is not the case on the facts here that the only important thing was the termination. The fact that he was terminated without being told, from his perspective, why – not being able to understand why, is part of causal mix.

GLEESON J: What he was not able to understand was that the allegations that have been put to him appeared to be false.

MR HERZFELD: And he therefore could not understand what had happened. Of course, if the real allegations had been put to him, a different causal path would have been followed. I am just drawing attention to the fact that, unsurprisingly in circumstances like this, one cannot chop up the causally potent things and simply say, it was only the fact of termination. It was termination in breach of these requirements which had the factual consequences that the primary judge found.

JAGOT J: That is expressly found at 243 and 244.

MR HERZFELD: Yes, your Honour is right.

JAGOT J: You do not need to imply.

MR HERZFELD: Your Honour is right. Can we then come to the negligence claim. On that claim, may we emphasise at the outset that the sole ground upon which the claim is now resisted before your Honours is the absence of a relevant duty of care. All other elements of negligence are no longer in controversy. The primary judge found – and it is no longer in controversy following the abandonment of ground 3 of the notice of contention – that the conduct of the respondent was negligent. Your Honours will see that in paragraph 531 of the primary judge’s reasons, and also at paragraph 534 of the primary judge’s reasons.

GORDON J: Can I just ask a couple of questions before we go into the depths of this just so I know what the playing field is. So, there is no dispute that, subject to the establishment of the duty – so, the duty of care that existed was engaged and breached?

MR HERZFELD: Yes.

GORDON J: What is the position in relation to damage? In other words, are the contractual damages that were assessed the same – that is, the primary judge went on to assess them – or is it if he succeeded, would it have to be remitted for assessment?

MR HERZFELD: I think they are the same because, but for the tort, he would not have been ‑ ‑ ‑

GORDON J: Is that common ground between you?

MR HERZFELD: I am not sure if it is common ground. It has not been suggested by the respondent, but it would seem to follow inexorably from the primary judge’s reasons.

GORDON J: Thank you. I should say, I was looking at paragraphs which follow on from the ones you have just identified at 554 and 556, the primary judge’s – you do not have to go to them, Mr Herzfeld, but they are the ones which were dealing with those questions.

MR HERZFELD: Yes. That is part of the primary judge’s analysis rejecting that the damages were too remote in tort, and that is not in issue before your Honours. That is why I say, it seems to follow inexorably, this is not the kind of case where the counterfactual is different from the contract and tort.

GORDON J: I think what he does say at 556 is that there are differences between how remoteness might be assessed in tort and contract. That is why I am asking the question.

MR HERZFELD: Yes. The reason his Honour was, perhaps, saying that is because of the different tests for remoteness, but the question of remoteness in tort is not an issue before your Honours because the respondent did not put that in issue in their notice of contention. So, if duty of care is established, there is no question before your Honours about breach, causation, remoteness, or anything like that.

GORDON J: But damage. The quantification is.

MR HERZFELD: As I say, because the counterfactual would have been the same, but for the tort, he would not have suffered psychiatric illness, and all of the damages are compensation for the psychiatric illness.

GORDON J: I see, thank you.

GAGELER CJ: Mr Herzfeld, I understand this part of the case is put as a claim in tort.

MR HERZFELD: Yes.

GAGELER CJ: Would it be the same sort of analysis if this claim had been put as an implied term of the contract?

MR HERZFELD: It would be the same analysis, but the way it was put below was a claim in tort and that is what we are maintaining.

EDELMAN J: It is different in one fundamental respect, is it not? It is an imposed duty. It is not a Hedley Byrne v Heller assumed tort duty. It is a Tame and Annetts duty; in the same way as it is a duty not to cause physical injury, it is a duty not to cause psychiatric injury.

MR HERZFELD: Yes, but the analysis in this case would be the same because nothing in what I am about to say would turn on that difference. The fact that it is an imposed duty I am going to turn to my advantage a little later, but ‑ ‑ ‑

EDELMAN J: But the analysis is much simpler. It is not the same. The analysis is just the analysis from Tame and Annetts – that the Court recognises that you cannot cause reasonably foreseeable psychiatric injury to someone in the same way as you cannot cause physical injury to someone.

MR HERZFELD: That was how I was going to turn it to my advantage. Because it would be accepted ordinarily as an implied term of the contract in any event, and there is nothing to exclude it here – subject, perhaps, to questions of contractual remoteness and scope of duty – the analysis would be the same. In any event, the fact is that we are putting it only on the basis of a tortious duty.

The primary judge also found that the element of reasonable foreseeability was made out, including in the passages to which your Honour Justice Gleeson directed my attention. There is no contention anymore about reasonable foreseeability because ground 2 of the notice of contention has been abandoned. So, the only question before your Honours is the existence of the duty, and it is really said to be denied on the basis of coherence of difference respects.

Can we firstly address coherence with the common law. Our position is a simple one, which is that an employer has a duty to take reasonable care for the safety of its employees, and that extends to psychiatric injury. There is no reason why the dismissal procedures that an employer sets up should be outside the scope of that duty. If it is necessary to characterise it in this way, it is part of the employer’s duty to ensure that reasonable care is taken to establish a safe system of work for employees, but, as your Honours would know, the heads of safe system of work, safe workplace, and so on, are just aspects of the employer’s overarching duty to take reasonable care for the safety of its employees.

We have extracted in our written submissions basic propositions about the breadth of that duty at paragraph 21, it extends to psychiatric illness, and it extends, of course, beyond the actual workplace to every situation in which the employer is acting in the character of employer. The incoherence manifests in excluding from that duty the system by which the employer considers disciplining and dismissing employees is evidenced starkly by the decision of the Queensland Court of Appeal in Hayes v Queensland [2016] QCA 191; [2017] 1 Qd R 337. Could your Honours take that up, please, it is authorities volume 4, tab 24. It is sufficient for these purposes just to look at the headnote. Your Honours will see that from the first sentence:

The four appellants each sued their employer for damages for psychiatric injuries allegedly sustained as a result of the employer failing to provide adequate support after complaints had been made by co‑workers about them.

The trial judge had summarily dismissed that claim, or found that:

no duty of care was owed –

basically, because it was said, following the cases on which the respondent relies, that no duty of care is owed within the investigation and disciplinary process. The Court of Appeal overturned that conclusion for the reason in holding (1), that:

The law did not preclude finding that a duty of care arose . . . to provide adequate support . . . in the workplace while the investigation of the complaints was otherwise ongoing, so as to avoid psychiatric injury to the employee being investigated.

So, on this view an employer has no duty to ensure a safe system of investigating a complaint, but the employer does have a duty to ensure that the worker that it is investigating has sufficient supports in the workplace to protect them from psychiatric harm that might be caused from that very investigation.

Now, that kind of incoherence is evidenced in another way. The employer owes the duty to those of its employees conducting the investigation, conducting the disciplinary procedure, to ensure that that process does not expose them to psychiatric injury. Yet, on this view, the employer does not owe precisely the same duty to the employee the subject of the procedure when he or she walks into the interview room, and that point can actually be made even sharper.

Suppose employee A is under investigation by employee B, and employee B is considering disciplinary measures. Outside the context of the investigation, the employer owes a duty to employee A to ensure that the systems in the workplace keep employee A safe from bullying or harassment by employee B. But on the respondent’s view, if that bullying or harassment occurs as part of the investigation of employee A, no duty is owed.

May we identify yet further incoherence. Suppose that an employer is liable in negligence to their employee for a psychiatric injury which occurs because of the working conditions to which the employee is subject. That psychiatric injury may be worsened by the process of their dismissal and the employer would be liable for that exacerbation of injury because it all flows from the breach of duty of care for the unsafe workplace. Yet, on the respondent’s case, if the only source of that psychiatric injury is the dismissal process, the employer has no liability.

Further, there may be a real lack of precision as to when any disciplinary process, which is supposedly outside the scope of the employer’s duty, actually begins. Does it cover informal counselling by one more senior employee of a more junior employee? Is it only once you send a warning letter? Is it only when there is notice to the employee of the possibility of dismissal? On the respondent’s case, on those fuzzy distinctions, the existence or nonexistence of the duty of care turns.

Now, that is reminiscent of the, with respect, confusion into which the English cases have fallen because of a view about the scope of Addis and the unfair dismissal legislation in England and how that is to be fitted in with the recognition there of the implied term of mutual trust and confidence. Without going to them, the reasons of Lord Nicholls, particularly in Eastwood v Magnox, show the instability of the line that has been attempted to be drawn there because of the Johnson zone of exclusion, I think it is called. It leads to these incredibly arbitrary distinctions between what is in the dismissal process and what is not.

GORDON J: Does that just mean we have to be very precise about what the scope of the duty is and defining the duty?

MR HERZFELD: With respect, it is an impossible task to do so and exclude, quote, dismissal processes.

BEECH-JONES J: You would have the duty extend to all aspects of the employment relationship.

MR HERZFELD: The disciplinary process is part of the system of work.

BEECH-JONES J: On your view, is any part of the employment relationship not subject to this duty of care?

MR HERZFELD: I am not sure what that might or might not encompass. I cannot answer that question at abstract level.

GORDON J: Because it is an imposed duty, does it depend on the contextual arrangements in which it is being considered?

MR HERZFELD: Yes, because obviously the type of employment might be relevant, for example.

GORDON J: Does that mean we must, in the context of the facts we have before us, be precise about what is the duty?

MR HERZFELD: Yes.

GORDON J: And here, on these facts? And by “these facts”, I mean I include the contextual matters to which we have referred for the last hour or two?

MR HERZFELD: Yes, and so on our case, even if the disciplinary procedures, for example, do not form part of the contract, they would be contextual features which are entirely consistent with the employer owing a duty of care in relation to them, for example.

GORDON J: Is it that duty that you have outlined in paragraph 6 of our outline? At that level of generality?

MR HERZFELD: That is the foundation of the duty, and it needs to be stated no more precisely than it is stated there.

GORDON J: Well, that is a non‑delegable duty to ensure reasonable care is taken. Is that the duty that you would have us identify, and does the “safe system of work” there, to pick up your answer to Justice Beech‑Jones, include every aspect of the employment relationship the subject of that duty, given the facts?

MR HERZFELD: I think the answer is yes, but what I was resisting is that every aspect of the employment relationship is itself a very broad expression.

GORDON J: That is why I am asking. I am trying to put some parameters around it. At the moment we have a non‑delegable duty to ensure that a safe system of work is provided. The safe system of work is said by you, I think, to mean all aspects of the employment relationship.

MR HERZFELD: I think that was what put to me by Justice Beech‑Jones, and what I was putting back was that the process of discipline of a worker, leading to termination, is part of the system of work. The reason I resisted all aspect of the employment relationship is, for example, what bonuses you might get is an aspect of the employment relationship, but that may not properly be regarded as “system of work”. So, to state it at that level of ‑ ‑ ‑

BEECH-JONES J: What is the difference between the reward of the bonus and, as it were, the carrot and the stick of the discipline? Why is one in and why is one out?

MR HERZFELD: The law often in fact draws distinction of that kind and it is not just the difference between carrots and sticks, it is that this is a process directed towards, potentially, termination and, in our submission, that is as much part of the system of work – the disciplinary process – as working out the sequencing of jobs to be done. I am just resisting that every aspect of the employment relationship is necessarily of that kind.

GORDON J: It is a safe system of work.

MR HERZFELD: Of course. And so, that in itself gives some parameters, but I do not accept that substituting “safe system of work” for all aspects of the employment relationship is a like for like substitution.

EDELMAN J: I do not understand that submission. I do not actually understand what the duty is that you are proposing. If, in simple terms, the duty is the ordinary non‑delegable duty to provide a safe system of work which, of its nature, includes a system of work that does not cause physical injury – and you would say psychiatric injury – why does one then descend to the detail of whether it involves bonus or not bonuses, or termination, or other aspects of the system of work, if it is reasonably foreseeable that the consequences of a breach of the obligations leads to psychiatric injury? How can you draw those distinctions?

MR HERZFELD: I accept everything your Honour says. Perhaps my example was a bad one. I was just not accepting what Justice Beech‑Jones put to me of all aspects of the employment relationship, in part because of the control mechanisms that your Honour has just identified. It has to be reasonably foreseeable that the conduct might affect the physical safety, including psychiatric, of the employees. And there may be aspects of the employment relationship which just do not satisfy that. Whether bonuses do or do not, it does not fall to be decided in this case. Maybe it was a bad example, but I just was resisting the substitution for what is an accepted area of duty for a potentially much more unfocused description.

BEECH‑JONES J: Mr Herzfeld, I was just ruminating about coherence. So, when we are at the pointy end of the exercise of a power adverse to the employee, how a duty would work in those circumstances – that is the concern I was raising, and you will no doubt address it as you go.

MR HERZFELD: I understand. The answer to it – and this case is a good example – is in accordance with the usual control mechanisms in a negligence case – reasonable foreseeability – and then, ultimately, what was reasonable conduct in the circumstances – that is, non‑negligent conduct in the circumstances. And that may be informed by contextual matters such as the ones that I addressed in the exchange with Justice Gordon. But it is all ultimately just a question of what is reasonable in the circumstances.

In this particular case, following the disciplinary processes would seem a pretty good guide as to what was not negligent. It may be that not all departures from a disciplinary process would be negligent. The finding here was that the egregious nature of the departures was negligent. So, the answer to your Honour Justice Beech‑Jones’ question is the usual question of reasonable conduct in the circumstances.

BEECH‑JONES J: Maybe the answer is obvious but the difference between this and Sullivan v Moody – not an employment case, but the duty was found to be incoherent with the power investigation. What is the difference in that sense?

MR HERZFELD: It was found to be incoherent with the statutory scheme, which set up the power of investigation, where the interests of the child were to be paramount, and you therefore could not take into account the interests of the person being investigated. The statutory incoherence pointed to here is the unfair dismissal regime, but we accept – and I am going to come to this – that a statutory regime may be inconsistent with the duty, depending on the circumstances.

But the mere fact that you are undergoing an investigation process, or a disciplinary process, is not sufficient to mean there is incoherence, and Sullivan v Moody did not turn on that narrow proposition. That does take me to what I wanted to say about coherence with statute.

We accept that there are cases where a statutory scheme may be inconsistent with the duty for which we contend, and to demonstrate that, would your Honours take up the decision of the New South Wales Court of Appeal in NSW v Paige [2002] NSWCA 235; 60 NSWLR 371, volume 4 of the authorities, tab 28. If your Honours turn to paragraph 1 in the reasons of Chief Justice Spiegelman, your Honours can see what the case was about. It was success:

in a claim in negligence with respect to psychological damage he suffered as a result of the manner in which he as dismissed as the principal of a public high school in Sydney.

Those facts are highly significant, and they are significant because the employment was by the State, and pursuant to statute. Your Honours can see the quite detailed statutory scheme described from paragraphs 52 and following, and your Honours will notice that there were statutory provisions – particularly at paragraphs 58 to 62 – regulating breaches of discipline, laying of charges, and punishment for breaches of discipline – and in paragraph 69 as well.

One can readily see why, in light of that detailed statutory scheme – where the steps would, of course, have been subject also to judicial review, because statute employment by the Crown – one might not recognise a duty of care. That was, indeed, a critical feature of Chief Justice Spiegelman’s reasoning. Your Honours will see that from paragraphs 97 down to 131, all of that reasoning concerned features specific to the particular legislative regime about employing teachers in the public school system. Then from 156 to 177, all of his Honour’s reasoning as focussed on the fact that steps under the statute would be subject to administrative law remedies.

All of that reasoning may well have sustained the conclusion in the case, but, of course, none is applicable here. The only part of the reasoning that was applicable is in the middle paragraphs that I skipped over – that is, 132 to 155 – concerning the more general analysis that his Honour undertook in those paragraphs concerning the existence of an unfair dismissal regime. That was a State unfair dismissal regime, but as his Honour pointed out, the federal unfair dismissal regime had similar features.

In our submission, that – which, we accept, is a more generally applicable feature – is an insufficient foundation upon which to impose an artificial and incoherent limit upon the employer’s ordinary duty of care, and we say that for six reasons.

The first is that no one suggests that the unfair dismissal regime precludes an action by an employee for breach of contract by wrongful termination, and that is a manifestation of the fact that the regime was intended to supply an additional remedy to some employees even in cases where there is no breach of contract. It was not an exhaustive remedy where there was breach of some other legal obligation.

Indeed, without going to it, section 725 and 732 of the Fair Work Act expressly contemplate that a person may have other rights in addition to the unfair dismissal regime. So, as an immediate proposition, there is no reason then that the unfair dismissal regime should be thought to be exhaustive of rights in tort. It is not exhaustive of rights in contract. That immediately suggests it is not an exhaustive scheme. That is the first point.,

The second point is that the unfair dismissal regime is only engaged where there has been a dismissal, yet the duty of the employer to provide a safe system of work, including in relation to discipline, is more general than this. Steps might be taken by an employer to investigate a complaint which may or may not lead to dismissal. It cannot be the case that, whether there is a duty earlier in the process depends on whether there is a dismissal at the end of it. One has to know at the time whether there is a duty. Yet, the unfair dismissal regime would only preclude a duty in cases of dismissal – the second point.

The third point is that the unfair dismissal regime only applies to certain employees. We have given your Honours the references in footnote 50 of our written submissions to the provisions of the Fair Work Act, about which your Honour Justice Steward asked me at the outset, which show that it applies only to employees who have completed minimum periods of employment and are covered by a modern award or enterprise agreement or who own less than the regulated income threshold, which at the moment I think stands at about $175,000 with indexing.

Now, we accept that that demonstrates that the unfair dismissal regime should not be available to other employees, but it goes too far to say that this means no legal regime – relevantly, the law of tort – should regulate the negligent dismissal of other employees, because that is the effect of the respondent’s argument, that is, to create two classes of employees, to pick up what your Honour Justice Gordon raised with me earlier: those who have access to the unfair dismissal regime and therefore have the protection of that regime and nothing else for dismissal, and other employees who will have no protection at all from the law of tort in relation to dismissal.

The fourth point is that the position is not altered by the terms of section 392 of the Fair Work Act, which is conveniently set out with the explanatory memorandum in the primary judge’s reasons. Would your Honours take that up, please, at core appeal book page 136. This was also a matter your Honour Justice Steward asked me about. Your Honours will see down the bottom of 136, his Honour extracts section 392(4), that:

The amount ordered by the FWC [Fair Work Commission] to be paid –

that is, for unfair dismissal:

must not include a component by way of compensation for shock, distress or humiliation, or other analogous hurt, caused to the person by the manner of the person’s dismissal.

The explanatory memorandum is over the page. It is said to reflect:

the common law position that shock, distress or humiliation resulting from the dismissal is not compensable –

Addis and Baltic Shipping are cited. May we make two points about it. The first is that what was excluded is not compensation for psychiatric injury. What is excluded is compensation for “shock, distress or humiliation”, or other analogous tort caused to the person by the manner of the person’s dismissal. So, not psychiatric injury and not psychiatric injury resulting, not just from the manner, but also from the termination itself.

That is consistent with the fact that neither Addis nor Baltic Shipping dealt with psychiatric injury. As I have already shown your Honours, those cases are about what it says in the explanatory memorandum – mere shock, distress, humiliation. It does not say anything at all about psychiatric injury.

STEWARD J: “Analogous hurt” might.

MR HERZFELD: We would not accept that. “Analogous hurt”, in the sense of a recognised psychiatric injury, is not analogous to shock, distress or humiliation – that is getting at things like inconvenience. Those words are not apt to describe a recognised psychiatric injury which is just a form of recognised physical injury. That is the first point.

GAGELER CJ: It sits a little uncomfortably with your earlier submissions about remoteness, does it not, where you said it was all a matter of degree?

MR HERZFELD: I did. But I accept, in the first part of my submissions, that psychiatric injury, for the purposes of compensable harm, is different to mere inconvenience or mere shock. When one is dealing with remoteness, one is dealing with quite a different question. That is, is the severity to an unanticipated degree of an injury of the same kind? It does not mean it is an analogous hurt, particularly given where the context here is not about remoteness, it is about exclusion from what would otherwise be the recovery.

So, our first point is that, in our submission, 392(4) does not deal with psychiatric injury at all. The second point is that whatever 392(4) excludes, it is an exclusion only from the unfair dismissal regime itself. It is an insufficient foundation, in light of the first three points that we have made, to say that no employee can recover damages for psychiatric injury in tort for a failure of an employer to take reasonable care to provide a safe system of work.

The fifth point is that the primary judge, himself, identified a number of reasons why there is no incoherence. If your Honours look from paragraphs 485 of the primary judge’s reasons, over to 488. His Honour identified a number of sound, practical considerations as to why there is quite a difference between recovery for psychiatric injury and recovery for whatever the unfair dismissal regime covers – that is 485 to 488.

STEWARD J: Did his Honour not feel bound by Paige?

MR HERZFELD: His Honour did, and your Honours will see that, ultimately, in his Honour’s conclusion. But his Honour ventured some – your Honour will see that at 529, particularly.

STEWARD J: Thank you.

MR HERZFELD: I feel like I must follow Aldersea, which was another case. So, his Honour did feel bound by Paige, but I said it was with evident misgivings, and paragraphs 485 to 488 are part of the reasons which demonstrate those misgivings, and they are sound reasons to show there is no incoherence.

The sixth and final point we make is that we have identified in our written submissions at paragraph 54 some rather more specific reasons why Johnson v Unisys – which is, of course, the English case which Paige relied on – can be distinguished. But, quite apart from those specific reasons which turn on differences between the unfair dismissal regime in England and its much more comprehensive nature, the first five reasons we have given show that the conclusion adopted in that case should not be adopted here. A further reason for that is the real incoherence into which the English cases have fallen as a result of attempting to exclude from recovery actions which involve wrongful dismissal, and I have referred to that incoherence earlier. The fact of that incoherence rather suggests that it is a wrong attempt to carve out that category of case.

Nothing in the submissions that I have just made is controverted by the outcome or the reasoning of this Court in Commonwealth of Australia v Barker. Would your Honours take that up, please ‑ ‑ ‑

STEWARD J: Just before you go there, what do you say is the error in Chief Justice Spigelman’s reasons, particularly at paragraphs 154 and 155, where his Honour refers to the:

particular and carefully calibrated balancing of the conflicting interests –

and that expansion of tort law:

may distort the balance –

and therefore:

the courts should refrain from –

Do you accept that it may distort? He did not say it would distort.

MR HERZFELD: That proposition is correct, but to reason from that that that is intended to be an exhaustive regime is the flaw in the reasoning.

STEWARD J: So, we would overrule Paige to that extent?

MR HERZFELD: As I said, the outcome in Paige may well have been correct because of the other features of Paige – employment by the Crown, heavily regulated, specific statute about education appointments – but to the extent that Paige reasoned that the existence of an unfair dismissal regime should be a reason not to recognise that the safe system of work extends to processes of dismissal and termination, yes, your Honours should say that Paige is not correct.

GORDON J: I had understood your submission about Paige was that nothing but 132 to 155 was applicable to the facts here, and that alone was an insufficient basis because it was dealing with the federal Fair Work regime.

MR HERZFELD: That is so.

GORDON J: Is that any different to what was put before by you?

MR HERZFELD: No, it is exactly the same as what I just said to Justice Steward: it is possible the outcome in Paige can be defended in light of the other paragraphs.

I should deal finally with Barker [2014] HCA 32; 253 CLR 169. If your Honours would take that up, it is volume 2, tab 14. The argument there was that there is implied in all employment contracts a term of mutual trust and confidence. Your Honours can see in the joint reasons of three members of the Court, at paragraph 20, one of the reasons that was rejected – and it was because it was said that:

A judicial announcement of an obligation . . . to be applied as an incident of employment contracts –

was an assumption:

of a regulatory function defined by reference to a broadly framed normative standard.

Some are familiar, and was included:

“reasonableness” “good faith” and “unconscionability”. However, the creation of a new standard of that kind is not a step to be taken lightly.

That is true in relation to the implication of a new term, but what we contend for is simply the negligence standard, reasonableness, and that is a standard which has already, as their Honours said, been accepted in the law. The issue in Barker was the creation of a whole new standard, which is not what is in issue here.

GORDON J: Is another way of putting it that what you seek here is no more of a specification of the non‑delegable duty to provide a safe system of work? So, all one is doing is giving some meat on the bones of what is a safe system of a work.

MR HERZFELD: It is. It is accepting that these processes are an aspect of a safe system of work, which is an already‑recognised non‑delegable duty. If your Honours then look at paragraph 36 of the reasons, in the second‑last line on the page, going over to the following line, their Honours correctly explain that to recognise an implied term ‑ ‑ ‑

STEWARD J: Paragraph 36?

MR HERZFELD: It is paragraph 36. To recognise an implied term generally would have to satisfy a test of necessity, and that is true for the recognition of a new implied term. It is not true in order simply to recognise the scope of the duty to provide a safe system of work.

Paragraph 40 refers to the “complex policy considerations” which marked it as a matter more appropriate for the legislature than the courts to determine. That has some more application in the present circumstances, but has to be read in light of all of the earlier reasons, which set up a much higher hurdle than the one we have to meet in this case. That is then the context for the reasons of Justice Kiefel and your Honour the Chief Justice, which placed emphasis on the existence of the unfair dismissal regime. For example, in your Honour the Chief Justice’s reasons at paragraph 118, your Honour referred to the intersection of the law of unfair dismissal and what the implied term would introduce into that regulated area.

All of those reasons have to be read in the context of the task that the Court was being asked to perform there, which was to recognise a whole new implied term with a hitherto unknown standard. Quite a different thing here. We simply say that the Court should recognise that the safe system of work extends to what we say, and anything else is an artificial limitation which this Court should abandon.

Your Honours, the final point which I think I skipped over was the suggestion that there is some incoherence with contract in recognition of the duty for which we contend. That is not so. If the tortious duty of care can be limited by contract, then the parties can do that. There may be a large question about the extent to which an employment contract can limit the employer’s non‑delegable duty of care.

If it cannot, then no question of incoherence with the law of contract arises, precisely because the tortious duty of care stands apart from the contract for the reasons that your Honour Justice Edelman raised with me and are present in Kozarov, that is, it is a duty which is imposed by the law. It is not independent of the contract because it is shaped, for example, by what the job is that you are doing. But the tortious duty may be breached even if the contractual terms are not. An employment contract may simply say nothing about dismissal procedures, so there may be no contractual breach if an employer negligently fails to comply with reasonable dismissal procedures, but there would undoubtedly be a tort.

So, even if the provisions on which we rely do not form part of the contract, there would be no incoherence in recognition a tortious duty of care. Of course, the fact that they exist, even if they are not part of the contract, is part of the context in which the duty of care would be recognised, as I said to your Honour Justice Gordon. There is no incoherence raised between contract and tort in the argument we make concerning a duty of care.

Subject to any questions from your Honours, those are oral submissions.

GAGELER CJ: Thank you, Mr Herzfeld. Mr O’Grady.

MR O’GRADY: Thank you, your Honour. Perhaps contrary to the terms of our outline of oral submissions, given the discussion in relation to remoteness, I might take the opportunity over the lunch break to consider our response to a number of the matters that have been raised in the course of the discussion with Mr Herzfeld this morning. I might start with Addis and return to that after lunch.

I will invite the Court to turn up Addis, which is in the joint bundle of authorities in volume 3 at page 611 of the bundle. Having been taken to it, I will go straight to the starting point, which is the uncertainty around which the award of damages at trial was intended to cover. It was a jury trial. The charge is not disclosed in the report or in the headnote of the report. If one goes to page 490 of the report in Lord Loreburn’s opinion, you will see there at about point 7 of the page, the sentence:

A further controversy ensued –

What his Lordship is there doing is seeking in the face of this uncertainty to identify what the heads of damage were:

the abrupt and oppressive way in which the plaintiff’s services were discontinued, and the loss he sustained from the discredit thus thrown upon him.

and whether those:

damages could be recovered in law.

Prior to that, the Court refers to salary for the six months, which would be the award for wrongful dismissal. We say there are three aspects which were in play, if you like.

What his Honour then does is seeks to cater for both contingencies. The contingency whereby the award of damages is for wrongful dismissal, or alternatively, where the award of damages is for something other than wrongful dismissal. Some other form of breach. Of course, back in 1909, the concept of constructive dismissal had not arisen. In fact, the trust and confidence term is something that was made available as a vehicle, if you like, in the United Kingdom statutory scheme to help establish the existence of a dismissal to create unfair dismissal rights.

His Honour is dealing with both wrongful dismissal and a non‑wrongful dismissal scenario, and what his Honour, we say, is suggesting in the paragraph at the top of 614, when he says:

I cannot agree that the manner of dismissal affects these damages.

is a reference back to what appears at the bottom of page 489 and the top of 490, which is this issue: there has been a breach of contract; the only question is whether or not there has been a wrongful dismissal. What his Honour is saying is if it is within the manner of dismissal, it is excluded. That is what we say is the first aspect of Addis. That deals with the whole case.

EDELMAN J: How does that fit with the statement at the bottom of 490, that:

To my mind it signifies nothing in the present case whether the claim is to be treated as for wrongful dismissal or not.

MR O’GRADY: Because the damages, the alternative, which is the injured feelings, damage to reputation, et cetera, is covered by the scenario where there is no wrongful dismissal, but the breach otherwise gives rise to a claim for damages – compensatory damages – for the injured feelings or for the stigma or damage to reputation.

BEECH‑JONES J: Mr O’Grady, at the bottom of that page, the identified breach is said to be:

not allowing the plaintiff to perform his duties as manager –

And that is consistent with the top of page 490, where it was a denial:

of the plaintiff’s right to act as manager during the six months –

Is this not saying anything more than the damages for that, which are identified at the top of 491, are not affected by the manner in which he was dismissed – that is, the compensation for that lost right is not affected by the manner in which he was dismissed. Or am I wrong about that?

MR O’GRADY: We would suggest it was the flip‑side, that you do not get it either way. Whether there is a wrongful dismissal or not, you do not get it because it fits within the second or third aspects of the rule of Addis. But I am not sure if there is a wrongful dismissal. I need to deal with that part of the case. That is the view that his Lordship took.

GORDON J: I just wondered whether – we are trying to analyse reasons, but if you take the question asked by Justice Beech‑Jones in relation to the bottom 490 and the top of 491, are the next two paragraphs not dealing with the second form, that is, dismissal? So, one is dealing with the claim which is described before as salary for six months, and then the second is dealing with the second aspect.

MR O’GRADY: Well, looking at the first five or six lines of 491, his Honour seems to be dealing there with the injured feelings and stigma aspects in a non‑wrongful dismissal scenario, because, on our interpretation of his Lordship’s opinion, the prohibition on damages for injured feelings or stigma is not confined to the dismissal context, it is both inside and outside the dismissal context.

What his Honour does is deals with that scenario first and says, well, the manner of dismissal does not affect that because you cannot get those heads of damage. But if there be a dismissal, there is a broad prohibition on damages for the manner of dismissal. That is what he is saying in the next line:

If there be a dismissal –

That is what the indemnity is limited to.

GLEESON J: But is that not in the context that there is really no contemplation in this case of the possibility that manner of dismissal might effect a psychiatric injury?

MR O’GRADY: Well, clearly there was no claim for psychiatric harm, and, in fact, it might be said the only true heads of damage were the injured feelings and the stigma, but that is not the way the case has been later interpreted.

GAGELER CJ: I mean, it is something slightly artificial not just in your argument but in the argument against you about going back to one of these iconic early cases, given that there is so much interpretation of ‑ ‑ ‑

MR O’GRADY: It might be said, your Honour, we are glad it is your problem, because it is a great difficulty. This case has caused a great deal of difficulty over a long period now, and we are at the interface of that difficulty here.

GORDON J: So, can I ask – but what is the interface? The interface is a change in the employment relationship? So, not only is it old in the sense it is 1909 and it is dealing with us trying to interpret what it stands for, but it is then the translation of it.

MR O’GRADY: I was interested in the exchange between your Honour and Mr Herzfeld around this issue of the change in the employment relationship. After lunch, I will take the Court to passages from Barker and other cases which do not give much support to that proposition that the starting point, being that the nature of the change in the relationship, might actually be related to the onset of such broad statutory remedies and, really, the common law – at least in Australia – still regards the employment relationship as essentially one of contract akin to commercial contracts – Rossato, Personnel Contracting, Jamsek, those sorts of cases. We have included in our written submissions a reference to passages from those three cases and from Barker as well, which do not give much support to the proposition of what might be identified as non‑contractual expectations informing the construction of contractual terms.

GORDON J: Would you go so far as to accept that the environment in which Addis was decided is radically different from the environment in which ‑ ‑ ‑

MR O’GRADY: I cannot quibble with that, your Honour.

GORDON J: And by “environment”, I mean not only change in relation between employer and employee, but it is a different statutory framework. There are a whole range of other things which make it ‑ ‑ ‑

MR O’GRADY: Most particularly in Australia. There is a vastly different statutory framework, and that is part of the exercise in having to manage what is the scope of availability of damages in the current world, if you like. So, we say the way in which the respondent urges the Court to look at Addis is consistent with the way in which it has actually been interpreted in some subsequent cases, like Johnson, Eastwood, Edwards – which I will come to – Paige ‑ ‑ ‑

GAGELER CJ: Which is the clearest statement of the principle that you say emerges from Addis, taken from a subsequent authority?

MR O’GRADY: I think, perhaps, Lord Nicholls in Eastwood. If I can just dig that up, it is in the same volume.

EDELMAN J: Tab 20.

MR O’GRADY: Volume 3, page 738, paragraphs 1 and 2. In paragraph 1, his Honour sets out what we say is the first aspect of the principle in Addis:

not entitled to recover damages in respect of the “manner of his dismissal”.

Then, at paragraph 2 – and this is a significant part of our submission concerning the chronology and the way in which the law has developed – that was still regarded as settled law when the Donovan Report was handed down in 1968 in the United Kingdom. The Donovan Report – and I will give you the passages where the relevant extracts from the Report are quoted in both Eastwood and in Edwards – was the report that recommended the establishment of the statutory unfair dismissal jurisdiction or the statutory unfair dismissal code in the United Kingdom.

GAGELER CJ: Just before you get to that, understanding the holding in Addis in that way, it is independent of the head of damages that is sought, I understand. It is all about what gives rise to the claim for breach of contract.

MR O’GRADY: Exactly. And when I get to it, of course, Johnson, Eastwood, Edwards deal with the question that arises from her Honour Justice Gleeson – well, Addis was not a case about psychiatric harm. It could not have been. But those cases look at the principle in Addis taking on board the developments and the changes since then, perhaps sympathetic to her Honour Justice Gordon’s comment, and says, well, it must account for damages for psychiatric harm arising from the dismissal.

That is what Eastwood and Johnson stand for. On the facts, they were both strike‑out cases. On the facts, the claims in Eastwood were found not to be precluded from going forward, because the relevant events were found not to be associated with the manner of dismissal, but in Johnson and Edwards they were. I will say something about where the line is drawn – perhaps after lunch, by the time I get to it.

Now, in the case of Edwards – which is in the same volume of the bundle of authorities commencing at page 755 – Lord Dyson raises the point in the context of implied terms at paragraph 2. This is on page 763 of the bundle. As a basic proposition, what the respondent says is that what has come to be known as the Johnson exclusion zone is essentially a modern day first aspect of the rule in Addis. So, Lord Dyson, with whom Lord Walker agrees – and also Lord Mance at paragraph 89 also agrees with the opinion of Lord Dyson.

If one then goes to paragraph 21, you will see that Lord Dyson picks up the passage from Lord Nicholls in Eastwood which I took the Court to. I should say, in Eastwood, three other members of the House of Lords agreed with Lord Nicholls. At paragraph 21 in Edwards, after giving an account of the relevant aspects of the Donovan Report and its specific reference to Addis, Lord Dyson restates the proposition that:

by the time of the Donovan Report, it was “settled law” that an employee was not entitled to recover damages in respect of the “manner of his dismissal”.

Those are the clearest iterations of the statement of what we call the first aspect of the rule in Addis, your Honour.

GAGELER CJ: Thank you.

BEECH‑JONES J: In this country, has anyone taken it to that point?

MR O’GRADY: I will dig out specific references, but we would say the same in Paige, as well. It is more their addressing there, of course, what is the Johnson exclusion zone, by that stage, addressing the unfair dismissal rule, but it has its origins in Addis. I would have to check the reasons of the Chief Justice in Paige, but I think there is something said there. We will dig that out over lunchtime for your Honour.

GAGELER CJ: Is there a policy justification for that rule?

MR O’GRADY: In essence, it is knowing the potential exposure in the event of termination and contrary to the terms of the contract, a certainty of outcome in the event that one defaults by dismissing someone in a manner which is wrongful.

EDELMAN J: Is that to say no more than it is the parties, effectively, contemplating that this type of recovery of damages would be beyond the scope of their agreement?

MR O’GRADY: It is the law saying the parties would be of that view.

EDELMAN J: The law always says what the parties reasonably contemplate. It is an objective test, but the difficulty is that objective test has been developed in an environment where circumstances were very different.

GLEESON J: Is that contemplation to be taken to be a reflection of the de minimis harm that would be suffered, or that the parties would be taken to accept the risk of this kind of harm, or is it something else?

MR O’GRADY: I think it is probably both, your Honour. The common law in relation to termination, of course, does not – if you like, the harshness of the common law is the very reason the unfair dismissal jurisdiction was introduced. The common law permits an employer to terminate the employment, even if doing so is capricious or arbitrary. Malloch v Aberdeen is authority for that proposition in the United Kingdom. At least there is Court of Appeal authority in Victoria for the same proposition – a case of Intico v Walmsley. So, it may well be a bit of both.

BEECH-JONES J: As expressed, that rule would prevent recovery of any damages for breach of express contractual terms governing the manner of dismissal, is that right?

MR O’GRADY: That is correct, and that is exactly what was found in Edwards, your Honour.

BEECH-JONES J: Just to be clear, the basis for that rule – it is a freestanding rule of law – is that what it has become – not tied to any aspect of otherwise contractual theory, or remoteness, or causation?

MR O’GRADY: No, because it attaches to the relief. It is limiting the damages.

GORDON J: Can we just pick up your answer you just gave to Justice Beech‑Jones? Is it truly limited just to the relief and limiting the damages?

MR O’GRADY: I would say the rule in Addis, yes. You may have picked up in our outline of oral submissions, we also seek assistance from Edwards in relation to our construction point, which I will come to after lunch, about the objective intent of the parties.

GORDON J: When you were asked by the Chief Justice for the policy justification for the rule, you said – according to my notes – something like knowing the potential exposure in the event of a termination contrary to the term of the contract gives you a certainty of outcome.

MR O’GRADY: Yes.

GORDON J: Does that mean that I am entitled to terminate and whatever happens, happens, even if it is in breach of contract – I am not liable for damages for psychiatric injury, by reference to the manner of the exercise of the termination?

MR O’GRADY: Yes.

GORDON J: What do I get damages for? What am I liable for?

MR O’GRADY: You can get damages for the financial loss directly arising from the breach, and traditionally that has been calculated on the basis of the loss of income through the relevant notice period, which came up in Addis, and the loss of opportunity to earn commissions. You will recall Mr Herzfeld advising the Court that the additional amount was more than what the successor had earned by way of commissions at that point in time, because the assessment of the loss was what ‑ ‑ ‑

GORDON J: What he would have earned.

MR O’GRADY: ‑ ‑ ‑ he would have been expected to have received over that period of time, your Honour.

BEECH‑JONES J: So, that is financial loss for the fact of the dismissal, but you would not get financial loss for the manner of the dismissal.

MR O’GRADY: That is correct, your Honour.

GAGELER CJ: Is that a convenient time?

MR O’GRADY: It is, your Honour. Thank you.

GAGELER CJ: The Court will take the luncheon adjournment.

AT 12.44 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

GAGELER CJ: Mr O’Grady.

MR O’GRADY: Thank you, your Honour. Can I just mention one thing by way of embellishment upon the exchange between myself and Justice Gordon. I mentioned various passages from various cases. Footnotes 30 and 31 of our written case identify those passages from Personnel Contracting and also some comments from Justice Jessup, who was in dissent in Barker at the Full Court level but, of course, his reasons were admired by the High Court on appeal. I can add to that, Rossato – I can get the citations, but these are well‑known, recent cases – Rossato at 63 and Jamsec, which was the other case about who is an “employee”, at 51.

GORDON J: Thank you very much.

MR O’GRADY: Thank you, your Honour. Where I was at just before the break were the passages in response to your Honour the Chief Justice asking me about the first aspect of the rule in Addis. The next passage I was going to go to, I do not need to, now, I will just give you the paragraph – it is 43 in Edwards.

Can I return to our account of the second and third aspects to the rule in Addis – the second being the injured feelings and the third being stigma. We say, in relation to the second aspect, the prohibition is on injured feelings both inside and outside the dismissal context. It is that field, if you like, which has been eroded over time by various decisions concerning contracts with the object of enjoyment and the like – the travel cases – and that is what came up in Baltic Shipping.

There have since been a series of cases in the United Kingdom around the depth of a swimming pool – I think it was Ruxley – and the proximity of the house to an airport, and things like that, where the object of the contract is to confer enjoyment or freedom from molestation; Watts v Morrow was a 2002 House of Lords decision which identifies that principle and the exceptions. That is not something that this Court needs to be troubled about because it deals, on our view of the case, only with the second aspect of the rule in Addis.

The third aspect is the stigma damages. We say that the prohibition extends both within and outside the dismissal context. Outside the dismissal context, of course, the main authority in the United Kingdom is Malik’s Case: that is a case that went to the House of Lords on agreed facts. One of those agreed facts was that the employer, the Bank of Credit and Commerce of India, was run as a corrupt operation; and the stigma that the employee sought to address by way of a claim for damages was that as a result of being associated with the conduct of a corrupt business, there was a breach of the implied terms to trust and confidence, and therefore they should be compensated. That case was allowed to go forward, but it then went down the path of the difficulties in establishing causation, remoteness and things like that.

GAGELER CJ: So, you say there are three principles that come out of that one case, and we are only concerned with the first of those principles here?

MR O’GRADY: We are only concerned with the first. That is correct.

EDELMAN J: Except the second and the third have been eroded, but you say that the first should not be eroded?

MR O’GRADY: The second and the third have been eroded on authorities, but the first, we say, your Honour, has withstood any concern. This is where we get to the House of Lords in Johnson and Eastwood. They considered it, but, of course, by then events had developed, and on the basis of the Donovan Report a whole statutory unfair dismissal code had been established, and the House of Lords was just not prepared to go there on the first aspect of the rule of Addis.

EDELMAN J: This is really the last issue though, is it not? This is really the issue of whether or not statute has effectively covered the field to preclude any development in the common law.

MR O’GRADY: Yes, and the United Kingdom House of Lords is of the view that it has, and I will take you to the passages that deal with that.

GORDON J: Will you deal with the differences between what is in England and what is here?

MR O’GRADY: We will, but they are, for all intents and purposes, almost identical.

STEWARD J: Or different statutory solutions to the same problem?

MR O’GRADY: Application of different policy considerations, I suppose, your Honour, to formulate the statutory provisions to address the problem. So, the problem has the same source, the statutory solution is a policy choice of the Parliament of the jurisdiction. Yes, there will be subtle differences, but if you line up the analysis of Chief Justice Spiegelman in Paige of the position in the United Kingdom with the position in Australia, you will see that the very limitations on the provisions in the legislation in the United Kingdom find their way into Australian legislation – and we have identified, actually, a couple of others as well which support our position.

GLEESON J: And you are saying that the problem is uncertainty? The problem to be solved? I thought you said before lunch that that ‑ ‑ ‑

MR O’GRADY: In Addis, yes.

GLEESON J: But by the statutory regimes – what was the problem to be solved?

MR O’GRADY: The harshness of the way in which the common law operates, because of Addis and a case I mentioned earlier, Malloch v Aberdeen and the like.

BEECH‑JONES J: And just in terms of Australia adopting what you have described as the first rule of Addis, I think you nominated Paige.

MR O’GRADY: I did, your Honour. Paige at 133.

BEECH‑JONES J: I do not want to take you off the course of your argument, Mr O’Grady.

MR O’GRADY: No, that is okay, I am happy to go straight to that, and I am grateful to – sorry, can I come back to that?

BEECH‑JONES J: Yes, certainly.

MR O’GRADY: There was one other thing I wanted to mention about the third aspect of the rule in Addis, that is, I need to mention an authority which is in the bundle – but I do not need to take you to it. That is a decision of the New South Wales Court of Appeal in Shaw v New South Wales, volume 4 of the joint bundle, tab 32 at page 1339. That was a five‑member New South Wales Court of Appeal in February 2012, therefore prior to the High Court’s decision in Barker, to the effect that the trust and confidence term was not part of the law of Australia.

The matter was only a few months after the United Kingdom Supreme Court decision in Edwards, which I was taking the Court to just before lunch. Edwards was not cited in this New South Wales Court of Appeal decision in Shaw. Shaw applied Paige to strike out the claim for damages in tort – again, it was another strike‑out case – but refused to strike out the stigma damages claim based on what we say is the third aspect in the rule in Addis, allowing it to proceed on the basis that, of course, it was not obviously untenable at that time due to the prevailing authority of Malik’s Case. In Australia, it is prior to the High Court determining that trust and confidence is not part of the Australian law. So, we say that Shaw would be decided differently post‑Barker.

I just want to then deal with Paige. I am grateful to your Honour Justice Beech‑Jones. The relevant paragraph is paragraph 133, which in essence says that – it is volume 4 at page 1219, I am afraid I do not have the tab number in my notes.

GORDON J: It is tab 28.

MR O’GRADY: Thank you, your Honour. It is the first sentence:

In the context of contracts of employment, Addis v Gramophone Co Ltd [1909] AC 488 has long been cited as authority against recovery of damages for the manner of dismissal.

And I dare not take you to this passage without addressing the next sentence, which Mr Herzfeld is leaping off his chair to tell me to do. I can assure Mr Herzfeld I was going to do that anyway. The next sentence is, of course:

That restriction would not apply where there is physical injury.

Citing Baltic Shipping. Baltic Shipping, of course, was not a dismissal case. Baltic Shipping deals with the second aspect of Addis – and, yes, we accept that our submission to the Court of Appeal on the application of the second aspect of Addis, we, to be quite frank, overlooked footnote (95) in Baltic Shipping and thought that Justice McHugh was one out.

We accept that one can get parasitic damages for injured feelings where there is a breach giving rise to psychiatric injury as part of the analysis in Baltic Shipping, which talks about physical injury also including psychiatric injury, but that is as far as it goes. The first aspect of the rule in Addis deals with manner of dismissal, Baltic Shipping does not.

EDELMAN J: I am not sure Baltic Shipping treats physical injury as parasitic.

MR O’GRADY: No, it is the – the question was the availability of damages for injured feelings being parasitic on physical injury.

EDELMAN J: But if you are dealing with psychiatric injury rather than injured feelings, then that would fall within or that would be the head of damages itself – it is a type of personal injury.

MR O’GRADY: We accept that, but Baltic Shipping was dealing with – it might sound a little unusual – only the injured feelings aspect of the claim.

EDELMAN J: Yes.

MR O’GRADY: The psychiatric injury aspect of the claim was the subject of an award of damages which was not in issue when the case came before the High Court. The final mentioned – I am sorry, your Honour.

BEECH‑JONES J: The way Chief Justice Spigelman has expressed that is that the second sentence appears to be a carve‑out from the first, so that is the first rule, as you would characterise it, from Addis, is qualified, the way it is expressed.

MR O’GRADY: Well, if that is the way you interpret that, we say that is wrong, for the reasons I have just said.

BEECH‑JONES J: I see.

MR O’GRADY: Yes.

GAGELER CJ: I just want to be clear, you are accepting, I think, that psychiatric injury can be a head of damages, or head of damage in a claim for a breach of an employment contract.

MR O’GRADY: Yes, an occupational health and safety term. Nikolich is an example of that, but we distinguish Nikolich because it is not a manner of dismissal case.

GAGELER CJ: So, all of your eggs are in the one basket of manner of dismissal?

MR O’GRADY: Yes. I have to accept that.

STEWARD J: Do I read paragraph 133 as Chief Justice Spigelman saying that the exception to physical injury would not arise for psychiatric injuries arising from dismissal?

MR O’GRADY: I think that is right, your Honour, at that point in time, that is what his Honour was saying.

STEWARD J: But you do not think that is right anymore?

MR O’GRADY: We have to accept, on the basis of what I had said about Baltic Shipping, and footnote (95) ‑ ‑ ‑

STEWARD J: Yes, all right.

MR O’GRADY: That concession was made in our written submissions. Finally – again, I do not need to take you to this – but in Barker’s Case, Justice Kiefel at paragraph 71, by reference to Malik’s case, identifies the three aspects of the rule in Addis.

GAGELER CJ: What paragraph was that?

MR O’GRADY: Paragraph 71, your Honour.

GAGELER CJ: Thank you.

MR O’GRADY: She cites that without criticism, we say. It does not add much to what I have said, but I am coming back to your Honour Justice Beech‑Jones’s question before lunch.

GORDON J: Can I just summarise where we have got to? We have the first limb or rule in Addis, we have the second and third rule, we have put the second and third rule to one side for this case. We have, in relation to the first rule, which is in effect what we will describe as the manner of dismissal rule – that is, the only kind of claim for breach of employment contract where you do not get damages for psychiatric injury, to put it in the negative.

MR O’GRADY: To put it in the negative, unless the psychiatric injury is in some way associated with the stigma, or something like that.

GORDON J: Putting aside categories two and three.

MR O’GRADY: Two and three, yes.

GORDON J: Thank you.

MR O’GRADY: Can I just address some of the submissions of Mr Herzfeld around exemplary damages and his attack on the extent of concurrence by other members of the House of Lords with the opinion of Lord Loreburn. Our position on that is that one cannot go behind the expression of concurrence, full concurrence, et cetera, that was in the opinions of, I think, all but one of the majority in the House of Lords in Addis.

GAGELER CJ: Again, we are in this kind of artificial world, are we not? It is not binding authority on us; it is the root of a line of case law.

MR O’GRADY: Yes.

EDELMAN J: So far as you are dealing with exemplary damages, the Canadians have rejected it.

MR O’GRADY: That may be so; your Honour is obviously far more across the law in that area in Canada than I am. But what we say about ‑ ‑ ‑

EDELMAN J: If that issue were to arise, then we would have to deal with it not just as a matter of authority of an early‑20th century case, but as a matter of principle.

MR O’GRADY: But if you look at the nature of the claims that were being considered by the court in Addis, they were all claims in respect of injury. It is all loss. So, compensatory damages was the issue, and what we say about the comments about exemplary damages was not unlike Lord Loreburn addressing the case on various bases. The other members of the court are probably just covering off exemplary damages as a side issue, and that is it. But the case was not about exemplary damages.

GORDON J: Can I just ask one final question?

MR O’GRADY: Yes, of course, your Honour.

GORDON J: You have identified, I think, what the extent of the dispute is, really, between you and Mr Herzfeld on this question. Before the luncheon break, in response to questions from Justice Gleeson, I think you said that the justification for what I will call this “first rule”, was, in a sense, certainty of outcome. Is there anything else to it other than that? In other words, one is – I do not quite understand how that sits with what is left of this first rule. You said, as my notes record: knowing potential exposure in an event of termination contrary to the term of contract giving rise to certainty of outcome if dismissal, unlawful – is the justification for the first rule.

MR O’GRADY: Yes.

GORDON J: And why is that?

MR O’GRADY: We would draw on the comments of Justice Brennan in Baltic, which I know, I have to accept, was addressing a second aspect of Addis. But what there his Honour says is that the contract empowers the parties:

to create a charter of their rights and obligations –

and it can be effective:

only if the parties . . . can form some estimate –

of their exposure:

in the event of default in performance.

So, what we say is the first aspect of the rule in Addis is based on that concern to afford certainty to the parties at the time they enter into the contract about what they are up for in the event of default and termination.

GORDON J: It is not just default in termination because default in termination is the fact of termination. You said “manner of exercise”, which is a narrower subclass or subset of termination, is it not?

MR O’GRADY: Yes. It is probably default in performance of the contract in relation to the manner of dismissal – which is probably more accurate.

GORDON J: Yes, which is quite a narrower set of circumstances.

MR O’GRADY: Yes.

GORDON J: Thank you.

MR O’GRADY: Very much so, your Honour, thank you.

GLEESON J: I think Chief Justice Mason said something different about the policy foundations.

MR O’GRADY: Yes. There are other ‑ ‑ ‑

GLEESON J: So, it was not just Justice Brennan.

MR O’GRADY: There are various comments on the policy foundations. I accept that, your Honour.

GAGELER CJ: Can I just ask another question about this first principle that you say emerges from Addis.

MR O’GRADY: Yes.

GAGELER CJ: It is framed in relation to a breach of a contract of employment. Is it a more general principle that applies to the manner of termination of a contract or is it confined to a contract of employment? Perhaps I should ask, are you aware of any case of law that has applied it beyond contracts of employment?

MR O’GRADY: No, I might get my juniors to perhaps have a think about that, but standing here at the moment before your Honour, there is nothing that immediately comes to mind. We then get into, and I am about to address the Court in relation to, the Donovan Report. I am not going to take you to the passages, but I will read into the transcript the passages from the United Kingdom decisions that give you the relevant content of the Donovan Report, which is to the effect that I mentioned before lunch.

They are Johnson v Unisys, which is volume 4, tab 26, page 1127, at paragraphs 51 to 55 in the opinion of Lord Hoffmann with Lord Nicholls and Lord Millett agreeing and paragraphs 72 to 76 in the opinion of Lord Millett with Lord Nicholls agreeing; in Eastwood, volume 3, tab 20, page 720, I think I went to this passage, at paragraphs 1 to 3; and in Edwards, volume 3, tab 21, page 755 – I think I have gone to a couple of these passages, 19 to 21 and 43 in the opinion of Lord Dyson, but to be fair I also need to draw to your attention a different view of the world in the dissent of Lord Kerr at 124 to 129, with Lord Wilson agreeing.

EDELMAN J: Is this first head of Addis any different from aggravated damages?

MR O’GRADY: It can cover events crystallising an entitlement to claim damages, rather than something that is an aggravation of some other breach. Psychiatric harm cases are an example, and stigma damages as well, as an example; they are compensatory because of the breach that arises.

EDELMAN J: But the breach will be the wrongful dismissal; if the dismissal is not wrongful, then the question of manner of dismissal would not arise, would it? Unless there were an independent obligation as to the way ‑ ‑ ‑

MR O’GRADY: In which case it is outside the territory of manner of dismissal.

EDELMAN J: Yes, in which case it is a particular obligation itself.

MR O’GRADY: Yes.

EDELMAN J: So, the manner of dismissal is not itself the obligation that we are concerned with, because either you have your wrongful breach of contract or you have your breach of whatever particular condition of dismissal there is. So, to the extent that the rule still exists, is it basically just a rule against recovery of aggravated damages for the breach?

MR O’GRADY: No. I may well just end up repeating myself, but we would say that insofar as aspect one of Addis covers stigma damages, that there is no aggravation there. The damages arise from the breach, rather than the breach associated with the way in which the dismissal is carried out.

EDELMAN J: But what I am asking you is, you have to identify a breach of contract before you can get into any questions of damages at all.

MR O’GRADY: Yes.

EDELMAN J: The first aspect of Addis, as I understand your submission, is not concerned with the breach of contract. You have to identify the breach – the breach might be wrongful termination ‑ ‑ ‑

MR O’GRADY: Wrongful dismissal, yes.

EDELMAN J: ‑ ‑ ‑ it might be wrongful dismissal contrary to a particular term of the contract ‑ ‑ ‑

MR O’GRADY: Yes, or – like this case.

EDELMAN J: But you are not suggesting that there is a rule that says if you breach a contract, you are not going to be in breach because of the first aspect of Addis.

MR O’GRADY: No, not at all. I cannot say that, of course.

EDELMAN J: So, the first aspect of Addis can only be a rule which limits the recovery for an identified and proved breach.

MR O’GRADY: Yes, I think I have to accept that.

EDELMAN J: In that respect, when one is talking about manner of dismissal, it must be limiting recovery in the sense of aggravated damages. For example, you might have no proof of any pecuniary loss, or perhaps any other non‑pecuniary loss, so you would be entitled to nominal damages for the identified breach, and then the question might arise as to whether the manner in which the breach occurred entitles you to aggravated damages.

MR O’GRADY: Gives rise to compensable loss by way of aggravation.

EDELMAN J: Yes. So, is it ultimately, then, just a rule that says you cannot recover aggravated damages?

MR O’GRADY: I am not sure that I can add anything else to what I have said in terms of Addis, your Honour.

EDELMAN J: Thank you.

GORDON J: I do not want to add to the problems – can I just raise one, as a matter of fairness, I think. In Johnson v Unisys, which I referred to earlier, about the nature of the contract, in the speech of Lord Millett at page 1155, paragraphs 68, 69 and following ‑ ‑ ‑

MR O’GRADY: I am sorry, what the paragraphs, your Honour?

GORDON J: It was paragraphs 68, 69 and following. It is on page 1155 if that helps, Mr O’Grady.

MR O’GRADY: Thank you, your Honour.

GORDON J: It would appear, at least from 69 and 70 that his Lordship seems to suggest that it extends beyond employment contracts to contracts more generally, so we are looking at the intersection between.

MR O’GRADY: I accept that is what his Lordship says, but we would submit that that is not what Lord Loreburn was saying. It may well be that what Lord Loreburn says has evolved into the general rule of the nature of what Lord Millett is identifying at 68 through to 70, but we say that what Lord Loreburn was saying was relating strictly to the manner of dismissal in the employment context.

GORDON J: The only reason why I raise it is because his Lordship’s explanation on page 547 of the report at 1156 gives different explanations for the first, second and third limbs. That is, the rationale for them is different, for the exclusion of them, or appears to be different.

MR O’GRADY: Yes.

GORDON J: It may not alter your position, Mr O’Grady, but as a matter of fairness ‑ ‑ ‑

MR O’GRADY: I appreciate that, your Honour.

GORDON J: ‑ ‑ ‑ I think, in response to the distinction between whether these contracts are on their own or are part of a larger pool, and it seems at least some of their Lordships have considered it as being part of a larger pool.

MR O’GRADY: Yes. What I am offering up is not the only justification; it is what we say is the justification.

GAGELER CJ: Did you say Edwards was a case where the manner of dismissal was itself a breach?

MR O’GRADY: I think Edwards is actually a stigma case, your Honour.

GAGELER CJ: Is there any case, then, that has dealt with circumstances where the manner of dismissal was a breach of a term of the contract, as has been found here?

MR O’GRADY: Johnson is the only case I can point to in that regard, your Honour. Eastwood applied the principles from Johnson but came to a different view on the facts.

GAGELER CJ: Thank you.

MR O’GRADY: Yes. I stand corrected, and I apologise, your Honour, Edwards, sorry, was a stigma case.

STEWARD J: Is there a case to be said for the proposition that the first rule is basically another version of the rule against remoteness?

MR O’GRADY: Well, there are comments from time to time that the rule in Addis is based on remoteness. Lord Phillips in Edwards, I think, explores that philosophy.

STEWARD J: Is there any problem for you, if that is how it is explained?

MR O’GRADY: I am not sure there is a problem for me in terms of the way – we have our submissions about remoteness, of course.

STEWARD J: Yes, of course you do, yes.

MR O’GRADY: But I think where I come back to is that this is all a step‑off point for the entire underpinning of a statutory unfair dismissal code in both the United Kingdom and in Australia, that the first aspect of the rule in Addis as I have endeavoured to explain it was settled law at the time, because in Edwards ‑ ‑ ‑

STEWARD J: It could be a settled example of remoteness in employment contracts.

MR O’GRADY: Yes, yes.

STEWARD J: That may be one way of putting it.

MR O’GRADY: Yes. In Edwards, Lord Dyson expressly disagrees with judgments in the minority, or opinions in the minority, of Baroness Hale and Lord Kerr, with whom Lord Wilson agreed, where the minority view – sorry, it may only have been Baroness Hale, I will have to check – but, in essence, the proposition that was put by Baroness Hale was that the unfair dismissal law as such would be regarded as having removed common law rights. Lord Dyson’s answer to that is, well, there was no right because it was settled law at the time of the enactment of the statutory unfair dismissal code.

The United Kingdom – and, again, I am conscious your Honour Justice Gordon has asked me about the differences, et cetera – they are addressed in detail in Paige, and Mr Herzfeld took you to those. Can I just identify what we see to be the major considerations. The United Kingdom Parliament established a scheme, a statutory unfair dismissal code, which had a number of limitations: First, who could apply; secondly, the time in which any application could be made; thirdly, the grounds on which any application could be determined, what goes into assessing what is unfair or, in Australian context, harsh, unjust or unreasonable, and the remedies, of course, available in the event of success.

For those matters, one can go to Johnson v Unisys at paragraph 2, Lord Nicholls; paragraph 54, Lord Hoffmann and paragraph 80, Lord Millett. One can also find those considerations emphasised in the opinion of Lord Nicholls in Eastwood at paragraphs 3 and 12. Finally, I refer to paragraph 23 in Edwards, the opinion of Lord Dyson with whom Lords Walker and Mance agreed.

A further element of limitation is identified in Johnson v Unisys, essentially in the same paragraphs as the citation I just gave to 54 and 80, and that is the conferral of the exclusive jurisdiction on a specialist tribunal rather than a court. So, the statutory unfair dismissal codes give the jurisdiction to determine proceedings – determine the fairness of a dismissal to a particular body. In Australia, it is an industrial tribunal. I think in the United Kingdom, it is to the Employment Court.

On the United Kingdom authorities, the intent of the Parliament in doing so was to express its view – if Parliament have a view; I do not want to engage in that debate – on how to balance the interests of employers and employees and the social and economic interests of the country as a whole. That can be found in Eastwood at paragraph 13, Lord Nicholls with Lords Hoffmann and Rodger and Brown agreeing, and in Edwards at paragraph 23. In adopting the proposal of the Donovan Report, the United Kingdom established a separate statutory jurisdiction, and an option available to it, of course, would be to imply a term into contracts of employment, but it did not choose that path.

GAGELER CJ: This is a case where the choice made is not to imply a term, so the term was not breached because it did not extend that far, but these cases really do not speak to the circumstance where you have a breach of a term.

MR O’GRADY: Edwards does, your Honour.

GAGELER CJ: Edwards does?

MR O’GRADY: Edwards does, and I went to those passages earlier.

BEECH-JONES J: Just so I get the framework we have, we have what appears to be a standalone rule of law, as you contend for it, precluding recovery for any compensation for breach of an expressed term concerning manner of dismissal, which, as it were, may have or may not fit within any particular framework of contractual law but appears – I am going to call it anomalous, but its own exception, which I think you have identified as being followed in one decision of any immediate Court of Appeal in this country. Then the question is: is that a rule of law for this country? At the moment, you are saying, well, in Britain it was settled there, and so they brought in unfair dismissal. So, there is no reason for that country to change it. Is the analysis different here, though?

MR O’GRADY: We say the analysis is the same, because the Donovan Report informed the introduction of unfair dismissal clauses into industrial awards, through what was known – and your Honour may well be familiar with it – the Termination, Change and Redundancy Case. It is noted in our written case. That standard that was set for the award regime of the day in 1984 has found its way through to what is now the Australian statutory code in the Fair Work Act.

BEECH‑JONES J: That was in the context of a well‑established rule of law by its highest courts over a period of years, and that is not here.

MR O’GRADY: I accept that, your Honour.

EDELMAN J: If your submission is right, it would mean, would it not, that the parties would not be able to expressly agree on a damages provision to the same effect.

MR O’GRADY: That is when we get into the territory of Edwards, and I have two responses to that. One is part of our construction argument, so that where you have a policy like this against the background of the statutory unfair dismissal code, objectively it does not reveal an intent that a breach of the procedure can manifest itself in an award of damages for breach. The other is reliant on Edwards, which stands for the very proposition that Justice Beech‑Jones has just put to me.

EDELMAN J: Even where the parties agreed on liquidated damages. The parties agree that there shall be an entitlement to a certain amount of damages.

MR O’GRADY: There is a qualification in Edwards, and that is that if it is expressed in the clearest terms so as to gain, say, the general proposition, and I have to accept that that would modify an unqualified position that I would otherwise put to you. We have said in our submission, essentially, that it has to be clear – and it is not clear – when I get to the construction point. It is just not, in this case.

EDELMAN J: Where does the requirement for clarity come from? You can deal with this when you come to the statutes, if you wish.

MR O’GRADY: Construction point. I will. In terms of the delineation of what is known as the Johnson exclusion zone which arises from the statutory unfair dismissal scheme, I just draw the attention of the Court to two passages: Lord Nicholls in Eastwood v Magnox at 27 to 29, and Lord Dyson in Edwards at 39 and 40.

GORDON J: What are they directed at, Mr O’Grady?

MR O’GRADY: They are directed at what is this Johnson exclusion zone identifying, this area where the prohibition applies.

GAGELER CJ: It is just a prohibition on damages, so Lord Dyson seems to say you can get an injunction.

MR O’GRADY: Yes. It does, and you will see that in Edwards, the Court grapples with that issue. In terms of Australian acceptance of what is called the Johnson exclusion zone, we point to Paige at 147 to 155. I think Mr Herzfeld mentioned that passage to you earlier. We also say that what the Chief Justice said in Paige drew approval from Justice Kiefel in Barker at 93 to 96, and your Honour the Chief Justice at 118 in Barker as well, you might recall making the very comment about any limitations on the implied term that was before the Court on that occasion not going to upset that carefully calibrated balance that the Parliament intends to achieve through the statutory unfair dismissal code. There, your Honour was picking up the very language that the Chief Justice used in Paige.

I did say earlier that there were a couple of additional matters in the Australian statutory regime. They are these: limitations on the availability of costs – that is in sections 400A to 404 of the Fair Work Act, which is in volume 1, tab 3 at pages 69 to 71 of the bundle – and also limitations on appeal rights – which is in section 400 at the same place. We also draw attention to section 381, which is on pages 55 and 56 of the bundle which sets out the object of Part 3‑2 of the Fair Work Act, which is:

to establish a framework for dealing with unfair dismissal that balances –

the competing interests:

to establish procedures for dealing with unfair dismissal –

which:

(i) are quick, flexible and informal; and

(ii) address the needs of employers and employees; and

(c) to provide remedies . . . with an emphasis on reinstatement.

That is something that has not got a lot of air play in the submissions before this Court, but the statutory unfair dismissal code has as its primary remedy reinstatement. So, you will see the consistency between the statutory code in the two countries which identifies Parliament’s remedy for the deficiencies perceived in the common law at the time the legislation was enacted. Our bottom‑line submission really is that it is not for the judicial arm of government to pull the rug out from underneath the establishment of the statutory unfair dismissal code in that context.

JAGOT J: Is there any form of workers’ compensation statute relevant in this context, or not? If you are making a case for statutory incoherence, I assume it is all statutes that it would bear upon.

MR O’GRADY: Yes. I think that arises in the context of this case in terms of the duty. Can I take that question on notice and have ‑ ‑ ‑

JAGOT J: I thought I saw somewhere in the materials that there might have been some ‑ ‑ ‑

MR O’GRADY: The only case I can think of, your Honour, that mentions that area is a – and it will not be in the bundle of authorities. I think it was a trust and confidence term case. It is the State of South Australia v McDonald, which is a South Australian Court of Appeal case.

JAGOT J: I am not looking for – I am just wondering if there is – I thought I saw a reference in the materials to some form of workers’ compensation claim. I may be wrong. I may be making that up.

MR O’GRADY: Yes. Allow me just to ‑ ‑ ‑

JAGOT J: For this appellant, I mean.

MR O’GRADY: Certainly, in this case, there was a serious injury application.

JAGOT J: Sure. You mean under the Workplace Injury Rehabilitation and Compensation Act (Vic)?

MR O’GRADY: Under the Victorian scheme, yes. That is correct, your Honour.

JAGOT J: If there is statutory incoherence, is it limited to the Fair Work Act or do you have to look at how it intersects – I do not know how it does intersect with the Workplace Injury ‑ ‑ ‑

MR O’GRADY: Bear with me, your Honour. I am reminded that the statutory workers’ compensation regime ‑ ‑ ‑

JAGOT J: So, is this the Workplace Injury Rehabilitation and Compensation Act 2013 (Vic)?

MR O’GRADY: ‑ ‑ ‑ recognises the common law rights.

JAGOT J: Which sections do we have that? No, take it on board. It is all fine.

MR O’GRADY: Division 2 of Part 7, I am reliably informed, your Honour. I am not embarrassed to say it is not my patch, sorry, your Honour.

JAGOT J: Not mine either.

MR O’GRADY: Unless there is anything further on that, can I go to remoteness.

EDELMAN J: So, have you finished with the coherence point or are you coming back to that?

MR O’GRADY: I will come back to it in terms of the duty in tort. I have been dealing with contract so far.

EDELMAN J: Just in relation to the coherence with contract, then, as I understand your submission, it is not that there is a per se incoherence, it is only that in order to make it coherent, there needs to be clear and express provision in a contract to allow recovery. Is that right?

MR O’GRADY: I think I have to accept that, based on – because I am reliant on Edwards for that and I have to accept that that is something that was conceded in Edwards.

EDELMAN J: So, it is not a case of the common law being inconsistent with the statutory regimes, even in England, it is just a case of the statutory regimes giving rise to some added requirement of clarity?

MR O’GRADY: I think I have to accept that, your Honour.

EDELMAN J: Is there any case in Australia ‑ ‑ ‑

MR O’GRADY: Not in Australia.

EDELMAN J: Not even in the employment context, but in a context where – there are many, many cases where the statutes have effectively covered the field, to use the metaphor. Is there any case where the statute has moulded the common law in such a way to require additional clarity?

MR O’GRADY: None that immediately come to mind. I am just thinking what the High Court said in Moore. There was a statutory element to Moore, which – but I ‑ ‑ ‑

GORDON J: One of them might be Esso on legal professional privilege.

MR O’GRADY: Yes.

GORDON J: The Evidence Act (Cth). Moulded is probably is too strong a word, but at least it was taken into account in determining what the common law rule was going to be.

EDELMAN J: But that is – your argument is not really one of direct incoherence, then; it is one of moulding in that sense, then, as I understand it.

STEWARD J: Perhaps it is something that informs the construction of the contract of employment.

MR O’GRADY: Yes, which was the second approach. I am trying to keep the two aspects of the case separate, but I may well be compelled to bring them together, as the court did in Edwards.

Can I address the Court in relation to remoteness. We said in our written submission that a fundamental problem for the appellant in this case was that there was no challenge to the factual findings in paragraph 188 of the Court of Appeal’s reasons. Today there seems to be some attempt by way of bootstraps position to try and raise that challenge. We say that if one goes to paragraph 188, it is apparent from paragraphs 186 and 189 that the findings and the evidence taken into account do include the wrongful dismissal context and are not confined to a very narrow definition of the breach as identified in paragraph 429 of the trial judge’s reasons.

Can I turn to the alleged factual errors, the first of which is said to be that – Mr Herzfeld draws on the broad inference that the judge drew to the effect that the policy position was at least generally the same in 2006 as it was in 2015, when the policy was introduced. Can I just bring to the Court’s attention the content of the policies in 2006, which are identified at paragraph 298, of the trial judge’s reasons, which is at page 85 of the appeal book – 2008 is the first disciplinary procedure document that is identified in that list. Just while I am there, I will identify the first of the enterprise agreements is identified at subparagraph (g), which is the 2009 enterprise agreement, and then we have the 2013 enterprise agreement.

What we say about that is that the inference the judge drew, we would submit, could not go to an acceptance of the entirety of the detail in the 2015 policy being in place in 2006. We have not cavilled with the inference that his Honour drew, but we do point to the fact that the policy arose after the enterprise agreement. When I get to the construction point, you will see that the very terms of the policy that are relied upon to establish the breach mirror the terms of the enterprise agreement. So, what we do say on the construction point is that the policy is influenced, one, by unfair dismissal provisions and, two, by the terms of the enterprise agreement itself.

The next point that Mr Herzfeld raised was the suggestion that the policy requirement that a support person be available as an acknowledgment of the likelihood that someone may be at risk of psychiatric harm. The 2013 enterprise agreement has that very same requirement. It is in clause 47.5.2, subparagraph (b), which I can take you to. It is at paragraph 29 of the Court of Appeal’s reasons, at page 195 of the core appeal book. You will see there at subparagraph (c):

The employee’s right to be accompanied by a nominee of the employee’s choice at all due process meetings –

We would submit that it would be wrong to infer that the purpose of a support person is because of any such exposure to psychiatric harm or acknowledgment of that. It is the requirement of industrial fairness that a nominee of the person’s choice be therefore monitoring for advocacy purposes, which is exactly why Mr Nunns – who was the ASU official – who was Mr Elisha’s nominee, was at the meeting.

Mr Herzfeld sought to draw an inference from the reference in an email to Ms Eagle who was the human resources person. This is at paragraph 211 of the judge’s reasons, which is at pages 63 and 64 of the core appeal book, where she talks about “S” – as we understand it, it is Susan Eagle – “might go to pieces”. The context in which that suggestion is made is in the context of an email about the lodgement of an industrial dispute notice by the ASU and proceedings that might take place in the Fair Work Commission following that. It has nothing to do with the investigative process. So, no inference of that nature is available from that.

JAGOT J: Where do we get that from, that it is to do with ‑ ‑ ‑

MR O’GRADY: It is in the body of the email on page 63. It talks about them lodging a dispute:

The serious and wilful arguments at the FWC will turn on –

Et cetera. So, that email is in the context of that expectation. The next point I wish to raise is any inference that Mr Herzfeld seeks to draw from the availability of the counselling services, that was dealt with in paragraph 181 of the Court of Appeal’s reasons on the basis of what is the unchallenged evidence of Ms Hauser that counselling was available for a wide range of things including personal matters.

BEECH-JONES J: But including being subject to discipline.

MR O’GRADY: Including, but what we would say is there is no inference that can be drawn from the availability of the counselling because it is available broadly across the way.

BEECH-JONES J: But does that not at least support that there are a number of things in the workplace that can cause significant distress, one of which is being bound up in the disciplinary process.

MR O’GRADY: We might have to go back to Ms Hauser’s evidence in relation to that because I think the evidence is it was available for anything. Now, whether it is her evidence that is a reference to including – I am sorry, your Honour ‑ ‑ ‑

BEECH-JONES J: Take that on board, Mr O’Grady. I do not want to take you off your argument, but just because it is available for other things does not mean that the sort of inference you need for remoteness cannot be drawn, is all I am asking, really.

MR O’GRADY: Yes. The final thing I want to address the Court on in relation to that is the attack on the evidence of Associate Professor Doherty. The evidence of Associate Professor Doherty and the account that is given at 185 through to 187, the Court of Appeal there is deploying it to overturn the judge’s findings in relation to the likelihood of encountering psychiatric harm. When you go down to 188, that sets out – and we say in a manner which is unchallenged in this appeal – the reasons of the Court of Appeal for making the findings that they did. The first sentence of 189 is that:

It is unnecessary to go further. However, we are also fortified in our views –

by what Associate Professor Doherty has said.

STEWARD J: Mr O’Grady, do we know what question Professor was asked, and what opinion was given?

MR O’GRADY: The only assistance I can offer your Honour in relation to this is, if you look at paragraph 185, one would necessarily infer that the only response that was the subject of any inquiry was Mr Elisha’s psychiatric response, because of the very reason why Professor Doherty was in the witness box. He is a psychiatric expert.

STEWARD J: We do not have a record of the question asked in the primary judge’s judgment?

JAGOT J: It is in the paragraph of 485, to some extent.

GLEESON J: Paragraph 449 of the primary judge’s reasons seems to set out the question.

STEWARD J: I missed the paragraph.

GORDON J: Paragraph 449.

STEWARD J: Thank you.

MR O’GRADY: That confirms what I just said about being asked about the plaintiff’s psychiatric response.

BEECH‑JONES J: But is not the point made against you that that question is too narrow, because the question is not whether his response could better be plausible, as I understand the argument, it is: is some kind of adverse psychiatric response a plausible outcome?

EDELMAN J: And assessed at the time of the breach, not ‑ ‑ ‑

MR O’GRADY: Of course, yes. Assessed at the time of breach.

GLEESON J: I am not sure that it is entirely fair to say as the Court of Appeal did in the second sentence of paragraph 186 that the judge was relying on the Associate Professor’s evidence in making the comment that he did at paragraph 450, because that comment at 450 is preceded by paragraph 446, where he sets out other evidence that he relies upon for what was reasonably foreseeable, I think it was.

MR O’GRADY: That is the observation of the trial judge, but the Court of Appeal, citing the very same passage, and the response:

I don’t think so . . . you know, it’s extraordinary –

Et cetera. In the context of addressing the question of wrongful termination, we would submit it is not irrelevant, and open to the Court of Appeal to draw the inference that it did. At the end of the day, the position seems to be this: it is fact that it is within contemplation that someone might be upset, of course, but not within contemplation that someone might encounter psychiatric injury. That seems to be the distinction.

Mr Herzfeld’s submission would have you view the two as on a linear path, but we have drawn attention to the passage in Koehler in our written case, and we say that they are different. Any acknowledgement of any sort of possibility extends only to upset, not psychiatric harm. At 188, the Court of Appeal clearly identifies that the possibility that it views is one that is so remote as to not satisfy the standard that is required to establish remoteness. Otherwise, we rely on our written submissions there. I am conscious of the time.

JAGOT J: Could I just note then that the Part 7, Division 2 of this workplace injury Act seems only to permit a common law claim in the circumstances specified in section 326C, which has a whole complex regime that I have not had time to get my head around, obviously, but you have to have a serious injury, the court has to declare it to be a serious injury before you can go ahead with any psychiatric injury claim.

MR O’GRADY: Correct.

JAGOT J: I am just wondering how that could be irrelevant to statutory coherence. Anyway, I guess people could take that on board in some way, but if you have a whole statute that is setting out when you can and cannot ‑ ‑ ‑

MR O’GRADY: Can and cannot bring claims.

JAGOT J: ‑ ‑ ‑ take a common law claim, it seems to intersect with imposing a duty of care beyond that which has been recognised before, arguably.

MR O’GRADY: Yes. Can I turn to the duty of care. In our written case at paragraph 34, we have set out some principles on what constitutes the system of work. In this context, we also draw upon paragraph 78 from Paige, which is again volume 4 at page 1195 – tab 28, I am sorry. The relevant paragraph is 78 at pages 1211 and 1212. You will see there it is referring back to:

The trial judge’s reference –

to the statutory duty:

to provide a “safe system of work” –

The trial judge’s explanation of the duty is quoted at paragraph 22 of the reasons, where the trial judge said:

it seems to me that the general duty of care resting on an employer to provide a safe system of work encompasses the provision of a safe system of investigation and decision making in the way described in the Statement of Claim.

At 78, what the Chief Justice says about that is that it conceals the novelty. The reference to the:

“safe system of work”, conceals the novelty of the duty his Honour identified in this case. There is an ambiguity inherent in the word “system”. The body of case law with respect to a “safe system of work” has been, so far as I am aware, exclusively concerned with the conduct of tasks for which an employee is engaged.

Citing authority. There was:

no reference to any authority, nor was any authority drawn to the attention of this Court, that extended the concept of a “system of work” to matters concerning the incidents of the contract of employment, such as disciplinary procedures under consideration in the present case. This is a novel category of duty and involves an extension of employers’ duties . . . it raises important considerations concerning the interrelationship between duties of care and statutory powers and duties.

We are aware of no authority that takes the system of working to that territory. In terms of the incidents of employment, at paragraph 155 of Chief Justice Spigelman’s reasons, at page 1224 of the book:

The expansion of the law of tort to matters concerning the creation and termination of a contract of employment, as distinct from performance under the contract, may distort the balance of conflicting interests found to be appropriate as a matter of contract or by intervention of statute. Where, as here, the courts are asked to create a novel duty of care, the courts should refrain from doing so where there is such a well developed alternative mechanism for adjusting the interests involved. Matters concerning the creation and termination of a contract of employment can, in my opinion, properly be left to the law of contract, subject to the extensive statutory modification that the parliaments have introduced –

Mr Herzfeld’s submission seems to be the submission that was put to the Chief Justice – and it was rejected then. Without any authority, we would say it ought be rejected here.

EDELMAN J: One response to it may be that we are talking about different duties. So, the law of contract is concerned with a duty upon the employer to do that which has objectively been agreed. The law of torts is not really concerned with the content of the duty of what is agreed, it is concerned with whether you have unreasonably caused psychiatric injury to somebody. There are two quite different duties, and to try to make one subservient to the other is a category error of treating them as the same.

MR O’GRADY: But the duty would impose on the parties obligations which would qualify what might otherwise be unqualified rights in their contract, such as termination on notice, et cetera. At every point along the way, an employer would have to reflect on the relevant considerations from Wyong Shire Council v Shirt around, how am I impacted in this and what do I have to do?

EDELMAN J: Employers do that all the time with physical injury, do they not? They have to reconcile their obligations to provide a safe system of work which ensures that reasonable care is taken not to cause physical injury that is not psychological to an employee, and they reconcile that with their contractual obligations. Why would it be any different from psychological injury?

MR O’GRADY: Those matters, we would submit, are outside the incidence of employment.

BEECH‑JONES J: Mr O’Grady, one of Mr Herzfeld’s points is: where do you draw the line between under or in the course of employment and the point where the exercise of the disciplinary powers start and the tortious duty ends?

MR O’GRADY: Yes.

BEECH‑JONES J: What do you say about that?

MR O’GRADY: We rely upon the Johnson exclusion zone for that, and the passages that I have taken your Honours to.

I think I have an answer to your Honour Justice Jagot’s concern about the operation of the Victorian worker’s compensation statutory provision. Once a worker satisfies the serious injury requirement, the Act does not add to or subtract any element to the cause of action at common law. But if the common law conferred on the worker a right to recover damages for the manner of dismissal, that right would not be incoherent with the provisions of the Act.

JAGOT J: Sorry, can you repeat that last part?

MR O’GRADY: Yes, certainly. If the common law conferred on the worker a right to recover damages for the manner of dismissal, that right would not be incoherent with the Victorian statutory workers compensation regime.

JAGOT J: Right.

GORDON J: Is that because it would excise out of it only those who have had a serious injury?

MR O’GRADY: Serious injury, yes.

GORDON J: So, it excludes, regardless of whether the common law right exists or not, those who do not have a serious injury certificate.

MR O’GRADY: That is as I understand it, your Honour, yes.

GORDON J: It is a filter.

MR O’GRADY: Yes.

GORDON J: By statute.

MR O’GRADY: Again, public interest balancing of ‑ ‑ ‑

JAGOT J: Does that mean there is some finding somewhere that, for the purposes of this Act, the appellant has a serious injury?

MR O’GRADY: There was a serious injury application, your Honour, yes.

JAGOT J: Do we have the – because otherwise – I mean, I have not looked at this in detail ‑ ‑ ‑

MR O’GRADY: No, I understand.

JAGOT J: ‑ ‑ ‑ but the impression I am getting is, unless there is a serious injury finding, declaration, or something by some particular court under this Act, you do not get to square one – you cannot bring a common law action. So, somewhere there must be a serious injury thing.

MR O’GRADY: I am told, yes. There is a facility under the statutory scheme for the VWA to grant the serious injury certificate, and I understand that was done.

JAGOT J: Sorry – you see, I do not even know what VWA is.

MR O’GRADY: I do apologise, your Honour – the Victorian WorkCover Authority, which is the relevant authority under the statutory scheme.

JAGOT J: Right. So, we can take that that is agreed, the serious injury?

MR O’GRADY: I do not think there is an issue ‑ ‑ ‑

JAGOT J: No, it is just that it explains how we get here, that is all.

MR O’GRADY: Yes, of course. In terms of incoherence with statute, we have identified in our written case the relevant passages from Johnson v Unisys, and also from Paige, at paragraphs 154 and 155. I have just taken the Court to paragraph 155.

JAGOT J: Sorry – I am going to sound obsessed by something I have only found today, but if you have a statute expressly saying you cannot – unless it is a serious injury, which has a particular definition – you could never have a common law duty of care that allowed you to bring, extending to psychiatric injury that is not a serious injury, because the statute says you cannot; so, it is still relevant as to what the duty of care could be. Because surely you cannot – if you cannot bring proceedings in this State unless you have a serious injury as defined – which has a degree of permanence about it, and are certified – then, at least to that extent, to say there is a common law duty of care for lesser injuries that are psychiatric would be inconsistent with this Act.

GORDON J: There is one other way of possibly looking at it, and that is that one brings the claim for a serious injury and a certificate based upon a duty; and then the court determines whether or not, consistent with that duty, you get over a hurdle of having a serious injury. So, in other words, you would have it, you just do not reach the threshold of having an injury serious enough in order for the claim to proceed.

MR O’GRADY: I wonder whether – I hear the whispers amongst the members of the Court, that you are going to impose a burden on me that I perhaps could not like. Can I ask Mr Gladman, who, of course, is far more versed in this area of the statutory provisions in the Victorian workers compensation system to assist you, and see how we go?

GAGELER CJ: Let us see how it goes.

MR O’GRADY: Thank you.

GAGELER CJ: Mr Gladman, this is your big moment.

MR GLADMAN: I passed the note to Mr O’Grady in response to your Honour Justice Jagot’s question before. I can perhaps provide a fuller explanation on my feet. So, there is authority at the level of the Victorian Court of Appeal to the effect that once the serious injury requirement has been established, and that requirement can be satisfied in various ways – the Court has looked at this, in the past, actually, there are decisions of this Court which have addressed these provisions – but one way is by the Victorian WorkCover Authority granting a serious injury certificate.

JAGOT J: Which I can see under 335(2).

MR GLADMAN: Yes, that is correct, your Honour. Another method is by – after the conduct of what is called an impairment determination, the worker has a 30 per cent or more whole person impairment, that will then be a deemed serious injury. And another way is for a court – which is almost invariably the County Court in Victoria – to adjudicate what is called a serious injury application, and then the court grants leave to the particular worker to bring a proceeding for damages.

I can address your Honour Justice Gordon’s comment, I think, in this way. The way it works in Victoria, according, at least, to authority at the Court of Appeal level, is that the effect of provisions in Division 2 of Part 7 is that the cause of action of the worker is extinguished at the point that it is created. That will be when damage is suffered, and it is contingently extinguished upon the satisfaction of the serious injury requirements in the Work Act.

GORDON J: That does not say anything about the existence of the duty initially, though. It just extinguishes it statutorily. It has to extinguish something, is my point.

MR GLADMAN: It does. It extinguishes the cause of action. The duty, of course, exists, in our submission. The duty will exist. It does not have anything to do with the extinguishment of the duty. The duty exists. The cause of action is contingently extinguished in such a way that the recovery of damages is precluded by the operation of the Act. Once the serious injury requirement has been satisfied in one of the various ways I have attempted to detail now, the cause of action is re‑enlivened, and the worker is entitled to bring proceedings.

My learned friend Mr Herzfeld is kindly offering me an authority. The authority I am aware of in support of the proposition that I had advanced to your Honour Justice Jagot earlier is Swannell v Farmer [1998] VSCA 104; [1999] 1 VR 299 – my learned friend assists me. That is an authority for the proposition that the cause of action is contingently extinguished, and it then re‑emerges, if you like, when the serious injury requirements are satisfied.

GAGELER CJ: Thank you, Mr Gladman.

MR GLADMAN: Thank you, your Honour.

MR O’GRADY: I might add my thanks to Mr Gladman as well of course, your Honour. Thank you, I am indebted. I am back in the territory of the duty of care, and I am just dealing with the point that Mr Herzfeld raised about the operation of sections 725 and 732 of the Fair Work Act which recognised the existence of other actions. All those sections do is acknowledge that various causes of action are available under the Fair Work Act. They say nothing of the common law and there is nothing consistent – sorry, the absence of reference to the common law in those sections is consistent with our position that an action in tort may well be incoherent with the unfair dismissal laws. It is not saved by those sections.

Can I just say something about Hayes. Hayes, which is the Queensland case, applied Paige to strike out that part of the case that went to the manner of the investigation rather than the conduct of others outside the investigation. It was just a bullying case. Sorry, I do not say that in a demeaning way; bullying cases are serious. But the bullying was upwards bullying by employees who the manager supervised, and had nothing to do with the investigation itself. The only connection was a temporal one that the investigation was underway at the time.

I am conscious of the time. Can I move to the incorporation point. We rely on our written submissions, but I do wish to say a few things by way of emphasis, most particularly about paragraphs 102 through to 108 of the reasons of the Court of Appeal which starts at page 212 of the core appeal book. Our construction of the contract does give promissory effect to the word “comply”. We say the acceptance clause, which is at core appeal book page 191, paragraph 13 of the Court of Appeal’s reasons, imposes a specific obligation on the employee to:

comply with these terms and conditions of employment and all other –

“all other”:

Company Policies and Procedures.

The word “other” has some work there to do. What we say in relation to that is it is a recognition of the obligation of an employee to comply with the directions of the employer.

We say that it is really at paragraph 103 that the Court of Appeal starts to go off the rails. Bear in mind, this is an inquiry about the meaning of this contract that was made in 2006. At paragraph 103, you will see there that the court is acknowledging the submission that we made before it at the time:

that the letter of offer provided for the 2006 Contract to be amended by mutual agreement –

Now, if the policies are incorporated – and, in this case, the 2015 procedure – it is part of the contract and can only be varied by mutual agreement, and that has been the case from 2006. What we say is the practice of introduction of new policies, any variation to the policies that might occur during that time, is consistent with the policies not being part of the contract, because the only way those policies can be added to, removed, varied, is by mutual agreement.

BEECH‑JONES J: That is not necessarily the case, though, if the term of the contract is to be understood as a reference to Vision Australia’s policies and procedures as in force from time to time.

MR O’GRADY: Well, allow me to continue on, your Honour, because what the court says in the next sentence is – sorry, acknowledges that there has not been any variation “by mutual agreement” and then says:

the reference to ‘other Company Policies and Procedures’, would be well understood by a reasonable person to incorporate those policies as they might change from time to time.

So, what the Court of Appeal is doing is it is effectively rewriting the contract in a way that permits the employer to vary these policies which are part of the contract by way of this alternative mechanism rather than in accordance with the express terms of the contract.

EDELMAN J: You accept that that can be done, but you just say that the words “other Company Policies and Procedures” does not do that. In other words, you accept that it is possible to have a term which allows for unilateral amendment and incorporation as the policies are so amended.

MR O’GRADY: I think I agree with what your Honour says, but, for example, in Riverwood, which is one of the authorities, there was the ability to amend from time to time.

EDELMAN J: Well, banks are pretty dependent upon that.

MR O’GRADY: Of course, interest rates, et cetera. But that is not the case here, and in Riverwood, the court dealt with this ability to vary in two ways. Justice North said, if there is any ability just to do what the employer wants means that it is not the stuff of contract. Secondly, Justice Mansfield said, if there is this ability for the employer to vary as and how it wishes over the life of the contract, that would have to be modified by an implied term that says the employer cannot do it capriciously or arbitrarily.

EDELMAN J: That may be so, but there is no suggestion that that has occurred in this case, is there?

MR O’GRADY: No, because there is an express term dealing with variation, and what the court is doing at 103 is essentially rewriting the contract that sets out this alternative mechanism which is inconsistent with the express terms of the contract. Paragraph 103 inserts words into the contract that are just not there. We say that our construction, which is promissory and which makes sense, is the better construction and the right construction.

GORDON J: Have you addressed the fact – I may have missed it – that the procedures did not change in any event?

MR O’GRADY: It is not that they did not change.

GORDON J: Sorry, did not substantively change in any event.

MR O’GRADY: But there was change because we have a policy ‑ ‑ ‑

GORDON J: I accept that.

MR O’GRADY: A 2015 policy, which we say, of course – and I can take you to the policy – sorry, the procedure; the 2015 procedure – it is on page 245 of the core appeal book. This, we say, supports our construction. This is an annexure or an appendix to the Court of Appeal’s reasons, it is the 2015 Disciplinary Procedure. At about point 2 of the page in the third paragraph:

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.

We say that that gives rise to very strong inferential bases to say that this is driven by a desire to ensure that the employer does not get into hot water under the unfair dismissal regimes, because the minimum period of employment is one of the delineating features of people who have access to the unfair dismissal provisions. The next thing we draw attention to on that page is the reference to “serious misconduct”, and we have identified this in our written submission. The relevant regulation defining serious misconduct is in support of the provisions in the Act that govern severance pay and notice of termination.

Those matters – particularly notice of termination – does not have to be given under the Act in circumstances where an employee engages in serious misconduct. Those contextual matters, we would say, reinforce the suggestion that this policy is about protecting the employer from exposure under the unfair dismissal provisions, and of course, coming back to your Honour Justice Gordon’s question, given its mirroring of the provisions in the 2013 enterprise agreement, protection from exposure to the imposition of penalty, and a claim for compensation, in accordance with Part 4‑1 of the Fair Work Act.

Those contextual matters, we would say, reveal something other than a commitment to mutuality of obligation, which the court then turns to at paragraphs 106 and 108. The other thing that we draw attention to is that the court suggests at paragraph 102, and it is the last sentence:

The natural meaning of the clause –

In the contract; this is the acceptance clause:

is therefore that there was to be compliance with ‘these’ terms, as well as the ‘other’ terms found in the Policies and Procedures –

That is not what the acceptance clause says. The acceptance clause says “other” policies and procedures. It does not use the word “terms”, and the acceptance clause does not have what seems to be for the court a very important qualification, but only insofar as they are also contractual.

That last sentence of paragraph 102, and what follows in 103 – and we would say 104 – essentially rewrites the contract in an impermissible way. The clear intent, objectively assessed in accordance with normal principles, is that this was a one‑sided – a unilateral obligation imposed upon the employee consistent with the employer’s ability to issue lawful and reasonable commands, and it is a commitment to abide by the direction that the employee, during the entirety of the employment, comply with policies and procedures which of course could then be varied, changed, amended at the discretion of the employer.

There are contractual consequences for the employee, but for the employer, we say it does not lack mutuality of obligation because the employer is required to do these things in accordance with the terms of the enterprise agreement anyway. That is a distinguishing feature between this case and Romero v Farstad, which the court seemed to so heavily rely upon. In Romero, also, the relevant policies were given to the employee and signed at the time of induction.

The wording in the contract in Romero was that “policies are to be observed at all times”, rather than a unilateral commitment by the employee to comply. There was a single policy governing employee conduct and investigative process which more readily permits a construction that it was intended to impose mutual obligations, and the policy was in place at the time. Here, the policy comes nine years later. Here, there is very limited evidence of the circumstances in which the 2006 contract was signed. I have addressed the single‑sided commitment, the timing of the policy and the fact that the enterprise agreement clause provides the cause of action.

GORDON J: Mr O’Grady, while you have taken a break could I just ask you a question I asked Mr Herzfeld on his duty question.

MR O’GRADY: Yes.

GORDON J: If we are against you on the duty, am I right that there is no dispute about breach, causation, remoteness?

MR O’GRADY: No, and there is no dispute about quantum either, your Honour.

GORDON J: That is, that the primary judge’s assessment in contract would be the same assessment in tort?

MR O’GRADY: Yes.

GORDON J: Thank you.

MR O’GRADY: Those are the submissions of the respondent.

GAGELER CJ: Thank you, Mr O’Grady. Mr Herzfeld.

MR HERZFELD: Thank you, your Honour. There are three points in reply. The first point is, if your Honours please take up Paige – that is authorities volume 4, tab 28 – and if your Honours turn to paragraph 133 of the reasons, this was the only Australian case which the respondent says embraces the first limb of the Addis rule upon which their big bang defence relies. What the Chief Justice immediately said was that:

That restriction would not apply where there is physical injury.

And his Honour cited Baltic Shipping v Dillon. The Chief Justice said that:

As presently advised, I would not extend the observations in Baltic Shipping v Dillon about physical injury to psychiatric damage.

But as I showed your Honours, Baltic v Dillon already did that. So, if that in paragraph 133 is a correct statement, and we submit that it is, it is actually entirely supportive of our case and utterly destructive of the respondent’s case. Really, what it seems to boil down to is an acceptance that the rule in Addis when it comes to manner of dismissal is actually a preclusion on recovery of things that are not themselves separate heads of damage. It is really just a specific instance, in many cases, of the second aspect of the rule concerning injury to feelings and so on, and that is hardly a surprise because that is what was in issue in Addis.

So, the first reply point is that 133 of this case, when read with a proper understanding of what Baltic v Dillon said, answers the case, but it does so favourably to us, not to the respondent. The second reply point concerns the respondent’s submission which is actually contrary to 133, that at least to some extent, there is a rule of law that there can be no damages for the manner of dismissal even if that is in breach of an expressed term, no matter the damage it causes – economic, physical or psychiatric.

In oral argument, the uncompromising nature of that rule was qualified a little – perhaps, even a lot – because where it ended up was that it was really about the degree of clarity for incorporation of terms or construction of terms. But if that is what it is, it is not the rule at all. It actually collapses into something else, and what I think among the wreckage of the absolute rule that my friend grasped onto was a suggestion that it is really all about remoteness. But if it is really all about remoteness, we do not need a separate rule because we have a rule about remoteness, and the case simply has to be decided on ordinary grounds of remoteness, which, again, is our case, not the respondent’s.

GAGELER CJ: He did have Edwards on his side.

MR HERZFELD: Edwards does seem to be driven into asserting a very anomalous rule that, even if you have breach of an express term of a contract and even if you have physical damage, it would seem, you just cannot recover damages for it. That is where the respondent has to end up.

EDELMAN J: The respondent, as I understood, reads Edwards as being a less explicit rule than that and applying only to this notion of degrees of clarity.

MR HERZFELD: If it is about clarity, it is not really a rule because it does not get the respondent to where it needs to go, which is that we cannot recover our damages. It is unclear in this case where a rule of clarity ends up, quite apart from the conceptual difficulty of understanding what that kind of rule even is. So, really, the respondent does need to assert the uncompromising rule which the respondent’s written submissions assert, and the respondent’s oral submissions started with. There is no authority in this Court, or, indeed, an intermediate appellate Australian court which takes that view.

The respondent pointed to Eastwood. Paragraphs 1 and 2 were said to be a clear statement of the rule. Without going to it, when your Honours go back to paragraph 2 of Eastwood, your Honours will see that the contract there being described is radically different from the contract with which your Honours are dealing. It was a contract involving a right on the part of the employer to terminate at will, without notice, for any cause.

That really exposes the fundamental problem with the respondent’s contention. They are driven to an outcome, without justification, that there is some special rule for employment contracts, perhaps all contracts – that was left rather unclear – that manner of termination, even if in breach of an express term, cannot give rise to any damages of any kind. That is an entirely anomalous rule.

The origin of that in Addis was analysed by us in oral submissions before your Honours, but in Johnson v Unisys, each member of the House of Lords that considered the rule in Addis, none of them actually thought that the rule was supported by the reasons in Addis. Their Lordships either, in the case of the dissents, refused to follow it, and in the case of the majority, did not have to decide whether not to follow it because they were dealing with the implied term of mutual trust and confidence which they said could not extend into the field of unfair dismissal in any event.

From Johnson v Unisys there has emerged the Johnson exclusion zone. Even that description should immediately cause your Honours to think that it is not something which ought to be incorporated into our law. It does not produce certainty, which was the one justification provided by the respondent, it produces radical uncertainty as to where the Johnson exclusion zone begins and ends, and the subsequent English cases, Eastwood and Edwards, demonstrate that.

In Edwards itself the reasoning was completely fractured, ranging from the full bore application which the respondent requires, to the dissent of Baroness Hale, and to an intermediate position of some of the other members of the Supreme Court. The true position is that this rule should not be embraced by your Honours. The correct answer is that this is a question to be decided in accordance with ordinary principles, in particular, of remoteness – the second reply point.

The third reply point is whether what I have just said is controverted in any meaningful way by the statutory unfair dismissal regime. The respondent does not say that anything in the unfair dismissal regime abrogates what would otherwise be contractual rights. One cannot say that. The respondent’s submission is that the unfair dismissal regime was introduced in England on the basis of an assumption, presumption, understanding that damages for the manner of dismissal were not available.

Even if that is right and even if the same applies in Australia, that is not a legislative endorsement of the continuation of that anomalous rule. If it were the case that abolishing that anomalous rule made the whole unfair dismissal regime unworkable or otiose, that might be, by implication, a legislative endorsement of the rule. But that is not the case. The unfair dismissal regime is both broader and narrower than what we would submit to your Honours the common law is.

It is broader because it covers things that do not involve a breach of contract, and that aspect of the regime will have work to do regardless of whether the rule in Addis is perpetuated or put out of its misery. It is narrower because if covers a narrower class of employees and, further than that, its primary remedy is reinstatement.

Compensation is only something permitted if reinstatement is not possible. It is a regime which is not intended to be an exhaustive one. It is an additional remedy for a limited class of employees operating well beyond the circumstances of the common law, and its existence provides no
foundation – even if it weas based on an assumption about the scope of the rule in Addis – for your Honours to perpetuate that rule in circumstances where it rests on a misreading of Addis, is unsupported by any Australian authority, and is entirely anomalous and unable to be justified.

Those are the reply submissions.

GAGELER CJ: Thank you, Mr Herzfeld. The Court will consider its decision in this matter and will adjourn until 10.00 am tomorrow.

AT 4.03 PM THE MATTER WAS ADJOURNED