In a decision which has caused some controversy and is on appeal, the Federal Court has found an implied term of mutual trust and confidence in a contract of employment and furthermore, is has resulted in damages for being breached. In so finding, Justice Besanko considered it applied when one party to the contract does something likely to “destroy or seriously damage the relationship of trust and confidence without proper cause”.
CONTRACTS – existence of implied term of mutual trust and confidence in Australian law – whether serious breach by respondent of its own policy sufficient to breach implied term – whether serious breach of redeployment policy caused applicant loss or damage – whether damages available for breach of implied term – assessment of loss of chance – whether damages for hurt, disappointment and injury to reputation available – whether aggravated damages available.
Held: The applicant is entitled to damages for loss of chance to be redeployed due to respondent’s breach of implied term of mutual trust and confidence by acting in serious breach of its redeployment policy.
Mr Stephen John Barker is the applicant in this proceeding. He claims damages against the Commonwealth Bank of Australia (“the Bank”) which is the respondent. He relies upon two causes of action. First, he contends that the Bank acted in breach of a contract of employment between the Bank and himself and that he is entitled to damages at common law as a result. Secondly, he contends that in about July or August 2006, the Bank, through one of its employees, contravened ss 52(1) and 53B of the then Trade Practices Act 1974 (Cth) (“Trade Practices Act”) and that he suffered loss or damage as a result. He claims damages for that contravention under s 82 of the Trade Practices Act, and these damages are of a nature similar to those claimed for breach of contract.
Mr Barker’s contract case is put in alternative ways. His primary case is that his contract of employment with the Bank included, as terms of the contract, policies issued by the Bank from time to time and an implied term of mutual trust and confidence. The policies related to what may be broadly described as human resources matters and, on Mr Barker’s case, placed a number of obligations on the Bank. His case is that the Bank acted in breach of its own policies and in breach of the implied term of mutual trust and confidence. He contended that in early 2009 he, or his position, was selected for redundancy contrary to a policy of the Bank. He further contends that the Bank did not comply with its own policy with respect to the redeployment of a person in his position and that he thereby lost the opportunity to be redeployed to another position within the Bank.
Mr Barker’s alternative case in contract is that under his written contract of employment with the Bank the latter was bound to give him four weeks’ written notice of the termination of the contract, or four weeks’ pay in lieu of notice. His case is that the Bank did not do that and that the Bank’s failure to give him four weeks’ written notice of termination meant that he lost the opportunity to be redeployed to a position within the Bank during that period.
Mr Barker’s Trade Practices Act case is that Mr De Luca, who was an executive of the Bank, made a representation to him in July or August 2006 that his role would not change as a result of the employment by the Bank of a general manager for the region of South Australia and the Northern Territory. His case is that, as a result of that representation, he did not pursue an opportunity to obtain employment with the National Australia Bank (“NAB”). He contends that the representation was a representation as to a future matter and that Mr De Luca did not have reasonable grounds for making the representation.
Mr Barker makes a substantial claim for damages. Since leaving the Bank in April 2009, he has not obtained full-time employment with any other organisation. He has performed some consultancy work for which he has received fees. He claims past economic loss of $110,000 plus an amount for pre-judgment interest, future economic loss of $1,160,000, general damages of $200,000 and aggravated damages of $100,000.
The implied term of mutual trust and confidence
Mr Barker submits that there were implied terms in his contract of employment with the Bank that the latter would maintain trust and confidence with him and that it would not do anything likely to destroy or seriously damage that relationship of trust and confidence without proper cause for so doing. Mr Barker submits that these terms were to be implied to give business efficacy to the contract and “arising from the mutual intentions of the parties”.
Mr Barker then submits that a serious breach of its own policies amounts to a breach of the implied term.
Was there an implied term of mutual trust and confidence in Mr Barker’s contract of employment?
It seems clear enough that in England there is an implied term of trust and confidence in a contract of employment so that an employer must not without reasonable and proper cause conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee: Malik v Bank of Credit and Commerce International SA (in liq.)  UKHL 23;  AC 20 at 33-34 per Lord Nicholls of Birkenhead. Subsequent English cases have involved a working out of the nature and scope of the term and the identification of an exclusion area, that is, an area of the employer and employee relationship where the term does not apply: Johnson v Unisys Ltd  1 AC 518 (“Johnson v Unisys”); Eastwood v Magnox Electric plc  UKHL 35;  1 AC 503; Edwards v Chesterfield Royal Hospital NHS Foundation Trust  ICR 201; see also: Neil I and Chin D, The Modern Contract of Employment (LawBook Co, 2012) at para 7.30. The exclusion area is that the term does not apply at the point of dismissal (Johnson v Unisys).
The position in Australia is not as clear. Four Justices of the High Court (McHugh, Gummow, Hayne and Heydon JJ) assumed that there was such a term in Koehler v Cerebos (Aust) Ltd (2005) 222 CLR 44 (“Koehler v Cerebos”) at 54-55  (see also Concut Pty Ltd v Worrell  HCA 64; (2000) 75 ALJR 312 at 321).
The question whether there is an implied term of trust and confidence in a contract of employment was considered by North J and the Full Court in Yousif. North J did not need to decide the point (433-434 -), nor did the Full Court (at 238 ).
The Court of Appeal in New South Wales in Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney  NSWCA 217; (2008) 72 NSWLR 559, referred to the authorities, but similarly did not need to decide the point (at 567 -).
In State of South Australia v McDonald  SASC 219; (2009) 104 SASR 344 (“McDonald”), the Full Court of the Supreme Court of South Australia did not need to decide the general point. In other words, it did not have to decide whether there was a general rule that there was an implied term of mutual trust and confidence in contracts of employment. It did decide that in the case before it such an implied term did not form part of Mr McDonald’s contract of employment. That was because in Mr McDonald’s case, statute, regulation or industrial award provided “a variety of means by which employees may be protected from abuses of power by the employer, and provides means of redress to employees who are aggrieved by some conduct of the employer” (at 390-391 -). This is not a case which raises a question as to whether the approach in McDonald should be followed because Mr Barker’s contract of employment is not affected by statute, regulation or industrial award.
There are cases where single Judges of this Court have expressed reservations about whether there is an implied term of mutual trust and confidence: McDonald v Parnell Laboratories (Aust) Pty Ltd  FCA 1903; (2007) 168 IR 375; Dye v Commonwealth Securities Ltd  FCA 242. On the other hand, the existence of such a term was accepted by the Industrial Relations Court of Australia in Perkins v Grace Worldwide (Aust) Pty Ltd (1997) 72 IR 186 (see also Burazin v Blacktown City Guardian Pty Ltd  IRCA 371; (1996) 142 ALR 144) and by Olsson J in Easling v Mahoney Insurance Brokers Pty Ltd  SASC 22; (2001) 78 SASR 489 at 514 . Allsop J accepted the existence of such a term in Thomson v Orica Australia Pty Ltd  FCA 939; (2002) 116 IR 186 (“Thomson v Orica”) at 223-224 -).
If there is an implied term of mutual trust and confidence in contracts of employment, then it is a term implied by law, rather than because of the factual circumstances of a particular case. The term may be excluded by the express terms of the contract or it may be excluded because it would operate inconsistently with the express terms of the contract.
In my opinion, I should hold that there is an implied term of mutual trust and confidence in the contract of employment between Mr Barker and the Bank. That would be consistent with the approach taken in England and with the basis assumed by four Justices of the High Court in Koehler v Cerebos. Such a term does not interfere with the parties’ freedom of contract as they are free to exclude the term if they wish. The term only operates where a party does not have reasonable and proper cause for his or her conduct and the conduct is likely to destroy or seriously damage the relationship of confidence and trust between employer and employee. Furthermore, in this case I am not deciding whether the term applies at the point of dismissal. On 2 March 2009, Mr Barker was advised that his position had been made redundant. On 9 April 2009, the Bank terminated the employment relationship between it and Mr Barker. As will become clear, the critical question in this case is whether the Bank breached its Redeployment Policy between those two dates, that is to say, before the purported termination on 9 April 2009. Put another way, the term is not being invoked to qualify the Bank’s power of termination upon 4 weeks’ written notice or payment in lieu. It is being invoked at the earlier stage. For these reasons, to hold that a serious breach of the Redeployment Policy amounts to a breach of the implied term is not inconsistent with the Bank’s express power of termination under the written employment contract.
Does a serious breach of the policies amount to a breach of the implied term of mutual trust and confidence
In my opinion, to hold that a serious breach of the Redeployment Policy is a breach of the implied term of mutual trust and confidence is not inconsistent with the conclusion that the policy itself is not a term of the contract. That might be so if the policy was expressed in entirely aspirational or descriptive terms, because it would then be difficult to establish a serious breach, but that cannot be said of the Redeployment Policy. It is not a “back door” method of avoiding the effect of the statement in the introduction to the policies because it is only a serious breach that could give rise to a breach of the implied term.
The Bank issues the policies and it has the right to amend or vary them. I do not need evidence to infer that it does so to protect its own interests and to make employment at the Bank attractive. There are likely other reasons but these are sufficient for the purposes of the present point. The Bank makes them available to employees and they assist in working out matters that arise or relate to the employment relationship. Each party expects that the policies will be adhered to, subject to the fact that some of the statements are no more than aspirational or descriptive. I think that a serious breach of the Redeployment Policy by the Bank does give rise to a breach of the implied term of mutual trust and confidence (see Thomson v Orica Australia Pty Ltd  FCA 939;  116 IR 186 per Allsop J at 225 ).
Furthermore, a serious breach of the policies such as to breach the implied term can give rise to a claim for damages: Malik v Bank of Credit and Commerce International SA (In liq)  UKHL 23;  AC 20; Shaw v State of New South Wales  NSWCA 102.
Brisbane Barrister – David Cormack