Gregor Campbell, Lawyer, Daniella Christodoulou, Senior Associate and Nieva Connell, Partner 

Vision Australia Ltd v Elisha [2023] VSCA 265

Background

This appeal arose out of a December 2022 decision of the Victorian Supreme Court (Vision Australia Ltd v Elisha [2022] VSC 754) to award Mr Elisha $1,442,404.50 for breach of his employment contract by Vision Australia (Vision).

Vision terminated Mr Elisha’s employment after he allegedly engaged in aggressive conduct towards a member of hotel staff during an overnight stay at the Bairnsdale International Hotel in March 2015 while travelling for work. Mr Elisha denied these allegations.

Mr Elisha alleged that his employment contract included a clause which required Vision to follow ‘due process’ when investigating accusations of misconduct and that Vision’s failure to abide by this clause had caused him psychiatric injury.

The Supreme Court found in favour of Mr Elisha agreeing that Vision had breached Mr Elisha’s employment contract when they failed to abide by due process when terminating his employment. The Supreme Court also held that Vision owed Mr Elisha a duty of care to protect him from psychiatric injury during the disciplinary process.

Issues on Appeal

Vision appealed this decision to the Victorian Court of Appeal arguing that the Supreme Court had erred in:

1. Finding that the clause requiring Vision to follow due process in its investigations (which was contained in Visions employment policies, but not the employment contract) had been incorporated into Mr Elisha’s employment contract.
2. Finding that Vision had failed to follow due process in its investigation.
3. Concluding that Mr Elisha was eligible to claim damages for his psychiatric injury.

Findings

The Court of Appeal held that Vision was required to follow due process when investigating the allegations made against Mr Elisha and when deciding whether to terminate his employment, as a clause requiring such had been incorporated into Mr Elisha’s employment contract.

The Court of Appeal further held that Vision had failed to follow this due process when terminating Mr Elisha’s employment as they failed to formally put the allegations of misconduct to Mr Elisha, and conduct a disciplinary hearing.

Critically, however, the Court of Appeal found that Mr Elisha could not be awarded damages for his psychiatric injury. The Court of Appeal considered that Mr Elisha’s psychiatric injury, which left him unable to work for the foreseeable future, was so severe that neither himself nor Vision would have contemplated (when they entered into Mr Elisha’s employment agreement) that Vision’s failure to follow due process would result in this type of injury.

The Court of Appeal further commented that it was unconvinced following its consideration of High Court authorities (Baltic Shipping Co v Dillon [1993] HCA 4 and Moore [2020] HCA 17) that a claim for psychiatric injury could be maintained in a breach of contract claim in the absence of a physical injury, absent falling into one of the specific and recognised categories emanating from these cases

Finally, the Court of Appeal examined Mr Elisha’s claim through the lens of negligence as agitated by Mr Elisha in the Supreme Court Proceeding and on appeal. The Court of Appeal agreed with the findings of the Supreme Court in this regard, concluding that the duty of care Vision owed Mr Elisha as his employer did not extend to ensuring Mr Elisha was unharmed by their termination process.

While Mr Elisha therefore was able to successfully establish a breach of contract as against Vision, he was unable to claim damages for his psychiatric injury and his damage order was set aside.

Relevance to Insurers

The Court of Appeal’s reiterated the longstanding authority that damages for breach of contract for ‘psychiatric injury’ will only be awarded in certain categories of cases. The Court of Appeal’s commentary in relation to psychiatric injuries will likely reverberate throughout both the employment and the personal injury space.

Their conclusions that:

1. a claim for psychiatric injury under breach of contract may be untenable in the absence of a physical injury; and
2. that the extent and nature of the injury must have been reasonably contemplated by those entering into the employment contract for damages to be awarded;

will have long reaching implications for the scope of claims made under breach of contract and will likely significantly limit claims for psychiatric damage alone.