Case of Elisha v Vision Australia Ltd [2024] HCA 50

On December 11, 2024, the High Court of Australia overturned a decision by the Court of Appeal, siding with Adam Elisha in his case against Vision Australia Limited. The High Court's ruling reinstated the original judge's award of significant damages for the psychiatric injury Mr Elisha suffered due to a flawed disciplinary process and unfair dismissal.

Background to the Case

Mr Elisha had been employed by Vision Australia as an adaptive technology consultant since 2006. In 2015, following an incident at a hotel, he faced a disciplinary hearing. The judge at the Supreme Court of Victoria later described the process as a "sham and a disgrace." Mr Elisha was suspended and accused of serious misconduct, but crucial allegations, including a supposed "pattern of aggression", were never properly disclosed to him, which denied him a fair chance to respond despite Mr Elisha’s ongoing struggles with anxiety and depression. His employment was ultimately terminated.

Decision by the Supreme Court

At trial in the Supreme Court of Victoria, Justice O'Meara found in favour of Mr Elisha, concluding that Vision Australia had breached the terms of his employment contract by failing to follow a fair disciplinary procedure.

The judge awarded him $1,442,404.50 in damages for the psychiatric injury he suffered due to the breach and unfair dismissal, as it was foreseeable that such an action could cause him distress. Furthermore, Vision Australia failed to adhere to its own procedures.

Court of Appeal’s Decision

Vision Australia appealed this decision to the Court of Appeal of the Supreme Court of Victoria. The Court of Appeal allowed the appeal, finding that while there had been a breach of contract, damages for psychiatric injury were not recoverable in such circumstances, relying partly on the old case of Addis v Gramophone Company Ltd [1909] AC 488. The Court of Appeal also concluded that the psychiatric injury was too remote from the breach of contract. This decision overturned the damages award in favour of Vision Australia.

High Court’s Final Decision

The High Court, however, has now unanimously (save for Justice Steward on the issue of remoteness) overturned the Court of Appeal's decision. In a majority, the High Court addressed several key issues:

Firstly, the Court confirmed that the relevant terms of Vision Australia's Disciplinary Procedure were indeed incorporated into Mr Elisha's employment contract and were contractually binding.

Secondly, the High Court rejected the argument that Addis v Gramophone Company Ltd creates a blanket prohibition on recovering damages for psychiatric injury arising from the manner of dismissal in breach of contract. The Justices clarified that Addis v Gramophone Company Ltd primarily concerned compensation for "injured feelings" and difficulties in finding new work, which are distinct from a recognised psychiatric injury. They highlighted that subsequent case law, both in the UK and Australia (including Baltic Shipping Co v Dillon [1993] HCA 4), acknowledges the potential for recovering damages for psychiatric injury in contractual settings.

Lastly, the High Court disagreed with the Court of Appeal's view on remoteness. Applying the principles from Hadley v Baxendale [1854] EWHC J70, the Court held that the relevant test is whether the type of damage (serious psychiatric injury) and how it occured should have been a "serious possibility" for both parties at the time the contract was made. Given the primary judge's findings about the severely flawed and unfair nature of the disciplinary process, the High Court concluded that it was indeed a serious possibility that such breaches could lead to serious psychiatric injury for Mr Elisha. The Court criticised the Court of Appeal for mischaracterising the breach and the evidence.

Ultimately, the High Court set aside the orders of the Court of Appeal and ordered that the appeal to that Court be dismissed with costs, effectively restoring the original damages award made by the trial judge.

Practical Lessons from the Case:

Employees:

• Contractual disciplinary procedures are significant: If your employer's disciplinary policies are incorporated into your employment contract, they are legally binding. A failure by your employer to follow these procedures can constitute a breach of contract, giving rise to potential legal claims.
• Damages for psychiatric injuries: You may be able to claim damages for serious psychiatric injury caused by your employer's breach of contract in the manner of your dismissal, especially if the breach involved a failure to follow fair disciplinary procedures. This is distinct from unfair dismissal claims and may allow for compensation beyond the limits of statutory remedies.

Employers:

• Adherence to contractual procedures is crucial: If your disciplinary procedures and policies are part of the employment contract, you are legally obligated to follow them meticulously. Failure to do so can lead to successful breach of contract claims and potential liability for significant damages, including for psychiatric injury.
• Dismissal processes matter: Even if there are reasons for dismissal, the way the disciplinary process is handled and how the dismissal is carried out can create liability if it breaches contractual terms and foreseeably causes harm. The limitations of Addis v Gramophone Company Ltd do not provide a shield against such liability when a contractual breach occurs.

If you're uncertain about your rights or obligations under employment contracts or disciplinary procedures, seek advice from an employment law specialist to ensure compliance and protect yourself from risk.

Authors: Jim Babalis and Maddy Kotteeswaran

Disclaimer: The content provided in this publication is intended for general informational purposes only and should not be construed as tailored advice to address specific individual or organisational circumstances. While we strive to offer accurate and up-to-date information, we cannot guarantee its accuracy at the time of receipt or its continued accuracy in the future. Readers are encouraged to seek professional advice or consult relevant authorities regarding their unique situations.