Employment: duty not to cause financial loss & implied term of good faith

Dukker v Challenge Recruitment Limited [2011] QDC 108

The plaintiff in this matter failed most notably because of her lack candour both in the disclosing past medical problems and in giving evidence, together with the forensic cross-examination of her doctor.

However, the decision is of interest because of the obiter dicta discussion of:

  • duty to take reasonable care not to cause financial loss to the plaintiff; &
  • whether there is an implied term in a contract of employment that the employer will act in good faith, and more generally, not in a manner such as to damage the relationship of confidence and trust between employer and employee

A/Judge Farr SC, DCJ

Duty of Care

[54] There is no doubt that an employer owes a duty to take reasonable care to avoid causing harm to an employee, which is usually discussed in terms of an obligation to avoid physical harm to an employee.

[55] In the present instance, it is alleged that the defendant’s duty to take reasonable care extends to not causing financial loss to the plaintiff.

[56] The principles relevant to determining the existence of a duty of care to avoid economic loss (separate from personal injury or damage to property) were recently summarised by his Honour Judge McGill in Kilvington v Grigg & Ors.[31] That was a case in which it was alleged that a medical practitioner had a duty to provide a certificate for the purpose of the plaintiff accessing his superannuation monies on the ground of permanent incapacity.

[57] His Honour held as follows:

“[58] Liability in Australia for economic loss separate from any personal injury or damage to property dates from the decision of the High Court in Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’ [1976] HCA 65; (1976) 136 CLR 529. In that case it was held that the owners of the dredge which damaged an underwater pipeline were liable to the oil company that owned the oil that used the pipeline, and depended upon its presence for its operations, for economic loss suffered as a result of the damage. The president of the Court of Appeal considered this and subsequent leading authorities in the area in Fortuna Seafoods Pty Ltd v The Ship ‘External Wind’ [2008] 1 Qd R 429. Her Honour said at p 437:

‘This developing area of Australian law has moved incrementally and cautiously. … Caltex and Perre v Apand Pty Ltd (1999) 198 CLR [180] suggest that the determination of whether a defendant owes a claimant a duty of care not to cause mere economic loss will depend on a combination of factors including the reasonable foresight of the likelihood of harm; the defendant’s knowledge or means of knowledge of an ascertainable, determinate class of persons who are at risk of foreseeable harm; the claimant’s vulnerability or whether they are unable to protect themselves from the foreseeable harm; whether the implication of a duty would impair the defendant’s legitimate pursuit of autonomous commercial interests including the existence of any contracts between the claimant and defendant; whether the damage flowed from the occurrence of activities within the defendant’s control; the closeness of the relationship between the parties and the existence of any other special circumstances justifying compensation. There is, however, no simple formula to be applied in determining whether the application of these principles to the facts of this case has the result that “external wind” is responsible for Fortuna Seafoods claimed economic loss. The answer to that question requires some detailed attention to the pertinent facts of this case.’

[59] That case involved facts which had some similarity to the Caltex case, in that it involved damage by the negligent navigation of a ship to property other than the property of the plaintiff, as a result of which the plaintiff suffered economic loss; in this case, the defendant sank a commercial fishing vessel owned by a different company which interfered with the plaintiff’s business processing and selling the catch from that fishing vessel; the two companies had a single integrated business, said to be a common arrangement of the fishing industry. By a majority the Court of Appeal upheld the existence of a duty to the plaintiff in that case.

[60] Two things emerge in particular from this passage. The first is that it is necessary for a court to be very careful before concluding that a duty of care not to cause any economic loss exists in any novel situation. The second is that the existence and content in any particular case of such a duty of care depend very much on the individual circumstances of the particular case.”

[58] In Perre v Apand Pty Ltd,[32] McHugh J said:

“What is likely to be decisive, and always of relevance, in determining whether a duty of care is owed is the answer to the question, ‘How vulnerable was the plaintiff to incurring loss by reason of the defendants conduct?’ So also is the knowledge of the defendant concerning that risk and its magnitude.”

[59] In Woolcock Street Investments Pty Ltd v CDG Pty Ltd,[33] McHugh J identified five principles relevant to determining whether a duty of care existed in cases of liability for pure economic loss.[34] Those principles were concerned with:

  • reasonable foreseeability of loss;
  • indeterminacy of loss;
  • autonomy of the individual;
  • vulnerability to risk; and
  • knowledge of the risk and its magnitude.

[60] Taking all of the above matters into consideration, I accept that an employer has a duty to act reasonably to avoid foreseeable financial loss to an employee.

[61] In this case, that raises three questions:

(i) was this a foreseeable financial loss?;

(ii) did the defendant fail to act reasonably to avoid foreseeable financial loss?; and

(iii) did that failure, if it is found to exist, in fact cause a foreseeable financial loss?

[62] The plaintiff submits that the delay in submitting the questionnaire to AMP was a failure on the part of the defendant to act reasonably. I accept that submission. No explanation has been placed before the court for the inordinate delay in the forwarding of the questionnaire to AMP. I also accept that this was a foreseeable financial loss. I rely on the following in support of those conclusions:

  • the defendant, through its employee Ms Dickie, had advised the plaintiff that it was compulsory for its employees at Telstra to take out TPD and death insurance;[35]
  • the policy was one specifically negotiated by the defendant with AMP (through its broker) for the benefit of the employees;[36]
  • the defendant assumed the responsibility to forward the insurance questionnaire to AMP in a timely manner;
  • the defendant knew that the plaintiff was relying on it to do so;
  • the defendant had not informed the plaintiff that it had not done so;
  • the plaintiff was vulnerable to economic loss as the result of the defendant’s failure to fulfil its undertaking to send the form in a timely way;
  • the defendant knew of the plaintiff’s vulnerability;
  • it was objectively foreseeable that if the insurance questionnaire was not sent in a timely way, the plaintiff could suffer economic loss;
  • there is no question of indeterminacy of loss; and
  • no explanation has been provided for the defendant’s failure to process the questionnaire in a timely way.

[63] I am comforted in my conclusions by the remarks of Wilcox J (obiter) in United Superannuation Pty Ltd v Harrison,[37] a case in which an employee commenced work in June 1997 and died on 29 July 1997, without institution of death cover in conjunction with her superannuation. On an appeal from a decision of the Superannuation Complaints Tribunal, Justice Wilcox said:

“[49] This does not mean that Mr Harrison (the executor of the estate of the employee) has no redress. On the contrary, the estate seems to have an irresistible claim against either Lorjona (the employer) or United (the Superannuation Fund Trustee). The delay in nominating Ms Reynolds to Citicorp (the insurer) was clearly the fault of one or both of these companies; and that delay is the reason why no death benefit is payable.

[50] If it is correct (as United now asserts), that United heard nothing about Ms Reynolds (the employee) until after her death, it cannot be said that United was responsible for any relevant delay, and therefore the loss of the benefit. However, on that basis, Lorjona was responsible for a lengthy delay that caused loss of the benefit. Lorjona could, and should, have nominated Ms Reynolds to United as soon as she entered the company’s employment; thereby enabling United to nominate her to Citicorp. Any such delay by Lorjona may have been a breach by it of its contract of employment with Ms Reynolds; alternatively, it seems to be a breach of its duty of care towards her.”

[64] Furthermore, despite some evidence to the contrary, I accept the plaintiff’s evidence in re-examination when she said:

“You have given some evidence about some discussions on the first day and some completion of those forms?—Yes.

Did those discussions and the completion of those forms leave you to believe anything about what cover you had for insurance?—I just thought I had the cover that I’d filled out on the forms”.[38]

[65] The plaintiff was not provided with copies of any of the forms that she completed on 4 March 2005, and was therefore unable to carefully read the fine detail at some later time. In those circumstances, it was not unreasonable for her to have formed such a belief.

[66] For these reasons I am of the view that the defendant did have a duty to take reasonable care to avoid causing foreseeable financial loss to the plaintiff. For reasons that I give elsewhere in this judgment however, I do not accept that the actions of the defendant in fact caused financial loss to the plaintiff.

[68] The plaintiff has submitted that it is well established in Australia that there is an implied term in a contract of employment that the employer will act in good faith, and more generally, not in a manner such as to damage the relationship of confidence and trust between employer and employee.

[69] I don’t necessarily accept that such a proposition is well established. As P. Lyons J said in the recent decision of Wright v Groves:[39]

“The defendant’s submissions refer to a statement from a leading Australian textbook on this area of the law to the effect that it is part of the English law that a Contract of Employment includes an implied term of trust and confidence; but that there is no definitive High Court decision accepting this as part of Australian law. There is clearly a substantial body of authority in this country which has accepted the implication of such a term, and it may well be thought that the implication of such a term forms part of the ratio of at least some of those decisions. Nevertheless, it is also clear that in some cases there have been expressed reservations about whether such a term is to be implied. I therefore propose to proceed on a basis that this area of the law in Australia is unsettled.”

[70] His Honour then identified a qualification on the implied term which arises from the following passage from the judgment of Allsop J (as His Honour then was) in Thomson v Orica Australia Pty Ltd: [40]

“… there is ample authority for the implication of a term in a Contract of Employment that the employer will not, without reasonable cause, conduct itself in a manner likely to damage or destroy the relationship of confidence and trust between the parties as employer and employee…”

[71] P. Lyons J accepted that if such an obligation exists, it is imposed on both employer and employee.[41]

[72] In Russell v The Trustees of the Roman Catholic Church for the Arch Diocese of Sydney,[42] Basten JA said:

“[30] Rothman J considered separately whether there were implied terms of good faith and of not acting, without reasonable and proper cause, in a manner calculated to destroy or seriously damage the relationship of confidence and trust between employer and employee. In relation to the former, he noted that the expressed terms of the contract were basic in their extent and that the parties envisaged a continuing, indefinite period of employment, where the precise extent of the obligations of the employee were not fully known at the time the contract was entered into: at [118]. His Honour continued:

‘In those circumstances, the rights and/or duties reposed in either the employer or the employee would need to be exercised honestly and reasonably; with prudence, caution and diligence, and with ‘due care to avoid or minimise adverse consequences’ to the other party that are inconsistent with the agreed common purpose and expectations of the parties to the contract. But all the while, the parties have the capacity to exercise their rights in their own interests.’

[31] In relation to the second implied term, his Honour noted that the characterisation of an employer/employee relationship has one importing duties of loyalty, honesty, confidentiality and mutual trust, was the subject of high authority, citing, at [129], Concut Pty Ltd v Worrell [2000] HCA 64; 75 ALJR 312 at [17] and [26] (Gleeson CJ, Gaudron & Gumnow JJ) and [51(3)] (Kirby J) and Mahmud v Bank of Credit & Commerce International SA (in compulsory liq) [1997] UKHL 23; [1998] AC 20: Russell at [99], [132] and [133].”

[73] In Taske v Occupational and Medical Innovations Limited,[43] a case dealing with unfair dismissal, Moynihan J said:[44]

“In a case such as this there is an implied term that the parties act in good faith in a relationship of mutual trust and confidence.”

[74] Despite the uncertainty of the law in Australia on this point, in my view the authorities lean to the existence of such an implied term in a contract of employment.

[75] A difficulty that exists in this matter however in part, arises from the dishonest answers that the plaintiff gave in the documents “Medical Disclosure” and “Registration Kit” (see paragraphs 46 to 51 above). I have no doubt that providing those deliberately false answers for which the plaintiff had no reasonable cause, was conduct which was likely to damage or destroy the relationship of confidence and trust between the parties as employer and employee.

[76] Of course, the defendant did not know of the falsity of those answers at the relevant time. Nevertheless, in my opinion, such dishonest conduct on the part of the plaintiff offends the implied term that the parties act in good faith in a relationship of mutual trust and confidence.

[77] Given my findings above, I do not need however to decide this issue.

Brisbane Barrister – David Cormack


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