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|Judgments - Johnson (A.P.) v. Unisys Limited
HOUSE OF LORDS
Lord Bingham of Cornhill Lord Nicholls of Birkenhead Lord Steyn Lord Hoffmann Lord Millett
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSEJOHNSON (AP) (APPELLANT) v UNISYS LIMITED (RESPONDENTS)
ON 22 MARCH 2001
 UKHL 13
LORD BINGHAM OF CORNHILL
1. I have had the advantage of reading in draft the opinions of my noble and learned friends Lord Hoffmann and Lord Millett. I agree with them both and would dismiss this appeal for the reasons which they give.
LORD NICHOLLS OF BIRKENHEAD
2. On this appeal the appellant seeks damages for loss he claims he suffered as a result of the manner in which he was dismissed. He uses as his legal foundation the decision of the House in Mahmud v Bank of Credit and Commerce International SA  AC 20, although that was not a manner of dismissal case. In principle the appellant's argument has much to commend it. I said so, in my obiter observations in Mahmud's case, at pages 39-40. But there is an insuperable obstacle: the intervention of Parliament in the unfair dismissal legislation. Having heard full argument on the point, I am persuaded that a common law right embracing the manner in which an employee is dismissed cannot satisfactorily co-exist with the statutory right not to be unfairly dismissed. A newly developed common law right of this nature, covering the same ground as the statutory right, would fly in the face of the limits Parliament has already prescribed on matters such as the classes of employees who have the benefit of the statutory right, the amount of compensation payable and the short time limits for making claims. It would also defeat the intention of Parliament that claims of this nature should be decided by specialist tribunals, not the ordinary courts of law. I too would dismiss this appeal.
I. Addis's case
3. The head note of the decision of the House of Lords in Addis v Gramophone Co Ltd  AC 488 purports to state the ratio decidendi of that case as follows: where a servant is wrongfully dismissed from his employment the damages for the dismissal cannot include compensation for the manner of his dismissal, for his injured feelings, or for the loss he may sustain from the fact that the dismissal of itself makes it more difficult for him to obtain fresh employment. This statement of the law was based on an observation in the speech of Lord Loreburn LC. A majority of the Law Lords expressed agreement with this speech. On the other hand, only Lord Loreburn specifically referred to the unavailability of special damages for loss of employment prospects. The other Law Lords concentrated on the non-pecuniary aspects of the case. The headnote is arguably wrong insofar as it states that the House decided that a wrongfully dismissed employee can never sue for special damages for loss of employment prospects arising from the harsh and humiliating manner of the dismissal: see MacGregor on Damages, 16th ed, (1997), para 1242. Nevertheless, the statement of the law encapsulated in the controversial headnote has exercised an influence over this corner of the law for more than 90 years. It has had a restrictive impact on the damages which an employee may recover for financial loss actually suffered as a result of the manner of wrongful dismissal.
4. It is instructive to consider how this decision was viewed in 1909. Sir Frederic Pollock, the editor of the Law Quarterly Review, was not impressed. In a case note he contrasted "an artificial rule or mere authority" to "the rationale of the matter": (1910) 26 LQR, 1-2. Citing cases contrary to what was perceived to be the Addis rule, and "said to be exceptions," he plainly thought that as a matter of legal principle the decision was questionable. He said:
The supposed rule in Addis has been controversial for a long time. When the first edition of Treitel's classic book on contract was published some 40 years ago the author described the exclusion of any claim by an employee for financial loss to reputation as hard to justify: The Law of Contract, (1962), pp 606-607. In the 10th edition of the same work Sir Guenter Treitel QC, remained of the same view and was able to cite further decisions in which damages were awarded for financial loss of employment prospects or for injury to reputation resulting from a breach of contract: see pp 921-924.
5. During the course of the last century a fundamental alteration in the relationship between employer and employee has come about. And in the economic sphere that relationship has also drastically altered. This is the context in which the question of public importance now before the House is whether Addis's case precludes the recovery by an employee of special damages for financial loss in respect of damage to his employment prospects resulting from the manner of a wrongful dismissal. It was on this basis that the Appeal Committee granted leave to appeal rather than the particular features of the claim under consideration.
II. The background to the dispute
6. In outline the facts are as follows. The employee is now 52 years of age. With a gap of 3 years he was employed by the employers in the software computer industry from 1971 to 1994. In 1992 he became a director of the company. Over the years he suffered from work-related stress and the employers were aware of his particular psychological vulnerability. In January 1994 the employers made allegations against him regarding his conduct. On 17 January 1994 he was asked to attend a meeting. No specific allegations were put to him. Later that day he was summarily dismissed. He lodged an internal appeal. On 3 March 1994 his dismissal was confirmed. Shortly thereafter he made a complaint of unfair dismissal to an industrial tribunal (now called an employment tribunal). By decisions made on 20 February 1995 and 26 July 1995 the tribunal upheld his complaint and awarded him compensation, subject to a finding that he had contributed by 25% to his dismissal. Applying the statutory maximum the employee was awarded £11,691.88.
7. It is agreed that as "a result of the circumstances and the fact of his dismissal the [employee] suffered a major psychiatric illness, involving, inter alia, in-patient treatment from March to August 1994". In addition the employee had to undergo hypnotherapy every three weeks until January 1996; he was re-admitted twice in 1996 to hospital; thereafter he had to undergo intensive psychotherapy and visit a psychiatric nurse; and he had to take anti depressant drugs for depression, mood swings and alcohol dependency. His health has remained severely affected. Despite repeated applications for jobs he remains unemployed. The main obstacles facing him in seeking employment is the time he spent in hospital following his dismissal and the substantial period he has now been out of work in a rapidly developing industry.
III. The proceedings
8. In August 1997 the employee instituted proceedings in the County Court for breach of contract and negligence on the ground of the manner of his dismissal. He alleged that his employers never informed him of the complaints against him. He relied on an implied term of his contract that his employers would not without reasonable and proper cause conduct themselves in such a way so as to damage the relationship of trust and confidence between the parties. The employee further alleged that the manner of his dismissal and the circumstances leading up to it had caused his mental breakdown and inability to find work, with the result that he would suffer a loss of earnings in excess of £400,000.
IV. The decisions
9. The case came before a judge on an application to strike out the action. The judge viewed the case as in substance one seeking damages for unfair dismissal. He considered that the employee was seeking to circumvent the unfair dismissal legislation. He relied on the law as stated in the headnote in Addis's case. He held that an unfair dismissal could not by itself ground any action to recover financial loss caused by the manner of the employee's dismissal. He struck out the action.
10. The employee appealed. The Court of Appeal gave him an opportunity to amend his particulars of claim. Re-amended particulars of claim were produced. The Court of Appeal indicated that, if the appeal was successful, leave to amend would be given. But Lord Woolf MR, with whom Hutchison and Tuckey LJJ agreed, dismissed the appeal in a closely reasoned reserved judgment:  1 All E R 854. Lord Woolf expressed agreement with the views of the judge. Lord Woolf held that, despite the form of the re-cast pleading, the substance of the employee's complaint was as to the manner in which he had been dismissed. He proceeded on the basis that the headnote in Addis's case correctly stated the effect of that decision. That is not surprising for the contrary was not argued in the Court of Appeal. He examined in detail the impact of the speeches in Mahmud v Bank of Credit and Commerce International SA  AC 20 on the decision of the House in Addis's case and concluded that the House had merely distinguished Addis's case and had not departed from it. He observed, at p 861J, that Addis's case precluded the recovery of damages for the manner of dismissal of an employee while Mahmud's case was concerned with the recovery of damages for an anterior breach. He drew a distinction, at p 859D, between express and constructive dismissal. Applying the rule in Addis's case, Lord Woolf held that the employee had no sustainable claim. Lord Woolf further held that, having regard to the circumstances, the prospects of the plaintiff overcoming the issue of remoteness were unreal: p 862A-B.
V. The issues
11. It is necessary to explain the shape of the case. First, it must be assumed that as a result of the circumstances and fact of his dismissal the plaintiff suffered a major psychiatric illness, involving, inter alia, in patient treatment in a mental hospital from March to August 1994; that subsequently he was hospitalised and treated as I have set out; and that in consequence he has been unable to find a job. Secondly, the claim is brought in contract and, alternatively, in tort. Thirdly, the claim in contract is based on a term implied in contracts of employment, namely that an employer shall not, without reasonable and proper cause, conduct himself in a manner calculated and likely to destroy or seriously damage the relationship of trust and confidence between employer and employee: see Mahmud's case at p 45F-G. Fourthly, in the alternative, the re-amended particulars of claim put forward additional negative and positive implied terms. At the hearing of the appeal counsel for the employee explained that these implied terms were based on dicta in decided cases but he was content to regard these as instances of the application of the general obligation of mutual trust and confidence. The contractual claim is therefore squarely based on a breach of the implied obligation of mutual trust and confidence between employer and employee. The re-amended particulars of claim allege a breach of the implied obligation in that the employers failed:
The consequences of the breach allegedly involved the employee's mental breakdown and consequent total inability to find employment. Having regard to his previous earnings he claims a sum of the order of £400,000. Fifthly, it is important to note that the claim is solely for the recovery of special damages for financial loss. The separate question whether an employee may recover compensation for anxiety and mental stress arising from the manner of his dismissal was not raised before the judge or before the Court of Appeal. It is not an issue before the House and it would be wrong to express any view on it.
12. It will also be necessary to consider the issue of remoteness, namely whether the employee has any realistic prospect of establishing that his loss is not too remote.
13. As I have explained the claim is framed in contract and tort. Having regard to the particular circumstances of this case, if the claim in contract is held to be unsustainable the fate of the claim in tort must inevitably be the same. I propose therefore to concentrate on the potential sustainability of the claim in contract.
14. It is convenient to start by examining the following issues:(1)
What is the effect of the decision in Addis's case?(2)
Even if it is not part of the ratio decidendi of Addis's case does the observation of Lord Loreburn LC (and the headnote) correctly state the law?(3)
What was the impact of Mahmud's case on Addis's case?
Depending on the answer to these questions it will then be necessary to examine the further arguments in detail and to consider the impact of the conclusions on the disposal of the case.
VI. The effect of Addis's case
15. It is necessary to examine what was decided in Addis's case. The speeches in Addis's case are not easy to understand. Two of their Lordships spoke in terms of exemplary damages: see Lord James of Hereford, at p 492; and Lord Collins, diss, at p 497 and pp 500-501. That could not have been an issue. In English law such damages have never and cannot be awarded for breach of any contract. That part of the discussion in the speeches in Addis's case can safely be put to one side. The context of the dispute has often been described. For my part it is sufficient to adopt the description of the case by Sir Frederic Pollock that the plaintiff "was dismissed summarily from an important post in India, and the whole management taken out of his hands in a way which could not but import obloquy among the commercial community of India, and as a result permanent loss". The critical observation on the law of Lord Loreburn LC, at p 491, was undeniably to the effect stated in the headnote. On the other hand, MacGregor on Damages 16th ed, para 1242 has argued that the other Law Lords in the majority confined themselves to the non-pecuniary aspects of the case. Accordingly, it is said, the headnote may not reflect the ratio decidendi of the case. Lord James of Hereford in his substantive reasons discussed the availability of general damages for injury to feelings. But he did say, at p 492, that he agreed with "the entirety of the judgment delivered by my noble and learned friend on the Woolsack". In my view he endorsed the relevant part of the speech of Lord Loreburn LC. On the other hand, Lord Atkinson (at p 493), Lord Gorrell (at p 502) and Lord Shaw of Dunfermline (at p 505) at most expressed general concurrence. In Broome v Cassel & Co. Ltd  AC 1027, 1087B Lord Reid observed:
When one turns to the substantive reasons given by Lord Atkinson, Lord Gorrell and Lord Shaw of Dunfermline, one finds that they dealt exclusively with the non-pecuniary aspects of the case. Only one of the Law Lords who sat in the case can realistically be regarded as having evinced a clear endorsement of Lord Loreburn's observation so far as it ruled out special damages for loss of employment prospects flowing from the manner of a wrongful dismissal.
16. Given the apparently harsh and humiliating manner of the dismissal, it is surprising that the other Law Lords did not consider this aspect. Indeed Lord Atkinson expressly said it was not "necessary" to deal with it. The explanation may be the view taken of the pleadings: see Lord Atkinson's complaint, at p 493, about the "unscientific form" of the pleadings and "the loose manner in which the proceeding's at trial were conducted". Despite assumptions to the contrary (including in particular my assumption in Mahmud's case at pp 50D-51D) it is nevertheless tolerably clear that the ratio decidendi of Addis's case does not preclude the recovery of special damages flowing from the manner of a wrongful dismissal.
VII. The correctness of the observation of Lord Loreburn LC
17. It is still necessary to consider whether the observation of Lord Loreburn LC, although not reflecting the ratio decidendi of Addis's case, was nevertheless correct. This is so for two reasons. First my interpretation of Addis's case may not be correct. Secondly, the proposition of Lord Loreburn LC may be correct in all its constituent parts. As Sir Frederick Pollock explained in his case note in the Law Quarterly Review Lord Loreburn enunciated a special and restrictive rule precluding the recovery of special damages in respect of financial loss flowing from the manner of wrongful dismissal. It was viewed as contrary to legal principle in 1909. In modern times it has been widely criticised as being in conflict with general principles of contract law. In Mahmud's case Lord Nicholls of Birkenhead and I dealt with this point and it is unnecessary to cover the same ground again. But perhaps I may add that I am not aware of any modern academic writer, addressing the subject, who has tried to defend the relevant restrictive rule of Lord Loreburn LC. One is entitled to pose the question: Why was the contract of employment singled out for a special rule to the disadvantage of employees?18.
Addis's case was decided in the heyday of a judicial philosophy of market individualism in respect of what was then called the law of master and servant. The idea that in the eyes of the law the position of a servant was a subordinate one seemed natural and inevitable. And in Addis's case it may have been the background to the adoption of a special restrictive rule denying in all cases to employees the right to recover financial loss which naturally flowed from the manner of their wrongful dismissal. Since 1909 there has been a fundamental change in legal culture. A good illustration is the decision of the House in Scally v Southern Health and Social Services Board  1 AC 294. In Scally's case a contract negotiated by trade unions conferred on an employee a valuable right contingent on him taking up the right in a prescribed manner. He was unaware of the right. The House of Lords held that there was an obligation implied by law as an incident of a contract of employment, as opposed to implied in fact, to bring the term to the notice of the employee. Such a decision would have been unthinkable at the time of Addis's case. In Spring v Guardian Assurance Plc  2 AC 296, 335B, Lord Slynn of Hadley noted "the changes which have taken place in the employer - employee relationship, with far greater duties imposed on the employer than in the past, whether by statute or by judicial decision, to care for the physical, financial and even psychological welfare of the employee". One of the most important of those developments is the evolution since the mid seventies of the obligation of trust and confidence in contracts of employment and its unanimous and unequivocal endorsement in Mahmud's case. The orthodox view is that this implied obligation may be displaced or qualified but only by express agreement or necessary implication: compare, however, a different view in Brodie, "Beyond Exchange: The New Contract of Employment",(1998) 27 ICJ 79, 82-83.
19. Since 1909 our knowledge of the incidence of stress related psychiatric and psychological problems of employees, albeit still imperfect, has greatly increased. What could in the early part of the last century dismissively be treated as mere "injured feelings" is now sometimes accepted as a recognisable psychiatric illness. The outlines of the gradual development of the law in this area are well known: see, for example, McLoughlin v O'Brian  1 AC 410; Frost v Chief Constable of South Yorkshire Police  2 AC 455. Nowadays courts generally accept that they must act on the best medical insight of the day. Specifically, this realism has taken root in the field of employment law: Walker v Northumberland County Council  ICR 702 HC; Gogay v Hertfordshire County Council  IRLR 703. These considerations are testimony to the need for implied terms in contracts of employment protecting employees from harsh and unacceptable employment practices. This is particularly important in the light of the greater pressures on employees due to the progressive deregulation of the labour market, the privatisation of public services, and the globalisation of product and financial markets: see Brendan J. Burchell and others, "Job Insecurity and Work Intensification", (1999), a report published for the Joseph Rowntree Foundation, at pp 60-61. This report documents a phenomenon during the last two decades "of an extraordinary intensification of work pressures". The report states as a major cause the fact that the "quantity of work required of individuals has increased because of under-staffing so that hours of work have lengthened and, more importantly, the pace of work has intensified". Inevitably, the incidence of psychiatric injury due to excessive stress has increased. The need for protection of employees through their contractual rights, express and implied by law, is markedly greater than in the past.
20. It is no longer right to equate a contract of employment with commercial contracts. One possible way of describing a contract of employment in modern terms is as a relational contract. If (contrary to my view) the headnote of Addis's case correctly states the ratio decidendi of Addis's case I would now be willing to depart from it. That is not a particularly bold step. Indeed, in Mahmud's case the House took that step.VIII.
The impact of Mahmud's case on Addis's case
21. It is necessary to return to the analysis by Lord Woolf of the difference between Addis's case and Mahmud's case. Lord Woolf held that the relevant part of the rule in Addis's case deals with the consequences of wrongful dismissal whereas Mahmud's case concerned a breach of the obligation of mutual trust and confidence during the subsistence of a contract. It is, noteworthy that the implied obligation of mutual trust and confidence was developed in a series of constructive dismissal cases: see Hepple & O'Higgins, Employment Law, 4th ed (1981) pp 134-135, paras 291-292. It cannot therefore be confined to breaches during the subsistence of the contract. The development of the implied obligation of mutual trust and confidence as it has evolved was unanimously endorsed by the House as "workable" and "sound" in Mahmud's case: see Lord Nicholls, at p 35A, and in my speech at p 46. It was held in Mahmud's case that the employees in that case would have been entitled to accept a breach of such an obligation as repudiatory and to claim damages: Lord Nicholls, at p 38B-D and my speech at p 48. If the employees had discovered the corrupt conduct of employers during the subsistence of the contract, they would on the law as stated in Mahmud's case have been entitled to terminate the contract and sue for damages. Not only is this an inevitable result of the logic of the decision in Mahmud's case but it had the express unanimous endorsement of the House. "Pecuniary loss brought about by a loss of reputation caused by a breach of contract [does not] preclude the plaintiffs from recovering in respect of that pecuniary loss" (Foaminol Laboratories Ltd v British Artid Plastics Ltd  2 All ER 393, 400): Lord Nicholls, at p 40F-G; my speech at p 52C-H. Damages for wrongful dismissal are governed not by a special rule applicable to employment contracts but by ordinary principles of contract law: see Mahmud's case, at p 39D; and also informative comment in two major new publications, namely English Private Law, ed Professor Birks (2000), vol 2, para 1860-1861, per Professor Burrows; Butterworths Common Law Series, The Law of Contract, ed Professor Furmston (1999), para 8.59. The consequence is that "[c]ases previously regarded as exceptional can now be seen as examples of the general rule": Anson's Law of Contract, 27th ed (1998) ed J Beatson, pp 562-563. In Mahmud's case the House embarked on a process of synthesis. To this extent therefore the observation of Lord Loreburn LC, which rules out in all cases a claim for financial loss resulting from the manner of a wrongful dismissal, is qualified by the unanimous decision of the House in Mahmud's case. In my respectful view the reasoning of the Court of Appeal is not correct.
IX. The contrary arguments of the employers
22. The statutory dimension. Counsel for the employers argued that Addis's case has been a cornerstone of the law of employment for nearly a century. He submitted that the law as stated in Addis's case was the background against which Parliament introduced the unfair dismissal legislation in its original form by the Industrial Relations Act 1971: see the Employment Protection Act 1975 and the Employment Rights Act 1996 for subsequent reforms of the system. In support of this submission he pointed to paragraph 522 of the Report of the Royal Commission on Trade Unions and Employers Associations (1965-1968), Cmnd 3623, June 1968, commonly described as the Donovan Report. It reads as follows:
He argued further that, even if it would otherwise be right to depart from Addis's case in the respect under consideration, it would be wrong to do so in the face of the elaborate statutory scheme governing unfair dismissal created by Parliament. In my opinion this argument ought not to prevail. In West Midland Baptist (Trust) Association (Inc) v Birmingham Corporation  AC 874, Lord Reid put such arguments in context. He said, at p 898F:
It cannot be said that the unfair dismissal legislation would be unworkable if the House departs from Addis's case.