Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2008] NSWCA 217

On 10 September 2008, the Supreme Court of NSW, Court of Appeal (the Court) has emphasised the lim-ited scope of any implied duty of “good faith and fair dealing” in employment contracts.

A teacher (“R”) had been employed by the Roman Catholic Church (the Church) as the Director of Music at St Mary‟s Cathedral in Sydney. R commenced employment in 1976. He was responsible for the general management of the choir, including teaching and training members, conducting at church services, concerts and rehearsals. He also arranged and accompanied the choir on various overseas tours. There was no writ-ten documentation with any express provisions of the contract of employment.

In 1982 Mr David O‟Grady began work as a sacristan at St Mary‟s Cathedral. At the Dean of the Cathe-dral‟s request, he lived in R residence. In 1999, R was arrested and voluntarily stood down. The arrest re-lated to sexual misconduct claimed by a former choir member, Mr Buckley. Bail was granted and R re-turned to his duties under the condition he would be supervised. In March 2000 the committal proceeding began. Mr Buckley failed to attend and all charges against R were dismissed. He resumed full duties with-out any conditions or restrictions.

From February to August 2002 there were communications between the Catholic Commission for Employ-ment Relations (CCER) and the New South Wales Ombudsman‟s Office. This led the Church to conduct an internal enquiry. In August, the Ombudsman‟s office wrote to the Church stating that it would investigate the CCER‟s conduct. It required documents and records relating to the Church‟s checks of R‟s performance of duties.

Once again R conducted his duties under full supervision. He expressed concern at the lack of information that had been provided with. In October 2002 R, his advisor, a Church investigator and the Dean of the Cathedral, attended a meeting where R denied each of the allegations against him. By letter, the Dean requested the attendance of R at a meeting on 10 December. At this meeting, R was in-formed that the allegation of indecent assault had not been sustained. However, preliminary findings of neglect had been sustained on the balance of probabilities. A review of his suitability to continue employment had been recommended as disciplinary action. On 31 January 2003, the Dean consulted with the Cardinal Archbishop, who approved the decision to terminate R‟s employment.

R commenced proceedings in the NSW Industrial Relations Commission (NSWIRC), for the reinstatement of his employment under section 84 of the Industrial Relations Act 1996 (NSW). It was concluded that R‟s termination was unreasonable. Deputy President Harrison did not consider reinstatement „impractical‟ and ordered reinstatement with „restitution of wages and continuity of services for all purposes.‟ R continued his employment after his reinstatement on 1 June 2004, he was paid income that he did not receive while he was not working.

R then commenced proceedings in the Supreme Court of NSW and claimed damages for wrongful termination and for breaches of two implied terms in the employment contract. The damages included the cost of the proceedings, the expenses of a media consultant, injury to reputation and damages for distress, embarrass-ment, humiliation and hurt to feelings.

Damages were also claimed for negligence. Additionally aggravated and exemplary damages were claimed. The Supreme Court found in favour of the church. It determined that the Church had breached its duty, re-garding the implied terms of the contract, however the breach occasioned no damage and no damages were awarded.

In spite of this, the Court also found that there were two duties implied by law in R‟s employment contract. These two duties were, that that the Church would:

• “act in good faith” towards R; and
• “the Church would not conduct itself in a manner likely to destroy or seriously damage the relation-ship of mutual confidence and trust between the parties.”

In 2008 the matter was appealed to the Supreme Court of NSW, Court of Appeal.
Issues to be determined by appeal. There were numerous issues that were to be determined in the appeal:

• Did the church breach R‟s employment contract by dismissing him without reasonable notice?
• Did the church breach the implied term of good faith, mutual trust and confidence in the employment contract by its investigation of R‟s conduct and the termination of his employment?
• If implied terms were breached, could R recover damages for distress, humiliation, injury to feelings or loss of reputation?
• Could R recover the costs of the proceedings in the NSW IRC as mitigation of loss resulting from the termination of employment without reasonable notice?
• Could R recover the costs involved in hiring a public relations consultant to mitigate loss caused by the adverse publicity resulting from the termination without reasonable notice? And
• Could R recover damages for injury to reputation and injury to feelings for breach of contract arising from termination without reasonable notice.

The Church argued against the Supreme Courts decision that there was an implied term of good faith in the employment contract and an implied term not to act in a manner likely to destroy or seriously damage a relationship of mutual trust and confidence. It maintained that a reasonable period of notice would have been 6 months rather than 12 months. Due to the fact that one of the allegations involved misconduct regarding children, the Church was at liberty to summarily dismiss an employee under the relevant legislation at the time, the Child Protection (Prohibited Employment) Act 1998 (NSW). This was only permissible if the Church was satisfied that the alleged conduct had actually occurred. In spite of this, the NSWIRC found that the a allegations were not substantiated.

The guidelines that covered investigations to be conducted by the ombudsman merely required that the investiga-tors “should be mindful of the principles of procedural fairness.”
Moreover, due to the fact that R had been reinstated with his entitlements preserved, the question of “reasonable notice” did not need to be considered.

R had an oral contract of employment, which did not contain much detail. It did not contain any express terms relating to duties of good faith, mutual trust and confidence. The alleged breach of procedural fairness related to interviewing a witness by telephone instead of in person, because the witness was interstate at the time, did not amount to a breach of good faith, mutual trust and confidence. No breach of any implied term of good faith towards the employee was established. The case did not involve constructive dismissal, but actual dismissal based on adverse findings in a report.

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The court stated that R failed to establish a causal connection between the breach of contract and the losses that he suffered. In spite of this, a face to face interview with the witness was unlikely to have altered either the report‟s findings or the Church‟s decision to dismiss him.
It was argued by R that some of the costs incurred were related to mitigating the effect of his wrongful dis-missal. This included taking steps such as hiring a public relations consultant. However, the court held that R was not entitled to recover the costs of proceedings in the NSWIRC. These costs stemmed from the allegation of unfair dismissal, not from any earlier breach of contract.

R‟s contract of employment prohibited the recovery of damages for breach of any implied term of good faith or mutual trust and confidence. Thus an award of general damages for distress, humiliation, injury to feelings or loss of reputation following a successful unfair dismissal claim, had no basis.

The expense incurred in hiring the public relations consultant was an attempt to deflect publicity created by the NSWIRC proceedings, rather than expenses in relation to damages incurred by R. The breach of contract was not the bad publicity, thus there was no causal link. To be more precise, the breach was a failure to give reasonable notice of dismissal. The Court examined numerous cases discussing this issue of damages. They concluded that the industrial relations legislation has limited the basis of relief to unfair dismissal, which includes reinstatement and or compensation for economic losses. This is instead of providing a more general remedy for the unfair administration of an employment contract. Hence, there was no basis for an award of general damages for distress, humiliation, injury to feelings or loss of reputation.

Therefore, the damages that were sought by R, could not flow from the termination of his employment con-tract, consequently the appeal was limited to questions of loss flowing from any breaches of its implied terms. Thus, there was no breach of any duty of good faith, and even if there had been, damages would not have been recoverable for it.

As a result, Giles, Basten and Campbell JJ dismissed R‟s appeal against part of the ruling by Supreme Court Justice Rothman. Basten J, in particular, accepted Rothman J‟s findings that the implied duties existed in Australian common law, but characterised them as a “single obligation” of good faith and fair dealing.