Demise of implied term of mutu­al trust and con­fi­dence — High Court decision

In Brief

The legal fra­ter­ni­ty has been eager­ly await­ing the deci­sion of the High Court in the case of Com­mon­wealth Bank of Aus­tralia v Bark­er [2014] HCA 32 (10 Sep­tem­ber 2014). The issue for con­sid­er­a­tion involves whether in employ­ment con­tracts, the com­mon law of Aus­tralia implies a term of mutu­al trust and con­fi­dence.

The High Court has now set­tled the ques­tion and decid­ed that no such duty should be implied by law. For employ­ers this may come as some­thing of a relief. For employ­ees espe­cial­ly those with cur­rent claims before the courts assert­ing this right, it may come as some­thing of a disappointment.

Facts

Mr Stephen Bark­er (the Respon­dent in the High Court pro­ceed­ings) was employed by the Com­mon­wealth Bank (the Appel­lant in the High Court pro­ceed­ings). He com­menced employ­ment in 1981 and was ter­mi­nat­ed by rea­son of redun­dan­cy in April 2009. His employ­ment con­tract con­tained var­i­ous pro­vi­sions includ­ing pro­vi­sions relat­ing to exhaust­ing rede­ploy­ment oppor­tu­ni­ties in cir­cum­stances where his posi­tion was to be ter­mi­nat­ed in the con­text of a redundancy. 

It would seem that the process pro­vid­ed for under his con­tract for offer­ing rede­ploy­ment oppor­tu­ni­ties was car­ried out in a less than ide­al man­ner, which was not helped by the Bank send­ing him emails when it had cut off his email access and with­draw­ing his mobile phone facilities. 

In any event, fol­low­ing ter­mi­na­tion of Mr Bark­er’s employ­ment, he com­menced pro­ceed­ings against the Bank in the Fed­er­al Court claim­ing, amongst oth­er things, that the Bank had failed to con­duct the ter­mi­na­tion or redun­dan­cy process in a bona fide and/​or prop­er man­ner. He also assert­ed the con­duct of the Bank was in breach of the implied term of mutu­al trust and con­fi­dence and this result­ed in him being denied the oppor­tu­ni­ty of rede­ploy­ment and there­fore the oppor­tu­ni­ty to retain his employ­ment with the Bank.

Fed­er­al Court and Full Court decisions

The pri­ma­ry judge Besanko J held that there was a term of mutu­al trust and con­fi­dence implied into the employ­ment con­tract which would be breached if a par­ty had, with­out rea­son­able and prop­er cause, engaged in con­duct like­ly to destroy or dam­age the rela­tion­ship of trust and con­fi­dence. He con­sid­ered that the Bank’s fail­ure to take mean­ing­ful steps with respect to rede­ploy­ment was a seri­ous breach of the rede­ploy­ment pol­i­cy and there­fore a breach of the implied term.

The Full Court of the Fed­er­al Court by a major­i­ty also held that the term of mutu­al trust and con­fi­dence was implied by law. It adopt­ed the lan­guage of the House of Lords in Malik v Bank of Cred­it and Com­merce Inter­na­tion­al SA (in com­pul­so­ry liq­ui­da­tion) and held that the term required that ​“the employ­er will not, with­out rea­son­able cause, con­duct itself in man­ner like­ly to destroy or seri­ous­ly dam­age the rela­tion­ship of con­fi­dence and trust between employ­er and employ­ee”. The Full Court con­sid­ered that fail­ure by the Bank to take pos­i­tive steps to con­sult with Mr Bark­er about alter­na­tive posi­tions and give him the oppor­tu­ni­ty to apply for them con­sti­tut­ed breach of the implied term.

Jes­sup J dis­sent­ed, find­ing that the term was not to be implied and could not, amongst oth­er things, be jus­ti­fied as a mutu­al­i­sa­tion of an employ­ee’s duty of fideli­ty or as a prin­ci­pled devel­op­ment of the implied duty at law of co-oper­a­tion between par­ties to a contract.

High Court

The pri­ma­ry issue before the High Court was whether the com­mon law of Aus­tralia should recog­nise the so called implied term of mutu­al trust and con­fi­dence in employ­ment con­tracts. It decid­ed unan­i­mous­ly that such a term should not be implied into employ­ment con­tracts, although Kiefel J and Gagel­er J wrote com­ple­men­tary deci­sions in sup­port of the major­i­ty deci­sion of French CJ, Bell and Keane JJ.

Kiefel J traced the devel­op­ment of the implied duty of mutu­al trust and con­fi­dence in the Unit­ed King­dom and not­ed that it had evolved in the con­text of its indus­tri­al rela­tions sys­tem. She observed that the ques­tion of whether the term of trust and con­fi­dence should be recog­nised in the UK was not actu­al­ly argued in Malik. Its appli­ca­tion to employ­ment con­tracts was assumed, notwith­stand­ing that it had evolved and been giv­en recog­ni­tion before employ­ment tri­bunals in con­nec­tion with the area of con­struc­tive dismissals. 

She observed that fol­low­ing the Unit­ed King­dom deci­sion in John­son v Unisys, the scope of oper­a­tion of the term of mutu­al trust and con­fi­dence appeared to be lim­it­ed to claims for dam­ages with respect to con­duct pri­or to but not con­nect­ed with termination.

Turn­ing to Aus­tralia, she not­ed Com­mon­wealth and State leg­is­la­tion had for some years pro­vid­ed a régime for unfair dis­missal and the test of unfair­ness had for some time been whether the dis­missal was ​“harsh, unjust or unrea­son­able”. In this con­text, she con­sid­ered that the area left for the oper­a­tion of the term was with respect to trust destroy­ing con­duct which does not have the con­se­quence of end­ing an employ­ment relationship.

A key ques­tion for deter­mi­na­tion was whether the employ­ment con­tract between Mr Bark­er and the Bank required for its effi­ca­cy, the impli­ca­tion of a term of trust and con­fi­dence. Kiefel J deter­mined that it did not require the impli­ca­tion of such term as the actu­al terms of the con­tract were quite clear as to the oblig­a­tions of the Bank and need­ed no addi­tion­al term to be implied in order to be giv­en effect. She fur­ther held that con­tracts of employ­ment in gen­er­al do not require the impli­ca­tion of a term of trust and con­fi­dence for their effec­tive operation.

The major­i­ty not­ed that employ­ment con­tracts have attract­ed a num­ber of implied terms in the course of the evo­lu­tion of the employ­ment rela­tion­ship includ­ing: the implied duty to pro­vide a safe sys­tem of work, the oblig­a­tion to give rea­son­able notice of ter­mi­na­tion oth­er than for breach, and the implied duty of fideli­ty by an employ­ee not to engage in con­duct destruc­tive of the nec­es­sary con­fi­dence between employ­er and employ­ee. Also, in com­mon with con­tracts gen­er­al­ly, employ­ment con­tracts attract a duty to cooperate. 

The major­i­ty also not­ed that a key focus in the sub­mis­sions of the court was whether the pro­posed implied duty of mutu­al trust and con­fi­dence was nec­es­sary in the sense that with­out it the rights con­ferred by the employ­ment con­tract would be seri­ous­ly under­mined or ren­dered nuga­to­ry. It also con­sid­ered that the duty of mutu­al trust and con­fi­dence pro­posed, imposed mutu­al oblig­a­tions wider than those essen­tial for the con­tract to be effi­ca­cious. It con­trast­ed this with the duty to co-oper­ate which was nec­es­sary for enjoy­ment of rights con­ferred by a contract.

Fur­ther­more, it con­sid­ered that the pro­posed implied duty of mutu­al trust and con­fi­dence was direct­ed to the rela­tion­ship between employ­ee and employ­er as dis­tinct from the con­tract between them and should not be accept­ed as applic­a­ble in Aus­tralia or in its words:-

​“Impor­tant­ly, the implied duty of trust and con­fi­dence as pro­pound­ed in Malik is direct­ed, in broad terms, to the rela­tion­ship between employ­er and employ­ee rather than to per­for­mance of the con­tract. It depends upon a view of social con­di­tions and desir­able social pol­i­cy that informs a trans­for­ma­tive approach to the con­tract of employ­ment in law. It should not be accept­ed as applic­a­ble, by the judi­cial branch of gov­ern­ment to employ­ment con­tracts in Australia”

The major­i­ty deci­sion was keen to empha­sise that this con­clu­sion should not be tak­en as reflect­ing upon the ques­tion of whether there is a gen­er­al oblig­a­tion to act in good faith in the per­for­mance of contracts. 

To con­clude, the court con­sid­ered that the com­plex pol­i­cy con­sid­er­a­tion, around the ques­tion of whether such a duty of mutu­al trust and con­fi­dence should exist, is some­thing which should be left to the leg­is­la­ture to decide rather than the courts. There­fore, there is cur­rent­ly no such implied duty under the com­mon law of Australia.