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Moves like
Jagger
The High Court on Mutual
Trust and Confidence
The contract we are dealing with in a
sense is easy. It sits at the centre of what
we would call an employment contract …
But out at the boundaries there is a lot
of grey.
— Chief Justice French1
The law governing employment contracts
has become significantly more black and
white in recent months, following the High
Court’s pronouncement in Commonwealth
Bank of Australia v Barker that the implied
term of mutual trust and confidence is,
under the common law of Australia, dead.2
In doing so, the Court conclusively settled
“one of the most contentious questions in
Australian employment law,”3 and provided
relief for nervous employers already
concerned about their employment-related
liability following Richardson v Oracle
Corporation of Australia.4 Yet the Court’s
reluctance to consider the associated
implied term of good faith leaves another
area of uncertainty awaiting further
litigation.
Barker arose following the Commonwealth
Bank’s decision in 2009 to make a senior
and long-serving employee redundant
as the result of restructuring. While the
Bank attempted to find redeployment
opportunities for Mr Barker, he had been
stripped of access to his work email and so
the Bank’s messages about such attempts
did not reach him until just prior to the
date of termination.
Before Besanko J of the Federal Court,5
Mr Barker claimed that the Bank “had
failed to conduct the termination or
redundancy process in a bona fide and/or
proper manner.”6 This failure, he claimed,
amounted to a breach of two of the Bank’s
policies — its redundancy policy and its
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Ethos | December 2014
equal employment opportunity policy.
Mr Barker founded his claim in contract
on three alternative propositions — the
policies were expressly incorporated into
his employment contract; the policies were
incorporated by practice and usage into
his employment contract; or ‘his contract
of employment included an implied term
of mutual trust and confidence and that a
serious breach of the policies was a breach
of that implied term.’7
Besanko J was not persuaded by the first
two propositions, particularly as the Bank’s
employment manual bluntly stated that it
was “not in any way incorporated as part of
any industrial award or agreement entered
into by the Bank, nor does it form any part
of an employee’s contract of employment.”8
However, after considering English cases
and judicial recognition of the term in
Australia, Besanko J found that “there
is an implied term of mutual trust and
confidence in the contract of employment
between Mr Barker and the Bank.”9
The implied term was established in
England in the 1997 case of Malik v Bank
of Credit and Commerce International
SA (in liq),10 where the House of Lords
held that an employer cannot, “without
reasonable and proper cause, conduct itself
in a manner likely to destroy or seriously
damage the relationship of confidence and
trust between employer and employee.”11
While the precise content of the term
was somewhat unclear, Lord Steyn stated
that it “is apt to cover the great diversity
of situations in which a balance has to
be struck between an employer’s interest
in managing his business as he sees fit
and the employee’s interest in not being
unfairly and improperly exploited.”12
Although the term arose as the result of
particular circumstances in the English
labour market, the implication had a
broader rationale. One Australian author
stated (pre-the Barker High Court
decision): “the term is … a recognition
that the employment relationship has
personal and social dimensions … The
employee is a person. As such, he or
she should be treated with respect and
dignity.”13
After considering the English and
Australian authorities, including the
assumption (but not acceptance) of the
term’s existence by four High Court judges
in Koehler v Cerebos (Aust) Ltd,14 Besanko J
allowed Mr Barker’s claim, awarding
him $317,500 damages for economic loss
arising from the breach of the term.
The Bank appealed. Jacobson and
Lander JJ upheld Besanko J’s decision.
Jessup J strongly dissented.15
The majority began by noting that the
implied term was necessary to “prevent the
enjoyment of rights conferred by contract
being rendered nugatory, worthless, or
seriously undermined.”16 Quoting South
Australia v McDonald,17 they observed
that the term’s development “can be seen
as consistent with the contemporary
view of the employment relationship as
involving elements of common interest
and partnership, rather than of conflict
and subordination.”18
Jessup J disagreed. Having comprehensively
reviewed the relevant Australian and
English jurisprudence, he found ‘no
solid basis’ for the implication of the
implied term under Australian law.19
He disputed that the term could be seen
as a mutualisation of the employee’s
duty of fidelity, and also rejected that it
represented a ‘principled development’ of
the duty of cooperation.20
Perhaps encouraged by Jessup J’s dissent
or the big end of town, or both, the Bank
took the matter to the High Court, while
employment lawyers waited with baited
breath. Although the grant of special
leave was conditioned on the applicant
paying Mr Barker’s costs, thus lessening its
financial impost on him, the matter was
plainly a major test case.
Across three concurring opinions, a
five-member High Court unanimously
upheld the Bank’s appeal.21 Returning to
first principles of implication and cases
such as Byrne v Australian Airlines,22 the
Court held that neither as a matter of fact
nor law was a term of mutual trust and
confidence to be implied into contracts
of employment in Australia. Although
these two categories of implication may
in practice ‘merge imperceptibly into
each other’,23 they are, as all the decisions
observed, constrained by the test of
necessity. As it was not necessary to imply
the term, either as a question of fact to give
business efficacy to Mr Barker’s particular
contract, or a matter of law in every
contract of employment, all five judges
allowed the appeal.
The widespread ramifications flowing from
a decision to imply the term cautioned
the Court against such action. French CJ,
Bell and Keane JJ observed that although
“its effect upon a range of interests is
not a bar to its implication, it locates the
propounded implication close to the
boundary between judicial law-making
and that which is well within the province
of the legislature.”24 They thus concluded
that the matter was “more appropriate for
the legislature than for the courts”, lest they
“cross ‘the Rubicon that divides the judicial
and the legislative powers’.”25
The indeterminacy and potentially overly
broad scope of the implied term was also
a consistent feature of the Bank’s accepted
argument, having first been explicated by
the dissentient in the Full Federal Court’s
decision. As Jessup J felt moved to say
“the unwary jurist who sees nothing but
wholesomeness in the term may find that
the term operates in practice as a kind of
Trojan Horse, wherefrom a miscellany of
unforeseen obligations emerge to govern
the ex-post disposition of a dispute which
has arisen in a concrete setting.”26 This
Ancient Greek metaphor was adopted by
Gageler J,27 and alluded to by the other
judges.
Despite its emphatic decision, the High
Court failed to provide clarity on another
grey issue in the law of employment.
The implied term of mutual trust and
confidence and the implied term of good
faith have been described as ‘siblings but
not twins’,28 with the latter term requiring
that parties to a contract act so as to enable
both of them to fully enjoy the benefits of
the contract. In Russell v Trustees of the
Roman Catholic Church for the Archdiocese
of Sydney, Rothman J suggested:
“In the context of an employment
relationship, if there exists a duty to act
in good faith ‘it imports a requirement
that the person doing the act exercise
prudence, caution and diligence’, which
would mean due care to avoid or
minimise adverse consequences to the
other party.”29
However, much like its sibling (that is,
until Barker), the existence and scope of
an implied term of good faith has been a
vexed issue in the law of employment. Far
from providing guidance in this regard,
French CJ, Bell and Keane JJ said in
Barker: “The above conclusion should not
be taken as reflecting upon the question
whether there is a general obligation to
act in good faith in the performance of
contracts … [this was] not before the
Court in this appeal.”30
Kiefel J also averted to the good faith issue
in her decision, commenting “[i]t has been
observed that in some legal systems good
faith is regarded as a vitally important
ingredient for a modern general law of
contract, and that this raises the question
how other legal systems cope with out.”31
This observation notwithstanding, her
Honour concluded that “[t]he question
whether a standard of good faith should be
applied generally to contracts has not been
resolved in Australia,” and given it had not
been raised in argument, “[i]t is therefore
neither necessary nor appropriate to
discuss good faith further, particularly
having regard to the wider importance of
the topic.”32
With apologies to the Rolling Stones, the
High Court saw the grey door of mutual
trust and confidence and decided to
paint it black. It is a pity, though, that its
home improvement did not stretch to
considering the question of the implied
term of good faith, which remains as grey
as ever.
Endnotes
The writer acknowledges with thanks
the assistance of Kieran Pender (Law
Clerk, Bradley Allen Love) in the
preparation of this article.
1 Transcript of Proceedings, Commonwealth
Bank of Australia v Barker [2014] HCATrans
73 (8 April 2014) 93–8.
2 [2014] HCA 32 (10 September 2014) (‘Barker’).
3 Joellen Riley, ‘Before the High Court –
“Mutual Trust and Confidence” on Trial: At
Last’ (2014) 36 Sydney Law Review 151, 151.
4 See John Wilson, ‘Damages for Sexual
Harassment: A New Era?’ [2014] (September)
Ethos 20–1.
5 Barker v Commonwealth Bank of Australia
[2012] FCA 942 (3 September 2012) (‘Barker’).
6 Barker [2014] HCA 32 (10 September 2014) [10].
7 Barker [2012] FCA 942 (3 September 2012) [303].
8 Ibid [283].
9 Ibid [330].
10 [1998] AC 20.
11 Ibid 34 (Lord Nicholls of Birkenhead).
12 Ibid 46 (Lord Steyn).
13 Mark Irving, The Contract of Employment
(LexisNexis, 2012) 493.
14 (2005) 222 CLR 44, 54–5 [24].
15 Commonwealth Bank of Australia v Barker
[2013] FCAFC 83 (6 August 2013) (‘Barker’).
16 Ibid [92].
17 [2009] SASC 219 (30 July 2009) [231].
18 Barker [2013] FCAFC 83 (6 August 2013) [81].
19 Ibid [340].
20Ibid.
21 Barker [2014] HCA 32 (10 September 2014).
22 (1995) 185 CLR 410.
23 Barker [2014] HCA 32 (10 September 2014)
[28] (French CJ, Bell and Keane JJ).
24 Ibid [38].
25 Ibid [19], quoting Dietrich v The Queen (1992)
177 CLR 292, 320 (Brennan J).
26 Barker [2013] FCAFC 83 (6 August 2013) [318].
27 Barker [2014] HCA 32 (10 September 2014) [117].
28 Joellen Riley, ‘Siblings but not Twins: Making
Sense of “Mutual Trust” and “Good Faith” in
Employment Contracts’ (2012) 36 Melbourne
University Law Review 521, 521.
29 [2007] NSWSC 104 (19 February 2007) [117].
30 [2014] HCA 32 (10 September 2014) [42].
31 Ibid [104].
32 Ibid [107].
If the 17-year gap between Malik and
Barker is any indication, it might be several
decades before employers, employees and
employment lawyers know whether that
term is black or white.
John Wilson, Managing Legal Director,
Bradley Allen Love
Ethos | December 2014
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