Scottish Court of Session Decisions

In this action the pursuer seeks damages in respect of a psychiatric disorder which is said to have been caused by a breach of her contract of employment. The action came before me for a Procedure Roll debate, at which the defenders sought to have the action dismissed.

According to the pursuer's pleadings, she has been employed at Falkirk and District Royal Infirmary since 1977. From 1989 she was employed there as a Grade 3 X-ray secretary with the job title of clerical supervisor. That position required her to deputise for her immediate supervisor, Mrs McMain, if Mrs McMain was absent. Between June 1994 and June 1995 the pursuer was herself absent from work due to post-natal depression. The defenders were aware of the reason for her absence. She had been seen by a doctor from their occupational health service, and had been visited by a Ms Rendall, who was a member of staff of their Human Resources Department. Mrs McMain had also visited and telephoned her from time to time. By May 1995 the pursuer's condition had improved and she had been advised by her doctors to consider going back to work. She told Mrs McMain that she would soon be fit to return to work. She was then visited by Mrs McMain and Ms Rendall and told that during her absence a colleague, Ms Graham, had been given her Grade 3 position, and that upon the pursuer's return she would be demoted to a Grade 2 position, the downgrading to be reviewed after six months. In response, the defenders maintain that their decision to downgrade the pursuer temporarily was taken, after consultation with their occupational health service and their Department of Human Resources, due to concerns about her ability to cope with the stress of a supervisory position. Be that as it may, the pursuer invoked the defenders' grievance procedure, and after a hearing in August 1995 she was reinstated to an alternative Grade 3 position, but subject to a proviso that she would not be entitled to deputise for Mrs McMain. She appealed against that restriction, and eventually in October 1996 accepted an alternative Grade 3 position in which she would share with Ms Graham the responsibility of deputising for Mrs McMain.

According to her pleadings, the pursuer was under stress during her attempts to regain her original position, and suffered a recurrence of depression in consequence. She was unfit for work, due to a depressive disorder, between about June 1996 and April 1997, and suffered a loss of earnings in consequence.

The pursuer maintains that the defenders' conduct was in breach of contract. Her pleadings on this point are in the following terms:

Counsel for the defenders submitted that the pursuer's pleadings were irrelevant and lacking in specification in two respects: first, there were no relevant averments of any breach of contract, in particular because no specification was given of how the alleged policy was supposed to have been incorporated into the pursuer's contract of employment; and secondly, no claim could lie in contract for damages in respect of a psychiatric injury. I shall deal with each of these submissions in turn.

In relation to the first point, it was agreed that I should have regard to two documents which were produced and agreed between parties. The first of these was headed "Contract of Employment", and contained an offer of employment made by Forth Valley Health Board (the defenders' predecessors) to the pursuer as a clerical supervisor at pay grade 3 with effect from 1 April 1989, and her acceptance of that offer. The second document was the letter from Mr O'Hagan to Mrs Spawson referred to in the pursuer's pleadings.

The pursuer's case proceeds on the basis that the defender had a certain policy which was not followed in her case. The critical averment is that the policy in question was incorporated into the pursuer's contract of employment. I emphasise that there is no other basis on which a breach of contract is alleged in this case. The document headed "Contract of Employment" states:

It contains a number of references to other documents, and concludes:

The document contains one reference to "policy and procedure":

The document contains one other reference to "policy":

The letter from Mr O'Hagan to Mrs Spawson is in the following terms:

Counsel for the pursuer submitted that the "practice" referred to in paragraph (iv) of the letter constituted a policy, and that policies were given contractual effect by virtue of the paragraph headed "DOCUMENTS" in the contract of employment, which I have quoted above. He was unable to develop his submission beyond these assertions.

I am unable to accept this submission. The pursuer's averment that the alleged policy was incorporated into her contract of employment is critical to her case. The defenders are entitled to fair notice of how the policy is said to have been incorporated. In my opinion, no such notice has been given. Even if I were to accept that "Policy and Procedure Manuals" are incorporated into the contract (which is not clear to me from the terms of the contract alone), and even if I were to accept that such documents might cover the policy alleged in the present case (which seems more dubious, given that they appear from the terms of the contract to be concerned with disciplinary matters rather than the issue which arose in the pursuer's case), the pursuer is left with the difficulty that Mr O'Hagan's letter is not itself such a document, and its terms do not imply that the "practice" to which he refers forms part of any such document. On the contrary, paragraph (ii) of his letter suggests that the relevant contractual terms and conditions are to be found in the Whitley Council Agreements (as the contract of employment would lead one to expect); paragraph (iii) and (iv) refer to "practice" rather than contractual obligations; and the concluding paragraph ("Your question clearly raises the need ...") implies the absence of any clear policy or procedure for dealing with sick leave arrangements.

In these circumstances, I am in no doubt that the averments that the defenders had a particular policy which was incorporated into the pursuer's contract of employment are lacking in specification, and that the action therefore falls to be dismissed.

I turn now to the second point, relating to the recoverability in contract of damages for psychiatric injury. Counsel for the defenders referred me to the discussion of damages in contract for mental distress in McGregor on Damages (16^th edition) paragraphs 98ff, and relied in particular on the decision in Bliss v South East Thames Regional Health Authority [1987] ICR 700, and to the overruling in that case of the earlier decision in Cox v Philips Industries [1976] ICR 138. Counsel for the pursuer referred to the same authorities, and also to an observation made by myself in Ward v Scotrail Railways Limited, 1999 SC 255, 264:

I should say at once that I remain of the view which I expressed in Ward. It would to my mind be somewhat surprising if there were some rule which debarred the recovery of damages in contract for psychiatric illness. The consequent anomalies are obvious, and can be illustrated by three examples:

(i) An employee is placed in physical danger through the negligence of his employer and suffers a psychiatric illness as a result of shock. Assuming that he is entitled to recover damages in delict, why should he not be equally entitled to recover damages in contract? As Lord Steyn observed in White v Chief Constable of South Yorkshire Police [1998] 3 WLR 1509, 1545:

As that passage suggests, the breach of the employer's delictual duty will (absent relevant express provisions) entail the breach of his contractual duty; and the breach of a contractual duty causing actual harm will sound in damages, unless the harm was too remote a consequence of the breach.

(2 A psychiatrist is negligent in his treatment of a private patient, with the consequence that the patient suffers a psychiatric illness from which he would otherwise have recovered. Assuming that the patient can recover in delict (as Sir Thomas Bingham MR, as he then was, accepted in M v Newham London Borough Council [1995] 2 AC 633 662), I cannot see why the patient cannot equally well recover in contract. Adapting the Master of the Rolls's words (at 664C), it would be little short of absurd if the patient were held to be disentitled to claim damages for injury of the very type which the psychiatrist had contracted to exercise her skill to try and prevent.

(3) An employee suffers from psychiatric illness in consequence of stress at work due to sexual harassment (as in Ward) or overwork (as in Johnstone v Bloomsbury Health Authority [1992] 1 QB 333 or Walker v Northumberland Country Council [1995] ICR 702). For the reasons explained by Lord Steyn in the passage I quoted earlier from White, I cannot see why the recoverability of damages should depend, as a matter of principle, on whether the employee sues in delict (as in Walker), or contract, or both (as in Johnstone and Ward). Indeed, in a situation in which there are relevant express provisions, it has been said that the parties' respective rights and duties have to be analysed wholly in contractual terms (see Johnstone at 350 C, per Sir Nicolas Browne-Wilkinson V-C, as he then was).

Whether damages are recoverable in contract for psychiatric illness in a given case will in my opinion depend on the application, to the circumstances of that particular case, of familiar principles of the law of contract. Plainly, there may be circumstances in which there was no breach of any contractual duty: on the facts of White, for example, there would appear to have been no breach of any contractual duty of care; and similarly on the facts averred in the present case. In other cases there may be a breach of contract, but it is impossible to establish a causal link between that breach and the psychiatric illness. In other cases again there may be a breach of contract resulting in psychiatric illness, but that consequence may be too remote to sound in damages, applying the familiar principles in Hadley v Baxendale (1854) 9 Ex. 341. Cook v Swinfen [1967] 1 WLR 457 was a case of that kind. But any fixed rule that damages for psychiatric illness are per se irrecoverable under the law of contract appears to me to be unsupportable in principle and contrary to authority. Provided that a relevant breach of contract can be established, and the requirements of causation and remoteness are satisfied, there is, in my opinion, no good reason why the recovery of damages for psychiatric disorder caused by a breach of contract should necessarily be excluded.

I turn now to consider the authorities which were said to support the existence of such a rule. The case principally relied on was Bliss v South East Thames Regional Health Authority [1987] ICR 700, a decision of the Court of Appeal. The case concerned a consultant surgeon who had been required by his employers to undergo a psychiatric examination. On his refusing to comply with that request he had been suspended. The employers' conduct was held to constitute a repudiatory breach of contract. At first instance, the plaintiff was awarded damages in respect of certain financial losses and also in respect of frustration and mental distress. On appeal, it was held that the latter award ought not to have been made. Giving the leading judgment, Dillon LJ said:

It is important to note that the decision in Bliss concerned the recoverability of damages for mental distress rather than for personal injury in the form of a psychiatric disorder. As Dillon LJ's judgment indicates, the case forms part of a long line of authority going back at least to the Addis case. More recent authorities in the same line include Watts v Morrow [1991] 1 WLR 1421, where the position was usefully summarised by Bingham LJ (as he then was) at 1445, Malik v Bank of Credit and Commerce International SA [1998] AC 20 and Johnson v Unisys Ltd [1999] 1 All ER 854. Assuming for the present that this line of authority should be followed in Scotland (cf. Watson v Swift & Co's Judicial Factor, 1986 SLT 217), it is in any event not germane to the point now in issue.

Counsel for the defenders however focussed particularly on the Court of Appeal's overruling in Bliss of the earlier decision in Cox v Philips Industries Ltd [1976] ICR 138, where Lawson J had taken the view that damages for distress, vexation and frustration, including consequent ill-health, could be recovered for breach of a contract of employment. I note that the learned author of McGregor on Damages, in discussing the case of Cox, and in particular the recovery of damages for illness in that case, states:

I respectfully agree. Other English decisions cited in McGregor (at paragraph 97) similarly suggest that there is no necessary bar in principle to the recovery of damages for ill-health, including psychiatric illness, caused by a breach of contract.

Assuming that a breach of contract causing psychiatric illness was relevantly averred by the pursuer in the present case, the real issue, as it appears to me, would be whether the recurrence of her depressive illness was too remote a consequence of the breach. In that regard, it is important to remember that the time as at which one has to determine what was in the reasonable contemplation of the parties is the time when the contract was concluded. To quote the familiar but important words of Alderson B in Hadley v Baxendale (1854) 9 Ex 341 at 354-355:

As to the necessary degree of probability, I refer to Lord Reid's analysis in Koufos v Czarnikow [1969] 1 AC 350. In a case of the present kind, it might well be difficult in practice to establish that the requirements of remoteness were satisfied in respect of a claim for psychiatric illness, unless there was some particular reason why the possibility of such an illness could have been anticipated at the time when the contract was entered into (cf. Johnson v Unisys Ltd [1999] 1  All ER 854, 862 per Lord Woolf MR). That issue was not however discussed before me, and it was not suggested that I should determine at this stage that the claim was too remote.

In the whole circumstances, I shall sustain the defenders' first plea-in-law and dismiss the action.