Ipsofactoj.com: International Cases  Part 12 Case 6 [NZCA]
COURT OF APPEAL, NEW ZEALAND
- vs -
14 MARCH 2002
Christopher John Gilbert retired on medical grounds from his employment as a probation officer in April 1996. He was 50 years old. Apart from four years when employed by the Department of Health, he had been a probation officer since 1971. For most of the period of his employment as a probation officer, Mr. Gilbert was based in South Auckland, principally at Otahuhu.
Medical certificates accepted by the Probation Service as the basis for Mr. Gilbertís retirement diagnosed coronary artery spasm and depression. A poor prognosis turned out to be accurate. Mr. Gilbert underwent heart surgery in October 1997 and November 1997. He was assessed in August 1998 as being 90 per cent disabled.
In 1997 Mr. Gilbert took proceedings in the Employment Court against the Department of Corrections ("the Department") claiming damages for breaches by the Department and its predecessor the Department of Justice of his employment contract and remedies under s40 of the Employment Contracts Act 1991 ("the Act") for personal grievance. The personal grievance claim was based upon constructive dismissal arising out of the same claimed breaches of the employment contract.
The terms of the employment contract pleaded included express terms that the Department would comply with the provisions of the State Sector Act 1988 and the Health and Safety in Employment Act 1992. Compliance with that legislation before 1 April 1993 required the Department to be a good employer, to provide good and safe working conditions, and to take all reasonable precautions for the safety and health of workers. From 1 April 1993 the legislation required the Department to provide a safe working environment, to have in place effective methods for identifying hazards to employees, and to take all practicable steps to eliminate, isolate or minimise significant hazards.
The employment contract was also claimed to contain implied terms that the Department would:
take all reasonable care to avoid exposing the employee to unnecessary risk of injury or further injury to his physical or psychological health and in particular would provide and maintain a safe system of work;
take all reasonable care not to cause the plaintiff physical or psychological injury or further injury by reason of the volume, character, nature or circumstances of the work which the plaintiff was required to perform;
not conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of trust, confidence and fair dealing between it and Mr. Gilbert;
be a good and considerate employer, especially in dealing with the plaintiffís concerns in relation to workplace health and safety;
provide a working environment and management processes that were reasonable so that undue stress would not be caused to the plaintiff.
A duty to maintain a relationship of trust, confidence and fair dealing was admitted by the Department. In the Employment Court, the Department did not ultimately resist an implied term to take reasonable care to avoid causing injury to the employeeís physical or mental health. Given the background of current statutory obligations requiring employers to maintain safe workplaces and a similar trend in the developing common law, the acceptance of such implied contractual term was inevitable. Its scope is contentious on the appeal because it is argued on behalf of the Department, contrary to the acknowledgement of counsel recorded by the Judge in the Employment Court, that the obligation to provide a safe workplace does not require reasonable steps to be taken by the employer to avoid psychological harm or stress which does not amount to a "recognised psychiatric illness".
The claims were determined in the Employment Court following a substantial hearing spread over three months. In a judgment of 21 June 2000, reported at  1 ERNZ 332, Judge Colgan upheld the claims of breach of contract and for personal grievance. In addition to the express terms of the employment contract, he found (at p377 of the report) that it contained an implied term that the Department would
Provide a working environment and management processes so that undue stress would not be caused to the employee. In any event, these obligations were also the operation in practice of those implied terms admitted by the defendant [duties to maintain relationship of trust and confidence and to take all reasonable care to avoid exposing the employee to unnecessary risk of injury or further injury to his physical or psychological health].
The Judge held that the Department had breached the express and implied terms of the employment contract by failing to take reasonable precautions against unnecessary stress in Mr. Gilbertís working conditions as a probation officer. He found, at p383, that
Mr. Gilbert was exposed to stress, with consequential harm, arising from work overload, management failure, and office and resource deficiencies. His injuries arose, not just from stress necessarily inherent in his work, but from avoidable additional pressure of workload, office dysfunction, and inadequate resources.
The Judge concluded (at p 392) that the Departmentís breach of its contractual duties had caused the damage to Mr. Gilbertís health (vital exhaustion and coronary artery disease) which led to his resignation on medical grounds and which have left him unable to resume employment:
I find, on the balance of probabilities, that Mr. Gilbertís workplace conditions (the breaches already found) caused his loss of employment by so causing or contributing to his ill health that he was unable to continue at work. As at least some of the defendantís expert witnesses acknowledged, in the current state of medical knowledge, injury from workplace stress has been shown to arise through aggravation of existing conditions.
In coming to this conclusion, questions of causation (addressed by expert medical evidence called by both parties) were resolved by the Judge in favour of Mr. Gilbert. Mr. Gilbertís breakdown in health, consequential resignation and continuing employment disability were held to have been foreseeable consequences of the Departmentís breaches of the employment contract. The Judge found:
Such were the long-standing and repeated warnings given to the employer by many different people (including senior managers) that it was aware of the inevitability of ill health among probation officers generally and Mr. Gilbert in particular. After 1995, especially, it was clearly on notice of these consequences.
On the facts of this case . . . I consider that the consequences of the breaches of contract that did ensue were clearly foreseeable to the employer. It chose, for reasons of its own, to ignore their inevitability.
[T]he facts of this case are so strong and obvious that there could have been no doubt about causation and foreseeability.
In reaching his conclusions, the Judge rejected the contentions of the Department that the breakdown in Mr. Gilbertís health had been caused not by unnecessary workplace stress, but by a pre-existing cardiac condition exacerbated by smoking, pre-existing depression, or by stresses which were not imposed by the employer but were assumed by Mr. Gilbert himself. Nor did he accept that Mr. Gilbert contributed to the breakdown in his health.
The Judge accepted that Mr. Gilbert is permanently disabled and will not be able to hold down employment again. He was awarded compensatory damages both for contractual loss and as a remedy under s40 of the Act. Since the breaches of contract were the foundation of the personal grievance claim, the same compensatory remedies were given for both claims. The Judge found that Mr. Gilbert had not contributed to the harm suffered and there was therefore no basis for reducing the compensation for unjustified dismissal under ss40(2) or 41(3) of the Act. The compensatory damages awarded were:
a lump sum for loss of income from the date of resignation for the 14 years of working life before Mr. Gilbert became entitled to New Zealand superannuation, such lump sum to be actuarially assessed and the subject of further hearing if necessary and to be based upon the salary of a unit manager (a level not reached by Mr. Gilbert because of the "dysfunctional" state in the office which precluded his promotion);
$75,000 as general damages for humiliation, anxiety and distress, upon the basis that the "past, present, and ongoing consequences for Mr. Gilbert are amongst (if not are) the most severe and enduring seen by this Court"; (p394)
$50,000 for loss of career, loss of employment status, employability and future marketability; and
medical expenses amounting to approximately $14,000 (the precise sum to be further quantified if not agreed).
Under the claim for breach of contract the Judge also awarded Mr. Gilbert exemplary damages of $50,000. He found that exemplary damages were warranted to punish the employer for "outrageously and flagrantly disregard[ing] the plaintiffís safety" and "intentionally conduct[ing] itself in a way which should be condemned as being improper conduct in employment, against the public interest, and deserving of penalty" (p395). The Judge accepted that the Department had "gambled" with Mr. Gilbertís safety, in breach of statutory duties. The breaches were "repeated, serious, and continued over several years":
The circumstances that led to Mr. Gilbertís breakdown and resignation were repeatedly drawn to his employerís attention but it failed to refused to acknowledge these or to do anything effectual to avoid them.
The Judge accepted that Mr. Gilbert was entitled to costs in the proceedings. The question of costs was however reserved until finalisation of all remedies, by agreement or further hearing.
The Attorney-General, on behalf of the Department, appeals the decision of the Employment Court under s135 of the Act as being erroneous in points of law. A number of points were raised in the points on appeal as originally filed. As eventually developed in argument, they consist of:
A challenge to the amount of general damages for humiliation, anxiety, and distress was not pursued at the hearing of the appeal.
THE BACKGROUND FACTS
The background facts can be taken from the decision of the Employment Court. Other than a contention that it was not open to the Judge to find on the evidence that Mr. Gilbert did not suffer from a long-standing depression (a contention of error of law), the primary facts as found are not in issue on the appeal. Nor could they be. An appeal under s135 of the Act is available only to correct errors of law.
(i) The employment conditions
By 1990, Mr. Gilbert was acknowledged to be a senior and very experienced probation officer who shouldered a high proportion of difficult cases in the Otahuhu office. He did not seek promotion to a managerial position, despite high qualifications.
The employment conditions at Otahuhu created a real risk of "burnout", known to the appellant. The Employment Court judgment sets out at length the facts found by the Judge which support that view. Because the judgment is reported, it is possible to summarise the findings in the paragraphs below.
There were inadequate staffing levels at the Otahuhu office from 1991 throughout Mr. Gilbertís period of employment with the Department. They were in breach of established minimum guidelines set by the Department in the 1970s. The reason was a conscious policy, driven by budgetary pressures. The management found it necessary to maintain staff vacancies of 12-15% to ensure that budgetary caps were not exceeded. From March 1991 internal reports described staff shortages. In 1991 and 1992 there was "a deficiency of three senior managerial appointments" and in July 1991 the number of probation officer positions at Otahuhu dropped to 14.5 as against a guideline indication of 17. One unit manager position and the district manager position remained unfilled until 1994. During the period 1994-1995 vacancies in management positions were unfilled for up to 15 months.
The guidelines for staffing were not revised despite changes in legislation and changes in employment policies in the Department (as to the qualifications for recruitment) which added to the burdens of the probation officers.
Mr. Gilbertís workload was "excessive". He was required to carry it out "without the support, resources, and supervision he needed in order to do so safely" (p349).
The management of the Otahuhu office was grossly deficient. Witnesses for the Department conceded "extraordinary" failures in management competence, which persisted throughout from 1993-1995. "[D]ysfunctional relationships between the Otahuhu and Auckland Regional offices" (p363) impeded communication of the problems. The Office Manager and the Regional Manager each took the view that the other was responsible. Judge Colgan concluded at p361:
I find Mr. Gilbertís description of the Otahuhu officeís administration at this time as being in "a shambles" to be no exaggeration.
The Department failed to put in place any occupational health and safety plan for the Northern Region between 1992 and 1996. At the date of the hearing in the Employment Court there was still no occupational safety and health compliance plan dealing with stress among probation officers. The Judge expressed the view that "[g]iven the issues raised by the case, this was remarkable to say the least" (p389).
The Department failed to provide peer review and support from 1993 for Mr. Gilbert (as opposed to managerial supervision), despite such peer review being accepted safe practice for occupations such as probation officers. Earlier professional support systems had been discontinued. Although the Department made psychological counselling services available to probation officers, the Judge considered that the service was compromised by a conflict of professional roles (the same psychologists wrote psychological assessments for the probation reports). As such the service was held to be inappropriate. The absence of an appropriate system for psychological assistance was in breach of recognised safe practice in occupations comparable to the probation service.
From 1993, the Department failed to act on persistent internal reports that in the Otahuhu office there were high levels of sick leave being taken by probation officers and high levels of absenteeism. Both are recognised indicators of workplace stress. In 1993 the Otahuhu manager reported to the regional manager concerns about likely "collapse" of staff in a "major catastrophe" precipitated by stress. In 1995 the early retirement of a unit manager was attributed to "burnout", "frustration" and "exhaustion" in reports to management. There were also management and union reports of "overstress", "burnout", "low morale", "desperation" and stress among staff throughout 1994 and 1995.
From 1992 to 1995 Mr. Gilbert, in his capacity as President of the New Zealand Association of Probation Officers, had sought to raise concerns with management about stress and overwork, sometimes using his own circumstances as an example. He referred to staff "burnout" and inability to cope and raised the absence of professional supervision and vacancies. In June 1995 he advised the Regional Manager that staff had to use annual leave to recover their health and strength. In mid-July 1995, in a report sent to the Departmentís head office, he advised
[M]ost staff have exhausted their sick leave and themselves, so increasingly the better, experienced people are walking out usually without jobs to go to, and with their health so impaired that they require months off, if indeed it is not a matter of premature and often short lived retirement.
Judge Colgan summarised the position of the Otahuhu office in mid-1995. He found that:
Almost half the positions at the office (including three unit managers positions and more than eight probation officer positions) were unfilled. The average age of the vacancies was six months. (In October there were still three unit manager vacancies and "at least five" probation officer vacancies.)
The Regional Manager had found on review in June 1995 "a sense of Ďburnoutí from continuous coping with excessive workloads due to the vacancies". He reported that, although there was common concern amongst members of the staff that office meetings were not regularly held, the office manager regarded them as a waste of time. The Regional Manager recommended temporary replacements for all vacancies be found urgently. They were not.
The New Zealand Association of Probation Officers described the situation at Otahuhu as "at crisis point" in October 1995.
In December 1995 the Regional Manager advised the staff that in a new employment contract they would have altered sick leave conditions but that they would not receive additional sick leave or an acknowledgement of the stress to date. The staff considered that this was contrary to advice they had earlier been given by the Regional Manager that additional sick leave would be obtained in recognition of the strain they had been under.
(ii) The breakdown in Mr. Gilbertís health
Mr. Gilbert had first suffered chest pain in February 1985. At the time the pain was diagnosed as not being cardiac in origin. It was thought to have been stress-related. In 1989 Mr. Gilbert again experienced chest pain. Again, it was thought to have been a stress reaction. Coronary artery disease in mild form was diagnosed after an x-ray in 1990.
In April 1994, Mr. Gilbert saw a cardiologist about chest pain. The cardiologist concluded that the pain was not cardiac in origin but brought on by stress. Judge Colgan was of the view that "until this time ..... Mr. Gilbertís occasional chest pain was not cardiac in origin but brought on by stress" (p371).
In early 1995, Mr. Gilbert was admitted to hospital with chest pains. Coronary artery spasm was diagnosed and medication was prescribed. Upon his return to work, Mr. Gilbert was asked to act as unit manager following the resignation of the unit manager who was described as suffering from "burnout". He remained responsible for his own caseload, which was exacerbated by continuing staffing shortages.
In July 1995, Mr. Gilbertís general practitioner advised him he had unstable angina. While on sick leave, and after being admitted to hospital twice, a cardiologist confirmed by x-ray a mild degree of coronary artery disease and arterial spasm. Sir John Scott, an expert in cardiac disease who gave evidence for Mr. Gilbert, considered this "confirmed that the basic arterial disease process had commenced" but that the similarity of the findings in 1990 and 1995 would have been reassuring to Mr. Gilbertís medical advisers. The Judge considered that:
[b]y this time Mr. Gilbert had developed a cardiac condition that was aggravated by stress.
Mr. Gilbert took extended sick leave from 19 July to the end of October 1995. During this absence he asked to be transferred to another office but was told that it was not an option.
Mr. Gilbert returned to work on 31 October, but was advised by his doctors to work only in the mornings and on light duties. He was told by the Department that his sick leave was in debit. Discretionary special paid leave was requested by the temporary district manager for Mr. Gilbert, but was not approved. As a result, he resumed full-time work with a full caseload.
In mid-January Mr. Gilbert was allocated additional and urgent work. On 23 January he was admitted to hospital with further chest pain and dizziness. His cardiologist advised him to retire immediately. Mr. Gilbert was reluctant to accept the advice because of financial concerns and because he was only 50 years of age. He decided to take further sick and annual leave. He consulted a psychologist under the Employment Assistance Programme.
Mr. Gilbert returned to work in February 1996. The Judge found contrary to evidence put forward by the Department, that he was advised by the unit manager that he would have to undertake a full caseload. Mr. Gilbert decided he had no alternative but to resign. He wrote to the Department conveying his resignation:
I have been medically advised that my health has been impaired such that I am forced to retire on medical grounds.
Mr. Gilbert provided medical certificates from his general practitioner and from his psychiatrist. They referred to his coronary artery spasm, depression, and a poor prognosis.
In his last week of work in March, Mr. Gilbert was admitted to hospital suffering from exhaustion. In April 1996 the Department agreed to his retirement on medical grounds. He was paid up to and including 25 May, including a lump sum representing a substantial period of untaken leave.
The Judge found that the Department had earlier miscalculated the leave to which Mr. Gilbert was entitled. In fact he was owed at least 34 days and perhaps 66 days. Had Mr. Gilbert been aware of the leave available to him, the Judge considered that he might have taken the leave to recover, rather than feeling that he had no option but to seek retirement.
After Mr. Gilbert resigned, his coronary artery disease worsened. By 1997 there had been a marked progression in the disease. Mr. Gilbert had heart surgery in October 1997 but later was readmitted with further pain. In November 1997 he had a double coronary endarterectomy. In August 1998 he was assessed as being 90% disabled.
It was not in dispute at the hearing that Mr. Gilbertís health had broken down and that the breakdown led to his retirement on medical grounds. Indeed, that was the basis on which the Department accepted his retirement. The immediate cause of the breakdown in Mr. Gilbertís health was found by the Judge to be "vital exhaustion" or "burnout". Mr. Gilbertís vital exhaustion was characterised by unusual fatigue, loss of energy, increased irritability and feelings of demoralisation. Judge Colgan also found, on the basis of expert evidence, that Mr. Gilbertís coronary artery disease rendered him unable to resume any full-time occupation or any normally stressful occupation and has reduced his life expectancy.
At the time of the hearing in the Employment Court, Judge Colgan held that Mr. Gilbert remains at least 75% disabled. A defence contention that he has not mitigated his losses by seeking to rehabilitate himself was rejected:
From the evidence presented to me, I doubt that Mr. Gilbertís vital exhaustion or burnout is easily or quickly curable. The best the plaintiff can hope for is relief from the most severely debilitating aspects of it. I accept he is 75 per cent disabled and is likely to remain so for the foreseeable future.
(iii) The cause of the breakdown
The Judge accepted the opinion evidence of Professor Appels, an internationally recognised expert in behavioural medicine, cardio-vascular stress and coronary heart disease, and Dr Walls, an expert in occupational health medicine, that Mr. Gilbertís state of "vital exhaustion" was caused by the circumstances of his employment. The extent of the stress experienced by Mr. Gilbert amounted to "burnout". Judge Colgan accepted Professor Appelís view that Mr. Gilbertís job characteristics led to his state of vital exhaustion which in turn was a major factor in his development of cardiac disease.
In this finding, the Judge rejected the submissions on behalf of the Department that Mr. Gilbertís vital exhaustion was a result of a depressive illness, preferring the evidence of the psychiatrist called on behalf of Mr. Gilbert. The expert called for the defence had not examined Mr. Gilbert and had based his diagnosis of disthymia upon earlier "cryptic" medical notes which the Judge did not consider to be reliable. Nor had he considered the work records or the working environment of the Otahuhu Office.
The Judge did not accept the contentions on the part of the Department that the breakdown in Mr. Gilbertís health was the result of a pre-existing cardiac condition, exacerbated by smoking. He relied upon the evidence of Sir John Scott who noted that there was no family history of coronary artery disease to account for its early onset in Mr. Gilbert. Smoking was not solely harmful in the case of someone subjected to high levels of stress because of its alleviation of stress. Sir John Scottís opinion was that it was the "burnout" which resulted from the work conditions which was predominate in causing the rapid escalation of Mr. Gilbertís coronary artery disease. "Vital exhaustion" or "burnout" was identified by Professor Appels and Sir John Scott as a key risk factor in the development and acceleration of coronary artery disease. Witnesses for the Department acknowledged that it is now generally accepted by expert medical opinion that stress is an independent risk factor in the development of heart disease and that injury from workplace stress has been shown to arise through the aggravation of existing conditions.
It was significant that, despite his underlying medical condition which included a susceptibility to cardiac problems, Mr. Gilbert
Was able to function consistently and to a high level until about mid 1995 when he was overwhelmed by deteriorating workplace conditions. Thereafter, his illness, disability, and inability to work manifested itself and increased.
Although the disease was present only in mild form in 1995, Judge Colgan accepted Sir John Scottís evidence that its rapid acceleration in 1997 was consistent with an expected 20 month delay between the experiences of stress and its physical consequences.
The Judge accepted the evidence of Sir John Scott and Dr Walls in holding at p372 that Mr. Gilbertís vital exhaustion
was not a side-effect of his coronary artery disease. It occurred before, and probably contributed to, if not caused, his coronary artery disease.
[And at p382]
On the evidence presented to me, however, the plaintiff has established that in his case the psychosocial factors related to his work environment were a major cause of his coronary artery disease and was the predominant factor in the development and deterioration of this condition which resulted in his forced medical retirement. Although [counsel for the Department] conceded that psychosocial factors may aggravate the symptoms of heart disease, I find the evidence goes further and establishes more than correlations between those psychosocial factors and coronary artery disease. It establishes probable causation of the deterioration of that condition in Mr. Gilbert. Although I accept that medical experts cannot unequivocally say that such factors cause coronary artery disease, those psychosocial factors were probably causative of it.
The Judge held that Mr. Gilbertís vital exhaustion and resultant accelerated cardiac disease was caused by his work environment. There was no fault on the part of Mr. Gilbert, nor did his actions contribute to the breakdown in his health.
In particular Mr. Gilbert was exposed to avoidable stress, with consequential harm, "arising from work overload, management failure, and office and resource deficiencies" (p383). The stress was not that which was inherent in the work, but arose from avoidable additional pressure of workload, office dysfunction, and inadequate resourcing.
(iv) Breach of the employment contract
The Judge relied upon "persuasive evidence for the plaintiff on occupation safety and health considerations" by Dr Walls (p388). He accepted the evidence that from at least 1993 onwards, competent human resources personnel and managers would have been aware of the substantial body of reputable literature on workplace stress.
The Judge considered, and rejected, the contention on behalf of the Department that the harm suffered by Mr. Gilbert was not foreseeable. He found that the Department was aware of the risk of injury to physical or mental health. It operated systems to manage workload, provide supervision and extra annual leave which "tended to confirm actual knowledge of risk" (p392). At the Otahuhu office in which Mr. Gilbert was employed, however, such systems were inoperative from 1994 onwards. Despite the developing knowledge of the impact of stress and burnout described by Dr Walsh, there was no occupational health and safety plan for the northern region of the Probation Service between 1992 and 1996. Dr Walls commented on the many symptoms of excessive stress exhibited by employees in the Otahuhu office at relevant times. They were evident from the contemporary reports to management.
From mid 1995 at the latest the employer was aware of the precarious state of Mr. Gilbertís health. Although the knowledge may not have come from Mr. Gilbert in the form of a medical certificate, "the employer was well aware of his deteriorating health and of the reasons for that state (p381). It was obvious from Mr. Gilbertís sick leave records and medical certificates. Other staff pointed out Mr. Gilbertís condition. His workload increased in early 1996, "in spite of his unit managerís advice that this should not occur" (p393). As the Judge found at p381, the Department was also on notice that after his return from sick leave, it had to lighten his workload. It did not do so.
The Judge found at p389 that the employer "dealt with Mr. Gilbert when he was obviously ill in a way that was likely to cause further injury to his physical and psychological health". He identified those dealings as:
The refusal to allow Mr. Gilbert special leave after he returned from hospital on the basis of the Departmentís erroneous view (based on its inaccurate records) that he had run out of leave. In fact he had between 7 and 14 weeks.
The decision of the Department, contrary to the local management recommendation, that no additional sick leave allowances for staff would be permitted in anticipation of the next yearís entitlement.
The direction of the acting manager of Mr. Gilbertís unit that he undertake work in excess of his capacity upon his return from hospital in January 1996, which precipitated another hospital admission to hospital.
The requirement of Mr. Gilbert's unit manager that he undertake a full workload shortly after his return to work in March 1996. Despite a later management acknowledgement upon Mr. Gilbert's retirement that this requirement had been "stupid", "no effective action to achieve work limitation and rehabilitation was initiated". (p390)
The medical consequences to Mr. Gilbert of the breaches of contract "were clearly foreseeable to the employer. It chose, for reasons of its own, to ignore their inevitability" (p384). While the inherently stressful nature of probation work needs to be taken into account "the facts of this case are so strong and obvious that there could have been no doubt about causation and foreseeability" (p385).
The Judge was satisfied on the evidence that:
The departmentís health and safety policies did not identify stress as a hazard, let alone as the "significant hazard" that it was. No steps were taken to control it by elimination, isolation, minimisation, or monitoring. I find the defendant failed to monitor the health status of its employees even after it was aware of harms suffered by them. The defendant returned Mr. Gilbert (or at least allowed him to return) to the same work conditions that had brought about his hospitalisation and extended period of sick leave without investigating the circumstances of his significant and serious illness. The defendant failed to report to the occupational health and safety authorities, as it was required to by the legislation, Mr. Gilbertís having suffered "serious harm". I accept Dr Wallís evidence that the defendant failed to comply with even the minimal obligations imposed upon it by the legislation. There was no surveillance of staff illness or stress rates, no supervision or monitoring systems to ensure safe working conditions, whether by peers or managerial staff.
The defendant failed to recognise, let alone attempt to comply with, both statutory and employment contract obligations of health and safety at all times material to this claim. That this may have resulted from a deficiently managed and inadequately resourced Otahuhu office of the Probation Service does not assist it. These obligations were upon all employers. It is remarkable that a long-established and substantial government department failed entirely to recognise its obligations even when these were drawn to its attention repeatedly by adversely affected employees including Mr. Gilbert.
The Judge found that the stresses and strains of probation work at normal levels were a hazard in terms of the Health and Safety in Employment Act. He considered that the employer had no monitoring for health hazards in 1995-96, as was required by ss7-10 of the Health and Safety in Employment Act "in spite of clearly identified high patterns of sick leave" (p389). The Department knew that workload stress existed and required identification as a hazard and a response but withdrew its only health and safety management system "at the time it was most needed" (p389), in breach of those provisions. The employer "failed to identify, eliminate, isolate or minimise and monitor the hazards to which Mr. Gilbert was exposed and the additional, aggravated and avoidable stress he and others had repeatedly pointed out to the management of the office and the department":
I find Mr. Gilbert was exposed to an excessive and stressful workload and environment, and his employer failed to monitor his health in relation to this hazard. That was a breach of the employerís express contractual obligation to comply with the Health and Safety in Employment Act. The department was likewise in breach of the express contractual requirement of compliance with the Factories and Commercial Premises Act 1981 in the period before 1 April 1993 when its obligations came under the Health and Safety in Employment Act 1992.
The Judge held at p380 that the medical grounds on which Mr. Gilbert retired were caused by the employerís breach of contract:
This was a clear case of constructive dismissal brought about by breaches of contract. It was clearly unjustified dismissal.
The appellant does not challenge the Judgeís findings that Mr. Gilbert is permanently disabled as a result of cardiac disease and vital exhaustion.
Nor does the appellant resist the conclusions in the Employment Court that the Department was in breach of express and implied terms of the employment contract to maintain a safe workplace and in the maintenance of a relationship of good faith. The same breaches are also accepted to have amounted to constructive dismissal constituting a personal grievance.
What is in dispute is the Departmentís liability for the losses arising from Mr. Gilbertís disability. The Department challenges the Judgeís conclusions that the cardiac disease and vital exhaustion were shown on the balance of probabilities to have been caused by workplace stress. It further contended that the disability was not shown to have been caused by contractual breaches and that it is a type of loss too remote from the scope of the duty breached which, for reasons of policy, should not be accepted. The appellant claims that the Judge failed to consider questions of contribution under the Contributory Negligence Act 1947. And, finally, the appellant challenges the quantification of damages.
The appellant argues that the Judgeís conclusions on causation are unsafe. In particular, it is said that it was not open to the Judge to reject the appellantís contention that the respondentís breakdown was caused by long-standing depression and that the time lapse between his retirement and the onset of his debilitating cardiac disease is not explained. In the state of "uncertain medical knowledge" (indicated by the disagreements between the witnesses as to the practicality of separating out risk factors), it is submitted that "there was not enough certainty in terms of expert knowledge for liability to be imposed".
The defendantís breach must have been a material factor in the loss suffered by the plaintiff. It need not be the sole cause. Beyond that, the courts have not laid down formal tests for causation. Whether a breach of contract is a material cause of the loss suffered is a question of fact.
The matters of criticism made of the judgment in the Employment Court are directed at findings of fact and are not subject to appeal. There was evidence before the Judge from Sir John Scott, referred to above at paras  to , upon which it was open to him to conclude as he did (see para  above) that the delay between Mr. Gilbertís experience of stress and the deterioration in his health caused by the coronary artery disease was consistent with workplace stress having been the cause. There was evidence from Professor Appels and Dr Walsh of the effect of stress in creating vital exhaustion and its consequence, coronary artery disease. There was evidence about the incidence of stress among those working in the Probation Office and about Mr. Gilbertís own sick leave and health problems. There was evidence from Sir John Scott upon which the Judge was entitled to exclude smoking as a factor which displaced the causative effect of workplace stress. The Judge did not accept submissions that Mr. Gilbert had been the author of his own misfortune by taking on a more heavy workload than he was required to do, shouldering additional burdens as President of the Probation Officers Association, and failing to seek psychological assistance. He gave reasons for rejecting that submission which included Mr. Gilbertís performance record until he was overwhelmed by the "shambles" in the workplace.
Upon the evidence the Judge was entitled to reject the opinion of the appellantís witnesses that the cause of Mr. Gilbertís disability was long-standing depression. The Judgeís reasons for not taking at face value contemporary medical notes which suggested depression were supported by expert evidence and open to him. The evidence of reactive depression is, moreover, not inconsistent with the finding that the substantial cause of the impairment to health (vital exhaustion and cardiac disease) suffered by Mr. Gilbert was workplace stress.
The judgment, summarised at paras  to  above, indicates careful consideration in detail of the evidence bearing on causation and a fully reasoned conclusion. The Judge correctly required the plaintiff to discharge on the balance of probabilities the onus of proof of causation. Very often that burden will prove insurmountable for a plaintiff. In Mr. Gilbertís case, the Judge was able to form a clear view from the direct evidence of the workplace conditions and from the expert evidence of Professor Appels, Sir John Scott and Dr Walsh and the international literature referred to by them that the plaintiff had discharged the burden of proof on the balance of probabilities. There was ample evidence upon which he could rely in coming to that conclusion. No error of law is shown.
BREACH OF THE CONTRACTUAL DUTY TO MAINTAIN A SAFE WORKPLACE
The appellant challenges the Judgeís conclusion that it breached the contractual duty to maintain a safe workplace. It is argued that the Judge proceeded on an assumption that there was a general risk of illness through stress, and failed to consider whether it resulted from a contractual breach of a duty to eliminate or manage the stress in the Otahuhu office. It is contended that the Judge failed to consider whether it was "reasonably foreseeable from the employerís perspective that the respondentís work would give rise to a materially substantial risk of emotional or mental illness". Before October 1995, it is said, the employer had no reason to believe that Mr. Gilbert was at risk.
The starting point is the terms of the contract. The obligation to maintain a safe workplace is derived from the express incorporation of the statutory requirements under the State Sector Act 1988 and the Health and Safety in Employment Act 1992 and from implied duties, recognised by the common law, which are themselves informed by the statutory obligations.
The duty on the employer was pleaded as one to "take all reasonable care to avoid exposing Mr. Gilbert to unnecessary risk of injury or further injury to his physical or psychological health and in particular to provide and maintain a safe system of work". It is to be noted that the scope of the pleaded obligation did not make the employer a guarantor of a safe workplace. It was obliged only to take reasonable care to avoid unnecessary risk. In that, it echoes the statutory duties imposed upon employers by the Health and Safety in Employment Act.
Before 1993, the State Sector Act obliged the Department to provide good and safe working conditions The Health and Safety in Employment Act 1992 is more elaborate when imposing similar obligations. Given the employment history of Mr. Gilbert, referred to above in paras  to , the more serious deficiencies in the workplace did not emerge until after the Health and Safety in Employment Act came into effect. In those circumstances, it is unnecessary to go behind that Act in considering the contentions of the appellant.
The principal object of the Health and Safety in Employment Act, as set out at s5, is "to provide for the prevention of harm to employees at work". It binds the Crown as well as private employers (s3). By s6, employers are required to "take all practicable steps to ensure the safety of employees while at work", including "all practicable steps to provide and maintain for employees a safe working environment". "Safe" and "safety" are defined in s2(1) in relation to a person as "not exposed to any hazards". "Hazards" are broadly defined to include any situation or activity "that is an actual or potential cause or source of harm". And "harm" is defined to mean "illness, injury, or both". The Act draws no distinction between physical, psychiatric or psychological illness or injury.
"All practicable steps" are defined in s2(1) of the Act:
All practicable steps", in relation to achieving any result in any circumstances, means all steps to achieve the result that it is reasonably practicable to take in the circumstances, having regard to Ė
Under s7 of the Act employers are required to ensure that there are in place methods for "systematically identifying" existing and emerging hazards to employees at work. The duty to set up effective methods to identify new hazards before they arise, if possible, fulfils an object of the Act to promote "excellence in health and safety management by employers" (s5). Special concern is shown for "significant hazards" (in ss8-10), for "actual or potential causes or sources of":
Serious harm [defined to include harm that causes the person harmed to be hospitalised for a period of 48 hours or more commencing within seven days of the harmís occurrence]; or
Harm (being harm that is more than trivial) the severity of whose effects on any person depend (entirely or among other things) on the extent or frequency of the personís exposure to the hazard; or
Harm that does not usually occur, or usually is not easily detectable, until a significant time after exposure to the hazard.
The duty to take reasonable steps to maintain a safe workplace is also a term now implied by common law into employment contracts, in recognition of their special nature. The same position has been reached in other common law jurisdictions (see the discussion in Johnson v Unisys Ltd  2 WLR 1076 at 1079, per Lord Steyn, at 1091 per Lord Hoffman, at 1101 per Lord Millet; Wallace v United Grain Growers Ltd (1998) 152 DLR (4th) 1, 33 per Iacobucci J). The content of the duty implied by common law to maintain a safe workplace is informed and given content by modern legislation, including in New Zealand the provisions of the Health and Safety in Employment Act.
The content of the duty pleaded by Mr. Gilbert (referred to in para ) was not formally admitted by the defendant in the pleadings in the Employment Court. But the Judge recorded his understanding that the defendant accepted it as correct at trial. The term as pleaded identifies avoidance of risk to psychological health as being within the scope of the contractual duty. On appeal, however, the Solicitor-General maintains that the psychological harm suffered by Mr. Gilbert is not loss for which he can be compensated because it is not a "recognised psychiatric injury". If correct in that submission, neither the statutory duties imposed on the employer nor the contractual duties which adopt them would extend to protection from mental harm unless it amounted to a "recognised psychiatric injury".
Such result is unattractive. The contractual terms encompass the statutory obligation both expressly and by implication. The statute does not contain anything to suggest distinctions according to whether harm is physical, psychiatric or psychological. The definition of "harm" is not limited to a "recognisable psychiatric illness". Nor is "illness" so limited. We agree with Mr. Rennieís submission that it would be contrary to the objects of the Act if an employer is not required to take steps reasonably practicable for it to take to avoid causing psychological harm. It would also be contrary to the employerís acknowledged duty of trust and confidence in the relationship if the employer could expose the employee to unnecessary risk of psychological harm reasonably avoided.
The argument on behalf of the appellant invokes the limitations developed by the common law, for policy reasons, to restrict liability in tort for purely psychiatric harm suffered by secondary victims (those who are affected after seeing or learning of injury to the primary victim), even where harm of the type is reasonably foreseeable. As developed in the United Kingdom and as applied in New Zealand, those limitations, in addition to requirements of relational and physical proximity, have included a requirement that the harm suffered be a "recognisable psychiatric illness" (Van Soest v Residual Health Management Unit  1 NZLR 179; White v Chief Constable of South Yorkshire Police  2 AC 455).
The application of the tortious "nervous shock" distinctions to claims for compensation for breach of contract is inappropriate. As pointed out by Lord Steyn in White at 492, "[t]he contours of tort law are profoundly affected by distinctions between different kinds of damage or harm". These distinctions form a "patchwork quilt" which is "difficult to justify". They are maintained because relaxation of the restrictions would greatly increase the class of persons who can recover damages in tort. The same policy concern (liability to an indeterminate class) does not apply to claims in contract.
In White it was held that a relationship of employment (imposing a duty on the employer to protect employees from harm through work) did not take the secondary victims outside the control mechanisms established by the cases, but that was in the circumstances where there was no breach of the employment contract and therefore no contractual liability. Contractual liability was acknowledged to raise different questions (see per Lord Hoffman at p505). The distinction is illustrated by Walker v Northumberland County Council  ICR 702. There the employer was liable for breach of a duty of care not to cause injury to the employeeís mental health by unreasonable workload practices. As Lord Hoffman noted in White (at p506):
[t]he employee in Walker v Northumberland County Council  ICR 702 was in no sense a secondary victim. His mental breakdown was caused by the strain of doing the work which his employer had required him to do.
Similarly, in Gillespie v Commonwealth of Australia (1991) 104 ACTR Miles CJ accepted that an employer is under a duty of care arising out of the relationship not to cause undue stress to the employee and was liable for the breakdown suffered by the employee.
We have moved a long way in our understanding of how humans function from the days when psychological damage, no matter how debilitating, was dismissed as "injured feelings" for which compensation did not lie. Indeed, s40(1)(c) of the Employment Contracts Act 1991 makes it clear that even injured feelings may be compensated for when a personal grievance is made out. It would be strange in those circumstances if remedy for serious psychological damage were excluded according to the label attached to different types of injury identifiable by modern science. The point made in Van Soest is that an injury "recognisable" by medical science is required. Blanchard J, who delivered the judgment of the majority, stressed that "the law . . . should not become tied to present-day classifications or terminology when in the future our knowledge of the workings of the human mind under conditions of stress becomes greater" (para ). Internationally recognised diagnostic classification systems, the American Diagnostic and Statistical Manual of Mental Disorders and the World Health Organisationís International Classification of Diseases and Related Health Problems were suggested to be authoritative guides to when a disorder is "recognisable" [para . Blanchard J also drew assistance from the definition of "mental injury" in the Accident Rehabilitation and Compensation Insurance Act 1992 as "a clinically significant behavioural, psychological, or cognitive dysfunction". In some cases it may be difficult to draw the line between a clinically significant disorder and the stress which is within the range of normal states of mind or emotions (see discussion in Sutherland v Hatton  EWCA Civ 76). But this is not such a case.
Vital exhaustion as a reaction to stress is a clinically significant psychological dysfunction. It is classified in the World Health Organisationís International Statistical Classification of Diseases and Related Health Problems published in 1992 (ICD-10-AM) and in the Australian Modification of the Classification published in 1998. Evidence to that effect was given in the present case by Professor Appels, Dr Walls, Sir John Scott, Dr Chaplow and other experts. They regarded vital exhaustion or burnout as a recognised injury which manifests itself physically, particularly in respect of cardiac disease, as well as in psychological disability. Its link with poor employment practices was confirmed by the expert evidence the Judge accepted.
The appellant raises the spectre of unreasonable burden on employers. The standard of protection provided to employees by the Health and Safety in Employment Act is however a protection against unacceptable employment practices which have to be assessed in context. That is made clear by the definition of "all practicable steps". What is "reasonably practicable" requires a balance. Severity of harm, the current state of knowledge about its likelihood, knowledge of the means to counter the risk, and the cost and availability of those means, all have to be assessed. Moreover, under s19 the employee must himself take all practicable steps to ensure his own safety while at work. These are formidable obstacles which a potential plaintiff must overcome in establishing breach of the contractual obligation. Foreseeability of harm and its risk will be important in considering whether an employer has failed to take all practicable steps to overcome it. These assessments must take account of the current state of knowledge and not be made with the benefit of hindsight. An employer does not guarantee to cocoon employees from stress and upset, nor is the employer a guarantor of the safety or health of the employee. Whether workplace stress is unreasonable is a matter of judgment on the facts. It may turn upon the nature of the job being performed as well as the workplace conditions. The employerís obligation will vary according to the particular circumstances. The contractual obligation requires reasonable steps which are proportionate to known and avoidable risks.
Since 1992, the International Labour Office (ILO) has published reports on occupational stress and its prevention, describing "burnout" and its physiological and occupational consequences. Similar publications have been available from Australia. In New Zealand, articles on occupational stress have been published since 1993. Although in New Zealand an Occupational Safety and Health booklet on stress was not published until 1998, Dr Wallís evidence was that it drew on the international literature which had been widely discussed in New Zealand for some years.
Organisational symptoms identified in the literature as indicating burnout from stress include high levels of absenteeism and sick leave, high labour turnover, low morale, increased retirement rates and utilisation of grievance procedures. All these symptoms were accepted by the Employment Court to be present in the Otahuhu office.
The comments about burnout in the Otahuhu office recorded by the Department from 1993 and the acknowledgements in evidence of members of the appellantís senior management provided a substantial base upon which the Judge concluded that the consequences were clearly foreseeable to the employer. They led him to the firm view that "the facts of this case are so strong and obvious that there could have been no doubt about causation and foreseeability" (p383).
These were conclusions of fact which are not able to be appealed. They were substantiated on the evidence. The Judge did not err in approach.
The legislation requires the employer to do what is practicable to contain known and unacceptable risks. The statute seeks to prevent harm to employees by promoting health and safety management. The reasonableness of the employerís conduct must therefore be measured against knowledge reasonably attained by employers mindful of their responsibilities.
In Johnson v Unisys Ltd Lord Steyn (at p1084) refers to the intensification of modern work pressures and the inevitable increase in the incidence of psychiatric injury through excessive stress and suggests that the need for protection of employees through their contractual rights, express and implied by law, is markedly greater than in the past. If a plaintiff is able to show that the employer failed to do what was reasonable at the time and was in breach of the contractual obligations, no reason of policy inhibits contractual liability for psychological injury.
In any event, the harm suffered by Mr. Gilbert was not confined to psychological injury. Mr. Gilbertís breakdown in health included an acceleration in his coronary artery disease which the Employment Court found to have been caused by the Departmentís breach of its employment obligations. The evidence before the Employment Court referred to the knowledge of links between stress and cardiac disease and its acceleration. No rule of exclusion borrowed from the nervous shock cases prevents contractual liability for loss arising out of such injury. The employer was under statutory and contractual duties to take reasonable steps to exclude unreasonable risk of it.
In some cases, a risk may not be apparent without specific information about the vulnerability of a particular employee. That was the reason the plaintiff in Gillespie failed and why the plaintiff in Walker was successful only for injury suffered after the employer became aware that he had already suffered one breakdown.
After Mr. Gilbert returned to work in October 1995 after extended sick leave, there can have been no doubt about his vulnerability to stress. But it does not follow that in all cases the risk will need to be matched to the particular employee. If the risk is one which applies generally, then knowledge of specific vulnerability may be irrelevant. If the employer unreasonably fails to take all steps practicable to remove or manage the risk and it is reasonably foreseeable that any employee may suffer harm as a result, then the employer will be in breach of the term of the contract to maintain safe working conditions. It was not necessary in the circumstances for there to be "direct warning of imminent breakdown on the part of the respondent", as suggested on behalf of the appellant.
The Judge had evidence upon which he was able to conclude that the Department was in breach of the employment contract because it failed to take all reasonable steps to avoid the foreseeable risk of harm to Mr. Gilbert. He has not been shown to have reached that conclusion through error of law.
LIABILITY FOR LOSS
According to general principles of contract, Mr. Gilbert was entitled to damages to compensate him for any loss he suffered through the breach of contract. He was also entitled to seek from the Employment Court compensation under s40 of the Act, including reimbursement of wages or other money lost as a result of the grievance (s40(1)(a)) and payment of compensation for injury to feelings and loss of any benefit he might reasonably be expected to obtain if the personal grievance had not arisen (s40(1)(c)).
Once the plaintiff has proved, on the balance of probabilities, that he has lost something of value as a result of the breach, any difficulty in assessing damages does not deprive him of a remedy. The court must do the best it can on the evidence to assess the amount of the loss.
The plaintiff seeking damages for breach of contract must show on the balance of probabilities that his loss was caused by the breach. It is not enough if the breach was simply the occasion of opportunity for loss; neither is it necessary that the breach be the sole cause of the loss, if it is a material factor (Schilling v Kidd Garrett Ltd  1 NZLR 243). The loss must be "sufficiently linked to the breach of the particular duty to merit recovery in all the circumstances" (McElroy Milne v Commercial Electronics Ltd  1 NZLR 39, 41 per Cooke P). Loss of the type suffered will usually be sufficiently linked to the breach if within the contemplation of the parties as a not unlikely consequence of breach. That is how the question of remoteness of damage in contract was addressed in the context of the employment contract in Malik v Bank of Credit & Commerce International  AC 20, 37 per Lord Nicholls:
if it was reasonably foreseeable that a particular type of loss of this character [in that case, impairment of employment prospects] was a serious possibility, and loss of this type is sustained in consequence of a breach, then in principle damages in respect of the loss should be recoverable.
The appellant argues that the physical illness suffered by the respondent (cardiac disease) is not able to be compensated for because it was induced by stress, a psychological state. The argument is misconceived. It is not the law that liability is limited to physical injury caused by a chain of physical causes. Just as consequential physical damage beyond the point of direct impact is regularly accepted for the purpose of loss, so the courts have accepted that physical damage can be brought about through mental or emotional stresses. Early examples to be found in the cases of liability for physical harm suffered in reaction to fright include Wilkinson v Downton  2 QB 57 and Dulieu v White & Sons  2 KB 669. In reaction to advances in medical science, it is accepted that heart attacks or miscarriages caused by shock are within duties of care even though brought about by mental processes. The need for the law to keep abreast of science in such matters was recognised by Lord Browne-Wilkinson in Page v Smith  1 AC 155, 180-181 and by Windeyer J in Mount Isa Mines Ltd v Pusey (1971) 125 CLR 383, 395. It is a point made by this Court in Van Soest (at para ). The fact that injury results from an assault on the nerves or senses "does not serve to differentiate the case, except possibly in the degree of evidentiary difficulty, from a case of direct physical injury" (Alcock v Chief Constable of South Yorkshire Police  1 AC 310).
The appellant submits that there are strong policy reasons against imposing liability on an employer for coronary artery disease. They are the prevalence of heart disease, the size of damage awards (given the likelihood of total disability), the burden on employers in limiting their right to manage their own undertaking, the problems and uncertainties of court inquiry into whether stress in the workplace is "normal" or "undue", and the difficulties of causation given the complexity of heart disease.
The difficulties of proof already referred to are substantial hurdles for the plaintiff, who has the burden of discharging them on the balance of probabilities. They are illustrated by the failure of the plaintiff in Gillespie v Commonwealth of Australia and by the partial failure of the plaintiff in Walker v Northumberland County Council (both cases in which the mental illnesses in issue were, like cardiac disease, not uncommon within the population as a whole and complex in cause). No principle was identified by the appellant upon which a right to a remedy for disability shown to have been caused by the breach of contract could be withheld, if those burdens are discharged.
The suggestion that imposition of liability would impede employer freedom or impose substantial costs is answered by the limits provided by the contractual obligation. It is only failure to take reasonable steps in all the circumstances that amounts to a breach of the obligation to maintain a safety in workplace. There is no freedom to depart from the statutory duty.
Complexity in the causes of heart disease will be reflected in the quantification of the loss arising from the breach of contract. The appellantís concern that a lump sum to reflect lost future earnings will result in overcompensation, if it ignores the likelihood of onset of the disease in the absence of stress, is properly addressed as part of the assessment of damages. It is not a reason for restricting liability for loss arising out of the breach.
The loss claimed by Mr. Gilbert arising from the breakdown in his health was within the scope of the contractual obligation of the employer. It was loss of a type foreseeable as a consequence of the breach. No principle of remoteness prevents recovery. The Judge did not fall into any error of law.
The appellant contends that the Judge failed to consider questions of contribution under the Contributory Negligence Act 1947. The factors identified as justifying an apportionment of liability were however rejected on the facts by the Judge in considering the claim for compensation for personal grievance, and the application of s40(2) of the Employment Contracts Act 1991.
The Judge concluded that there was no "fault" on the part of Mr. Gilbert to justify reduction of compensation for personal grievance under the provisions of ss40(2) or 41(3) of the Employment Contracts Act 1991. In doing so, he rejected criticisms:
that Mr. Gilbert failed to use the employee assistance programme (on the grounds that the system of psychological assistance by those used to write probation reports was compromised by conflict of roles);
that Mr. Gilbert continued to smoke (on the grounds of Sir John Scottís opinion that in his circumstances smoking was not an entirely harmful risk factor);
that Mr. Gilbert did not make his personal health circumstances known (on the grounds that the evidence showed that the complaints made by Mr. Gilbert in his capacity as President of the Probation Officers Association invoked his own workload as an example and upon the evidence of complaints made to managers that he was personally "overstressed"); and
that Mr. Gilbert put himself under unnecessary stress by his Association responsibilities, insistence of external supervision, resistance to change and failure to seek treatment (on the basis that the evidence established that in none of these respects was Mr. Gilbert at fault and that none were causative of his breakdown in health).
All of these were conclusions of fact available on the evidence. They are fatal to any claim to apportionment of responsibility. It is not necessary in the circumstances of the case to express any conclusion on the applicability of the Contributory Negligence Act 1947. There was no basis of reducing compensation for unjustified dismissal under ss40(2) or 41(3) of the Act. No question of contribution arises on the facts as found.
QUANTIFICATION OF COMPENSATORY DAMAGES
Mr. Gilbertís claim for loss of earnings was not finally resolved in the Employment Court. It was accepted that the calculations necessary to arrive at a lump sum for compensation would need to be the subject of actuarial evidence at a future hearing. The Judge held, however, that those calculations should assume the salary of a unit manager and should be undertaken on the basis that "Mr. Gilbert had at least 14 years of work ahead of him until he reached the age of eligibility for New Zealand superannuation under the Social Welfare (Transitional Provisions) Act 1990" (p394).
It is not clear whether the Judge intended to suggest that the compensatory damages for loss of earnings should amount to 14 years salary at the rate of pay of a unit manager, adjusted only by actuarial calculation to achieve a present value for the lump sum awarded. That seems unlikely and would be wrong in principle. Compensation for loss of future earnings is for a prospective loss. Assessment of the loss turns upon the hypothesis that the opportunity removed by the breach of contract or constructive dismissal would have produced benefits for which the plaintiff ought to be compensated. The Court must evaluate the opportunity lost, as best it can, taking into account contingencies which affect achievement of the benefit (Takaro Properties Ltd v Rowling  1 NZLR 22, 63 per Woodhouse P; Mallett v McMonagle  AC 166, 176 per Lord Diplock). The starting point will be the number of years between retirement and normal retiring age, but that must be reduced to take account of the chance of death or earlier retirement (through ill-health or otherwise). This is the other side of the coin which permits adjustment for likely advancement and enhancement of earning capacity, such as the Judge took into account in the conclusion that Mr. Gilbert would have been remunerated at the rate applicable to a unit manager.
Each case depends on its own facts and the assessment of the probabilities is a matter of judgment. In the present case, the appropriate discount to be applied to take into account the contingencies may be significant, given not only the general life expectancy within the community but also Mr. Gilbertís own particular risks: his predisposition to coronary artery disease and additional risk factors personal to him, including smoking and the stresses which were an unavoidable feature of his employment. Where the consequence of breach has been to accelerate or exacerbate a pre-existing and progressive condition, the employer is responsible for that effect and not the underlying condition (see discussion in Sutherland v Hatton at para ). Assessment of the probabilities overcomes the appellantís objection that the employer by the judgment under appeal is asked to compensate the employee for the ordinary vicissitudes of life. It is not clear that the Judge intended to suggest that the quantification of loss should not take account of the probabilities that Mr. Gilbert would not work until the normal retiring age. In the calculation, such probabilities will clearly have to be weighed.
The appellant contends that the Judge should not have indicated that the calculation of Mr. Gilbertís loss of earnings should be at the salary of a unit manager. The submission is made that the conclusion is contrary to the Judgeís own findings that Mr. Gilbert would have continued to work as a "basic grade Probation Officer".
There is no inconsistency. The reference to a "basic grade Probation Officer" is found in the preliminary conclusion that it was only the breach of contract and unjustified dismissal that prevented Mr. Gilbert continuing in his job as a probation officer until normal retirement. The Judge, with that starting point, then referred to Malik v Bank of Credit & Commerce International SA 1998 AC 20 as authority for the proposition that compensation for loss of position includes "promised benefits" lost. He applies that proposition immediately in his judgment in accepting that:
Since 1991 Mr. Gilbert had been identified as meeting the standards for "senior practitioner" payments and, in 1995, was working at a unit manager level. Despite these qualifications, the dysfunctional state of affairs at Otahuhu had prevented his obtaining these salary and promotional increases. I accept that Mr. Gilbertís salary loss is to be assessed on the basis of the higher salary of a unit manager.
This approach was available to the Judge in assessing the value of the opportunity lost by the wrongful dismissal. There is no error of law shown.
In addition to the conclusion that Mr. Gilbert is entitled to compensation for lost earnings until the date of his expected retirement, the Judge awarded him $50,000 damages for "loss of career, lost employment status, employability and future marketability". We accept the contention on behalf of the appellant that this approach was in error. The compensation for earnings for the balance of Mr. Gilbertís working life was sufficient to cover any loss of career. Any additional loss of status and associated embarrassment is covered by the award of damages for distress and injured feelings. In the end, Mr. Rennie acknowledged overlap between the heads of damage.
The Judge accepted that the test for when it will be appropriate to award exemplary damages is a high one:
It is not enough that there was recklessness in the sense of conduct so uncaring as to the safety of or consequences to others as to be capable, for all practical purposes, of being equated with intentional conduct. There must be proof of outrageous and flagrant disregard for the plaintiffís safety. Tests such as "conspicuous cruelty" and "outrageous conduct" have been employed but must be related to the legal duties governing the relationship between the parties in their particular employment circumstances.
In the Employment Court the Judge awarded $50,000 damages under this head. He took the view that the appellant was "reckless" in failing to provide a safe system of work. It had operated to "financial and not human objectives". It had ignored Mr. Gilbertís requests for assistance and complaints from others about the operation of the Otahuhu office. It had acted "outrageously and flagrantly" in disregarding Mr. Gilbertís safety when it required him to undertake full duties on his return from hospital. It intentionally conducted itself in a way deserving of penalty, in breach of statutory duties. The breaches continued over several years and were repeatedly drawn to the employerís attention. It had "gambled" with Mr. Gilbertís health.
The appellant did not seek to argue that an award of exemplary damages could not be made in a claim under an employment contract. It contended that an award was not warranted because the circumstances of the case fell short of the outrageous conduct which would justify an award.
The purpose of an award of exemplary damages is penal (Bottrill v A  3 NZLR 622). The contractual term breached here was one of failure to take reasonable care. Such a breach by itself can never justify an award of exemplary damages. The remedy is only available "where the defendant is subjectively aware of the risk to which his or her conduct exposes the plaintiff" (Bottrill at p638). Some conscious creation of, or persistence in, an unsafe system knowing that there is a substantial risk of harm to the plaintiff or someone in his position, is required.
That conclusion was not available here. The emphatic findings of fact made by the Judge were essential to liability. The Department would not have been in breach of the contractual obligation unless it could be said that it should have been aware of the risk to the health of its employees in the way in which the Otahuhu office was being run. The Judge found that it should have been conscious of the risk from the warnings received, from the persistence of problems suggestive of "burnout" in the office, and from what was known at the time about workplace stress and the techniques to manage it. It operated staffing policies that added to the stress of the work for reasons of financial management. Its management generally was at times "a shambles". It had no strategy for protecting Mr. Gilbert from excessive workload when he returned to work, clearly vulnerable, in October 1995. It should have known of the risks and, as a result, it is liable to compensate the respondent for the harm caused. But it is a considerable leap to conclude that the system was operated in conscious assumption of the risk of harm. The Judgeís impression of office "dysfunction", office "shambles", "ineffective" responses and poor communication within the organisation do not suggest such conscious assumption of risk or reckless indifference to likely harm. The conclusion that the Department "gambled" with its employeesí health for financial advantage is not substantiated by reasons which indicate a subjective understanding of the risk of harm and a conscious or reckless assumption of it for financial reasons or other benefit to it. The award of exemplary damages was not warranted.
The appeal is allowed in part. The remedies of damages for loss of career and exemplary damages are quashed. The appeals against the judgment in all other respects are dismissed.
Since the respondent has been successful on the principal points appealed, it is appropriate for the appellant to pay costs. The appellant is ordered to pay costs of $10,000 to the respondent together with disbursements to be fixed by the Registrar.
Johnson v Unisys Ltd  2 WLR 1076; Wallace v United Grain Growers Ltd (1998) 152 DLR (4th) 1; Van Soest v Residual Health Management Unit  1 NZLR 179; White v Chief Constable of South Yorkshire Police  2 AC 455; Walker v Northumberland County Council  ICR 702; Gillespie v Commonwealth of Australia (1991) 104 ACTR; Sutherland v Hatton  EWCA Civ 76; Schilling v Kidd Garrett Ltd  1 NZLR 243; McElroy Milne v Commercial Electronics Ltd  1 NZLR 39; Malik v Bank of Credit & Commerce International  AC 20; Wilkinson v Downton  2 QB 57; Dulieu v White & Sons  2 KB 669; Page v Smith  1 AC 155; Mount Isa Mines Ltd v Pusey (1971) 125 CLR 383; Alcock v Chief Constable of South Yorkshire Police  1 AC 310; Takaro Properties Ltd v Rowling  1 NZLR 22; Mallett v McMonagle  AC 166; Bottrill v A  3 NZLR 622
Employment Contracts Act 1991: s.40, s.41
Authors and other references
American Diagnostic and Statistical Manual of Mental Disorders
World Health Organisationís International Classification of Diseases and Related Health Problems, 1992 (ICD-10-AM)
Australian Modification of the Classification published in 1998
T Arnold QC, Solicitor-General, P J Dymond and R B Chan for Appellant (instructed by Crown Law Office, Wellington)
H B Rennie QC and J L Hobbs for Respondent (instructed by Brookfields, Auckland)
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