15 year legal battle ends with no mutual trust or confidence

NSW v Shaw [2015] NSWCA 97

On 17 April 2015, the New South Wales Court of Appeal handed down judgment in the 15 year legal battle of NSW v Shaw [2015] NSWCA 97 (NSW v Shaw), finding that there was no implied term of mutual trust and confidence in probationary employment contracts.


The respondents were probationary teachers hired in 1999, whose appointments were annulled in March 2000 by the State of New South Wales, their employer. The annulment occurred along with a determination that they were no longer employees of the State, pursuant to s48(2) and s48(4) of the Teaching Services Act 1980 (NSW), legislation which provided a statutory regime for the employment of teachers by the State of New South Wales.

The respondents brought unsuccessful claims before the Industrial Relations Commission, the Anti-Discrimination Board, and the Administrative Decisions Appeal Tribunal. In 2005, just before they were out of time, the respondents brought an action in the NSW District Court alleging that the State had breached an implied term of mutual trust and confidence and sought damages for breach of their employment contracts. The District Court action was finally heard in 2013 (Shaw v New South Wales (District Court (NSW), Sorby DCJ, 6 April 2013, unrep). In that proceeding the respondents were partially successful, as Sorby DCJ found in favour of an implied term of mutual trust and confidence, however they were awarded no damages.

Subsequent to the NSW District Court decision in Shaw, the High Court of Australia handed down the decision of CBA v Barker [2014] HCA 32, deciding that in Australia there was no term of mutual trust and confidence implied as a matter of law into employment contracts.

In NSW v Shaw [2015] NSWCA 97, the State of NSW appealed the 2013 District Court finding, seeking a reversal of the first instance decision due to the High Court reasoning in Barker. The respondents cross-appealed seeking damages and a finding that the State had repudiated their employment contracts.

Despite the High Court’s statement in Barker, in the NSW Court of Appeal the respondents in NSW v Shaw argued that a term of mutual trust and confidence should be implied into their probationary employment contracts, on the basis that a probationary teacher’s contract involves the teacher developing skills and receiving supervision and instruction. The respondents reasoned that a probationary contract involved an employer’s promise of providing assistance in the development of necessary skills and a commitment to behaving fairly in assessing performance. In the alternative, it was argued that the term could be construed as one of good faith, implied by necessity as a matter of law in probationary contracts.

The decision

The NSW Court of Appeal upheld the State’s appeal and found that there was nothing in the nature of probationary teaching contracts that would become nugatory, worthless or undermined if a term of mutual trust and confidence was not implied.[1] In rejecting the necessity of this proposed implied term, Ward JA[2] noted that if probationary teachers had grievances about the adequacy of their supervision, training, or support, then there were established policies available to them to voice those concerns, and such an implied term was not required. Ultimately, it was held that the probationary nature of the employment does not create a situation outside of the ambit of the High Court’s reasoning in Barker, concerning the lack of necessity of the term to employment contracts generally.

In regards to the alleged implied duty of good faith, the respondents submitted that the court should apply the reasoning of Lord Nicholls of Birkenhead in Eastwood v Magnox Electric plc[3]; that an implied term of trust and confidence meant that an employer must treat his employees fairly and must act responsibly and in good faith in his treatment of them.[4] The respondents were effectively attempting to re-characterise the implied term as one of good faith, to circumvent the High Court reasoning in Barker, and provide an avenue for a finding of contractual breach. Ward JA rejected this argument and found that the existence of the statutory regime meant there was no necessity to imply a duty of good faith into the employment contracts and further that the factual background did not support a conclusion that there was any breach of good faith.

Impact of the decision

There are several key points to take away from this decision:

  • A probationary employment agreement does not require an implied term of mutual trust and confidence or good faith for it to operate and the term will therefore not be implied (applying CBA v Barker [2014] HCA 32).
  • If there is no necessity to imply a duty of mutual trust and confidence in to probationary employment contracts, then there is unlikely to be such a duty implied in other non-permanent training focused employment contracts, such as casual or internship agreements.

An implied term of good faith is unlikely to be found in an employment agreement where there exists other mechanisms, statutory or otherwise, of ensuring the parties engage with each other with good faith, as those mechanisms will render the proposed implied term unnecessary.

[1] New South Wales v Shaw [2015] NSWCA 97 at [105] applying Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410 (Byrne).

[2] With whom Beazley P and Gleeson JA agreed.

[3] [2005] 1 AC 503 at 523 [11]

[4] Endorsed as a single obligation by Basten JA in Russell v Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2008] NSWCA 217 at [32].

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