Pile it on

Morrish v NTL Ltd

The law says that, in breach of contract cases, the injured party is entitled to reasonable damages that arise “naturally” from the breach, as well as anything that “may reasonably be supposed to have been in the contemplation of both parties” when they made the contract.

In Morrish v NTL Ltd the Court of Session said that employers cannot imply a term in a contract giving them the right to make a payment in lieu of notice (PILON), if there is already an express term stipulating the period of notice.

Basic facts

Mr Morrish worked for NTL Ltd as the company secretary and financial director. Although clause one of his contract stated that he was entitled to twelve months’ written notice, NTL failed to give him notice when making him redundant.

Perhaps not surprisingly, Mr Morrish claimed breach of contract. He said he was entitled to damages for loss of his pension rights, loss of opportunity to receive a bonus payment, a long term incentive plan payment, share options and a one-off bonus of £50,000.

The employers said there was no breach because his contract contained an implied term allowing them to terminate the contract by making a PILON, along with compensation for loss of his other contractual benefits.

Sherrifs’ decisions

As this is a Scottish decision, it was heard by a sheriff in the first instance. He said that although contracts do contain an implied term allowing employers to dismiss without notice (as long as they pay wages and other contractual entitlements in lieu), the express provisions of clause one overrode that implied term.

The employers then appealed to the sheriff principal who also refused the appeal, saying that the terms of the contract were clear and that “the express term has supremacy over the implied term."

NTL Ltd appealed again.

Decision of Court of Session

The Court of Session refused the employer’s appeal. It said that although courts had historically taken the view that contracts should have an implied term entitling the employee to reasonable notice before dismissal or a payment in lieu, those decisions could not be relied on when the employment contract contains an express provision for giving notice.

As this contract had an express term for a period of notice, the Court of Session could see no good reason for holding that a PILON clause should be implied.

It was important, the court held, that “provisions are not to be held to be implied into contracts except for good reason. It was not suggested to us that business efficacy required such a provision to be implied, or that it was required for the protection of the employee. Such protection is only required where the employee is not otherwise entitled to a period of notice.”

As the implied term would contradict the express term, it said that “we can see no reason for holding that a term should be implied which would have the effect of depriving the employee of the normal remedy of damages for breach of contract, the purpose of which would be to put him in no worse a financial position than that in which he would have been had the employers fulfilled their contractual obligations to him.”

It concluded by quoting Lord Hoffmann in Johnson v Unisys Ltd, that: "[A]ny terms which the courts imply into a contract must be consistent with the express terms. Implied terms may supplement the express terms of the contract but cannot contradict them. Only Parliament may actually override what the parties have agreed."