Addis v Gramophone Co Ltd [1909] UKHL 1 (26 July 1909)

Facts

The plaintiff, Mr. Addis, was employed by the defendant, Gramophone Company Ltd., as their manager in Calcutta, India. His employment contract stipulated a salary of £15 per week and a commission on trade done. The contract was terminable upon six months’ notice. In October 1905, the company gave Mr. Addis the required six months’ notice of termination. However, they concurrently appointed his successor and took immediate steps to prevent him from performing his duties as manager. This action constituted a wrongful and abrupt dismissal, forcing Mr. Addis to return to England. At first instance, the jury awarded him £600 for wrongful dismissal and £340 for loss of commission. The £600 award was specifically for the harsh and humiliating manner of the dismissal, which Addis claimed made it more difficult for him to obtain subsequent employment.

Issues

The central legal issue before the House of Lords was the correct measure of damages for a breach of an employment contract, specifically a wrongful dismissal. The key question was whether damages could be awarded beyond the direct financial loss (i.e., loss of salary and commission during the notice period). The Court had to determine if a plaintiff could recover for:

1. Injury to feelings, mental distress, or aggravation caused by the manner of the dismissal.
2. Loss of reputation or the increased difficulty in finding future employment resulting from the fact of being dismissed in a humiliating way.

Judgment

The House of Lords, by a majority, allowed the appeal of the Gramophone Company, significantly limiting the scope of recoverable damages in breach of contract cases. The Court held that damages for wrongful dismissal were confined to the pecuniary loss arising directly from the breach.

The Majority Opinion (Lord Loreburn L.C., Lord James of Hereford, Lord Atkinson, Lord Gorell, and Lord Shaw of Dunfermline)

The Lord Chancellor, Lord Loreburn, delivered the leading opinion, establishing a foundational principle in contract law. He distinguished the measure of damages in contract from that in tort, stating that tort law may permit the consideration of aggravating circumstances, but contract law does not. His reasoning was that the motive or manner of a breach is not relevant to the assessment of damages, which should only aim to put the innocent party in the financial position they would have been in had the contract been properly performed.

If there be a dismissal without notice the employer must pay an indemnity; but that indemnity cannot include compensation either for the injured feelings of the servant, or for the loss he may sustain from the fact that his having been dismissed of itself makes it more difficult for him to obtain fresh employment.

Lord Atkinson, in a concurring judgment, reinforced this position by stating that in an action for breach of contract, the damages must be such as arise naturally from the breach itself and cannot be increased by the “malice or ill-will of the defendant.” He clarified that the damages were for the breach (the failure to give proper notice) and not for the dismissal itself, as an employer always has the right to dismiss an employee.

The Dissenting Opinion (Lord Collins)

Lord Collins provided a powerful dissent. He argued against a rigid rule that would prevent a jury from considering the circumstances of the dismissal. He contended that a breach of contract could be committed in a manner that imports “contumely and insult,” and that such aggravating circumstances should be reflected in the damages awarded. He believed the distinction between contract and tort was not so stark as to preclude damages for such injury, especially in the master-servant relationship. He argued that the jury’s award of £600 could be justified as compensation for the very real harm caused by the employer’s oppressive conduct, which went beyond a simple failure to give notice.

Implications

The decision in Addis v Gramophone Co Ltd established the orthodox rule, often termed the ‘Addis rule’, that damages for breach of contract are purely compensatory for financial loss. It explicitly prohibited awards for non-pecuniary losses such as mental distress, injured feelings, or loss of reputation resulting from the manner of the breach. This case created a clear demarcation between remedies in contract and tort.

Its primary importance lies in employment law, where for nearly a century it strictly limited a wrongfully dismissed employee’s claim to the wages and other benefits they would have earned during their contractual notice period. While subsequent case law (e.g., Jarvis v Swans Tours Ltd [1973] QB 233 and Farley v Skinner [2001] UKHL 49) has carved out limited exceptions for contracts whose very purpose is to provide pleasure, relaxation, or peace of mind, the core principle from Addis remains the default position for ordinary commercial and employment contracts. The case remains a landmark authority on the restrictive principles governing the assessment of damages for breach of contract in English law.

Verdict: The appeal of the Gramophone Company, Limited was allowed. The judgment of the Court of Appeal was reversed, and it was ordered that unless the plaintiff consented to the damages being reduced to £340 (for loss of commission) and £60 (for loss of salary), a new trial should be held.