House of Lords
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|Judgments - Malik v. Bank of Credit and Mahmud v. Bank of Credit
Lord Nicholls of Birkenhead Lord Steyn
(IN COMPULSORY LIQUIDATION)
(IN COMPULSORY LIQUIDATION)
LORD GOFF OF CHIEVELEY
For the reasons given in the speeches to be delivered by my noble and learned friends Lord Nicholls of Birkenhead and Lord Steyn, which I have read in draft and with which I agree, I would allow these appeals.
LORD MACKAY OF CLASHFERN
I have had the privilege of reading in draft the speeches prepared by my noble and learned friends Lord Nicholls of Birkenhead and Lord Steyn. I agree that this appeal should be allowed for the reasons that they give.
For the reasons given in the speech to be delivered by my noble and learned friend Lord Steyn, which I have read in draft and with which I agree, I would allow this appeal.
LORD NICHOLLS OF BIRKENHEAD
This is another case arising from the disastrous collapse of Bank of Credit and Commerce International SA in the summer of 1991. Thousands of people around the world suffered loss. Depositors lost their money, employees lost their jobs. Two employees who lost their jobs were Mr. Raihan Nasir Mahmud and Mr. Qaiser Mansoor Malik. They were employed by B.C.C.I. in London. They claim they lost more than their jobs. They claim that their association with B.C.C.I. placed them at a serious disadvantage in finding new jobs. So in March 1992 they sought to prove for damages in the winding up of B.C.C.I. The liquidators rejected this "stigma" head of loss in their proofs. Liability for notice money and statutory redundancy pay was not in dispute.
Mr. Mahmud had worked for the bank for 16 years. At the time of his dismissal he was manager of the bank's Brompton Road branch. Mr. Malik was employed by the bank for 12 years. His last post was as the head of deposit accounts and customer services at B.C.C.I's Leadenhall branch. On 3 October 1991 they were both dismissed by the provisional liquidators, on the ground of redundancy.
Mr. Mahmud and Mr. Malik appealed to the court against the liquidators' decision on their proofs. The registrar directed the trial of a preliminary issue: whether the applicants' evidence disclosed a reasonable cause of action or sustainable claim for damages. The Judge, Evans-Lombe J., gave a negative answer to this question. So did the Court of Appeal, comprising Glidewell, Morritt and Aldous L.JJ.
Before this House, as in the courts below, the issue is being decided on the basis of an agreed set of facts. The liquidators do not admit the accuracy of these facts, but for the purpose of this preliminary issue it is being assumed that the bank operated in a corrupt and dishonest manner, that Mr. Mahmud and Mr. Malik were innocent of any involvement, that following the collapse of B.C.C.I. its corruption and dishonesty became widely known, that in consequence Mr. Mahmud and Mr. Malik were at a handicap on the labour market because they were stigmatised by reason of their previous employment by B.C.C.I., and that they suffered loss in consequence.
In the Court of Appeal and in your Lordships' House the parties were agreed that the contracts of employment of these two former employees each contained an implied term to the effect that the bank would not, without reasonable and proper cause, conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee. Argument proceeded on this footing, and ranged round the type of conduct and other circumstances which could or could not constitute a breach of this implied term. The submissions embraced questions such as the following: whether the trust-destroying conduct must be directed at the employee, either individually or as part of a group; whether an employee must know of the employer's trust-destroying conduct while still employed; and whether the employee's trust must actually be undermined. Furthermore, and at the heart of this case, the submissions raised an important question on the damages recoverable for breach of the implied term, with particular reference to the decisions in Addis v. Gramophone Co. Ltd.  A.C. 488 and Withers v. General Theatre Corporation Ltd.  2 K.B. 536.
A dishonest and corrupt business
These questions are best approached by focusing first on the particular conduct of which complaint is made. The bank operated its business dishonestly and corruptly. On the assumed facts, this was not a case where one or two individuals, however senior, were behaving dishonestly. Matters had gone beyond this. They had reached the point where the bank itself could properly be identified with the dishonesty. This was a dishonest business, a corrupt business.
It is against this background that the position of an innocent employee has to be considered. In my view, when an innocent employee of the bank learned the true nature of the bank's business, from whatever source, he was entitled to say: "I wish to have nothing more to do with this organisation. I am not prepared to help this business, by working for it. I am leaving at once." This is my intuitive response in the case of all innocent employees of the business, from the most senior to the most junior, from the most long serving to the most recently joined. No one could be expected to have to continue to work with and for such a company against his wish.
This intuitive response is no more than a reflection of what goes without saying in any ordinary contract of employment, namely, that in agreeing to work for an employer the employee, whatever his status, cannot be taken to have agreed to work in furtherance of a dishonest business. This is as much true of a doorkeeper or cleaner as a senior executive or branch manager.
An implied obligation
Two points can be noted here. First, as a matter of legal analysis, the innocent employee's entitlement to leave at once must derive from the bank being in breach of a term of the contract of employment which the employee is entitled to treat as a repudiation by the bank of its contractual obligations. That is the source of his right to step away from the contract forthwith.
In other words, and this is the necessary corollary of the employee's right to leave at once, the bank was under an implied obligation to its employees not to conduct a dishonest or corrupt business. This implied obligation is no more than one particular aspect of the portmanteau, general obligation not to engage in conduct likely to undermine the trust and confidence required if the employment relationship is to continue in the manner the employment contract implicitly envisages.
Second, I do not accept the liquidators' submission that the conduct of which complaint is made must be targeted in some way at the employee or a group of employees. No doubt that will often be the position, perhaps usually so. But there is no reason in principle why this must always be so. The trust and confidence required in the employment relationship can be undermined by an employer, or indeed an employee, in many different ways. I can see no justification for the law giving the employee a remedy if the unjustified trust-destroying conduct occurs in some ways but refusing a remedy if it occurs in others. The conduct must, of course, impinge on the relationship in the sense that, looked at objectively, it is likely to destroy or seriously damage the degree of trust and confidence the employee is reasonably entitled to have in his employer. That requires one to look at all the circumstances.
The objective standard just mentioned provides the answer to the liquidators' submission that unless the employee's confidence is actually undermined there is no breach. A breach occurs when the proscribed conduct takes place: here, operating a dishonest and corrupt business. Proof of a subjective loss of confidence in the employer is not an essential element of the breach, although the time when the employee learns of the misconduct and his response to it may affect his remedy.
Remedies: (1) acceptance of breach as repudiation
The next step is to consider the consequences which flow from the bank being in breach of its obligation to its innocent employees by operating a corrupt banking business. The first remedy of an employee has already been noted. The employee may treat the bank's conduct as a repudiatory breach, entitling him to leave. He is not compelled to leave. He may choose to stay. The extent to which staying would be more than an election to remain, and would be a waiver of the breach for all purposes, depends on the circumstances.
I need say no more about waiver in the present case. The assumed facts do not state whether the appellants first learned of the corrupt nature of B.C.C.I. after their dismissal on 3 October 1991, or whether they acquired this knowledge earlier, in the interval of three months between the appointment of the provisional liquidators on 5 July 1991 and 3 October 1991. If anything should turn on this, the matter can be investigated further in due course.
In the nature of things, the remedy of treating the conduct as a repudiatory breach, entitling the employee to leave, can only avail an employee who learns of the facts while still employed. If he does not discover the facts while his employment is still continuing, perforce this remedy is not open to him. But this does not mean he has no remedy. In the ordinary course breach of a contractual term entitles the innocent party to damages.
Remedies: (2) damages
Can an employee recover damages for breach of the trust and confidence term when he first learns of the breach after he has left the employment? The answer to this question is inextricably bound up with the further question of what damages are recoverable for a breach of this term. In turn, the answer to this further question is inextricably linked with one aspect of the decision in Addis v. Gramophone Co. Ltd.  A.C. 488.
At first sight it seems almost a contradiction in terms that an employee can suffer recoverable loss if he first learns of the trust-destroying conduct after the employment contract has already ended for other reasons. But of the many forms which trust-destroying conduct may take, some may have continuing adverse financial effects on an employee even after his employment has ceased. In such a case the fact that the employee only learned of the employer's conduct after the employment had ended ought not, in principle, to be a bar to recovery. If it were otherwise, an employer who conceals a breach would be better placed than an employer who does not.
Premature termination losses
This proposition calls for elaboration. The starting point is to note that the purpose of the trust and confidence implied term is to facilitate the proper functioning of the contract. If the employer commits a breach of the term, and in consequence the contract comes to an end prematurely, the employee loses the benefits he should have received had the contract run its course until it expired or was duly terminated. In addition to financial benefits such as salary and commission and pension rights, the losses caused by the premature termination of the contract ("the premature termination losses") may include other promised benefits, for instance, a course of training, or publicity for an actor or pop star. Prima facie, and subject always to established principles of mitigation and so forth, the dismissed employee can recover damages to compensate him for these promised benefits lost to him in consequence of the premature termination of the contract.
It follows that premature termination losses cannot be attributable to a breach of the trust and confidence term if the contract is terminated for other reasons, for instance, for redundancy or if the employee leaves of his own volition. Since the trust destroying conduct did not bring about the premature termination of the contract, ex hypothesi the employee did not sustain any loss of pay and so forth by reason of the breach of the trust and confidence term. That is the position in the present case.
Continuing financial losses
Exceptionally, however, the losses suffered by an employee as a result of a breach of the trust and confidence term may not consist of, or be confined to, loss of pay and other premature termination losses. Leaving aside injured feelings and anxiety, which are not the basis of the claim in the present case, an employee may find himself worse off financially than when he entered into the contract. The most obvious example is conduct, in breach of the trust and confidence term, which prejudicially affects an employee's future employment prospects. The conduct may diminish the employee's attractiveness to future employers.
The loss in the present case is of this character. B.C.C.I. promised, in an implied term, not to conduct a dishonest or corrupt business. The promised benefit was employment by an honest employer. This benefit did not materialise. Proof that Mr. Mahmud and Mr. Malik were handicapped in the labour market in consequence of B.C.C.I's. corruption may not be easy, but that is an assumed fact for the purpose of this preliminary issue.
There is here an important point of principle. Are financial losses of this character, which I shall call "continuing financial losses", recoverable for breach of the trust and confidence term? This is the crucial point in the present appeals. In my view, if it was reasonably foreseeable that a particular type of loss of this character 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.
In the present case the agreed facts make no assumption, either way, about whether the appellants' handicap in the labour market was reasonably foreseeable by the bank. On this there must be scope for argument. I would not regard the absence of this necessary ingredient from the assumed facts as a sufficient reason for refusing to permit the former employees' claims to proceed further.
The contrary argument of principle is that since the purpose of the trust and confidence term is to preserve the employment relationship and to enable that relationship to prosper and continue, the losses recoverable for breach should be confined to those flowing from the premature termination of the relationship. Thus, a breach of the term should not be regarded as giving rise to recoverable losses beyond those I have described as premature termination losses. In this way, the measure of damages would be commensurate with, and not go beyond, the scope of the protection the trust and confidence term is intended to provide for the employee.
This is an unacceptably narrow evaluation of the trust and confidence term. Employers may be under no common law obligation, through the medium of an implied contractual term of general application, to take steps to improve their employees' future job prospects. But failure to improve is one thing, positively to damage is another. Employment, and job prospects, are matters of vital concern to most people. Jobs of all descriptions are less secure than formerly, people change jobs more frequently, and the job market is not always buoyant. Everyone knows this. An employment contract creates a close personal relationship, where there is often a disparity of power between the parties. Frequently the employee is vulnerable. Although the underlying purpose of the trust and confidence term is to protect the employment relationship, there can be nothing unfairly onerous or unreasonable in requiring an employer who breaches the trust and confidence term to be liable if he thereby causes continuing financial loss of a nature that was reasonably foreseeable. Employers must take care not to damage their employees' future employment prospects, by harsh and oppressive behaviour or by any other form of conduct which is unacceptable today as falling below the standards set by the implied trust and confidence term.
This approach brings one face to face with the decision in the wrongful dismissal case of Addis v. Gramophone Co. Ltd.  A.C. 488. It does so, because the measure of damages recoverable for breach of the trust and confidence term cannot be decided without having some regard to a comparable question which arises regarding the measure of damages recoverable for wrongful dismissal. An employee may elect to treat a sufficiently serious breach of the trust and confidence term as discharging him from the contract and, hence, as a constructive dismissal. The damages in such a case ought, in principle, to be the same as they would be if the employer had expressly dismissed the employee. The employee should be no better off, or worse off, in the two situations. In principle, so far as the recoverability of continuing financial losses are concerned, there is no basis for distinguishing (a) wrongful dismissal following a breach of the trust and confidence term, (b) constructive dismissal following a breach of the trust and confidence term, and (c) a breach of the trust and confidence term which only becomes known after the contract has ended for other reasons. The present case is in the last category, but a principled answer cannot be given for cases in this category without considering the other two categories from which it is indistinguishable.
Addis v. Gramophone Co.
Against this background I turn to the much discussed case of Addis v. Gramophone Co. Ltd.  A.C. 488. Mr. Addis, it will be recalled, was wrongfully and contumeliously dismissed from his post as the defendant's manager in Calcutta. At trial he was awarded damages exceeding the amount of his salary for the period of notice to which he was entitled. The case is generally regarded as having decided, echoing the words of Lord Loreburn L.C., at p. 491, that an employee cannot recover damages for the manner in which the wrongful dismissal took place, for injured feelings or for any loss he may sustain from the fact that his having been dismissed of itself makes it more difficult for him to obtain fresh employment. In particular, Addis is generally understood to have decided that any loss suffered by the adverse impact on the employee's chances of obtaining alternative employment is to be excluded from an assessment of damages for wrongful dismissal: see, for instance, O'Laoire v. Jackel International Ltd. (No. 2)  I.C.R. 718, 730-731, following earlier authorities; in Canada, the decision of the Supreme Court in Vorvis v. Insurance Corporation of British Columbia (1989) 58 D.L.R. (4th) 193, 205; and, in New Zealand, Vivian v. Coca-Cola Export Corporation  2 N.Z.L.R. 289, 292; Whelan v. Waitaki Meats Ltd.  2 N.Z.L.R. 74, where Gallen J. disagreed with the decision in Addis, and Brandt v. Nixdorf Computer Ltd.  3 N.Z.L.R. 750.
For present purposes I am not concerned with the exclusion of damages for injured feelings. The present case is concerned only with financial loss. The report of the facts in Addis is sketchy. Whether Mr. Addis sought to prove that the manner of his dismissal caused him financial loss over and above his premature termination losses is not clear beyond a peradventure. If he did, it is surprising that their Lordships did not address this important feature more specifically. Instead there are references to injured feelings, the fact of dismissal of itself, aggravated damages, exemplary damages amounting to damages for defamation, damages being compensatory and not punitive, and the irrelevance of motive. The dissenting speech of Lord Collins was based on competence to award exemplary or vindictive damages.
However, Lord Loreburn's observations were framed in quite general terms, and he expressly disagreed with the suggestion of Lord Coleridge C.J. in Maw v. Jones 25 Q.B.D. 107, 108, to the effect that an assessment of damages might take into account the greater difficulty which an apprentice dismissed with a slur on his character might have in obtaining other employment. Similarly general observations were made by Lord James of Hereford, Lord Atkinson, Lord Gorell and Lord Shaw of Dunfermline.