Malik and Mahmud v Bank of Credit and Commerce International SA

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLORD JUSTICE MORRITT,LORD JUSTICE ALDOUS,LORD JUSTICE GLIDEWELL
Judgment Date09 Mar 1995
Judgment citation (vLex)[1995] EWCA Civ J0309-10
Docket NumberCHANI 94/0495/B

[1995] EWCA Civ J0309-10

IN THE SUPREME COURT OF JUDICATURE

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE CHANCERY DIVISION (COMPANIES COURT)

Mr Justice Evans-Lombe

Before Lord Justice Glidewell Lord Justice Morritt Lord Justice Aldous

CHANI 94/0495/B

Between:

IN THE MATTER OF BANK OF CREDIT AND COMMERCE INTERNATIONAL SA

AND THE BANKING ACT 1987

AND THE INSOLVENCY ACT 1986

Raihan Nasir Mahmud
Appellant
and
Bank of Credit & Commercial International Sa (In Compulsory Liquidation)
Respondent

MR E TABACHNIK QC and MR A STAFFORD (Instructed by Manches & Co., London WC2B 4RP) appeared on behalf of the Appellant.

MR P ELIAS QC and MR C JEANS (Instructed by Lovell White & Durrant, London, EC1A 2DY) appeared on behalf of the Respondent.

LORD JUSTICE MORRITT
1

On 5th July 1991 provisional liquidators were appointed in respect of Bank of Credit and Commerce International SA ("BCCI") and shortly thereafter it became public knowledge that in the view at least of the regulatory authorities its business had for a number of years been carried on fraudulently. On 3rd October 1991 the employment of Mr Mahmud and Mr Malik with BCCI was terminated by the provisional liquidators by reason of redundancy. Neither of them has since been able to obtain employment in the financial services industry, because, as they allege, of the stigma attaching to them as former employees of BCCI notwithstanding their personal innocence of any wrong-doing.

2

Each of them submitted a proof of debt in the liquidation of BCCI claiming substantial sums as compensation for the alleged stigma. Those proofs were rejected by the Liquidators and the appellants appealed to the Court. On a preliminary issue designed to obtain a decision on the point of principle whether such compensation could be recovered in law Evans—Lombe J decided that the evidence in support of each claim failed to disclose a reasonable cause of action or a sustainable claim for damages. The appellants now appeal with the leave of the judge.

3

Mr Mahmud joined BCCI in June 1975 having worked for Midland Bank for seven years before that. His first job was as local officer and head of deposits at the Mark Lane branch. In 1976 he moved to the Sloane Street branch as assistant manager, in December 1977 to the Edgware Road branch as manager and in August 1980 to the Commercial Road branch in the same capacity. In 1984 and 1985 he was employed by BCCI in Panama from where he returned to the Leadenhall branch in 1986. In 1989 he transferred to the branch at High Street Kensington and from there to the Brompton Road branch in June 1990 in each case as manager.

4

Mr Mahmud's contract of employment with BCCI provided that he would observe the service rules of BCCI and other terms set out in the contract. The express obligations of BCCI were limited to the payment of the remuneration and other benefits provided for and the operation of a grievance procedure.

5

Mr Mahmud's original claim for stigma compensation was submitted to the liquidators in April 1992 in the sum of £50,000. This was described as "in line with payment made in France" in respect of service with BCCI for 10 years or more and was rejected by the liquidators on the ground that the French entitlement did not apply to the employees of branches outside France. In October 1992 Mr Mahmud submitted a revised proof claiming stigma damages in the sum of £99,753–35 stated to be calculated as 2 months salary per year of remaining service till retirement i.e. 11 years. This too was rejected by the liquidators on the ground that they could only accept claims with a basis in the contract of employment.

6

Mr Malik joined BCCI in October 1979 having worked for the previous four and a half years for the United Bank Ltd in Pakistan. Initially he was a credit officer at the Commercial Road branch. In February he was promoted to be the Assistant Manager and relief manager at that branch. In July 1990 he moved to the Leadenhall branch as head of deposit accounts and customer services.

7

Mr Malik's contract of employment was in substantially the same terms as that of Mr Mahmud. He submitted a proof of debt to the joint liquidators claiming £50,000 for prejudicial stigma based on some table of service. This was rejected by the joint liquidators on the ground that "an employee is not legally entitled to claim damages for stress or any alleged loss of reputation or any other similar damage arising out of his employment with the Bank, its termination or by reason of the fact that the Bank has been placed in liquidation".

8

The appeal before Evans-Lombe J was argued on the basis of a statement of facts agreed for the purposes of that application (and this appeal) only. The statement reads:-

9

"The facts and matters on which the applicants rely are as follows:-

10

(a) The applicants were employees of BCCI;

11

(b) BCCI operated in a corrupt and/or dishonest manner;

12

(c) The applicants were innocent of any involvement in BCCI's corruption and/or dishonesty;

13

(d) Following the collapse of BCCI its corruption and/or dishonesty has become widely known;

14

(e) In consequence the applicants are now at a handicap on the market because they are stigmatised by reason of their previous employment by BCCI;

15

(f) The Applicants have suffered loss in consequence of (e) above."

16

Before Evans-Lombe J it was argued for the appellants that there was to be implied into the respective contracts of employment a term that

"the employer will not, without reasonable and proper cause, conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee."

17

The judge formulated an alternative implied term that

"the employer will not, without reasonable and proper cause, so conduct his business with his customers that employees employed in that business will be or will be likely to be, by reason of that conduct, put at a disadvantage in the employment market in the event that their employment by the employer is terminated."

18

The judge confessed to having considerable sympathy for the appellants. He considered the dilemma of an employee who discovers the fraudulent behaviour of his employer. If he resigns in order to disassociate himself from such fraud he cannot claim for constructive dismissal unless some such term as is contended for is implied in the contract of employment. But if he does not resign he becomes implicated in the fraud. The judge considered in detail the decisions and judgments in Vivian v Coca-Cola Export Corporation (1984) 2 N.Z.L.R. 289; Addis v Gramophone Co.Ltd. (1909) A.C. 483; Withers v General Theatre Corporation (1933) 2 K.B.537; British Guiana Credit Corporation v De Silva (1965) 1 W.L.R.248; O'Laoire v Jackel (No.2) (1991) I.C.R. 718; Herbert Clayton and Jack Waller v Oliver (1930) A.C. 209; and Dunk v George Waller (1970) 2 Q.B. 163. He concluded at page 35 of the transcript

"The question, therefore, is whether such a term" [sc. the term formulated by the judge] "can be implied. In my judgment, the decision of the Court of Appeal in O'Laoire is binding upon me that no such term can be implied. It binds me in my application of the decision of the House of Lords in Addis v Gramophone Co. Ltd if I were to take the view on my separate investigation of that case that the House of Lords in Addis effectively decided differently. I should say straight away that an examination of that case leads me to the conclusion that they did not decide differently and that the decision of the Court of Appeal in O'Laiore and of the House of Lords in Addis are strictly along the same lines. It follows that, in my judgment, it is not open to me, however sympathetic I may be to the appellants claim, to conclude that on the case presented, and on the facts which I am invited to accept, that a case is made out for the admission of a proof of debt for what has been called stigma damages. I come to that conclusion applying similar principles to those contained in Order 18, rule 19 such as would be applicable were this an application to strike out. It does not seem to me that in contracts of the nature of those put forward by these two applicants that it is possible to imply terms which permit them to make the claim which they advance. It is not possible to imply those terms, it seems to me, because the Court of Appeal must be taken to have decided that in indistinguishable circumstances such a term cannot be implied. In my judgment such a term cannot be implied because it is no part of an employment contract to prepare an employee for service with future employers and so the parties cannot be assumed to have been agreeable to the inclusion of such a term when the contract was originally made."

19

The appellants submit that the judge was wrong. They contend that he should have dealt with the term as formulated by them not the alternative formulated by him and that the former is readily implied into every contract of employment as an incident of the relationship unless it is inconsistent with an express term. For that proposition they rely on Woods v WM Car Services (Peterborough) Ltd (1981) I.C.R. 666; Lewis v Motorworld Garages Ltd (1986) I.C.R.157; Bliss v South East Thames Regional Health Authority (1987) ICR 700, 714E and Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd (1991) ICR 524, 533. They submit that such an implied term may be broken not only by an act directed at a particular employee but also by conduct which, when viewed objectively, is likely seriously to damage the relationship of employer and employee. For that proposition they rely on The Post...

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72 cases
1 books & journal articles
  • ‘Dishonest and Corrupt’ Companies, Employees and Stigma Damages
    • United Kingdom
    • Journal of Financial Crime Nbr. 6-1, March 1998
    • 1 March 1998
    ...damages. The liqui-dator disputed only the third claim. Evans-Lombe J in the Companies Court [1994] TLR 100 and the Court of Appeal [1995] 3 All ER 545 rejected the ex-employees' contention that their career pro-spects had been so adversely affected by their asso-ciation with BCCI, a corrup......

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