Malik and Mahmud v Bank of Credit and Commerce International SA

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLORD GOFF OF CHIEVELEY,LORD MACKAY OF CLASHFERN,LORD MUSTILL,LORD NICHOLLS OF BIRKENHEAD,LORD STEYN
Judgment Date12 Jun 1997
Neutral Citation[1997] UKHL 23

[1997] UKHL J0612-2

HOUSE OF LORDS

Lord Goff of Chieveley

Lord Mackay of Clashfern

Lord Mustill

Lord Nicholls of Birkenhead

Lord Steyn

Malik (A.P.)
(Appellant)
and
Bank Of Credit And Commerce International S.A.

(In Compulsory Liquidation)

(Respondents)
Mahmud (A.P.)
(Appellant)
and
Bank of Credit and Commerce International S.A.

(In Compulsory Liquidation)

(Respondents)
LORD GOFF OF CHIEVELEY

My Lords,

1

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

My Lords,

2

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.

LORD MUSTILL

My Lords,

3

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

My Lords,

4

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.

5

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.

6

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.

7

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.

8

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. [1909] A.C. 488 and Withers v. General Theatre Corporation Ltd. [1933] 2 K.B. 536.

9

A dishonest and corrupt business

10

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.

11

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.

12

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.

13

An implied obligation

14

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.

15

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.

16

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.

17

Breach

18

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.

19

Remedies: (1) acceptance of breach as repudiation

20

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.

21

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.

22

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...

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