BCCI employees could claim for stigma loss

LAW REPORT 20 June 1997
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Malik and Another v Bank of Credit and Commerce International SA (in compulsory liquidation); House of Lords (Lord Goff of Chieveley, Lord Mackay of Clashfern, Lord Mustill, Lord Nicholls of Birkenhead and Lord Steyn) 12 June 1997

Where an employer was in breach of the implied trust and confidence term in a contract of employment, and as a consequence an employee's future employment prospects were adversely affected, the employee could claim damages.

The House of Lords allowed the appeal against the decision of the Court of Appeal that the appellants had no reasonable cause of action against the respondents.

The appellants were both employed by BCCI in London, and lost their jobs when the bank collapsed in 1991. They claimed damages in the winding up for "stigma" loss, claiming that their association with BCCI had placed them at a serious disadvantage in finding new jobs.

A trial of the preliminary issue, whether their evidence disclosed a reasonable cause of action or sustainable claim for damages, was directed.

Eldred Tabachnik QC and Andrew Stafford (Manches & Co) for the appellants; Patrick Elias QC and Christopher Jeans (Lovell White Durrant) for the respondents.

Lord Nicholls said that it had been assumed for the purpose of the preliminary issue that the bank had operated in a corrupt and dishonest manner, that the appellants were innocent of any involvement, that following the collapse of BCCI its corruption and dishonesty had become widely known, that in consequence the appellants had been handicapped in the labour market because they had been stigmatised by reason of their previous employment by BCCI, and that they had suffered loss in consequence.

It was also agreed that the appellants' contracts of employment 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.

An employee who only learnt of the trust-destroying conduct after the employment contract had ended for other reasons ought to be entitled to damages. The losses suffered might, exceptionally, not be confined to loss of pay and other premature termination losses.

The crucial point in the present appeals was whether continuing financial losses were recoverable for breach of the trust and confidence term. If it was reasonably foreseeable, then in principle damages in respect of the loss should be recoverable.

The contrary argument was that, since the purpose of the trust and confidence term was to preserve the employment relationship, the losses recoverable for breach should be confined to those flowing from the premature termination of the relationship. That was an unacceptably narrow evaluation of the trust and confidence term.

That approach brought one face to face with the decision in the wrongful dismissal case of Addis v Gramophone Co Ltd [1909] AC 488, which was generally regarded as having decided that any loss suffered by the adverse impact on the employee's chances of obtaining alternative employment was to be excluded from an assessment of damages for wrongful dismissal.

The observations made in Addis v Gramophone Co Ltd could not be read as precluding the recovery of damages where the manner of dismissal involved a breach of the trust and confidence term, and that caused financial loss. The case was decided in the days before that implied term had been adumbrated. Now that the term existed and was normally implied in every contract of employment, damages for its breach should be assessed in accordance with ordinary contractual principles.

It had been submitted that that appellants' claims for damages to their existing reputations were barred by the decision in Withers v General Theatre Corporation Ltd [1933] 2 KB 536, but there was a conflict between that case and Marbe v George Edwardes (Daly's Theatre) Ltd [1928] 1 KB 269. Marbe was to be preferred, as the views expressed in that case accorded better with principle.

The appeals would be allowed. The agreed set of facts disclosed a good cause of action.

Kate O'Hanlon, Barrister