The Court of Appeal allowed an appeal by the four defendants, Guardian Assurance plc, Corinum Holdings Ltd, Corinum Mortgage Services (Cirencester) Ltd and Guardian Royal Exchange Assurance plc, against the decision of Judge Lever QC, sitting as a High Court judge on 20 December 1991, that they were liable in damages for negligent misstatement in giving the plaintiff, Graham Spring, a bad reference.
David Eady QC, and Gerard Clarke (Clifford Chance) for the defendants; Bernard Livesey QC, and Witold Pawlak (Ringrose Wharton & Co, Bristol) for the plaintiff.
LORD JUSTICE GLIDEWELL, giving the judgment of the court, said the plaintiff had worked for the Corinum companies but was dismissed shortly after their sale to Guardian Assurance. He attempted to set up business elsewhere, selling the products of another insurance company, Scottish Amicable.
As required by rule 3.5 of the code of conduct of Lautro (Life Assurance and Unit Trust Regulatory Organisation), a reference was supplied by Guardian to Scottish Amicable. The reference given was, in the judge's words, 'so strikingly bad as to amount to . . . the 'kiss of death' to his career in insurance. Scottish Amicable wanted no truck with the man it described.'
The plaintiff claimed damages for (1) malicious falsehood, (2) breach of an implied term of contract, and (3) negligence. In order to succeed in a cause of action for malicious falsehood, he had to show that the defendants had been actuated by malice. The judge found on the evidence that this was not made out. On the second cause of action, the judge held that there was no contract between the plaintiff and either Guardian Assurance or Guardian Royal Exchange; and that there was in his contract with Corinum no implied term, as pleaded, to the effect that they should 'provide a reference which was full, frank and truthful and . . . prepared using reasonable care.'
As to negligence, the plaintiff alleged that the defendants owed him a duty of care in providing a reference in the knowledge that an unsatisfactory reference would prevent or substantially damage the plaintiff's prospects of employment.
The judge held that it was impossible in such a situation, where the giving of a reference, good or bad, was not a matter of discretion, and where the consequences of a negligent misstatement were known to the potential author, namely that it might well blight a man's entire career, not to say that it was only fair, just and reasonable that the author of the reference should take all reasonable care to ensure that his statement was not a misstatement.
He found that there had been a breach of such a duty of care, and that this had caused the plaintiff the damage claimed. The defendants appealed on the negligence issue and the plaintiff cross-appealed.
In their Lordships' judgment, the test of what constituted malice in the tort of malicious falsehood was the same as the test in relation to the torts of libel and slander. In this case the judge properly directed himself by reference to Horrocks v Lowe (1975) AC 135 at 150 and his conclusions were impeccable. His conclusion on the alleged implied contract term was also correct. The plaintiff's cross- appeal would be dismissed.
The issue of whether the giver of a reference owed a duty of care to the subject of the reference (i) in giving or compiling the reference, or (ii) in obtaining the information upon which it was based, was the most difficult and controversial question.
It was a commonplace that if A (a former or present employer) gave B (a possible future employer) a written or oral reference concerning C (an employee) the reference was given on an occasion of qualified privilege. If it contained some untrue statement about C which damaged his reputation, C could only succeed in an action against A in defamation if he could prove that A was actuated by malice.
Moreover, if A made an untrue statement to B about C which damaged C's business but not his reputation, C could sue A for damages for financial loss only if he could prove that A in making the statement was actuated by malice.
In Lawton v BOC Transhield Ltd (1987) 2 All ER 608, ICR 7 (1987), Mr Justice Tudor Evans held that the defendants owed a duty of care to the plaintiff in compiling and giving a reference, but they were not in breach of it.
In their Lordships' judgment, that was incorrect. Their Lordships agreed with the decision of the New Zealand Court of Appeal in Bell-Booth Group Ltd v Attorney General (1989) 3 NZLR 148 that 'justice does not require or warrant an importation of negligence law into this class of cases. Where remedies are needed, they are already available in the form of actions for defamation, injurious falsehood, breach of contract or breach of confidence.'
As a general proposition, the giver of a reference owed no duty of care in the tort of negligence to the subject of the reference. His duty to the subject was governed by - and lay in - the tort of defamation.
It made no difference that Guardian were obliged by Lautro rules to give a reference when asked by Scottish Amicable. Other employers were not under a legal duty to give a reference, but they were commonly thought to be under a moral or social duty to do so if asked, and if they declined to do so it might be almost as damaging to the employee as an unsatisfactory reference.
The obligation to make full and frank disclosure of all relevant matters which were believed to be true, which in summary form incorporated the principles of the tort of defamation, was the extent of the duty owed by former employers bound by the Lautro rules. Accordingly, the defendants owed no duty of care in negligence to the plaintiff in this case, and the appeal would be allowed.
Paul Magrath, Barrister