FEATURE

This article explores the Implied Term of Mutual Trust and Confidence (the “Implied Term”) which was recently considered by the Court of Appeal in Wee Kim San Lawrence Bernard v Robinson & Co (Singapore) Pte Ltd [2014] SGCA 43 (“Wee Kim San”). 

The Implied Term of Mutual Trust and Confidence

The Implied Term in Wee Kim San

The Appellant Wee Kim San sued his former employer, Robinson & Co (the “Respondent”) for damages for constructive dismissal.  He relied on, inter alia, the breach of the implied term of mutual trust and confidence (the "Implied Term"). The Respondent applied to strike out the claim for being legally unsustainable, ie even if the Appellant “were to succeed in proving all the facts that he offers to prove he will not be entitled to the remedy that he seeks”.1  The Respondent denied the allegation of constructive dismissal but submitted that even if the Appellant had been constructively dismissed, he would not be entitled to receive more than the salary in-lieu of the contractual notice period that was payable to him under his employment contract. This is the trite principle for damages for constructive dismissal as set out in Alexander Proudfoot Productivity Services Co S’pore Pte Ltd v Sim Hua Ngee Alvin and another appeal2 and Teh Guek Ngor Engelin née Tan and others v Chia Ee Lin Evelyn and another.3 As the Appellant had been paid more than the salary in-lieu of the contractual notice period, he was not entitled to receive any further amount. The case was struck out at first instance. The Appellant appealed to the High Court which upheld the dismissal. The Appellant then appealed to the Court of Appeal.

The Appellant’s argument was that he had a sustainable claim on the basis of the Implied Term as enunciated by the House of Lords in Malik v Bank of Credit and Commerce International SA [1998] AC 20 (“Malik v BCCI”). On appeal before the Court of Appeal, the Appellant submitted that his claim for breach of the Implied Term was in respect of the premature termination of his employment. The Appellant’s contention was that the orthodox rule that damages for constructive dismissal should be limited to the contractual notice period should not apply where the breach was that of the Implied Term. The Appellant thus argued that he should be entitled to claim damages on the basis that he would have remained in the employment of the Respondent indefinitely. 

The Court of Appeal however disagreed with the Appellant. Critically, it held that it could not be assumed that the Appellant would have stayed on with the Respondent indefinitely. Rather the legal assumption was that: 

“the employer would have exercised any power it might have to bring the employment contract to an end at the earliest date at which it could lawfully do so”. 4

In the present case, the earliest date at which the Respondent could have lawfully ended the Appellant’s termination was by giving two months’ notice. Since the Respondent had given the Appellant the required payment in lieu of notice and more, the Appellant had not suffered any loss and his claim was rightly struck out.

The Court of Appeal also observed  that in cases of an alleged breach of the Implied Term, a plaintiff may in theory claim for heads of loss such as: (i) emotional distress; (ii) impairment of future employment prospects; or financial loss flowing from psychiatric or other illness.5 The Court of Appeal observed (at para 22):

It is true that a breach of an applicable notice period will generally only have one type of consequence, and that, in contrast, a breach of the implied term of mutual trust and confidence can have one or more of a variety of consequences. A breach of this implied term could give rise, as it allegedly did here to the premature termination of the employment contract. But it could also give rise to an altogether separate category of injury or loss such as emotional distress or impairment of future employment prospects (emphasis added). 

The Ambit of the Implied Term 

Wee Kim San is significant because it accepts and explains the Implied Term in employment contracts. The Implied Term as defined in Malik v BCCI is “a portmanteau, general obligation not to engage in conduct likely to undermine the trust and confidence required if the employment relationship is to continue”.6

The proposition of the Implied Term is tempting as it appears to cover all manner of conduct which the employee finds objectionable. However, it is suggested that it is important to guard against the possible abuse of the Implied Term. While the Implied Term has been in existence even before Malik v BCCI, it was in Malik v BCCI where its application attracted attention due to the promise that it held out of recovery of substantially larger damages than what was usually recoverable.

Malik v BCCI 

It is important first to understand Malik v BCCI in its context. Malik v BCCI concerned the collapse of the Bank of Credit and Commerce International which revealed that the bank had carried on a dishonest or corrupt business. 

The provisional liquidators of the bank terminated the employment of the applicants in that case on the grounds of redundancy. However, the applicants were unable to obtain any employment in the finance industry due to the “stigma” associated with their former employment with the bank. Unable to find employment, the applicants lodged proofs of debt with the provisional liquidators for significant amounts as compensation for the loss of employment prospects caused by the aforementioned stigma. The proofs of debt were rejected by the liquidators and the applicants commenced the action but were unsuccessful at first instance. The English Court of Appeal also agreed with the liquidators that the evidence disclosed no reasonable cause of action and the applicants’ case was struck out.7

The applicants, however, succeeded before the House of Lords. The House of Lords found that the bank was under an implied obligation of mutual trust and confidence, ie  the Implied Term, not to conduct its business in a dishonest or corrupt manner. The House of Lords then acknowledged in principle that the bank could be responsible for the applicant’s financial losses if it were reasonably foreseeable that the loss (in terms of the applicants’ handicap in the financial market) suffered by the applicants was a result of the breach of trust and confidence. The House of Lords reversed the Court of Appeal’s decision to strike out the applicants’ case and the applicants were allowed to proceed in their action.  

In coming to its decision, the House of Lords distinguished between two forms of losses namely “premature termination losses” and “continuing financial losses”:8

1. Premature termination losses: the benefits the employee would have received had the contract been performed by the employer. 

2. Continuing financial losses: loss over and above the loss of pay and other premature termination losses suffered as a result of the breach of the implied term of trust and confidence. An employee may find himself worse off financially than when he entered into the contract. 

It was recognised that the “stigma” suffered by the applicants in Malik v BCCI and the diminished future employment prospects of the applicants as a result of the breach of the Implied Term could potentially result in damages for continuing financial losses, subject to the applicant’s ability to prove the same at the trial of the action. 

Ultimately, it should be highlighted that Malik v BCCI was essentially a decision on a preliminary issue only, ie whether the applicants’ case disclosed a reasonable cause of action.9 In the trial proceedings that followed Malik v BCCI, the former employees were unable to attribute their inability to seek employment to the breach of the Implied Term and accordingly failed in their claim.  

Clarification of Malik v BCCI in Light of Wee Kim San 

In Wee Kim San, the Court of Appeal clarified the distinction between the two forms of losses recoverable. The key lies in the consequences that may flow from the breach.10

If the breach of the Implied Term brings upon the premature termination of the employment contract (ie on the alleged facts of Wee Kim San), then the damages recoverable are the same as in a case of wrongful dismissal, which is the amount the employee would have received if the contract was brought to an end lawfully (ie premature termination losses only).11

An employee may seek damages over and above the contractual notice period only if the employee can show that the breach of the Implied Term results in other consequential losses.  An example would be the Malik v BCCI type of “stigma” damages. Of course, as can be seen from Malik v BCCI, the question of proof is a whole other challenge altogether. 

Previous Decisions on the Applicability of the Implied Term Clarified in Light of the Court of Appeal Decision 

Prior to Wee Kim San, there have been attempts to rely on the breach of the Implied Term to extend the claim of damages beyond the contractual notice period.12 The following are two recent High Court decisions concerning the reach of Malik v BCCI which have now been clarified in light of Wee Kim San. 

The first decision is the Singapore High Court case of Wong Leong Wei Edward and another v Acclaim Insurance Brokers Pte Ltd and Anor [2010] SGHC 352 (“Wong Leong Wei”). In Wong Leong Wei, the plaintiff was formerly employed by the defendant. The suit was a consolidated action of two suits. The second of the two suits involved a claim against the defendant for wrongful termination as the defendant had summarily dismissed the plaintiff for engaging in illegal cash-back arrangements as a financial advisor. 

The plaintiff had raised the issue on the basis of Malik v BCCI that the summary dismissal had handicapped him in the labour market as he was no longer able to secure an equivalent position in the finance industry. It was acknowledged that if the plaintiff could show that: (i) the defendant had wrongfully dismissed the plaintiff in a manner which amounted to a breach of the Implied Term; and (ii) the plaintiff had suffered a “real and provable financial loss”, then the plaintiff would be entitled to claim against the defendant for loss beyond the contractual notice period. This was however a moot point given that the Court had found that the defendant was entitled to terminate the plaintiff's employment. 

The case of Wong Leong Wei is in essence an affirmation of the limited proposition in Malik v BCCI.  It was similarly clarified in Wee Kim San that the case of Wong Leong Wei was focused on a claim for damages arising from the handicap in the labour market which may therefore result in damages over and above the payment of salary for the contractual notice period.  Wong Leong Wei was not a claim whereby the main complaint of the plaintiff was that he had been wrongfully dismissed.13

The second decision is Cheah Peng Hock v Luzhou Bio-chem Technology Ltd [2013] 2 SLR 577 (“Cheah Peng Hock”). In Cheah Peng Hock, the plaintiff was the former Chief Executive Officer (“CEO”) of the defendant. The plaintiff relied on the breach of the Implied Term and Malik v BCCI. The conduct constituting the breach of the Implied Term included the following:

1. The exclusion of the plaintiff from meetings held to discuss his decisions as a CEO; 

2. The appointment of another person as a “joint-CEO”;

3. The plaintiff’s ability to command the respect of the senior management was undermined; and

The withdrawal of the company car and the taking over of the plaintiff’s CEO office which the Court found was calculated to cause embarrassment to the plaintiff.  

Notwithstanding the adverse conditions the plaintiff was subjected to, the damages were nonetheless computed with reference to the contractual termination clause and the plaintiff was awarded the salary he would have received had the contract been terminated under the clause.

The case of Cheah Peng Hock demonstrates that no matter how adverse the conditions which constitute the breach of the Implied Term, without any further proof of other financial loss as a result of the said breach, the damages the plaintiff is entitled to would be limited to what he is contractually entitled to had the contract been terminated lawfully, ie premature termination losses.

Conclusion

It has now been clarified that the damages that an employee is entitled to claim from the breach of the Implied Term depends on the consequences flowing from the breach. In most cases, the breach of the Implied Term simply results in the same outcome as a case of wrongful dismissal. It is only in limited cases such as emotional distress or loss of future employment prospects that the damages may be higher. Even then, the plaintiff in such cases has to prove his loss. Seen in that light, the Implied Term is not a panacea that allows employees to claim a larger amount of damages against their employers.  The disgruntled employee must always refer back to his contract and the actual losses that he has suffered.

MK Eusuff Ali *
     Tan Rajah & Cheah
     E-mail: [email protected]

Megan Chia
     Tan Rajah & Cheah
     E-mail: [email protected]

Tham Lijing
     Tan Rajah & Cheah
     E-mail: [email protected]

Notes

1 The “Bunga Melati 5” [2012] 4 SLR 546 at [39].

2 [1992] 3 SLR(R) 933.

3 [2005] 3 SLR(R) 22.

4 [25] of the Grounds of Decision.

5 [22], [26] and [27] of the Grounds of Decision.

6 Malik v BCCI, p 35. 

7 The facts of Malik v BCCI were saliently summarised in the High Court Decision at [25].

8 Malik v BCCI at pp 36-37. 

9 See also [26] of the High Court Decision.

10 [28] of the Grounds of Decision.

11 The normal measure of damages in cases for wrongful dismissal has been established in the Singapore Court of Appeal decisions in Alexander Proudfoot Productivity Services Co Singapore Pte Ltd v Sim Hua Ngee Alvin and another appeal [1992] 3 SLR(R) 933 and Teh Guek Ngor Engelin nee Tan and others v Chia Ee Lin Evelyn and another [2005] 3 SLR(R) 22.

12 Malik v BCCI was also recently considered in the Singapore High Court case of Daniel John Brader v Commerzbank AG [2013] SGHC 284.  However, the case did not pertain to the specific issue of damages flowing from the breach of the Implied Term beyond the contractual notice period. 

13 [32] of the Grounds of Decision.