Editorial Committee of the Cambridge Law Journal

What Price an Employee's Reputation?Author(s): Steve HedleySource: The Cambridge Law Journal, Vol. 56, No. 3 (Nov., 1997), pp. 485-487Published by: Cambridge University Press on behalf of Editorial Committee of the Cambridge LawJournalStable URL: http://www.jstor.org/stable/4508365 .

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Case and Comment Case and Comment

"the action is not for causing discomfort to the person, but ... for causing injury to the land". Viewed this way, there is nothing illogical about awarding the same amount of damages to a bachelor and to a family of 10, where both properties were blighted in an identical way. Nor does it matter that the property may have suffered no permanent diminution in market value as a result of the nuisance: compensation is for the land's "loss of amenity value so long as the nuisance lasted".

Orthodox though it is, it is also slightly artificial. What precisely is it about, for example, a horrible smell that is deserving of legal sanction? Surely the fact that human beings are adversely affected by it. If the orthodox view is correct, an absentee landowner whose property, whilst empty, was temporarily affected by a nuisance from next door could recover damages. The analogy drawn with damages for loss of amenity in contract (Ruxley Electronics and Construction Ltd. v. Forsyth [1996] A.C. 344) does not really work, since such damages undoubtedly compensate the plaintiff for his personal loss of amenity.

Lord Cooke disagreed, favouring the Court of Appeal's solution that occupation of property as a home should be sufficient to allow an action in nuisance, which he thought accorded greater respect to the position of spouses, partners and children. Arguably this is just as clear as the majority view, perhaps more so, since there seems to be some confusion about the precise limits of the "interest in land" needed (references to "licensees with exclusive possession", and to courts "readily assuming" that wives have acquired beneficial interests will

puzzle land law students, and it may prove difficult to swallow a rule that excludes spouses but includes squatters). In any event, it now seems that children made ill by next door's pig farm will have to prove negligence before recovering damages-no easy task-whilst nuisance resumes its 19th century place as a tort exclusively protecting land. It is perhaps no surprise that Lord Cooke's dissent made the only mention of the role of nuisance in environmental protection.

JANET O'SULLIVAN

WHAT PRICE AN EMPLOYEE'S REPUTATION?

IN a case argued on assumed facts, the House of Lords has now accepted that damages may, in some circumstances at least, be awarded to former employees who complain of injury to their earning prospects as a result of their employers' fraudulent activities. The case concerned two employees of the Bank of Credit and Commerce International (BCCI), which suddenly collapsed, and then was found to have been involved in massive and systematic fraud. The plaintiffs, both relatively

"the action is not for causing discomfort to the person, but ... for causing injury to the land". Viewed this way, there is nothing illogical about awarding the same amount of damages to a bachelor and to a family of 10, where both properties were blighted in an identical way. Nor does it matter that the property may have suffered no permanent diminution in market value as a result of the nuisance: compensation is for the land's "loss of amenity value so long as the nuisance lasted".

Orthodox though it is, it is also slightly artificial. What precisely is it about, for example, a horrible smell that is deserving of legal sanction? Surely the fact that human beings are adversely affected by it. If the orthodox view is correct, an absentee landowner whose property, whilst empty, was temporarily affected by a nuisance from next door could recover damages. The analogy drawn with damages for loss of amenity in contract (Ruxley Electronics and Construction Ltd. v. Forsyth [1996] A.C. 344) does not really work, since such damages undoubtedly compensate the plaintiff for his personal loss of amenity.

Lord Cooke disagreed, favouring the Court of Appeal's solution that occupation of property as a home should be sufficient to allow an action in nuisance, which he thought accorded greater respect to the position of spouses, partners and children. Arguably this is just as clear as the majority view, perhaps more so, since there seems to be some confusion about the precise limits of the "interest in land" needed (references to "licensees with exclusive possession", and to courts "readily assuming" that wives have acquired beneficial interests will

puzzle land law students, and it may prove difficult to swallow a rule that excludes spouses but includes squatters). In any event, it now seems that children made ill by next door's pig farm will have to prove negligence before recovering damages-no easy task-whilst nuisance resumes its 19th century place as a tort exclusively protecting land. It is perhaps no surprise that Lord Cooke's dissent made the only mention of the role of nuisance in environmental protection.

JANET O'SULLIVAN

WHAT PRICE AN EMPLOYEE'S REPUTATION?

IN a case argued on assumed facts, the House of Lords has now accepted that damages may, in some circumstances at least, be awarded to former employees who complain of injury to their earning prospects as a result of their employers' fraudulent activities. The case concerned two employees of the Bank of Credit and Commerce International (BCCI), which suddenly collapsed, and then was found to have been involved in massive and systematic fraud. The plaintiffs, both relatively

C.L.J. C.L.J. 485 485

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The Cambridge Law Journal

senior officers, of 16 and 12 years' service respectively, neither of whom had any knowledge of the fraud, complained that they were now virtually unemployable in the financial services industry, as a result of guilt by association, and claimed damages totalling roughly £I50,000 for this injury to their reputations, as proved financial loss. The liquidators maintained that they were entitled to nothing beyond wages in lieu of notice and redundancy payments. The House of Lords has now held that the plaintiffs are entitled to the additional sums they claim, if the assumed facts are made out: Malik and another v. Bank of Credit and Commerce International SA (in liquidation) [1997] 3 W.L.R. 95.

As to whether a breach of contract could be established at all, it was common ground that employers owe their employees an implied duty of loyalty-even though the House of Lords had never before confirmed the existence of such a term. The question was whether the term extended to the behaviour of the employer in this case. At first blush it sounds strange to describe it as disloyal behaviour, as it was not directed towards the employees; and the strangeness is not removed by describing it as behaviour damaging trust and confidence between employer and employee, as the employees did not hear of the conduct in question until after the employment relationship had been terminated. The problem only dissolves when the House of Lords acknowledges that employment relations do not last for ever, and the duty of an employer to look to the employee's interests therefore includes a duty not to do damage to the employee's future employ- ability. "Jobs of all descriptions are less secure than formerly, people change jobs more frequently, and thejob market is not always buoyant. Everyone knows this" (Lord Nicholls). What sort of conduct would constitute a breach of this implied term was not explained in any detail by the Lords, beyond the proposition that the conduct in question must have been objectively likely to cause serious damage. There was no question of there being an implied term to improve employees' job prospects, but only to refrain from damaging them. Gross incompetence by an employer would not usually be enough, nor would single acts of dishonesty. On the assumed facts, BCCI was an utterly corrupt firm, and a breach of contract was established without difficulty.

On assessment of damages, the defendants relied heavily on Addis v. The Gramophone Company [1909] A.C. 488, which is usually taken to lay down that damages for injury to reputation are not recoverable in an action for unlawful dismissal. It was on this ground that the Court of Appeal (at [1995] 3 All E.R. 455) had refused liability. The House of Lords has now denied that "lost reputation" denotes a peculiar form of damages with its own rules. The question in each case

486 [1997]

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Case and Comment

is whether the plaintiffs can establish financial loss on ordinary principles; if they can, it makes no difference whether it is in some sense a claim for injured reputation or not. Citing Spring v. Guardian Assurance plc [1995] 2 A.C. 296, the House of Lords said that the fact that a plaintiff might have sued in defamation was no defence to other types of action. "Stigma compensation" thus falls to be assessed on ordinary principles.

None the less, none of their Lordships said that Addis was wrong, and the reasons for this failure show how limited a ruling Malik is. The claim in Malik was strictly for financial loss, and the House of Lords did not consider any claim for distress or humiliation; the denial of such a claim in Addis therefore still stands, albeit rather precariously, and it remains the law (for now) that there is no claim in contract for the humiliating way in which a contract of employment is terminated. The main difference from Addis was in the recognition of the implied duty of loyalty, and Addis may still be good law where no such duty is broken. The brevity of the description of the "stigma" in the report of Addis suggested to the House of Lords in Malik that there was no provable financial loss in the case; and the financial position of the plaintiff, suggested Lord Nicholls, would not have been materially different if he had been allowed to serve out his period of notice-and therefore the unlawful manner of termination did not cause his loss.

It is also clear that the House of Lords was departing not one inch from the assumed facts of Malik, and many factors might intervene to reduce or defeat the plaintiffs' claims in this very case, let alone others. Knowledge of the employers' fraudulent activities at some early point might prejudice their claims. Mitigation and remoteness of loss would be defences. The defendants would be allowed to question whether the refusals by other potential employers to offer jobs to the plaintiffs were reasonable reactions to the plaintiffs' situation, and so really attributable to the breach of contract: as Lord Nicholls pointed out, this might depend on how senior the plaintiffs had been. It will not necessarily be assumed that in happier circumstances the plaintiffs would have moved smoothly from jobs with BCCI to jobs elsewhere: the vicissitudes of life and of the employment market would tend to reduce their damages.

In conclusion, the class of case which will attract stigma compensa- tion has now been defined by the House of Lords in very narrow terms, and it is by no means obvious that many plaintiffs, or even the plaintiffs in this particular case, will secure substantial sums.

STEVE HEDLEY

C.L.J. 487

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