Claim No: CFI 014/2009
THE JUDICIAL AUTHORITY OF THE DUBAI INTERNATIONAL FINANCIAL CENTRE
In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai
IN THE COURT OF FIRST INSTANCE
BEFORE DEPUTY CHIEF JUSTICE MICHAEL HWANG SC
KTEILY GHASSAN ELIAS
JULIUS BAER (MIDDLE EAST) LIMITED
Hearing Date: 22 November 2009
Counsel: Mr Marwan Sakr (Hennaoui & Sakr) PO Box 1162230, Beirut, Lebanon for ClaimantMr Raza Mithani (Al Tamimi & Company), PO Box 9275, Dubai, UAE for Defendant
REASONS FOR JUDGMENT
1. On 23 November I made the following orders in relation to Application 050/2009, which was an application by the Defendant to strike out portions of the Particulars of Claim:
3. Paragraph 53(d) is struck out but the Claimant may apply for amendment of the Particulars of Claim within 14 days to plead loss of bonus entitlement as a head of damage for beach of the Implied Term.
4. (a) In Paragraph 42, the first sentence and the words “For example” are struck out.
2. Counsel for the Claimant then applied orally for leave to appeal against Orders 1, 2, 3 and 7 above pursuant to Rule 44.7(1) of the Rules of the Dubai International Financial Centre Court 2007 (“the RDC”) and, pursuant to Rule 44.8(2) of the RDC, I granted leave to appeal on the grounds that there was a compelling reason why the appeal should be heard.
5. The Claimant contends that the termination of his employment was done in bad faith and without just cause, and he has accordingly been deprived of remuneration to which he would otherwise have been entitled.
6. He therefore argues that the Defendant has breached its implied duty of mutual trust and confidence which entitles him to damages. Although his existing pleading is not crystal clear in articulating this argument, the essence of it can be seen in paragraphs 39, 40, 46, 50 and (arguably) 41.
7. The Defendant’s application for striking out focused on those parts of the Particulars of Claim which fall under the following heads:
8. I agree with the Defendant’s submission that, insofar as the Claimant contends that those headings represent separate causes of action, he is clearly wrong, and accordingly I have ordered those paragraphs to be struck out. Counsel for the Claimant acknowledged in oral submissions that he was no longer relying on the grounds set out in paragraph ?7 above as causes of action, and indicated his willingness to amend the Particulars of Claim accordingly. Since the facts narrated in those sections are nevertheless relevant to the Claimant’s existing claim based on the breach of the implied term of mutual trust and confidence between employer and employee, I have given leave to the Claimant to amend the Particulars of Claim so that all the Claimant’s complaints can be brought under the one head of claim, viz this implied term, which is the true legal issue engaged in this case.
Implied term of mutual trust and confidence
10. In Johnson, Mr Johnson was summarily dismissed by Unisys Ltd for an alleged irregularity. He brought a claim before an employment tribunal for unfair dismissal and was awarded total compensation of just under £11,700. Some years later, he brought a claim in the county court for substantial damages at common law for breach of contract, alternatively negligence. The contract claim was for breach of (among other things), the implied term of trust and confidence owed to him by his employer. The breach was alleged to lie in the manner of his dismissal, being one allegedly effected without a fair hearing and in disregard of disciplinary procedures. This was said to have caused Mr Johnson a mental breakdown that made it impossible for him to find work.
11. Lord Hoffmann, who delivered the leading speech in Johnson, gave two reasons why adapting or extending the implied term to dismissal would present special problems. First, any implied term may only supplement the express terms of the contract. It is usual for employers to defend their right to dismiss an employee by an express term of the contract. The common law entitles both employer and employee to terminate the employment relationship without cause. A wrong arises only if the employer breaches the contract, e.g. by failing to give the dismissed employee reasonable notice of termination: see Malloch v Aberdeen Corporation  1 WLR 1578 at 1581 per Lord Reid.
12. Given these considerations, Lord Hoffmann regarded it as difficult to imply into an employment contract a term that the employer should not dismiss an employee except for some good cause and only after affording him a reasonable opportunity to show that no such cause existed. He did not, however, regard it as beyond the capacity of the common law to do so, if the claimed damage arose, not out of the failure to give proper notice of dismissal, but out of the breach of another implied term in the employment contract. In support of this proposition he made reference to McLachlin J’s minority judgment in Wallace v. United Grain Growers Ltd  152 DLR (4th) 1 at 44 – 48 where she had opined that the courts could imply an obligation to exercise the power of dismissal in good faith. Lord Hoffmann doubted, however, whether the implied term of trust and confidence could be invoked for that purpose, since that term was concerned with preserving the continuing relationship between employer and employee and so was inappropriate to be enlisted in relation to the way that relationship is terminated. He was further of the view that, if one was looking for an implied term, the more elegant solution would be to imply a separate term that the power of dismissal would be exercised fairly and in good faith.
13. Although Lord Hoffmann was of the view that it would be “jurisprudentially possible” to imply such a term into Mr Johnson’s contract that would afford him a remedy, he stated that it would not necessarily be wise to do so. That was because it would expose the employer to open-ended liability, and it would involve tremendous difficulties in distinguishing whether it was the fact of dismissal (for which no damages are recoverable) or the unfair circumstances in which the dismissal took place (constituting a breach of the implied term for which damages are recoverable) which would have caused the damage suffered by the employee.
14. Lord Hoffmann concluded by taking the view that he would regard the question of whether judges should develop the law by implying a suitable term into the employment contract as “finely balanced”: Johnson at .
15. Having said this, Lord Hoffmann went on to identify the second reason why the common law should not be developed in that fashion. This was because the remedy for such a complaint by Mr Johnson was by way of the new statutory claim for unfair dismissal introduced by the English Industrial Relations Act 1971 upon the recommendation in 1968 of the Royal Commission on Trade Unions and Employers’ Associations. That jurisdiction, now enacted in Part X of the English Employment Rights Act 1996, is exercised exclusively by employment tribunals.
16. Lord Hoffmann explained that all the matters of which Mr Johnson complained fell within the jurisdiction of the employment tribunal. Given that Parliament had provided a remedy in the employment tribunal for exactly the sort of conduct of which he complained, it was inappropriate for the courts to develop the common law so as to provide him with a parallel remedy that was not subject to the statutory limit by which a compensatory claim in the employment tribunal was capped.
17. The effect of Johnson was therefore to exclude any recourse to the common law by way of a bid to recover damages by recourse to that area of the law which had been exclusively reserved to the unfair dismissal jurisdiction of an employment tribunal. The decision inevitably led to questions as to the precise identification of the relevant boundary line. Those questions were later considered by the House of Lords in Eastwood.
18. Eastwood concerned claimants who had been dismissed by their employers and who had brought successful unfair dismissal claims. They then brought separate common law claims in the civil courts for damages for breach of the implied term of trust and confidence owed to them by their employers, those claims being based on alleged breaches committed during the period leading up to the dismissals. The issue for the House was whether the claims were precluded by the decision in Johnson or whether they should be allowed to proceed.
19. Lord Nicholls, who delivered the leading majority speech in Eastwood, embarked on an identification of the relevant boundary line marking off the so-called “Johnson exclusion area”, which are cases falling within the exclusive jurisdiction of employment tribunals. His demarcation is particularly germane and therefore merits reproduction in full:
“27 … The statutory code [in England] provides remedies for infringement of the statutory right not to be dismissed unfairly. An employee’s remedy for unfair dismissal, whether actual or constructive, is the remedy provided by statute. If before his dismissal, whether actual or constructive, an employee has acquired a cause of action at law, for breach of contract or otherwise, that cause of action remains unimpaired by his subsequent unfair dismissal and the statutory rights flowing therefrom. By definition, in law such a cause of action exists independently of the dismissal.
28. In the ordinary course, suspension apart, an employer’s failure to act fairly in the steps leading to the dismissal does not of itself cause the employee financial loss. The loss arises when the employee is dismissed and it arises by reason of his dismissal. Then the resultant claim for loss falls squarely within the Johnson exclusion area.
29. Exceptionally this is not so. Exceptionally, financial loss may flow directly from the employer’s failure to act fairly when taking steps leading to dismissal. Financial loss flowing from suspension is an instance. Another instance is cases such as those now before the House, when an employee suffers financial loss from psychiatric or other illness caused by his pre-dismissal unfair treatment. In such cases the employee has a common law cause of action which precedes, and is independent of, his subsequent dismissal. In respect of his subsequent dismissal he may of course present a claim to an employment tribunal. If he brings proceedings both in court and before a tribunal he cannot recover any overlapping heads of loss twice over.
30. If identifying the boundary line between the common law rights and the statutory rights is comparatively straightforward, the same cannot be said of the practical consequences of this unusual boundary. Particularly in cases concerning financial loss flowing from psychiatric illnesses, some of the practical consequences are far from straightforward or desirable. The first and obvious drawback is that in such cases the division of remedial jurisdiction between the court and an employment tribunal will lead to duplication of proceedings. In practice there will be cases where the employment tribunal and the court each traverse much of the same ground in deciding the factual issues before them, with attendant waste of resources and costs.
31. Second, the existence of this boundary line means that in some cases a continuing course of conduct, typically a disciplinary process followed by dismissal, may have to be chopped artificially into separate pieces. In cases of constructive dismissal a distinction will have to be drawn between loss flowing from antecedent breaches of the trust and confidence term and loss flowing from the employee’s acceptance of these breaches as a repudiation of the contract. The loss flowing from the impugned conduct taking place before actual or constructive dismissal lies outside the Johnson exclusion area, the loss flowing from the dismissal itself is within that area. In some cases this legalistic distinction may give rise to difficult questions of causation in cases such as those now before the House, where financial loss is claimed as the consequence of psychiatric illness said to have been brought on by the employer’s conduct before the employee was dismissed. Judges and tribunals, faced perhaps with conflicting medical evidence, may have to decide whether the fact of dismissal was really the last straw which proved too much for the employee, or whether the onset of the illness occurred even before he was dismissed.”
20. The paragraphs above make clear the distinction between (i) loss flowing from the dismissal itself, which is within the Johnson exclusion area and is exclusively the province of a claim for unfair dismissal under the English statutory scheme; and (ii) loss flowing from the employer’s antecedent breaches of the implied term of mutual trust and confidence, being breaches the acceptance of which constitutes that unfair dismissal, but being loss which falls outside the Johnson exclusion area and can only form part of a common law claim. The House allowed all the cases under appeal in Eastwood to be pursued in the civil courts under the common law, on the basis that the assumed facts constituted causes of action which, if proved, had accrued before the dismissals and entitled the claimants to damages.
The present case
22. Moreover, even if the Claimant cannot show any antecedent breaches of the implied term of mutual trust and confidence, it does not mean that Johnson would deliver a fatal blow to his claims right at the outset. The DIFC Courts may well depart from Johnson because the DIFC does not have a similar statutory scheme of unfair dismissal as is available in England. To recapitulate, the central reason why the majority in Johnson held that the implied term of trust and confidence under the common law should not be extended or adapted to dismissals was because it would encroach onto the exclusive territory occupied by English statutory law on unfair dismissal. The DIFC presently has no statutory law on unfair dismissal, and this consideration does not therefore apply to the way in which the implied term of mutual trust and confidence can develop in this jurisdiction. While I am aware that the DIFC Employment Law (4 of 2005) contains a residual power for the Director of Employment Standards to issue regulations under Article 63(1)(g) in respect of “the maximum compensation for discrimination or unfair dismissal”, this says no more than that laws relating to unfair dismissal may be introduced at some stage in the DIFC, which would be the case even if Article 63(1)(g) did not exist.
23. Further, Johnson has been come under heavy criticism and therefore its applicability in the DIFC should not be a matter of course. As elaborated below, the implications of Johnson deserve a thorough consideration by the DIFC Courts with the benefit of argument, and cannot be dealt with satisfactorily at the level of an application for striking out.
24. It is noteworthy that in Eastwood Lord Steyn dissented from the majority view in Johnson by preferring the development of the implied term and mutual trust and confidence. He went on to set out a catalogue of the criticisms of Johnson. It behooves the DIFC Courts to study the applicability of Lord Steyn’s views in this jurisdiction, and it would be sufficient for present purposes to mention three key criticisms raised by Lord Steyn.
25. First, the Johnson exclusion, as explained in  above, creates a dichotomy which will often give rise to questions whether earlier events do or do not form part of the dismissal process. After all, such problems in relationships between an employer and an employee will often arise because of a continuing course of conduct. In practice, this will inevitably lead to curious distinctions and artificial results. It would involve case-by-case decision making rather than principled adjudication. The outcome of litigation would be very unpredictable. This policy aspect of the consequences of the reasoning of the majority in Johnson was not considered by the House in that case.
26. Secondly, Lord Steyn astutely pointed out (at ) that:
“The majority’s reasoning in Johnson also means that, although the exercise of the power to suspend must be exercised with due regard to trust and confidence (or fairness), the more drastic power of dismissal may be exercised free of any equivalent constraint. An employee confronted with a repudiatory breach of contract by an employer who elects to treat the contract as continuing may still have a claim for breach of contract. But in practice an employee may often not have much choice but to accept the repudiation. If the employee accepts the repudiation, the claim becomes one of unfair dismissal and the Johnson exclusion zone comes into play. In constructive dismissal cases the employee’s response to the employer’s breach will dictate whether there can be common law liability. The more outrageous the breach the less likely it is that the employee can affirm the contract: Lizzie Barmes, The Continuing Conceptual Crisis in the Common Law of the Contract of Employment, (2004) 67 (3) MLR 435, at 451. Contractual analysis arguably suggests a more even-handed solution as between employer and employee. These negative policy factors were not explicitly considered in Johnson.”
27. Lord Steyn also quoted the views of various jurists and practising labour lawyers and concluded rather starkly (at ) that:
“Making due allowance for differences in emphasis between the writers on the subject, there is apparently no support for the analysis adopted in Johnson.”
28. Returning to the specific facts of this case, Chitty observes (at paragraph 39-145) that, insofar as bonus payments are concerned:
“The decisions of the High Court in Takacs v Barclays Services Jersey Ltd and of the Court of Appeal in Keen v Commerzbank AG suggest that the implied controls upon the exercise of contractual discretion with regard to bonus payments are increasingly being envisaged in terms of obligations on the part of the employer to refrain from irrational or perverse exercise or non-exercise of such discretions, and also to refrain from termination of employment for the purpose of avoiding liability to bonus payment.” [underline added]
29. It is unnecessary to delve into those cases cited above at this stage, since what is pertinent for present purposes is the fact that the claims advanced may not be so unarguable as to warrant a striking out. In that connection, I have not considered the merits of the Defence relating to the factual allegations made by the Claimant, as there is substantial dispute between the parties as to the a priori issue of whether the cause of action relied on by the Claimant exists at all in the way he has pleaded it. These are matters which will fall for consideration if and when the viability of the cause of action is first determined upon full argument.
31. In the course of drafting these Reasons for Judgment, I have been made aware that the Claimant has now discontinued his claim. I am nevertheless publishing these Reasons as they would be of general interest in the development of this nascent area of the law in the DIFC.
Deputy Chief Justice Michael Hwang SC
14 December 2009
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