Crossley v Faithful & Gould Holdings Ltd [2004] EWCA Civ 293

Case No A2/2003/1563

[2004] EWCA Civ 293

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

Venue ON APPEAL FROM LEEDS DISTRICT REGISTRY

(His Honour Judge Peter Langan QC)

Venue Royal Courts of Justice

Date Tuesday 16 th March 2004

Strand,

London, WC2A 2LL

Before

THE VICE-CHANCELLOR

LORD JUSTICE DYSON

LORD JUSTICE THOMAS

Between

CROSSLEYAppellant

FAITHFUL & GOULD HOLDINGS LTDRespondent

(Transcript of the Handed Down Judgment of

Smith Bernal Wordwave Limited, 190 Fleet Street

London EC4A 2AG

Tel No: 020 7421 4040, Fax No: 020 7831 8838

Official Shorthand Writers to the Court)

Mr A. White QC (instructed by Messrs Ford & Warren) for Appellant

Mr J. Cavanagh QC and Mr D. Oudkerk (instructed by Messrs Clyde & Co) for Respondent

Judgment

[1]This is an appeal brought with the permission of the trial judge against the judgment of His Honour Judge Langan QC delivered on 30 June 2003 dismissing the claimant’s claim for damages against the defendant, his former employer, for breach of implied terms of his contract of employment. The judge gave permission to appeal because it was recognised on both sides that the appeal raises “difficult, and highly debatable, questions in a developing area of employment law”.

[2]The claimant was a long-standing senior employee and director of the defendant company. Under the terms of his contract of employment, if he was absent from work due to illness, he was entitled to be paid his full salary for up to six months’ absence in any period of 6 months, and thereafter such remuneration as the board of the defendant might in its discretion allow. By clause 13 of his contract of employment, the claimant became a member of the defendant’s Group Long Term Disability Insurance Scheme (“the Scheme”). The insurers were UNUM Ltd (“UNUM”). It is unnecessary to set out the details of the Scheme. Suffice it to say that so long as the claimant remained in the defendant’s employment, he was entitled as of right to benefits in the event that he was “totally unable by reason of sickness…to follow his Occupation”; and after the termination of his employment with the defendant, benefits were payable at the discretion of UNUM.

[3]At all material times, Richard Hall was the managing director of the defendant. He had, among other duties, overall responsibility for all types of insurance taken out by the defendant. He would not, however, ordinarily deal with an individual claim. David Ridley became acting chairman of the defendant in February 1996 and chairman one year later.

[4]Thomas Suffell was an insurance broker and director of Castlegate Insurance Brokers Ltd (“Castlegate”). Much of the defendant’s insurance was arranged through Castlegate, including permanent health insurance under the Scheme. If a claim was made under the Scheme, Mr Suffell would act as intermediary between the defendant and UNUM. As well as dealing with the defendant, Mr Suffell was also adviser to a number of the directors on their individual pension arrangements. These directors included the claimant: he and Mr Suffell had known each other since about 1985.

[5]In February 1996, the shares in the defendant company were sold to W S Atkins Ltd (“Atkins”). On completion of the sale, it became a wholly-owned subsidiary of Atkins. As consideration for his shares, the claimant received £777,806 in cash and 444,298 new shares in Atkins. In February and March 1997, the claimant attended meetings with representatives of KPMG to discuss means by which the shares could be sold without incurring a liability for capital gains tax.

[6]In late 1996, he had suffered a nervous breakdown and was advised by Dr Beaini, his consultant psychiatrist, to consider taking early retirement on health grounds. He went on sick leave on 6 December 1996, and never returned to work. By late February 1997, the defendant realised that the claimant might be going to make a claim under the Scheme. It was also during this period that Mr Suffell was made aware of the possibility that the claimant would make a claim under the Scheme. In the week commencing 17 March, the claimant telephoned Mr Suffell and asked what needed to be done in order to make a claim. Mr Suffell replied that the defendant would have to contact UNUM.

[7]On 17 April 1997, the claimant saw Dr Beaini again. The doctor considered that there was no prospect of the claimant’s recovering from his moderate to severe depression in the foreseeable future, and advised him to pursue an application for early retirement on mental health grounds. This advice was accepted by the claimant.

[8]On 21 April 1997, he spoke by telephone to Mr Hall, the defendant’s managing director. There was a dispute at the trial between the claimant and Mr Hall as to what was said during this conversation. The claimant’s account was that he asked Mr Hall whether he could make a claim under the Scheme, and Mr Hall said that all he needed to do was to provide a letter stating that he wanted to retire on health grounds. Mr Hall denied that he would have told the claimant that he would not receive benefits under the Scheme unless he retired. At para 42 of his judgment, the judge concluded that Mr Hall had not made a request for a letter of retirement from the claimant for the purpose of obtaining benefits under the Scheme. He found that, whilst the Scheme might have been mentioned in the conversation, the discussion was primarily focused on the claimant’s forthcoming departure from his post with the defendant.

[9]On 22 April 1997, the claimant wrote to Mr Hall: “Further to our recent conversation I enclose a copy of my consultant’s letter regarding my state of health. I had hoped that the lengthy break on sick leave would have enabled me to recover but I must now accept that I could not sustain a return to the pressures of work. After 21 years with Faithful & Gould it is not an easy decision but I now wish to pursue an application for early retirement upon health grounds and hope that you will be able to put the necessary wheels in motion”.

[10]On 29 April, the claimant completed a form seeking long-term disability benefit under the Scheme. The application for benefit had to be made by the defendant and, at Mr Hall’s request, the claimant completed much of the form. This was signed on behalf of the defendant on 2 May. On each form there was a question “Has employment been terminated?”, in answer to which the claimant ticked the box marked “No”.

[11]During May and June, there were discussions between the claimant and Mr Ridley about the arrangements for the claimant’s retirement. At first, Mr Ridley said that the company would pay the claimant’s salary until 6 June (6 months after he had stopped work). The claimant looked at his service agreement, and saw that the company had a discretion to continue paying his salary beyond that date. He pointed this out to Mr Ridley, who agreed to pay a further 3 months’ salary, but required a letter from the claimant confirming that he would be retiring on 6 September. The claimant, therefore, wrote to Mr Ridley on 4 June:

“Following our recent conversation I confirm that I shall be retiring from Faithful & Gould upon 6 September 1997 upon health grounds. May I thank you for the generous offer to pay my salary until that date (subject to insurance payments).”

[12]By a letter dated 28 July, Mr Hall wrote to the claimant:

“As we discussed, I enclose some words which should satisfy the requirements of Atkins Personnel Department but which should obviously be written in your own style. “Further to our recent conversation I confirm that because of continued ill health I shall be retiring with effect from 6 June 1997 both as an employee and as a director of Faithful & Gould Limited. I also confirm that I am happy to waive any notice period to which I am entitled. (Final paragraph written by you)”

It would be best if you could date this letter prior to 6th June 1997”. It would be best if you could date this letter prior to 6th June 1997”.

[13]Accordingly, shortly after 28 July, the claimant wrote a further retirement letter. This was back-dated to 28 May, and included a paragraph which in all material respects corresponded precisely with Mr Hall’s draft.

[14]The effect of the termination of the claimant’s employment was that he ceased to be entitled to benefit under the Scheme as of right, and became instead entitled to receive discretionary benefits. In the exercise of its discretion, UNUM paid benefit until June 1998, but not thereafter. The defendant would have been content for the claimant to remain on its books as an employee, albeit on indefinite sick leave, for the purposes of receiving benefit under the Scheme.

[15]The judge found (para 66) that Mr Hall (and, therefore, the defendant) knew that, if the claimant resigned from his employment, his right to benefits under the Scheme would cease, and he would be dependent for benefits on the exercise by the Scheme’s insurer of its discretion in his favour.

The Nature of the Claimant’s Case

[16]In the court below, the claimant’s case was presented on three alternative bases. Each was rejected by the judge. The claimant does not challenge the judge’s decision on the first basis of claim (which was founded on the disputed telephone conversation between the claimant and Mr Hall of 21 April 1997). This was that Mr Hall had advised him that, in order to obtain benefits under the Scheme, he needed to retire. But it is submitted by Mr Antony White QC on behalf of the claimant that the judge was wrong to reject both of the other bases of claim. These were that the defendant acted in breach of an implied term of the contract of employment requiring it to take reasonable care for the claimant’s economic well-being(i) by asking him to submit a resignation letter knowing that he was applying for benefits under the Scheme and that resignation would seriously prejudice his entitlement to such benefits; alternatively

(ii) by failing to warn him of the effect which resigning from his employment would have on his entitlement to benefits under the Scheme.

The judgment

[17]In a careful judgment, Judge Langan QC reviewed what he described as “the five key authorities”. These are Scally v Southern Health and Social Services Board (HL)

[1992] 1 AC 1

; Spring v Guardian Assurance Plc (HL)

[1995] 2 AC 296

; University of Nottingham v Eyett (Hart J)

[1999] ICR 87

; Outram v Academy Plastics Ltd (CA)

[2000] ICR 499

; and Hagen v ICI Chemicals and Polymers Ltd (Elias J)

[2002] IRLR 31

. The judge concluded (para 63) that the law has not reached a stage at which it can be said that there is implied in the contractual relationship of employer and employee what has been called a “portmanteau obligation” on the former to exercise reasonable care for the latter’s economic well-being. He went on to say: “In my judgment, what the courts have done in relation to duties to be imposed (additionally to the long established duty of trust and confidence) on employers in respect of matters other than health and safety is to proceed slowly on a case-by-case basis. What has been done is to imply a term where this is deemed necessary in respect of the particular contract (as was done in Scally and by some of their lordships in Spring) rather than to apply some overriding principle of the kind suggested by Mr White”.

[18]He then considered the second basis of the claim and examined the circumstances in which the letter of 28 July 1997 came to be written. He said:

“66. I accept, as submitted by Mr White, that the following matters were within the knowledge of Mr Hall when he wrote the letter of 28 July and that they must therefore be regarded as within the defendant’s knowledge. • The claimant’s medical condition and the likelihood that he would never be able to return to his previous occupation. • His salary would soon cease to be payable. • He had made an application under the scheme. • It was only if that application was successful that he would obtain some partial replacement of his income from work. • The claimant could only pursue his application through the defendant and was relying on the defendant to ensure that his application progressed. • It would be perfectly possible for the claimant to remain on the defendant’s books as an employee, albeit indefinitely absent from work, for the purpose of receiving benefits under the scheme. • If the claimant resigned from his employment, his right to benefits would cease and he would depend for benefits on the exercise by UNUM of its discretion in his favour.”

[19]He continued:

“67. In my judgment, these matters are insufficient to impose on the defendant, when writing the letter of 28 July 1997, an obligation to alert the claimant to the effect which resignation would have on his pension rights. I set out my reasons below. • The context in which the letter was written was one in which the claimant had already decided to retire and had, in consequence of that decision, applied for benefit under the scheme. The claimant had made his decision to retire in April, on his own initiative and on the basis of medical advice, and his decision was, on my findings of fact, unprompted by the defendant. In May the application for benefit had been submitted. Apart from fixing the date of retirement, the die had been cast. • The letter of 28 July was written with a view to assisting the claimant to retire in a manner which would, vis-à-vis his salary or a leaving payment in lieu, be the most tax-efficient from his point of view. What the claimant is seeking is to import into that limited context an obligation on the part of the defendant to have regard to the claimant’s overall financial situation. • Whilst there might possibly be some ground for regarding the defendant as having assumed some such responsibility if it were dealing with a junior and relatively low paid employee, there could be no such justification in the case of someone in the claimant’s situation. I have regard to his experience, status, wealth (which he acknowledged in evidence) and access for advice to Castlegate and Mr Suffell. • I appreciate that the duty relied upon by Mr White is of a negative kind, namely, not to act in a way which will imperil the claimant’s rights. But what is in fact required of the defendant by way of performance of the duty is, or comes perilously close to, what the courts refused to countenance in Eyett, Outram and Hagen, namely, an affirmative obligation on an employer to give advice as to pension rights. • Finally, to return to Scally, the foundation of the decision was that the doctors’ rights could be made efficacious only if the board alerted them to those rights. Hence the term as to conveying information was implied as a matter of necessity. In order to make the claimant’s rights efficacious, it is not necessary to imply a term that the defendant will not suggest any step which might be potentially destructive of those rights. As I have already indicated, the claimant was in a position in which he could reasonably be expected to decide upon his own course of action. 68. These points, taken together, have convinced me that, when Mr Hall wrote the letter of 28 July 1997, there was no obligation on him to have regard to the effect which the writing of a formal letter of resignation might have on the claimant’s position under the scheme. The same reasoning would apply to Mr Ridley’s request, which was similarly relied upon by Mr White, for the letter of 4 June. Accordingly, the second basis of claim fails.”

[20]As regards the third basis of claim (failure to warn), he said (para 70) that the circumstances of Scally were very special: he described it as a “bridgehead from which there has been no advance”. Having recited the criteria enunciated by Lord Bridge of Harwich in Scally (to which I shall shortly refer), he said at para 72:

“As I have already indicated, the claimant was a person of status and long experience within the defendant. He, as much as any other director, could be expected to familiarise himself with the terms of the scheme. It is true that the scheme is not phrased in language the import of which is immediately plain to the lay reader and that there was (or there is no evidence that there was) an explanatory booklet of the kind available to Mr Eyett. This difficulty is, however, far outweighed by the fact that the claimant had ready access to Mr Suffell, who had the dual roles (between which there was no conflict) of advising both the claimant and the defendant on pension matters. In these circumstances it is unnecessary, which is the test propounded in Scally, to place an obligation to advise or warn on the defendant. Mr White’s additional factors, with respect, do not advance the case. As regards the claimant’s illness, this affected his ability to work, but did not on the evidence prevent him from attending meetings with KPMG about CGT or consulting Mr Suffell from time to time. As regards the claimant’s reliance on the defendant to pursue the claim and the importance of the matter to him, I repeat that he had Mr Suffell to advise him if he wished to avail of such advice. Finally, the defendant’s anxiety for the claimant’s welfare does seem (if Mr White will forgive my saying so) to be something of a jury point.”

The authorities

[21]In Scally, the plaintiffs were doctors working in the public service and employed by the defendant board. Under their contracts of employment they were required to belong to a statutory superannuation scheme and were entitled to its benefits. It was necessary to accumulate forty years’ service in order to qualify for the maximum pension. Employees had the right to purchase “added years” of entitlement in order to make up a full forty years’ contributions. This right was, however, exercisable only for a limited period. The House of Lords decided that there was to be implied into the contracts of employment an obligation on the board to take reasonable steps to bring to the attention of the plaintiffs their right to purchase “added years”. Lord Bridge, with whose speech the other law lords agreed, implied the term as a necessary incident of the employer/employee contractual relationship, rather than as being necessary to give business efficacy to the contract. The category of contractual relationship in which the implication would arise, however, had to be defined with precision. Lord Bridge defined it as:

“The relationship of employer and employee where the following circumstances obtain: (1) the terms of the contract of employment have not been negotiated with the individual employee but result from negotiation with a representative body or are otherwise incorporated by reference; (2) a particular term of the contract makes available to the employee a valuable right contingent upon action being taken by him to avail himself of its benefit; (3) the employee cannot, in all the circumstances, reasonably be expected to be aware of the term unless it is brought to his attention.”

[22]He considered that it was not merely reasonable, but necessary, in the circumstances postulated, to imply an obligation on the employer to take reasonable steps to bring the term of the contract in question to the employee’s attention, so that he was in a position to enjoy its benefit.

[23]In Spring, the plaintiff claimed damages in negligence against his former employer for supplying an unfavourable reference to a third party. By a majority of four to one, he was successful in the House of Lords. The majority based their decision on an application of the decision in Hedley Byrne and Co Ltd v Heller and Partners Ltd

[1964] AC 465

. Three of the majority were also prepared to base their decision on breach of an implied term of the contract: see per Lord Goff of Chieveley at p 320A – C, Lord Slynn of Hadley at p 340B – C, and Lord Woolf at p 353-4. The fullest discussion appears in the speech of Lord Woolf. Having referred to the speech of Lord Bridge in Scally, Lord Woolf said at p 353 G: “As I understand Scally, it recognises that, just as in the earlier authorities the courts were prepared to imply by necessary implication a term imposing a duty on an employer to exercise due care for the physical well being of his employees, so in the appropriate circumstances would the court imply a like duty as to his economic well being, the duty as to his economic well being giving rise to an action for damages if it is breached”.

[24]Lord Woolf went on to specify circumstances which would enable a term to be implied. He said: “The circumstances are:(i) The existence of the contract of employment or for services.

(ii) The fact that the contract relates to an engagement of a class where it is the normal practice to require a reference from a previous employer before employment is offered.

(iii) The fact that the employee cannot be expected to enter into that class of employment except on the basis that his employer will, on the request of another prospective employer made not later than a reasonable time after the termination of a former employment, provide a full and frank reference as to the employee. This being the nature of the engagement, it is necessary to imply a term into the contract that the employer would, during the continuance of the engagement or within a reasonable time thereafter, provide a reference at the request of a prospective employer which was based on facts revealed after making those reasonably careful enquiries which, in the circumstances, a reasonable employer would make”.

[25]In Eyett, the complainant was employed by the university and was a member of its pension scheme. He enquired as to what his pension entitlement would be if he took early retirement on 31 July 1994. The university provided an entirely accurate quotation, but failed to inform him that his pension would be increased if he retired on the earliest date after 31 July. Unaware of the advantage of deferring his retirement, the complainant retired on 31 July 1994. The Pensions Ombudsman held that the university had been in breach of its “general duty of good faith” in failing to provide the complainant with sufficient information to enable him to make an informed choice of retirement age, although it had supplied him with an explanatory booklet from which he could have discovered the financial advantage of deferring his retirement. Hart J allowed the university’s appeal. It was conceded on behalf of the Ombudsman that Scally provided no support for Mr Eyett, because he knew of the existence of his early retirement rights. Counsel for the Ombudsman sought to support his decision on the basis that, by failing to give appropriate advice, the university had been in breach of the duty of trust and confidence implicit in the contractual relationship of employer and employee as elaborated in Mahmud v Bank of Credit and Commerce Internationl SA

[1998] AC 20

. Hart J observed that this duty has consistently been applied negatively, to prohibit conduct damaging to the relationship, and not positively to enjoin conduct which would avoid damaging consequences. Nevertheless, he was unwilling to exclude the possibility that the duty may, in appropriate circumstances, have a positive as opposed to a merely negative content, although he recognised that so to hold would involve an extension of the existing law: see page 727 H to 728 B. He then said:

“In the final analysis the question for determination comes down to this: does the implied term include a positive obligation on the employer to warn an employee who is proposing to exercise important rights in connection with his contract of employment that the way in which he is proposing to exercise them may not be financially the most advantageous way in the particular circumstances? Expressed in those terms, it can be seen that the recognition of such a duty has potentially far reaching consequences for the employment relationship. A degree of caution is therefore required.”

[26]He pointed out that in the specific area of giving advice to employees in connection with their pension rights, the furthest the courts have gone in recognising such a default obligation appears to have been in Scally, a decision which provided no support for the complainant’s case. The authorities (including those on the duties of pension fund trustees) neither compelled nor justified the judge in holding that the university was in breach of contract in failing to alert the complainant to the possibility that he was making a financial mistake. The appeal was allowed.

[27]In Outram, the deceased was employed by the defendant company and was a member of the company pension scheme. He left his employment and ceased to be a member of the scheme. He was later re-employed by the defendant, but did not rejoin the scheme. After a further eight months, he resigned on account of ill-health, and shortly thereafter he died. His widow and personal representative brought an action against the defendant company alleging that it should have advised the deceased to rejoin the scheme when he was re-employed. The claim was brought in negligence, not in contract. The Court of Appeal held that the judge at first instance had rightly struck out the claim as disclosing no cause of action.

[28]Tuckey LJ pointed out that in Scally the claim had been framed in tort as well as in contract. Lord Bridge had expressly stated that, if a duty to make employees aware of their pension rights “was not inherent in the contractual relationship,[he did] not see how it could possibly be derived from the tort of negligence”. Tuckey LJ’s conclusion was expressed at p 373 para 21 as follows: “The simple answer to this case is that, as the claimant does not say the duty to give advice is contractual arising expressly or impliedly out of the deceased’s contract of employment, the claim is bound to fail following Scally v Southern Health and Social Services Board

[1991] ICR 771

. Taking the matter at its highest from the claimant’s point of view, if there is a duty of care in tort it is only co-extensive with the contractual duty and, since no contractual duty is or I think could be, relied on in this case, there is no duty of care in tort either”.

[29]Chadwick LJ seems to have thought (para 32) that it might have been arguable that the claim could have been put in contract, since the contractual duties owed by an employer, or former employer, in relation to its employees were “in a state of development, particularly in the field of economic loss suffered by an employee as a result of action or omission by the employer ancillary to the performance of the contract of employment itself”. But since counsel rejected the suggestion that the claim could be put on a contractual basis, the court had no choice other than to dismiss the appeal on the grounds that the claim in the tort of negligence was bound to fail.

[30]In Hagen, the claimants had been employed by ICI in its central engineering resource section. ICI transferred this section as a going concern to RES. The claimants’ case was that they were persuaded to agree to the move by representations made to them by ICI and RES. They put their case against ICI in negligence and breach of contract. The implied terms for which they contended included(a) a duty not, without reasonable and proper cause, to act in such a way as would be likely to destroy or seriously damage the relationship of trust and confidence existing between it and its employees; and

(b) a duty at all reasonable times to take all reasonable steps to ensure that the plaintiffs were made aware of the true position in regard to their pension rights and to all other benefits and entitlements under their contract of employment.

[31]In relation to (a) Elias J said: “55. Ms Booth accepts (subject to an argument that I address below) that it is in principle possible for even negligent conduct to constitute a breach of this implied term, but she submits that it would have to be a rare case, coming close to recklessness, before that term could be engaged. I accept that submission. Lord Steyn emphasised in Malik that in order to constitute a breach of this term, the conduct had at least seriously to undermine trust and confidence. It seems to me that the negligent conduct would have to demonstrate a real and unacceptable disregard for the interests of the employee before this term could successfully be invoked. It would have to be the kind of conduct that would justify the employee treating it as a repudiatory breach …. 56. Plainly individual acts of negligence will not in the ordinary way constitute a breach of this duty. They will not undermine the confidence necessary to sustain the employment relationship, and I do not think that anyone would suggest that they should. Indeed, it would be highly detrimental to employees if any act of negligence could be equated with a repudiatory breach of the duty of trust and confidence so as to justify lawful termination of the contract”.

[32]In relation to (b) Elias J referred to the speech of Lord Bridge in Scally and said:

“67. It is to be noted that this term is very carefully framed and depends upon, in particular, the fact that the employee could not reasonably be expected to be aware of this term at all without it being brought to his attention. 68. In my view there is no justification for applying Scally here so as to impose a general duty to make employees aware of their pension rights (or indeed the other terms and conditions of their employment). Scally cannot be read as a general authority requiring an employer to give information about pension terms. There are in my view three factors which make the Scally principle inapplicable to the facts of this case. First, it is not and could not be alleged that the employees have not been informed of their pension rights with ICI, far less can it be said that they could only reasonably be expected to know about them if informed by ICI. Second, the complaint is that the employees have not been fully informed about the precise nature of the benefits accorded by RES’s pension scheme; it is difficult to imagine that there could be a contractual duty requiring an employer to give information about the pension scheme of another employer, absent at least some very exceptional circumstances. Third, the pension benefits in this case did not in any event arise under the contract but rather were conferred under a separate trust deed. In my judgment, for those reasons in particular, it cannot conceivably be said there is a duty to be derived from the principles in Scally which obliges ICI to provide that information”

Implied term to take care for economic well-being of employee

[33]In my view, the judge was right to reject the “portmanteau obligation” contended for by Mr White ie an implied term of any contract of employment that the employer will take reasonable care for the economic well-being of his employee. This would be a standardised term to be implied by law, that is to say a term which, in the absence of any contrary intention, is an incident of all contracts of employment. It is not a term implied to give business efficacy to the particular contract in question which is dependent on an intention imputed to the parties from the express terms of the contract and the surrounding circumstances. As is said in Anson’s Law of Contract (28th edition) page 149:

“In these cases concerning a common relationship, for example sale, carriage, landlord and tenant, or employment, the parties may have left a lot unsaid and the process of implication is different. It involves the Court determining, in the light of general considerations of policy, the standard incidents of the particular type of relationship rather than constructing a hypothetical bargain. Although it has sometimes been said that the criterion for this form of implication is also ‘necessity’ rather than ‘reasonableness’, it does appear that a broader approach is taken. The Courts will consider how the proposed implied term will sit with existing law, will affect the parties to the relationship, and wider issues of fairness. While the parties can exclude or modify the standard incidents of the relationship by express words, unless they do so they will form part of the obligation as a legal incident of the particular kind of contractual relationship. Such standardized terms, implied by law, have been said to ‘operate as default rules’. In these cases it has been said that the problem of implication is to be solved by asking: [H]as the law already defined the obligation or the extent of it? If so, let it be followed. If not, look to see what would be reasonable in the general run of such cases … and then say what the obligation shall be.”

[34]It is submitted by Mr Cavanagh QC that it is a prerequisite of such an implied term that it is necessary. There is some support for this submission in the authorities. But the word “necessary” is somewhat protean. In Liverpool CC v Irwin

[1977] AC 239

the House of Lords held that there was a term to be implied in a council letting (as a legal incident of the relationship) that the landlord would keep the means of access in reasonable repair. Lord Wilberforce said (p 254F) that such an obligation should be read into the contract “as the nature of the relationship implicitly requires, no more, no less: a test, in other words, of necessity”. Means of access is an essential of a tenancy without which life in the premises, as a tenant, is not possible. It is easy enough to see how in that context the implied term was necessary. As Lord Wilberforce put it: “the subject-matter of the lease (high rise blocks) and the relationship created by the tenancy demand, of their nature, some contractual obligation on the landlord”.

[35]In Scally, the implied term was said to be necessary, because unless the employer informed the employee of the terms of the scheme, the employee would have no means of knowing what they were, and would therefore not be able to avail himself of one of the benefits of his contract of employment. But I confess that it is less clear to me in what sense it is necessary to imply into a contract of employment the implied term that three of their lordships were willing to find in Spring. More fundamentally, it is difficult to see in what sense it is necessary to imply into a contract of employment the term that the employer will take reasonable care for the physical and mental health and safety of his employees. It obviously makes sense to imply such a term into a contract of employment on wider policy grounds. But that is different from saying that the nature of the employer/employee relationship implicitly requires such a term.

[36]It seems to me that, rather than focus on the elusive concept of necessity, it is better to recognise that, to some extent at least, the existence and scope of standardised implied terms raise questions of reasonableness, fairness and the balancing of competing policy considerations: see Peden [2001] LQR 459, 467-475. Such considerations are, I believe, reflected in the recent significant developments in the field of the employer/employee relationship. In Spring, Lord Slynn commented (p 335B): “…it is relevant to consider the changes which have taken place in the employer-employee relationship, with far greater duties imposed on the employer than in the past, whether by statute or by judicial decision, to care for the physical, financial and even psychological welfare of the employee”.

[37]In Johnson v Unisys Ltd

[2001] UKHL 13

[2003] 1 AC 519

, para 35, Lord Hoffmann observed: “But over the last 30 years or so, the nature of the contract of employment has been transformed. It has been recognised that a person’s employment is usually one of the most important things in his or her life. It gives not only a livelihood but an occupation, an identity and a sense of self-esteem. The law has changed to recognise this social reality. Most of the changes have been made by Parliament……And the common law has adapted itself to the new attitudes, proceeding sometime by analogy with statutory rights”.

[38]In recent years, the common law has moved to impose certain duties on employers beyond the duty to take reasonable care to protect the physical well-being of his employees. One example of such an extension is the implied term that an employer will not engage in conduct which is likely to undermine the trust and confidence required if the employment relationship is to continue in the manner the employment contract implicitly envisages: see per Lord Nicholls of Birkenhead in Mahmud v BCCI

[1998] AC 20

, 35A. The evolution of such an implied term was said by Lord Steyn (p 45H) to be a comparatively recent development.

[39]Other examples of the evolutionary process at work are to be found in Scally and Spring. It is important to see how the House of Lords approached the question in those two cases. In Scally, Lord Bridge could have formulated the implied obligation in wide terms. He could, for example, have said that there was an implied term of any contract of employment that the employer should take reasonable steps to protect the economic well-being of his employees. But it is quite clear that he was unwilling to express the obligation in such wide terms. He could (more narrowly) have said that there was an implied term of any contract of employment which provides for an occupational pension scheme that the employer will take reasonable steps to protect the employee’s rights under the scheme. But Lord Bridge was not willing to express the implied term even in this more limited way. Instead, he restricted the implied term by defining the category of relationship in which the implication would arise with “sufficient precision” to meet the difficulty that had been identified by Carswell J at first instance that to imply a term in all contracts of employment “must necessarily be too wide”. He did not say why it would be too wide. It seems to me that he must have had in mind policy considerations, and some of the practical difficulties to which I shall shortly refer.

[40]So too in Spring. Lord Woolf said that just as in the case of an implied duty to exercise due care for the physical well-being of an employee, so “in the appropriate circumstances” the court will imply a like duty in relation to the economic well-being of an employee. Far from being willing to imply such a term in all contracts of employment, Lord Woolf was only prepared to do so in “appropriate” circumstances. He then proceeded to specify the circumstances which would enable a term to be implied in relation to the giving of references. At p 353D, he underlined the fact that the views that he had expressed were confined to the class of case with which he was dealing ie cases about references.

[41]In both of these cases, the House of Lords defined the contract of which the implied term was an incident in extremely narrow terms. It seems to me that there is some force in the observation that by sub-dividing relationships into smaller and more numerous categories with terms that have a less general application, the distinction between implication of terms in cases concerning a common relationship (eg employment, sale of goods, contracts for work and materials etc) and implication in those concerning a particular contract becomes blurred: see Anson p150.

[42]In my view, there are two principal reasons why the implied term proposed by Mr White should be rejected. First, it is not for this court to take a big leap to introduce a major extension of the law in this area when only comparatively recently the House of Lords declined to do so. It is clear that the approach adopted by Lord Bridge and Lord Woolf is wholly inconsistent with the proposition that there is to be implied into a contract of employment a general duty on the part of the employer that he will take reasonable care of the economic well-being of his employees. Thus, having emphasised that his views were confined to the class of case with which he was dealing, Lord Woolf went on to say that some of his statements could be applied to analogous situations, but he did not intend to express any view as to what the position would be in those analogous situations. So he was being cautious about extending the implied term even to analogous situations.

[43]But secondly and more fundamentally, quite apart from authority, I would not accept the implied term contended for by Mr White. Such an implied term would impose an unfair and unreasonable burden on employers. It is one thing to say that, if an employer assumes the responsibility for giving financial advice to his employee, he is under a duty to take reasonable care in the giving of that advice. That is no more than an application of the Hedley Byrne principle. An example of such a case in the context of a contract of employment is Lennon v Commissioner of Police of the Metropolis [CA, 20 February 2004, Times 25 February 2004]. It is quite a different matter to impose on an employer the duty to give his employee financial advice in relation to benefits accruing from his employment, or generally to safeguard the employee’s economic well-being.

[44]As Mr Cavanagh points out, the financial well-being of the employee may be in conflict with that of the employer. Take the case of an employer who is considering whether or not to make an employee redundant. In deciding whether to make a particular employee redundant or to invite him to take voluntary redundancy, does the employer have a duty to consider the financial consequences of redundancy to that employee? The all-embracing implied term for which Mr White contends would suggest that he does. But that is surely unreasonable. The employer is not required to have regard to the employee’s financial circumstances when he takes lawful business decisions which may affect the employee’s economic welfare. There is no reason to suppose that he will even be aware of the details of those circumstances. Nor is it the function of the employer to act as his employee’s financial adviser: that is simply not part of the bargain that is comprised in the contract of employment. There are no obvious policy reasons to impose on an employer the general duty to protect his employer’s economic well-being. The employee can obtain his own advice, whether from his union or otherwise. The policy considerations in relation to questions of health and safety are wholly different. If an employer fails to provide a safe system of work, it will usually not be possible or reasonable to expect the employee to take steps to make good the shortcomings in the system.

[45]Mr White submits that the fact that the implied duty for which he contends is no more than a duty to take reasonable steps to protect his well-being provides the necessary control mechanism to meet the difficulties to which I have referred. At first sight, it might be thought that this provides an answer to the charge that the portmanteau obligation is exorbitant, and imposes an unreasonable duty on an employee. It is a beguiling response to the charge that the duty is unreasonable to say that the duty only requires reasonable care to be taken. It is true that the law implies that an employer should take reasonable steps to protect the physical well-being of his employees. Sometimes, this can give rise to difficulty. But in most cases, it is obvious what an employer is required to do and/or refrain from doing in order to discharge this duty. Likewise the implied duty recognised in Mahmud. I find considerable difficulty in seeing what the content of a general duty to take reasonable care for the economic well-being of an employee would be. It is not, therefore, at all surprising that no court has held such a duty to exist. And that is why in my view this is an area where the court should be astute only to imply a precise term in carefully circumscribed circumstances. I would agree with the very cautious approach to this issue adopted in Eyet and Hagen and the (obiter) rejection of an implied term by Tuckey LJ in Outram.

[46]I should not complete this discussion of the law without referring to Reid v Rush &Tompkins Group Plc

[1990] 1 WLR 212

, a decision that was not cited to the judge. This court (May, Neill and Ralph Gibson LJJ) held that an employer owed no duty of care in contract or tort to advise his employee to obtain personal accident insurance against special risks arising out of his posting overseas. The court refused to extend the duty of care owed in tort to protect an employee’s physical safety and well-being by imposing a duty to protect the employee from economic loss. The court also refused to find that there was an implied term of the contract that the employer would give the employee all necessary advice in relation to insurance: see, in particular p 227H-228F per Ralph Gibson LJ. This decision was cited, but not commented upon, in Scally. In my judgment, Mr Cavanagh was right not to place much reliance on this decision, since it pre-dates Scally, and it is now clear that there are certain restricted circumstances where the court will imply a term whose effect is to impose on the employer a duty which affects the employee’s economic interests.

The facts of this case

[47]Although I have rejected Mr White’s “portmanteau obligation”, the question remains whether the second or third alternative bases of claim should have succeeded before the judge. I shall take these in turn.

The second basis of claim: the letter of 28 July 1997

[48]Mr White criticises the reasoning of the judge set out at para 67 of his judgment in a number of respects. He submits that the judge wrongly treated the claimant’s decision in April 1997 to seek early retirement and apply for benefits under the Scheme as a decision to terminate his employment. Although he had received medical advice that he should cease work, this did not mean that he had to terminate his employment. The reference to “retirement” in his letters was layman’s language for “stopping work”. It did not indicate that he wished to terminate his employment rather than remain as an employee on permanent sick leave. The judge was wrong to say that, when the application for benefit was submitted, the die had been cast. He was also wrong to distinguish, at the stage of considering whether any duty was owed, between the claimant as a senior employee with “experience, status and access to advice” and a “junior and relatively low paid employee”. The provisions of the Scheme were incorporated into the contracts of employment of all employees, and the duty on the defendant to its employees in relation to the Scheme would apply equally to all its employees. Finally, the judge was wrong to say (last bullet point in para 67) that, since the claimant was in a position to decide upon his own course of action, it was not necessary to imply a term that the defendant would not suggest any step which might be potentially destructive of his rights.

[49]In my view, the judge was right to reject the second basis of claim. The starting point is the finding (para 42) that, during the telephone conversation of 21 April, Mr Hall did not ask the claimant to write a letter of retirement. The decision that the claimant should retire was made by him, and not by the defendant. The discussions between the claimant and Mr Ridley in May and June were conducted on the footing that the claimant had decided to terminate his contract. The judge heard evidence from both the claimant and Mr Hall. In my view, he was fully justified in finding that the claimant had decided to retire in April of his own initiative, and that the defendant did not contribute to that decision. It is clear that by the use of the word “retire”, the claimant meant, and was understood to mean, “resignation from employment”. That is why he was discussing with Mr Ridley the period for which he would be paid his salary. It should not be overlooked that during the Spring/early Summer of 1997 it had not been confirmed that UNUM would accept the claimant’s entitlement to benefit under the Scheme. It follows that the judge was right to find that the letter of 28 July was written with a view, as he put it, “to assisting the claimant to retire in a manner which would, vis-à-vis his salary or a leaving payment in lieu, be the most tax-efficient from his point of view”. The other aspects of the judge’s reasoning which Mr White criticises were not necessary to support his conclusion on this part of the case, and I do not therefore propose to deal with those criticisms. It is important to emphasise that, on the judge’s findings, in sending the letter of 28 July, Mr Hall did not assume any responsibility in relation to the question whether the claimant should terminate his contract of employment rather than remain as an employee on permanent sick leave. The claimant took the decision on that question without any contribution from the defendant.

The third basis of claim: failure to warn

[50]The third basis of the claim was that the claimant’s case satisfied the Scally criteria. That is to say all three of the criteria identified by Lord Bridge (para 21 above) were satisfied. The judge held (para 72) that the first two criteria were more or less satisfied, but that the claimant failed at the third hurdle. Mr White submits that the judge was wrong. As he points out, the kernel of the judge’s reasoning was that the claimant could reasonably have been expected to be aware of the terms of the Scheme, since(a) the claimant as much as any other director could be expected to familiarise himself with the terms of the Scheme, and

(b) he had access to Mr Suffell for advice. As regards (a), Mr White submits that the claimant, who had no individual responsibility for administering the Scheme, could not be assumed to have familiarised himself with its contents. The Scheme was complex and not easy for a layperson to understand. The defendant had not supplied its employees with an explanatory booklet as in Eyett. As for (b), the claimant was off work suffering from depression. There was no reason to suppose that he was receiving advice from Mr Suffell. The question is not whether it would have been possible for the employee to find out about the relevant provision of the Scheme, but whether he could reasonably have been expected to be aware of it. Mr White also submits that the judge’s approach has the difficulty that a duty would be owed to a lower paid junior employee without access to independent advice, but not to a senior employee who enjoys access to such advice, even though both were employed under identical contracts of employment.

[51]The third of the criteria propounded by Lord Bridge is that “the employee cannot, in all the circumstances, reasonably be expected to be aware of the term unless it is brought to his attention”. It is only in such a case that there is an implied term of the contract that the employer will bring the term to the attention of the employee. The question, therefore, is whether in all the circumstances the claimant could reasonably have been expected to be aware of the term unless it was brought to his attention by the defendant. I am in no doubt that the judge was entitled to conclude that, on the facts of this case, the claimant could reasonably have been expected to be aware of the relevant provisions of the Scheme even though they were not brought to his attention by the defendant.

[52]The judge was right to say that it is relevant that the claimant was a director and senior employee of the company. I see no difficulty in holding that Lord Bridge’s third criterion may be satisfied in relation to some, but not all, employees of the same employer, even if they are all subject to the same conditions of employment. The question whether the duty arises will always depend on whether the employee can reasonably be expected to be aware of the existence of the relevant provision unless it is brought to his attention by the employer.

[53]The judge was also right to decide that the fact that the claimant had access to the advice of Mr Suffell was of critical importance. I agree with Mr White that the question is not whether it was possible for the claimant to find out about the terms of the Scheme, but whether he could reasonably have been expected to do so. It is implicit in para 72 of the judgment that the judge was of the opinion that the claimant could reasonably have been expected to seek the advice of Mr Suffell. Despite his illness, he had consulted Mr Suffell in March 1997, and asked what needed to be done in order to make a claim. On 24 April, Mr Suffell sent the claimant the necessary application forms, and concluded:

“If you have any queries whatsoever, please do not hesitate to contact me”

. Mr Suffell had been his pensions adviser since about 1985. He could reasonably have been expected to seek Mr Suffell’s advice, especially in the light of the offer made in the letter of 24 April. Despite his illness, the claimant had also been well enough to attend meetings with KPMG in February and March 1997 to discuss means by which CGT could be avoided on the sale of his shares. Finally, he had been well enough to examine his contract of employment and see that the company could pay his salary for longer than 6 months after he had stopped work. It seems to me in these circumstances, and bearing in mind his experience and seniority in the company, that the judge was justified in concluding that the claimant could reasonably have been expected to be aware of the provisions of the Scheme.

Conclusion

[54]It follows that for the reasons that I have given, the judge correctly rejected both the second and third bases of claim. I would dismiss this appeal.

[55]I agree.

The Vice-Chancellor

[56]I also agree.

Order

Appeal Dismissed. (Order does not form part of the approved judgment)

Cited in 23 later judgments

and 14 more of the most senior