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Malik v BCCI [1998] AC 20; [1997] ICR 606

By Oxbridge Law TeamUpdated 04/01/2024 07:00

Judgement for the case Malik v BCCI

  • Plaintiffs worked for BCCI which was a fraudulent bank and whose collapse was disastrous.

  • They sued for compensation claiming that (following redundancy) they couldn’t get work and their future prospects were worsened due to the stigma of having worked at Defendant’s bank. They argued that their contracts contained an implied term of ‘mutual trust and confidence’ and that Defendant breached this term by running a fraudulent company.

  • HL accepted this claim for breach of contract (NB NOT a claim for unfair dismissal).

Lord Nicholls

  • Addis only applied to cases of “injured feelings”, whereas Malik was a case of financial loss, caused by a stigma (i.e. that the stigma per se was not compensable, but its effects were). 

Lord Steyn

  • Unless excluded, the term of mutual trust and confidence is implied by law into all contracts of employment. 

  • It demands that the employer does not 'without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between employer and employee’. He says this implied term has arisen in response to the changing nature of employment law (i.e. model of master and servant has become obsolete and instead the law now expects employers to look after the physical, financial and psychological welfare of employees). 

  • He rejected the argument that employees must know about the breach while still employed to sue on it: Rather, the term is about protecting the nature of the employment relationship, regardless of whether one party is unaware that the nature has changed. 

  • Damages are recoverable for a breach of contract, which occurred here since there was an implied contractual obligation on the part of Defendant not to run a “corrupt and dishonest business” (Lord Nicholls agreed with this point). 

  • However he distinguished Addis on the basis that that case was really about saying that the “manner” in which an employee is sacked cannot give rise to damages, whereas this case is about the breach of contract itself (not loss caused by the manner of the breach as was the case in Addis). 

  • Loss of reputation IS generally compensable where it is caused by the breach, and not simply the manner of the breach. 

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