FATE OF TRUST AND CONFIDENCE IN EMPLOYMENT CONTRACTS

• Date: 01 December 2015
• Published date: 01 December 2015
• Author: Ravi CHANDRAN LLB (Hons) (National University of Singapore), LLM (Cantab); Associate Professor, Assistant Dean (Undergraduate Academic), School of Business, National University of Singapore.

The implied term of trust and confidence can potentially have a significant impact on the operation of the contract of employment, especially with regards to the obligations it imposes on employers. However, whether there is indeed such an implied term is not settled in Singapore. The highest courts in the UK and Australia have taken diametrically-opposed views. The aim of this article is to consider the path Singapore should take.

I. Introduction

1 In the UK, as will be elaborated below, it is well established that every contract of employment has an implied term in law that the employer and employee will act with trust and confidence towards each other, though such a term may be excluded by express agreement. The emergence of this implied term of trust and confidence, especially with respect to the duties it imposes on employers, is seen as one of the most important developments in employment law in this century. However, very recently in Commonwealth Bank of Australia v Barker,1 the highest court in Australia has held that no such term can be implied by law in employment contracts in Australia. The aim of this article is to examine the reasoning given in this recent case and to consider whether it should be followed in Singapore. However, before embarking on that, the current position in the UK and Singapore will be briefly laid out.

II. Position in the UK

2 The leading case in the UK that is seen as having crystalised the implied term of trust and confidence in contracts of employment is Malik v Bank of Credit and Commerce International SA.2 Following the disastrous collapse of the Bank of Credit and Commerce International, two employees who had lost their jobs brought a claim for stigma damages. They alleged that owing to the fact that the bank had operated

in a corrupt and dishonest manner (which fact became widely known), they had become handicapped in the labour market in acquiring a new job in the financial services industry. The main issue before the House of Lords was whether such stigma damages were recoverable. However, before addressing that issue, the court had to consider whether any term had been breached. The two employees alleged that the implied term of trust and confidence had been breached. The court agreed and in this connection, Lord Steyn (with whom Lord Goff of Chieveley, Lord Mackay of Clashfern and Lord Mustill agreed) stated:3

The applicants do not rely on a term implied in fact. They do not therefore rely on an individualised term to be implied from the particular provisions of their employment contracts considered against their specific contextual setting. Instead they rely on a standardised term implied by law, that is, on a term which is said to be an incident of all contracts of employment … Such implied terms operate as default rules. The parties are free to exclude or modify them. …

… It imposes reciprocal duties on the employer and employee. Given that this case is concerned with alleged obligations of an employer I will concentrate on its effect on the position of employers. For convenience I will set out the term again. It is expressed to impose an obligation that the employer shall 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:’…

… The evolution of the term is a comparatively recent development. The obligation probably has its origin in the general duty of co-operation between contracting parties … The reason for this development is part of the history of the development of employment law in this century. The notion of a ‘master and servant’ relationship became obsolete. Lord Slynn of Hadley recently noted ‘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:’…

…

The evolution of the implied term of trust and confidence is a fact. It has not yet been endorsed by your Lordships' House. It has proved a workable principle in practice. It has not been the subject of adverse criticism in any decided cases and it has been welcomed in academic writings. I regard the emergence of the implied obligation of mutual trust and confidence as a sound development.

3 The next major decision in the UK was Johnson v Unisys Ltd,4 which again made reference to the implied term of trust and confidence. The issue in Johnson v Unisys Ltd was whether the implied term of trust and confidence extended to termination. On the facts, the claimant brought a claim for unfair dismissal under the Employment Rights Act5 and was awarded the statutory maximum amount of damages. Subsequent to that, the claimant brought a common law claim for breach of the implied term of trust and confidence. The House of Lords (with Lord Steyn dissenting) while recognising the implied term of trust and confidence, held that it should not be extended to termination. One of the main reasons for this was that if such an implied term extended to termination, it would conflict with the existing statutory scheme which among other things had certain limits in terms of compensation. However, in the subsequent UK House of Lords decision of Eastwood v Magnox Electric plc,6 the court clarified that if there was a breach of the implied term of trust and confidence before the dismissal or termination (such as in relation to suspension), financial losses flowing therefrom could be claimed. This demarcation principle has been followed in subsequent cases.7 Aside from this restriction, the implied term of trust and confidence has been applied to a wide array of situations.8

III. Position in Singapore

4 There have been several cases in Singapore which have referred to the implied term of trust and confidence,9 but it was not until CheahPeng Hock v Luzhou Bio-Chem Technology Ltd10 that it can be said that the implied term of trust and confidence was clearly recognised in Singapore, at least at the High Court level.11 In Cheah Peng Hock v Luzhou Bio-Chem Technology Ltd, the plaintiff alleged that the defendant

employer had breached the implied term of trust and confidence in various ways and was hence constructively dismissed. Quentin Loh J in the High Court agreed with him and stated:12

In my judgment unless there are express terms to the contrary or the context implies otherwise, an implied term of mutual trust and confidence, and fidelity, is implied by law into a contract of employment under Singapore law.

5 However, the defendant had accepted that there was such an implied term and as such this issue was not contested. Aside from the High Court decision of Cheah Peng Hock v Luzhou Bio Chem Technology Ltd, reference should be made to three Court of Appeal decisions which may have a bearing on the issue.

6 The first is Latham Scott v Credit Suisse First Boston.13 On the facts, Latham raised several issues, two being of importance in the present context. The first was that, he was entitled to non-guaranteed bonus which was not paid to him and second, his dismissal was made in bad faith. In relation to the first issue, the court held that since the bonus was discretionary in nature, Latham had no legal right to make a claim. In relation to the second issue, the court examined in detail whether the dismissal was indeed made in bad faith and came to the conclusion that it was not. Though there was no reference to the implied term of trust and confidence as such, in essence, the determination on the first issue seems to support the stand that there was no implied duty of trust and confidence while the determination in relation to the second issue seems to suggest there was indeed such a duty.14 However, even in relation to the issue of bad faith relating to the dismissal, the parties were merely arguing based on the facts, without contesting whether a dismissal could indeed be subject to such an implied limitation.

7 The second is Ng Giap Hon v Westcomb Securities Pte Ltd.15 On the facts, one issue was whether in the contract between an agent and the principal a duty of good faith could be implied by law. The court held that the doctrine of good faith was a fledging doctrine and that the law in this area was still in a state of flux. Given that the theoretical foundations and structure of the doctrine were not settled, the court came to the conclusion that a duty of good faith could not be implied by law into contracts, in the Singapore context.

8 Ng Giap Hon v Westcomb Securities Pte Ltd was distinguished in Cheah Peng Hock v Luzhou Bio-Chem Technology Ltd. Quentin Loh J stated that the concept of good faith imposed far higher duties, for instance by bringing “with it all connotations of a contract uberrmae fidei, ie, one of the fullest confidence”.16 However, he opined that the implied duty of trust and confidence placed a much more limited duty. In another High Court decision, Chan Miu Yin v Philip Morris Singapore Pte Ltd,17 the court again distinguished Ng Giap Hon v Westcomb Securities Pte Ltd, but this time by stating that employment contracts were sui generis.

9 The next case was Wee Kim San Lawrence Bernard v Robinson & Co (Singapore) Pte Ltd.18 The main issue in this case was whether, assuming that the appellant was constructively dismissed as a consequence of his employer breaching the implied term of mutual trust and confidence, he could claim damages beyond the amount of salary payable for the contractual notice period stated in his employment contract. The court referred to all the major UK authorities cited earlier and in doing so, seemed to have accepted the existence of such a term. For instance, at one point the court stated:19

Losses of such a nature that flow from a breach of the implied term of mutual trust and confidence are...