Employment Cases Update

Brandeaux Advisers (UK) Ltd v Chadwick [2010] EWHC 2370 (QB)

Date published: 24/09/2010

Application for summary judgment and strike out of elements of the defence arising from the dismissal of the defendant employee who had emailed confidential documents to her personal email address and allegations of repudiation of the employment contract by both parties. The judge refused the applications.

The defendant had been under threat of redundancy and put on garden leave. The claimant employer then had cause to check the defendant's work email address and discovered that she had emailed confidential documents to her email personal email address. They considered this a breach of contract, dismissed the defendant for gross misconduct and initiate these proceedings partly with the aim of recovering the documents. In defence the employee argued broadly that, as the claimant had already been in repudiatory breach of the contract and so could not force her to comply with obligations under it and prevented them from being able to terminate it for the alleged misconduct.

In these applications the claimant was, among other things, seeking to strike out the paragraph's in the defence alleging these repudiatory breaches.  In this judgment then Thirwell J reviews the authorities concerning repudiation of employment contracts, in particular the effect of RDF and Tullett decisions and whether it is open to an employee who has repudiated the contract to accept a breach by the employer to terminate the contract.  She notes that there is no unanimity on the issue and that the Editors of Harveys consider that it requires resolution in the Court of Appeal. She concludes that she cannot strike out the paragraphs as if the allegations were proved true at trial then she could not be satisfied that  the defendant would not be able to establish that her actions should not be treated as a repudiatory breach.  She also refused summary judgment for the same reason.

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Neutral Citation Number: [2010] EWHC 2370 (QB)

Case No: HQ10XO1868

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 22/09/2010

Before:

THE HONOURABLE MRS JUSTICE THIRLWALL DBE

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Between:

Brandeaux Advisers (UK) Ltd (Claimant)

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Ruth Chadwick (Defendant)

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Adam Solomon (instructed by Fox Williams) for the Claimant

Adam Tolley (instructed by Swan Turton) for the Defendant

Hearing dates: 21 and 22 September 2010

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Judgment

Mrs Justice Thirlwall DBE :
1. I have before me an application on behalf of the claimant dated 6th August 2010 to strike out, alternatively to give summary judgment in respect of paragraphs 1 (1) (d), 22, 23, and 34(3) of the defence and counterclaim in this case.

2. I have read and considered the whole of the contents of the application bundle, including the pleadings, witness statements, previous court orders. I have had the benefit of detailed skeleton arguments from Mr Solomon on behalf of the claimant and from Mr Tolley on behalf of the defendant. Each of them developed their arguments before me. I have also considered the authorities put before me.

Brief factual background
3. The claimant is an institutional property investment company, specialising in student accommodation, ground rents and other reversionary interests. From February 2008 the defendant was employed by the claimant in a senior position. It is not in dispute that she is an experienced investment compliance and regulatory professional who had worked in the financial services industry for over 25 years. It is accepted that in the course of her employment she had access to highly confidential and sensitive information.

4. On 10 May 2010 the defendant was given three months notice of termination of employment on the grounds of redundancy. The defendant disputes that she was in fact redundant. She appealed against the decision to make her redundant. She was placed on garden leave.

5. The claimant caused an inspection to be carried out of the defendant's work email account. This revealed that earlier in the year she had emailed a very large number of files to her personal email address. Between 24 and 26 January she had emailed 4,603 such files. It is the claimant's case that many of these files contained highly sensitive and confidential commercial information, including details of banks accounts, banking arrangements, names of shareholders, names of investors, medical records of an employee and employment tribunal records for another employee, together with notes of company board meeting, papers and confidential notes. Some of the files were plainly personal and not confidential to the claimant.

6. The claimant could see no legitimate reason for the defendant to have sent its confidential information to her personal email address. On 17th May 2010 Irwin J granted to the claimant an order ex parte in the terms set out at tab 3. The defendant asserts that the application should not have been made. That is not something that I need to determine. Further orders were made after inter partes hearings on 28th May 2010, 24 June 2010 and 19 August 2010. On 28 May 2010 directions were given by HHJ Seymour QC for a speedy trial. He granted an additional 28 days to the claimant for the date of service of its Particulars of Claim (i.e. to 2 June 2010) on the basis that the claimant would consider whether the continuation of the litigation was appropriate. Particulars were duly served.

7. At the hearing before Roderick Evans J on 24th June 2010 the claimant sought and obtained an order for an IT report to be obtained. I have not seen that report but I understand that it shows that notwithstanding that the files were sent to the defendant's personal email address in January 2010 there is no evidence that the defendant has done anything with them since then (save for supplying them to her solicitor in these proceedings).

8. On 22 June 2010 the claimant summarily dismissed the defendant on the grounds of "gross misconduct" namely (in brief) the sending of the emails from her work account to her personal account.

The claimant's case
9. I shall not rehearse the whole of the claimant's case, nor that of the defendant. There is a claim in contract, pleaded at paragraphs 5 to 10 and a claim for breach of fiduciary duty that the claimant asserts was owed by the defendant to the claimant (see paragraph 11). Particulars of the breach of contract are set out at paragraph 18. It is pleaded that by sending the emails to her email account the defendant was in breach of several express terms of the contract and in breach of terms relating to confidentiality, breach of implied terms and in breach of her fiduciary duties to the claimant.

10. It is the claimant's case that the clause 27.1.13 of the defendant's contract of employment entitled the claimant to dismiss summarily where the defendant "is guilty of unauthorised use of or disclosure of confidential information".

11. The particulars of loss and damage are set out at paragraph 25. It is not entirely easy to see at this stage what recoverable loss the claimant has in fact incurred, but that is not something that was addressed in the hearing, for good reason, and is a matter for another day. In addition to damages the claimant seeks delivery up of the electronic copies of the documents currently held by the defendant and her solicitors.

The defendant's case
12. This is summarised at section A, paragraph 1 of the defence. The defendant denies breach of contract. She contends that the sending of confidential information from her work email address to her personal email address did not amount to making use of such information. She also asserts that the sending of the emails was fairly required for the protection of her legitimate interests and/or to establish or protect her legal rights and /or to defend herself. It is further pleaded, at paragraph 1(d) of the summary that the claimant was itself in repudiatory breach of contract and is not entitled to enforce the terms of the contract of employment against the defendant. Further it is asserted that it would be contrary to public policy to uphold the claimant's claim.

Finally the defendant denies that she owed any fiduciary duty to the claimant.

This application
13. The claimant seeks to strike out/obtain summary judgment in respect of paragraphs 1(1) (d), 22, 23 and 34(3) of the defence. As I indicated above paragraph 1(1)(d) is a summary only. Paragraph 22 is essentially a detailed recital of a number of facts upon which the defendant relies in support of a number of different aspects of her case (paragraphs 24-25, 26(2), 45, 47,48 of the defence and counterclaim – and paragraphs 23 and 34(3)).

14. Paragraph 23 reads as follows:

"By reason of the said conduct of Brandeaux Advisers in repudiatory breach of contract, it was no longer entitled, on or after 25 January 2010 (alternatively such other earlier date at which the Court shall determine Brandeaux Advisers to have been in repudiatory breach of contract,) to require Ms Chadwick to comply with her obligations under the Contract or to enforce the Contract against her."

15. Paragraph 34(3) reads as follows:

"Further and in any event, in light of its own repudiatory breaches of the implied term of trust and confidence it was not open to Brandeaux Advisers to terminate the Contract on the basis of the alleged misconduct on the part of Ms Chadwick."

16. In the course of his powerful and attractive oral argument Mr Solomon developed the submissions previously set out in writing. His position is, effectively, this: even if the claimant were in repudiatory breach at some point (which is denied), the defendant did not accept the repudiation. Thus the contract remained in being and both parties were bound by it and were entitled to rely on it. It is well recognised that for repudiation to have effect it must be accepted. He relies on the decision of Court of Appeal in Howard v Pickford Tool Co [1951] 1 KB 417 at 421 and points to the adoption of that approach by the House of Lords in Rigby v Ferodo [1988] ICR 29. He drew my attention in particular to paragraphs 33B, E-G, 34 E-H and the speech of Lord Oliver at 35B-C "For my part I see no reason in law or logic why, leaving aside for the moment the extreme case of outright dismissal or walk- out, a contract of employment should be on any different footing from any other contract as regards the principle that "an unaccepted repudiation is a thing writ in water and of no value to anybody"; per Asquith LJ in Howard v Pickford Truck Co." He relied also on the Court of Appeal decision in Gunton v Richmond upon Thames London Borough Council [1980] ICR 755, in particular on the judgment of Buckley LJ at 764, 770 and 771.

17. Mr Tolley described these submissions as a red herring. He pointed out that it is no part of the defendant's case that there was an automatic termination of the contract. It is common ground, he says, that the contract remained in being until the claimant was summarily (and wrongfully, he would say) dismissed in June 2010. This was made explicit (if it was not already plain) in the answers to the questions at paragraphs 17 to 20 inclusive of the claimant's request for further information.

18. The defendant's position is that

i) in determining whether the defendant was in repudiatory breach of her contract of employment (by forwarding the emails to her personal email address) the court must look at all relevant circumstances, including the conduct of the claimant towards the defendant.

ii) by reason of its own repudiatory breaches of contract the claimant was not entitled to treat the defendant's conduct as repudiatory.

19. Mr Tolley relies on the decision of Bernard Livesey QC, sitting as a deputy High Court Judge in RDF Media group plc v Clements [2007] EWHC 2892 (QB). At paragraph 140 of the judgment the judge said

"I am inclined to accept the formulation of Mr Croxford who argues, on the basis of the authority of Bremer Vilcan Schiffbau Und Mashinenfabrik v South India Shipping Corp [1981] AC 909 at 986 B-D, 987G Paal Wilson v Partnreederei Hannah Blumenthal [1983] 1 AC 854 at 909 C-D that where as here the defendant is himself in repudiatory breach of a mutual obligation he is not entitled to accept any repudiation by RDF by reason of his own breaches" and at paragraph 141

"The alternative way of looking at it is by application of the considerations set out in paragraph 120 above. The point is that if one looks objectively at the relationship between RDF and Mr Clements, that relationship had already been seriously damaged or destroyed by misconduct on his part which went to the root of the relationship. The point is one of causation as well as equity. As a matter of causation I would hold that the relationship was destroyed not by RDF but by Mr Clements as a result of his anterior breach of the mutual obligation. It would also be inequitable for Mr Clements if he were able to claim that RDF caused serious damage to the relationship where the relationship in question was already seriously damaged or destroyed by his own conduct"

The point made at paragraph 120 was as follows

"Finally, when evaluating whether the employer has breached the implied obligation, it is not unimportant to consider the state of the relationship, which is of course a relationship which both parties have a mutual obligation to foster at the time when the breach is alleged to have taken place. If, by way of example, an employee has no relationship or is himself in repudiatory breach of his relationship, this may have to be put in to the scales as it may affect the balance which has to be struck".

20. The defendant contends that those points, if correct, are valid where the position of employer and employee are reversed. I accept that.

21. The defendant submits that there are 2 legal propositions capable of being derived from the RDF decision

i) where one party is in repudiatory breach of a mutual obligation he is not entitled to accept any repudiation by the other party by reason of his own breaches.

ii) when determining whether one party to a contract of employment has committed a repudiatory breach of contract, one must consider the overall state of the relationship, including whether the other party is itself or himself/herself already in repudiatory breach of contract.

22. The claimant submits that the decision in RDF is plainly wrong, contrary to precedent and has been subjected to criticism. My attention was drawn in particular to the judgment of Jack J in Tullett Prebon plc BGC Brokers LP [2010] IRLR 648, who held (at paragraph 83)

"It was tentatively suggested in RDF Media Group plc v Clements ...that where an employee was himself in repudiatory breach of his contract of employment he could not accept a breach by his employer to bring the contract to an end, citing Bremer Vulcan and Paal Wilson. Those cases were concerned with the very different and difficult situation which arises where no progress has been made in an arbitration for many years. I do not think that they are helpful in an employment situation. The ordinary position is that, if there is a breach of contract by one party which entitles the other to terminate the contract but he does not do so, then the contract both remains in being and may be terminated by the first party if the second party has himself committed a repudiatory breach of the contract I refer to Chitty on Contracts, 30th edn vol 1, para 24-015".

23. Mr Solomon submits (effectively) that this restores the orthodoxy as set out in the argument that I have summarised earlier in this judgment.

24. Mr Tolley draws my attention to paragraphs 84 and 85. In the latter Jack J said "In my judgment the conduct of the employee may be relevant in this way. Whether the employer's conduct has sufficiently damaged the trust and confidence which the employee has in him objectively judged, is to be judged in all the circumstances. The circumstances will include the employee's own conduct to the extent that it is relevant to that question. There may in practice be little difference with the approach suggested by Mr Livesey".

25. Again Mr Tolley submits that the proposition is true where the roles are reversed. Again that would seem to follow. He goes on to submit that in judging the question whether the employee's conduct has sufficiently damaged the relationship of trust and confidence which the employer has in her, all the relevant circumstances should be taken into account, and these will include the employer's own conduct to the extent that it is relevant.

26. Mr Tolley also relies on the fact that RDF has been followed in the Scottish Employment Appeal Tribunal in the case of Aberdeen City Council v McNeill [2010] IRLR 374 – see in particular paragraph 99 of that decision. Mr Solomon seeks to distinguish that case on a number of different bases. Nonetheless, at the very least, it provides significant support for an argument that the claimant submits is hopeless.

27. The decision in RDF was considered and doubted earlier by Cranston J in SG and R Valuation Service Co LLC v Boudrais [2008] EWHC 1340. He expressed a clear preference for what the claimant would characterise as the orthodox approach. "At present I remain unconvinced that, while there may be a mutuality of obligation, in particular of trust and confidence in the employment relationship, there is, in the type of circumstances in this case, a mutuality of breach which justifies applying the approach in these two House of Lords' authorities. Rather what I perceive as typical in this type of case is separate, sequential breaches, one by the employee and one by the employer. Moreover I would be concerned about situations where, if the employee was in repudiatory breach the employer could take whatever repudiatory breach it wished and the employee could not accept the employer's repudiation as bringing the employment relationship to an end. That could lead to some very undesirable scenarios on the employment relationship. I understand RDF is on appeal".

28. Thus in these 4 decisions at first instance there is far from unanimity of view. I note without surprise that the editors of Harvey on Employment Law consider that this is an issue that requires resolution by the Court of Appeal.

Strike out
29. There is no proper basis for striking out the factual allegations set out in paragraph 22. As I have set out earlier in this judgment they appear to be relevant to a number of matters pleaded in other paragraphs, irrespective of the position in paragraphs 1, 23 and 34(3). I turn now to those paragraphs (and the preamble to paragraph 22).

30. The defendant says the law is developing and the court should be slow to strike out in that situation. I was directed to the commentary in the white book at 3.4.2 and in particular to the decisions in Barrett v Enfield BC [1989] 3 WLR 83 and Hughes v Colin Richards and Co [2004] EWCA Civ 266. The commentators in the white book put it thus "An application to strike out should not be granted unless the court is certain that the claim is bound to fail" – this, of course, is where the law is said to be developing. It is plainly desirable that decisions as to the law should be made on actual and not hypothetical facts.

31. The claimant says that the defendant's argument in those paragraphs has no merit in law, irrespective of the facts. The law is not developing, RDF is simply wrong and Aberdeen may be distinguished. There is considerable force in Mr Solomon's submissions but in the light of the decisions in RDF and Aberdeen I cannot accept his submission that the arguments in those paragraphs is bound to fail, as he submits they are.

32. I have reviewed the allegations at paragraph 22. I am not satisfied at this stage that were those matters proved the defendant would not be able to establish that the claimant was not entitled to treat as repudiatory of the contract of employment the sending of emails from her work address to her personal address and I accept Mr Tolley's submissions in that regard. It may be that much will depend (as it did in RDF and Aberdeen) on the factual situation. In my judgment any decision about the law should, in this case, be decided not on hypothetical but on actual facts.

33. Accordingly I am not going to strike out any of the paragraphs identified.

Summary judgment (part 24 CPR)
34. Whilst Mr Solomon may, in the end, be correct in his submission that RDF is simply wrong, and that the defendant's argument will fail, for the reasons I have already given I am not at this stage satisfied that the defendant has no real prospect of succeeding on the issues she raises in those paragraphs.

35. It follows therefore that this application is dismissed. I understand the future timetable has been agreed and I await submissions on costs.

36. Before leaving this application I should like to make the following observations:-

37. I have kept in mind throughout the hearing the overriding objective and the ways this can be achieved. I confess that I cannot see that this application has had or could ever have had (however I decided it) the effect of ensuring that this case is dealt with more expeditiously than would occur using the speedy trial procedure which is already in place. At best it has taken no less time to ventilate the legal argument than would have been taken at trial. It is likely to have taken longer. Were I to have decided the issue of law in the claimant's favour it could not have been said that time had been saved – simply that it had been spent at an earlier stage.

38. I very much hope that the parties' focus will now be on how this litigation may be brought to a speedy and just conclusion.