Court Of Appeal Rejects Novel Duty Of Care On Banks To Protect Employees From Economic Loss Arising From A Criminal Conviction In The Performance Of Duties

• Jurisdiction: European Union
• Law Firm: Herbert Smith Freehills
• Subject Matter: Accounting and Audit, Finance and Banking, Employment and HR, Audit, Financial Services, Contract of Employment
• Author: Mr Ajay Malhotra, Anna Henderson and Ceri Morgan
• Published date: 13 March 2023

The Court of Appeal has dismissed the appeal of a bank employee, finding that the bank did not owe a novel duty to take reasonable care to avoid the risk of the employee being convicted, and that there was no implied term of the employment contract that the bank would indemnify the employee against loss of future earnings suffered as a result of his conviction: Benyatov v Credit Suisse (Securities) Europe Ltd [2023] EWCA Civ 140. In doing so, the Court of Appeal upheld the decision of the High Court for essentially the same reasons.

The Court of Appeal refused to draw an analogy with the audit duty found in Rihan v Ernst & Young Global Ltd [2020] EWHC 901 (QB) (see our banking litigation blog post). In Rihan, the established duty on the defendant auditor was to conduct the audit ethically and without misconduct. In the view of the Court of Appeal, this had no application to the circumstances of the present case, where the duty alleged had nothing to do with the bank avoiding wrongdoing, but was an alleged duty to protect the claimant against the wrongdoing/unjust acts of another third party.

The decision demonstrates the court's conservative approach to establishing a novel duty of care, providing some helpful analysis on the correct approach in law. The Court of Appeal applied well-established principles, taking the incremental approach endorsed in Robinson v Chief Constable of West Yorkshire Police [2018] UKSC 4. This will involve consideration of the three-stage Caparo test (namely, (i) foreseeability, (ii) proximity, and (iii) fairness, justice and reasonableness) to the extent that those factors are in issue. The Court of Appeal acknowledged that assumption of responsibility may be a useful analytical tool, but its usefulness will depend on the issues in the particular case. The most decisive factor in the present case was foreseeability, and assumption of responsibility added nothing, because the bank could not have assumed responsibility for risks that were not reasonably foreseeable.

In relation to the contractual indemnity argument, it was common ground that it was an implied term of the claimant's employment contract that the bank would indemnify him against some forms of harm suffered in doing his job. However, in the Court of Appeal's view, there was no support in the English authorities for a general principle that if a person acts on the instruction of another, they are entitled to be indemnified against all losses, of any kind, suffered as a result of doing so, irrespective of any fault on the part of the employer. It commented that a general indemnity of this kind would "wholly subvert the way in which both the common law and legislation have addressed the issue of the obligations of employers".

We consider the decision in more detail below.

Background

The claimant joined the defendant bank (Bank) in 1997, and from 2005 he worked on a project advising a company about the purchase of a state-owned electricity company in Romania. In 2006, while he was on a visit to Romania, the claimant was arrested on suspicion of criminal wrongdoing in connection with the privatisation, subsequently charged and found guilty by the Romanian court in 2013. The claimant made a partially...