UK: High Court rulings on duty of care to protect against economic loss

In Rihan v Ernst & Young (Global) Ltd, the High Court awarded a former partner of Ernst & Young (EY) damages exceeding $11 million, broadly equating to past and future earnings for the rest of his career. The claimant, Mr Rihan, was a whistleblower who publicly disclosed suspected irregularities arising out of an audit for a client for whom he was the audit engagement partner, and unilaterally left EY.

The Court held that EY owed Mr Rihan a duty of care to protect against economic loss (in the form of loss of future employment opportunity), by providing an “ethically safe” work environment, free from professional misconduct. Although Mr Rihan was a partner in EY working in Dubai, the court found that this duty was owed (and breached) by four UK-based EY entities.

The decision has a number of unusual features, not least that:

• Mr Rihan had no contractual relationship with any of the defendant entities;
• his public disclosure was a criminal offence under local UAE law;
• the award of damages was the product of an exercise in judicial creativity involving the identification of a novel duty of care, albeit limited in ambit; and
• the reasoning for the identification of this duty owed a considerable amount to features of UK employment law and yet Mr Rihan was not employed by any EY entity, being a partner.

EY is reported to be seeking permission to appeal. If the decision survives an appeal, it remains to be seen how widespread its effect will be as the court stressed the exceptional nature of the relevant facts which had given rise to the duty.

For more information see this post on our Banking Litigation Notes blog.

Update: it has been reported that EY has dropped its appeal in this case.

On a similar theme, the High Court in Benyatov v Credit Suisse Securities (Europe) Ltd refused to strike out a claim for career losses by a former employee who in the course of properly conducting a transaction for his employer in Romania had been arrested and convicted of crimes. His conviction rendered him unable to continue working as a financial professional. The employer had already taken considerable steps to support the claimant after his arrest and the Court struck out claims that the employer should have gone further and intervened politically in the prosecution system of a sovereign nation.  However, the Court held that some claims had a reasonable prospect of success and should proceed to trial: (i) that there was an implied indemnity for future losses arising from the lawful performance by an employee of their duties, and (ii) that the employer owed an implied duty of care in tort to protect him from economic losses arising from the performance of his duties in these circumstances and in particular to carry out an appropriate assessment of the risks which he faced in performing the role.  This is a controversial and developing area of law and the outcome will be closely watched.

Update January 2022: the High Court has now dismissed all of Mr Benyatov's claims on the facts.

Employers will be more reassured by another High Court decision on the implied duty of trust and confidence, ruling that there is no implied duty preventing an employer from investigating alleged gross misconduct, notwithstanding that the employer's sole motivation may be to avoid payments that would otherwise be contractually due. (Wells v Cathay Investments 2 Ltd)