Standard Life Health Care Ltd v Gorman & Ors

The appellants are agents, appointed representatives, of the respondents, Standard Life (“SLH”). They were employed under written contracts. They sold private medical insurance for SLH, and their remuneration was by commission, taking a percentage of the premium for the first year and a smaller percentage for each renewal thereafter.

The particular appellants, Mr Gorman and Mr Imich, were also engaged as sales team managers, and there were additional terms of their contracts dealing with their roles as such. One difference between the terms of their contracts and the terms of the ordinary appointed representatives was that to terminate their contracts they had to give, or Standard Life had to give, three months’ notice; whereas the ordinary agents were on one month’s notice.

All the individual defendants (and there are four others other than the appellants) are agents who resigned from SLH in order to work for a competing private medical insurance business called Secure Health Limited. That company is the eighth defendant in the proceedings and are an associated company of the well known insurers, AXA.

None of the individual defendants gave the required notice, all purporting to resign with immediate effect. It is SLH’s case that it is no coincidence all resigned together. The fourth defendant, Mr McMinn the fifth defendant, Mr Brown, and the sixth defendant, Mr Murphy, were all members of the first defendant, Mr Gorman’s, team, and managed by him. It is SLH’s case that in February this year, before any notice had been given, a meeting was organised by an employee of Secure Health (himself a former employee of SHH), at which the appointed representatives of Standard Life were persuaded to become agents for Secure Health. It is alleged that Mr Gorman, prior to the meeting, had obtained by deception confidential information as to the business of Standard Life other than business carried out by himself. Even before the agents had given notice, it seems that an application had been made, possibly by Secure Health, to register the agents as appointed representatives for Secure Health, and those registrations have been made. There is thus, and it is not in dispute on the appeal, a powerfully arguable case that the defendants, or some of them, acted in serious breaches of their duties of good faith and loyalty owed to Standard Life, and that Secure Health have been parties to their wrongful acts.

The trial of the action is due to commence, as I understand it, on 4 June; what is in issue on this appeal relates to the relief that Standard Life has sought, pending a trial of the action. Standard Life has chosen not to terminate the agency agreement with any of the appellants. Obviously, it would have been open to them to treat the alleged misconduct as a repudiation of the agency agreements and terminate the agency agreements there and then. But Standard Life chose not to do so; they chose to hold the agents to the full periods of their contracts. They have treated the notices that have been given as either one month notice or three months notice, depending on whether the defendant was an ordinary appointed representative or a manager. They have also sought injunctions against each of the personal defendants, restraining them from selling private medical insurance for anyone other than Standard Life. At the time they applied for those injunctions, they also were seeking injunctions relating to the use of confidential information; but that aspect was resolved, so far as the interlocutory stage was concerned, by the giving of certain undertakings, and it need not concern us any further.

At first sight, there would seem to be a strong case for the granting of an injunction to restrain the defendants from acting for anybody other than Standard Life. Such an injunction was indeed granted by HHJ Seymour QC sitting as a Deputy High Court Judge, but there is a complicating factor which had to be addressed by the judge and which has brought the matter to the Court of Appeal. At the same time as seeking to keep the contracts alive until the end of the notice periods, Standard Life have suspended the individual defendants. Standard Life do not want the defendants during the period of their notices approaching clients to sell private health insurance, because Standard Life take the view that in doing so they would be likely, if not initially at least ultimately, to take such clients to Secure Health, particularly as the agents are now registered in favour of Secure Health. Putting it shortly for the moment, the judge granted an injunction preventing the individual defendants working for any private health insurance business other than Standard Life, and upheld the right that Standard Life were asserting to suspend the agents.

Permission to appeal was sought initially from the single Lord Justice, and initially permission was granted by Laws LJ. But on an undertaking from AXA to pay the losses that Standard Life might be held to have suffered in the absence of an injunction, Laws LJ discharged the interlocutory injunction granted. Standard Life, under a liberty to apply, sought to restore that injunction pending the appeal, and were successful before Laws LJ and my Lord, Lord Justice Jacob, and we are now concerned with the appeal.

Time has however gone by, and in real terms this appeal is concerned with the positions of the first defendant and the second defendant, Mr Gorman and Mr Imich, whose periods of notice were three months, and whose notices will thus expire on 11 June 2009, and I shall refer to them as the appellants. All other individual defendants were on one month’s notice, and are thus already free to work elsewhere. The appellants have, through Mr Paul Nicholls, sought to argue two points on the appeal, both of which were argued among other points before the judge; but the important point to emphasise is that it is only these two points which are raised on the appeal.

First Mr Nicholls submits that there would need to be an express term in the written contracts which permitted Standard Life to require Mr Gorman and Mr Imich to remain away from work during the notice period if Standard Life are to be entitled so to require and obtain an injunction against working for competitors. Second, it is argued that even if there were such a term Standard Life, in order to obtain an injunction of this sort, would have to provide an undertaking to pay remuneration or to provide work if they are to be entitled to an injunction. Otherwise, it is said that Standard Life are preventing Mr Gorman and Mr Imich from earning a living at all, and it is said that really as a matter of law unless such an undertaking is provided then the court is not at liberty to grant an injunction.

It is submitted on behalf of the appellants by Mr Nicholls, as it was before the judge, that if one has regard to the express terms of the agency contracts, it is apparent that these agents are obliged to work for Standard Life only, and that these agents are to be remunerated not by a payment of any salary but simply by the payment of a commission, thus it is argued that the obligation of Standard Life under those contracts must be to allow the agent to work. He further submits that that being so, the provisions relating to suspension should not be construed as giving a general power to suspend, but at most should be construed as a power to suspend while matters are investigated; and he suggests that when one looks at the express terms of the written contract, that is apparent from those written terms.

Mr Nicholls has both before the judge and before us sought to draw an analogy with employer/employee contracts. He referred us first to William Hill v Tucker [1998] IRLR 313. That was a decision of the Court of Appeal, the main judgment being given by Morritt LJ, as he then was. In that case what the court was concerned with was the question whether, under the contract of employment of a senior dealer in spread betting, he was entitled to continue to work during his period of notice. There was no dispute that he was entitled to continue to be paid, but the question was whether he was entitled actually to work rather than being placed, as it is called, on garden leave. There was a provision relating to suspension evidently in that contract, but the court construed that right of suspension as a right to suspend pending an investigation and no more.

What was held was that the contract did require the employer to allow Mr Tucker to work. It was held that if an employer wished to have the power to send someone on garden leave, the employment contract would need to expressly so provide; and since it had not done so, it was held that the employer was in breach of contract in not allowing Mr Tucker back to work. Thus it was held that Mr Tucker was entitled to treat the employer’s refusal to allow him back to work as a repudiation, so that Mr Tucker was entitled to terminate the contract. In those circumstances, of course, this disentitled the employer from obtaining an injunction preventing Mr Tucker working for a rival during the period of notice.

It will be noted that although there was some suggestion that Mr Tucker had taken with him a document, presumably alleged to be confidential, to William Hill, no issue appears to have been argued in relation to Mr Tucker being in some way in breach of his duty of good faith, or being still in breach of his duty of good faith so far as his employment was concerned post the termination notice.

Mr Nicholls then also took us to Evening Standard v Henderson [1987] ICR 588. In that case the main judgment was given by Lawton LJ. That was a case in which the production manager was required to give one year’s notice to terminate his contract; he gave only two months’ notice, and desired to leave to go and work for a competing newspaper. The Evening Standard wanted the production manager to continue to be employed by them. They refused to accept that the manager was in repudiation of his contract, and sought to keep the contract alive. It seems that the production manager continued to work in the office of the Evening Standard, at least for a period. The submission of Mr Boswood, who represented the Evening Standard, (presumably on instructions) was that the Evening Standard were perfectly prepared to have the production manager in the office working out his notice, but if he was not prepared to come and work in the office they were prepared to pay him and allow him to stay at home, and they were prepared to give an undertaking that if he stayed at home they would not make any claim for damages in the action in order to recover what they had paid him. Again this was a case in which there was no question of the employer, the Evening Standard, suggesting that the production manager was, post the giving of too short a notice, in breach of any obligation to the Evening Standard, either obligations of good faith or indeed any other obligations. Indeed, they were happy, much to the surprise of Lawton LJ it is fair to say, to have him working in the office.

We were also in the skeleton referred to Provident v Hayward [1989] IRLR 84. That case is not of great assistance since there was an express term of the contract which provided that the employer did not have to provide work. So that it is a rather different case.

Then we were taken to the decision of Cranston J in SG&R Valuation Service Company LLC v Boudrais [2008] IRLR 70, a decision again in the employer/employee context, and a judgment on which the judge in this case relied. The judge cites paragraph 24 of that judgment, which was Cranston J’s conclusion, in which he says this:

“In my judgment, therefore, the law is clear. Employees who have a right to work have that right subject to the qualification that they have not, as a result of some prior breach of contract or other duty, demonstrated in a serious way that they are not ready or willing to work, or, to put it another way, that they have not rendered it impossible or reasonably impracticable for the employer to provide work. The breach of contract or other duty must constitute wrongdoing, by reason of which they will profit or potentially profit. In such circumstances, there is no obligation on the employer to provide work, although the contract of employment is ongoing. This is not an implied term in the employment contract but is a qualification to the legal construct, the right to work.”

Mr Nicholls is critical of that decision; indeed, he says it is wrongly decided. He says that if one goes to the judgment, one will see that Cranston J relied on a passage in the speech of Lord Oliver in Miles v Wakefield [1987] A.C. 539. Cranston J cited a paragraph from that speech in which Lord Oliver said:

What Mr Nicholls suggested was that when one goes to Miles v Wakefield, it supports his argument that Cranston J was wrong, rather than the reverse.

It should not be overlooked that, what we are considering at this stage are whether points are arguable, and whether then it was right on the balance of convenience and in the discretion of the judge to grant an injunction. If one looks at Lord Oliver’s speech, it seems to me that Mr Nicholls is wrong in his suggestion that it supports his case rather than the reverse. I say that because of Lord Oliver’s conclusion when he comes to consider what the answer in that particular case should be. That case was concerned with a part of the remuneration which had been withheld. The argument of Mr Sedley QC, as he was in those days, was really to the same effect as Mr Nicholls in this case, ie that an employer either should accept the repudiation or he has to keep the contract in being totally.

What had been submitted on the part of the council in that case appears from page 574. What the council was suggesting was that the claim failed for failure to prove an essential allegation:

“The essential question is whether what Mr. Irvine [as again he was in those days] has termed the theory of interdependent obligation is consistent with the authorities relied upon by Mr. Sedley in support of his proposition that, short of accepting the employee's breach as a repudiation determining the contract altogether, there is no way in which an employer can resist a claim for the full contractual remuneration other than the establishment of a counterclaim for damages.”

The reference to “interdependent obligations” in my view is an important reference. There will be cases where it is necessary to analyse whether the obligation to pay, for example, and indeed in this case whether the obligation to provide work, is an interdependent obligation, ie one which only arises if the employee or the other party to the contract is fulfilling his obligations under the contract. It seems to me important to appreciate that to a large extent the authorities to which we have been referred are not laying down general principles of law; they are concerned with the proper interpretation of particular contracts as it happens in the employer/employee context. If one is concerned with the proper interpretation of contracts and what obligations they impose, the same will be true in a principal and agent contract. One is concerned first to interpret the contract and see where the obligations lie, and who has the obligations and at what stage, and in particular whether obligations are interdependent. And again, I stress that one is concerned in the first instance with questions of arguability and how strong the case. Then one is concerned at the second stage with the balance of convenience and with the exercise of a discretion.

Looking at this contract, and this particular contract I would for my part, as I indicated during the argument, be prepared to accept that, contrary to the views of the judge, where as here agents are employed on a commission basis and are tied to a particular principle prima facie, the employer must be under an obligation not to prevent the agent earning remuneration. But the question in this case is whether it is arguable that the obligation ceases to exist in certain circumstances, even though the contract may itself be continuing. It seems to me that it is strongly arguable that the obligation in this case to provide work in circumstances where the agents, as here, have broken their duties of good faith and have registered themselves with another principal has ceased to exist. Even where the employer has decided not to accept that conduct as a repudiation, it is strongly arguable that the obligation to continue to supply work no longer continues. There are two bases on which that, as it seems to me, is very arguably so. First, on the proper construction of this contract, a provision to which I have not so far referred is important. It is a provision which provides for a right to suspend, at Clause 9 of the written terms. Now that provision itself, it seems to me, can be relied on to support the point that I have already made, ie that this was a contract that prima facie required Standard Life to provide work to the agent; otherwise, there is little point in having a provision which entitles Standard Life to suspend the contract in some circumstances.

The clause provides generally at 9.1:

“SLH shall be entitled to suspend this Agreement forthwith by written notice to the Agent and shall inform the FSA of any breaches of the Rules if SLH reasonably believes that the agent is suspected of mis-selling or malpractice, or fails to meet SLH’s advertising, selling or licensing standards; or is otherwise acting or has acted in breach of the terms of the Agreement or the Rules.

9.2

SLH shall suspend payment of Commission for such period as SLH considers necessary in order to carry out a full investigation.

9.3.

SLH will not be liable to the agent for any loss of income suffered by the Agent as a result of suspension in terms of this clause 9.”

The first question is whether that gives a general right of suspension where the agent has acted in breach of the terms of the agreement. It is accepted that it gives a right of suspension and would give a right of suspension in this case, if as is accepted as arguable that the agents have committed breaches of the terms of the agreement. But the question is whether that is a general right or whether it is simply a right only for the time which it would take to carry out a full investigation.

In my view it is difficult to see that the provision makes good commercial sense if it only applies for the period of carrying out a full investigation; since if, on the carrying out of a full investigation, it was discovered that there was a serious breach of the agreement, it seems to me that it would be an unnatural construction of the agreement that at that stage the employer was effectively left with no choice; he either had to accept a repudiation, which under the ordinary law he would not have to do, or otherwise he must affirm and bring the employee back despite the finding of the investigation. So in my view it is strongly arguable that the clause allows for a general suspension.

The judge took the view that even if that broad construction of the provision was not a proper construction, and that the right to suspend only lasted for the period of a full investigation, that that suspension was still in place at the present stage of these proceedings. That view was based on the fact that a full investigation had yet to be carried out. The judge’s view was that the trial, with disclosure to take place and the trial to take place, was part of that investigation. That seems to me to be arguable as well, but I prefer the broader construction.

In any event I come back to the decision of Cranston J. in Valuation Services v Boudrais We have been shown passages in Harvey on Industrial Relations and Employment Law to which Cranston J referred,. We have indeed a more recent edition of Harvey. That would indicate that the editors of Harvey would approve of the decision of Cranston J. That appears from paragraph 785. So if the question is whether the view taken by Cranston J is arguable, I reach the conclusion that it is.

It seems to me strongly arguable that in the circumstances of a case such as this, where the employer discovers that the employee has been in serious breach of duty and in breach of his duty of good faith, and then discovers that the employee is tied effectively to a rival already, and as here registered as an agent of a rival, then the employer has, even if he keeps the contract alive, no obligation to provide work; that obligation to provide work being interdependent with the obligation of the employee to act loyally. It follows, as it seems to me, first that it is very arguable that Standard Life have not committed any breach of contract by suspending the agents or by refusing to provide them with work, and the question is then what flows from that position.

What flows from that position, as it seems to me again very arguably, is that although Mr Nicholls is right in saying that if an employer chooses to keep a contract alive the employer must be prepared to fulfil his or her obligations under the contract, that is precisely the position which Standard Life very arguably are in. They do wish to keep this contract alive and are prepared to fulfil such obligations as remain, but that does not include any obligation under the contract very arguably to provide work. They are furthermore very arguably entitled to suspend, and while the agents are suspended again they cannot be under any obligation to provide work.

That being so, Standard Life have obviously a strong basis on which to seek an interlocutory injunction to prevent the agents working for rivals while the contract continues to exist.

But one must then turn to the balance of convenience and the exercise of discretion. In one sense one could simply say that the judge in this case got that right, and that therefore there is no reason why this court should interfere; but having ruled that the judge was wrong on his construction of the contract, it is right that we should look at that question again. What is suggested is that there should be some rule requiring Standard Life to give some form of undertaking as to remuneration which goes beyond their obligations under the contract, in order that they should be entitled to obtain an injunction. I am doubtful whether even without the factors to which I shall refer hereafter, that should be required. I say that simply on the basis that the agent could see what the position was; there was a period of notice required, they could have served out that notice acting loyally for Standard Life. But they chose to register for a rival, thus making the possibility of continuing to act for Standard Life impossible; that was their choice.

But there is an added factor present in the circumstances of this case. Of course the main plank on which it is suggested that some form of undertaking beyond contractual obligation should be given relates to the fact that a suspension and injunction prevents the agents from earning a living at all. The argument is that it is only right that Standard Life should agree either to let them work or to remunerate them in some way. But it appears, and maybe the judge did not have as much information as we now have, that AXA have certainly provided quite considerable remuneration to the agents. I do not believe that what is stated in paragraph 20 of the respondent’s skeleton is in issue, although it may be that it does not go as far as the affidavits which we now have. First of all, it seems that considerable lump sums were and have been paid to both Mr Gorman and Mr Imich; it also seems, although I do not think this necessarily does appear from the respondent’s skeleton but certainly is in the affidavit that we now have, that during periods when they have not been able to work AXA have been compensating Mr Gorman and Mr Imich; and it is possible, as one might expect the position to be, that if a team of people is going to be asked to leave an employer or principal, and if, as must have been readily apparent to everybody, this was being done without proper notice having been given and in the circumstances which the judge describes, that there would be a risk that the agents would not receive remuneration from Standard Life. And it is thus perhaps not surprising that the rival to whom these agents have decided to go have provided the compensation which they, as it seems to me, quite unmeritoriously suggest should be provided by Standard Life.

Thus it seems to me that the balance of convenience is clearly in favour of continuing the injunction pending the trial. The judge was right to grant the injunction he did, and I would dismiss the appeal.

I agree. Quite apart from the arguments on suspension in the light of the particular clause in this case, it must in my view be at least arguable that Cranston J was right to conclude in the employment context, at paragraph 24 of the case to which my Lord has referred, that an employee who has a right to work has that right subject to the qualification that he has not as a result of some prior breach of contract or other duty demonstrated in a serious way that he is not ready or willing to work, or that he has not rendered it impossible or reasonably impracticable for the employer to provide work. On the facts of this case, the breach of the duty of loyalty owed by the two relevant defendants was not merely serious but also a continuing breach, which even now makes it impracticable for the employer to continue to allow the agents to pursue their agency activities on their principal’s behalf.

Cranston J in coming to his decision relied on what is described as paragraph 563 to 570 in Harvey on Industrial Relations and Employment Law, which seems to me, as it seemed to him, good law as well as good sense, because the duty to provide work on the part of the principal or the employer and the duty of loyalty on the part of the agent or employee are interdependent obligations. Unsurprisingly, the current loose leaf pages of Harvey which we were shown approve the decision of that learned judge.

Mr Nicholls also relied on the speech of Lord Ackner in Fercometal Sarl v Mediterranean Shipping Co [1989] AC 788 at page 805, but that reliance was misplaced because that passage was no more than a statement of the well known law about acceptance of repudiation. Lord Ackner did not have to consider a situation of continuing interdependent obligations. In these circumstances the balance of convenience is that the injunction should continue until trial, and for those reasons I agree with the judgment that my Lord, Lord Justice Waller, has delivered.

I agree with both judgments.