Contracts – Affirmation – Fiduciary duty - Repudiation

Ben Cook v (1) MSHK Ltd (formerly Ministry of Sound Holdings Ltd) (2) Ministry of Sound Recordings Ltd: CA (Civ Div) (Lady Justice Smith, Lords Justice Wilson, Rimer): 9 July 2009

The appellant former employee (B) appealed against an order dismissing his application in part for summary judgment against the respondent employers (M).

M sought permission to cross-appeal against the parts of the order granting B summary judgment. M were companies that made and distributed dance music on their own record label. B worked for M as head of the artist and repertoire team. His employment contract imposed post-termination restrictions on soliciting M’s artists and others, but did not prevent him from competing with M.

B accepted an offer of employment from one of M’s competitors (X), and resigned with six months’ notice. During his notice period, M allegedly discovered that B would be working on competing projects for X, and decided to remove him from sensitive commercial work and restrict his computer access. B was then absent with work-related stress, but returned to work out the rest of his notice period after receiving assurances from M that the matter could be put behind him.

He was then dismissed for gross misconduct and breach of fiduciary duty, as M believed that B had lied when asked directly what work he would be carrying out for X in the future. M issued a claim for a declaration that B’s dismissal had been lawful and sought damages for the loss of revenue caused by B’s failure to work out his full notice period.

B sought summary judgment and the judge agreed that M had not treated B’s conduct as repudiatory, but had instead affirmed his contract of employment, so M could not rely on the allegations of breach in order to justify B’s dismissal. The judge therefore struck out parts of M’s claim. However, the judge allowed part of M’s claim to proceed, namely an allegation that B had a duty to disclose any settled intention to compete with M, and an allegation that he had breached his contract by purporting to accept a loan from M after his resignation, when such a loan was only available as an incentive for continued employment. M argued that the judge had failed to apply the appropriately high test on affirmation of contract that B had to pass on a summary judgment application. B submitted that the judge ought to have taken his findings on affirmation to their logical conclusion and found that M had conducted itself so as to affirm his employment contract in respect of all the allegations of breach.

Held: (1) The undisputed facts were that, during the weeks following the known commission by B of conduct which M later asserted to be so destructive of the employment relationship as to justify his summary dismissal, M had given no indication to B that it was disposed to bring disciplinary proceedings against him, and had repeatedly made it clear that it regarded him as bound by his contract to work to the end of his notice period. There was no reason why M could not have expressly reserved its rights against B until, for example, he returned to work. The judge had been fully entitled to find that, on the admitted facts, M had affirmed B’s contract in the face of the known commission of breaches. The court refused permission for M to cross-appeal.

(2) For the purposes of the present appeal the court assumed, without deciding, that once B had formed a settled intention to compete with M, he had a duty to disclose it, and any omission to do so was a breach of contract. However, based on M’s own pleadings, it was clear that M knew of that alleged intention for over two months before B’s dismissal. Once M knew that the breach had occurred, it had to decide what to do about it. It had decided to affirm the contract and invite B back to work. B’s appeal was therefore allowed and that part of M’s claim was struck out.

(3) It was clear from the facts that B had accepted the loan after his resignation, and that M had expressly reserved its position regarding the loan prior to allowing B to return to work. M’s case was that it was obvious that the loan was only offered as an incentive to achieve continued employment. B also appeared to have regarded it in that way at the time, and had advanced what were found to be disingenuous reasons at the disciplinary hearing for being entitled to accept it. If those reasons were taken away, it was arguable that B had recognised that he should not have accepted the loan and that in doing so he was acting in a morally reprehensible manner. It was not for the court on an appeal on a summary judgment application to decide the merits of an essentially factual dispute. As M had expressly reserved its position in relation to the loan, it had a good arguable case that it had not elected to affirm the employment contract in the full knowledge of that alleged repudiatory breach of contract. B’s appeal on that aspect of the judge’s decision was dismissed.

Appeal allowed in part; permission to cross-appeal refused.

Andrew Hochhauser QC, David Craig (instructed by Jones Day) for the appellant; Ian Croxford QC, Thomas Croxford (instructed by Lewis Silkin) for the respondents.