Whistleblowers: A Novel Approach
Daphne Romney QC
Schona Jolly QC
Daphne Romney QC and Schona Jolly QC consider the recent High Court judgment in Rihan v Ernst & Young Global Ltd & others [2020] EWHC 901 (QB), which provides an interesting new angle for employment, international and commercial lawyers whose clients are not entitled to the statutory whistleblowing protection embedded within the Employment Rights Act 1996. Whilst the reach of the new duty of care is likely to be limited to very specific situations, it imposes a new duty of care on employers 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 (or indeed criminal conduct) in a professional setting.
Background Facts
Mr Rihan was employed byaccountants Ernst & Young (‘EY’), working mainly in Dubai from 2008until 2014. The claimantworked in the field of climate change and sustainability services (‘CCASS’). In 2013, Mr Rihan was theinternal audit partner responsible for the audit of a Dubai company calledKaloti.He discovered that Kaloti was engaged in irregularitiesinvolving the import of gold bullion, which had been smuggled out of Morocco coatedin silver, in breach of Moroccan export rules. It was then declared as gold inDubai. These facts gave rise to a reasonable suspicion that Kaloti was involvedin money laundering, a proposition that EY accepted at trial.[1]Various international instruments recognise that gold is a ‘conflict mineral’,meaning that there is a likelihood that it may be traded, especially whenthe trade is in cash, for the purpose of financing terrorist activity ororganised crime. Mr Rihan disclosed these matters to the Dubai Metals andCommodities Centre (‘DMCC’), a regulatory body set up by theDubai Government. However, the result of this disclosure was that the DMCC ‘pressurised[EY] to reduce to vanishing point the visibility of the Morocco gold and cashtransactions issues, thereby misleading readers of relevant reporting documentsinto thinking that Kaloti’s business practices were essentially sound when,manifestly, they were not’.[2]He also alleged that EY failed to act upon his concerns or to report thematter to the appropriate authorities in London. When Mr Rihan appealed to EYmanagers in the Middle East and in Europe, he received no support; on thecontrary, pressure was put on him to water down his report, and when he refusedto sign the relevant assurance forms for Kaloti, he was replaced by another EYauditor who willingly signed them off on the transactions, ‘sanitising thefindings and improperly lending [EY’s] name to a flagrantly misleading assurancereporting process’.[3]The managers led him to believe that he would be relocated, although Kerr Jfound that they had no such intention; he said one manager ‘wanted theclaimant to believe that, contrary to his true intention, he intended to helpthe claimant to relocate, to keep the claimant loyal to the EY organisation andto deter him from making any unwanted disclosure about the Dubai audits.[4]Mr Rihan was warned about ‘the consequences of disagreeing’ and was toldhe had ‘dropped the ball’ and had not ‘done his job and his duty[5]’.He was worried about the repercussions of remaining in Dubai, both forhimself and his family, but when he returned to the UK for meetings, andsubsequently went off sick, he was then pressurised into returning to Dubai.Further, he was threatened with dismissal unless he agreed to meet EYrepresentatives. He resigned and took his story to the media, where his storywas widely publicised, including in a BBC Panorama programme.
MrRihan brought High Court claims against various EY UK-based entities, (none of whichhad been his employer) for past and future loss of earnings. He alleged that EYhad breached duties of care owed to him in respect of the conduct of the Kalotiaudit and in respect of his legitimate concerns for his and his family’s safetyand had not protected him as a whistleblower. During the trial, EY portrayed MrRihan as a publicity-hungry liar and opportunist who had been forced to leaveDubai for reasons wholly unconnected with the Kaloti audit. Kerr J observedthat EY’s case was that Mr Rihan was ‘paranoid and a conspiracy theorist whosought to manufacture a non-existent obligation to report his findings to theLBMA for his own, unexplained, reasons’.[6]EYfurther claimed that there was no obligation to report Kaloti’s conduct to anyregulatory organisation, and that there was therefore no breach and noconspiracy against Mr Rihan.[7]
The legal claims
Whistleblowingclaims are normally brought in the employment tribunal under the EmploymentRights Act 1996, but this option was not available to Mr Rihan for (i) jurisdictionalreasons and (ii) because none of the relevant entities had been his employer. An action in contract for breach of theimplied term of trust and confidence would have usually have been limited onlyto recovery of pay and benefits for his notice period unless he could showthat, following Malik and Mahmud v BCCI[8],the business was run dishonestly and corruptly, but again none of thedefendants was his employer. Instead, he sought to argue his case in a numberof different ways which would protect his status as a whistleblower in thecontext of a civil claim.
First,he alleged that EY had negligently breached two duties of care –
Theduty to keep him safe against possible retribution in Dubai;
Theduty appropriately to address his concerns about the conduct of the audit.
Bothof these were expressed as a duty not to cause him financial loss. Kerr J citedLord Bridge in CaparoIndustries plc v. Dickman[9]
“It is neversufficient to ask simply whether A owes B a duty of care. It is alwaysnecessary to determine the scope of the duty by reference to the kind of damagefrom which A must take care to save B harmless.”
KerrJ concluded that EY did not owe Mr Rihan a ‘safety duty’ because it wouldbe
‘…an illegitimate extension of the law tomake the leap from the standard employer’s duty to safeguard its employeesagainst personal injury to a broad duty to safeguard them against pure economicloss incurred as a result of the claimant’s need to cease working to avoid athreat to his physical safety’.[10]
Theproper remedy for an employee told to work in unsafe conditions was to resignand claim constructive dismissal – it was ‘too far-fetched’ to say anemployee could then claim lifelong loss if he decided to disobey to instructionto return to an unsafe workplace and part company with the employer.[11]This should be an employment claim and not a negligence claim[12],and this claim therefore failed. However, had there been such a duty, Kerr Jconcluded that EY would have breached it.
On the ‘audit duty’,Mr Rihan submitted that thedefendants assumed a responsibility to conduct the audit in an ethical mannerby intervening and directing the manner in which it was carried out; that theyassumed a responsibility to the claimant to protect him from the financial losshe suffered; that application of the threefold Caparo test led tothe conclusion that the law should impose the audit duty on the defendants; andthat this would be a permissible incremental development of the law by analogywith decided cases.
KerrJ concluded (as he had in respect of the ‘safety duty’)that thecontention did notfit the ‘assumption of responsibility’ analysis in cases where a personprovides services or advice to another in circumstances where there is nocontract but the provider knows or should know that the other will rely on theprofessional care, skill and judgment. EY was not providing such services to MrRihan.
KerrJ then considered whether although such a duty was novel, it was only ‘ashort further step’ from the decided cases, falling within Lord Mance’s testof incremental steps in Robinson v. Chief Constable of West Yorkshire.[13]In a novel type of case, ‘where establishedprinciples do not provide the answer’, consideration is given to whether anincremental development in the law, by analogy with decided cases, isappropriate (ibid., at [26]-[27]); and:
‘Thedrawing of an analogy depends on identifying the legally significant featuresof the situations with which the earlier authorities were concerned. The courtsalso have to exercise judgement when deciding whether a duty of care should berecognised in a novel type of case. It is the exercise of judgement in thosecircumstances that involves consideration of what is ‘fair, just andreasonable’....’
In an interesting nine-pointanalysis, Kerr J considered the range of authorities relating to thedevelopment of a novel duty of care. Havingconsidered Mahmud v BCCI, Scally v Southern Health Board,[14]and Spring v Guardian Assurance,[15]Kerr J concluded that that it was readily foreseeable that Mr Rihan wouldsuffer financial loss if the audit were conducted in what he considered to bean unethical manner, so that he would be bound to resign, and leave his comfortableand prosperous’ tax-free life in Dubai.[16]It was not necessary for the EY managers collectively to have foreseen thequantum of the financial loss. One manager had warned Mr Rihan about theconsequences of his position and must have had his future unemployment in mind.Moreover, Kerr J held that it is generallyknown to professional persons such as accountants that to become awhistleblower often involves a major risk of financial loss through subsequent“unemployability”. Therequired degree of proximity was made out, on the principles of Donoghuev. Stevenson,[17] but only in connection to Mr Rihan’s involvement inthe Kaloti matters. Kerr J dismissed as irrelevant the defendants’ argumentsthat proximity was not present becausethe different EY entities were not part of a unified corporate structure orbecause there were different cost centres and for accounting purposes, theycharged each other for services rendered to one another.[18]
A novel duty of care
The nub of this novel duty of care is summed up byKerr J in the following way:
‘Inmy judgment it is, conceptually, not a huge leap from imposing a duty of careto protect against physical injury and consequent financial loss by providing aphysically safe work environment, to imposing a duty of care to protect againsteconomic loss, in the form of loss of future employment opportunity, byproviding an ethically safe work environment, free from professional misconduct(or indeed criminal conduct though that is not this case) in a professionalsetting. [19]
Such a duty closely mirrors thecontent of the portmanteau trust and confidence term in the context of regularemployment, at issue in Mahmud’s case. Breach of the term is repudiatory,entitling the claimant to resign and claim constructive dismissal. Thetreatment of which the claimant complains in this case is akin to what inordinary employment would be a complaint of constructive dismissal. However, hehad no remedy against any of the defendants for constructive dismissal; he wasnot employed by any of them.’[20]
Kerr J elaborated that the dutyis bound up in the professional, ethical and moral framework within which thedefendants acted. The ‘auditduty’ was described as a duty owed by the defendants to Mr Rihan to takereasonable steps to prevent him from suffering loss of earnings by reason ofthe defendants’ failure to perform the Kaloti audit in an ethical andprofessional manner. That would require acting ‘in accordance with establishednorms of conduct which are found in documents such as the IFAC Code, thedefendants’ own code of conduct and the Transparency Report. The defendantswould only be required to do what they are in any event bound to do as a matterof professional ethics, ‘which accord with generally accepted views ofmorality in the context of reporting exercises such as this one.’ Inunderlining the framework within which this duty sits, Kerr J underlined that accountantsand other professionals should not be pressurised by their employers (orquasi-employers) to act unethically[21].
Accordingly, the employer was undera duty to provide an acceptable work environment. By a party of reasoning withthe classic duty of care on employers to take reasonable steps to provide asafe place of work and a safe system of work, Kerr J held that there was noreason why ‘the moraland professional integrity of the employee (or quasi-employee) should not beprotected by a duty to take reasonable steps to provide an ethically acceptablework environment, free of criminal conduct (see Mahmud’s case) and free ofprofessionally unethical conduct.’ The law should protect an employeefrom having their career ruined by being ‘tainted with unemployability’.[22]
Damages
Inconsidering the issue of damages, Kerr J rejected EY’s ‘untenable’ submissionthat because disclosure would have been a criminal offence under UAE law, itsimilarly would have fallen foul of the ERA; that statute applied only to anoffence under UK law. Had the claim been brought under the ERA, it would havebeen a strong claim. It was reasonable to made public disclosure to the mediagiven EY’s conduct, and reasonable to have viewed this as the last resort. Thechain of causation necessary to establish a claim in damages was not broken bythe disclosure.
Asfor damages, Mr Rihan was awarded $2,437,764 for loss of past earnings, togetherwith and $8,418,561 for loss of future earnings, and £117,950for past and futurelosses of medicalinsurance and insurance cover.
A word of caution
The facts in this case were veryparticular. The case does not set out to provide a parallel stream ofprotection alongside the statutory framework.
Kerr J emphasised that where a person ordinarilyworks outside Great Britain and therefore cannot avail himself of the statutoryregime, a duty of care in tort is the only “gap filling” option. The courtexplicitly held that ‘the duty is likely to be ruled out as inconsistentwith the statutory regime, but only where that statutory scheme itself providesthat a person may invoke its protection.’ As such, he would not have considered itreasonable to find a duty of care if Mr Rihan could have availed himself of thestatutory protection. The applicability of this duty, therefore, is likely toexist only in very narrow circumstances.
Nevertheless, this judgement provideswhistleblowers who work outside the jurisdiction with tangible, rather than theoretical protection, suchthat the common law will step in, under very particular circumstances, toremedy the loss sustained by a whistleblowing employee whose career and futureearnings are damaged by the actions of an unscrupulous and ethically dubiousemployer. It is a salutary warning to transnational employers that effective whistleblowingprotection may exist, through potentially significant financial compensation,even where the Employment Rights Act 1996 is ousted.
[1] §4
[2] §5
[3] §9
[4] § 264
[5] § 323
[6] § 18
[7] § 650
[8] [1998] AC 20
[9][1980] 2 AC 605, per LordBridge at 627D:
[10] §475
[11] §481
[12] §§479-482 for the generaldiscussion on claims relating to safety in the workplace.
[13] [2018] 2 WLR 595
[14] [1992] 1 AC 294
[15] [1995] 2 AC 294
[16] §589
[17] [1932] AC 562, 580-581
[18] §597
[19] §616
[20] §617
[21] §601-4
[22] §622