SG court casts doubt on implied term of mutual trust and confidence

Background

In Dong Wei v Shell Eastern Trading (Pte) Ltd [2021] SGHC 123, an employee brought a High Court claim against his former employer for various alleged breaches of contract and the alleged commission of various torts. Amongst other things, the company had failed to dispel market rumours of the employee’s alleged corruption (which was the focus of an ongoing internal investigation) and had failed to inform the employee of the eventual outcome of said investigation (which led to the employee being unable to find subsequent employment within the shipping industry).

More details are set out in our earlier client alert, which can be found here.

The implied term of mutual trust and confidence: settled law

Part of the employee’s claim concerned the company’s purported breaches of its implied obligation of mutual trust and confidence. The employee argued that Singapore law imposed a broad and general obligation on the company not to engage in any conduct that was likely to undermine the trust and confidence which subsisted between an employer and its employee.

The High Court accepted that such an implied term existed in all employment contracts, since according to the Court this was the position taken in previous High Court judgments and by the Court of Appeal itself. For example:

• In Wong Wei Leong Edward v Acclaim Insurance Brokers Pte Ltd [2010] SGHC 352, the High Court recognised the existence of the implied term and cited with approval the seminal House of Lords decision in Malik v Bank of Credit and Commerce International SA [1998] AC 20, that the implied term imposed a “portmanteau, general obligation” on the parties not to engage in conduct likely to undermine the trust and confidence required for the employment relationship to continue.
• In Cheah Peng Hock v Luzhou Bio-Chem Technology Ltd [2013] 2 SLR 577, the High Court stated that unless there was an express term to the contrary or the context suggested otherwise, an implied term of mutual trust and confidence would be implied by law into an employment contract.
• In Brader Daniel John v Commerzbank AG [2014] 2SLR 81, the High Court affirmed the aforementioned earlier judgments and held that the existence of the implied term was now “settled law” in Singapore.
• In Wee Kim San Lawrence Bernard v Robinson & Co (Singapore) Pte Ltd [2014] 4 SLR 357, the Court of Appeal appeared to have accepted the existence of the implied term as it held that where a breach of the implied term resulted in constructive dismissal, this would give rise to a claim for premature termination losses (ie losses that were causally connected to the premature termination of the employment contract).

On the specific facts of the case, however, as the company’s actions were objectively unlikely to have destroyed or seriously damaged the mutual trust and confidence required for the employment relationship to function, since the company’s actions were supported by a reasonable and proper cause, the employee’s claims were dismissed.

The appeal

In Dong Wei v Shell Eastern Trading (Pte) Ltd and another [2022] SGHC(A) 8, the employee filed an appeal against some (but not all) of the findings of the High Court. Unfortunately, this proved fatal to the appeal as it meant the Appellate Division of the High Court was bound to accept certain findings of fact which had not been appealed. The appeal also failed on procedural grounds as two of the core issues raised by the employee, ie, that the company was obliged to (a) correct misinformation so as to protect him from reputational harm, and (b) inform the employee of the outcome of the investigation, had not been pleaded and could not therefore form part of the employee’s case.

However, as the employee’s unpleaded claims relied heavily on the existence of the implied term of mutual trust and confidence, the Appellate Division took the opportunity to analyse the issue from a legal perspective.

The implied term of mutual trust and confidence: not settled law

In summary, the Appellate Division concluded that the status of the implied term of mutual trust and confidence was not yet clearly settled in Singapore. There were several reasons for this:

1. The Appellate Division was strongly influenced by the line of reasoning adopted by the High Court of Australia in Commonwealth Bank of Australia v Barker [2014] 312 ALR 356, where the apex Australian court unanimously held that the implied term of mutual trust and confidence did not form part of Australian employment law because the implied term had arisen specifically within the context of the UK’s legislative framework, which had introduced a statutory action for unfair dismissals¹. Outside of that framework (ie in Singapore and Australia), the term was not necessary to secure the effective operation of employment contracts.

2. The Appellate Division also opined that the Court of Appeal in Wee Kim San did not formally endorse the implied term, as it was only asked to decide whether the employee’s claim for damages ought to be summarily struck out. The Court of Appeal therefore merely analysed the boundaries of the implied term and concluded that the heads of claim which the employee sought to claim were legally unsustainable. Moreover, at the time Wee Kim San was decided, the Court of Appeal was aware that Barker was on appeal to the High Court of Australia, and that there was a “strong dissent” from the Federal Court of Australia, which suggested that the implied term should not form part of Australian law.

3. The Appellate Division also noted that Singapore academic commentators such as Ravi Chandran had also long taken the view that it was unclear whether Wee Kim San could be construed as support for the existence of the implied term.

4. In The One Suites Pte Ltd v Pacific Motor Credit (Pte) Ltd [2015] 3 SL 695, the Court of Appeal itself rejected the existence of a general implied duty of good faith in the context of commercial contracts. The Court of Appeal went on to indicate that the law relating to the implication of a term of good faith in employment contracts continued to be “in a state of flux”, and should be relooked in a future case.

That being said, the Appellate Division was cautious to acknowledge that the Court of Appeal in Wee Kim San was of the view that although the implied term had its origins within the concept of “constructive dismissals”, it was no longer so narrowly cast. A breach of the implied term could therefore also give rise to common law claims for premature termination losses or other financial losses flowing from the loss of employment prospects. Accordingly, it is possible for the implied term to exist as a principle of law, independent of its historical legislative backdrop, provided the court is able to precisely delineate the scope of the implied term, and elucidate the appropriate remedial consequences which should flow from a breach.

Analysis

Although the Appellate Division’s decision in Dong Wei is helpful in shining a light on the issue, we are unfortunately still in the dark as to whether the implied term of mutual trust and confidence does, in fact, exist under Singapore law. Notwithstanding the strength of the Appellate Division’s reasoning against the implication of such a term into employment contracts, the state of the law remains in flux unless and until the Court of Appeal gets the opportunity to either revisit the issue or clarify its position in Wee Kim San.

Until then, it is our view that employers should err on the side of caution by not engaging in any conduct which is likely to undermine or destroy the substratum of the employment relationship. We say so for several reasons:

1. The Appellate Division’s analysis regarding the status of the implied term in Singapore is, strictly speaking, obiter dicta as the Appellate Division did not rely on any legal finding concerning the implied term in reaching its decision. In fact, the Appellate Division specifically highlighted that it had approached the employee’s case “entirely on the facts”, and was “careful” not to address the specific legal basis on which the employee claimed the company acted in breach of contract (ie breach of the implied term).

2. The Appellate Division reserved strong words for the way the company had carried out the internal investigation and subsequent termination, noting that “employment is a two way relationship” unlike most other commercial contractual relationships, and that the company should have paused to consider the employee’s needs, treating him with dignity and respect. Such an admonishment would only make sense if one accepts that there is a underlying relationship of trust which exists between an employer and its employees.

3. The statutory wrongful dismissal regime in Singapore is predicated on an employee having been terminated without just cause or excuse. In the case of misconduct, this means the failure to carry out a due inquiry; in the case of poor performance, this involves the failure to adequately substantiate the poor performance; and in all other cases, this involves the termination of the employee for an ulterior motive or where the employer is not able to substantiate the reason stated, if any, for termination. It is evident that Singapore law requires employers to treat employees fairly at the point of termination. It would therefore seem incongruous for employers not to be bound to an equivalent standard of conduct during the currency of the employment relationship. This, as the Appellate Division noted in Dong Wei, was the “classic formulation” of the implied term as originally laid down by the House of Lords in Malik.

¹ When the progenitor of s 95(1)(c) of the UK Employment Rights Act 1996 was first enacted, it only accommodated claims resulting from ordinary, outright dismissals by the employer. It was later amended to include cases where the employee was the one who terminated the contract “in circumstances in which he is entitled to terminate it without notice by reason of the employer’s conduct”. The resulting question was when an employee would be entitled to so terminate the contract. The answer given (in Western Excavating (ECC) Ltd v Sharp [1978] QB 761) was when the employer committed a repudiatory breach of the contract. It was in those circumstances that the implied term was formulated. The classic formulation of the implied term, as laid down by Lord Nicholls in Malik as placing a “portmanteau, general obligation… not to engage in conduct likely to undermine the trust and confidence required if the employment relationship is to continue in the manner the employment contract implicitly envisages” was therefore intended to address the continued functioning of the employment relationship, and should not be extended past the subsistence of the employment relationship.