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The recent case of Imam-Sadeque v Bluebay Asset Management (Services) Ltd [2012] EWHC 3511 (QB) is both a welcome case for employers and a warning-shot across the bows of potentially problematic employees.

The facts of Imam-Sadeque v Bluebay Asset Management (Services) Ltd

The Defendant in this case, Bluebay Asset Management (Services) Ltd (“Bluebay”), was founded in 2001. It is – and was – an asset management company and was sold to the Royal Bank of Canada in 2010 in a deal that valued the company at £963 million. The Claimant in this case (Mr Imam-Sadeque) commenced employment with Bluebay in 2004 and by 2010 had been promoted to the position of “Head of Sales in the UK, Middle East and Australia”. In this role his gross annual salary was £100,000 but discretionary bonuses and share options increased the value of his remuneration to approximately £1.7 million.

In June 2011 Mr Imam-Sadeque decided to terminate his contract of employment with Bluebay and move to a fledgling competitor, Goldbridge Capital Partners LLP (“Goldbridge”). He therefore gave notice of termination (the notice period being 6 months) in June 2011 with the intention of starting at Goldbridge in January 2012 – unbeknownst to Bluebay. However, colleagues of Mr Imam-Sadeque’s submitted complaints relating to his behaviour in July 2011 and he was therefore placed on gardening leave in August 2011 until the termination of his contract of employment (as his employers were contractually entitled to do). He signed a compromise agreement in July 2011 as to this effect – the terms of which stated that he would be treated as a “Good Leaver” (and therefore entitled to share options worth £1.7 million that would vest between January and March 2012). This compromise agreement included a warranty to the effect that he was entitled to receive such consideration provided that at the time of the signing of the agreement he was not in repudiatory breach of his contract of employment and that he did not have future employment already “lined up”.

After his gardening leave period finished on 30 December 2011 it was made clear to Bluebay that Mr Imam-Sadeque had commenced working in early 2012 for Goldbridge. Further, an employee of Bluebay’s (a Mr Nixon) had also moved to Goldbridge – a move (Bluebay suspected) that was instigated by a meeting between Mr Nixon and Mr Imam-Sadeque in July 2011. Bluebay therefore withheld payment of the share options as they believed a repudiatory breach of contract had occurred and Mr Imam-Sadeque issued a claim for breach of contract in the High Court in October 2012. Mr Imam-Sadeque (in his claim) contended that he was not in repudiatory breach of contract and that he was therefore entitled to receive his share options under the terms of the August 2011 compromise agreement. Bluebay, on the other hand, alleged that there had been a breach of the implied term of fidelity and a breach of the implied term of mutual trust and confidence by Mr Imam-Sadeque which constituted a repudiatory breach of contract on his part (and thus entitling them not to comply with the terms of the contract). Further, it was alleged that Mr Imam-Sadeque had breached express terms of his contract of employment relating to acting in the best interests of Bluebay at all times and to not be directly or indirectly engaged in any other business which may conflict with Bluebay’s interests.

The law relating to breach of contract (in particular the implied duty of fidelity)

Bluebay alleged that Mr Imam-Sadeque had breached the implied duty of fidelity through a number of actions on his part, including participating in setting up Goldbridge and enticing Mr Nixon to leave his employment with Bluebay. We’ll have a look in this section at what the implied duty of fidelity is and how it can possibly constitute a repudiatory breach of the contract of employment

The duty of fidelity

The implied duty of fidelity is one that all employees owe to their employer where both parties to the contract must have regard to the interests of the other but not subjugate their own interests. It is distinguished a fiduciary duty, which is more focussed. Essentially it means that the employee must act in a loyal manner towards their employee, without completely undermining their own interests by doing so.

Repudiatory breach of the contract of employment

If there has been a breach of a contract the offended party has the option (if it is a breach of a condition of the contract i.e. fundamental to the contract itself) of pursuing the offending party for damages and/or terminating the contract. If the breach is not fundamental to the contract (and therefore a breach of a warranty) then it will generally not entitle the offended party to terminate the contract.

When, then, is a breach “fundamental”? The following test was endorsed by the Court of Appeal in Tullett Prebon Plc v BGC Brokers LP [2011]:

[Whether] “from the perspective of a reasonable person in the position of the innocent party, the contract breaker has clearly shown an intention to abandon and altogether refuse to perform the contract.”

So, if Mr Imam-Sadeque had clearly shown an intention to abandon and altogether refuse to perform the contract through his actions then this would be deemed to be a fundamental breach of the contract of employment entitling Bluebay to terminate.

The High Court’s decision in Imam-Sadeque v Bluebay Asset Management (Services) Ltd

The High Court found that Mr Imam-Sadeque was in repudiatory breach of contract by his actions in June to August 2011. He was found to be in breach of the implied terms of mutual trust and confidence and fidelity and was also found to be in breach of the express terms stated above. Bluebay was therefore entitled to not pay the share options owed under the contract of employment to Mr Imam-Sadeque.

Our specialist employment lawyers’ thoughts on Imam-Sadeque v Bluebay Asset Management (Services) Ltd

This is an interesting and useful case to both employers and employees, laying down the fundamental rules relating to the terms of the contract of employment and how and when the contract of employment may be breached by actions on the part of the employee.

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Redmans Employment Team deal with employment matters for both employers and employees, including drafting employment contracts and policies, advising employers and employees on compromise agreements, handling day-to-day HR issues, advising on restructures, and handling Employment Tribunal cases for both employers and employees Call 020 3397 3603 to speak to one of the members of our employment team or email us on enquiries@redmans.co.uk. Redmans have offices in Richmond, Chiswick, Hammersmith, Fulham, Kingston, Wimbledon, Ealing, Kings Cross and Marylebone (meetings strictly by appointment only).

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