#6705 - Soc Generale V. Geys - Commercial Remedies BCL

Soc Generaly v. Geys

Facts

The appellant, Raphael Geys, is a Belgian national. He is in dispute with his former employer, Société Générale, London Branch ("the Bank"), about the amount due to him following his summary dismissal from his employment. His case is that he was dismissed on 6 January 2008, and that he is entitled to a sum contractually due to him in the form of a termination payment amounting to more than 12.5m and to damages for breach of contract. The Bank's case is that the appellant is entitled to a termination payment of no more than 7m, as he was dismissed on 29 November 2007 or at the latest 18 December 2007.

On 29 November 2007 the appellant was called to a meeting at which he was handed a letter which had been written on the Bank's behalf and was in these terms:

"Termination of Employment

I am writing to notify you that Société Générale, London ('SG') has decided to terminate your employment with immediate effect.

In accordance with the terms of your employment contract with SG dated 28 January 2005, SG will arrange for the appropriate termination documentation to be provided to you and your legal adviser."

Question

Does a repudiation of a contract of employment by the employer which takes the form of an express and immediate dismissal automatically terminate the contract or – as was held in Gunton v Richmond-upon-Thames London Borough Council [1981] Ch 448 and Boyo v Lambeth London Borough Council [1994] ICR 727 – does the normal contractual rule that the repudiation must be accepted by the other party apply equally to that case?

Holding

Lord Hope

For the reasons given by Lord Wilson, I too would hold that the elective theory is to be preferred – that a party's repudiation terminates a contract of employment only if and when the other party elects to accept the repudiation. I am persuaded by his careful analysis of the authorities that provide support for the view that repudiation of a contract of employment terminates the contract without the necessity of acceptance by the other party was not as authoritative or as consistent as Lord Sumption indicates in para 128 below. I also think that there are cases, of which this case is a good example, where it really does matter which of the two theories is adopted. The automatic theory can operate to the disadvantage of the injured party in a way that enables the wrongdoer to benefit from his own wrong. The law should seek to avoid such an obvious injustice. Where there is a real choice as to the direction of travel, the common law should favour the direction that is least likely to do harm to the injured party. I agree that we should be very cautious before reaching a conclusion whose result is that a breach is rewarded rather than its adverse consequences for the innocent party negatived: see para 66.

The fact that an application of the automatic theory may produce an injustice is, for me, the crucial point. The question that Sir John Donaldson asked himself in Sanders v Ernest A Neale Ltd [1974] ICR 565, 571 is at the heart of the issue: why should the employee not sue for wages if it is the act of the employer which has prevented his performing the condition precedent of rendering his services? There may be grounds for thinking that the court is less reluctant than it once was to give injunctive relief in such cases, but I would not rest my decision on that point. It is the objection that the party who is in the wrong should not be permitted to benefit from his own wrong that is determinative. The timing of the repudiation may be crucial, and if the automatic theory were to prevail an employer may well be tempted to play this to his advantage – by getting in first before a rise in pay or pension entitlement takes place or, as in this case, a rise in the entitlement to bonuses.

The essential difference between the two theories may be said to be that under the automatic theory the decision as to whether the contract is at an end is made beyond the control of the innocent party in all circumstances, whereas under the elective theory it is for the innocent party to judge whether it is in his interests to keep the contract alive. Manifest justice favours preferring the interests of the innocent party to those of the wrongdoer. If there exists a good reason and an opportunity for the innocent party to affirm the contract, he should be allowed to do so.

Lord Wilson

In the absence of any direct authority of real weight at this level, the court is required to make a difficult and important choice between a conclusion that a party's repudiation (albeit perhaps only an immediate and express repudiation) of a contract of employment automatically terminates the contract ("the automatic theory") and a conclusion that his repudiation terminates the contract of employment only if and when the other party elects to accept the repudiation ("the elective theory"). It is common ground that, whichever theory be chosen, it should apply equally to wrongful repudiations by employers (i.e. wrongful dismissals) and wrongful repudiations by employees (i.e. wrongful resignations); and it is only for convenience, and because it is reflective of the facts of the present case, that I will, at times, refer to the wrongful repudiator as the employer and to the innocent party as the employee.

The central task in this part of the appeal is therefore to identify the date when the appellant's contract terminated; and, in my respectful view, it is not, as Lord Sumption suggests in para 120 below, to analyse the enforceability of what he calls the core obligations. He proceeds to suggest in para 140 below that the application of the elective theory, of which the result, of course, would be to exclude a conclusion that the contract terminated on 29 November 2007, would "give rise to significant injustice in this case". There, with respect, I part company with Lord Sumption. Before I consider the detail of the authorities, I find it helpful to stand back and to remind myself of the overall effect of the automatic theory. It is to reward the wrongful repudiator of a contract of employment with a date of termination which he has chosen, no doubt as being, in the light of the terms of the contract, most beneficial to him and, correspondingly, most detrimental to the other, innocent, party to it. We must, I suggest, be very cautious before turning basic principles of the law of contract upon their head so that, in this context, breach is thus to be rewarded rather than its adverse consequences for the innocent party negatived.

By contrast, however, authorities in which, following an unaccepted wrongful repudiation, provisions which do not survive the termination of the contract have been enforced against the repudiator must, in my view, be taken to be examples of the operation of the elective theory. Adoption by this court of the automatic theory would leave them unjustifiable. For example, the Thomas Marshall case was far from being the first example of the enforcement of a covenant against competition during the contract and following its wrongful repudiation.

Into a different, yet equally significant, category fall cases in which an employer wrongfully repudiates a contract of employment in circumstances in which its terms require him to have implemented a disciplinary procedure. The law is clear that an injunction may issue so as to enforce the requirement; and the absence of a right to claim damages for breach of a duty to follow a disciplinary procedure (see Edwards v Chesterfield Royal Hospital NHS Foundation Trust [2011] UKSC 58, [2012] 2 AC 22) makes the availability of the injunction particularly precious. But it is self-evident that, had the wrongful repudiation already automatically terminated the contract, an injunction would not issue so as to require observance of a procedure designed to determine whether the employer was entitled to terminate it.

In proposing that the court should indorse the automatic theory, the Bank invites it to cause the law of England and Wales in relation to contracts of employment to set sail, unaccompanied, upon a journey for which I can discern no just purpose and can identify no final destination. I consider, on the contrary, that we should keep the contract of employment firmly within the harbour which the common law has solidly constructed for the entire fleet of contracts in order to protect the innocent party, as far as practicable, from the consequences of the other's breach.

Lord Sumption

Reliance on White & Carter

This is sometimes called the “elective theory” of repudiation. The expression is, however, misleading because it suggests that the innocent party's right to treat the contract as subsisting necessarily follows from the unilateral character of the other party's repudiation. In fact, the right to treat the contract as subsisting has never been absolute. It is subject to important exceptions and qualifications. These can be illustrated from older cases, but were first coherently articulated by Lord Reid, delivering the leading judgment for the majority in White & Carter (Councils) Ltd v...