Employment - duty of mutual trust and confidence

What you need to know:

• At common law, the duty of mutual trust and confidence is implied into employment contracts, requiring both the employer and employee not to act in a way to undermine the employment relationship.

• Various common law jurisdictions have adopted different approaches. The implied duty exists at common law in the United Kingdom and Hong Kong, but not in Australia.

• The implied duty of mutual trust and confidence has been thought to apply at common law in Singapore.

• Until recently, it was thought that the implied duty applies to Singapore employment contracts. An appellate court has now cast doubt on that position.

Dong Wei v Shell Eastern Trading (Pte) Ltd and another [2022] SGHC(A) 8

At common law, the implied duty of mutual trust and confidence has been thought to apply to all employment contracts. Important considerations arise when an employer is making the decision to terminate the employment of an employee – namely, whether the employer has obligations (whether legal or not) that exists beyond the express right to do so under the employment contract. In the United Kingdom¹ and Hong Kong,²  this obligation exists as an implied term of mutual trust and confidence where the employer shall not "without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between employer and employee".³  In contrast, the implication of such a term was expressly rejected in Australia where it was remarked that to do so would be a "step beyond the legitimate law-making function of the courts".⁴

In the recent case of Dong Wei v Shell Eastern Trading (Pte) Ltd and another [2022] SGHC(A) 8, the Appellate Division of the High Court made important comments on whether an implied term of mutual trust and confidence exists in employment contracts and to what extent an employer's rights under an employment contract may be restricted.

Background

The appellant, Dong Wei, was in the employment of the first respondent, Shell Eastern Trading (Pte) Ltd (Shell Eastern) from 2006 until his employment was terminated on 10 January 2018.

A phone call on 29 September 2017 by Dong Wei to Jason Balota (Mr Balota) triggered a sequence of events that led to the eventual termination of Dong Wei's employment. Mr Balota was a gas oil trader with Vitol Asia Pte Ltd (Vitol), an energy and commodities trading company. On the call, Dong Wei asked Mr Balota about Vitol using a "cheap ship" to ship a gas oil cargo from Nanjing to the United States. "Cheap ship" was an implied reference to SC Taurus, a third-party vessel that allegedly belonged to a shipping company owned by Dong Wei's friend.

Mr Balota told his chartering manager, Ben Jones (Mr Jones) about the call. The call was not well received by Mr Jones who understood the call as Dong Wei asking Mr Balota to charter a cheaper ship for the cargo, in circumvention of the established market practice of contacting a trader's chartering manager, rather than a trader directly. Mr Jones called Dong Wei, who then informed his line manager, the second respondent, Lim Ming Way (Mr Lim) about the conversation.

In an in-person meeting between Mr Jones and Mr Lim on 12 October 2017, Mr Jones brought up two complaints. First, about Dong Wei's circumvention of market practice and his alleged involvement with a third-party shipbroker, acting against the interest of Shell Eastern. Second, highlighting a previous incident of similar nature in 2016 where another third-party shipbroker had contacted Vitol to market a vessel for a cargo that was only disclosed to Dong Wei. On a related note, Shell Eastern had previously investigated two separate allegations, in 2015 and 2016, of Dong Wei showing favouritism and receiving gifts from the third-party shipbroker referenced in Mr Jones's second complaint. The investigations concluded with Dong Wei being cautioned against such behaviour and a warning for failing to disclose his close friendship with an employee of that third-party shipbroker.

Shell Eastern subsequently commenced an investigation to investigate Mr Jones's complaints. Dong Wei was handed a notice stating that he was being placed on mandatory leave with full salary. The notice expressly provided that he would be told the outcome of the investigation upon its conclusion. While the investigation would later conclude that the allegations were "inconclusive", Dong Wei was not informed of the outcome despite multiple requests.

On 12 December 2017, an article was published by S&P Global Platts (Platts) alluding to the investigation (the Platts Article). Although Dong Wei was not named, the Platts Article identified the chartering team and remarked that “at least one employee has been asked to take leave pending further investigation”.

In the meeting on 10 January 2018 where Dong Wei was informed of his termination, it was explained to him that the decision was not a direct consequence of the outcome of the latest investigation, but rather the events over the last few years such that Shell Eastern was unable to continue working with Dong Wei. After the termination of his employment, Dong Wei was unable to find re-employment and claimed that this was due to the previous incidents, viz., the events leading to the termination of his employment. He sued to recover damages.

The General Division of the High Court dismissed Dong Wei's claims against Shell Eastern and Mr Lim⁵. While the Court accepted that Singapore law recognised an implied term of mutual trust and confidence in employment contracts, the Court found that there had been no breach on the facts. The other claims of conspiracy, negligence, tort of malicious falsehood, vicarious liability and liability for inducing a breach of contract were all rejected.

Dong Wei appealed.

The Appeal

The Appellate Division of the High Court dismissed the appeal in its entirety. In coming to its decision, the Appellate Division focused on the losses which Dong Wei sought to recover:⁶

(1) Damages flowing from Dong Wei's allegedly wrongful suspension and Shell Eastern's mismanagement of the investigation (the First Head of Loss);

(2) Cash bonuses and share options Dong Wei would have received or retained had he not been wrongfully terminated, or had his termination not been wrongfully brought about (the Second Head of Loss); and

(3) Damages flowing from the stigmatisation Dong Wei faced in the freight industry which prevented him from securing new, comparable employment (the Third Head of Loss).

Not only did Dong Wei fail in establishing his various causes of actions,⁷ the First and Second Heads of Losses were not made out because he suffered no loss. He was paid a full salary for the entire period of his suspension and received pay in lieu of notice pursuant to an express right of termination in his contract of employment.⁸ Dong Wei's claim under the Third Head of Loss also failed as the Appellate Division disagreed that Shell Eastern ought to be held liable in tort or contract for the losses Dong Wei suffered as a result of the Platts Article.⁹

Key Observations by the Appellate Division

Even though the appeal was dismissed, there were notable observations made by the Appellate Division in obiter that are important for employers to take note of:

(1) Regardless of whether Shell Eastern was legally obliged to inform Dong Wei of the investigation outcome, the employer should pause to think about what the employee might have found meaningful, productive, or cathartic to be told. ¹⁰ Even if Shell Eastern wished to keep the contractual termination separate from the investigation,¹¹ it would only have been fair for Dong Wei to be informed since he was the subject of the investigation. This was even more so when Shell Eastern's own notice expressly provided that Dong Wei would be informed.

(2) Contrary to what was concluded in the General Division of the High Court below, it was not yet settled by the Court of Appeal that the implied term of mutual trust and confidence forms a part of Singapore law.¹² This was despite the number of other Singapore High Court cases that have alluded to or implicitly accepted the term.¹³ The Appellate Division stated that the issue remains an "open question" that has to be resolved by the Court of Appeal when a more appropriate case arises, ideally with facts that can support a claim directly on the existence of the implied term.¹⁴

(3) There is no prohibition against arbitrariness, capriciousness, and bad faith, that can restrict an employer's exercise of his express contractual right to terminate an employee without cause, either with notice or pay in lieu of notice. In coming to this observation, the Court examined an old line of cases where a party's contractual discretion had been restricted.¹⁶ The Court specified that the restrictions in those cases served to "ensure that a party's contractual discretion was not exercised in a manner which deprived its counterparty of its contractual rights, or which warped their contractual bargain", and not to limit the right to bring a contract to an end.¹⁷ Distinctly, where the termination of a contract is concerned, considerations of the parties' freedom to enter and exit contracts arise. The Court did not find sufficient reasons to limit such freedoms, which they deemed "so fundamental a premise of contract law in Singapore".¹⁸

Comment

As was emphasised by the Court, employment is a two-way relationship and quite unlike most other wholly commercial contractual relationships.¹⁹ Even when the employer-employee relationship is coming to a close, employers should treat their employees with dignity and respect even (or particularly) where there is no legal obligation to do so.

The unique nature of the employer-employee relationship also comes to the forefront when a party is exercising their rights under the employment contract. This was evident in the care the Court took to protect the rights of both parties when deciding against limiting Shell Eastern's express right to terminate an employee without cause. In doing so, the Court emphasised the importance of how employers cannot be compelled to hire or retain, and (more importantly) that employees cannot be forced to work, a point which the Court took pains to note.

Notwithstanding that the Court declined to endorse the existence of the implied term of mutual trust and confidence, leaving the question open to be decided by the Court of Appeal at a later date, employers should be mindful that termination of employment with notice in accordance with the terms of the contract can still amount to wrongful dismissal under the Tripartite Guidelines on Wrongful Dismissal. This could be the case where, for example, the termination was held to be discriminatory in nature, or was done based on a reason that was subsequently found to be false. This last consideration is particularly germane since employers are typically advised not to give reasons when terminating an employee's employment. In this light, the Court's advice for the employer to think about what the employee might find meaningful, productive, or cathartic to be told may have to be approached with caution. Aside from the fact that dismissal with notice without reasons is presumed not to constitute wrongful termination under the Tripartite Guidelines on Wrongful Dismissal, it may still be advisable for employers not to give reasons, particularly where these are not consistent with the investigation that may have been conducted.

Further issues also arise. Although not considered by the Court, an employee whose employment is terminated contractually may have grounds to allege that the termination was "without just cause or excuse" under section 14(2) of the Employment Act 1968 (EA) and hence wrongful, although it would be difficult to envisage a scenario where this was the case. In a 1976 decision, the Singapore Court of Appeal²⁰ stated that section 14(1) of the EA is based on the "unfair dismissal" provisions of the English Industrial Relations Act 1971.²¹ However, it is worth noting that the term "just cause or excuse" was not used in the English Industrial Relations Act 1971.²² While this has yet to be clarified by the courts, it is likely that dismissal without notice would be "without just cause or excuse" where no due inquiry was conducted or where there was no misconduct.²³ Where there is dismissal with notice, it is difficult to see how it could be said that the dismissal was "without just cause or excuse" and in this regard, the non-exhaustive illustrations under the Tripartite Guidelines on Wrongful Dismissal are likely to be instructive.²⁴

As far as the authors are aware, the interplay between the employer's contractual right to terminate and the provisions of section 14 of the EA have not been pronounced upon by the Singapore Courts and it would certainly conduce to clarity if the Courts were to do so in the future.²⁵ Lastly, although presently characterised as an implied term, there may be scope to consider if the term should be enshrined in the "just cause or excuse" standard under section 14 of the EA as an overriding statutory obligation through legislative amendment or clarification.

If you would like to have more information, please contact the following individuals.

The authors would like to thank Ms Chan Jia Fen for her assistance with this article.

1. Malik v Bank of Credit and Commerce International SA (in liquidation) [1998] AC 20 at 45F per Lord Steyn.
2. See Ko Hon Yue v Liu Ching Leung [2008] HKCU 1215 (unreported, HCA 3494/2003, 4 August 2008) (CFI) for a discussion on the implied term of mutual trust and confidence in the context of dismissal at [163]-[171], specifically citing the Court of Appeal case of Semana Bachicha v Poon Shiu Man [2000] 2 HKLRD 833 (HKCA) which held that the conduct of the employer amounted to both a constructive dismissal and a breach of the implied trust and confidence term.
3. Fn 1, also cited in Dong Wei v Shell Eastern Trading (Pte) Ltd and another [2021] SGHC 123 at [32].
4. Commonwealth Bank of Australia v Barker (2014) 312 ALR 356 at [1] and [26].
5. Dong Wei v Shell Eastern Trading (Pte) Ltd and another [2021] SGHC 123 at [31].
6. Dong Wei v Shell Eastern Trading (Pte) Ltd and another [2022] SGHC(A) 8 (the Decision) at [16].
7. The Decision at [25]-[47]. The Court also noted at [25]-[28] that Dong Wei's decision to not challenge the lower Court judge's decision to dismiss two of his numerous causes of actions adversely impacted the rest of the causes of action which he actually took up on appeal.
8. The Decision at [20].
9. The Decision at [48]-[59]. The Court also commented, at [60]-[64], on the two claims that were raised in appeal but not in Dong Wei's statement of claim. Both were dismissed.
10.  The Decision at [68].
11. The Decision at [67].
12. The Decision at [69]. See the discussion on the Court of Appeal case of Wee Kim San Lawrence Bernard v Robinson & Co (Singapore) Pte Ltd [2014] 4 SLR 357 at [73]-[82] of the Decision.
13. The Decision at [71]-[72].
14. The Decision at [82].
15. The Decision at [84].
16. The Decision at [87]-[90].
17. The Decision at [91].
18. The Decision at [92].
19. The Decision at [68].
20. Lim Tow Peng and another v Singapore Bus Services Ltd [1974-1976] SLR(R) 673 (CA).
21. Id, at [16]-[17].
22. Instead, the repealed English Industrial Relations Act 1971 states that in determining whether a dismissal "was fair or unfair, it shall be for the employer to show – (a) what was the reason (or, if there was more than one, the principal reason) for the dismissal, and (b) that it was a reason [(i) relating to the capability or qualifications of the employee for performing work of the kind which he was employed to do; (ii) relating to the conduct of the employee; (iii) that the employee was redundant; or (iv) that the continued employment of the employee contravened "an enactment"], or some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which that employee held."
23. See Long Kim Wing v LTX-Credence Singapore Pte Ltd [2017] SGHC 15 at [142] where the High Court referred to the website of Singapore’s Ministry of Manpower (“MOM”) (http://www.mom.gov.sg/employment-practices/termination-of-employment) to understand the meaning of "due inquiry". Also, in Stansfield Business International Pte Ltd v Minister for Manpower (formerly known as Minister for Labour) [1999] 2 SLR(R) 86 (HC) at [19], a decision on judicial review against the decision under section 14 EA, but concerned an employee who was dismissed without just cause as he had not conducted any misconduct after he was terminated without notice.
24. Singapore Parliamentary Debates, Official Report (20 November 2018), vol 94 at page 10. Under the Tripartite Guidelines on Wrongful Dismissal at [7], dismissals with notice are presumed not to be wrongful.
25. This is important, as the Court of Appeal has already emphasised in Wee Kim San Lawrence Bernard v Robinson & Co (Singapore) Pte Ltd [2014] 4 SLR 357 (CA) at [39], that it is a "well-established principle" that there cannot be specific performance of a contract of employment under the common law. In the case of Lim Tow Peng and another v Singapore Bus Services Ltd [1974-1976] SLR(R) 673 (CA), it was clarified at [17] that the provisions of section 14 EA are not mandatory for employers. It is only if the employer disregards section 14 EA and dismisses an employee without an enquiry, that the dismissal can be enquired into and reinstatement with full pay may be ordered by the Minister whose decision cannot be challenged in any court. In a written parliamentary answer by the then Minister for Manpower, Mrs Josephine Teo, she stated that "[w]here an employee is found to have been wrongfully dismissed, compensation is generally preferred to reinstatement at this stage because the employer-employee relationship would have been strained and reinstatement would not be practical."(https://www.mom.gov.sg/newsroom/parliament-questions-and-replies/2018/1002-written-answer-by-mrs-josephine-teo-minister-for-manpower-to-parliamentary-question-on-remedies-for-wrongful-wrongful-dismissal). In the authors' view, this is consistent with the Appellate Division's position to respect the parties' freedom of contract and to exit contracts (The Decision at [92]).