Benyatov v Credit Suisse (Securities) Europe Ltd

Factual and Procedural Background

The appeal concerns the circumstances under which an employer may be liable to compensate an employee for loss of earnings caused by the acts of a third party arising from the employee performing their job. The Appellant, employed by the Respondent Bank since 1997 and a senior banking professional, was involved in advising on the privatisation of Romanian state-owned electricity companies. During a visit to Romania in November 2006, the Appellant was arrested on suspicion of criminal wrongdoing related to this work and was detained until January 2007, later placed under house arrest until August 2007.

Romanian prosecutors charged the Appellant and two other employees with economic espionage and organised criminal group formation, allegations the Appellant denies, asserting wrongful and politically motivated prosecution. The Bank investigated, found no wrongdoing, and supported the Appellant through the criminal proceedings, which culminated in a 2013 conviction and a 10-year sentence. The Bank notified the Financial Conduct Authority, which did not take action due to the Appellant being on garden leave.

The Appellant appealed the conviction; the Romanian Appeal Court overturned it but substituted a conviction for a lesser offence with a reduced sentence that has never taken effect. The Appellant has also applied to the European Court of Human Rights alleging breaches of fair trial rights. Since leaving the Bank in 2015, the Appellant has been unable to secure comparable employment.

The Appellant commenced proceedings in 2018, claiming that the Bank is liable to compensate for loss of earnings resulting from the conviction, initially estimating losses exceeding £66 million. The claim was advanced on two bases: an implied contractual indemnity obliging the Bank to indemnify the Appellant for losses arising from performing his duties, and a negligence claim alleging the Bank breached a duty of care to avoid the risk of conviction. The trial occurred in mid-2021 before Freedman J, who dismissed the claim in January 2022, assessing the Appellant's loss at approximately £12.5 million.

The Appellant now appeals the dismissal of the negligence claim.

Legal Issues Presented

1. Whether the Bank owed a duty of care to the Appellant to take reasonable steps to protect him from the risk of criminal conviction arising from his work in Romania.
2. Whether the Bank breached any such duty of care.
3. Whether the negligence claim is statute-barred by limitation.
4. Whether there is an implied contractual indemnity obliging the Bank to indemnify the Appellant against losses arising from performing his duties, including losses caused by third-party acts without fault by the Bank.
5. Whether such an indemnity extends to losses caused by wrongful conviction and consequent loss of earnings.

Arguments of the Parties

Appellant's Arguments

• The Bank owed a duty of care specifically to protect the Appellant from conviction risks linked to his work in Romania, including politically motivated prosecution risks.
• The Bank failed to conduct adequate risk assessments or warn the Appellant of known or reasonably discoverable risks, including "red flags" such as adverse press coverage and the involvement of Romanian intelligence services in related privatisations.
• The negligence claim should not be barred by limitation as the relevant losses arose after conviction.
• There is an implied term in the employment contract that the Bank indemnify the Appellant against losses incurred in faithfully performing his duties, including losses from unlawful enterprises unknown to him.
• The indemnity should cover loss of earnings caused by third-party acts without fault on the Bank's part.
• The Judge erred in law by focusing on the Bank's subjective knowledge rather than an objective standard, failing to properly consider the assumption of responsibility doctrine, and not drawing analogies from relevant case law such as Rihan v Ernst & Young Global Ltd.
• The Judge erred in fact by failing to properly consider evidence supporting the existence of warning flags and by failing to draw adverse inferences from the Bank's non-disclosure and failure to call key witnesses.

Respondent's Arguments

• As a matter of law, an employer has no general or implied duty to protect the economic interests of employees against losses caused by third parties.
• The pleaded duty of care is inconsistent with contractual terms requiring the employee to know and comply with applicable laws.
• The Bank did not have actual or constructive knowledge of any material warning flags requiring action.
• The negligence claim is time-barred as the cause of action accrued at the time of arrest or early stages of prosecution.
• The implied indemnity does not extend to losses caused by third-party acts or to loss of earnings; it is limited to reimbursement of expenses or liabilities incurred by the employee.
• Recognition of a duty or indemnity as wide as claimed would be unfair, unjust, and contrary to established legal principles and policy considerations.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook a detailed and structured analysis of both the negligence and contractual indemnity claims. On the negligence claim, the court accepted the principle that the existence of a duty of care in novel situations must be determined incrementally and by analogy with established authority, following the approach in Robinson v Chief Constable of West Yorkshire Police. The court rejected the Appellant’s argument that the Judge had applied a subjective test, concluding instead that an objective standard was applied, considering what the Bank knew or ought to have known.

The court considered the concept of assumption of responsibility but held it was not a universal or fundamental test for duty of care outside its established contexts such as negligent misrepresentation. The court also rejected the argument that the Judge failed to draw analogy from Rihan v Ernst & Young Global Ltd, noting the distinct factual and legal contexts.

On the facts, the court upheld the Judge's findings that the Bank did not have actual or constructive knowledge of any material warning flags that would have put it on notice to protect the Appellant from conviction. The court found no error in the Judge’s factual conclusions or in his refusal to draw adverse inferences from the Bank’s failure to call certain witnesses or disclose documents, given the procedural history and pleading limitations.

The court further upheld the Judge’s conclusion that Romania was not regarded as a high-risk country and that the transactions involved were not high-risk, undermining the factual basis for the alleged duty.

Regarding limitation, the court agreed with the Judge that the cause of action accrued at the time of initial damage suffered, namely the arrest and detention period, which was more than six years before the claim was issued, rendering the negligence claim time-barred. The court rejected the Appellant’s attempt to confine the duty to losses arising only after conviction as artificial and inconsistent with established limitation principles.

On the contractual indemnity claim, the court analysed the pleaded implied terms and distinguished between implication as a matter of law and as a matter of fact. The court found no support in English law for a broad implied indemnity obliging an employer to compensate an employee for all losses suffered as a result of doing their job, especially losses caused by third parties without employer fault.

The court reasoned that such a broad indemnity would undermine the existing legal framework of employer liability, which balances fault-based duties and statutory protections. It also noted practical difficulties, including insurance and fairness considerations.

The court rejected the argument that an indemnity should be implied as a matter of fact on the basis that the Appellant might have worked in high-risk jurisdictions other than Romania, holding that the factual findings about Romania's risk profile were decisive and that a general indemnity covering all losses from all work would fail the necessity test.

The narrower indemnity relating to unlawful enterprises was also rejected as it does not extend beyond the scope of the general indemnity.

Holding and Implications

The court DISMISSED the appeal in its entirety, upholding the dismissal of both the negligence and contractual indemnity claims.

The direct effect is that the Appellant’s claims for compensation from the Bank for loss of earnings caused by his conviction and related events are rejected. The decision clarifies that, absent fault, an employer is not generally liable to indemnify an employee for losses caused by third-party acts in the course of employment, particularly for economic loss such as loss of earnings due to wrongful conviction.

No new precedent was set beyond affirming established principles limiting the scope of employer liability and the approach to novel duty of care claims.