Malik and Mahmud v Bank of Credit and Commerce International (BCCI) [1997]

Malik and Mahmud v Bank of Credit and Commerce International (BCCI) [1997] UKHL 23 holds significant importance within English contract law, as it confirmed the existence of the implied term of mutual trust and confidence in all contracts of employment.

In terms of the factual background, Mr Malik and Mr Mahmud were employees of BCCI, a bank that became insolvent due to extensive fraud, connections to terrorists, money laundering, and other criminal activities on a global scale. Following the bank's insolvency, both individuals lost their jobs and encountered difficulties in securing new employment. They attributed their challenges to the reputational damage associated with having worked for BCCI.

Upon suing the company, Malik and Mahmud claimed that their failure to secure new jobs was a result of the reputational harm suffered during their employment at BCCI. The legal issue at hand was the duty that the company owed to its employees, and whether there was an implied term in the employment contract prohibiting actions calculated to undermine mutual trust and confidence.

The House of Lords unanimously held that the term of mutual trust and confidence should be implied into the employment contract as a necessary incident of the employment relationship. This implied term was considered a legal obligation. Lord Nicholls emphasised that while employers might not have a general obligation to enhance their employees' future job prospects, they must refrain from actively damaging those prospects, and employers could be held liable for breach if their actions caused foreseeable and continuing financial loss to the employee.

Lord Steyn highlighted that implied terms, including the obligation of mutual trust and confidence, operate as default rules, and parties are generally free to exclude or modify them. However, in this case, the contracts of employment could not affect the implied obligation of mutual trust and confidence. He underscored that the motives of the employer are not determinative in judging employees' claims for damages. If the conduct objectively considered is likely to cause serious damage to the relationship between employer and employee, a breach of the implied obligation may arise.

In conclusion, the Malik and Mahmud case established the importance of the implied term of mutual trust and confidence in employment contracts. Employers were put on notice that they could be held liable for damages if their conduct, objectively assessed, caused serious harm to the employment relationship, reinforcing the protection of employees' rights in the realm of labour law.
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