Duty of Care to Protect Whistleblowers

A. Introduction

In April 2020, the High Court of England and Wales held in the decision of Amjad Rihan v Ernst & Young Global Limited & Others [2020] EWHC 901 that there exists a duty of care to protect whistleblowers in circumstances that fall outside the scope of statutory protection regimes.

This article then dissects this decision and discusses the scenarios in which such a duty of care exists and the narrow factual matrix that such duty may be imposed to protect whistleblowers.

B. Background Facts

Mr Amjad Rihan, the claimant, worked for Ernst & Young (“EY”) (Middle East branch) spanning from 2008 to 2014. On behalf of EY Dubai, Mr Rihan was tasked in 2013 with conducting an independent assurance audit into the business practices of Kaloti Jewellery International DMCC (“Kaloti”), a Dubai-based precious metals dealer. Early in the audit process, Mr Rihan became aware of serious irregularities in Kaloti’s business practices, which subsequently raised suspicions that Kaloti was involved in money laundering.

Mr Rihan reported the irregularities to the local regulatory body, the Dubai Metals and Commodities Centre (“DMCC”). The DMCC then put pressure on Mr Rihan and EY Dubai to make these issues less visible in their reports. Mr Rihan resisted and escalated the situation to regional and global EY network representatives.

Mr Rihan then left Dubai with his family and relocated to the United Kingdom, fearing for his and his family’s safety if he challenged Kaloti and the DMCC from within Dubai. My Rihan refused to sign the assurance audit reports and was replaced by a new audit partner who allegedly assisted in the concealment of the irregularities.

Mr Rihan was told to return to his duties in Dubai despite his request that he be relocated elsewhere in the EY network. He refused, citing concerns about his safety.

During discussions with the legal team, Mr Rihan requested that EY publicly disclose the audit findings. To this, he was told he would be fired if he did not meet with representatives of EY network entities while on sick leave and unable to work. Mr Rihan’s lawyers warned that if EY did not publicly disclose the audit findings, Mr Rihan would do so himself. After months of discussions and refusals, Mr Rihan resigned in January 2014 and blew the whistle to the media and a non-governmental organisation, Global Witness, revealing the wrongdoing he witnessed.

C. Legal Proceedings

Mr. Rihan also proceeded to file claims in the UK High Court against four UK-based entities affiliated with the global EY network. Mr. Rihan worked for EY Middle East & North Africa Ltd, which was not a party to the claim.

Under the joining agreements of these four entities, they had agreed to submit to the EY organization’s disciplines and to abide by EY Global’s regulations, and to incorporate them into their constitutional documents. Each defendant was also bound by the International Federation of Accountants in England and Wales (“IFAC Code”), where all of the defendants were based. EY also had a global code of conduct that established the standards that EY expected of everyone who worked for it.

As Mr Rihan was based in the Middle East during his time with EY, the whistleblower protections provided by British law did not apply. Instead, Mr Rihan filed a negligence claim to recover damages for economic loss, primarily lost wages. Mr Rihan claimed that the loss was caused by the defendants’ breach of two duties of care. These are as follow: –

  1. A Safety Duty. This refers to a responsibility to take reasonable precautions to keep Mr Rihan safe. Mr Rihan asserted that the defendants owed him a duty to take reasonable steps to prevent him from losing earnings as a result of reasonably anticipated concerns for his and his family’s safety if he returned to Dubai after objecting to the audit.
  2. An Audit Duty. This refers to a responsibility to respond appropriately to Mr Rihan’s concerns about the Kaloti audit. Mr Rihan claimed that the defendants owed him a duty to take reasonable steps to prevent him from suffering earnings loss as a result of the defendants’ failure to conduct the Kaloti audit in an ethical and professional manner.

D. Decision of the Court

First, on the Safety Duty. The  High Court ruled that there was no such thing as a Safety Duty. The Court ruled that if an employee refuses to expose themselves to a risk of injury that the employer wishes to expose them to, their remedies are limited to those available under employment law and do not include a claim for financial loss. To this end, the Court found that:

It would be an illegitimate extension of the law to make the leap from the standard employer’s duty to protect its employees against personal injury to a broad duty to protect them against pure economic loss incurred as a result of the claimant’s need to cease working to avoid a threat to his physical safety“.

Second, the Court however found that an Audit Duty does exist. Here, the Court considered this duty of care to be novel in the sense that it had not previously been established through decided cases. It was thus necessary to consider the three elements of the Caparo test: foreseeability, proximity, and whether imposing the duty is fair, just, and reasonable. In applying the Caparo test, the Court held that:

  1. On foreseeability – The Court held that Mr Rihan would suffer financial loss if the Kaloti audit was completed in an unethical manner, because he had made it clear during discussions with the defendants’ representatives prior to his disclosure that he would feel obligated to disassociate himself from the audit and the EY organization’s role in it if his protests went unheeded. The Court also found that professional people, such as accountants, are generally aware that becoming a whistleblower often entails a significant risk of financial loss due to subsequent unemployment. The defendants’ threats to fire Mr Rihan, as well as the fact that EY Global was committed to having a whistleblowing policy, demonstrated that Mr Rihan’s stance on the matter could have an impact on his partnership, with financial consequences.
  2. On proximity – The Court found that the defendants were sufficiently connected to the audit of Kaloti and the other Dubai gold refiners, for which the claimant was the responsible engagement partner. The Court determined that the fact that the various EY entities were not part of a unified corporate structure or that they charged each other for accounting services rendered to one another was irrelevant.
  3. On whether imposing a duty is fair, just and reasonable – The Court found that because Mr Rihan was not protected by statutory safeguards under the UK whistleblower regime, and given the importance of upholding professional ethical standards, including those set out in the IFAC Code and the defendants’ own code of conduct, the law then imposed the Audit Duty on the defendants.

Ultimately, in concluding on the existence of such an Audit Duty, the Court compared such duty to that of a duty of care to protect against economic loss, in the form of lost future employment opportunities, by providing an ethically safe work environment free of misconduct and to the existing duty of care to protect employees from physical injury and subsequent financial loss by providing a physically safe work environment.

As such, because there was a duty of care that had been breached in these circumstances, the Court ordered the defendants to pay Mr Rihan past loss of earnings, the interest of past loss of earnings and future loss of earnings, amounting to US$10,843,941.

The Defendants sought to appeal this decision but were denied leave to appeal.

E. Comments and Conclusion

It must be noted that the Audit Duty that was introduced by the Court in this decision, is one that is novel in nature. As such, it is likely to only apply in very narrow circumstances. To this end, the Court stated that such Audit Duty is unlikely to be found where the factual matrix falls under the purview of a statutory whistleblower regime.

From a Malaysian perspective, a similar duty could arise in Malaysia based on either a similar or different factual matrix and to those circumstances that fall outside the Whisteblower Protection Act 2010.

Aside from establishing this Audit Duty, this decision also reemphasizes a parent company may be held liable for the actions of its subsidiaries. To this end, multinational corporations are not immune from liability in cases where their overseas operations are involved in unethical behaviour. The High Court here looked beyond the traditional contractual relationship of employee and employer and impose duties of care on non-contracting entities which extended to liability for pure economic loss.

As such, looking forward, companies should then be wary of such of the actions of its subsidiaries and to ensure that it is all in compliance with the ethical behaviour standards promoted by the parent company.

References: https://www.hrlc.org.au/human-rights-case-summaries/2021/12/20/british-court-accepts-duty-of-care-to-protect-whistleblowers-in-novel-circumstances


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