01 Nov 2018

In Timis and another v Osipov [2018] EWCA Civ 2321, the Court of Appeal decided that two non-executive directors were jointly and severally liable with the company for a £2 million whistleblowing claim brought by its former CEO.

Facts

Mr Osipov was employed by International Petroleum Ltd (IP), an Australian oil and gas exploration and production company, from 23 February 2011. He was appointed CEO on 9 June 2014 and was dismissed without notice on 27 October 2014.

IP's main activity at the time centred on four production sharing contracts relating to four blocks in the Republic of Niger in which it wanted to finance exploration operations. Both the contracts and good corporate governance required a tender to take place for the work. Mr Osipov believed that proceeding in the absence of a tender (and without the Niger Government's approval of this) could indicate possible bribery and corruption.

Mr Timis was a non-executive director and majority shareholder of IP who exercised executive authority in relation to the day-to-day running of the company. Mr Sage was also a non-executive director and the chairman, who attended board meetings and exercised managerial functions.

Mr Osipov became aware of serious wrongdoing shortly after his appointment as CEO and believed that individuals at the highest level of management within IP were prepared to engage in such serious wrongdoing. He made a number of disclosures concerning a failure to obtain competitive bids for the work in Niger, use of data that had not been lawfully obtained in connection with a proposed sale of IP's blocks and breach of an Advisory Agreement, as a result of which he was perceived as creating obstacles and was excluded from much of his role. He also alleged that he experienced pressure and inappropriate interference in his role and function as CEO. 

Mr Timis instructed Mr Sage to dismiss Mr Osipov, which Mr Sage did by email without notice and without following any procedure. Mr Osipov brought a claim in the employment tribunal (ET) against IP, Mr Timis and Mr Sage for whistleblowing and automatic unfair dismissal. He claimed that Mr Timis and Mr Sage had personally subjected him to detriments because of the disclosures while they were workers of IP.

IP had become insolvent so Mr Osipov was looking to recover compensation from the non-executive directors personally. They had the benefit of directors' and officers' liability insurance, which would cover the full amount of the claim.

Employment tribunal decision

The ET held that the disclosures made by Mr Osipov were protected disclosures: they satisfied the public interest test because he had a reasonable belief that they were made for the benefit of IP, its shareholders and its investors; and Mr Osipov had a reasonable belief that the information disclosed tended to show that there had been a breach of a legal obligation, namely company law, Stock Exchange Regulations and other applicable legislation.

The ET held that Mr Osipov had been subjected to a number of detriments and then dismissed as a result of the protected disclosures he had made. He had been automatically unfairly dismissed for whistleblowing. The ET awarded Mr Osipov compensation of £1,744,575.56 for unfair dismissal, injury to feelings and unpaid salary. It held Mr Timis and Mr Sage jointly and severally liable for the whole award, except for the basic award for which IP was solely liable.

IP, Mr Timis and Mr Sage appealed. They argued that the ET was wrong to find that the disclosures were protected and that they were the principal reason for the detriments and dismissal. Mr Timis and Mr Sage also appealed against the finding that they were personally liable for losses flowing from the dismissal. Mr Osipov cross-appealed, arguing that he was entitled to an annual 10% increase in his salary and a monthly housing allowance of £5,000 as set out in his contract. He also argued that his golden parachute of one year's salary on termination should be increased by 10%.

Employment Appeal Tribunal decision

In a lengthy judgment, the Employment Appeal Tribunal (EAT) agreed with the ET that the disclosures were protected and that Mr Osipov had been subjected to detriments for whistleblowing and had been dismissed because of the disclosures he had made.

The EAT found that a fellow worker could be liable for detriments without restriction, including the termination of the working relationship, and refused to set aside the ET's finding that Mr Timis and Mr Sage were jointly and severally liable for the compensation awarded to Mr Osipov.

The EAT agreed that Mr Osipov was entitled to receive the annual increase and housing allowance guaranteed by his contract, together with a 10% increase to his golden parachute. The amount of compensation was re-calculated and was agreed at £2,003,972.35.

Mr Timis and Mr Sage appealed on the grounds that, as individuals, they could not be liable in respect of an instruction to dismiss Mr Osipov or for any losses that flowed from Mr Osipov's dismissal. Further, Mr Sage could not be liable in relation to any instruction to dismiss Mr Osipov becauuse it was Mr Timis who gave this instruction.

Court of Appeal decision

The principal issue on the appeal was whether it was open to the ET to award Mr Osipov compensation against the two non-executive directors as individuals for the losses caused by his dismissal. They argued that such compensation could only be awarded by way of compensation for unfair dismissal and therefore only against IP, since only the employer can be liable for unfair dismissal.

The Court of Appeal upheld the EAT's decision and dismissed the appeal. The Court stated that it would be an anomaly if co-workers could be held liable for whistleblower detriment but not dismissal. This would make the scheme of protection for whistleblowers less effective than for victims of other kinds of discrimination and victimisation at work.

In summary, an employee can bring a claim against an individual co-worker for subjecting him to the detriment of dismissal and can bring a claim of vicarious liability for that act against the employer. Both Mr Timis and Mr Sage were party to the decision to dismiss so both were liable.

Comment

The facts of this case are unusual and the law in this area is complex – Lord Justice Underhill, giving the judgment, admitted that he had "not found this point straightforward" - but the judgment gives a warning to any non-executive directors who exercise managerial functions (ie take day to day decisions and manage the company) that they can be deemed to be workers and held personally liable if they subject an employee to a detriment or dismiss them for whistleblowing. Secondly, it is a reminder that compensation for automatic unfair dismissal for whistleblowing is unlimited and can be substantial where, as in this case, the employee is highly paid.

This decision is a reminder to employers to carry out training so that employees (and non-executive directors) are aware of their potential personal liability in discrimination and whistleblowing cases.