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Martin Fodder on Whistleblowing: The importance of asking the right questions

The judgment of the EAT in Eiger Securities LLP v Korshunova [2016] UKEAT 0149_16_0212, 6th December 2016 has attracted a fair amount of comment. It concerned the claims by a broker, Ms Korshunova, that 3 client accounts had been allocated away from her and she had then been dismissed because she had made a protected disclosure as to the impropriety of her manager (Mr Ashton) using her password and terminal. The ET upheld claims of detriment and dismissal for whistleblowing. The EAT (Slade J) remitted the case allowing 3 of the 5 grounds of appeal.

Most readers of this piece will have read one or more of the summaries and be aware that one of the issues in the case (indeed it is the one that has attracted most attention) was the ET’s approach to the issue of whether Ms Korshunova had made a disclosure of a relevant failure as to an apprehended breach of legal obligation. The EAT’s decision was that the ET had erred in this regard. Eiger’s contention was that  the ET did not find that Ms Korshunova reasonably believed that there had been a breach of a legal obligation but only that she reasonably believed that her colleagues were breaking ‘some industry guidance or rules’. The ET had not considered whether there was a reasonable basis for believing that such guidance or rules involved legal obligations.

The finding as to the disclosure was contained in paragraph 134 of the ET’s Reasons:

“In our judgment on 14 May the Claimant verbally gave Mr Ashton information that she considered his actions were wrong.  She told him that [his] actions in logging on to her Bloomberg chat when she is not in the office and conducting trades under her name without making it clear that it is not her doing so, was wrong.  She genuinely believed that what he was doing was a breach of the regulations governing their industry and in contravention of what she believed was a legal obligation to be transparent with clients. …”

In support of its argument Eiger had referred to the ET’s finding that Ms Korshunova did not accuse Mr Ashton of breaking any rules but had informed him that she and her clients did not like what he was doing in using her terminal to contact clients without informing them that they were dealing with him and not herself. 

Counsel for Eiger pointed out that whilst the ET had held that Ms Korshunova believed there must be a legal obligation on Eiger’s employees not to mislead people about who was conducting the communication the ET did not identify any such legal obligation. In Blackbay Ventures Ltd v Gahir [2014] IRLR 416 (a case in which the EAT gave general guidance as to the proper approach to the adjudication of whistleblowing claims) it had been said that in considering whether there had been a protected disclosure

“Save in obvious cases if a breach of a legal obligation is asserted, the source of the obligation should be identified and capable of verification by reference for example to statute or regulation. …”.

It was contended on behalf of Ms Korshunova that the ET had given a correct self direction on whether the disclosure was a qualifying disclosure (unfortunately the EAT’s judgment does not set out what that self direction was) and that the ET had concluded that Ms Korshunova genuinely believed that there was an obligation on the Respondent not to mislead people about who was conducting the communication and to let them know who was in fact conducting it. Further the ET held that the Claimant believed that there was a legal obligation to do so.

Slade J noted that the ET was required to decide whether Ms Korshunova reasonably believed that the information disclosed tended to show that Mr Ashton had failed to comply with a legal obligation to which he was subject. The ET had found, at paragraph 135, that Ms Korshunova genuinely believed that what Mr Ashton was doing was wrong and that she “believed that there must be a legal obligation on the business” to inform people who they were dealing with.  The closest the ET had come to deciding on the reasonableness of her belief was at paragraph 140 in which the ET held:

“140. It may be that because of the lack of experience in the industry, the Claimant was completely mistaken in her belief. …”  

Ms Korshunova had, said the ET, not been provided with the contact details of Eiger’s external compliance advisors nor had Mr Ashton given her a copy of the relevant manuals and Guidance.  Because of this she was:

 “… acting from her general belief and understanding of how a client should be treated.  It is our judgment that she had a reasonable belief that what she was saying was true and applicable in this industry.”

 In paragraph 46 of her judgment Slade J said that it was

“….not obvious that not informing a client of the identity of the person whom they are dealing if the employee is trading from another person’s computer is, as in Bolton[1], plainly a breach of a legal obligation.  That being so, in order to fall within ERA section 43 B(1)(b), as explained in Blackbay the ET should have identified the source of the legal obligation to which the Claimant believed Mr Ashton or the Respondent were subject and how they had failed to comply with it.  The identification of the obligation does not have to be detailed or precise but it must be more [than] a belief that certain actions are wrong.  Actions may be considered to be wrong because they are immoral, undesirable or in breach of guidance without being in breach of a legal obligation.  However, in my judgment the ET failed to decide whether and if so what legal obligation the Claimant believed to have been breached.”

Slade J continued by saying that a decision by the ET as to the nature of the legal obligation which  Ms Korshunova believed had been breached was a necessary precursor to the decision as to the reasonableness of her belief that a legal obligation has not been complied with. The  ET failed to identify a legal as opposed to a moral or lesser obligation which Ms Korshunova believed had been broken by Mr Ashton. It is  a necessary statutory ingredient of a “qualifying disclosure” that a claimant has a reasonable belief that a person has failed to comply with a legal obligation, as contrasted with another type of obligation. The decision of the ET that Ms Korshunova made a qualifying disclosure was set aside.

Although it can be seen why the EAT decided this part of the case in the way that it did it is important not to draw the wrong conclusions from the judgment and its reasoning (by reading it too quickly). As paragraph 43 of the  EAT’s judgment (in rejecting Ms Korshunova’s counsel’s argument based upon the Bolton case) shows there are two distinct questions.

  • To what extent (if any) does a disclosure of information which the putative whistleblower believes tends to show a breach of a legal obligation have to identify that legal obligation?
  • Did the putative whistleblower reasonably believe that the information disclosed tended to show a breach of legal obligation.

It was the second question that was the particular focus of Eiger Securities. Bolton had been concerned with the first question.

As to the first question it should be observed that the ERA does not expressly refer to any requirement to identify the legal obligation which the worker believes there may be a breach of. Indeed in Korashi v Abertawe Bro Morgannwg University Local Area Health Board [2012] IRLR 4 (at paras 65 and 66), the EAT observed that section 43B contains no obligation to make any allegations. In Fincham v HM Prison Service (UKEAT/0925/01 and EAT/0991/01, 19 December 2002) Ms Fincham made various complaints about the conduct of other members of staff (who were not her managers) which she alleged amounted to harassment. It was contended on her behalf that the information contained in these complaints tended to show a breach of the implied trust and confidence term. The ET held that none of the disclosures individually tended to show such a breach. On appeal  the EAT emphasized (at para 33) that, whilst there could be a series of acts that collectively gave rise to a breach of the trust and confidence term and also said:

. . . there must in our view be some disclosure which actually identifies, albeit not in strict legal language, the breach of legal obligation on which the [employee is][2] relying.

This might be taken to be saying that as a matter of law there has to be a reference to the particular legal obligation which the employee has in mind, albeit that “precise legal language” need not be used. That is doubtful. The difficulty for Mrs Fincham was not so much her failure to identify the relevant legal obligation, but rather a failure to set out in one disclosure the facts which collectively might have indicated a breach of that legal obligation. And it would be one thing for Mrs Fincham to complain about her colleagues’ behaviour  in general terms but quite another to be complaining that their behaviour was such that the T&C term had been breached in some way as a result of that behaviour. In any event, as noted already, the legislation does not provide, as it could easily have done, that the particular relevant failure must be identified. In some cases, and arguably Mrs Fincham’s case was one of them, identifying the relevant failure may be important in order to explain the significance attached to the  information disclosed so that it does tend to show a relevant failure.

However there will be other cases,  Bolton being a prime example, where  it will be apparent that the information disclosed tends to show a relevant failure without having to spell this out. In Bolton the worker expressed concerns that the data in the respondent school’s computer system was not secure and might be accessible by unauthorised persons. The facts disclosed of themselves showed the general nature of the legal obligation which was believed to be engaged and it is was therefore unsurprising that the EAT presided over by Elias P (who had also presided over the EAT which decided Fincham) rejected the school’s argument that Mr Evans should have identified the data protection principle which he thought there was a breach of. Subsequently, in Western Union Payment Services UK Limited v Anastasiou (UKEAT/0135/13/LA, 21 February 2014), the EAT explained the decision in Fincham on the basis that all it required was that the employer (or other recipient of the disclosure) should have some idea of what obligation is in issue.

So the extent to which there is any need to spell out the obligation is necessarily dependent on the context. In both Bolton and Western Union the general nature of the obligation and that it had a legal basis was readily apparent. In Western Union the claimant had made his disclosures during  an investigation as to whether misleading statements had been made to the American stock market investors. When he disclosed information in the investigation which supported the view that what was said should not have been said, the reason why he believed it should not have been said was readily apparent. It was not necessary for him to spell out which particular American legislation he thought Western Union was in breach of.

The second issue- whether in the particular case before the Tribunal the putative whistleblower reasonably believed that the information disclosed tended to show a breach of legal obligation- is of course a matter of what was in the discloser’s mind rather than what he or she said. It has two linked components.

The EAT’s judgment in Darnton[3] (as approved by the Court of Appeal in Babula[4]) is to the effect that whilst the worker must have a reasonable belief that the information he or she is disclosing tends to show one of more of the matters listed in s.43B(1)(a) to (f), there is no requirement upon the worker to demonstrate that the belief is factually correct; the belief may still be reasonable even though it turns out to be wrong. The worker must subjectively (ie actually) believe that the information tends to show the relevant failure and it must objectively be reasonable for him or her to have held that belief.

In reaching its assessment as to whether the reasonable belief requirement is made out the ET should have regard to the knowledge and expertise of the worker. In Korashi the EAT noted (at para 62):

. . . many whistleblowers are insiders. That means that they are so much more informed about the goings-on of the organisation of which they make complaint than outsiders, and that that insight entitles their views to respect. Since the test is their ‘reasonable’ belief, that belief must be subject to what a person in their position would reasonably believe to be wrong-doing.

By way of illustration of this point the EAT contrasted the position of a lay observer and a consultant surgeon who each learn that an apparently healthy young man was taken to hospital after an athletics injury and died on the operating table. It might be reasonable for the layperson to believe that the death indicates a breach of duty, the same might not be true of the surgeon. It would be necessary to have regard to his knowledge of what was involved in the operation, and/or to the fact that he may be expected to look at all the material including the records (if available to him) before making a disclosure.

In Babula the Court of Appeal held that it is sufficient that the worker reasonably believes that the matters disclosed amount to a criminal act or a contravention of a legal obligation. The earlier ruling of the EAT in Kraus v Penna[5] that the relevant crime or legal obligation had to actually exist was overruled. In fact Mr Babula’s belief that the facts that he had disclosed showed that there had been illegal incitement to religious hatred was wrong because at the relevant time there was no criminal offence of that nature. But that did not matter, his belief that there was one could be reasonable.
The approach of the EAT in Korashi surely applies as much to the question of whether the worker’s belief as to the state of the criminal or civil law is reasonable as it does to the “factual” questions. A compliance officer or a lawyer (certainly one specializing in financial services) will be expected to exercise more circumspection in forming a view as to the existence of a relevant legal obligation in the financial services sector than a financial services trader.

One can see the practical utility of the ET being required to identify the legal obligation which the worker could have been referring to as a tool in determining whether the worker’s belief that that legal obligation existed was reasonable (all the more so in a case where the worker had relevant legal expertise). However it is to be doubted whether it is, strictly speaking, logically necessary to do so.  But what is quite clear is that Eiger Securities should not lead ETs or anyone else to forget that at the end of the day what matters is the reasonableness of the worker’s belief that there was a relevant legal obligation, not whether he or she was right. The mistake made by the  Eiger Securities ET was to ask the wrong question- did Ms Korshunova  reasonably believe that ‘some industry guidance or rules’ had been broken rather than did she reasonably believe that a legal obligation had been broken.

Eiger Securities also contains useful consideration of two further difficult issues in whistleblowing law:

  • the circumstances in which an ET can regard facts and matters associated with the disclosure- the manner in which it was made for example- as “separable” from the disclosure itself[6]; and
  • the utility of the dichotomy drawn by the EAT in Cavendish Munro Professional Risks Management Ltd v Geduld[7]

but this article is long enough already….

John Bowers QC of Littleton and Jack Mitchell of Old Square Chambers writes Whistleblowing Law & Practice which is published by OUP. The new, 3rd edition, will be out in March of this year and can be pre-ordered by clicking here. The book is updated by a downloadable PDF on our publications page.

[1] Bolton School v Evans [2006] IRLR 500
[2] The text of the report says “the employers are” but this is clearly a slip for “employee is”.
[3] Darnton v University of Surrey [2003] IRLR 133 EAT
[4] Babula v Waltham Forest College [2007] EWCA Civ 174, [2007] IRLR 346
[5] Kraus v Penna plc [2004] IRLR 260 EAT
[6] Panayiotou v Kernaghan: [2014] UKEAT 0436_13_1604, [2014] ICR D23
[7] [2010] ICR 325, [2010] IRLR 38

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