Stigma ruling in favour of ex-BCCI employees

Hundreds of former BCCI employees may, between them, receive a total of up to £100m in compensation for the stigma of the collapse of their employer following a landmark House of Lords judgement.

Charles Gordon, a partner at Manches & Co, brought the case for two BCCI employees, Raihan Mahmud and Quasier Malik, who lost their jobs when BCCI collapsed in July 1991 amid allegations of massive fraud. The two have been out of work ever since. Gordon said: "As soon as potential employers found out where they had worked they would hear: 'Sorry, we have filled the post'."

Both the High Court and the Court of Appeal ruled that the two employees had no case for compensation. But the law lords, including Lord Mackay, the former Lord Chancellor, have overturned these rulings.

Gordon said the House of Lords has now established the principle that an employer should not conduct itself in a manner that would destroy the relationship of confidence and trust it has with its employees, and that employers must take care not to act in away that would damage their workers' career prospects.

It is now up to Malik and Mahmud to prove that BCCI was dishonest and fraudulent.

Gordon said that he was now waiting to hear from BCCI liquidator Deloitte & Touche as to whether it would settle with his clients and the hundreds of other employees affected. He added that employees were claiming between £50m and £100m. "There are 2,500 former BCCI employees in the UK," said Gordon. "Even if only half of them are affected, that is still a lot of people."

If the liquidators fought the action, he said, they would have to maintain that the bank had not been fraudulent. "It will be hard for them to do that since they themselves have previously said that it was dishonest and fraudulent."

The ruling would not affect companies such as Barings, which collapsed through the actions of one employee, said Gordon, but it could affect cases where it could be alleged that the companies themselves were fraudulent, such as in the Polly Peck and Maxwell cases.

But, in his judgment, Lord Nicholls warned that "it is improbable that many employees would be able to prove stigma compensation" because not only would they have to prove serious damage to the relationship of trust, but also that they had lost their reputations as a result, which would be inherently difficult.

Insolvency partner Lawrence Crowley and employment partner Naomi Feinstein of Lovell White Durrant acted for the liquidators. Feinstein said she could not comment on the case.