Veitch Penny LLP - Exeter | Crediton, Devon

Case

Tesco Stores Ltd v Pook
High Court Chancery Division

Issues

(1) Contracts of Employment
(2) Implied terms of employment
(3) Breach of Contract

Facts

Simon Pook has been employed by Tesco in a senior management position. His work included the approval of invoices. In April 2002 it became apparent that Mr Pook had fabricated false invoices on behalf of a company he ran and then approving them for payment. The total sum involved was £512,236.00. Subsequently Mr Pook was suspended pending an investigation into his conduct. He was then invited to a disciplinary interview at the close of which he was dismissed. However the day before his employment was terminated Mr Pook had applied to exercise options which he had under an Executive Share Option Scheme for employees. Tesco refused to allow him to exercise those options. Ultimately Mr Pook was convicted of theft and subject to a term of imprisonment.

Tesco then began proceedings to recover the sums paid out under the false invoices and an additional sum of £323,749.99 which they alleged had been paid to Mr Pook as a bribe by a company which did business with Tesco. Mr Pook denied any liability in connection with these further sums. He alleged that the payments had been made as a loan to help him start the business.

Mr Pook then made a counterclaim in relating to his entitlement to exercise options under the employee share scheme.

Tesco argued that it was an implied term of the scheme that an employee would not be able to take advantage of it if he was in breach of his own Contract of Employment. It also argued that Mr Pook was under a positive obligation to disclose his breaches of fiduciary duty to his employer. If he had done so, his Contract of Employment would have terminated immediately and the question of share options would not have arisen.

Decision

Mr Pook’s counterclaim failed on two grounds.

(1) The Judge found that there was an implied term in the scheme which stated that options could not be exercised if the employee was in breach of contract which was sufficient for him to be dismissed. On the facts here that was clearly the case.

(2) The Judge also found that given Mr Pook’s level of seniority (even though he was not a Director) he had been under a duty to disclose the bribe. Whilst there is a general rule that an employee does not have to disclose ordinary breaches of contract committed by himself, this case was distinguished because a bribe gives rise to fiduciary duty for the employee to account for it. Once that fiduciary duty arises there is a legal duty to disclose it and given that senior employees have a duty to disclose breaches of duty by fellow employees, it would be odd if the senior employee himself was not also under a duty to disclose similar breaches by himself.

Comments

This case appears to extend the principle of Sybron Corporation –v- Rochem. This case held that senior employees have to disclose fellow employees’ acts even if this meant that he would have to disclose his own conduct.