United Arab Emirates: A Duty To Disclose Own Wrongdoing In The DIFC

A recent DIFC Small Claims Tribunal (SCT) decision could lead to more stringent fiduciary duties being placed on senior DIFC employees. The DIFC SCT has found in favour of the Claimant in Heitor v Helah [2017] DIFC SCT 141, a decision which could mean that senior DIFC employees will now have a fiduciary duty to disclose their own wrongdoing, with non-disclosure potentially amounting to misrepresentation under Articles 29 and 30 of DIFC Law No.5 of 2005 (the DIFC Law of Obligation).

Background

Mr. Helah (the Defendant) was employed in the DIFC by Heitor (the Claimant) as a Senior Executive Officer (SEO) from 05 September 2016 until his employment was terminated by mutual consent on 28 February 2017.

On 01 March 2017, the parties entered into a settlement agreement (the "Settlement Agreement") whereby the Defendant agreed to forego certain contractual entitlements in exchange for a AED 332,697.98 payment to be made in instalments before the 04 March 2017.

However, after paying AED 204,422.28 as an initial installment, the Claimant discovered that, on 24 February 2017 the Defendant had written a letter to a third party, Helga Middle East Limited (Helga), disclosing confidential information about the Claimant's business and terminating a Cooperation Agreement (the "Cooperation Agreement") with Helga that the Defendant had signed in his capacity as an authorized signatory of the Claimant.

As a result, the Claimant sought to have the Settlement Agreement terminated and any monies paid to the Defendant recovered. It alleged that the Defendant had not only breached his fiduciary duties by writing the letter, but that he also had a fiduciary duty to disclose his wrongdoing and in not doing so his actions amounted to a misrepresentation which had induced the Claimant to enter into a contract they would otherwise have not entered into.

The Defendant refuted the claim, bringing a counter claim against the Claimant. The Defendant provided that he acted in accordance with his contractual obligations under the Cooperation Agreement in sending the letter to Helga, asserting that the Cooperation Agreement would have been terminated by Helga even if letter had not been sent.

Establishing a fiduciary relationship and understanding fiduciary duties

Under Article 158(1) of the DIFC Law of Obligations:

"a person is the fiduciary of another if he has undertaken (whether or not under contract) to act for or on behalf of another in a matter in circumstances which give rise to a relationship of trust and confidence".

Further, Article 158(2) of the DIFC Law of Obligations provides (amongst other examples) that an employee is presumed to be a fiduciary to his employer.

In accordance with Article 159 of the DIFC Law of Obligations, as an individual placed in a position of trust, a fiduciary has a duty of loyalty to their principle (the employer).

Schedule 3 of the DIFC Law of Obligations breaks this duty down further into the following duties:

  • Good faith and loyalty: the fiduciary must act in good faith and in his principal's best interests without regard to his own interests; which means providing full disclosure of any information which may be relevant to the principal.
  • No conflict of interest: a fiduciary must not place himself in a position where his own interest conflicts with that of his principal or where there is a real possibility for such a conflict.
  • No secret profits: a fiduciary must not use the principal's property, information or opportunities for his own or anyone else's benefit unless the principal has granted prior consent or the use has been fully disclosed and the principal has approved it.
  • Confidentiality: a fiduciary must only use or disclose information obtained in confidence from a principal for the benefit of the principal.
  • Care, skill and diligence: in carrying out his duties. The fiduciary must do so with the care, skill and diligence to be reasonably expected of someone with his knowledge and experience.

Misrepresentation

In accordance with Article 29(c) of the DIFC Law of Obligations, a misrepresentation exists where a statement "is made in order to induce, and does induce, a person to enter into a contract" and under Article 30 a person is liable for misrepresentation if:

  1. he is the representor in relation to a misrepresentation;
  2. the representee has entered into a contract after the misrepresentation has been made;
  3. the misrepresentation influenced the representee to enter into a contract or affects the terms upon which he agrees to enter into it; and
  4. the representee suffers loss as a result of entering into the contract.

However, Article 29(5) of the DIFC Law of Obligations provides that:

"Non-disclosure cannot amount to a representation, unless the non-disclosure is a breach of a specific duty to disclose".

The SCT judgement

The SCT found that:

  • a fiduciary relationship existed between the Claimant and the Defendant;
  • the Defendant was in breach of his fiduciary duties when sending the letter to Helga without the Claimant's consent;
  • as a senior employee, the Defendant had a fiduciary duty to disclose his own wrongdoing to the Claimant;
  • the Defendant's non-disclosure amounted to a misrepresentation pursuant to Articles 29 and 30 of the DIFC Law of Obligations; and
  • the Settlement Agreement should be terminated and the Claimant be entitled to recover AED 204,433.28.

Judgement analysis - DIFC v UK

The DIFC Law of Obligations does not expressly obligate a fiduciary to disclose their own wrongdoing. However, in finding that the Defendant did have a duty to disclose his wrongdoing in his capacity as a senior employee, the SCT have potentially set a new precedent which effectively obligates fiduciaries to incriminate themselves.

In the UK, the duty for an employee to disclose their own wrongdoing has been the subject of a number of cases.  Whilst the relevant legislation also provides no express duty for a fiduciary to disclose their wrongdoing, this concept is supported by various examples of UK case law. For example; in Tesco stores v Pook (2004) IRLR 618, the court found that the employee had a positive obligation to disclose his wrongdoing because:

  1. the employee was a senior employee; and
  2. the wrongdoing in question had constituted a breach of his fiduciary duties.

Potential issues

Settlement agreements

The SCT's decision could bring into question the enforceability of settlement agreements entered into between senior employees and their employers, in circumstances where the previous conduct of an employee could amount to misrepresentation and/or breach of their fiduciary duties, where the employee fails to disclose the conduct.  In such circumstances, the terms of the settlement agreement could fall away.   

Applicability and scope

In the UK only senior employees and directors have a fiduciary duty in respect of their employer, whereas an individual in the DIFC is deemed to be a fiduciary by virtue of their position as an employee alone. Therefore, it is arguable that the SCT's decision could be extended to include all employees rather than just senior employees in future cases.  It will be interesting to see how this area of law develops.  The SCT decisions are not binding on the higher courts and therefore there is scope for further clarification on an employee's duties and their effect on any settlement agreement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions