Standard Life Health Care Ltd v Gorman & Ors

In an agency or employment contract, an apparent right to work or earn commission depends on the proper construction of the contract. Obligations to provide work and to act loyally may be interdependent. A serious and continuing breach of loyalty, especially where agents have registered with a rival principal, may make it arguable that the principal has no continuing obligation to provide work, even if it keeps the contract alive and does not accept repudiation. A contractual suspension clause may permit general suspension after a serious breach, rather than suspension only while an investigation is conducted. An injunction restraining work for a competitor does not automatically require an undertaking to provide remuneration beyond the contract. On the facts, the balance of convenience favoured continuing the injunction pending trial.

Appointed representatives of Standard Life Health Care Ltd sold private medical insurance for commission. Mr Gorman and Mr Imich, who also managed sales teams, were required to give three months’ notice. They resigned immediately, registered as agents for Secure Health Ltd, and were alleged to have committed serious breaches of good faith and loyalty.

Standard Life kept the agency agreements alive, treated the resignations as notice, suspended the agents and sought injunctions restraining them from working for competing private medical insurance businesses. His Honour Judge Seymour QC granted the injunction and upheld the suspension. The appeal concerned whether an express contractual term was required to suspend the agents and whether an injunction required an undertaking to pay remuneration or provide work.

1. Appeal dismissed. The injunction restraining Mr Gorman and Mr Imich from working for competing private medical insurance businesses was continued pending trial.
2. The contract had first to be construed. Authorities concerning employment contracts did not establish general rules applicable regardless of contractual wording. They illustrated the need to identify the parties’ obligations and determine whether the obligation to provide work or pay remuneration was interdependent with the agent’s obligation of loyalty. In a commission-based agency tied to one principal, an obligation not to prevent the agent earning remuneration was prima facie arguable.
3. It was strongly arguable that the obligation to provide work had ceased where the agents had seriously breached their duties of good faith and loyalty and had registered with a rival principal. Standard Life could therefore keep the contracts alive without accepting the repudiatory conduct, while being under no continuing obligation to provide work. The suspension and refusal to provide work were consequently strongly arguable as not being breaches of contract.
4. Clause 9 was strongly arguable as conferring a general power of suspension where the agent had acted in breach of the agreement. Construing it as limited to the period needed for investigation would leave the principal, after a serious breach was established, with the artificial choice of accepting repudiation or restoring the agent to work. The broader construction made better commercial sense.
5. There was no automatic requirement for Standard Life to give an undertaking to pay remuneration or provide work beyond its contractual obligations. The agents had chosen to register with a rival despite the notice requirements. The rival had also paid substantial sums and compensated them during periods when they could not work. The balance of convenience therefore favoured continuation of the injunction until trial. Longmore LJ agreed that the duty to provide work and the duty of loyalty were interdependent; Jacob LJ agreed with both judgments.

• Court of Appeal (Civil Division): unanimously dismissed the appeal and continued the injunction pending trial.
• High Court, Queen’s Bench Division: His Honour Judge Seymour QC, sitting as a Deputy High Court Judge, granted an injunction preventing the agents from working for competing private medical insurance businesses and upheld Standard Life’s right to suspend them.