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11 June 2018

99: High Court dismisses employee’s claim for negligent misstatement in respect of reference

When writing references, employers have a duty to exercise reasonable skill and care and provide a reference which is true, accurate and fair. In Hincks v Sense Network Ltd, the High Court dismissed an employee’s claim for negligent misstatement in relation to a reference which contained negative opinions resulting from an investigation into his conduct.

Mr Hincks was an independent financial adviser. Due to concerns about his advice to clients, Sense Network Ltd required him to obtain pre-approval for all advice and sales. When Mr Hincks breached this requirement, he was suspended and not permitted to transact business or meet clients. During his suspension, compensation had to be paid to 63 of his clients. In November 2014, Mr Hincks also sold an investment to an existing client in breach of the pre-approval process. This led to an investigatory meeting and the termination of his authority.

Mr Hincks subsequently sought a reference from Sense Network Ltd. The reference provided referred to his suspension, his breaches of the terms of that suspension, the compensation to clients and the November 2014 transaction. It also referred to the company’s conclusion that he had knowingly and deliberately circumvented the pre-approval process. Mr Hincks brought a claim for negligent misstatement, alleging that the reference gave a misleading impression since the opinions expressed in it were based on an inadequate internal investigation. He argued that where a reference included negative opinions based on the findings of an internal investigation, the referee should be satisfied that the investigation was procedurally fair and consistent with the standard to be expected of a reasonable employer.

The High Court dismissed Mr Hincks’ claim. The Court held that there would be formidable practical difficulties if reference writers had to consider the procedural fairness of previous investigations. For example, if a reference request is made months or years later, there may be limited or no relevant documentation, or the staff involved may have left. Whilst stressing that the nature of the duty of care would depend on the circumstances, the High Court identified the following common features:

  • to conduct an objective and rigorous appraisal of facts and opinion, particularly negative opinion, whether those facts and opinions emerged from earlier investigations or otherwise;
  • to take reasonable care to be satisfied that the facts set out in the reference are accurate and true and that there is a legitimate basis for any opinions expressed;
  • where an opinion originated from an earlier investigation, to take reasonable care in reviewing the underlying material in order to understand the basis for the opinion and be satisfied that there is a legitimate basis for it; and
  • to take reasonable care to ensure that the reference is fair and not misleading either by reason of what is not included or by implication, nuance or innuendo.

On this basis, the Court held that there was ample evidence to support the statements made in Mr Hincks’ reference, such as statements, notes of the investigatory meeting, and documents relating to his appeal. There was nothing in those documents which suggested a need to review the fairness or the findings of the investigation. The reference was therefore neither inaccurate nor misleading.

The High Court’s judgment provides useful guidance on the standard of care owed by a referee, particularly where the reference goes beyond statements of fact and includes a negative opinion. This may also be affected by statutory regulation, for example, in the financial and education sectors. The case also highlights the information which employers may need to retain for the purpose of preparing references. As the High Court stressed here, the duty of care might be more onerous if there are obvious errors in the documentation, or there is reason to doubt the reliability or integrity of the information.

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