England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE CCRT1 98/0998/2

(HIS HONOUR JUDGE ANSELL )

Royal Courts of Justice

Strand

London WC2

Friday 4 December 1998

B e f o r e:

THE MASTER OF THE ROLLS

(LORD WOOLF)

LORD JUSTICE HUTCHISON

LORD JUSTICE TUCKEY

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FENTON BARRY JOHNSON

Plaintiff/Appellant

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UNISYS LIMITED

Defendant/Respondent

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(Transcript of the Handed Down Judgment of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

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LORD MESTON QC and MR O WISE (Instructed by Foinette Quinn, Milton Keynes, MU2 2DM) appeared on behalf of the Appellant.

MR P ELIAS QC and MR S NEAMAN (Instructed by Messrs Davies Lavery, London, EC3R 7HN) appeared on behalf of the Respondent.

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J U D G M E N T

(As approved by the Court)

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©Crown Copyright

Friday 4 December 1998

JUDGMENT

LORD WOOLF, MR:

This appeal is from a decision of His Honour Judge Ansell made on 26 June 1998. The judge struck out claim of the plaintiff, Mr Johnson, for substantial damages against the defendants, Unisys Limited, his former employers.

In outline the plaintiff’s claim is that because of the manner in which he was dismissed he suffered a mental breakdown and since that time he has been unable to work with the result that he has and will suffer loss of earnings amounting to in excess of £400,000.

As this is a “striking out” case, the appeal has to be determined on the assumption that the facts set out in the plaintiff’s claim are true. At the hearing of the appeal it was accepted by Lord Meston QC (who had not appeared in the court below) on behalf of the plaintiff that the amended particulars of claim required amending. In these circumstances this court gave the plaintiff a further opportunity to revise his pleading. This has now been done and in this judgment, I will assume that if the appeal is successful the plaintiff would obtain leave to re-amend his particulars of claim in accordance with the draft which is before us. It is right, however, to point out that if necessary, the defendant will seek to rely on a limitation defence, the merits of which this court has not considered.

The facts as indicated in the re-amended particulars of claim can be summarised as follows; the plaintiff was initially employed by the defendant between 1971 and 1987. During this period, because of his employment, the plaintiff was subject to considerable stress. In particular, in 1985, during a posting to Paris and while working on a conference in Barcelona the plaintiff suffered from extreme stress and was at risk of sustaining psychological injury. At the end of 1985 the plaintiff was prescribed anti-depressants by his general practitioner. In addition his general practitioner wrote to the defendants and made a request that the plaintiff should be given time off work because of work-related stress. As a result of a meeting with the plaintiff prior to his returning to work in 1986 the defendants’ doctor was aware of the plaintiff’s psychological condition. In 1987 the defendants offered the plaintiff one to one counselling because of his medical condition and impending redundancy. At that time the defendants were therefore well aware of the plaintiff’s special psychological needs.

In 1990 the plaintiff was re-employed by the defendant’s as a manager and he remained in that position until he was dismissed on 20 January 1994.

The defendants, in a letter dated 10 January 1994, made allegations against the plaintiff regarding his conduct. The letter indicated that the complaints which were made against the plaintiff “were not of an individual nature” but involved other employees. On 17 January 1994 an investigatory meeting was conducted by the defendants which the plaintiff attended. The specific allegations were not put to him at this meeting. Later the same day the plaintiff was summarily dismissed. It is alleged:

"at no point was the plaintiff given an opportunity to defend himself or provide a full explanation of any allegations made. The decision to dismiss the plaintiff was confirmed by letter dated 19 January from the defendant to the plaintiff."

The plaintiff appealed by letter dated 26 January 1994. “The appeal did not take the form of a re-hearing and there was no investigation into the contents of the plaintiff’s letter”. This was a breach of the plaintiff’s disciplinary procedures. The decision to dismiss the plaintiff was confirmed on this appeal.

The plaintiff complained to an Industrial Tribunal that he had been unfairly dismissed and on 20 February 1995, his complaint was upheld. However he was held to have contributed to his dismissal (25%).

The re-amended particulars allege that it was an implied term of the plaintiff’s contract of employment with the defendant that “the defendant, its servants or agents would not, without reasonable and proper cause, conduct themselves”:

"(a) In a manner calculated and likely to destroy or seriously damage the relationship of trust and confidence between the plaintiff and the defendant, its servants or agents;

(b) Would not, without reasonable and proper cause, conduct themselves in an unacceptable manner so as to harm the professional development of the plaintiff.

(c) Would not, without reasonable and proper cause, conduct themselves in an unacceptable manner so as to harm the physical or psychological health of the plaintiff or his financial welfare.

(d) The defendants would operate its established disciplinary procedures in accordance with its own written rules and the rules of natural justice and would take reasonable care not to harm the plaintiff’s future employment prospects by harsh or oppressive behaviour or by any other unacceptable conduct."

The re-amended pleading goes on to allege that the defendant, its servants or agents, were in breach of the above implied terms in that they failed:

"(i) to put allegations to the plaintiff.

(ii) to accord the plaintiff an opportunity to defend himself.

(iii) to provide a full explanation of allegations against the plaintiff.

(iv) to comply with the defendant’s disciplinary procedures and the rules of natural justice.

It is also alleged that the as a result of the matters to which I have already referred the defendant, its servants or agents knew or ought to have known that “the plaintiff was psychologically vulnerable and would suffer injury, loss and damage if the defendant, its servants or agents conducted themselves” in the manner alleged.”

It is then said that as a result of these breaches of contract and/or negligence, the plaintiff sustained personal injury and suffered loss and damage.

The pleading contains particulars of injury which set out details of the plaintiff’s treatment both as an in and out patient. It is alleged that he was unable to secure a job and developed a drink problem. It is also set out that in June 1996 he was admitted to hospital “having taken an overdose”.

The court is asked to exercise its discretion in the plaintiff’s favour under section 33 of the Limitation Act 1980 so as to disapply section 11 of that Act.

The Industrial Tribunal to which the plaintiff made his claim for unfair dismissal made an award in the plaintiff’s favour of the maximum sum which could be awarded which was £11,000.

Both in the County Court and in this court, the defendants accept that they owed a duty of trust and confidence to the plaintiff. However the other implied terms relied on by the plaintiff are said by Mr Patrick Elias QC to be “hopelessly vague and impossibly wide”. It is contended that, if upheld, they would result in astonishing consequences.

It is disputed that there is an implied duty not to dismiss an employee unfairly. Such a term, it is said, would be inconsistent with a statutory provision requiring a claim of unfair dismissal to be made by way of complaint to a Tribunal “and not otherwise” (Employment Rights Act 1996 section 205).

His Honour Judge Ansell confesses that he had some difficulty with the speech of Lord Nicholls of Birkenhead in Malik v Bank of Credit and Commerce International SA [1998] AC 20. (A case to which I will come later.) However, he decided that an unfair dismissal could not amount to a breach of the implied trust and confidence; that there were no other implied duties; and that Lord Nicholls did not intend his comments in the Malik case to be taken as “effectively circumventing the whole statutory framework of unfair dismissal”. He considered that the plaintiff was seeking to “open up a tremendous minefield of problems which at present is restricted ... to the special statutory framework and the considerable case law that has flowed from it”. The judge did however grant the plaintiff leave to appeal.

I am in agreement with the views expressed by the judge for reasons which I will now seek to explain. The starting point as Lord Meston in his helpful submissions accepted, must be the case of Addis v Gramophone Company Limited [1909] AC 488. That case has been a cornerstone of the law of master and servant on which the statutory framework of the Industrial Tribunals jurisdiction in relation to unfair dismissal has been built. It is a decision which the House of Lords could over-rule but I would only expect them to do so by using the clearest language to indicate that this was their intention. Parliament when legislating in this field appears to have been acting on the assumption that the legal position was as is stated in Addis. It is a case which has been repeatedly followed (see for example Lord Justice Browne Wilkinson’s judgment in O’Laoire v Jackel International Limited (No. 2) [1991] 1 ICR 718).

Addis concerned a claim by a former employee who could be dismissed by six months notice. He was dismissed by giving him that period of notice but in breach of contract he was “deprived of his right to act as manager during the six months and to earn the best commission he could make” (per Lord Loreburn LC at p.490). The effect of the decision (Lord Collins dissenting) is summarised in the headnote as follows:

"Where a servant is wrongfully dismissed from his employment the damages for the dismissal cannot include compensation for the manner of the dismissal, for his injured feelings, or for the loss he may sustain from the fact that the dismissal of itself makes it more difficult for him to obtain fresh employment."

In his speech with which Lord James of Hereford and Lord Atkinson expressly agreed, Lord Loreburn LC stated at p.490:

"to my mind it signifies nothing in the present case whether the claim is to be treated as for wrongful dismissal or not. In any case there was a breach of contract in not allowing the plaintiff to discharge his duties as manager, and the damages are exactly the same in either view. They are, in my opinion, the salary to which the plaintiff was entitled for the six months between October 1905 and April 1906, together with the commission which the jury think he would have earned had he been allowed to manage the business himself. I cannot agree that the manner of dismissal affects these damages. Such considerations have never been allowed to influence damages in this kind of case. An expression of Lord Coleridge CJ has been quoted as authority to the contrary. I doubt if the learned Lord Chief Justice so intended it. If he did I cannot agree with him.

If there be a dismissal without notice the employer must pay an indemnity; but that indemnity cannot include compensation either for the injured feelings of the servant, or for the loss he may sustain from the fact that his having been dismissed of itself makes it more difficult for him to obtain fresh employment."

Not allowing the plaintiff to work out his notice, is an essential feature of the decision. The case was not concerned with breaches of contract during the period of employment which could constitute a constructive dismissal but did not involve an express dismissal.

If in relation to cases where there is an express dismissal Addis still represents the law then that it is fatal to the plaintiff’s case. The plaintiff’s only complaint is as to the manner of his dismissal. Whilst it is contended on his behalf by Lord Meston that the way in which he was treated breached the alleged implied terms, this does not alter the fact that the manner in which he was dismissed is being relied on by the plaintiff. The plaintiff’s case is no more and no less than an allegation that the defendants failed to follow their own dismissal procedures and that this was procedurally unfair.

The defendants accept the existence of an implied term of trust and confidence. It is not necessary to consider the other implied terms upon which the plaintiff now relies. This appeal can be determined on the assumption that the plaintiff was wrongfully dismissed. On the approach to damages adopted in Addis any loss would have been met already in the sum of £11,000 awarded by the Industrial Tribunal

What then is the impact on the authority of Addis of the Malik case? In the Malik case, the plaintiffs were not primarily seeking to recover damages in consequence of their dismissal. As appears from the argument of their counsel they were “only seeking to recover damages for the pecuniary losses which flow from an anterior breach of the implied term of good faith” (p.23G). The bank, by which the plaintiffs had been employed, had been operated in a corrupt and dishonest manner. Following its collapse, the corrupt and dishonest manner in which it had conducted its business became widely known. This had the consequence that the plaintiffs were handicapped on the labour market. They were stigmatised by reason of their previous employment and they suffered loss in consequence (see Lord Nicholls p.33 G-H). This constituted a breach by the bank of its contract of employment with the plaintiffs. The bank had impliedly agreed not to conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust which it had with its employees. The conduct of the bank was of a repudiatory nature which would have entitled the plaintiffs, if they had been aware of it (which at the relevant time they were not), to bring to an end their contracts of employment. However, in fact, their employment came to an end because they were dismissed because of redundancy. Their claim for damages was not connected with the manner of their dismissal. Any connection between their dismissal and their claim for damages was indirect. However, if they had remained in employment then they would not have suffered damage because of their inability to obtain alternative employment. This position was made clear by the speech of Lord Steyn, with which all the members of the House expressly agreed (except Lord Nicholls who did not mention Lord Steyn’s speech). Lord Steyn said (at p.52):

"O’Laoire v Jackel International Ltd (No. 2) [1991] 1 ICR 718 involved a claim by a dismissed employee for loss “due to the manner and nature of his dismissal.” It was held that such a claim is excluded by Addis’s case. But that does not affect the present case which is based not on the manner of a wrongful dismissal but on a breach of contract which is separate from and independent of the termination of the contract of employment."

Lord Steyn made it clear that Addis did not prevent damages being recovered for loss of reputation in the circumstances which existed in Malik . As he added at page 52:

"Provided that a relevant breach of contract can be established, and the requirements of causation, remoteness and mitigation can be satisfied, there is no good reason why in the field of employment law recovery of financial loss in respect of damage to reputation caused by breach of contract is necessarily excluded."

I would respectfully agree with this approach. I find no difficulty with it. It does not however mean that damages for loss of reputation can be recovered in a case where the damage to the reputation is caused by a dismissal which is summary, unfair or without proper notice.

Lord Steyn was also careful to limit the scope of the implied mutual obligation of trust and confidence. He said (at p.53B-C) it:

"applies only where there is “no reasonable and proper cause” for the employers conduct, and then only if the conduct is calculated to destroy or seriously damage the relationship of trust and confidence. That circumscribes the potential reach and scope of the implied obligation. Moreover, even if the employee can establish a breach of this obligation, it does not follow that he will be able to recover damages for injury to his employment prospects. The Law Commission has pointed out that loss of reputation is inherently difficult to prove .... it is, therefore improbable that many employees would be able to prove “stigma compensation”. The limiting principles of causation, remoteness and mitigation present formidable practical obstacles to such claims succeeding."

I accept that it is less obvious that Lord Nicholls speech in Malik is as restricted in its application as is that of Lord Steyn. Differences of approach between Lord Steyn and Lord Nicholls can be identified. It is not without significance that Lord Mustill agreed with the speech of Lord Steyn and did not agree with the speech of Lord Nicholls. However Lord Goff of Chieveley and Lord Mackay of Clashfern agreed with both speeches. So as far as this is possible, it is therefore necessary to reconcile Lord Steyn and Lord Nicholls’s speeches. What is significant is that both Lord Steyn and Lord Nicholls refrained from saying that Addis was wrongly decided. They distinguished Addis. Lord Nicholls’s starting point was the dishonesty and corruption of the bank when operating its business. As he said it is against “this background that the position of an innocent employee has to be considered”. (P.34 D-E) This was not the cause of the employees dismissal but as Lord Nicholls said:

"No one could be expected to have to continue to work with and for such a company against his wish."

The implied obligation of trust and confidence was a “particular aspect of the portmanteau, general obligation not to engage in conduct likely to undermine the trust and confidence required if the employee relationship is to continue in the manner the employment contract implicitly envisages”. (p.35 A-B)

Lord Nicholls accepted that it was exceptional that “the losses suffered by an employee as a result of a breach of the trust and confidence term may not consist of, or be confined to, loss of pay and other premature termination losses”. However, Lord Nicholls did go on to say:

"Loss which an employee would have suffered even if the dismissal had been after due notice is recoverable, because such loss does not derive from the wrongful element in the dismissal."

He acknowledged that “it is difficult to see how the mere fact of wrongful dismissal, rather than dismissal after due notice, could of itself handicap an employee in the labour market”. He added however the qualification that “the manner and circumstances of the dismissal as measured by the standards of conduct now identified in the implied trust and confidence term may give rise to such a handicap. The law would be blemished if this were not recognised today. There now exists the separate cause of action whose absence Lord Shaw of Dunfermline noted with “a certain regret”. .... The trust and confidence term has removed the cause for the regret”.

Pausing there I find nothing in Lord Nicholls’ approach which goes beyond that of Lord Steyn. It is consistent with an approach which does not disapprove of the decision in Addis but distinguishes that approach on the basis of the different facts of the two cases. However in his conclusion, Lord Nicholls makes this statement:

"Unlike the courts below, this House is not bound by the observations in Addis v Gramophone Co Ltd [1909] AC 488 regarding irrecoverability of loss flowing from the manner of dismissal ..." (emphasis added)

I am far from certain what Lord Nicholls meant by this statement. However, I do not accept that by this comment he was intending to overrule Addis. If it indicated a materially different approach from that of Lord Steyn, Lords Goff and Mackay presumably would not have agreed with the speeches of both Lord Nicholls and Lord Steyn. In my judgment in accord with the approach adopted by Lord Steyn, Lord Nicholls should be regarded as doing no more than distinguishing Addis so far as is necessary for that case. The true distinction between Addis and Malik is that the breach of contract in Addis was confined to the manner of dismissal while the breach in Malik, although it was repudiatory, was a breach by the bank of the trust and confidence it owed to its employees during the period they were employed. The breach in Malik was of a gravity which entitled the employees to regard themselves as dismissed wrongfully but that was not their complaint. Their complaint related to anterior conduct.

The only other issue to which it is necessary for me to refer, is the question of remoteness. It is not necessary to decide this appeal on this ground. However I would regard the prospects of the plaintiff establishing that the loss which he claims is not too remote, both in contract and tort, as being unreal. If there had not been the history of psychological problems the damages (in excess of £11,000) claimed would clearly be too remote. The time which elapsed between 1985/1987 and 1994 is considerable and sufficient to prevent the plaintiff establishing the necessary degree of foreseeability of his alleged loss.

It is for these reasons I would dismiss this appeal.

LORD JUSTICE HUTCHISON: I agree.

LORD JUSTICE TUCKEY: I also agree.

Order: Appeal dismissed with costs. Legal Aid Taxation of applicant's costs.