England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
(Application of TELEPORT UK LTD
for Permission to Appeal)

		Royal Courts of Justice Strand London WC2 Thursday, 31st January 2002

1. LORD JUSTICE BROOKE: Mr Linden, we refuse permission to appeal. Park J will give the first judgment.
2. MR JUSTICE PARK: This has been an oral hearing of an application by Teleport United Kingdom Limited for permission to appeal from a decision of HHJ Rich in the Central London County Court. The judgment was delivered on 14th May 2001 and the formal order was dated 16th May 2001. I refer to the applicant for permission as T(UK).
3. As my Lord, Brooke LJ, has already stated the court does not give permission to appeal and I will now briefly explain why not so far as my own evaluation of the case is concerned.
4. Before the judge T(UK) was the defendant. The claimant, and the respondent on the present application, was Mr John Milman. He had been the chief executive of T(UK). His position was terminated on three months' notice on 1st August 1997, when he was placed on so-called garden leave. If the matter had stopped there there would have been no dispute and no proceedings. T(UK) was entitled to terminate Mr Milman's employment on three months' notice. It did not need to have a cause such as misconduct or serious breach by Mr Milman of his duties. T(UK) would have remained liable to pay Mr Milman's salary and provide him with his other benefits for the rest of the notice period. I assume that if it had remained there, T(UK) would have done that.
5. However, shortly after the three months's notice was given to Mr Milman, T(UK) discovered facts which its directors, two gentlemen who were based in the United States, believed justified it in dismissing Mr Milman summarily. He was notified of this and no salary or other benefits were in fact provided for him for the three months from 1st August to 31st October, when his three months' notice period would have expired in any event. He brought the present action claiming that T(UK) was not entitled to dismiss him summarily. He claimed damages to compensate him for the loss of salary and other benefits for the three months' period. Before the judge his claim succeeded.
6. In the trial T(UK) put forward several complaints about Mr Milman, but the critical issues centre around one matter in this judgment, which is only concerned with the refusal of permission to appeal. I am going to concentrate on that one matter and not take time by referring to other issues which I consider to have been secondary.
7. The one matter was a fact which T(UK) discovered shortly after Mr Milman had been given three months' notice on 1st August 1997. He had instructed a firm of solicitors to incorporate a company under the name Teleport Network Services Limited. The shares in the new company were allotted to himself and two colleagues. The solicitors whom he had instructed were T(UK)'s regular solicitors. Further, they rendered their bill to T(UK), not to Mr Milman personally. The bill arrived after he had been placed on garden leave. It was not for a large sum: under £400, including disbursements and VAT.
8. The directors formed the view, basing it I think simply on inference from the circumstance that Mr Milman had caused a company to be formed bearing the name Teleport, that he and his two colleagues were, while still employed by T(UK), planning to leave and set up their own company to carry on business in the same field as T(UK), and to carry it on in competition with T(UK).
9. I pause at this stage to say that if that had indeed been the case, I am prepared to assume that it would have provided ample justification to T (UK) for summarily dismissing Mr Milman. It was by far the principal basis on which T(UK) sought before HHJ Rich to justify its position that it had been entitled to dismiss him summarily.
10. At the trial T(UK) failed in its contention that the new Teleport Network Services Limited was intended by Mr Milman to be a trading vehicle in competition with T(UK). Mr Milman and his two colleagues gave evidence that the intended role for the company was to make an offer to the owners of T(UK) to purchase the business. The offer, I suppose, might have been in the alternative of an offer to buy the business as a going concern from T(UK), or an offer the shares in T(UK) from the intermediate holding company which owned it.
11. The judge accepted the evidence of Mr Milman and his colleagues on that point. In that respect what the judge found was a finding of fact which was plainly open to him. As such it is not appealable on an appeal which is limited to a review of the decision of the court below. I should add that Mr Lindon, who has presented the case for T(UK) before us moderately and most attractively, has not sought to question that the finding of fact by the judge is definitive and cannot be challenged.
12. The judge also made a finding in relation to the solicitor's bill for forming the new company - the bill which was sent to T(UK). Mr Milman had given evidence that if he had been aware of the bill he would have paid it personally. The judge accepted his evidence. He said that Mr Milman had been careless in relation to the instructions to the solicitors and the arrangements for their bill. However, what Mr Milman did was not in the judge's view sufficient to justify summary dismissal.
13. In those circumstances HHJ Rich gave judgment for Mr Milman. T(UK) now seeks permission to appeal. It can no longer argue that its action in dismissing Mr Milman summarily was justified on the ground that Mr Milman was planning to set up in competition. It does, however, wish to assert that its action can be justified on other grounds. In my judgment, there is only one major ground with which I need to deal in this judgment. There are a few other subordinate grounds which, without intending any disrespect, I would describe as makeweights, and which I will not take time to describe.
14. The major ground is that Mr Milman, by instructing T(UK)'s own solicitors to form a company which was intended to make an offer for T(UK)'s own business, thereby was in serious breach of his duty as an employee to maintain mutual trust and confidence between himself and his employer. T(UK) also wishes to present an argument, not I think advanced below, that the matter ought to be considered not by reference to general concepts of employment law, such as "gross misconduct" on the part of an employee, but rather by reference to close analysis of one provision in Mr Milman's service agreement. That provided that Mr Milman's employment could be terminated without notice if he:

"is guilty of any serious default or misconduct in connection with or affecting the business of the Company or commits any serious breach of his/her obligations under the Agreement."

15. That is the background to this application coming before the court today. For my part I would not grant permission to appeal. I take that view for various reasons. First, even if the argument is based on the precise wording of the clause in the service agreement, which I have just quoted, I do not think that it has any substantial prospect of success. It was no breach of Mr Milman's service agreement, serious or otherwise, for him to decide that, with colleagues, he would like to make an offer to purchase the business. Similarly, having reached that decision in his own mind, it was or would have been no breach of his duties to T(UK) to instruct solicitors to form a company for him, visualising that company as a vehicle to make an offer. It would have been better for him to instruct solicitors other than the solicitors of T(UK) to form the company. I can visualise an argument that for him to instruct T(UK)'s own solicitors in that way could have been described as, in a sense, a breach of his duties as the chief executive of T(UK). However, I regard it as a very minor and understandable breach and I would not consider it to be serious. It would need to be serious before it could be brought within the wording of the service agreement.
16. Second, I should say something about what HHJ Rich described as the "pledging by Mr Milman of T(UK)'s credit"; by that expression he was referring to the circumstance that T(UK)'s solicitors must have believed that the instructions to form the new company had been given to it, not by Mr Milman in his personal capacity, but by T(UK). Certainly they rendered their bill to T(UK).
17. In my judgment there is no prospect of an appeal against the judge's decision succeeding by reference to that feature of the facts. I do not think that the evidence established that the solicitors were clearly instructed by T(UK) itself rather by Mr Milman. There was no evidence from them, and it may be that they misunderstood the identity of their client. In any event the finding of the judge that, if Mr Milman had still been at the company when the bill arrived he would have paid it himself, appears to me to remove any realistic argument that what Mr Milman did by instructing the solicitors was a serious breach of his obligations as chief executive of T(UK).
18. Third, from Mr Linden's submissions, it appeared to me that, although he formally submits that, if permission to appeal is given, this court could itself reverse HHJ Rich's decision and dismiss Mr Milman's claim, what he realistically hopes for is an order remitting the matter either to HHJ Rich or to another judge for reconsideration. On such a remission the judge would be invited to consider the arguments presented to us, which have been rather different from the arguments presented to HHJ Rich last year.
19. In this connection I point out that the agreed damages were only about £18,000. The events all happened four and a half years ago. In my judgment, it would be wholly disproportionate for a case in which relatively modest amounts are involved, and which is some years old now, to be remitted for another hearing, with further legal costs being incurred.
20. Fourth, it is true, as Mr Linden says, that HHJ Rich placed his judgment on general concepts of employment law, such as gross misconduct, rather than on the precise terms of the relevant paragraph of the service agreement. I do not regard this as a justification for granting permission to appeal, and I say that for two reasons. The first is that the way in which the judge dealt with the matter appears to me clearly to have reflected the way in which it was argued before him by Mr Linden's predecessor, who represented T(UK) at the trial. Second, without going into the matter in detail, my own opinion is that the considerations which were sufficient to lead HHJ Rich to conclude that what Mr Milman had done was not gross misconduct such as to permit immediate dismissal under general principles of employment law, would also have led him to the conclusion that what Mr Milman did was not the commission of "any serious breach of his obligations under this agreement."
21. For those reasons, I would refuse this application for permission to appeal.
22. LORD JUSTICE MANCE: I agree. The first question to come by way of submission made before us was: what was the test which the judge should have applied? It was submitted that he failed to pay proper attention to the terms of clause 6(c)(v) of the employment agreement between the parties. That clause provides that:

"...the Company shall have cause to terminate Employee's employment thereunder if Employee:...

(v) is guilty of any serious default or misconduct in connection with or affecting the business of the Company or commits any serious breach of his/her obligations under this Agreement."

23. In that connection, counsel for the applicant referred us to Morrow v Safeway Stores [2002] IRLR, at paragraph 23 in particular, where, after reviewing a large number of authorities, the Recorder indicated that where the implied term, of which a breach in that case was alleged, was in issue the question was:

"...whether, objectively speaking, the employer has conducted itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between the employer and employee."

24. In that case the breach was by the employer. Here, counsel submitted the judge should have applied a similar test asking whether the employee had conducted himself in a manner likely to destroy or seriously damage the relationship of confidence and trust. If he had concluded that the employee had so conducted himself, then, on the authority of that case and the cases referred to in it, there would have been a repudiatory breach justifying termination.
25. That latter submission seems hardly surprising since the obligation in Morrow is formulated in terms which it would on the face of it require repudiatory conduct to breach. In other words, by definition, any breach of the implied term identified in Morrow must be repudiatory.
26. The present contract in clause 6(c)(v) speaks of serious default or misconduct or serious breach. That again requires, as I see it, either a breach of a term identified as a condition, or a repudiatory breach. The case below was, however, argued for the applicant by different counsel on the basis that the question was whether the applicant could show either dishonesty or "gross misconduct". It seems to me that there may be little difference between that as a test and the test of repudiatory or severe breach. If some might think that "gross" is a more opprobrious word in flavour than "severe", the applicants can hardly complain since they adopted the synonym in their submissions to the judge below. I am, in fact, quite unpersuaded, like my Lord, that it would have made any difference to the result below or to the judge's findings.
27. I agree with Park J on the facts. There were, in summary, four matters relied on. The first, identified at page 5, involved the use not merely of a new logo, which was undoubtedly accepted, and indeed welcomed by someone with authority, Mr Kumar, but the change of the company's trading name to Teleport Network Services from Teleport UK Limited. In that the judge found that the applicant went too far, but entirely due to over-enthusiasm and not for any malign purpose whatever.
28. As to the second, as my Lord has pointed out, the judge at page 6 made findings of fact, to the effect that the object of incorporation of a company called Teleport Network Services Limited was not, as the applicants were contending, to set up in competition with the applicants. It was for the purposes of a possible offer of a management buy-out, about which the leading light of the applicants, Mr Anderson, was on the evidence informed. At least, he was informed that this was a matter in which the respondent was interested, although Mr Anderson rejected it. What the judge identified was a minor amount of time spent during company hours on the formation of the new company and he rightly regarded that as insignificant.
29. The third matter, more serious in the judge's view, involved the pledging of the credit of the applicants in relation to the instructing of solicitors to set up this new company. That is, I agree, a more serious matter and is the only matter which seems to me really worthy of consideration among those which we have to consider. The judge, however, again made findings of fact on the evidence before him. It appears to me that he concluded, firstly, that this was the result of carelessness. It was not a matter which came about deliberately. There was no intent that the applicants should be made to pay any bill. No bill was in fact received or, therefore, paid, until after the respondent left the applicant. The judge accepted the respondent's evidence that he would have paid any bill himself personally.
30. Then objection is taken to the fact that he went to the applicant's solicitors. That was not pleaded as an objection, but it seems to have been argued below and is referred to in the judgment. Again, it seems to me that the judge was entitled to treat it as a limited error of judgment. In all events, we cannot say to the contrary.
31. Finally, the judge identified excitable statements made to co-employees, particularly in an email which is before us. They were made under the provocation of failure by the applicants, by Mr Anderson in particular, to respond to respondent's business plan or to give adequate attention to the company over a substantial period. That failure is documented from the respondent's side in a number of emails which are before us. The relevant email in which the statements were made to co-employees also recites an ultimatum, and this is on 11th June, that unless a satisfactory response was received from Mr Anderson within a week, the management would be considering the formation of a new company. That was, no doubt, an unwise statement but it had no effect either on the co-employees, who were not caused to become disaffected. They in fact remained with the applicants after the respondent left. Nor on the judge's finding did it have another effect. The judge found that the company actually formed, it appears on 20th June, was, as I have said, only formed in the context of a management buy-out.
32. One must view the above matters cumulatively, but the judge did that too. I agree with Park J that, having done so by way of review in this court, there is no basis on which we would be justified in setting aside the judge's ultimate conclusion that there was no breach such as to justify summary dismissal.
33. LORD JUSTICE BROOKE: I agree. Although this claim was tried in the multitrack the sums at issue were only a small amount higher than the top limit for the fast-track. It took a day to try in the county court. We have been told by Mr Linden that his clients have already spent costs in the region of £50,000 in connection with litigation. Mr Milman's costs have been borne by the taxpayer. Mr Linden, to whose advocacy I would wish to pay tribute, comes to this court asking permission to appeal, and we should give permission to appeal if we consider there is a real prospect of success.
34. In exercising our discretion, as in every other exercise of discretion by the court under the Civil Procedure Rules, we bear in mind the overriding objective in CPR 1.1. The objective of enabling the court to deal with cases justly involves dealing with the case in ways which are more proportionate to the amount of money involved to the importance of the case than to the complexity of the issues and the financial position of each party. When directing an oral hearing on notice, Potter LJ said that the point was a comparatively short one and questions of proportionality were involved in the light of the amount.
35. In my judgment, in these Civil Procedures Rules days, if ever there was a case which turned on the impression the witnesses made on the trial judge, it was this one. The claimant's witnesses were seeking to establish a case that he was entitled to the remuneration he claimed and that he had not been in such serious breach of his duties under his contract of employment as to entitle the defendants, when they had discovered all the relevant facts, to terminate his agreement for cause pursuant to clause 6(c)(v). The defendants were seeking by their evidence to establish a case of serious misconduct by the judge which the judge had no hesitation, after hearing the evidence, in dismissing. Indeed, he did not even call on counsel for the claimant to reply.
36. In this court, in seeking permission to appeal and thus leading to further expense and further allocation of the resources of the court to this litigation, Mr Linden has been constrained to fall back on matters which, in substance, did not form part of his client's pleaded case of serious misconduct against the claimant, or even a mention in the case summary. To a considerable extent the problems flowed from the very discursive manner in which the solicitors for the defendant had set out the defendant's statement of case in the defence and counter-claim. This document covers no less than 19 pages. It sets out not only relevant clauses of the contract of employment, but irrelevant clauses, so that there are set out on more than half a sheet of A4 all the circumstances in which the employers might be entitled to terminate the claimant's contract of employment for cause, even though four of the five were patently irrelevant to the facts of this particular case. When one came to the allegations of breach of service agreement, it was simply said in paragraph 16 that each of the breaches relied on individually or, alternatively, taken collectively entitled the first defendant, the employers, to treat the dismissal as a summary dismissal for cause under clause 6(c).
37. Those who settled this statement of case did not concentrate their minds on the language of clause 6(c)(v), being the language on which Mr Linden has concentrated in his submissions to this court. If at that stage the defendant's legal advisers had concentrated on the clause that they ultimately relied on, they would have seen that they had to identify serious default or misconduct or a serious breach of the obligations, and they might have put themselves in the shoes of somebody against whom such a serious charge has been levied, because what followed was unparticularised in the extreme. For instance, the plaintiff's failure to carry out his duties with the requisite skill and competence which could be expected of an employee of his status, is set out without any details at all as one of the matters relied on. It is hardly surprising that when the matter eventually came to court and the defendant's primary case of setting up in competition with their company while he was still employed had been blown apart, it was not all that easy to identify within any particularity what remained of the case.
38. I am firmly of the view, which my Lords share, that it would be wholly inappropriate to devote any further resources of this court or, indeed, of the Central London County Court, on a retrial of this litigation. As I have said, it turned entirely on the judge's impression of the witnesses. Although it would have been better if the judge, without all that much help from the defendant's side, had set out in his judgment the precise terms of the agreement to which he ought to be considering, this was an ex tempore judgment at the end of a long day in court, and I, for my part, would not be disclosed to criticise the judge on that score, provided that I am satisfied that the judge essentially addressed the correct issues.
39. Like my Lords, I am so satisfied. I agree that this application should be dismissed.
Application dismissed with costs.