England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
(HIS HONOUR JUDGE PETER CLARK)

		Royal Courts of Justice Strand London WC2A 2LL Monday 4 March 2002

1. LORD JUSTICE BROOKE:I will invite Lord Justice Mummery to give the first judgment.
2. LORD JUSTICE MUMMERY: This is a renewed application for permission to appeal. The application is made by Mr Clarke QC on behalf of Charman Underwriting Agencies Limited. The decision which they wish to appeal is that of the Employment Appeal Tribunal on 19 December 2001. The Employment Appeal Tribunal allowed an appeal by Mrs Susan Hayes against the decision of the Employment Tribunal on 19 November 1999, which had dismissed her claims against Charman Underwriting Agencies Limited for sex discrimination and constructive dismissal.
3. The Employment Appeal Tribunal found that there were errors of law in the approach of the Employment Tribunal which necessitated a fresh hearing of the complaints. An application to the Employment Appeal Tribunal for permission to appeal was not granted. An application was then made to this court which I refused on paper on 2 February 2002, indicating that the Appeal Tribunal had correctly identified errors of law in the decision of the Employment Tribunal.
4. The background to the application is that Mrs Susan Hayes was employed by Charman Underwriting Agencies Limited from 1986 to July 1998 when she tendered her resignation. She progressed during her employment from the position of underwriter's clerk to that of an underwriter holding shares in the company. She was away on maternity leave twice: first, in 1991 and, secondly, between June and October 1994. During the period of her second absence on maternity leave, there were negotiations between Charman Underwriting Agencies Limited and a company interested in acquiring the undertaking. Shares were allocated while she was on maternity leave and before she returned to work at the end of October 1994. No shares were allocated to her, but they were allocated to male employees. This state of affairs did not become known to her until June 1998. Shortly afterwards, she left the company in circumstances that gave rise to her claims for constructive dismissal as well as sex discrimination.
5. The point which has given rise to the appeal can be summarised by reference to the decision of the Employment Tribunal. In the extended reasons sent to the parties on 19 November 1999, the tribunal set out their justification for dismissing her claims for sex discrimination and constructive dismissal. In paragraph 4 of the extended reasons the tribunal said:

"4. In essence, however, the crucial witness was Mr Charman [the chairman of the company] himself. His credibility or otherwise is fundamental to the Tribunal's decision. If his evidence is accepted, then the applicant's case must fail and if Mr Charman's evidence likewise is rejected, then the inference that there was sex discrimination and hence unfair dismissal is irresistible.

5. In short, the rival claims are, on behalf of the Applicant that she was excluded from a share 'Earn Out' scheme because she was on maternity leave at the relevant time and, on the part of the Respondents, the contention is that the decision to exclude the Applicant was taken on the grounds of merit, the need to provide incentives to employees and a need to adjust the relative position of other employees in connection with existing shareholdings."

6. The tribunal went on to state their findings of fact on the basis of the evidence. They directed themselves in the crucial passage as to the application of the Sex Discrimination Act 1975 section 1(1)(a) and section 6(2)(a) to the facts of the case. The tribunal found, rightly, that she had suffered detriment in that she was omitted from the Earn Out shares. They then referred in paragraph 51, to the guidance of the Court of Appeal in King v Great Britain-China Centre [1991] IRLR 513 regarding claims for sex discrimination. The critical paragraph is in paragraph 52:

"The tribunal had therefore examined most carefully the evidence of Mr Charman. When on peripheral issues there was a factual dispute between the Applicant and Mr Charman, Mr Charman's evidence is preferred. However, on the fundamental point as to how the decision came about in 1994 there is no contrary evidence. It is therefore a question of examining the evidence given by Mr Charman and seeing whether in all the circumstances of the Company it was likely to be true. For the reasons previously stated, the Tribunal accept that it was. The Applicant was not, in the finding of the Tribunal, omitted from the earn out shares because she was either a woman or because she was on maternity leave at the time. The shares were allocated on a system that admittedly left open the chance that it would be influenced consciously or unconsciously by sex discrimination but nevertheless, upon the Tribunal's finding, Mr Charman did honestly calculate the shares or lack of shares in the way that he said. That disposes of the claim for sex discrimination."

7. They then dealt in paragraph 53 with the claim for constructive dismissal, saying that it was conceded by Mr Clarke, who appeared for Charman Underwriting Agencies Limited, that if the sex discrimination claim succeeded, the constructive dismissal claim must succeed also. The tribunal went on to deal with submissions that had been made by Mrs Hayes on that point.
8. When the matter came to the Employment Appeal Tribunal, the tribunal focused on paragraph 52 of the Extended Reasons, which I have quoted. Paragraph 37 of their judgment, which was given on behalf of the tribunal by His Honour Judge Peter Clark, related the grounds on which Mr Clarke QC sought to support the decision of the tribunal. He had submitted to the Appeal Tribunal, as he has submitted to this court, that the Employment Tribunal's approach cannot be faulted.
9. His submissions were summarised in paragraph 37 as follows:

"The Appellant's case below was run largely, if not wholly, on the basis of deliberate discrimination by Mr Charman. In so far as any question of unconscious discrimination arose, the Tribunal had it in mind because they refer to that possibility at paragraph 52 of their Reasons. They decided the principal issues of fact arising out of the evidence, resolving those issues in favour of the Respondent."

10. The tribunal then referred to the judgment of Sedley LJ in the case of Anya v University of Oxford [2001] IRLR 377. They said that, with that in mind, they looked at the tribunal's reasons as a whole. They extracted what appeared to them to be the important passages for present purposes. The tribunal referred, as I have, to paragraph 4 of the extended reasons and then returned to paragraph 52. The Appeal Tribunal said at paragraph 39:

"Such an approach is, in our judgment, fatally flawed in law. We regard this case as a good example of the Anya principles in practice. We return to this Tribunal's reasoning. First, they have failed to ask themselves, in clear terms, the statutory questions raised by ss 1(1)(a) and 6(2)(a) of the Sex Discrimination Act. Secondly, they have sought to paraphrase Neill LJ's guidance in King and in so doing have led themselves astray. They find prima facie evidence of discrimination in both the 'unfortunate/inept' remark by Mr Charman on 12 June 1998 and the fact that the Appellant was on maternity leave when the earn out share allocation was made in 1994. However, instead of looking to the Respondent for an explanation for the less favourable treatment of the Appellant, assuming it to have been accepted, they ask themselves whether the Respondent's case lacks credibility. By that we do not accept, as Mr Clarke submits, a credible case as a whole but whether they can believe Mr Charman. We repeat, the credibility of Mr Charman as a witness and the explanation which he gives for the difference in treatment complained of, is an important factor in the Tribunal's deliberations. But it is not the sole and determinative factor."

11. In paragraph 41 it stated:

"As Anya makes clear, it is necessary for the Tribunal to consider the surrounding circumstances relied upon by the Applicant in support of her claim. This, in our judgment, they have manifestly failed to do, contenting themselves instead with deciding the case solely on the credibility of the witnesses. The question of subconscious discrimination was referred to by Miss Tether below at paragraph 9 of her closing submissions. The Tribunal refer to the possibility, at paragraph 52 of their Reasons, of unconscious discrimination, but they fail to go on to deal with that possibility on the facts."

12. Finally, the tribunal said at paragraph 43:

"It is precisely because, as Neill LJ pointed out in King, it is unusual to find direct evidence of racial (sexual) discrimination, that Tribunals must look at all the surrounding circumstances in order to determine whether the Respondent is motivated by subconscious, not simply conscious discrimination. This the Tribunal has failed to do in the present case."

13. The Appeal Tribunal concluded that the approach which they analysed in those paragraphs was flawed. The Employment Tribunal had failed to apply the correct legal test to the drawing of inferences.
14. I agree with the Appeal Tribunal's reasoning. I have reached the same conclusion as they did. Unfortunately, this matter must be remitted to a fresh Employment Tribunal for a rehearing at which the correct approach should be applied.
15. In his submissions today, which have amplified, as well as helpfully summarised the detailed skeleton argument, Mr Clarke has identified two points. First, the approach of the Employment Tribunal to the evidence of Mr Charman and, secondly, the Employment Tribunal's approach to all the circumstances. He attempted to persuade the court that the Employment Tribunal had not fallen into error and that the error had been on the part of the Employment Appeal Tribunal in their analysis of the paragraphs of the extended reasons, to which I have referred.
16. I remain unconvinced by Mr Clarke's helpful submissions. It seems to me that in paragraph 52 of the Extended Reasons the tribunal focused on the honesty of Mr Charman to the exclusion of a proper consideration of all the circumstances surrounding the decision not to allocate Earn Out shares to Miss Hayes while she was absent on maternity leave, and to the exclusion of a proper consideration of the possibility of subconscious sex discrimination, notwithstanding their view that Mr Charman was an honest witness.
17. For those reasons, and for the reasons given by the Appeal Tribunal, I would refuse permission to appeal.
18. LORD JUSTICE BROOKE: I agree.
Order: Permission to appeal refused.