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 LLANGEFNI COUNTY COURT
(His Honour Judge Elystan Morgan)

		Royal Courts of Justice Strand London WC2
		Friday, 22nd March 2002

Friday, 22nd March 2002

J U D G M E N T
1. LORD JUSTICE PETER GIBSON: The claimants, George Brian Eastwood and John Roger Williams, appeal from the order of His Honour Judge Elystan Morgan in the Llangefni County Court on 19th June 2001. By that order the judge on a preliminary issue, which was directed by District Judge Williams on 22nd March 2001 and which was defined no more precisely than whether the claimants had a case in law, gave judgment for the defendant, Magnox Electric Plc ("Magnox"). The judge applied the tests of Civil Procedure Rules 24.2 and 3.4, that is to say whether the claimants have no real prospect of succeeding on their claim and whether the statement of case discloses no reasonable grounds for bringing the claim.
2. The judge rightly proceeded on the footing that the factual allegations of the claimants are true. A summary of facts was put before the judge and assumed by him to be true. I will read it, with the addition of some dates which are not in dispute:

"1.Both Mr Eastwood and Mr Williams were long serving employees holding senior and responsible posts in the security section at Magnox's power station.

2. On 1st May 1996 Mr Eastwood became involved in a verbal disagreement with his immediate superior (Mr Owens), an individual who had a grudge against Mr Eastwood relating to an earlier incident.

3.Mr Owens reported an incident to a Mr Allen, a manager, which resulted in Mr Eastwood being summoned to see Mr Allen on 2nd May 1996. Mr Eastwood was told to admit the allegations, with a threat that failure to do so would result in other unspecified matters from his past being brought up and used against him.

4.Mr Eastwood refused to admit the allegations and there followed a series of events, the purpose and aim of which was to secure evidence with which to start disciplinary proceedings against Mr Eastwood. Individuals were counselled and persuaded to make statements which were known or suspected to be false, to misrepresent what Mr Eastwood had said to them, and a campaign was orchestrated with the intention of undermining, harassing and demoralising Mr Eastwood.

5.Mr Eastwood, for what was a relatively trivial incident, was ultimately on 13th June 1996 given a final written warning to remain on his file for two years. Mr Eastwood decided to appeal.

6.Shortly before the appeal on 2nd July 1996, which resulted in the two-year period being reduced to six months, Mr Williams, a colleague of Mr Eastwood, was asked in late June 1996 to provide a false statement in support of the case against Mr Eastwood. When he refused he was threatened and told that he too would be made the subject of investigation and disciplinary action.

7.An apparent fact finding investigation was instigated but was in truth no more than a concerted attempt to obtain information detrimental to Mr Williams and Mr Eastwood. The exercise was aided by the chance discovery that historically there had been a previous dispute between Mr Eastwood and a female member of the security staff, Mrs Roberts. Allegations of serious sexual harassment by Mr Eastwood and Mr Williams against Mrs Robert was thereafter used as the vehicle in the campaign to harass and undermine Mr Eastwood and Mr Williams.

8.Mrs Roberts was encouraged and assisted by members of management in formulating a series of allegations against Mr Eastwood and Mr Williams, some of which were in the order of eight years old. A formal complaint was lodged on 31st July 1996 by Mrs Roberts.

9.On 2nd August 1996 Mr Eastwood and Mr Williams were informed that they faced serious allegations of sexual harassment, were required to answer detailed questions without being told what the details of the allegations were and were publicly suspended on 7th August 1996 pending disciplinary hearings.

10.Whilst suspended an opportunity was taken by the Defendants to secure any available prejudicial information against them with a promise that none of the individuals providing the information would be required to give evidence to support what they said. Further, and as part of the concerted effort to deprive Mr Williams and Mr Eastwood of the opportunity to prepare their case, they were forbidden to discuss any matter relating to the disciplinary investigation with any person in the workplace.

11.The main complainant, Mrs Roberts, was encouraged by certain members of management to `beef up' her allegations and was given assistance in so doing.

12.The disciplinary hearings in respect of Mr Eastwood and Mr Williams took place in circumstances where numerous serious allegations were made and found proved despite the fact that no evidence was called to support them. This was so even though some of the allegations found to have been proved had been withdrawn by the original makers, and others contradicted by witnesses called on behalf of Mr Williams and Mr Eastwood.

13.Mr Williams and Mr Eastwood were eventually dismissed, Mr Williams on 4th October 1996, after some four months of what is alleged to be a concerted attempt to demoralise and undermine him, and Mr Eastwood on 18th April 1997, after approximately 12 months of a similar campaign. After dismissal photographs of Mr Eastwood and Mr Williams were posted at the security entrance with accompanying derogatory remarks.

14.By the time of their dismissal both Mr Eastwood and Mr Williams were suffering from stress, in the case of Mr Eastwood he had been so suffering for over seven months."

3. The judge on the basis of those assumed facts approached the legal issues on the further assumption that the conduct of Magnox was a contempt for the established statutory rights of its employees and essentially a conspiracy to deprive the claimants of their jobs by fabricating evidence, by encouraging persons to give false evidence and to rely on facts which were either known to be false or which Magnox did not believe to be true.
4. The judge accepted that the claimants' contracts of employment contained an implied term that neither party during the employment relationship without just and reasonable cause so conducts himself, or itself, as to destroy or seriously damage their mutual trust and confidence. The claimants' case in contract was that the conduct of Magnox amounted to breaches of that term. The claimants also claimed in tort, alleging negligence by Magnox. It was said that Magnox's conduct amounted to a breach of the duty of care. The loss and damage claimed by each claimant included injuries in the form of stress-related illness and depression and inability to work.
5. No doubt in bringing their claims the claimants were encouraged by the decision of the House of Lords in Mahmud v BCCI [1998] AC 20. The earlier decision of the House of Lords in Addis v Gramophone Company Ltd [1904] AC 488 had been understood to prevent a wrongly dismissed employee from receiving additional compensation for the manner of his dismissal. But that was heavily qualified in Mahmud. Lord Nicholls, with whom Lord Goff and Lord Mackay agreed, said at page 39:

"In my view these observations [in Addis] cannot be read as precluding the recovery of damages where the manner of dismissal involved a breach of the trust and confidence term and this caused financial loss. Addis v Gramophone Co. Ltd was decided in the days before this implied term was adumbrated. Now that this term exists and is normally implied in every contract of employment, damages for its breach should be assessed in accordance with ordinary contractual principles. This is as much true if the breach occurs before or in connection with dismissal as at any other time."

6. Lord Steyn, with whom Lord Goff and Lord Mackay also agreed, referred at page 52 to the case before them as being one

"...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."

7. Lord Steyn also said at page 52:

"The principled position is as follows. 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 am reinforced in this view by the consideration that such losses are in principle recoverable in respect of unfair dismissal."

8. However, a different approach was adopted by the majority in the House of Lords in Johnson v Unisys Ltd [2001] 2 WLR 1076, in the light of which all other earlier cases seem to me to need reconsideration. Before I turn to the Johnson case, it is convenient to refer to the statutory provisions governing claims for unfair dismissal and to say a little more about the cases which were brought by the claimants before the Employment Tribunal.

Part X of the Employment Rights Act 1996 gives an employee the right not to be unfairly dismissed. Section 111 provides that complaints of unfair dismissal may be brought to an Employment Tribunal. Such tribunals are specialist tribunals consisting of a legally qualified chairman and two lay members, one drawn from the employers' side and one from Trades Unions, with appeals from the Employment Tribunal's decisions going to the Employment Appeal Tribunal. The Employment Appeal Tribunal is similarly constituted with a presider, who is usually a judge, and two lay members. The basic period allowed for the bringing of a complaint of unfair dismissal is only three months, far shorter than the limitation period for actions in contract or tort in the civil courts, and the Employment Tribunal and the Employment Appeal Tribunal have their own procedures which are less formal than those of the courts. If the employee's complaint is held by the Employment Tribunal to be well-founded and the employee does not seek, or, if he does seek, does not obtain, an order for reinstatement or re-engagement, the court will order compensation, consisting of a basic award and a compensatory award. The basic award is computed by reference to the length of service but may be reduced on just and equitable grounds having regard to the employee's conduct. The compensatory award is of "such amount as the Tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal insofar as that loss is attributable to action taken by the employer", but it may be reduced by such amount as the Tribunal considers just and equitable if the employee caused or contributed to the dismissal. Importantly, the compensatory award is subject to a statutory limit. The Act also prescribes what employees can avail themselves of the right not to be unfairly dismissed. By section 205(1) the remedy of an employee for infringement of any of the rights conferred by Part X is by way of complaint to an Employment Tribunal and not otherwise.

9. It was under Part X that each of the claimants complained to the Employment Tribunal of unfair dismissal within three months of their respective dismissals. Mr Williams' complaint was heard by the Employment Tribunal sitting in Shrewsbury over six days. In the lengthy and detailed Extended Reasons the Employment Tribunal went into all the matters which are relied on in the present civil proceedings relating to Mr Williams, and did so fully. Moreover, there are a number of a references to the involvement of Mr Eastwood. Indeed, it was the accusation made against him that was the first of what the Employment Tribunal called the immediate circumstances which finally resulted in Mr Williams' dismissal. After a careful examination of all the circumstances, the Employment Tribunal found that Mr Williams was unfairly dismissed. It is evident that Mr Williams' case was treated as the lead case as between his and Mr Eastwood's cases, and that, following the decision in Mr Williams' case, Magnox settled with Mr Eastwood. Both received financial payments by way of agreement.
10. I come now to the Johnson case. In that case an employee complained to an Employment Tribunal of unfair dismissal by his employer and recovered compensation. He then commenced proceedings against the employer for damages for wrongful dismissal, claiming that because of the manner in which he had been dismissed he had suffered a mental breakdown and could not obtain employment. He relied on the implied obligation of mutual trust and confidence which, he said, the employer had breached. The county court treated the claim as being in substance one for damages for unfair dismissal in which the employee was trying to circumvent the unfair dismissal legislation. The county court judge held that an unfair dismissal could not found any action to recover financial loss caused by the manner of the employee's dismissal, and he struck out the action. On appeal the Court of Appeal ([1999] ICR 809) allowed the claimant to recast his pleading. The pleaded breach of the implied term included failures to put allegations to the employee, to accord the employee an opportunity to defend himself, to provide a full explanation of allegations against the employee and to comply with the employer's disciplinary procedures and the rules of natural justice. This court held that the substance of the complaint, even in its re-amended form, was as to the manner in which the employee had been dismissed, and said that damages could not be recovered as compensation for the manner of the dismissal and that any loss suffered by the employee as a result of the wrongful dismissal had already been met by the compensation awarded by the Employment Tribunal.
11. On appeal to the House of Lords, Lord Nicholls went back on what he had said in Mahmud. He now said this at page 1078:

"2 My Lords, on this appeal the employee seeks damages for loss he claims he suffered as a result of the manner in which he was dismissed. He uses as his legal foundation the decision of the House in Mahmud v Bank of Credit and Commerce International SA [1998] AC 20, although that was not a manner of dismissal case. In principle the employee's argument has much to commend it. I said so, in my obiter observations in Mahmud's case, at pp 39-40. But there is an insuperable obstacle: the intervention of Parliament in the unfair dismissal legislation. Having heard full argument on the point, I am persuaded that a common law right embracing the manner in which an employee is dismissed cannot satisfactorily coexist with the statutory right not to be unfairly dismissed. A newly developed common law right of this nature, covering the same ground as the statutory right, would fly in the face of the limits Parliament has already prescribed on matters such as the classes of employees who have the benefit of the statutory right, the amount of compensation payable and the short time limits for making claims. It would also defeat the intention of Parliament that claims of this nature should be decided by specialist tribunals, not the ordinary courts of law. I too would dismiss this appeal."

12. Lord Steyn dissented. He found that the employee had a reasonable cause of action based on a breach of the implied obligation of trust and confidence, but he also found that the claimed loss was too remote.
13. Lord Hoffmann, with whom Lord Bingham and Lord Millett agreed, held that the implied obligation of trust and confidence did not apply to dismissals or the way in which the employment terminated so as to give the employee a right to claim damages for psychiatric injury arising from the manner of dismissal. He said that a common law right to cover the manner in which the employee was dismissed and to recover unlimited damages could not coexist with the statutory remedy for unfair dismissal when the jurisdiction was conferred on employment tribunals, and allowed compensation subject to statutory limits. Lord Hoffmann said of the term of trust and confidence:

"So it does not seem altogether appropriate for use in connection with the way that relationship is terminated."

14. He considered whether the courts should imply a term to give a remedy, but pointed to various difficulties if that were to happen. He found as a conclusive point against such judicial creativity the statutory scheme in Part X of the 1996 Act. He said at page 1095:

"54 My Lords, this statutory system for dealing with unfair dismissals was set up by Parliament to deal with the recognised deficiencies of the law as it stood at the time of Malloch v Aberdeen Corpn [1971] I WLR 1581. The remedy adopted by Parliament was not to build upon the common law by creating a statutory implied term that the power of dismissal should be exercised fairly or in good faith, leaving the courts to give a remedy on general principles of contractual damages. Instead, it set up an entirely new system outside the ordinary courts, with tribunals staffed by a majority of lay members, applying new statutory concepts and offering statutory remedies. Many of the new rules, such as the exclusion of certain classes of employees and the limit on the amount of the compensatory award, were not based upon any principle which it would have been open to the courts to apply. They were based upon policy and represented an attempt to balance fairness to employees against the general economic interests of the community. And I should imagine that Parliament had also in mind the practical difficulties I have mentioned about causation and proportionality which would arise if the remedy was unlimited. So Parliament adopted the practical solution of giving the tribunals a very broad jurisdiction to award what they considered just and equitable but subject to a limit on the amount.

55 In my opinion, all the matters of which Mr Johnson complains in these proceedings were within the jurisdiction of the industrial tribunal. His most substantial complaint is of financial loss flowing from his psychiatric injury which he says was a consequence of the unfair manner of his dismissal. Such loss is a consequence of the dismissal which may form the subject matter of a compensatory award."

15. Lord Hoffmann saw no reason why, in an appropriate case, the compensation should not include compensation for distress, humiliation, damage to reputation in the community or to family life. He continued on page 1096":

"56 Part X of the Employment Rights Act 1996 therefore gives a remedy for exactly the conduct of which Mr Johnson complains. But Parliament had restricted that remedy to a maximum of £11,000, whereas Mr Johnson wants to claim a good deal more. The question is whether the courts should develop the common law to give a parallel remedy which is not subject to any such limit.

57 My Lords, I do not think that it is a proper exercise of the judicial function of the House to take such a step. Judge Ansell, to whose unreserved judgment I would pay respectful tribute, went in my opinion to the heart of the matter when he said:

`there is not one hint in the authorities that the ... tens of thousands of people that appear before the tribunals can have, as it were, a possible second bite in common law and I ask myself, if this is the situation, why on earth do we have this special statutory framework? What is the point of it if it can be circumvented in this way? ... it would mean that effectively the statutory limit on compensation for unfair dismissal would disappear.'

58 I can see no answer to these questions. For the judiciary to construct a general common law remedy for unfair circumstances attending dismissal would be to go contrary to the evident intention of Parliament that there should be such a remedy but that it should be limited in application and extent.

59 The same reason is in my opinion fatal to the claim based upon a duty of care. It is of course true that a duty of care can exist independently of the contractual relationship. But the grounds upon which I think it would be wrong to impose an implied contractual duty would make it equally wrong to achieve the same result by the imposition of a duty of care."

16. Lord Hoffmann also considered whether the disciplinary procedures applicable to the employee gave rise to a common law action in damages which was independently actionable, but held that they did not.
17. Lord Millett in his speech said this at page 1102:

"79But the courts might well have developed the law in a different way by imposing a more general obligation upon an employer to treat his employee fairly even in the manner of his dismissal. ...

80But the creation of the statutory right has made any such development of the common law both unnecessary and undesirable. In the great majority of cases the new common law right would merely replicate the statutory right; and it is obviously unnecessary to imply a term into a contract to give one of the contracting parties a remedy which he already has without it. In other cases, where the common law would be giving a remedy in excess of the statutory limits or to excluded categories of employees, it would be inconsistent with the declared policy of Parliament. In all cases it would allow claims to be entertained by the ordinary courts when it was the policy of Parliament that they should be heard by specialist tribunals with members drawn from both sides of industry. And, even more importantly, the coexistence of two systems, overlapping but varying in matters of detail and heard by different tribunals, would be a recipe for chaos. All coherence in our employment laws would be lost.

81 For these reasons it is a step which, for one, I am not prepared to take. For the same reasons I am satisfied that it would not be appropriate to attempt to achieve the same result by taking the novel course of subjecting the employer's contractual rights to a tortious duty of care."

18. I now return to what happened in the present case before the judge.
19. Magnox contended that an unfair dismissal resulting from a failure to follow properly and fairly an investigation and disciplinary procedure does not give rise to a common law claim in contract for damages. It denied owing a duty of care in relation to the operation of the investigation and disciplinary procedures. It alleged that claims for compensation were claims to be brought before the Employment Tribunal alone. It also alleged that the claim for loss was too remote. It relied on Johnson for those propositions. The claimants argued that Johnson did not preclude the claimant's claim in the present case, arguing that Johnson did not prevent a claim for damages for psychiatric injury based on a contractual breach when no issue of dismissal was involved or where the breach related to conduct pre-dating, and not being part and parcel of, the dismissal. They further argued that there could be no policy arguments excluding a claim in negligence where the conduct said to give rise to the foreseeable risk of injury was conduct during the existence of the employment contract and the breach was not necessarily associated with the termination of employment. They argued that the loss claimed was not too remote.
20. The judge examined five questions which it was agreed should be considered by him:

(1) Did Johnson define areas of exclusivity which restricted the operation of implied conditions or a duty of care? The judge said that it did, and that Johnson clearly laid down areas which limited the operation of the implied conditions and that, in respect of the duty of care, the unfair dismissal legislation acted as a buffer.

(2)What are the boundaries to be set? The judge said that the area of exclusion was the area of the purview of the Employment Tribunal considering unfair dismissal, and included those acts which took place since the disciplinary machinery began to run.

(3)How do those boundaries affect the issue in this case? The judge held that in the case of Mr Eastwood the facts from the time since 2nd May 1996, when Mr Eastwood was summoned to see Mr Allen, and in the case of Mr Williams from the time when he was enmeshed in the disciplinary procedures near the end of June 1996, were matters which could not give rise to a claim relating to the unfair manner of dismissal in the county court proceedings.

(4)Were the opinions of the majority in Johnson ratio or obiter? The judge said that they were ratio.

(5) What is the situation in regard to causation and foreseeability in the context of remoteness of damage? The judge said that the issue of remoteness did not really arise, given his earlier conclusions.

21. The judge added that the claimants were not precluded from bringing an action for tortious conspiracy against Magnox. He ended by saying that he had decided the matter on the basis of the technical rules which he thought flowed from the House of Lords's decision in Johnson.
22. Before us Mr Hunter QC for the claimants challenges the correctness of the judge's conclusion. He repeats the arguments which he advanced to the judge, saying that the decision in Johnson was not intended to, and does not, preclude a claim for breach of the implied term as to mutual trust and confidence where the facts and matters relied upon, and the conduct complained of, related to the on-going relationship of employer and employee or, where the relationship has come to an end, to conduct which ante-dates the dismissal and was not part and parcel thereof. He says that Johnson does not preclude a claim based on conduct during the existence of the relationship which, when viewed objectively, was likely to destroy or seriously damage the relationship as in Mahmud. He says that the right to sue for breach is not dependent on whether or not the employee elects to treat the breach as repudiatory. He submits that if the judge is right, an employee who could claim a repudiatory breach of the implied obligation of trust and confidence so as to mount a claim for constructive dismissal, but chooses not to do so, is excluded from pursuing his claim in the courts as much as a person who is actually dismissed. He argues from that that a more limited interpretation of the scope of the application of Johnson should be adopted. He submits that on a proper analysis of Johnson, the employee's complaints in that case were exclusively concerned with the fact of his dismissal and the circumstances immediately surrounding the same.
23. Attractively though these submissions were advanced and whilst for my part I can readily see that there could be very great difficulties arising in other cases, for example a case where constructive dismissal might have been but was not asserted, I am not able to accept Mr Hunter's arguments. It is, in my judgment, plain that in Johnson the majority in the House of Lords held that unfairness in the manner of dismissal of an employee does not give rise to a common law action, whether it be founded in contract or in tort, but must be the subject of Employment Tribunal proceedings. The implied term of trust and confidence cannot be used in connection with the way the employer/employee relationship is terminated. There may be cases where the particular manner in which an employee is dismissed or the circumstances attending dismissal is or are confined to events occurring at the same time or immediately before the dismissal. In other cases that manner and those circumstances may include a pattern of events stretching back over a period. It is a question of fact for the trial judge to determine in each case.
24. In the present case I venture to suggest that the position is tolerably plain and uncomplicated. The two claimants were actually dismissed. Mr Hunter accepts that the dismissals were part of the unfair circumstances. The claimants did apply to an employment tribunal; and in Mr Williams' case we have the benefit of the Employment Tribunal's Extended Reasons. From them we know what facts were considered by that Tribunal as relevant to the claim that Mr Williams was dismissed unfairly and that, in the Tribunal's words, "the immediate circumstances which finally resulted in his dismissal began in May 1996" when Mr Eastwood on 1st May was accused of abusive, aggressive and intimidatory behaviour towards Mr Owens. Over the next six pages the Employment Tribunal consider "the broad circumstances which led to the dismissal of Mr Williams". They support the judge's view of how the boundaries imposed by Johnson affect the issues in the case; and the compensation which was recoverable in the Employment Tribunal covered the substance of what Mr Williams now seeks to recover in the county court proceedings. Whether he in fact achieved full recovery by taking the agreed compensation is another matter. He did not go to his general practitioner until the very day he was dismissed, and his medical expert blamed his health problems on the shock of the dismissal and the previous inquiry. So far as he is also claiming in the county court damages for his inability to work after dismissal, that would surely have been part of his claim for compensation in the Employment Tribunal proceedings. Mr Williams' case seems to me to fall plainly within the mischief identified by Judge Ansell in Johnson and quoted by Lord Hoffmann at paragraph 57. I can see no justification for allowing him a second bite of the cherry.
25. Mr Eastwood's position is on its face slightly different, because there was no hearing in, or decision from, the Employment Tribunal on his complaint which he had brought by means of his originating application. But I cannot believe that that puts him in any different position, given that his case was so intertwined with that of Mr Williams and that after commencing proceedings before the Employment Tribunal, when Mr Williams case was decided Mr Eastwood was able to recover an agreed sum in compensation. Factually there is a further difference in that he went to see a doctor in August and September 1996, months before he was dismissed. But his medical expert blamed Mr Eastwood's health problems on the nature of the allegations against him and the way the allegations were handled, that is to say part of the circumstances attending the dismissal or part of the manner of dismissal. In my judgment, therefore, his case on analysis is in no different position from that of Mr Williams.
26. Accordingly, in acceptance of Mr Robert Owen QC's arguments for Magnox, I would hold that the judge was quite right to conclude on the particular facts of this case that the decision in Johnson prevents the claimants' claims in the County Court proceedings from being sustainable. I should make clear that we have heard no argument on any other point, such as estoppel, in the light of our conclusion on the applicability of what was decided in Johnson. Nor has it been necessary to consider the argument which Magnox was intending to raise by way of its Respondent's Notice relating to remoteness.
27. For these reasons, I would dismiss this appeal.
28. LORD JUSTICE MANTELL: I agree.
29. SIR SWINTON THOMAS: I also agree.
Order: Appeal dismissed with costs to be subject to detailed assessment in default of agreement, and an interim award of £20,000 be paid to the defendants towards those costs, payable within 28 days. Application to appeal to the House of Lords refused.