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Cite as: [2010] IRLR 702, [2010] Med LR 307, [2011] QB 339, [2010] ICR 1181, [2010] 3 WLR 1285, [2011] 1 QB 339, [2010] EWCA Civ 571

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		Neutral Citation Number: [2010] EWCA Civ 571
		Case No: A2/2009/1834

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(Mr. Justice Nicol)
[2009] EWHC 2011 (QB)

Royal Courts of Justice
Strand, London, WC2A 2LL

26 May 2010

B e f o r e :

LORD JUSTICE WARD
LORD JUSTICE LLOYD
and
LORD JUSTICE MOORE-BICK
____________________

Between:

	MICHAEL STEVEN DELAWAR EDWARDS	Claimant/ Appellant
	- and -
	CHESTERFIELD ROYAL HOSPITAL NHS FOUNDATION TRUST	Defendant/Respondent

____________________

(Transcript of the Handed Down Judgment of
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____________________

Ms Mary O'Rourke Q.C. and Mr. Oliver Williamson (instructed by Ryan Solicitors) for the appellant
Mr. Mark Sutton and Mr. Marcus Pilgerstorfer (instructed by Beachcroft LLP) for the respondent
Hearing dates : 21st and 22nd April 2010
____________________

HTML VERSION OF JUDGMENT
____________________

Lord Justice Moore-Bick :

Background

The appellant, Mr. Michael Edwards, was appointed as a consultant trauma and orthopaedic surgeon at the Chesterfield Royal Hospital in 1998. The contract under which he was employed provided by clause 8 that either party could terminate it on three months' notice to the other. It also provided by clause 13 that in matters of personal conduct Mr. Edwards would be subject to the hospital's general procedures and that in matters of professional misconduct he would be subject to a procedure agreed by the Local Negotiating Committee in respect of medical practitioners.

The respondent, Chesterfield Royal Hospital NHS Foundation Trust ("the Trust"), was formed in January 2005 and then became Mr. Edwards' employer, but on 10^th February 2006, following a disciplinary hearing, he was summarily dismissed from his post for gross professional and personal misconduct. He has since been able to obtain work as a locum with another NHS Trust, but has been unable to obtain a permanent consultant post and says that he will not be able to do so in the future because of the finding against him. He says that he has therefore been unable to pursue his medical career in the manner which he would have wished. The Investigating Committee of the General Medical Council later summarily dismissed a complaint against him based on the same allegations.

Mr. Edwards has consistently maintained that the Trust failed to follow the contractual disciplinary procedure correctly, in particular, by failing to appoint a person with legal qualifications to chair the panel which considered his case, by failing to appoint as a member of the panel a clinician of the same medical discipline as himself and by refusing to allow him to be legally represented at the hearing. He also maintains that if the procedure had not suffered from those defects no finding of misconduct would have been made against him. Accordingly, on 15^th August 2008 he commenced proceedings against the Trust in the Manchester District Registry seeking damages for breach of his contract of employment in the sum of a little under £4.3 million.

The damages claimed by Mr. Edwards include a sum of £478,474 in respect of various expenses and loss of earnings up to the date of the issue of proceedings, future loss of earnings in a sum in excess of £3.8 million and future loss of pension in an amount still to be quantified. The claim was made on the basis that if he had not been wrongfully dismissed for misconduct his employment by the Trust would have continued until his retirement in 2022 at the age of 65. The Trust, however, considered that the most he was entitled to recover, if his claim succeeded at all, was loss of earnings for the three months' period of notice to which he was entitled under his contract of employment. On 17^th February 2009 it applied for an order that his claim for damages be struck out insofar as it exceeded that amount. At a hearing on 26^th March 2009 District Judge Jones accepted the Trust's arguments and granted it a declaration that Mr. Edwards' claim was limited to loss of earnings for the contractual period of three months' notice.

Mr. Edwards' appeal against the District Judge's order was heard by Nicol J. The judge held that if his substantive claim succeeded Mr. Edwards would be entitled to recover loss of earnings in respect of his contractual notice period and also in respect of the period during which he would have remained employed while a disciplinary procedure which complied with the terms of his contract ran its course. He based his conclusion on the decision of this court in Gunton v Richmond-upon-Thames London Borough Council [1980] I.C.R. 755. Accordingly, he allowed the appeal and varied the order of District Judge Jones accordingly.

Mr. Edwards now appeals to this court. He does so because the effect of the judge's order is to restrict the damages which he will be able to recover, even if his case otherwise succeeds in full, to a small proportion of his total claim. Indeed, Ms O'Rourke Q.C. suggested that the claim might not be worth pursuing on such a restricted basis.

The nature of the appeal

This is a second appeal from an order made under CPR Part 24. Moreover, it arises on an application by the defendant expressed to be for an order striking out part of the claim (though more properly, since made under Part 24, for summary judgment). Formally, therefore, the issue to be determined is whether Mr. Edwards has any real prospect of recovering after a trial damages in excess of loss of earnings for the contractual period of notice and the period required for contractual disciplinary proceedings. However, since the only issue before the court concerns the measure of damages recoverable in law, Mr. Sutton accepted that the court must proceed on the assumption that Mr. Edwards will succeed in establishing all the allegations made in the particulars of claim. In those circumstances the application has been treated as amounting to the trial of a preliminary issue. The question is whether, if the allegations made on the particulars of claim are established, Mr. Edwards' entitlement to damages is as limited as the Trust contends.

Most applications under Part 24 turn to some degree on the facts. For example, the claimant says that the defendant has no real prospect of successfully defending the claim and the defendant puts forward in his defence evidence of facts which he says provide a defence in law. The first, and often the only, question for the court in such cases is whether there is a real prospect that the defendant will establish at trial the facts on which he relies. If there is, the matter must be tried. Sometimes, however, the claimant says that the facts on which the defendant relies do not provide a defence in law. In such cases the court will often consider whether, notwithstanding what the claimant says, facts may be found at trial that will have a bearing on the question of law. If there is no real prospect that that will occur, however, the court will generally decide the question, unless it is of such difficulty and complexity that it calls for fuller argument than can be accommodated on the hearing of the application.

In the present case Ms O'Rourke sought at one stage to persuade us that the issues that arise on this appeal were too difficult and complex to be determined on an application under Part 24 and that the appeal should be allowed on that ground alone. At one stage I was attracted by that submission, but since it is common ground that we must approach the arguments on the assumption that all the allegations made in the particulars of claim will be established, it is difficult to see how the judge at trial could be in any better position to decide the point than we are. Moreover, we have had the benefit of extensive argument and citation of authority at least as ample as that which the trial judge could expect to have. In those circumstances I do not think that it would be right to allow the appeal on this ground. In my view the court should grasp the nettle and decide the points of law raised by the application.

The basis of the claim

It is necessary at this stage to describe in a little more detail the basis of Mr. Edwards' case as set out in his particulars of claim. In summary it is as follows:

(i) that in matters of personal conduct he would be subject to the hospital's general procedures and that in matters of professional conduct he would be subject to a procedure agreed by the Local Negotiating Committee in respect of medical practitioners;

(ii) that he was accused by the Trust of personal and professional misconduct;

(iii) that because of the nature of the allegations made against him he was contractually entitled to a formal disciplinary hearing by a panel which included a clinician of the same discipline as himself and a legally qualified chairman, before which he would have the benefit of legal representation, if he so wished;

(iv) that the disciplinary hearing which resulted in the findings of misconduct was not conducted in accordance with the terms of his contract of employment because the panel did not include a clinician of the same discipline as himself, nor a legally qualified chairman and because his request to be allowed legal representation was refused;

(v) that following the panel's findings he was dismissed for personal and professional misconduct;

(vi) that if the proceedings had been carried out in accordance with his contract of employment the panel would not have found that he was guilty of personal and professional misconduct and he would not have been dismissed;

(vii) that because he was dismissed on the grounds of personal and professional misconduct (including dishonesty) he has been unable to find comparable alternative employment.

As I have said, it is common ground that in order to determine the limited question raised by the application and this appeal it is necessary to assume that Mr. Edwards will in due course make good each of those steps in his argument. The case therefore raises an important question, namely, whether a person who suffers damage as a result of findings of personal or professional misconduct leading to dismissal and loss of professional status that were made against him in disciplinary proceedings conducted in breach of contract, but which would not otherwise have been made, can recover damages at large.

The parties' submissions

Ms O'Rourke's primary submission was that he can. In this case the breach of contract and consequent findings of misconduct have caused Mr. Edwards substantial loss of earnings by preventing him from continuing as an employee of the Trust and from obtaining similar employment elsewhere. Since the contract does not exclude liability for such loss, he is entitled to recover damages in a sum which will compensate him in full. Her secondary submission was that the decision in Gunton v Richmond-upon-Thames should no longer be regarded as representing the law, or at any rate can be distinguished, as a result of the passing of the Human Rights Act 1998, which has particular implications for those employed by public authorities, in particular, the NHS.

Mr. Sutton, in a most able and helpful argument, submitted that the law precludes recovery of substantial damages for breach of a disciplinary procedure of the kind under consideration, leaving the employee to his remedy for unfair dismissal under Part X of the Employment Rights Act 1996 and a claim for damages for wrongful dismissal assessed in accordance with the principles identified in Gunton v Richmond-upon-Thames. In support of that argument he relied principally on the decision of the House of Lords in Johnson v Unisys Ltd [2001] UKHL 13, [2003] 1 AC 518. He submitted that the judge was therefore right to hold that Mr. Edwards could recover no more than damages for loss of earnings during his contractual period of notice and such additional period as would have been required for the completion of disciplinary proceedings that complied with the contract.

The position at common law

It is convenient to begin by referring briefly to the position at common law as described by Lord Reid in Malloch v Aberdeen Corporation [1971] 1 W.L.R. 1578. He said in a well known passage at page 1581:

"At common law a master is not bound to hear his servant before he dismisses him. He can act unreasonably or capriciously if he so chooses but the dismissal is valid. The servant has no remedy unless the dismissal is in breach of contract and then the servant's only remedy is damages for breach of contract."

At common law, therefore, an employee has no security of tenure and no right to continue in employment unless the contract provides otherwise. In this case, as in many others, however, the contract did provide otherwise, because clause 8 provided that either party could terminate it on giving three months' notice. At any time, therefore, Mr. Edwards had a contractual right to be employed for a further three months, but no more. He also had a statutory right not to be dismissed unfairly, so, if after giving three months' notice the Trust had dismissed him unfairly or for no good reason, he could have pursued a claim in the Employment Tribunal for unfair dismissal. Subject to Ms O'Rourke's argument as to the continued application of Gunton v Richmond-upon-Thames, however, he would not have been entitled to recover damages for breach of contract.

Johnson v Unisys

The common law implies into every contract of employment a term that neither party will act in such a way as to undermine the relationship of mutual trust and confidence that must exist between employer and employee, the so-called implied term of trust and confidence. The existence of that term as imposing obligations on both employer and employee was confirmed by the House of Lords in Mahmud v Bank of Credit and Commerce International S.A. [1997] UKHL 23, [1998] AC 20, in which their Lordships held that employees of the bank could recover in respect of the damage to their prospects of obtaining employment caused by the manner in which it had conducted its business.

In Johnson v Unisys the claimant was summarily dismissed from his employment following allegations about his personal conduct. He alleged that he had suffered a mental breakdown as a result of the manner in which he had been dismissed which prevented him from finding another job. He sought to recover damages for breach of the implied term of trust and confidence. The House held that since Parliament had provided a limited remedy for the conduct of which he complained by Part X of the Employment Rights Act 1996 in the form of a claim for unfair dismissal, it would not be appropriate to develop the common law in a way that would accommodate his claim. Accordingly, it held that the claim had properly been struck out.

The leading speech in Johnson v Unisys was delivered by Lord Hoffmann, with whom Lord Bingham and Lord Millett agreed. Lord Millett also delivered a concurring speech, as did Lord Nicholls. Lord Steyn agreed in the outcome, but on different grounds. The case represented an attempt by the employee, Mr. Johnson, to fashion a remedy at common law based on the implied term of trust and confidence. In effect, he was seeking to establish that there is an implied term in every contract of employment that the employer will not act unfairly or without reasonable and proper cause damage the employee's prospects of obtaining subsequent employment by the manner of his dismissal. As Lord Steyn pointed out, the law relating to the implied term of trust and confidence has developed during the latter part of the last century, most notably in the case of Mahmud v B.C.C.I. The question for the House, therefore, was whether the common law had developed to the point of providing a remedy of the kind sought by Mr. Johnson, and if not, whether it was appropriate to develop it further in order to do so. That was the point on which the House was divided: Lord Steyn considered that it had (see in particular paragraph 21); the majority held that it had not and that it should not be developed so as to do so.

The bulk of Lord Hoffmann's speech is directed to the question whether the implied term of trust and confidence applies to dismissal. He clearly considered that some development of the law would be required in order to recognise that it does and for that reason began by considering whether it would be possible to fashion an implied term of that kind which could co-exist with the express terms of the contract. He considered that to do so would be difficult, though not impossible. Moreover, he doubted whether the implied term of trust and confidence could be pressed into service in order to create a breach of contract additional to the dismissal itself, because it is concerned with preserving the continuing relationship between employer and employee rather than its termination (paragraphs 45-46). Lord Hoffmann also considered that it would be undesirable to take that course for practical reasons, but the consideration which he found to weigh decisively against developing the law in the manner required by Mr. Johnson was the existence of the legislation providing a remedy for unfair dismissal. In his view it would have been wrong for the courts to develop a general common law remedy which was more generous than that which had been provided by Parliament (paragraphs 56-58). The latter consideration also weighed heavily with both Lord Nicholls and Lord Millett.

That was sufficient to determine the appeal, but in paragraphs 60-66 Lord Hoffmann went on to consider whether the provisions for disciplinary hearings were express terms of Mr. Johnson's contract and what the consequences would be if they were. However, as he made clear, no express terms had been relied on in that case and so the question did not arise on the appeal. In my view, therefore, his remarks on that question, although entitled to respect, are clearly obiter and not binding on us.

Lord Hoffmann began by observing that section 1(1) of the Employment Rights Act 1996 requires an employer to provide an employee upon commencing employment with a written statement of "particulars of employment", which includes, but is not limited to, the terms and conditions of his employment. Mr. Sutton placed particular reliance on the following two paragraphs, to which it will be necessary to return at a later stage:

"63. So did the disciplinary procedures constitute express terms of the contract of employment? Perhaps for some purposes they did. But the employee handbook has to be construed against the relevant background and the background which fairly looms over the disciplinary procedure is Part X of the 1996 Act. The whole disciplinary procedure is designed to ensure that an employee is not unfairly dismissed. So the question is whether the provisions about disciplinary procedure which (to use a neutral phrase) applied to Mr Johnson's employment were intended to operate within the scope of the law of unfair dismissal or whether they were intended also to be actionable at common law, giving rise to claims for damages in the ordinary court.

. . .

66. My Lords, given this background to the disciplinary procedures, I find it impossible to believe that Parliament, when it provided in section 3(1) of the 1996 Act that the statement of particulars of employment was to contain a note of any applicable disciplinary rules, or the parties themselves, intended that the inclusion of those rules should give rise to a common law action in damages which would create the means of circumventing the restrictions and limits which Parliament had imposed on compensation for unfair dismissal. The whole of the reasoning which led me to the conclusion that the courts should not imply a term which has this result also in my opinion supports the view that the disciplinary procedures do not do so either. It is I suppose possible that they may have contractual effect in determining whether the employer can dismiss summarily in the sense of not having to give four weeks' notice or payment in lieu. But I do not think that they can have been intended to qualify the employer's common law power to dismiss without cause on giving such notice, or to create contractual duties which are independently actionable."

In Johnson v Unisys both Lord Steyn and Lord Hoffmann accepted that the ordinary rules of law apply in relation to the breach of a term of a contract of employment. In paragraph 21 Lord Steyn said:

"Damages for wrongful dismissal are governed not by a special rule applicable to employment contracts but by ordinary principles of contract law: see Mahmud's case, at p 39d";

and in paragraph 44 Lord Hoffmann said:

"As McLachlin J. said in the passage I have quoted, the only loss caused by a wrongful dismissal flows from a failure to give proper notice or make payment in lieu. Therefore, if wrongful dismissal is the only cause of action, nothing can be recovered for mental distress or damage to reputation. On the other hand, if such damage is loss flowing from a breach of another implied term of the contract, Addis's case does not stand in the way. That is why, in Mahmud's case itself, damages were recoverable for financial loss flowing from damage to reputation caused by a breach of the implied term of trust and confidence." (Emphasis added.)

In my view, the ratio of Johnson v Unisys is that the common law does not imply into a contract of employment a term that the employer will not act unfairly towards the employee in relation to his dismissal and that the courts are not at liberty to develop the common law implied term of trust and confidence in order to give rise to such an obligation. However, the speeches recognise that where a breach of contract by the employer can be identified, the employee is entitled to obtain any remedy available to him under the general law.

Mr. Edwards' contract of employment

If that is right, the next step is to identify the relevant terms of Mr. Edwards' contract with the Trust. In the present case that presents little difficulty, since we are obliged to assume that it included the terms identified in paragraph 10(iii) above and also a term entitling either party to terminate the contract on giving three months' notice. We are also obliged to assume that the disciplinary proceedings which led to the findings of personal and professional misconduct were carried out in breach of contract and that those findings would not have been made if the proper procedures had been followed.

In those circumstances it is difficult to see why, if the findings of misconduct were a consequence of the Trust's breach of contract and caused loss to Mr. Edwards (as, again, we must assume they did), he should not be entitled to recover damages for that breach of contract in accordance with ordinary principles. Mr. Sutton's answer is that the law, as explained by Lord Hoffmann in the paragraphs cited earlier, prevents him from doing so. A similar argument was addressed to Nicol J. in answer to the claim for damages for loss of earnings during the period that would have been required for a contractual disciplinary procedure, the so-called "Gunton extension". The judge rejected it on the grounds that Mr. Johnson had not relied on an express term of the contract and that Lord Hoffmann's observations were not necessary to resolve the issues before the House. He noted that although Gunton v Richmond-upon-Thames was cited, none of their Lordships had referred to it. He clearly did not think that it had been the intention of the House to overrule it.

I think the judge was right about that and I have already expressed the view that the passages in Lord Hoffmann's speech on which Mr. Sutton relies are obiter. Like the judge, I find it impossible to believe that Lord Hoffmann was intending to cast doubt on the decision in Gunton v Richmond-upon-Thames without expressly saying so. In my view the decision in that case can be explained only on the basis that the employee had a contractual right to have the benefit of the agreed disciplinary proceedings before he was dismissed, otherwise there was no obligation capable of supporting that part of the award of damages which related to it. Mr. Sutton attempted to deal with these implications of the decision in Gunton v Richmond-upon-Thames by submitting that the decision was essentially pragmatic, but although pragmatism may sometimes lead a court to recognise the existence of an obligation, an obligation must be recognised before damages can be awarded for its breach. For these reasons I think that the decision supports Mr. Edwards' case.

The passage in Johnson v Unisys on which Mr. Sutton ultimately relied most heavily is that to be found at the beginning of paragraph 66 in which Lord Hoffmann said that he found it impossible to believe that Parliament, or the parties themselves, intended that the inclusion in an employee's statement of particulars of employment of disciplinary rules should give rise to a common law action in damages. Mr. Sutton submitted that Lord Hoffman intended to say that disciplinary rules will never be incorporated into the contract, or at any rate will never give rise to a claim for damages, but I think that the better explanation lies in the fact that, as he himself expressly recognised, the statement of particulars of employment is not confined to the contractual terms and conditions. In other words, I think Lord Hoffmann was simply expressing the view that a disciplinary provision of that kind is not normally intended to be contractually binding, even though a reference to it is included in the statutory particulars of employment. There is nothing in the 1996 Act that excludes any of the rights that the employee would otherwise enjoy at common law and in the absence of legislation to that effect it is open to the parties to the contract to agree, if necessary by clear words, that a particular term is to be legally binding.

Finally, before leaving Johnson v Unisys it is worth noting that in paragraph 45 Lord Hoffmann observed that Mr. Johnson was seeking to rely on the implied term to fill the gap identified by Lord Shaw in Addis v Gramophone Co. Ltd [1909] AC 488, 504 by creating a breach of contract additional to the dismissal itself. However, in cases where the contract contains an express term, the breach of which can be shown to have caused the relevant loss, no such gap exists.

In Eastwood v Magnox Electric Plc and McCabe v Cornwall County Council [2004] UKHL 35, [2005] 1 AC 503 employees sought to recover damages for stress-related illness and psychiatric injury caused by breaches of the implied term of trust and confidence prior to their dismissal. In Eastwood the claim was based on allegations that the employer had conducted a campaign to demoralise the claimants prior to their dismissal. In McCabe the claim was based on the employer's conduct in suspending the employee and, during the period of suspension, failing to inform him of the allegations made against him or properly investigate them. The House of Lords held that in Eastwood a claim could be maintained, there being a breach of the implied term of trust and confidence prior to the dismissal, but not in McCabe because the complaints related to the manner of his dismissal and therefore fell within the scope of the decision in Johnson v Unisys – in other words, within what Lord Nicholls described as the "Johnson exclusion area". The leading speech was delivered by Lord Nicholls, with whom Lord Hoffmann, Lord Rodger and Lord Brown agreed. Lord Steyn, who agreed in the outcome and, I infer, with the speech of Lord Nicholls, devoted the major part of his own speech to a trenchant criticism of the decision in Johnson v Unisys.

In paragraph 14 Lord Nicholls expressly recognised that, by establishing a statutory code for unfair dismissal, Parliament did not evince an intention to circumscribe an employee's rights in respect of wrongful dismissal, that is, dismissal in breach of contract. That a breach by an employer of the implied term of trust and confidence can give rise to an action in damages had already been established in Mahmud v B.C.C.I., but in Johnson v Unisys the House had held that the implied term of trust and confidence does not extend to the circumstances and manner of dismissal. Accordingly, in cases where the claimant seeks to rely on a term implied at common law it has become necessary to identify the boundary of the Johnson exclusion area. As to that, Lord Nicholls said in paragraphs 27-28:

"27 Identifying the boundary of the "Johnson exclusion area", as it has been called, is comparatively straightforward. The statutory code provides remedies for infringement of the statutory right not to be dismissed unfairly. An employee's remedy for unfair dismissal, whether actual or constructive, is the remedy provided by statute. If before his dismissal, whether actual or constructive, an employee has acquired a cause of action at law, for breach of contract or otherwise, that cause of action remains unimpaired by his subsequent unfair dismissal and the statutory rights flowing therefrom. By definition, in law such a cause of action exists independently of the dismissal.

28 In the ordinary course, suspension apart, an employer's failure to act fairly in the steps leading to dismissal does not of itself cause the employee financial loss. The loss arises when the employee is dismissed and it arises by reason of his dismissal. Then the resultant claim for loss falls squarely within the Johnson exclusion area."

Two points deserve to be noted at this stage: first, that the decision as a whole, and the recognition of the Johnson exclusion area in particular, is concerned with the ambit of the implied term of trust and confidence and its application to dismissal; second, that Lord Nicholls recognised that the statutory scheme concerns unfair dismissal alone and does not impinge on any cause of action the employee may otherwise have for breach of contract.

Finally, it is necessary to refer briefly to the recent decision in Botham v Ministry of Defence (26^th March 2010, unreported) [2010] EWHC 646 (QB). In that case the claimant, who had been employed by the Ministry of Defence as a youth community worker in Germany, was summarily dismissed for gross misconduct following disciplinary proceedings. The finding of gross misconduct led to his being placed on the list of persons deemed unsuitable to work with children kept by the Department of Education and Skills pursuant to the Protection of Children Act 1999. The claimant made claims in the Employment Tribunal for both unfair dismissal and wrongful dismissal on the grounds that there had been a failure on the part of his employer, the Ministry of Defence, to comply with the terms of his contract relating to the conduct of disciplinary proceedings and that to dismiss him was in any event unreasonable. The tribunal found in his favour on both claims and awarded him compensation for unfair dismissal and damages for the breach of contract calculated by reference to his three-month contractual notice period.

The claimant subsequently brought proceedings in the High Court seeking damages for breaches of the express and implied terms of his contract which were said to have caused him loss over and above his loss of earnings during the notice period. In particular, he claimed that putting his name on the register of those unsuitable to work with children had prevented him from pursuing employment in his chosen field.

One of the issues which arose for decision in that case was whether the claimant had a good cause of action at all. The defendant submitted that he did not, because his claim arose out of the manner of his dismissal and therefore fell within the Johnson exclusion area identified in Eastwood v Magnox. It sought to draw a distinction between the claimant's case and that of the successful employees in Eastwood v Magnox on the grounds that they were able to rely on causes of action which had arisen prior to, and were unconnected with, their dismissals, whereas his complaint arose out of the very process that had led to his dismissal.

The judge observed that the claim was for wrongful dismissal and held that the loss in respect of which the claimant was seeking damages arose out of his dismissal, not out of any prior breach of contract. Accordingly she held that it fell within the Johnson exclusion area. She also held that the remedy for a wrongful dismissal which occurs as a result of a breach of disciplinary procedures is provided exclusively by the unfair dismissal provisions of the Employment Rights Act 1996. Mr. Sutton adopted the judge's conclusions as supporting his argument.

The respondent's case on this appeal is that Johnson v Unisys, Eastwood v Magnox and Botham v Ministry of Defence are all authority for the proposition that Mr. Edwards cannot recover damages for breach of the disciplinary procedures that were incorporated into his contract. It is necessary to bear in mind, however, that the question in the present case is not whether Mr. Edwards has a good cause of action, but, assuming that he does, whether he is entitled as a matter of law to recover damages for the loss of the opportunity to hold another full-time appointment with the NHS as a consultant surgeon. It has not been suggested that loss of that kind is too remote to be recoverable and nothing in Johnson v Unisys or any of the other authorities to which our attention was drawn suggests that such a head of damage is in principle irrecoverable. The fact is that Johnson v Unisys and Eastwood v Magnox were not concerned with the measure of damages for breach of an express term of the contract but with whether an employee has a cause of action at common law for unfair treatment in connection with his dismissal. It follows that Mr. Sutton's argument does not directly engage with the point we have to decide. Indeed, it proves too much, since, if he is right, Mr. Edwards has no cause of action at all against the Trust, contrary to the assumptions that we are bound to make. Nonetheless, in view of the importance of the point I propose to state my views on it.

As I have already pointed out, the House of Lords in Johnson v Unisys was concerned only with the question whether it was permissible to develop the common law in a way that would recognise the existence of an implied term that the employer will treat an employee fairly in the manner of his dismissal. As such it was not concerned with the right of an employee to recover damages for breach of an implied term of the contract of a kind already recognised by the law, let alone for breach of an express term. Nor was it concerned with the measure of damages for any breach of that kind. It is not surprising, therefore, that in Eastwood v Magnox one finds their Lordships giving effect to a breach of the implied term of trust and confidence as previously recognised in Mahmud v B.C.C.I. The purpose of seeking to develop the common law beyond its existing limits was, as Lord Hoffmann recognised in paragraph 45 of Johnson v Unisys, an attempt to create a breach of contract additional to the dismissal itself.

In the present case, however, the disciplinary procedure was incorporated into Mr. Edwards' contract and the Trust's failure to implement it gave rise to a breach of contract which, on the face of it, is capable of sounding in damages. Nonetheless, Mr. Sutton put forward two arguments in support of his submission that Mr. Edwards cannot recover damages for that breach. The first, based on paragraph 66 of Lord Hoffmann's speech, was that as a matter of law disciplinary procedures of this kind are not intended to sound in damages. I have already explained why I do not think that is what Lord Hoffmann intended to say, but in any event it was recognised in Eastwood v Magnox that the Employment Rights Act 1996 does not take away rights enjoyed at common law or under contract. Whether the parties intend the provisions relating to disciplinary procedures to sound in damages depends on the true construction of the contract. I can see no reason in principle why the parties should not be able to agree that they do, and in this case we have to assume that they have done so. In any event, for the reasons given earlier I am unable to accept that Lord Hoffmann's observations are binding on us.

Mr. Sutton's second argument was that the cause of Mr. Edwards' loss was his dismissal and that Johnson v Unisys and Eastwood v Magnox preclude recovery of damages for wrongful dismissal save for loss of earnings in respect of the contractual notice period and the period that would have been required to carry out the contractual disciplinary procedure (the "Gunton extension"). He submitted that the stigma attaching to a finding of personal and professional misconduct was a factor which, although it aggravated the breach of contract represented by the dismissal, was inextricably bound up with it and did not give rise to a separate cause of action. That appears to be how Slade J. understood the authorities in Botham v Ministry of Defence and explains why she considered that the Johnson exclusion area prevented any cause of action from arising in that case.

I accept that in the present state of the law, as represented by Addis v Gramophone Co. Ltd [1909] AC 488 and Johnson v Unisys, damage caused to an employee's reputation by the manner of his dismissal is not normally recoverable. That is because the conduct of which he complains does not amount to a breach of contract and damages are not recoverable for personal distress or loss of reputation, except in a limited class of cases. However, the proposition that a breach of contract in the form of a failure to comply with an agreed disciplinary procedure gives rise to no claim is difficult to accept in principle and is difficult to reconcile with the decision in Gunton v Richmond-upon-Thames itself. Had the contract in that case not imposed an obligation on the council to pursue disciplinary proceedings before dismissing the claimant, he could have been dismissed simply on one month's notice. He had no greater security of employment and the damages he could recover for summary dismissal in breach of contract would have been limited to one month's loss of earnings. The decision that he could also recover damages for loss of earnings during the period required to carry out the agreed disciplinary procedure reflects the fact that he had a right to have that procedure followed. In my view, the decision supports the conclusion that a term of that kind has legal effect and is capable of sounding in damages if broken. Further support for that conclusion is to found in the speech of Lord Steyn in Skidmore v Dartford and Gravesham NHS Trust [2003] UKHL 27, [2003] ICR 721 in which one of the issues for determination was who should decide which of the two disciplinary procedures provided for by the claimant's contract of employment (one relating to personal conduct and one relating to professional conduct) should be invoked. In paragraph 15 he said:

"It is common ground . . . that the questions before the House must be resolved within the framework of the contract between Mr Skidmore and the trust. That is so despite the fact that a public body is involved. Prima facie therefore the position is as follows. The trust is entitled to decide what disciplinary route should be followed. That decision must, however, comply with the terms of the contract. If a non-conforming decision is taken and acted upon, there is a breach of contract resulting in the usual remedies. The only escape from this position would be if it could be shown that the parties agreed upon wording in their contract making it clear that the employer's decision would be final thereby excluding the role of the court except, of course, in cases of bad faith or possibly the absence of reasonable grounds for the decision. There is no such provision in the present contract. It does, of course, provide that "It is for the authority to decide under which category a case falls". This provision merely states the obvious: the trust must take the initial decision to commence the appropriate disciplinary procedure. It is, however, quite insufficient to exclude the normal consequences of a failure to follow the agreed contractual procedures. If there has been a breach by the trust in adopting the wrong procedure, Mr Skidmore is entitled to appropriate relief." (Emphasis added.)

The same consequences must follow if the employer invokes the appropriate disciplinary procedure but fails to carry it out in the manner required by the contract.

In my view Mr. Sutton's submissions proceed on a misunderstanding of the Johnson exclusion area and seek to extend its effect beyond its proper sphere. The expression appears to have been coined in Eastwood v Magnox to assist in understanding the result of recognising claims for breach of the common law implied term of trust and confidence but rejecting the extension of that term to cover unfair treatment in connection with dismissal. Since, as Lord Nicholls recognised, dismissal is often the final step in a continuing course of conduct, in cases where the claimant relies on the common law implied term it will sometimes be necessary to determine whether the act relied on formed part of the process of dismissal or preceded it. The need for that enquiry does not arise, however, in a case where the employee relies on an express term of the contract and accordingly in such cases the Johnson exclusion area is not a relevant concept. For these reasons I am unable to agree with the reasoning of Slade J. in Botham v Ministry of Defence. It does not follow, however, that the claimant will necessarily succeed in showing that the loss in respect of which he seeks to recover was caused by the employer's failure to comply with the contractual disciplinary procedure or that it is not too remote to be recoverable in law.

As I have already noted, in Johnson v Unisys Lord Hoffmann said in paragraph 44:

"As McLachlin J said in the passage I have quoted, the only loss caused by a wrongful dismissal flows from a failure to give proper notice or make payment in lieu. Therefore, if wrongful dismissal is the only cause of action, nothing can be recovered for mental distress or damage to reputation. On the other hand, if such damage is loss flowing from a breach of another implied term of the contract, Addis's case does not stand in the way. "

In the present case Mr. Edwards relies on two breaches of his contract: summary dismissal and a failure to carry out a proper disciplinary procedure. He can also point to the fact that the failure to carry out the proper disciplinary procedure resulted in the very findings of misconduct that have prevented him from obtaining similar employment elsewhere in the NHS. On the facts that must be assumed in his favour, therefore, wrongful dismissal is not his only cause of action and his claim for damages for failure to carry out proper disciplinary proceedings is not excluded by Johnson v Unisys.

This makes it unnecessary for me to consider in any detail Miss O'Rourke's alternative argument that Gunton v Richmond-upon-Thames no longer represents the law and that, even if Mr. Sutton's other submissions are right, Mr. Edwards is entitled to recover damages for the loss of the opportunity to hold a full-time consultant post with the NHS until his retirement at the age of 65. The argument proceeds on the proposition that since the passing of the Human Rights Act 1998 public authorities, particularly those which, like the NHS, are effectively monopoly employers, are obliged to treat their employees fairly and may be held liable in breach of contract if they fail to do so. Ms O'Rourke submitted that where the contract contains a general provision entitling each party to terminate the contract on notice and also provides for disciplinary procedures in relation to certain matters the latter take precedence over the former, so that it would not have been open to the Trust in the present case to dismiss Mr. Edwards under clause 8 without making findings of misconduct against him.

In the light of the judgments of Buckley and Brightman L.JJ. in Gunton v Richmond-upon-Thames, each of whom held that the council could not dismiss the employee on disciplinary grounds without first carrying out the contractual procedure, I am prepared to accept that that is correct, though it is not entirely clear that their Lordships were intending to hold that the council could not have dismissed the employee on notice without giving any reason at all. In such a case there might well not be any damage to reputation of the kind that Mr. Edwards suffered in this case. However, none of this ultimately has any bearing on the real thrust of Ms O'Rourke's argument, which was that it is necessary to imply into Mr. Edwards' contract of employment a term that the Trust would not terminate his contract otherwise than for good cause, thereby giving him the right, subject to good behaviour, to remain in its employment until normal retiring age.

In my view Ms O'Rourke's submission must be rejected. In the first place, an implied term of that kind would be incompatible with clause 8 of the contract, which expressly gives each party the right to terminate it at will on three months' notice. Moreover, if the decision in Johnson v Unisys means, as Mr. Sutton submitted, that damages for wrongful dismissal are limited in all cases to loss of earnings during the period of disciplinary proceedings followed by any relevant period of contractual notice, it is difficult to see how any greater measure of damages could be recovered if the employee's contract were terminated in breach of a term that he would be dismissed only for good cause.

For these reasons I am unable to accept Ms O'Rourke's alternative argument. However, for the reasons given earlier in this judgment, I would allow the appeal.

Lord Justice Lloyd:

I agree. The matter before us is to be treated, in effect, as if it were a preliminary issue of law, to be determined on the basis of assuming in the Claimant's favour all the facts and matters alleged in his Particulars of Claim.

On this basis, the express term alleged by the Claimant as regards the nature of the disciplinary proceedings, broken as alleged by the Defendant, gives rise to normal contractual remedies. If he had acted in time (on these assumptions) the Claimant could have obtained an injunction to restrain the threatened breach of contract consisting of the Defendant using a disciplinary procedure other than that for which the contract provided. Although he did not do so, he is now entitled to claim damages for that breach of contract. What those damages will prove to be, if the breach of contract is proved, will depend on the evidence given at the trial. But the assumption which has to be made (because of the allegations in the Particulars of Claim) is not only that a different procedure would have been used, but also that it would have resulted in a finding of no misconduct. Even if the Defendant could and would later have dismissed the Claimant, after a finding that there had been no misconduct, the absence of such a finding could have made a material difference to the Claimant's position thereafter.

Of course, it does not follow that the Claimant would have been employed either by the Defendant, or by an equivalent employer elsewhere in the NHS, until the age of 65, but that is a question of the assessment of the prospects of a kind familiar in relation to the quantification of loss.

Recovery of the damages claimed, on the basis alleged, is not precluded by the decision in Johnson v Unisys, because the claim is based on a breach of contract separate from and anterior to the dismissal, and because there is no doubt (on the relevant assumptions) that the contract includes the express obligation relied on by the Claimant.

This conclusion is at odds with the judgment of Slade J in Botham v Ministry of Defence, as Moore-Bick LJ says at paragraph 42. That case appears to have been argued on a rather different basis from this appeal. Despite Slade J's great experience in employment matters, I do not consider that her judgment leads to a conclusion of this case in favour of the Defendant.

I agree with Moore-Bick LJ in rejecting the alternative argument for the Claimant to the effect that Gunton v Richmond-upon-Thames LBC is wrong. The Defendant could have dismissed the Claimant on proper notice even if there had been no allegation of misconduct, or if allegations of misconduct had been made, had been considered in proper disciplinary proceedings, and had been held to be unfounded.

However, I also agree with him, for the reasons that he gives, that, on the main argument for the Claimant, the decisions below were wrong, and the appeal should be allowed.

Lord Justice Ward:

I agree with both judgments.