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Cite as: [1993] UKEAT 781_92_0502, [1993] UKEAT 781_92_502

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BAILII case number: [1993] UKEAT 781_92_0502

Appeal No. EAT/781/92

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 5th February 1993

Before

THE HONOURABLE MR JUSTICE KNOX

MISS J W COLLERSON

MR P DAWSON OBE

(1) BMK LIMITED APPELLANTS

(2) BMK HOLDINGS LTD

J L LOGUE RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

APPEARANCES

For the Appellants MR P REED

(Of Counsel)

Taylor Joynson

Garrett

Solicitors

10 Maltravers Street

London WC2R 3BS

For the Respondent MR N VICKERY

(Of Counsel)

John G Underwood

Solicitor

37A Walbrook

London

EC4N 8BS

MR JUSTICE KNOX: The appeal before us is brought by two companies, one is called BMK Limited, I will call it "BMK" the other BMK Holdings Limited, I will call that "Holdings". They appeal from a unanimous decision of the Industrial Tribunal at Bristol sitting on the 7th September 1992 and sent to the parties on a somewhat undecipherable date thereafter, to the effect that the application presented to the Industrial Tribunal by Mr Logue, an ex-employee of both companies, "BMK" and "Holdings", for unfair dismissal and statutory redundancy pay and a declaration as to the reasons for dismissal and an award for refusal of reasons was presented within time.

The Originating Application was presented on the 17th June 1992 and the issue that was before the Industrial Tribunal and has been before us was to identify the effective date of termination as that is defined by Section 55(4)(b) of the Employment Protection (Consolidation) Act 1978. The relevant statutory provisions are, first of all, the definition of dismissal in Section 55(2) which reads as follows:

"Subject to subsection (3), an employee shall be treated as dismissed by his employer if, but only if, -

(a)the contract under which he is employed by the employer is terminated by the employer, whether it is so terminated by notice or without notice, or

(b)where under that contract he is employed for a fixed term, that term expires without being renewed under the same contract, or

(c)the employee terminates that contract, with or without notice, in circumstances such that he is entitled to terminate it without notice by reason of the employer's conduct."

The definition of effective date of termination is contained in subsection (4) of the same section and reads:

"In this Part "the effective date of termination" -

(a)in relation to an employee whose contract of employment is terminated by notice, whether given by his employer or by the employee, means the date on which that notice expires;

(b)in relation to an employee whose contract of employment is terminated without notice, means the date on which the termination takes effect; and

(c)in relation to an employee who is employed under a contract for a fixed term, where that terms expires without being renewed under the same contract, means the date on which that term expires."

One can at once discard the references to employment under a contract for a fixed term because the relevant contract was evidenced by a letter of the 29th April 1982 which was addressed to Mr Logue, the Applicant. This said, amongst other things, on notepaper headed "SAP", the name that "Holdings" originally and then had:

"The Board has authorised me to set out formally the Terms and Conditions of your Service Agreement which you have accepted as Chairman and Chief Executive."

and then the various terms of remuneration and in particular, termination, were set out. The latter read:

"The period of notice by either party is 60 months."

That may have had some connection with the statutory limitation on such contracts. Clearly no contract for a fixed term was involved.

The factual background was that Mr Logue was the principal shareholder in "Holdings", which was the holding company as to 100% of "BMK". But Mr Logue had charged his shareholding to secure loans to him in favour of a bank, Gerrard & National plc, which took steps to enforce its security by getting itself registered as the proprietor of the shares in "Holdings" of which Mr Logue had been, and indeed still was, the equitable owner. That of course gave them effective shareholder control of "BMK" as well as "Holdings". The registration occurred in early March 1992 and shortly thereafter Mr Logue was asked to resign as a Director of both "BMK" and "Holdings". He refused. That was an oral transaction. There were then resolutions, whose validity as a matter of company law has not been challenged, which removed Mr Logue as a Director of "Holdings", that occurred on the 11th March, and as a Director of "BMK", that occurred on the 12th March. Mr Logue then had a telephone conversation with a co-director of his, a Mr Fuller on the 14th March and he also received a notice of a resolution removing him from the Board of Directors of "Holdings". The conversation that he had, it would appear, with his fellow director, referred to his having been removed as a director of "BMK" but Mr Logue declined to accept the oral notification that was constituted by his telephone conversation with his fellow director. There was then written, it must be assumed on Mr Logue's instructions, a letter by his solicitors to the bank which had taken these steps to remove Mr Logue as a director of both companies. That letter was dated the 17th March 1992. It said amongst things:

"Our client has handed to us a copy of the Notice served by you upon the Board pursuant to Article 13 of the Articles of Association which purports to remove our client as a director of the Company."

Pausing there for a moment, the Company is defined at the head of the letter as "Holdings" and going on with the letter:

"We also have a copy of the Notice convening an Extraordinary General Meeting of BMK Limited for the purposes of amending the subsidiary's Articles of Association with a view, we assume, to remove our client as a director of the subsidiary company.

The above actions constitute constructive dismissal of our client as an employee since his removal as a director renders him unable properly to perform his employment functions. Furthermore, it is an implied term of our client's service agreement that he will remain a director for so long as he remains an employee. The termination of our client's directorship constitutes the determination of his employment. That determination is both wrongful and without notice."

and then there is a point taken about the length of notice that is required. The letter goes on to complain of the actions of the Bank qua mortgagee and this Tribunal is not concerned with that aspect of the matter. It is fair to record that at the end of the letter what is asked for is the immediate re-instatement of Mr Logue to the Board of the Company i.e. "Holdings" and an undertaking not to seek or procure his removal from the Board of "BMK", the subsidiary Company. That letter, as I have said, was directed at the Bank Gerrard & National plc, a copy was sent to their solicitors but it was not sent at that stage to either of the companies with which we are concerned "BMK" and "Holdings".

The next event of significance is on the 18th March 1992. At that stage one has crossed the Rubicon so far as time is concerned because it is common ground between the parties that given the date when the Originating Application was presented any effective date of termination down to and including the 17th March would render the Originating Application out of time, whereas any effective date of termination on the 18th or at any time thereafter, would, by parity of reasoning render the Originating Application in time. So the shift from the 17th to 18th is highly material for that reason. On the 18th there was a letter written on behalf of "BMK" written by the "BMK" Company Secretary, a Mr Drury, but it dealt with both companies. It is addressed to Mr Logue and the important paragraphs read as follows:

"We have been instructed to inform you that as a result of a meeting of the shareholders of BMK (Holdings) Ltd on Wednesday, 11th March, 1992, you ceased to be a director of the company with immediate effect.

Also as a result of a meeting of the shareholders of BMK Limited on Thursday, 12th March, 1992, you ceased to be a director of the company with immediate effect.

As a result of the above we request that you arrange to return to the company at Kilmarnock all of its papers and assets, other than motor vehicles, but including the company seal of Holdings in your possession or control together with the keys to any of the company's premises ....."

and then there is a list of other assets. There are also requests for the return of a variety of vehicles and other matters consequent upon the termination of the relationship between the companies and Mr Logue. It is to be noted that the request for the return of Company property is described in terms as being a result of the resolutions removing Mr Logue as a director. It is equally to be noted that there is at no stage, whether in this letter or elsewhere, a letter from either "Holdings" or "BMK" expressly dismissing Mr Logue as an employee, as compared and as distinguished from, a director.

The rest of the events are of much smaller significance. On the 19th March a copy was sent to the Company Secretary of "BMK" of the letter which had been written on the 17th March to Gerrard & National from which extracts have been read earlier and eventually on the 30th March 1992 letters were written by Mr Logue's solicitors which made it perfectly clear that there had by then, if it was not already clear, been an acceptance by Mr Logue of what he claimed, and now claims, was a repudiatory breach of contract as a result of his removal as director as constituting a constructive dismissal. That is stated in terms in a letter of 30th March addressed to the Solicitors to the Bankers, Gerrard & National, a copy of which was sent to Holding's Company Secretary. A carbon copy was sent to the Company Secretary of "BMK" so there is no doubt at all that there was at latest an acceptance of the constructive dismissal on Mr Logue's behalf on the 30th March. However, as mentioned earlier the Rubicon is between the 17th and 18th and whether the acceptance came at the 18th or sometime thereafter before the 30th is neither here nor there for present purposes.

There are, in principle, four stages to be discerned in that set of facts. The first stage is the removal of Mr Logue as a director of the two Companies. That took place on the 11th and 12th March. The next stage is when Mr Logue became aware that that event had occurred and that certainly, in our view, on the facts found by the Industrial Tribunal occurred no later than the 17th March. Thirdly, there is the date when Mr Logue received the letter of the 18th March, which was sent by fax, and therefore he can be assumed to have received it that day. As will appear in a moment, the Industrial Tribunal found that that letter removed the uncertainties that Mr Logue felt about his position as an employee, and that is a matter to which we must revert. The fourth stage is the stage which it is not easy to date but which on any view occurred after the 17th March, namely when Mr Logue accepted the constructive dismissal, or more accurately perhaps, accepted the repudiatory breach by Holdings and BMK as constituting constructive dismissal of him as an employee.

The findings of the Industrial Tribunal on these matters are in a fairly small compass. The two important paragraphs follow on after a finding that the position was not set out formally until the 18th March when Mr Logue received the letter of that date from which I have read extracts. The Industrial Tribunal goes on after that:

"3 The applicant had previously had wind of what was going on and had taken legal advice. As a result his solicitors wrote to the bank and the bank's solicitors (though not to either respondent nor their solicitors) the letter of 17 March . . . The applicant has told us on oath that at the time that letter was written he was unsure about his position as an employee. If he was not a director then it was unclear to him how he could continue as an employee, but it was only when he got the letter of 18 March that he concluded that his employment had been brought to an end by the respondents' conduct and that he was constructively dismissed. His Originating Application was presented on 17 June 1992.

4 We find firstly that there is nothing in what the first or second respondent caused to be said or written to the applicant which constituted formal dismissal from his employment as opposed to formal removal of him as a director. We find, moreover, that once the applicant had received the written confirmation, constituted by the letter of 18 March, of what had occurred, he concluded that he could no longer remain as an employee; and that his conclusion that he was constructively dismissed, as to the merits of which we make no finding at this stage, and his decision to accept what he saw as a repudiation of his employment contract by the first and second respondents, took place on or after 18 March 1992. In those circumstances we find that the applicant has presented his claim to the Tribunal within the statutory limit of three months . . ."

We of course are bound by the findings of fact and the only issue before us is whether they reveal an error of law. That flows from Section 136 of the 1978 Act which limits the jurisdiction of this Tribunal to questions or issues of law.

It is clear and was accepted at the end of the day before us, in argument, that the case that is presented on behalf of Mr Logue is one of constructive dismissal and it was accepted that the Industrial Tribunal was right in saying that there was no formal dismissal from his employment, as opposed to a formal removal of him as a director. That is how the Originating Application is framed, and at the end of the day it became common ground between the parties that this was not a case of express dismissal by the employer within Section 55(2)(a) but a case, if of course Mr Logue is right, of constructive dismissal under Section 55(2)(c). For present purposes of course we assume that Mr Logue is right, just to test the question of whether his Originating Application was made in time. We are not deciding that he is, at the end of the day right, any more than the Industrial Tribunal did.

The second point on the Industrial Tribunal's decision is that it contains, in our view, a clear implicit finding that Mr Logue did know by the 17th March that he was removed as a director but it is also clear that the Industrial Tribunal has found as a fact, and that is binding on us, that he was as a result of that knowledge unsure about his position as an employee. It will be recalled that his contractual position was described in the letter which evidences its terms as Chairman and Chief Executive. It was accepted before us that his removal as Director necessarily involved his removal as Chairman and therefore Mr Logue knew on or before the 17th March that one of the two positions to which he had been contractually appointed was one which had been removed. On the other hand he was in a state of uncertainty as to exactly what his position as an employee, presumably "Chief Executive" was, and it was unclear to him how he could continue as Chief Executive. The question for us to determine is whether that is, as the Industrial Tribunal thought it was, conclusive in his favour. That involves an analysis of the right question that has to be asked to determine the effective date of termination. It is a remarkable fact that so long after the passing of the Employment Protection (Consolidation) Act 1978, which over the years has contained various time limits, there appears to be no decision that deals in terms with the question that arises before us as to the precise method of ascertaining the effective date of termination in relation to constructive dismissal.

The authorities to which we were referred were only two in number, and we are not suggesting that we were not shown the right authorities. The first of those two was the decision of this Tribunal Robert Cort & Son Ltd v. Charman [1981] IRLR 437 in which there was a dismissal by a notice which was, fairly clearly, in breach of contract as being much too short and if a proper contractual notice had been given the employee would have had the requisite length of employment to bring a claim for unfair dismissal. But if the effective date of termination was the date when he received his letter of dismissal he did not have that necessary period which was then shorter than it is today, and that was so even if one added the additional statutory entitlement to notice as was required by Section 55(5). It is not in dispute that in this case Section 55(5) has no direct effect because it is not concerned with the three month period that employees have in which to start their proceedings by Originating Application. Browne-Wilkinson J. gave the decision of this Tribunal in that case and having set out the terms of Section 55(4) he went on to say:

"The reasons given by the Industrial Tribunal do not in terms refer to this definition. Moreover, the attention of the Industrial Tribunal does not seem to have been drawn to authorities which indicate that for the purposes of s.55(4) and its statutory predecessors it does not matter whether or not the notice of dismissal (if there is a notice) or the dismissal without notice constituted a breach of contract. These authorities indicate that s.55(4) operates irrespective of whether, as a matter of contract, the employer ought to have given some notice or a longer notice."

He then refers to the authority of Dedman v. British Building & Engineering Appliances [1973] IRLR 379, which he treated as binding upon him, it being a decision of the Court of Appeal and he said of that decision:

"The point that the summary dismissal was a breach of contract is not adverted to by the Court of Appeal in its judgment. However, in our view it is a clear decision binding on us that where there is an immediate dismissal with salary in lieu of notice, the effective date of termination is the date of the dismissal, not the expiry of the period in respect of which the salary in lieu is paid for."

and a little later he says:

"The general rule of contract law is that a party cannot unilaterally terminate a contract: if he purports to do so, that is a repudiation by him of the contract which gives the other party the right either to affirm the contract or to accept the repudiation. If he accepts the repudiation, the contract comes to an end on the date of such acceptance; if he does not accept the repudiation, the contract continues in existence."

He then sets out the two well known opposed views as to how that doctrine affects contracts of employment and he sets out, first of all the unilateral view, as he calls it, that:

"contracts of service provide an exception to the general law and that a repudiation of a contract of employment puts an end to the contract at once without any acceptance of the repudiation by the other party."

and he also sets out the acceptance view which is that:

"the general law applies and acceptance of repudiation is necessary to put an end to a contract of employment."

He declines, because he finds it unnecessary, to decide which of those two views is, as a matter of jurisprudential reasoning, the correct one. There is an intermediate view ascribed to Dunn L.J. which is not necessary for the purposes of this judgment to set out in detail. Browne-Wilkinson J set out the result of the unilateral view or the view of Dunn L.J. being correct which was that the contract would terminate at the dismissal date but, if the acceptance view was correct, it would terminate at the acceptance of the repudiation which could be at a later date. He then goes on to decide the point by assuming that the acceptance view was the correct one, without deciding it, so that when an employer dismisses an employee without giving the length of notice required by the contract the contract itself is not thereby determined but will only be determined when the employee accepts the repudiation. Then we come to the central part of the decision:

"Even on that assumption, we think that the effective date of termination for the purposes of s.55(4) is the date of the dismissal and not a later date. We reach this conclusion for the following reasons:

(1)The decision of the Court of Appeal in the Dedman case is the only decision concerned directly with s.55(4) of the Act. In the other decisions, s.55(4) is not, so far as we can see, referred to.

(2)The Act seems to have been drafted on the footing that the unilateral view is correct, ie a dismissal even without the contractually required notice terminates the contract. Thus, in s.55(4)(a) (dealing with the case of termination by notice) it is the date of expiry of the notice served which is the effective date of termination: nothing in the subsection suggests that this is so only where the length of notice served complies with the contractual obligation. . . . S.55(4)(b) defines the effective date of termination as being the date on which `the termination takes take effect'. The word `termination' plainly refers back to the termination of the contract. But the draftsman of the section does not refer simply to the date of the termination of the contract, but to the date on which the termination `takes effect'. As we have pointed out, even on the acceptance view the status of employer and employee comes to an end at the moment of dismissal, even if the contract may for some purposes thereafter continue. When dismissed without the appropriate contractual notice, the employee cannot insist on being further employed; as from the moment of dismissal, his sole right is a right to damages and he is bound to mitigate his damages by looking for other employment."

and he derives support from what Winn L.J. said in Marriott v. Oxford Co-operative Society [1970] 1QB 186 at p.193 E-F.

"That is consistent with the whole concept that a contract of employment for the purposes of the statute is brought to an end, ie it is terminated, when it is so broken that no further full performance of its terms will occur."

We need not read the last reason which was given which was the requirement that there should be a certain date rather than a jurisprudentially accurate date.

Robert Cort of course was not a case that was dealing with constructive dismissal. It was a case that was dealing with a termination by a contractually too short notice and there is therefore that distinction between that case and the present one. On the other hand we entirely accept the reasoning that is contained in that decision and adopt the view that the definition of the effective date of termination in relation to those cases that fall within subsection (4)(b) of Section 55 requires one to focus on the date on which the termination takes effect. That subsection 4(b) must apply not only to termination by an employer by notice but also to constructive dismissal cases is evident from the fact that constructive dismissal is quite certainly not dealt with by either 4(a) or 4(c) and it has to be dealt with by one of the three sub-paragraphs otherwise there would be no effective date of termination in cases of constructive dismissal within Section 55(2)(c) and that is not a solution that one can readily contemplate.

Accordingly, it seems to us that the yardstick is "when did the termination take effect" in this case. The submission by Mr Vickery on behalf of Mr Logue was that the acceptance by Mr Logue was the only date at which there was an effective termination and that before that occurred the contract, and indeed, the relationship of employer and employee continued to subsist.

On the first question, whether the contract subsisted, we are of the view that this is not a relevant consideration because of the reasons given by Browne-Wilkinson J. in the Robert Cort case. What is central to this case is the submission that there was only a state of uncertainty when the 17th March had arrived and Mr Logue had learnt that he was no longer a director of either "BMK" or "Holdings" but had not yet received the fax that was sent to him the following day, the 18th. Mr Vickery submitted to us that it was only when there was a clarification of the difficulties in which Mr Logue found himself in understanding what the state of his relationship was with those Companies that there was an end to the relationship between him and the Companies.

In our view that is to apply the wrong test. Mr Vickery submitted to us that there was a universally applicable rule in constructive dismissal cases that it was only when acceptance of the constructive dismissal occurred that the termination took effect. On the face of it there might be some support to be derived from the way in which, what is commonly described as constructive dismissal, is defined in Section 55(2)(c) which refers to the employee terminating the contract in the circumstances there set out. That does not, on the face of it, look at activities of the employer but rather those of the employee and in such circumstances that appears to be looking at acceptance of a repudiatory breach, rather than the commission of the repudiatory breach by the employer.

On the other hand in an authority which Mr Vickery cited to us Brown v. Southall & Knight [1980] IRLR 130, it is in our view made clear that there is not a universally applicable rule in relation to repudiatory conduct under a contract of employment. That was a case where there was a notice of dismissal which did not carry to the employee because, although it was delivered to his home, he was away on holiday and the decision was that he was not effectively dismissed until he either knew or could be reasonably expected to know about the dismissal. It is not, in terms, a constructive dismissal case but it does contain a useful passage for present purposes from the judgment of Slynn J. which is recorded in the headnote which is effectively, as usual, in the IRLR reports a verbatim quotation of a part of the judgment, in the following terms:

"Unlike other contracts, where an unaccepted repudiation is `a thing writ in water', in respect of contracts of employment there is no absolute rule either way. Different rules are applicable to a case where an employer dismisses in the sense that he `sends away' than to cases where a repudiation or contract of some other kind is alleged.

The express sending away of an employee is a termination within the meaning of para.5(2)(a), whether or not it is accepted. The sending away may or may not be a breach of contract, but the employee cannot refuse to be sent away. The employer can unilaterally determine the contract and no acceptance of that determination is required to effect it, nor does the employee have the right to say `no' until the moment comes when the employer must do something, such as giving work or admitting him to the premises.

In contrast, there are cases where acceptance of the repudiation is required. If, for example, the repudiation is said to consist of a failure to carry out the work to be done with the requisite skill, it may be there that the employer can elect. He has to accept the repudiation before the contract comes to an end. If he does, it is he who determines the contract."

That is authority, if authority is needed, that there is no universally applicable rule for employment law purposes, and in particular we would add, although that is not the point of the case itself, the purposes of Section 55(4) of the 1978 Act to all cases of constructive dismissal. In our judgment one has to have regard to the statutory definition, which at the risk of tedious repetition, is the date on which the termination takes effect, and if one applies that to the present case it seems to us to come down to this, whether one should, on the facts found by the Industrial Tribunal, come to the conclusion that the contractual relationship between the two Companies "BMK" and "Holdings" and Mr Logue had come to an effective termination on or before the 17th March. It seems to us inappropriate to ascribe that result to Mr Logue's intellectual understanding of the consequences of the fact of which he was well aware, namely that he had ceased to be a director of either of the two companies. Whether the termination had taken effect in each case does not, in our view, turn on whether Mr Logue understood that that was what had happened. In turns, in our view, on what their legal relationship actually was on the 17th March and if one has the effective removal of directorship and thereby of chairmanship, it seems to us that that inevitably involves the effective termination of a contractual relationship that consisted of an appointment to the post of Chairman and Chief Executive, if one applies what Winn L.J. said in the Marriott v. Oxford Co-operative case, which was quoted by Browne-Wilkinson J. in Robert Cort:

"the contracts were then so broken that no further full performance of their terms would occur."

It does not, in our view, necessarily follow that this will by any means always be the case in constructive dismissal cases. We can well imagine that there might be circumstances where there was what amounted, at the end of the day, to a repudiatory breach on one side or the other which did not when analysed bring about the termination, effectively, of the relationship of employer and employee. We are therefore not seeking to lay down a hard and fast rule applicable across the spectrum of all constructive dismissal cases but in this constructive dismissal case it does seem to us that on the facts as found by the Industrial Tribunal there is only one tenable interpretation as a matter of law and that is that the termination of these two contracts had taken effect on or before the 17th March. It is not necessary in our view to decide whether or not that was at the moment of the removal of the directorships on the 11th and 12th or the time when, before the 17th March, Mr Logue became aware of the removals of those directorships. It is, however, not, in our view, the right test to apply, to ask did Mr Logue understand the effect of what he knew had happened?

For those reasons we find the Industrial Tribunal was in error in law and this appeal must be allowed and it must follow from that that the applications fall to be dismissed.