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Cite as: [1994] UKEAT 743_92_1606

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BAILII case number: [1994] UKEAT 743_92_1606

Appeal No. EAT/743/92

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 16th June 1994

Before

HIS HONOUR JUDGE D M LEVY QC

MR W MORRIS

MR A D SCOTT

CO-OP RETAIL SERVICES LTD APPELLANTS

MR B K PETTIT RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

APPEARANCES

For the Appellants MR P SALES

Messrs Croftons

Television House

Mount Street

Manchester

M2 5PA

For the Respondent MR B K PETTIT

(In Person)

HIS HONOUR JUDGE LEVY QC: On the 27th March 1991 the Respondent to this appeal, Mr B K Pettit, was summarily dismissed by the Appellants, Co-operative Retail Service Ltd for alleged theft of the Company's money by allegedly misappropriating customers' payments.

On the 12th June 1991 he submitted his IT1 in which in paragraph 2 he said:

"The management failed to look properly into the matter or at all and would not listen to my explanation. I am completely innocent."

On the 8th July 1991 the appellate employers put in their IT3 and on page 2 of that document they answer succinctly what the case was from their point of view:

"As a Milk Roundsman Mr Pettit was responsible for collecting cash from customers, paying the cash in to the employer and keeping proper accounts to show from whom the money was received and how much was still owing in unpaid/part-paid accounts.

Mr Pettit collected over £1100 more than he said he collected, he failed to pay that money into the society and falsified his accounts to "cover-up" the short-fall.

At a disciplinary interview held on 27 March 1991, when Mr Pettit was represented by his union, he could not give an explanation for the falsified accounts and missing money. As a result he was summarily dismissed.

Mr Pettit has appealed against his dismissal and the appeal is due to be heard on 15 July 1991".

In fact the appeal took place on the 15th October 1991. The delays not being those made by the Appellant. On 21st October 1991 the appeal was dismissed.

A hearing took place before the Bury St Edmunds' Industrial Tribunal on the 17th June 1992 when the Tribunal unanimously decided that the Applicant was unfairly dismissed. The decision was sent to the parties on the 10th September 1992. Notice of Appeal was lodged soon after.

The grounds of appeal, which have been expanded on by Mr Sales today, were in the Notice of Appeal and the main ground of appeal is several misdirections of law by the Industrial Tribunal with, as a backstop, an allegation of perversity. Essentially, what is said by Mr Sales, who appears for the Appellants today, is that the Industrial Tribunal used the objective test of what they thought a reasonable employer in the Appellants' position would have done rather than considering whether what the employer did was in the bands of what a reasonable employer could have done. He has referred us to several well known authorities on that subject in the context of Section 57(3) of the Employment Protection (Consolidation) Act 1978 and those three authorities are the well known decision of Arnold J. and colleagues in British Home Stores Ltd v. Burchell [1980] ICR 303; Iceland Frozen Foods v. Jones [1983] ICR 17 and the Scottish case of Scottish Midland Co-operative Society v. Cullion [1991] IRLR 261. Before turning to the facts it will be useful to remind ourselves of what was said in each of those decisions so far as they contain the principles, which Mr Sales submits should be followed. At page 304 of the British Home case, there is this passage from the judgment of Arnold J.:

"The case is one of an increasingly familiar sort in this tribunal, in which there has been a suspicion or belief of the employee's misconduct entertained by the employers; it is on that ground that dismissal has taken place; and the tribunal then goes over that to review the situation as it was at the date of dismissal. The central point of appeal is what is the nature and proper extent of that review. We have had cited to us, we believe, really all the cases which deal with this particular aspect in the recent history of this tribunal over the past three or four years; and the conclusions to be drawn from the cases we think are quite plain. What the tribunal to decide every time is, broadly expressed, whether the employer who discharged the employee on the ground of the misconduct in question (usually, though not necessarily, dishonest conduct) entertained a reasonable suspicion amounting to a belief in the guilt of the employee of that misconduct at that time. That is really stating shortly and compendiously what is in fact more than one element. First of all, there must be established by the employer the fact of that belief; that the employer did believe it. Secondly, that the employer had in his mind reasonable grounds upon which to sustain that belief. And thirdly, we think, that the employer, at the stage at which he formed that belief on those grounds, at any rate at the final stage at which he formed that belief on those grounds, had carried out as much investigation into the matter as was reasonable in all the circumstances of the case. It is the employer who manages to discharge the onus of demonstrating those three matters, we think, who must not be examined further. It is not relevant, as we think, that the tribunal would themselves have shared that view in those circumstances. It is not relevant, as we think, for the tribunal to examine the quality of the material which the employers had before them, for instance to see whether it was the sort of material, objectively considered, which would lead to a certain conclusion on the balance of probabilities, or whether it was the sort of material which would lead to the same conclusion only upon the basis of `sure', as it is now said more normally in a criminal context, or, to use the more old-fashioned term, such as to put the matter `beyond reasonable doubt.' The test, and the test all the way through, is reasonableness, and certainly, as it seems to us, a conclusion on the balance of probabilities will in any surmisable circumstance be a reasonable conclusion."

and then at page 308G there is this passage:

"The tribunal also, it seems to us, became confused along the line between the two somewhat distinct tasks of investigating whether the conclusion of the employers was a reasonable conclusion on the basis of the material which they had before them and whether, in assembling that material, the employers had carried out the sort of investigation which a reasonable employer could have regarded as sufficient. At the end of the day, no doubt, the two things run close and parallel; but they are distinct."

and then at page 309B after referring to the standard of proof Arnold J. went on:

"It is not helpful to dwell further upon the matter. The misconception that character seems to us to have informed not only the tribunal's conclusion as to the sufficient level of material to justify a belief of guilt, but also as to what they could legitimately require as the quality and level of investigation antecedent to the formulation of that belief on the basis of the resulting material. We think here it must be right to say that there has been such a confusion of thought upon the matter as to justify the conclusion that the tribunal were not entitled to characterise the belief of the employers, the fact of which is not in dispute, as unreasonable, either in its formulation or in relation to the antecedent investigation."

and the appeal was allowed.

In the second case cited, that of Iceland Frozen Foods v. Jones, Browne-Wilkinson J. was the presiding Judge. In that judgment although Burchell was not expressly referred to it must have been in the learned Judge's mind and he sets out at page 20B:

"As to the substantive merits of the decision to dismiss, the industrial tribunal asked itself this question: Did the two-fold faults by the employee make it reasonable to dismiss him? They answered that `In our view, they did not.' They did not regard his failure in relation to the alarm as being serious . . ."

and then they go on to the facts. Then further down the page at G, Browne-Wilkinson J. says:

"Although, as will appear, we do not regard the treatment of the case in two separate portions (the one dealing with the reasonableness of the substantive decision and the other the reasonableness of the procedure) to be a desirable course, in order to deal with the arguments presented to us we too will divide into those two sections."

which the learned Judge then does, before coming to a passage which Mr Sales has drawn to our attention at page 24G and on which he relies. There Browne-Wilkinson J. said:

"We consider that the authorities establish that in law the correct approach for the industrial tribunal to adopt in answering the question posed by section 57(3) of the Act of 1978 is as follows: (1) the starting point should always be the words of section 57(3) themselves; (2) in applying the section an industrial tribunal must consider the reasonableness of the employer's conduct, not simply whether they (the members of the industrial tribunal) consider the dismissal to be fair; (3) in judging the reasonableness of the employer's conduct an industrial tribunal must not substitute its decision as to what was the right course to adopt for that of the employer; (4) in many, though not all, cases there is a band of reasonable responses to the employee's conduct within which one employer might reasonable take one view, another quite reasonably take another, (5) the function of the industrial tribunal, as an industrial jury, is to determine whether in the particular circumstances of each case the decision to dismiss the employee fell within the band of reasonable responses which a reasonable employer might have adopted. If the dismissal falls within the band the dismissal is fair: if the dismissal falls outside the band it is unfair."

Pausing there for a moment it is right to say that the Tribunal below does not seem to have had the passages, of either which I have read in the case of Burchell or the passage which I have just read in the case of Iceland Frozen Foods in the fore of its mind, at any rate as we read the decision.

Finally, in this case Mr Sales draws our attention to the paragraph at the foot of page 25G:

"As to the alternative ground relied on by the industrial tribunal, namely, procedural unfairness, as we have said we do not think it the correct approach to deal separately with the reasonableness of the substantive decision to dismiss, and the reasonableness of the procedure adopted. The correct approach is to consider together all the circumstances of the case, both substantive and procedural, and reach a conclusion in all the circumstances."

That again was something that Mr Sales complains was not done here.

The final case to which we were referred was Scottish Midland Co-operative Society Ltd v. Cullion. There a majority in the Industrial Tribunal held that the employee was guilty of alleged misconduct; that there were reasonable grounds upon which to sustain that belief; and that the employers had carried out as much investigation into the matter as was reasonable in the circumstances. A minority disagreed. The Employment Appeal Tribunal in Scotland allowed an appeal against the decision, holding according to the EAT, dismissal was not within the band of reasonable responses of a reasonable employer and that no reasonable industrial tribunal would have supported the employer's decision to dismiss on the basis on one act of negligence in an unblemished period of long service. On appeal from that decision the Court of Session held:

"The Industrial Tribunal had correctly recognised that in applying the test laid down in British Home Store Ltd v. Burchell, the question to be determined is not whether, by an objective standard, the employers' belief that the employee was guilty of the misconduct in question was well-founded, but whether the employers believed that the employee was guilty and were entitled so to believe, having regard to the investigation carried out. That the Tribunal expressed the view that its members would have difficulty in concluding that the employee was the one who had committed the offence did not mean that a reasonable employer could not have taken the view that it was that employee who was involved. It does not matter that the Tribunal members themselves are not convinced of the employee's guilt.

In the present case, the Tribunal were fully entitled to hold that there was a belief on the part of the employers that the employee was guilty of a breach of the proper till procedure, that that belief was reasonably held and that the employers had not acted unreasonably in dismissing the employee, notwithstanding her previous record of employment, her length of service and the small amount of money involved."

and Iceland Frozen Foods was referred to as well as British Home Stores v. Burchell in the decision. So there is a strong body of authority suggesting that the objective view of the Employment Tribunal is not the right one, what one has to look at is the position as it is seen by the employers.

That is taken up in the Notice of Appeal. Several grounds are cited where there is a misdirection which we will not read in detail, but we will turn first of all in the Decision to the findings of fact. In paragraph 4 there are these findings:

"4.1 The applicant was a milk roundsman employed in a rural area around Cambridge. In 1989 the firm that was then employing him was taken over by the respondent, and a new system of accounting procedures was installed. Upon the introduction of the new system, various training sessions took place and the applicant attended one of them. In addition the applicant received advice and support in understanding the new system, from Mr Nuttell. We reject the applicant's evidence to the contrary.

4.2 The accounting system depended on three stages of documentation. Each customer had that customer's own weekly delivery sheet indicating the accumulated sum due from the customer in respect of deliveries by reference to each day of the week: in other words, there were seven lines divided into columns indicating the amount of delivery, the price for each delivery, and the running balance. It was the milk roundsman's responsibility to complete these sheets, and weekly (or in such other way as the respondent should authorise) collect payment for the balance due.

4.3 Moving from there, the roundsmen were responsible for paying in to the respondent, by reference to a document rather like a bank paying- slip, the cash and cheques collected each week, and separately preparing a statement showing balances remaining unpaid at the end of the week. Those balances were then put into the respondent's own computer system, so that they could be an effective control of credit.

4.4 On a date towards the end of March 1991, the applicant and his manager, Mr Newall, were in dispute about the accounts, and Terence William Nuttell, the franchise manager, was present. As a result of what he heard, he caused enquiries to be made into the book-keeping with reference particularly to two weeks in November 1990 - the weeks ending 10 November and 17 November.

4.5 The enquiry was carried out by Mr Newall and he reported to Mr Nuttell that there were serious discrepancies. The discrepancies were checked by Mr Nuttell. The problem is highlighted on the two weeks in question by the fact that, according to the customers' own weekly sheets, the applicant should have collected from customers a total sum of £1,708.72 on the week ending 10 November, and £1,602.21 for the week ending 17 November, whereas the paying-in slip for each of those weeks amounted to £1,298.82 and £1,211.24 respectively. There was thus a shortfall on the two weeks of £779.48.

4.6 The accounting procedures were further confused by the fact that, on consulting the statement of arrears sheet for each of those two weeks, certain sums were found to be shown as arrears due from customers which, according to the customers' own records, had in fact been paid. [there then follows important findings] Mr Nuttell therefore concluded that, in the absence of an explanation from the applicant, it appeared that the applicant had been collecting more money from the customers than he had been paying in to the respondent's funds, and had been covering this situation by showing as unpaid certain bills which had in fact been paid.

4.7 Because of what had been found, a disciplinary meeting was held on 27 March. The meeting was conducted by Mr Nuttell. The applicant was confronted with the evidence from the two weeks and was unable to come up with an explanation for the discrepancy, saying something to the effect that all he could think of was that he was using an antiquated system. He then went on to explain the system which he called `back-tracking'. That meant that payments made on a Sunday, Monday or Tuesday of a particular week in respect of the sums due on the previous Saturday (that is to say, for the whole of the previous week) were treated by the applicant as having been paid on the previous Saturday. In response to Mr Nuttell's comment that in those circumstances he should have been paying in more each week rather than less than the sums stated to be due, the applicant was unable to give any explanation.

4.8 On considering the matter, the applicant was dismissed by Mr Nuttell for the wrongful keeping of accounts. It is right to say that at the disciplinary meeting the applicant was represented by a shop steward although he was not in fact a member of the union, and Mr Durrant, the depot manager at Cambridge, was also present.

4.9 The applicant's terms and conditions are governed by a contract of employment which provides for a right of appeal. That appeal was convened initially for 1 July 1991, and the appeal was to be conducted by Mr Thake, the regional distribution manager, assisted by Miss Rachel Margaret Tofts, the personnel manager."

and then the rest of the paragraph looks into the adjournments from that at the request of the employee and paragraph 4.10 continues:

"Opportunities were given to the applicant, but he failed to attend a meeting on 8 July and then there followed a hospital appointment. The long and short of it all is that the meeting did not take place until 15 October. It is, however, abundantly clear that during those months every facility was given to the applicant to see the books and to take advice.

4.11 The appeal meeting was conducted by Mr Thake and Miss Tofts. The applicant was represented by two union officials. The applicant was not a member of the union; however, he took no exception to their presence or their assistance. At the Tribunal he complained that the union official seemed to take the respondent's side, but we have heard no evidence about that and certainly no complaint was made at the time or immediately thereafter.

4.12 At the appeal hearing the applicant was again asked to give an explanation for the discrepancy, but could give no explanation other than the one he had already given, namely `back-tracking'. The appeal meeting adjourned and by letter of 21 October 1991 it was confirmed to the applicant that his appeal had been rejected and that he remained dismissed. The comment is made:

`Having carefully considered all that was stated at the time, it was the decision of Mr Thake, Regional Distribution Manager, that no further evidence was presented at the appeal. Furthermore, you are unable to give a satisfactory explanation for the deficit amounting to some £790 or the reason why your statement of accounts which was completed by you did not concur with the rounds books also completed by you.'"

Then the arguments for each side are summarised in paragraphs 5 and 6 and paragraph 7 refers to the provisions of Section 57 and paragraph 8 says this:

"8. We must go on to apply the test in subsection (3) of section 57 and ask ourselves whether in all the circumstances the respondent acted reasonably in treating the reason for dismissal as a sufficient reason. We have decided that it did not. In a case of this sort the proper test for us to apply is to enquire whether, when the decision to dismiss was taken, the respondent employer had a genuine belief in the misconduct of the employee and whether that belief was supported by sufficient evidence which had been disclosed following a sufficient enquiry."

There is no complaint made about that sentence but the next paragraph continues:

"9. In our view the whole problem of the respondent's position is that, in March 1991, following a confrontation between the applicant and Mr Newall, an enquiry was undertaken in respect of the two weeks we have mentioned in November 1990. That enquiry undoubtedly disclosed material that demanded an explanation, and we can see that the applicant did not come forward with a very satisfactory explanation. [Then there is the sentence of which Mr Sales complains]. However, in our view, a reasonable employer in the position of the respondent would at that stage not have dismissed but would have undertaken a much more detailed enquiry into the surrounding weeks. It was, after all, the applicant's position that he did not understand the accounting procedure."

Mr Sales says, and we accept his submission, that there the Tribunal is substituting its own objective views of what a reasonable employer would have done rather than consider what an employer faced with the Appellants' position here did, and could properly have done. We think that if the Tribunal below had asked the right question it may well have come up with a very different answer to that which they then did.

In paragraph 11, the Tribunal express the view that:

"The Applicant was dismissed on the results of an inadequate investigation. A reasonable employer would certainly have made enquiries about what had taken place between November 1990 and March 1991. Further inquiries could have taken place prior to the appeal in October."

When an employer has accounting records such as that which this employer had, showing the conduct of an milk roundsman employed some months previously and serious unexplained shortages in his round books for two weeks, we cannot see that what the employer in this circumstance did was not within the provisions of what an employer in his situation might have done. That the Industrial Tribunal might have taken a different course is, in our view, to substitute its views for that of an employer in the position of this employer.

In paragraph 12 the Tribunal says:

"So far as procedure is concerned, we are satisfied that a fair procedure was adopted and that at each stage the applicant had opportunity to investigate the documents which were being used against him and to give explanations."

Mr Sales complains of this paragraph although it appears to be in his favour. What he submits that the Tribunal has failed to do is as Browne-Wilkinson J. says they should have done in Iceland Frozen Foods v. Jones to look objectively at the decision taken by the employers in the circumstances of this investigation. If they had the Tribunal would have accepted that the response of the employers was within the bounds of reasonable employers in their position. In that respect we think Mr Sales is right.

Mr Sales put in, as a back-stop the submission that in all the circumstances of the case the Tribunal's findings of fact that the Appellant had not acted properly was perverse. We are reluctant to come to that conclusion but, having regard to the misdirections of law which we found were made, we have felt that we have to accept that submission also.

In the Iceland Frozen Foods v. Jones case, having come to the conclusion that the decision below could not be upheld the Tribunal considered it appropriate to send back material for further consideration. We have considered that course here and we have come to the conclusion that the primary facts are so clear that there would be no point in doing that and we will allow the appeal and substitute for the decision below the holding that the Respondent was not unfairly dismissed.

We must add this that Mr Pettit has appeared "in person" today and has asked us to take account of certain documents which he wanted us to look at. We understood that they referred to other difficulties in his accounting at an earlier period. We further understand that this was material which could have been placed before the Industrial Tribunal when Mr Pettit had the benefit of representation, on well known principles we thought it inappropriate to let him put in that additional evidence.

In the circumstances we will allow the appeal as I have indicated.