Title: Appeal No.
Author: Iris Pain
Last saved by: vmartzou
Company: BAILLI

Appeal No.	 EAT/137/96

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 20 November 1996

Before
THE HONOURABLE MR JUSTICE LINDSAY
MR P DAWSON OBE
MR P A L PARKER CBE

BLACK HORSE AGENCIES	APPELLANTS

MR DAVID ELMS	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellants

MR A BISHOP
(of Counsel)
Messrs Moon Beever
Solicitors
24-25 Bloomsbury Square
London
WC1A 2PL

For the Respondent

MR D ELMS
(In Person)

	MR JUSTICE LINDSAY:	We have before us an appeal in the matter of Mr David Elms against the Black Horse Agencies.  Mr Elms was employed by the Black Horse Agencies.  His dismissal by them is conceded as a fact.  He was employed from 1 January 1987 to 21 March 1995.

	There was quite an extended hearing before the Industrial Tribunal, under the chairmanship of Mr A.D. Puttick, a hearing that spread in all over four days and there emerged the extended reasons for their decision on 8 January 1996.  They held that Mr Elms had been unfairly dismissed, but that he was responsible to a degree which they took to be 50% for his own downfall, as it was there said.  We have before us an appeal from that decision.

	Mr Elms was employed by the Black Horse Agency which is a provider of financial services to the general public; mortgage, pension, life insurance and that kind of service.  Mr Elms was employed as a Financial Services Consultant and as a person who had, among his duties, the control of so-called Financial Advisers.  The number of Financial Advisers who reported to him varied from time to time; it ranged from 17 as a maximum to 9 as a minimum.  It is a familiar part of the Financial Services industry that it has, over the years, become more and more controlled, more and more regulated and the conditions in which pensions, life assurance, mortgages and so on can be sold to the public have become more stringently defined.  The Agency has a compliance manual.

	There was trouble at the Agency, in particular generated by someone beneath Mr Elms’ level, a Mr Barrett, who was a Financial Adviser.  He was, it seems, selling financial service products (as they are called) in ways that were quite inappropriate and without due consideration to the needs of the particular customers and, as one would guess, more with a view to his commissions and earnings than to their well being.

	Mr Elms had a written contract which is before us and was before the Industrial Tribunal (I am looking Clause 8.4 of his contract).  It says:

“The Terms of the Company’s Code of Conduct, Financial Services Compliance Manual, Sales Procedures Manual and Management Procedures Manual are expressly incorporated into this Agreement ...”

	And it went on at 8.5 to warn that “Disregard of the provisions of this Clause will be a serious disciplinary offence”.  His employment, said the contract, was conditional upon his having a Financial Planning Certificate and at Clause 9.4 there was regulation about compliance with the Company’s Compliance Rules, as well as the regulations of the Securities and Investments Board.  It is fair to say also, as Mr Elms, who has appeared before us in person, draws to our attention, that at Clause 11 there is a provision that during his employment he would receive training to enable him to attain and retain the skills required for the proper performance of his duties.

	I have mentioned that there was trouble with Mr Barrett and the trouble with Mr Barrett generated a thorough going examination, as it would seem, of the branches concerned and that led to Mr Elms’ immediate superior, Mr Hughes, being dismissed and, a little later, in March of 1995, there was a disciplinary hearing organised by the Agency which had the result that Mr Elms was dismissed.  A letter was written on 21 March 1995 to Mr Elms that set out the reasons for his dismissal, as they were then understood to be.  They ranged from letter (a) to (f).  It is not very easy to read as it has been highlighted with the result that it is almost impossible to read, but that was the letter sent to Mr Elms in March.

	The Agency has its own internal appeals mechanism and Mr Elms took advantage of that.  There was a hearing towards the end of April 1995 and, although he was in part successful in that, some earlier grounds were abandoned, on 28 April 1995 he was written to by David Wood, the Director of the Agency, who had been present at, or perhaps had alone conducted the appeals mechanism, and that said:

“After examining all the papers and considering your submissions, I have decided to uphold the decision to dismiss you, but that such dismissal should be with notice, rather than summary dismissal.
My decision was based on the following reasons, as set out in the confirmation of dismissal letter of the 21 March 1995 from Tony Ballantyne, that is ...”

	And then again, there were reasons set out.  Only (a), (b), (d) and (f) of the earlier reasons had survived:  (a) was failure to ensure that the business conducted by Mr Barrett followed the Agencies Compliance Manual Procedures; (b) was his failure as an Area Financial Services Sales Manager to ensure proper follow-up actions following the Compliance breaches which resulted in the findings of Black Horse Agencies Internal Audits which were carried out on Steven Barrett.  Next, there was the signing-off of Steven Barrett as Threshold Level Competent under the Black Horse Agencies Training and Competence Scheme when he should not have been, and (f) was his failure to complete correctly and ensure correct monitoring of the Black Horse Agencies Financial Services Branch Audits concerning some other people (that reason has been little pressed).

	So that was the position.  There had been a disciplinary hearing; there had been a disciplinary appeal but that dismissal stood and it was in that context that Mr Elms took the matter to the Industrial Tribunal.

	Evidence was given, as I have mentioned earlier, over some days.  It is important at this level to address oneself quite strictly to the question that the Industrial Tribunal should have had in mind and, although the statute applicable has changed, the effect of the wording remains, it is conceded, the same.  I am looking therefore at the present form, the Employment Rights Act 1996, Section 98:

“(1)  In determining for the purposes of this Part whether the dismissal of an employee is fair or unfair, it is for the employer to show -
(a)  the reason (or, if more than one, the principal reason) for the dismissal, and
(b)  that it is either a reason falling within subsection (2) or some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which the employee held.”

	It follows from that that if the reason is a reason which falls within subsection 2 one need not, at this stage, ask further whether it was such as to justify the dismissal.  

	Section 98(2) says:

“(2)  A reason falls within this subsection if it -
(a)  relates the capability or qualifications of the employee for performing work of the kind which he was employed by the employer to do,
[or]
(b)  relates to the conduct of the employee.”

	Going on, beyond that, “capability” is defined in subsection (3), as is the word “qualifications” and at (4) we find this:

“(4)  Where the employer has fulfilled the requirements of subsection (1), the determination of the question whether the dismissal is fair or unfair (having regard to the reason shown by the employer) -
(a)  depends on whether in the circumstances (including the size and administrative resources of the employer’s undertaking) the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee, and 
(b)  shall be determined in accordance with equity and the substantial merits of the case.”

	We would wish to draw attention to the words “having regard to the reason shown by the employer” and the words “in treating it”, that is to say in treating that reason as a sufficient reason for dismissing the employee.  As the case law has extended over the years there has come to be a familiar test, now in some minor respects overtaken, but still commonly referred to, namely that shown in the decision of Arnold J in the case British Home Stores Ltd v Burchell [1980] ICR 303.  That judgment held that the questions to be asked by the Industrial Tribunal were these:  Did the employer believe the employee guilty of misconduct?  Did the employer have reasonable grounds to support that belief?  Had the employer conducted such an investigation of the issue as in all the circumstances was reasonable?  And that case held that if in all respects the employer had satisfied those three tests, then it was not for the Tribunal took look further and to judge the matter on its own behalf.

	We do not understand, as we have read the Extended Reasons of the Industrial Tribunal, there to have been any issue at that stage before the Industrial Tribunal, notwithstanding that Mr Elms has made some comment on the point today, that the Burchell test was not thoroughly satisfied as to all three elements.  The matter might be said to be fairly summarised and succinctly summarised in volume 1 of Harvey at paragraph 961 to 970:

“The one clear and consistent principle which has always been applied in construing s 57(3) [that is the old equivalent of the section I have just read] is that it is not for the tribunal simply to substitute its own opinion for that of the employer as to whether certain conduct is reasonable or not.  Rather its job is to determine whether the employer has acted in a manner which a reasonable employer might have acted, even though the tribunal, left to itself, would have acted differently.”

	And the test, as Harvey brings the decision of Arnold J up to date in paragraph 1460, is as follows, again referring to Section 57(3) rather than Section 98:

“... the three relevant elements would seem to be (a) had the employer reasonable grounds on which to sustain his belief; (b) had he carried out as much investigation as was reasonable; and (c) was dismissal a fair sanction to impose?”

	The nature of the grounds on which Mr Elms had been dismissed, which I have read from the letter, plainly seem to be well described as “grounds of misconduct” and indeed, when the Agency put in a Notice of Appearance, as a Respondent to Mr Elms’ application, paragraph 5 of their response said:

“5  ... The Applicants conduct constituted misconduct entitling the Respondent Company to terminate the Applicant’s employment with the Company.”

	And, in answer to the question “Was the applicant dismissed?” the answer was “Yes” and in answer to the question “If yes, what was the reason?”, misconduct was given as the reason.  So the matter was clearly enough described as “misconduct” and, indeed, it would seem to be properly so described.  It is hard to see that the reasons given could be describable in any other way.

	If the position was, then, that the Burchell three-part test was not in issue, or not sufficiently in issue and could be regarded by the Tribunal as satisfied, it is not right for the Tribunal then to apply some other label to the grounds for dismissal.  It has to look, as the section said “having regard to the reason shown by the employer”.  With that guidance in mind one comes to the decision of the Tribunal, which I should say was a majority decision with the Chairman dissenting.  I need to read paragraph 14 of the Extended Reasons:

“14  The majority of the Tribunal finds that the applicant’s supervision and monitoring of Mr Barrett’s activities could not and did not establish any misconduct on the part of the applicant save as is set out below.  ...”

	That seems to be, the Tribunal, by its majority, addressing itself not to the question of whether the Agency had been reasonable, or had reasonable grounds for its belief, but rather investigating, on its own fresh behalf, what its view was as to the question; that is not a proper exercise for the Tribunal to embark upon.  Going on with paragraph 14:

“The majority finds that the applicant merely made an error of judgement where Mr Barrett was concerned resulting in part from the fact that he had not received an appropriate level of training in auditing and management to ensure that he was capable of dealing, on his own, with a man of Barrett’s stamp.  The majority finds that the main reason for dismissal was capability, not conduct.  ...”

	That again, it seems to us to be, is the majority embarking on a task that was not appropriate for an Industrial Tribunal.  They were not asking themselves whether the Agency believed that there was a misconduct, had investigated conduct and had reasonable grounds for concluding that there was misconduct.  They were for themselves finding, and for the first time, that the reason was capability.  That represents, as we see it, the majority addressing themselves to the wrong question.  That, it seems to us, is an error of law and hence gives rise to an ability in us to correct it.  Going on a little further:

“In order to make a dismissal for capability demonstrably fair it is vital that the employee has his shortcomings particularised and that he is given a fair opportunity to correct them, possibly with the help of counselling or further training, before dismissal.  ...”

	Whether there is ever an obligation on an employer to show himself to be “demonstrably fair”, it might be a difficult question to argue.  It does rather suggest that a high burden is placed on the employer not merely to be reasonable, but to be “demonstrably fair” but we do not investigate that further.

	Having spoken of the main reason being capability, not conduct, the Tribunal then went on:

“The majority finds that the applicant did misconduct himself in failing to complete question 13 of form 241 (the factfinder) for both of the branch audits that he carried out on Mr Barrett.  ...”

	It is common ground between the parties before us that that is a misunderstanding of the true system in relation to forms, audits and who was responsible for completing them.  Going on the Tribunal said:

“Had he [Mr Elms] done so this might well have alerted Mr Hughes to the irregularities in Mr Barrett’s business methods.  The majority considers that dismissal was not within the band of responses available to a reasonable employer for this misconduct.  ...”

	So that the approach of paragraph 14 seems to be:  Do not accept the employer’s reason as shown, namely misconduct, but rather treat it as a matter of capability with minor misconduct thrown in.  Treating it as a matter of capability with minor misconduct thrown in, then the response was not that of a reasonable employer.  But that means that the real question was not properly addressed, namely, given that it was a matter of misconduct (so far as the belief on reasonable grounds of the employer left it), what was the band of responses available to a reasonable employer in relation to such misconduct and was dismissal within it?  It was that which should have been addressed.

	The Chairman, in paragraph 15 went on, dissenting.  He found that the lack of action on the part of Mr Elms amounted to misconduct.  A little later at paragraph 16 we find this:

“16  ...  The majority considers that the applicant should have been aware of the blatant disregard of the rules by Mr Barrett, but was not - in part - because he failed to complete in full form 241 after proper investigation.  ...”

	That again represents a misunderstanding, as Mr Elms told us, of the nature of the forms, what the forms consisted of, which kind of audit they formed part of and who was responsible for them.

	We therefore see this matter as one in which there has been a serious error of law.  What, then, should be done?  We see some force in the Chairman’s observations in paragraph 15 which I have just touched upon, but can we be sure that, if all two majority Members and the Chairman of the Industrial Tribunal had together addressed themselves to the correct question, they would necessarily have arrived at the solution to which the Chairman arrived?  One has to recognise in these cases that there is a broad band of conclusion which is open as being describable as reasonable.  

	We cannot be categoric that all three, had they addressed themselves, or even any two out of the three, had they addressed themselves, to the correct question, would necessarily have come to the same answer as the Chairman.  That being so, and there being, in our view, a demonstrable error of law, it seems to us that we have to remit the matter and, indeed, Mr Bishop, Counsel for the Agency, invited us to remit.  It is not lightly that we remit in any case, because time and money is involved in a further hearing to no one’s necessary greater satisfaction, but, if justice requires it, then, of course, it has to be.

	We do see it appropriate that there be a remission but, then, is it to be a remission of the whole matter or only part of the matter?  Is it to be a remission to the same Tribunal or a different Tribunal?  If we remitted it to the same Tribunal then unless the matter was reopened at a factual level there is a danger that the same Tribunal would continue to have in mind errors of fact which both sides have drawn to our attention.  Had we been confident that these facts were not mistaken, then we could perhaps have remitted happily enough to the same Tribunal but we cannot be so satisfied.  There has to be a real doubt, given that both sides attacked the facts found below, that, if we remitted it to the same Tribunal, they would be guided by mistaken facts unless they reopened the case.  But if the case therefore has to be reopened, even if it is sent back to the old Tribunal, it seems to us preferable that if it has to be reopened, then it should be reopened totally afresh before a totally fresh Tribunal.  

	With some reluctance, given our view on remission generally, we allow the appeal and remit the matter for a total fresh hearing in front of a new Tribunal.  I mentioned at the outset that Mr Elms had been found 50% liable for his own downfall, as the Tribunal expressed it and he put in a cross-appeal against that.  That does not now fall to be dealt with.

	So as to the cross-appeal we make no order or dismiss it, whichever is the technically appropriate response.

© Copyright 1996

EAT/137/96

EAT/137/96
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