United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MR C SAUNBY (Solicitor) Toller Hales & Collcutt Solicitors Castilian Chambers 2 Castilian Street Northampton NN1 1JX
For the Respondent	MR R HIGNETT (of Counsel) Shepherd & Co Solicitors 147 Watling Street West Towcester Northamptonshire NN12 6BX


 


JUDGE PUGSLEY: This is an appeal from the decision of the Industrial Tribunal sitting at Bedford. The tribunal found that the applicant had been dismissed in breach of contract and that he was entitled to three month's pay in lieu of notice.

The factual basis of the case may be briefly summarised. The appellant/employer was a manufacturer of double-glazed windows, doors and conservatories. The respondent/employee had initially been a consultant with the appellant but then became an employee.

We are concerned with the construction of the contract of employment dated 1st July 1997 but expressed to be with effect from 1st May 1997. The appellant's case was that Mr Skilton had resigned and that in any event the appellants were entitled to dismiss Mr Skilton without notice because he had failed to achieve his targets. The appellants counter-claimed in respect of a breach of contract relating to shares and for the sum of £469.95 outstanding in respect of the purchase of materials for Mr Skilton's personal use. The share issue had been resolved and the tribunal made no adjudication about that matter. It was agreed by Mr Skilton that he did owe the sum of £469.95 and therefore the counter-claim succeeded to that extent.

The tribunal made certain findings of fact in paragraph 5 onwards, and in view of the nature of the claim, we consider that the best course would be to set out in full the judgment of the tribunal as to the relevant issues:

"5. Having heard the witnesses and considered the documents the Tribunal made the following findings of fact:

(a) The respondent company sells double glazing. Mr Skilton had gone to work for them as Sales and Marketing Director in July 1996.

(b) The Respondents had employed Mr Skilton because he had persuaded them that he would be able to increase their sales turnover from the then current level of £1.5 million per annum to £5.0 million per annum. This was to be achieved in stages over a two year period.

(c) The company's financial year ran from the 1st May to the 20th April. Sales records were based on 13 week quarters commencing at 12 noon on a Tuesday at the beginning of the relevant month. The first quarter in the 1997/98 financial year commenced at noon on Tuesday 6 May 1997, and ended at noon on Tuesday 5 August 1997.

(d) Mr Skilton would have been familiar with the sales figures on a day to day basis, and a written statement of those figures would have been available within a day or so of the last day in each quarter.

(e) On the 23 May 1997 Mr Skilton issued a memorandum to his three fellow Directors proposing revised targets for the May June and July quarter amounting in total to £640,000.

(f) In the meantime, Kevin and Steven Johnson had instructed the company's solicitors to provide a draft employment contract for Mr Skilton. The draft was not in fact produced to Mr Skilton until Mr Steven Johnson sent it to him with a letter dated the 4th July. However, the contract was signed shortly afterwards, on the 8th July, and it was expressed to be dated on the 1st July and to have commenced on the 1 May 1997.

(g) The contract was expressed to be subject to three months notice (clause 3.2), but also provided at clause 14.1 for summary dismissal on various grounds including "gross misconduct or gross incompetence". Clause 14.2 was the subject of a addendum, which incorporated the specific target figures set out in Mr Skilton's memorandum of the 23rd May, and provided that: "if over any quarter you fail to achieve your performance target as outlined below you may be dismissed with immediate effect".

(h) By July Mr Skilton and his Co-Directors were well aware that the current target was not being achieved and that there was little prospect that it would be achieved within the then current quarter.

(i) On Friday 1 August 1997, Mr Skilton attended a Directors meeting at which he was asked to resign. The respondents case is that Mr Skilton did in fact resign as Mr Kevin Johnson's minutes indicate. But we prefer the evidence of Mr Skilton, which is supported by the evidence of Mr Lloyd, that Mr Kevin Johnson made clear that Mr Skilton had no choice but to resign, and Mr Skilton then left, without in fact offering his own resignation in specific terms.

(j) Following Mr Skilton's departure, the respondents found that Mr Skilton had ordered goods for his private use amounting to £469.98. Mr Skilton had not paid for these goods.

6. The Tribunal is satisfied that the meeting on the 1st August amounted to a dismissal rather than to a resignation. Mr Skilton was given no choice. Even if Mr Kevin Johnson's words did not amount to a dismissal, then they were a fundamental breach of the implied covenant of trust and confidence between employer and employee, and Mr Skilton accepted that breach by leaving.

7. The question therefore arose, as to whether Mr Skilton was entitled to any notice or pay in lieu of notice arising out of his dismissal. The respondents case was that they were entitled to dismiss Mr Skilton summarily under clause 14.2 of the contract, and had done so: but that if they had been in breach of contract on the 1st August, they could nevertheless have properly terminated the contract with no notice within a short period of time thereafter - probably by the 14th August. It was also argued that Mr Skilton was in breach of contract in any event, by the unauthorised purchase of materials, and that as a result he could have no claim in damages in any event.

8. The applicant's case was quite simply that no only was the dismissal in breach of contract: but that there was no provision which allowed the respondents to dismiss him without notice or pay in lieu of notice in the circumstances.

9. Clause 3.2 of the contract provides that:

"Subject to clause 14, this contract will continue until determined by either side on a three month notice of termination given in writing at any time."

This is a clear provision that the contract is subject to three months notice in the normal course.

10. Clause 14.1 is equally specific that the respondents can dismiss "without prior notice or pay in lieu (and you will not be entitled to compensation or damages)" in the case of nine specific instances which include gross misconduct, gross incompetence, breach of contract, sickness, harassment or the commission of a criminal offence.

11. Clause 14.3 provides that the respondents "reserve the option in our absolute discretion to terminate your employment by paying you in lieu of notice", and clause 14.4. provides for "garden leave".

12. Clause 14.2.4 in the main contract is mirrored by clause 14.2.1 in the addendum, which provides:

"If over any quarter you fail to achieve your performance target as outlined below you may be dismissed with immediate effect. We will first provide you with a written statement of your profitability against the budget period within fourteen days of the end of the relevant quarter.

You will be entitled to a meeting to discuss the situation within five working days of provisions of the statement. In the case of any dispute about the accuracy of the statement, a certificate signed by the Manager Director should be final and conclusive".

Clause 14.2.2 of the addendum also provides that:

"Your individual performance will be measured against the following criteria which are listed in order of priority:

(i) "live" sales input/output ie. volume

(ii) quantity of frames ie. price

(iii) sales mix per product

(iv) budgetary control of departmental cost; and

(v) finance commission income"

13. Clause 14.2 set out the targets which had already been agreed for the May to July quarter. These are the "live sales" referred to in (i) of clause 14.2.2. Indeed this seems to be the only issue in 14.2.2 that is given any substance. There is no data to enable criteria to be assessed for (ii) (iii) (iv) or (v).

14. It was agreed by Mr Kevin Johnson in evidence that the May to July quarter in fact did not end until Thursday 5 August 1997. It was therefore apparent that the dismissal which took place on the 1st August must have been in breach of contract. The quarter to which the figures related had not at that point been completed. Nor had the respondents complied with the procedure set out in clause 14.2.1, for the provision of a written statement of profitability "within fourteen days of the end of the relevant quarter", nor had they provided a meeting "within five working days of provision of the statement". The Tribunal is satisfied, therefore, that the dismissal was in breach of contract."

The tribunal rejected a submission by Mr Hignett, who appeared for Mr Skilton, that the employers were in breach of the agreement simply because he could not possibly have any retrospective effect. Further, the tribunal rejected the company's claim that Mr Skilton was himself in breach of contract because of an unauthorised purchase of goods for his own private use. The tribunal found no evidence that would support the company's claim that Mr Skilton was himself acting in breach of contract in this transaction so as to deprive Mr Skilton of any right to claim damages for the company's breach. Having made these findings, the tribunal then went on deal with the meaning of the contractual terms. We consider the matter is best set out by quoting from the decision itself:

"17. It was however accepted by both parties that there was no prospect of Mr Skilton achieving his targets during that current quarter. So the next question for the Tribunal to address, was whether in fact paragraph 14.2.1 of the employment contract meant that there could be summary dismissal for failure to achieve the performance target.

18. The respondents' case was that they had in fact waited for the end of the quarter on the 5th August, they could have provided the written statement required by clause 14.2.1 within a matter of two or three days. The discussion would then have taken place well within five days of that statement, and a decision would have been made immediately following the discussion. Inevitably, that decision would have been to dismiss. It would have taken place by the 14th August at the latest.

19. It was submitted by Mr Saunby on behalf of the respondents that [the] words "dismissed with immediate effect" had a clear and plain meaning which amounted to summary dismissal. The fact that the words in clause 14.2.1 were different to those used in 14.1 was irrelevant. The Tribunal had to consider the plain meaning of the words incorporated into the clause in question. Parole evidence was not normally relevant in interpreting a contractual document. But it was quite clearly agreed that between the parties that Mr Skilton was engaged in "high risk, high reward" enterprise, and that it was going to be necessary for the respondents to have the right to terminate their obligations to him, without any form of penalty, if such a highly paid employee as Mr Skilton fell down in delivering the achievements he had promised.

20. Mr Hignett submitted that a dismissal without notice could take place with or without pay in lieu of notice, or with a liability for damages, whether or not it took "immediate effect". The words were equivocal. There was no express statement that Mr Skilton could be summarily dismissed without pay in lieu of notice, as there was at clause 14.1. He was therefore entitled to three months pay in lieu of notice, and this meant that there could no limiting of the damages to a shorter period as the respondents claimed.

21. The Tribunal notes that clause 3.2 clearly provides for three months notice. Clause 14.1 equally clearly provides for dismissal "without prior notice or pay in lieu" in the case of the instances set out at 14.1.1 or 14.1.9. However, [the] respondents did not seek to rely on the "gross incompetence" provision of 14.1.1. Clause 14.2.1 uses a quite different form of wording to that used in 14.1. This suggests that it has a different meaning. But is it nonetheless competent to deprive Mr Skilton of any damages or pay in lieu of notice? Or is the wording of 14.2.1 to be read within the context of clause 14.3, which reserves to the employer "the option in our absolute discretion to terminate your employment by paying you in lieu of notice". We find that for the contract to deprive the employee of the right to notice or pay in lieu of notice or damages, there must be a clear and specific provision to that effect. The words "dismissed with immediate effect" do not specifically exclude any right to payment, and are at best ambiguous with regard to the issue of pay or damages in lieu of notice. It is a trite provision of contract law, that any ambiguity should be construed against the party who has drafted the document. We must conclude therefore that the term "dismissed with immediate effect" does not exclude the right to a claim in lieu of notice or for damages."

The tribunal went on to say that if in fact that they were wrong in their interpretation of clause 14.2.1 then the dismissal could properly have taken place by 14th August so that Mr Skilton's damages were in that case to be limited to the thirteen days after 1st August. The respondent has not challenged this as the appropriate measure for damages.

At an appellate hearing there is often an air of artificiality in that the Appeal Tribunal is giving exclusive attention to one issue that was only one of several issues at the tribunal hearing. In this case the tribunal rejected the suggestion that Mr Skilton had resigned and it rejected the suggestion that he was in breach of contract by making unauthorised purchases of goods so as to debar him from his claim for damages.

Mr Saunby's central contention on behalf of the appellants is that on a true construction the words "with immediate effect" mean unambiguously that at that stage the employer could dismiss without any requirement to pay money in lieu of notice: that the words used negated the requirement for the employee to be given notice and therefore to be compensated for the failure to give notice. Mr Saunby conceded in argument that such a term would have to be subject to the statutory requirement as to notice contained in s.86 of the Employment Rights Act 1996. This term, Mr Saunby told us, was distinct from the clause which contained summary power of dismissal for misconduct on the basis that this was a non-stigmatised dismissal as opposed to a dismissal for misconduct. Mr Saunby makes the point that the particular clause would be otiose if it still required the employer to pay money in lieu of notice since the employer was in any event under clause 3.2 to dismiss without reason to terminate a contract. In one respect we confess we found Mr Saunby's arguments somewhat ironically inapt. He quotes the dictum of Lord Wright in Hillas and Co Limited v Arcos Limited [1932] 147 LT 503 at page 514:

"Businessman often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to construe such documents fairly and broadly, without being too astute or subtle in finding defects; but, on the contrary the court should seek to apply the old maxim of English Law, "verba ita sunt intelligenda ut res magis valeat quam pereat [Words are to be understood that the object may be carried out and not fail.]".

This is not a case of businessmen recording an important agreement in crude and summary fashion. This was a professionally drafted document by solicitors dealing in copious detail with matters which might arise. There are no findings of fact made by the tribunal as to what commercial men might mean by the words "dismissal with immediate effect".

Mr Saunby's researches as to the use of the words "dismissal with immediate effect" have not uncovered any authority that deals with this particular issue.

We are not impressed by Mr Saunby's argument that this issue was not pleaded. It was clearly an issue that was raised before the tribunal and we do not consider that we should be tied by a narrow point such as that.

Mr Hignett on behalf of the respondent, submits that the tribunal's decision that the words "dismissal with immediate effect" were ambiguous cannot be challenged on the grounds of perversity as argued by the appellants. The tribunal, he submits, properly directed themselves in law in seeking to resolve the ambiguity of the words "dismissal with immediate effect" by juxtapositioning the language of clause 14.1 of the main contract with that of 14.2.4 of the addendum. He suggests that the tribunal properly directed themselves in law in construing the ambiguity contra proferentem [against him who uses them].

We bear in mind that this was a decision of a Chairman and two members. We consider that it was a permissible option for that tribunal to come to the view that in the particular circumstances of this case the words "dismissal with immediate effect" were ambiguous and did not of themselves exclude Mr Skilton's right to three months pay under his contract, notwithstanding the phraseology of clause 3 of the contract that that right to three months notice was subject to the provision of clause 14. To deprive an employee of a contractual notice is a draconian step and we do not consider that the reasoning of the tribunal can be faulted in saying that this was ambiguous. That is the view of the industrial members of this tribunal. The fact that there are industrial members sitting on tribunals expresses the truth that there is a wisdom and knowledge of the world outside the confines of the Temple and Chancery Lane.

If a professionally drafted contract is going to impose draconian measures which mean that an employee is denied his contractual right, in our view such a term should be drafted in clear and unambiguous terms that brings home to the employee the exact nature of his contractual liability.

In Houghton v Trafalgar Insurance Co Ltd [1953] 1QB 247 in considering a clause where liability was being limited because an excess number of passengers were carried, Somerville LJ stated that he hoped if that was what they were going to do, the insurance company would print the provision in red ink so that the assured would have it drawn to his particular attention. In a matter so fundamental as the right to receive contractual notice, we consider similar considerations should apply. Various arguments have been advanced to us as to how to approach the issue of construction. Mr Hignett has pointed out that the rule that allows a court to resolve a contractual ambiguity by reference to the commercial purpose of the contract is of narrow application (see Sounion [1986] 2 Lloyds Rep 593 Gatehouse 9).

The various arguments advanced by the appellants founder on our view that the tribunal was right in saying the words were ambiguous. The contention of Mr Saunby that the words negate the requirement to give notice is a possible interpretation. Equally, the words are capable of interpretation that all this clause does is to provide a mechanism for defining performance and if certain procedural requirements are complied with the employer has the right to dismiss with immediate effect. This might be relevant in an unfair dismissal case in considering section 98(4). However, it may be argued the clause does not relieve the employer from the consequences of the decision: namely to pay money in lieu of notice. Indeed, on the basis this was a document drafted by lawyers it might well be thought that they would not intend to try and circumvent the provisions of section 86 of the Act.

We say that an attempt has been made to suggest that we should take over the task of determining the issue of holiday pay. That is not a course which we consider appropriate and we consider that there was no objection at all to the tribunal taking the view they did that this was a matter that could be resolved at the remedy hearing. The appeal is dismissed.