United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	Mr R Eweka (Representative) Eureka Law Centre 14 Rectory Road London N16 7QT
For the Respondents	Mr M Hamilton (Solicitor) Messrs Capsticks Solicitors 77-83 Upper Richmond Road London SW15 2TT


 


MR RECORDER UNDERHILL QC

1. This is an appeal from the Decision of an Employment Tribunal sitting at London South that it did not have jurisdiction to entertain the Appellant's claim for unfair dismissal. The essential facts, based on the findings by the Tribunal in a full and careful decision, are as follows:

1) The Appellant was employed by the Respondents as a staff nurse. He was dismissed with effect from 3 May 1998 on the grounds that the Respondents believed that he was guilty of serious sexual harassment.

2) On 15 July 1998 the Appellant presented a claim for unfair dismissal. His IT1 identified his representative as "Direct Legal". Direct Legal is the short name of a company, now in liquidation, called "Direct Legal Advisers Ltd", whose business consisted in offering representation to parties bringing proceedings in the Employment Tribunals and claims for criminal injury compensation, on the basis that they would take a share of the proceeds of successful claims. The Appellant entered into a written agreement with Direct Legal. It gave Direct Legal:

"..the exclusive right and authority at our sole and absolute discretion to decide finally on your behalf whether and when your claim should be pursued to judgment or settled."

3) The Appellant's case was due to be heard before the Tribunal on 23 September 1999. There had been earlier attempts to achieve a settlement through ACAS, under the machinery provided for by Section 18 of the Employment Tribunals Act 1996, but those had been unsuccessful. In apparent contemplation of a further attempt to settle, the Appellant on 13 March 1999 wrote to Direct Legal as follows:

"….As for your negotiations for settlement, please note that no settlement will be acceptable to me unless the stain of being falsely labelled a "sexual harasser" is completely removed. As far as I am concerned, no monetary compensation can satisfy me without the stain being removed."

4) On 15 March 1999, Mr Foley of Direct Legal contacted Mr McDonough of ACAS to seek to re-start conciliation. Following a number of telephone calls between Direct Legal and Mr McDonough on the one hand and the Respondents and Mr McDonough on the other, agreement was reached that afternoon on a settlement of £1,750, subject to agreement as to the terms to be incorporated in a form COT3. The terms of the COT3 were agreed on 17 March, and Mr McDonough confirmed to Direct Legal and to the Respondents that a binding agreement had been reached. The Tribunal was so notified by Mr McDonough directly afterwards, at just after 11 o'clock that morning. The terms of the settlement did not involve the Respondents withdrawing their allegation of sexual harassment.

5) On 18 March 1999 ACAS sent the COT3 form to Direct Legal and the Respondents, and on the same day the Tribunal issued a formal decision that:

"The Conciliation Officer having taken action under the provisions of section 18 Employment Tribunals Act 1996 and having notified the Tribunal that terms of settlement have been reached between the parties, the Tribunal orders that all further proceedings in this Application be stayed."

That decision was sent to the parties on 19 March 1999.

6) On 19 March 1999 - that is, the same day that the decision was sent to the parties - the Official Receiver was appointed as provisional liquidator of Direct Legal. A winding up order was made on 25 March 2001. A copy of the petition has been supplied to us by Mr Eweka, who appears for the Appellant today as he did before the Tribunal. This was not before the Tribunal, but its substance was known to it. In short, the order was made on grounds of the public interest, pursuant to Section 124A of the Insolvency Act 1986, on the basis of allegations that its contracts with clients offended the rule against champerty; that it misled its clients about bill structures; and that it did not act in its clients' best interests.

7) Neither Direct Legal nor the Appellant ever signed for in COT3.

8) On 30 April 1999 the Appellant telephoned Mr McDonough, saying that Direct Legal did not have his authority to settle at £1,750 and that he was not willing to sign the form himself. He asked Mr McDonough to reopen negotiations with the Respondents, which he did. Negotiations did take place but they were unsuccessful.

9) The Appellant applied, in effect (we do not have the precise terms of his application) to have the stay of 19 March 1999 lifted, on the basis that the case had not been effectively settled. That application came before the Tribunal, following an adjournment, on 22 November 1999. The decision of that Tribunal, sent to the parties on 1 December 1999, is the decision appealed against.

2. Although there may be room for argument about whether the decision was correctly formulated in formal terms - i.e. that the Tribunal had no jurisdiction - plainly, the issue before it was whether the stay ought to be lifted, which in turn depended entirely on whether a legally binding settlement had been reached.
3. The Tribunal held that the settlement which had been concluded orally through the offices of Mr McDonough on 17 March 1999, as recited at 4) above, was binding on the Appellant because Direct Legal had both actual and ostensible authority to settle the case on his behalf. It had actual authority because of the terms of his agreement with Direct Legal, which we have recited, and those terms were not effectively varied by his instruction of 13 March 1999. It had ostensible authority, so the Tribunal held, by virtue of the identification of Direct Legal as his representative on the form IT1. The Tribunal referred to Freeman v Sovereign Chicken Ltd [1991] ICR 853: no doubt the passage which it had in mind is that at 863 A - B. Even if the Appellant's letter of 13 March might have been effective to remove Direct Legal's actual authority, the Tribunal held that neither Mr McDonough nor the Respondents were aware of any limitation on Direct Legal's authority, so that it could have no effect on Direct Legal's ostensible authority. On the authority of Gilbert v Kembridge Fibres Ltd [1984] ICR 188 the Tribunal held that the fact that the agreement was reached orally, and not confirmed by a Form COT3 signed by both parties, did not affect its validity. An oral agreement, reached through the auspices of ACAS, is binding on ordinary contractual principles, unaffected by the anti-contracting out provisions of Section 203 of the 1996 Act, because those provisions are specifically disapplied in the case of an agreement to refrain or instituting or continuing proceedings where a conciliation officer has taken action under Section 18 of the 1996 Act (see Section 203(2)(e) ).
4. Although before the Tribunal the Appellant contended that Direct Legal's actual authority had been removed by the letter of 13 March 1999, it seems that his main submission was that even if Direct Legal had otherwise actual or ostensible authority that authority was vitiated by its fraud or criminal acts more specifically by conduct rendered criminal by Sections 206 - 211 of the Insolvency Act 1986 on the part of Direct Legal prior to its winding up. As to this the Tribunal held:

"A third party dealing in good faith is not affected by fraud on the part of an agent unless the third party had notice of the fraud, or that the agent is exceeding its authority for its own benefit, unless the third party has notice of any irregularity putting him on inquiry as to whether the ostensible authority is being exceeded.

ss 206 - 211 Insolvency Act relates to offences by directors and officers and may render directors and officers subject to prosecution. They do not however affect the validity of transactions between an agent and a third party except in the circumstances referred to above when the third party has, or should have notice of the irregularity."

It continued:

"The provisions of the Insolvency Act are not relevant to the issue of Direct Legal's authority vis a vis ACAS or the Respondent to reach a settlement in the absence of ACAS as the Respondent having any reason to suspect any irregularity."

5. The Appellant's Notice of Appeal is not very clear as to its detail, but in its essentials it appears to repeat the argument rejected by the Tribunal, as summarised above. The principal steps in the argument appear to be as follows:

1) Direct Legal had failed to disclose to the Appellant, or the public generally, that it was being wound up, which is a criminal offence under Section 210.

2) That failure constituted a fraudulent misrepresentation.

3) By virtue of that misrepresentation, the Appellant was entitled to avoid his contract with Direct Legal ab initio as soon as he learned of the true facts, and he did so.

4) Ergo, Direct Legal's authority, actual and ostensible, was retrospectively withdrawn.

6. There are, it seems to us, serious problems about each of the steps in that argument. It is enough, however, to make two points.

1) There is no evidence of any fraudulent misrepresentation by Direct Legal on which the Appellant relied in entering into the contract. The Appellant himself gave no evidence. The mere fact that Direct Legal was wound up on the grounds that it would not allow the Tribunal, without more, to infer a fraudulent misrepresentation relied on by the Appellant.

2) More substantially, even if the Appellant had withdrawn his authority from Direct Legal, and the contract of agency been retrospectively avoided, that could not have any effect as regards a third party. This is essentially the point made by the Tribunal, with which we agree. Even if the Appellant had been fraudulently induced to appoint Direct Legal as his representative, and therefore so to hold it out in form IT1, nevertheless the fact remains that he did so. That holding out gave Direct Legal ostensible authority in dealings with all persons relying on it, unless and until the Appellant's withdrawal or any other circumstances vitiating the holding out were drawn to their attention. The protected position of the bona fide third party is trite law generally, as regards rescission for fraud; but specifically as regards agency, it is succinctly confirmed by paragraph 134 of Halsbury's Laws vol 1(2), which is in the following terms:

"A principal is not exempt, where he would otherwise be liable in respect of an act done or bound by a contract made by his agent, by reason of the fact that the agent in doing it was acting in fraud of the principal or otherwise to his detriment. A third party dealing in good faith with an agent who acts within the apparent scope of his authority and purports to act as an agent is not prejudiced by the fact that the agent is using his authority for his own benefit and not that of his principal"

Those principles seem to us plainly to cover this case.

7. In his argument before us today, Mr Eweka put the case in several different ways, not all of which were foreshadowed by the grounds of appeal or, so far as we can see, argued below. Without prejudice to any question whether strictly he is entitled to raise them now, we are prepared briefly to deal with them.

1) He relied on the fact that Direct Legal's business appears to have been based on champestous agreements. He submitted, again, that that meant that the contract between the Appellant and Direct Legal was void ab initio; but of course the case so put faces precisely the same difficulty as that based on fraudulent misrepresentation - that is, that even if the contract of agency was void as between the Appellant and Direct Legal ACAS and the Respondents as third parties acting in good faith were entitled to rely on the Appellant's holding out of Direct Legal as his representative.

2) Mr Eweka drew our attention to the decision of the Court of Appeal in Harber v North London Polytechnic [1990] IRLR 198. That was a case where a union representative had withdrawn an applicant's claim in the Tribunal as a result of a mistake which, in turn, derived from a mistaken observation of the Chairman. The Court of Appeal held that the Tribunal's decision to dismiss the claim on withdrawal could be the subject of a review in the interests of justice. That is, of course, wholly different from the present case where a binding settlement agreement had been reached between the parties.

3) Mr Eweka relied on the fact that the settlement agreement made did not provide for, or otherwise refer to, the reinstatement of the Appellant. He refers to Section 18(2) of the 1996 Act which he says has the effect that any agreement which does not refer to reinstatement is invalid, or in any event does not attract the attention of Section 203(2)(e) to which we have referred above. All we can say is that it does not seem to us remotely possible to read the provisions of Sections 18 or 203 in this way.

4) He refers to a letter sent to the Appellant on 13 May 1999 by Buchler Phillips, the Joint Liquidators firm, asking the Appellant to confirm whether he was:

"willing to accept the offer of settlement from your former employers."

That, read in isolation, appears to suggest that the original offer had never been accepted and no concluded contract made. However, if there had already been a settlement, as the Tribunal held, that letter was simply mistaken on the part of Buchler Phillips, and it cannot be effective to reopen an agreement already reached. There is nothing particularly surprising in the Joint Liquidators, who were not of course involved in the events in question, being unclear or mistaken as to the precise status of the agreement.

8. In conclusion therefore it seems to us that the decision of the Tribunal was plainly right and this appeal must be dismissed. We of course understand the disappointment of the Appellant that as a result of the actions of his representatives he is debarred from the opportunity of pursuing his claim and the opportunity to clear his name, as he hoped would occur, of the allegations of sexual harassment made against him. But the fact is that having appointed Direct Legal as his representatives he is bound by their actions, and this is not a claim which can now be reopened.