United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR SEAN JONES (of Counsel) Instructed by: Messrs Lewis Silkin Solicitors 12 Gough Square London EC4A 3DW
For the Respondent	MS SUZANNE McKIE (of Counsel) Messrs Lovells Solicitors 65 Holborn Viaduct London EC1A 2DY


 


JUDGE PETER CLARK

1. This is an appeal by Mr Cobley, the Applicant before an Employment Tribunal sitting at London (South) under the chairmanship of Mrs J Gilbert, against that Tribunal's reserved decision promulgated on 6 March 2001, dismissing his complaint of unfair dismissal brought against his former employer, the Respondent, Forward Technology Industries Plc.

The Facts

2. The Appellant commenced employment with the Respondent in December 1973. From 1980 until his dismissal effective on 8 February 2000 he was a member of the Respondent's Board of Directors, Deputy Chairman, Managing Director and Chief Executive.
3. He was employed under the terms of a written service agreement dated 15 January 1998. Clause 17.1 provided; so far as is material:

17 "RESIGNATION OF DIRECTORSHIPS

17.1 In the event of the [Appellant] ceasing to be a director of the Company, his employment hereunder shall terminate automatically but without prejudice to any claim for breach of contract which either the Company or the [Appellant] may have against the other."

4. In about 1998 the Appellant had the idea of leading a management buy out (MBO) of the Respondent. A committee of independent directors was set up. Financial backing was obtained and an offer of 26p per share made for the Respondent's share capital. The sale was to be effected through a scheme of arrangement.
5. In October 1999 a US-based corporation, Crest Group, headed by Mr Michael Goodson, made an offer to buy the Respondent Company, initially bidding 28p per share and then 30p.
6. The Appellant's MBO team persisted. They obtained fresh financial backing and offered 35p per share. A bidding war ensued between the MBO team and Crest, culminating in a successful bid by Crest at 50p per share. Crest took over the Respondent in January 2000.
7. On 19 January 2000, at a meeting of the Respondent's board, an alternate director for Mr Goodson, Mr Hayward, put forward a proposed resolution for the Appellant's removal from the board.
8. The grounds put forward for his removal were that the Appellant had caused a scheme of arrangement to be proposed to the former board and shareholders at great cost to the Company and at a price which he ought to have known was substantially less than the Company's true value. Following their acquisition of the Company, Crest had appointed a number of its directors to the board to replace former directors who had resigned. The resolution was passed. Further, on 8 February 2000, at a properly constituted extraordinary general meeting (EGM) of the Company shareholders, a resolution to remove the Appellant as a director was carried. Crest then owned 95% of the issued shares.

The Employment Tribunal Decision

9. The first question for the Tribunal was whether, and if so when, the Appellant was dismissed by the Respondent. They found that he was dismissed on 8 February 2000. Having been validly removed from the board his employment under the service agreement thereupon automatically terminated by virtue of the provisions of Clause 17.1. There is no appeal against that finding.
10. Secondly, had the Respondent made out a potentially fair reason for dismissal? The Employment Tribunal found that it had, some other substantial reason (Employment Rights Act 1996 Section 98 (1) (b). The Tribunal based that conclusion on two findings:

(a) that the acquisition of the Respondent by Crest entitled Crest as the dominant shareholder to choose their own board of directors. The removal of the Appellant (his former board colleagues having resigned) led automatically to the termination of his employment. Alternatively:

(b) that there had been a breakdown in trust and confidence.

11. The Respondent, through Mr Goodson, formed the view:

(i) that the scheme of arrangement had caused Crest to incur extra legal costs;

(ii) that the Appellant had attempted to acquire the Respondent Company at half its market value and;

(iii) that the Appellant's persistence in pursuing the MBO had led to the share price rising to nearly double the original bid price (a cost to Crest of nearly $10 million US) and;

(iv) that the Appellant, had he succeeded in acquiring the Company, intended to "flip" it, that is, sell it off to an American company (a competitor of Crest) at a considerable personal profit.

12. Finally, the Respondent having established a potentially fair reason for dismissal, was the dismissal fair or unfair for that reason (Employment Rights Act 1996 S.98 (4))? The Tribunal found the dismissal to be fair for the following reasons:

(i) the Appellant knew, as an experienced businessman, that if he lost the takeover battle he would have to go. From 17 December 1999 negotiations were taking place to agree, if possible, his severance package and;

(ii) the board meeting of 19 January and the EGM of 8 February 2000 were properly constituted.

The Appeal

13. Mr Sean Jones, on behalf of the Appellant, attacks both the Tribunal's finding as to the reason for dismissal and as to its fairness. He advances an interesting submission based on the Tribunal's alternative finding as to the reason or principal reason for dismissal, that is, the employer's loss of trust and confidence in the Appellant amounting to some other substantial reason under Section 98(1) (b) of the Employment Rights Act 1996, Tribunal Reasons, paragraph 6(B).
14. First he contends that the Tribunal has misclassified the statutory reason: on their findings at paragraph 6(B) it was a reason relating to conduct. Consequently the Tribunal ought to have, but failed to go on to consider the well-known Burchell test, having found that Mr Goodson genuinely believed that the Appellant had misconducted himself, namely whether he had reasonable grounds for that belief, following a reasonable investigation. To fail to carry out that exercise amounted to an error of law. He relies upon the judgment of Mummery J (then President) in Sojkowski v BNR Europe Limited (EAT 995/93 25 April 1995 unreported).
15. Alternatively, even if the reason for dismissal, on the alternative basis set out in paragraph 6(B), was properly classified as some other substantial reason, in that there was a loss of trust and confidence, that finding does not absolve the Tribunal from enquiring into and making findings on the question as to whether the employer had reasonable grounds, following a reasonable investigation, for the basis advanced for the breakdown in trust and confidence.
16. We have described those submissions as interesting but we find it unnecessary to rule on them in the following circumstances.
17. The Tribunal's primary finding as to the reason for dismissal is set out at paragraph 6(A) of their reasons. Against the background of a hostile bidding war in which the MBO team led by the Appellant lost, they say this:

6 (A) "The Tribunal considers that the reason for the dismissal was the very fact of the acquisition by Crest resulting in the removal of the [Appellant] as director and employee."

18. Pausing there:

"a reason for the dismissal of an employee is a set of facts known to the employer, or it may be of beliefs held by him, which cause him to dismiss the employee".

Abernethy v Mott Hay & Anderson [1974] ICR 323, per Cairns LJ.

19. On this Tribunal's primary findings of fact the reason identified in paragraph 6(A) had nothing to do with conduct, the Respondent's initial case. Could it amount to some other substantial reason? Mr Jones submits that this set of facts cannot amount to a "substantial reason of a kind such as to justify the dismissal of an employee holding the position, which the employee held" (S 98(1) (b)). It cannot be justified.
20. We disagree. It seems to us axiomatic that an employed Managing Director must also be a member of the board. That was reflected in this Appellant's contract. Once he was removed, lawfully, as a director he could no longer continue in employment as the Managing Director and Chief Executive of the Company. The Respondent made out some other substantial reason for dismissal.
21. Was it then open to the Tribunal to find that dismissal for that reason was fair under Section 98 (4)? We think that it was. Against the background of a bidding war against opposition led by the Appellant it was inevitable that he and his colleagues would cease to be directors. The new owners of the Company were entitled to appoint their own nominees to the board, to replace the old board, as the Tribunal found.
22. We consider that the position here is analogous to a business reorganisation (see, for example Hollister v National Farmers' Union [1979] ICR 542) or the need to impose a restrictive covenant into the contract of employment (RS Components Ltd v Irwin [1973] ICR 535). The Tribunal heard the evidence and rival submissions and concluded that this employer acted reasonably in treating its reason, as found, as a sufficient reason for dismissal. S 98 (4). In particular, they were struck by the fact that the Appellant, as an experienced businessman, would have been aware that having lost the takeover battle he was at risk of losing his seat on the board and with it his employment. It was in these circumstances that negotiations began in December 1999 with a view to agreeing a severance package. The possibility of finding him alternative employment, in these circumstances, was unrealistic.
23. Finally, we are not persuaded by Mr Jones that dismissal for the primary reason found by the Tribunal was somehow rendered unfair because the Respondent chose to allege misconduct as the reason for his removal at the board meeting held on 19 January 2000. That had nothing to do with the Respondent's reason or reasonableness in treating the reason as found by the Tribunal for dismissal as a sufficient reason for dismissal.
24. In these circumstances we are unable to find any grounds in law for interfering with this Tribunal's primary decision. The appeal fails and is dismissed.