United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR A STANTON-DUNNE (Solicitor) Messrs Stanton-Dunne & Co Solicitors The Generals Main Road Boreham Chelmsford Essex CM3 3JH
For the Respondent	MS M MURPHY (of Counsel) Instructed by: Messrs E Edwards Son & Noice Solicitors Three Horseshoes House 139 High Street Billericay Essex CM12 9AF

SUMMARY

Unfair Dismissal

The Appellant challenged the Tribunal's finding that the chain of causation for compensation for unfair dismissal was broken when, having found a new job which was not temporary, the Appellant left it and started his own business. Held that the Tribunal had applied the right tests and were entitled to reach factual conclusions as they did.


 


HIS HONOUR JUDGE J BURKE QC

1. This is an appeal by the Applicant before the Tribunal, Mr McGovern, against part of a decision as to the assessment of compensation for unfair dismissal by the Employment Tribunal sitting at Stratford, chaired by Mr Duncan and sent to the parties on 29 June 2004. Mr McGovern was employed by the Respondent, Mr Owen (trading as Owen Lyons Estate Agents) from 1997 to 28 March 2003. He was latterly Mr Owen's Sales Director.
2. In the first months of 2003 there were disagreements between Mr McGovern and Mr Owen over the hours or days of work (or both) which were required of Mr McGovern. On 27 February, as the Tribunal found, there was a heated altercation between them with swearing on both sides. There followed an exchange of memoranda, and on 7 March Mr Owen sent Mr McGovern a dismissal letter, purporting to dismiss him on the grounds of redundancy. The Tribunal found that there was no redundancy and that Mr McGovern had been unfairly dismissed. They also found that by that date, the relationship between the two men was seriously damaged. A redundancy payment was made; and that payment was taken into account in the calculations made by the Tribunal at the remedies hearing.
3. A summary of the principal facts found by the Tribunal in considering whether Mr McGovern had been unfairly dismissed by Mr Owen is to be found at paragraph 17 of the Tribunal's remedies decision, the decision now under appeal. We have not been taken to their liability decision and it is unnecessary for present purposes to consider the findings on that first decision any further.
4. Having been dismissed, Mr McGovern found employment with another firm of estate agents called Spicer McColl on 28 April, but he left that employment on 2 August 2003. The Tribunal addressed the question of his reasons for his leaving at paragraph 18 of their decision. They said this:

"The next question we shall address is why did Mr McGovern leave Spicer McColl. In his witness statement Mr McGovern states that he could not see himself achieving the same earnings as with Mr Owen, that he was working an extra hour every day, that he worked and extra half day a week, and that his journey to and from work took between two to three hours each day. Whether Mr McGovern was right or wrong about his first reason [and we interpose that there was an issue as to what his earnings would have been with Spicer McColl had he stayed with them], we believe that these were the true reasons for Mr McGovern's departure and we reject the contention that Mr McGovern intended to set up his own business from the start and that the job at Spicer McColl was a stop-gap."

Plainly there the Tribunal were finding that the job with Spicer McColl was not, to Mr McGovern, a step along the route to setting up his own business or a temporary step but that it was a permanent job.

5. The Tribunal calculated the continuing loss to Mr McGovern as a result of his dismissal for the period before his commencement with Spicer McColl and for the period during which he was employed by Spicer McColl; and no criticism is made of their calculations as to those two periods. However, Mr McGovern's Schedule of Claimed Loss did not end with his voluntary surrender of his permanent job with Spicer McColl.
6. After he left Spicer McColl (or possibly while he was still with them, but in the summer of 2003) Mr McGovern looked for premises to start up his own business. Having found them and prepared them, he started his own business; and in his Schedule he claimed that up to the date of the hearing, during which period from August 2003 he had been involved in setting up his own business, he had received no income and that he did not anticipate any income over the next nearly six months. Thus of that period he claimed loss at the full rate of that which he had received from his employment with Mr Owen. He went on to claim that in respect of the period from the end of June 2004 to June 2005, he anticipated that he would earn £35,000 from his new business but with no profit share. He also claimed start up costs in the new business, as set out in a letter from his accountant. That letter, which is dated 13 January 2004, refers to Mr McGovern's looking for business premises from the summer of 2003, to his having failed to find any until October, and then his finding premises, providing a £25,000 capital injection, fitting out the business, incurring advertising and sundry expense of £15,000 and then that a further three months' money would be needed and further capital injections. Precisely what expenses were being claimed does not appear from the Schedule or the accountant's letter, but they were obviously substantial.
7. Alternatively Mr McGovern said that if the loss that he should recover was not the difference between his earnings with Mr Owen and his earnings or absence of earnings from his new business, then his loss should be measured by the difference between what he was earning with Mr Owen and what he was earning with Spicer McColl.
8. However, the Tribunal accepted the submissions put forward on behalf of Mr Owen that, by giving up a permanent job with Spicer McColl and going off to start his own business, Mr McGovern had broken the chain of causation between the dismissal by Mr Owen and any continuing losses and that any continuing losses or expenses incurred by Mr McGovern after the had left Spicer McColl and in setting up his own business did not flow from the earlier dismissal. Thus they awarded compensation only down to the date on which Mr McGovern left Spicer McColl. The sums are set out in the decision and need not be mentioned now for present purposes. The calculations themselves are not the subject of any criticism or appeal.
9. The conclusion of the Tribunal as to whether any losses after the beginning of
   August 2003 were attributable to the earlier dismissal are contained in paragraph 21(i) of the Tribunal's decision in these terms:

"As Mr McGovern had a permanent job with Spicer McColl and as he brought it to an end by his own volition, we conclude that any loss or expense incurred by Mr McGovern in setting up his own business does not flow from the earlier dismissal. In other words the chain of causation is broken."

In that same subparagraph the Tribunal went on to say this:

"The Tribunal would in any event have had a problem in awarding Mr McGovern compensation for the differential loss of income as there was no credible evidence of such continuing. It would be pure speculation to come up with any figure. Some hypotheses have to be constructed when awarding compensation, but we do not see it as our role to "pick a figure out of thin air" which is what we would have to do."

10. Lastly, in setting out the important aspects of the Tribunal's decision we refer to paragraph 21(iii), in which the Tribunal concluded that, because the relationship between Mr McGovern and Mr Owen was already seriously damaged before the dismissal, and further rows would more likely than not have broken out if Mr McGovern had not been dismissed, on balance Mr McGovern would have lasted another four months in Mr Owen's employment but probably not much longer.
11. By this appeal, Mr McGovern challenges the conclusion of the Tribunal that loss and expense after 2 August 2003 did not flow from the dismissal, that there was no credible evidence as to the differential loss of income and that Mr McGovern and Mr Owen would have parted from each other in any event four months down the road, had there been no dismissal.
12. Mr Stanton-Dunne, on behalf of Mr McGovern, has put his appeal forward in a fair and restrained manner. Although there was some skirmishing between the parties over an amendment to the Notice of Appeal, which we allowed, that amendment being put forward in a response to a suggestion in the Respondent's skeleton argument that if Mr McGovern's appeal failed on the first point, the second and the third points were irrelevant, Mr Stanton-Dunne has, sensibly and professionally, accepted in the course of argument that, if Mr McGovern is to succeed in overturning the Tribunal's decision that he should receive no compensation after 2 August 2003 when he left Spicer McColl, he must succeed on ground 1 of his Notice of Appeal and that, if he fails on that ground, there is no need for us to consider ground 2 or ground 3. However, because of potential overlapping arguments, in particular on the facts, we have heard the parties on ground 2 as well as on ground 1 and are now giving judgment on those two grounds of appeal.
13. For the sake of clarity we should add that Mr Stanton-Dunne also accepted that, if he was successful on ground 1, he would also need to be successful on ground 3 if he was to avoid the effect of the Tribunal's conclusion that Mr McGovern should have no compensation from
    2 August 2003 onwards, because the finding that Mr McGovern and Mr Owen would have parted ways four months down the road would in any event, whatever the result of ground 1, have meant that Mr McGovern's employment by Mr Owen could not be used as the starting point for a differential loss assessment.
14. So as it seems to us, it is right and proper that we should deal with ground 1 first, and then ground 2.
15. While ground 1 is put in various ways in Mr Stanton-Dunne's skeleton argument, he expressly confirmed to us in the course of oral argument that he was not submitting that the Tribunal, in relation to the causation issue, had misdirected themselves as to the law or applied the wrong test. He further agreed that, once the Tribunal had applied the correct test, the question as to whether the differential between what Mr McGovern earned after 2 August 2003, (which was for some time nothing), and what he would have earned with Mr Owen if he had not been unfairly dismissed was attributable to the dismissal was a question of fact. He referred us to the decision of the Court of Appeal in Dench v Flynn & Partners [1998] IRLR 653 in which that issue arose in the case of an assistant solicitor. The facts are not important; but Beldam LJ in the course of his judgment quoted from a decision of the Employment Appeal Tribunal, which was at that time a recent decision, namely Whelan v Richardson [1998] IRLR 114. From the judgment of Judge Peter Clark in that case, he quoted these words:

"As soon as the applicant obtains permanent alternative employment paying the same or more than his pre-dismissal earnings, his loss attributable to the action taken by the respondent employer ceases. It cannot be revived if he then loses that employment either through his own action or that of his new employer. Neither can the respondent employer rely on the employee's increased earnings to reduce the loss sustained prior to his taking new employment. The chain of causation has been broken."

Having set out those words, Beldam LJ continued as follows:

"19. I consider that statement needs qualification. No doubt in many cases a loss consequent upon unfair dismissal will cease when an applicant gets employment of a permanent nature at an equivalent or higher level of salary enjoyed when dismissed. But to regard such an event as always and in all cases putting an end to the attribution of the loss to the termination of employment cannot lead in some cases to an award which is just and equitable.

20. Although causation is primarily a question of fact, the principle to be applied in deciding whether the connection between a cause, such as unfair dismissal, and its consequences is sufficient to found a legal claim for loss or damage is a question of law. The question for the industrial tribunal was whether the unfair dismissal could be regarded as a continuing cause of loss when she was subsequently dismissed by her new employer with no right of compensation after a month or two in her new employment. To treat the consequences of unfair dismissal as ceasing automatically when other employment supervenes is to treat as that effective cause that which is simply closest in time."

16. We pause there to interpose that Mr Stanton-Dunne has not submitted that the Tribunal automatically reached the conclusion that, because Mr McGovern had gone into other permanent employment and then voluntarily left it, the unfair dismissal was not the cause of his subsequent loss. Equally, while in this case the earnings which Mr McGovern had achieved with Spicer McColl up to 2 August were substantially less than those in his employment with Mr Owen, and there was an issue as to what such earnings might have been after 2 August (although it seems, on what we have been shown, that they may well have continued to be less than his earnings with Mr Owen), it does not follow automatically that his acquiring and leaving that permanent job, with its less favourable terms, could not break the chain of causation. Each set of facts has to be assessed by the Tribunal, having regard to the evidence; and they have to reach a conclusion on those facts, applying the right principle, as it is accepted this Tribunal did. The position is illustrated by what, in the same case, Sir Christopher Staughton said in his judgment. He said this, from paragraph 26:

"26. We have been referred to a number of cases where the Employment Appeal Tribunal has appeared to lay down rules for the calculation of compensation, with particular reference to cases where the employee obtains other employment before the date when compensation is assessed. One rule appears not to be in dispute: that the employee's loss is to be assessed at the date of the remedy hearing. But it is also true, as was said by the Employment Appeal Tribunal in Whelan v Richardson, that that date is necessarily arbitrary. One must avoid, if one can, in giving rise to arbitrary results.

27. Other rules adopted by the Employment Appeal Tribunal, if such they be, are at the most guidance. What has to be assessed in terms of section 123(1) of the Employment Rights Act 1996 is such amount as the tribunal considers just and equitable in all the circumstances, having regard to the loss sustained by the complainant in consequence of the dismissal, in so far as that loss is attributable to action taken by the employer. That includes a test of causation, or perhaps the same test twice over, once by reason of the works 'in consequence of' and a second time in the words 'attributable to'.

28. That is the ordinary common sense test if the common law. Was the loss in question caused by the unfair dismissal or by some other cause? The tribunal must ask itself and answer that question, and then ask what amount it is just and equitable for the employee to recover."

17. The Tribunal in this case went through that process. They were well aware that the Spicer McColl job was not as attractive to Mr McGovern as had been his job with Mr Owen. They found that his reasons for leaving Spicer McColl were those which we have already quoted. There was no doubt that his salary up to 2 August, which was a fixed £35,000 per annum was less than the £60,000 plus per annum that Mr McGovern had been receiving while employed with Mr Owen; and they were aware that it was at least Mr McGovern's view that after 2 August, when his flat salary arrangement with Spicer McColl ceased and he was going to go on to a commission arrangement with a flat salary of £22,000 (so that what he would earn in excess of £22,000 would be dependant on commission), he believed that he would earn less than he had been earning with Mr Owen. But despite their clear understanding of those facts, as set out in their decision, the Tribunal came to the conclusion on the facts that the loss or expenses incurred by Mr McGovern as a result of his decision to set up his own business did not flow from the earlier dismissal. That was a question of fact for them to decide.
18. Mr Stanton-Dunne accepts that in order to succeed on ground 1 of this appeal, he must show that that conclusion was perverse. So far as perversity is concerned, Ms Murphy, on behalf of Mr Owen, has referred us to the well known case, in employment law terms now one of some age, of Martin v MBS Fastenings (Glynwed) Distribution Ltd [1983] IRLR 198, in which the Master of the Rolls in the Court of Appeal, after making some interesting comments about the roles of lay members in the Employment Appeal Tribunal, turned his attention to appeals against issues of fact which were brought to appellate tribunals; and he said this at paragraph 10 of his judgment:

"It is very important, and sometime difficult, to remember that where a right of appeal is confined to questions of law the appellate Tribunal must loyally accept the findings of fact with which it is presented and where, as can happened from time to time, it is convinced that it would have reached a different conclusion of fact, it must resist the strong temptation to treat what are in truth findings of fact as holdings of law or mixed findings of fact and law. The correct approach involves a recognition that Parliament has constituted the Industrial Tribunal the only Tribunal of fact and that conclusions of fact must by accepted unless it is apparent that, on the evidence, no reasonable Tribunal could have reached them. If such be the case, and happily it is a rarity, the Tribunal, which is to be assumed to be a reasonable Tribunal, must have misdirected itself in law and the Employment Appeal Tribunal will be entitled to intervene."

Over the years since those words there have been many different formulations of the test for perversity, including perhaps most notably, until the last couple of years, the formulation in the case of Neale v Hereford and Worcester County Council [1986] IRLR 168, that perversity must be judged by whether the reaction of the appellate tribunal to the finding of fact is 'my goodness, that must be wrong'. In more modern times in Yeboah v Crofton [2002] IRLR 634, the Court of Appeal said that for perversity to be established there must be an overwhelming case that the Tribunal had reached a factual conclusion that no reasonable Tribunal could have reached.

19. Mr Stanton-Dunne accepts that in order to establish perversity he has to clear a high hurdle. He has taken us through the evidence which shows that Mr McGovern was saying that he would continue, if he stayed at Spicer McColl, to make a very substantial loss, as compared with his employment Mr Owen; it is not necessary for us to go through the figures. So, says Mr Stanton-Dunne, Mr McGovern left a less well paid job, at a lesser status (although status does not appear to have been part of his reasoning) after a very short time to set up his business; that was a perfectly sensible and reasonable thing for him to do; and that could not possibly be seen by a reasonable Tribunal as anything which would break the chain of causation or enable the Tribunal to say that subsequent loss or expense did not flow from the original dismissal. Secondly he submits that the Tribunal's conclusion that this was not a stop-gap job was itself perverse.
20. We have no hesitation in concluding that perversity is not made out in this case. The Tribunal heard the evidence; it was for them to determine whether the ongoing loss from
    2 August was attributable to the unfair dismissal or whether the chain of causation was broken; there was clearly evidence on which they could reach the latter conclusion. This was, as they found, not a stop-gap job but a permanent job; the evidence as to precisely how much would have been earned had Mr McGovern stayed in his employment with Spicer McColl was uncertain; and he left of his own volition to set up his own business, rather than to continue in that permanent employment. It may be that the decision was a harsh one. It may be that the decision was one with which any one of the three of us sitting as the members of this division of the Employment Appeal Tribunal today might have disagreed. But that is not enough. We have concluded that there is simply not a case here that what the Tribunal did on this issue was to reach a conclusion which no reasonable Tribunal could have reached. Still less is there an overwhelming case to that effect.
21. The same applies to the conclusion that this was not a stop-gap job. Mr McGovern did not say that he regarded it as a stop-gap job in his witness statement, nor in his evidence at first to the Tribunal. Indeed he set out the reasons for leaving which the Tribunal found were his reasons for leaving, which did not include that it was a stop-gap job but that he always had in mind moving to set up his own business and that the job with Spicer McColl was merely a temporary stop along the route to earn him some money. He did say in his evidence, at the very end of his evidence in an answer to the Tribunal, that he saw it as a stop-gap job; but the Tribunal were wholly entitled to reject that and to find that his reasons for leaving what they obviously saw as a permanent job were those which they found. Thus there was evidence on which the Tribunal could make that particular finding of fact, as well as their more general conclusion of fact, with which we have already dealt at some length, and ground 1 of this appeal must fail. We turn, therefore, to ground 2.
22. As to ground 2 Mr Stanton-Dunne attacks the Tribunal's finding that there was no credible evidence as to the differential loss of income from 2 August. Mr Stanton-Dunne says that that too is perverse. He has taken it that the Tribunal were there referring to the evidence as to what Mr McGovern would have earned with Spicer McColl if he had stayed in their employment. We have to say that all of us took the Tribunal to be referring to the evidence, or rather lack of evidence, as to what Mr McGovern would have been expected to derive from his new business, either in the first year or so or in the period following that. Ms Murphy, on behalf of Mr Owen, suggests that the Tribunal were referring to both.
23. Insofar as the Tribunal were referring to a lack of evidence as to the earnings from Spicer McColl, we think it necessary to point out that, on the basis that loss after 2 August did flow from the unfair dismissal (because if it did not, ground 2 does not arise) the comparison
    

that the Tribunal would have been required to make was not between the Spicer McColl earnings and the Owen earnings, or between the Spicer McColl earnings and the "own business" earnings, but between the Owen earnings and the "own business" earnings; and that is why our initial reaction was that the Tribunal must have been referring to the lack of credible evidence about what Mr McGovern was going to earn from his new business, into which he plainly invested, according to the accountant's letter, a very great deal of time and money.

24. If Mr Stanton-Dunne, and in part Ms Murphy, is right as to what the Tribunal were addressing, and if it were relevant to consider the post-2 August hypothetical Spicer McColl earnings, then although Mr McGovern set out what he would have expected to recieve, had he continued with Spicer McColl after 2 August, and produced a letter from a recruitment consultant saying that branch managers could only expect as a maximum £35,000 per annum, presumably in the area in which Mr McGovern was working for Spicer McColl, the truth is that no figures from Spicer McColl as to their turn over or their branch turn over (either at the branch Mr McGovern had been at or any other branch) were produced to the Tribunal; there were no figures as to what Mr McGovern's successor had earned or how many deals he had turned over or were turned over by the branch; and it is not difficult to understand how the Tribunal, in a case in which how much Mr McGovern would have earned had he stayed in Spicer McColl was in issue, could have come to the conclusion that there was not any satisfactory evidence which enabled them to determine what he would have earned (although they did in fact say that it was likely that his income, had he stayed with Spicer McColl, would have gone up, at the end of paragraph 20 of their decision).
25. There was also, as it happens, a dispute about how much he would have earned with Mr Owen, had he not been unfairly dismissed. As to that the Tribunal, in the same passage in
    

paragraph 20, expressed the general view that had he stayed with Mr Owen his income would have gone down. But what was most important if the Tribunal was going to make an award of loss for a period after 2 August was what was Mr McGovern going to get from his business; and it would have been wrong for them, we would suggest, or at least it was open to them to take the view that it would have been wrong, to look only at the first year or 18 months of that business, without taking into account whether, after the business had got off the ground, it might take off and do extremely well, with the result that if one looked at the position after 3 years from the end of Mr McGovern's employment by Mr Owen, one might find that he had earned more that he would have earned with Mr Owen.

26. As to that, the Tribunal really had very little evidence at all. Although the Schedule set out Mr McGovern's claims, as we have indicated earlier in this judgment, there was no business plan or cash flow projection put before the Tribunal and there was no expert evidence assessing how much Mr McGovern could expect to earn. The matter was only dealt with in a very general way in Mr McGovern's witness statement, at paragraph 19 and there he said only that it was unlikely that the business would see a profit in the first 12 months, that from July 2004 he hoped to be taking a salary of £35,000, with a profit share and that he hoped that he would be generating the same level of income as he was earning with Mr Owen by around mid-2005. In the light of that evidential picture, or rather lack of evidential picture, it is not at all surprising that the Tribunal reached the view that there was no credible evidence which enabled them to assess continuing loss. Certainly it was a view to which the Tribunal, on the evidence before them, were entitled to come; and in our judgment there is no material before us which could persuade us that there was a case of perversity in relation to this conclusion, still less an overwhelming case of perversity. Accordingly we reject ground 2.
27. Because it is accepted that if Mr McGovern fails on ground 1 there is no need to go into ground 3, we have not have argument on ground 3 and will say nothing about it, save to say that that too appears to us, on the face of it, to be an attack based on perversity in a situation in which there was contested evidence. But, having not heard any argument upon it, we need and will say no more.
28. For those reasons this appeal is dismissed.