United Kingdom Employment Appeal Tribunal

Appeal No. UKEAT/0135/10/RN

 

 

 

EMPLOYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

 

 

At the Tribunal

On 11 October 2010

Judgment handed down on 26 July 2011

 

 

 

Before

HIS HONOUR JUDGE HAND QC

MR A HARRIS

MR B WARMAN

 

 

 

 

THE HIRA COMPANY LTD APPELLANT

 

 

 

 

 

SECOND RESPONDENT

 

 

Transcript of Proceedings

 

JUDGMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

APPEARANCES

 

 

 

 

 

For the Appellant	MS CHARLOTTE HADFIELD (of Counsel) Instructed by: Curwens Solicitors Crossfield House Gladbeck Way Enfield EN2 7HT
For the Respondent	MR ALEX YOUNG (of Counsel) Instructed by: Matthew Arnold & Baldwin 21 Station Road Watford WD17 1HT

 

SUMMARY

UNFAIR DISMISSAL – Constructive dismissal

 

 

The majority in the Employment Tribunal had directed themselves correctly in terms of Malik and Mahmud v Bank of Credit and Commerce International SA [1997] ICR 606 and Bournemouth University v Buckland  [2009] ICR 1042 (EAT) and [2010] ICR 211 (CA).  The appeal and cross appeal were dismissed.

 

 

HIS HONOUR JUDGE HAND QC

Introduction

1.             This is an appeal by The Hira Company Limited (“the Appellant”) from the judgment of an Employment Tribunal, comprising Employment Judge Postle, Mr Sagar and Mr Phillips, sitting at Watford over 3 days in October 2009. The judgment and written reasons were sent to the parties on 17 November 2009.  The majority (the lay members) concluded that Mr Daly (“the Respondent”) had been constructively and unfairly dismissed.  The Respondent also cross appeals on the ground that the Employment Tribunal did not address his argument that the Appellant had failed to keep him informed about suppliers and products with the result that his position was undermined and the implied term as to trust and confidence breached.

 

2.             Although not formally part of any order, when considering the cross-appeal under the sift procedure, His Honour Judge Peter Clark had suggested the Respondent should be permitted to argue the cross-appeal if it looked likely that the Appellant would succeed on the appeal.  This was no doubt because the cross-appeal would only have practical significance if there was any possibility of the appeal of succeeding.  In the event, although this Tribunal had not formed any concluded view as to the merits of the appeal at the end of the submissions relating to it, we took the view that the cross-appeal should be argued so as to avoid the risk of a further hearing day.  Thus it was that submissions on the appeal and cross-appeal occupied a full hearing day.

 

The Facts

3.             The Respondent was employed by the Appellant, which imports, exports and distributes office equipment and electrical goods, between 1 March 2005 and 20 March 2008 when he resigned.  The Employment Tribunal described his job title of National Sales Manager as being a “courtesy title” because he was not a manager; “his duties were purely those of a salesman”.  The Appellant is described by the Employment Tribunal at paragraph 3.1 of the judgment as “a family business … based in Manchester.” At paragraph 3.2 it is contrasted with the Respondent’s former employer, Casio Electronics in these terms:

 

“Casio Electronics is a multimillion pound organisation with all the resources one would expect for such an organisation and they had control over the supply of goods seemingly having their own factories.  The Respondent was clearly a much smaller organisation who did not have their own factories and thus control over delivery dates and quality control.  It is fair to say that Casio was involved in first tier products and the Respondent were involved in second tier products, the Respondents had customers among the major retailers, for example Tesco, Sainsbury's, Argos, Comet, and also had customers with much smaller retail outlets.”

 

4.             At paragraph 3.12 of the judgment, the Employment Tribunal describe the general history of the employment relationship in these terms:

 

“Throughout 2005 2008 it has to be said there appears to have been an uneventful relationship between the Claimant and the Respondents, by that the tribunal mean the Claimant got on with his job and the Respondent encouraged the Claimant.  It appears that the Claimant was in receipt of a healthy living, certainly in 2007 and 2008, where it is said his income including commission was somewhere in the region of £58,000.”

 

5.             Elsewhere in the judgment the Employment Tribunal emphasise positive aspects of the employment relationship.  Paragraphs 3.6, 3.9 and 3.10 deal with the Respondent’s introduction to some of the Appellant’s larger customers, namely W.H. Smith, Tesco and Comet.  But the Employment Tribunal also recognised at paragraphs 3.13, 3.14 and 3.15 that some things had not gone well from the Respondent’s point of view:

 

“3.13 It is true that there were problems with delivery dates, and on occasions the quality of products.  In so far as products were concerned, there were difficulties with digital photo frames and shredders.  As a result these goods were either returned or rejected by the customers and when they were that would have to be taken into account in the Claimant’s commission payments.  The Claimant does not dispute the fact that the Respondents were entitled to do that.

3.14 There were also difficulties with deliveries, deliveries being late which no doubt caused some friction between the Claimant and in particular, Tesco and Dixons where ultimately goods which had been ordered were diverted to Asda to meet an order with them to avoid a £30,000 fine for late delivery.  Clearly that makes commercial sense.  The Claimant also accepts that late deliveries were not done deliberately despite the Claimant's efforts to secure orders and lose him orders or commission, likewise with poor quality products which were delivered by the Respondent’s suppliers.

3.15 There was one occasion with a smaller customer, Alpha, where ultimately Mahesh had not even put in the order and the reason for not putting in the order was he was waiting for the exchange rates to shift in favour of the Respondents, had he put the order in at the time it was taken, the company would have lost substantial amounts of money on the order through poor exchange rates at the time.  Clearly the Respondent should have discussed that with the Claimant but again, the reason for the action of the Respondents was a business/commercial reason and was not done deliberately to undermine the Claimant.”

 

6.             Another major customer was Sainsburys.  The judgment introduces Sainsburys at paragraph 3.11 in these terms:

 

“The Sainsburys account.  It may have been at the time the Claimant joined the Respondents’ organisation that the Sainsbury's account was inactive.  That appears to be the case, it is clear the Respondents had done business with Sainsburys previously but it was probably not active at the time the claimant joined.  The Claimant appears to have secured new orders for[1] Sainsburys.”

 

7.             Then in the autumn of 2008 a change occurred which is described in paragraphs 3.19, 3.20 and 3.21 of the judgement as follows:

 

“3.19 In September 2008 the buyer for Sainsburys left, whom the Claimant had been dealing with.  The new buyer was Kaye Culley.  She had just left Rymans and had previously had dealings with Deepak Parmer while she was at Rymans.  Over the next three months up to Christmas attempts were made by the claimant to meet with the new buyer.  Some meetings had been arranged but through no fault of the Claimant had to be cancelled.  It is common ground between the parties that the buyer of these large organisations is ‘King’ so to speak, they dictate when they see you, if they see you and effectively, if they want to deal with you.  Personal relationships between buyers and suppliers are clearly very important and very relevant in securing orders.

3.20 Mahesh was concerned that the Claimant was not managing to meet the new buyer which meant in turn the Claimant was not securing new orders and if was (sic) not securing any new orders as night follows day there was no commission being earned on that account.  Mahesh was visiting the assistant buyer in January and enquired why the Claimant could not get a meeting with new buyer.  As a result of this meeting Mahesh managed to get five minutes with Kaye Culley the new buyer and she simply informed him, that she had been really busy and in fact wanted to deal with Deepak Parmer as she had a relationship with him when they worked together previously at Rymans.  The buyer told Mahesh this was no reflection on the Claimant’s ability, and the Claimant was informed of this and for sound business reasons the Sainsburys’ account with the new buyer was to be dealt with by Deepak Parmer.  The Respondents were entitled to do this as there was no express term in the Claimant’s contract that allocated him specifically and exclusively to particular customers.  The Claimant clearly was unhappy about the Sainsburys’ account being removed from him and believed the taking of the Sainsburys’ account was effectively the last straw, taken with what he believed was the mismanagement of deliveries and poor quality products and raised a grievance by a letter on 30 January at page 110 and 111 of the bundle.  The grievance was heard by Sanjay Hira.  The Claimant was not satisfied with the outcome of the grievance and resigned by a letter dated 20 March (page 155).

3.21 It is important to recall that the Claimant did not resign, and this is not one of the issues in this case, over the handling of his grievance.  He resigned for the matters set out in paragraph 23 of his claim form which did not assert the handling or the outcome of the grievance was his reason for resigning.”

 

8.             The “matters set out in paragraph 23” referred to in the last sentence of paragraph 3.21 are best understood by quoting the terms of the whole paragraph and of paragraph 24, which are both really sub paragraphs of paragraph 5.1 of the ET1 form  (see pages 44, 45, 50 and 51 of the hearing bundle)

 

“23.  I felt that there had been a fundamental breach of my contract namely: -

a.  Breach of the implied terms of trust and confidence

b.  The Sainsbury’s account being taken away from me and given to Deepak Parmer.

c.  Hostile and un-co-operative working environment due to the family disputes between two factions.

d.  Inconsistency of expenses/benefits with Deepak Parmer.

e.  Inconsistency of salary.

f.  Interference by Mahesh Hira in my sales negotiations.

g.  Interference with key clients by Mahesh Hira eg organising meetings without my knowledge.

h.  Not keeping me informed of important information concerning the Company's products and clients.

i.  Undermining my position with clients.

24.  Further, the above formed a series of breaches of which the final breach was the Sainsbury’s account being taken from me.”

 

9.             All members of  the Employment Tribunal were agreed in finding as facts that:

 

i)      the allegation at paragraph 23 c. was not established (see paragraphs 3.8 and 5.1 of the judgment);

 

ii)    the allegations at paragraphs 23 d. and e. were not established (see paragraphs 3.12,  3.17 and 5.2 of the judgment);

 

iii)  the allegations at paragraphs 23 f. and g. were not established (see paragraphs 3.6, 3.10, 3.18 and 5.3 and 5.4[2] of the judgment);

 

iv)   the allegation at paragraph 23 h. was not established (see paragraphs 3.15  And 5.5 of the judgment).

 

10.         The areas of disagreement between the majority and the minority related to sub paragraphs a., b., and i. of paragraph 23 but before considering those in the next section below, we need to set one other aspect of the last sentence of paragraph 4.21 of the judgment of the Employment Tribunal into context.  It is, of course, perfectly correct, as the Employment Tribunal says, that paragraph 23 of paragraph 5.1 of the ET1 form makes no complaint about the handling or the outcome of the grievance procedure but that observation rather ignores both the last sentence of paragraph 21 of paragraph 5.1 of the ET1 form, which reads:

 

“Although I raised a grievance I believe the grievance process was a sham.”

 

and the last sentence of paragraph 4.20 of the Employment Tribunal’s judgment, which close the factual narrative by saying:

 

“The Claimant was not satisfied with the outcome of the grievance and resigned by a letter of 20 March (page 155).”

 

Unhappily that letter is not part of the hearing bundle but even if we assume it makes no reference to the conduct or outcome of the grievance process, we fail to understand the point being made by the Employment Tribunal.  Whilst it may be accurate to say that the Respondent did not resign over the handling of the grievance process, it does not seem sensible to us to suggest that resignation can be divorced from the outcome of the grievance procedure.  If there had been a favourable outcome from the Respondent’s point of view then he would not have resigned.

 

11.         No further findings appear to have been made as to this and it does not lie at the heart of the appeal. It may be that the Employment Tribunal was simply seeking to express the conclusion that whether or not the grievance procedure was a sham was of secondary importance and what mattered more was whether there had been a fundamental breach of contract by the Appellant in relation to other issues.  The rest of the judgment certainly concentrated upon that and it is to that we now turn.

 

The Judgment

12.         The Employment Tribunal considered the law more or less at the start of the judgment.  Paragraph 2.1 refers to section 95(1)(c) of the Employment Rights Act 1996 and in paragraph 2.2 there is a reference to Western Excavating v Sharp [1978] ICR 221 and the well known part of Lord Denning’s judgment is quoted.  The Employment Tribunal then gives a self direction to the effect that there must be a fundamental breach of contract by the employer that causes the employee to resign[3].

 

13.         In paragraph 2.2 the Employment Tribunal discusses what is necessary to establish a breach of the implied term of trust and confidence and reminds itself that intention to repudiate is not a necessary ingredient.  What the Employment Tribunal must do is to:

 

“ … look at the employer’s conduct as a whole and determine whether it is such that its effect, judged reasonably and sensibly, is such that the employee cannot be expected to put up with it.”

 

Lord Steyn’s judgment in Malik and Mahmud v Bank of Credit and Commerce International SA [1997] ICR 606 is then referred to as emphasising two things; firstly, that:

 

“there is a breach only where there is “no reasonable and proper cause” for the employer’s conduct”

 

and secondly that, even so, there will be a breach:

 

“ … only if the conduct is calculated to destroy or seriously damage the relationship of trust and confidence.”

 

14.         The “Majority Conclusion” at paragraph 4.1 of the judgment is so brief that there is no point in summarising it and we set it out in full:

 

“Two members of this Tribunal concluded that the Claimant had been constructively and unfairly dismissed.  Their reasoning was that the cumulative effect of the Claimant's customers being supplied with faulty goods, late deliveries and delivery diversion was unreasonable conduct on the part of the Respondents.  It had the effect of reducing the Claimant's commission and taken with the removal of the Sainsburys’ account and passing to Dipak Parmer was to  the members minds a final straw entitling the Claimant to resign being a fundamental breach of the implied term of trust and confidence.”

 

15.         By contrast, the “Minority Conclusion” is set out in seven sub-paragraphs of paragraph 5 of the judgment and occupies two pages.  We have already referred to paragraphs 5.1, 5.2, 5.3, 5.4 and 5.5 in our summary of the facts (see paragraph 9 of this judgement above).  These are all matters upon which there was unanimity as to the findings of fact (save in respect of paragraph 5.4, where we have assumed unanimity).  They are, therefore, not really “Minority Conclusions” at all.  Paragraphs 5.1, 5.2 and 5.3 require no further comment; they are simply findings of fact.

 

16.         Paragraph 5.4 does merit attention, however, because, even though we have assumed that the majority agreed, it contains an important indication as to the general thinking of the Employment Judge.  He said :

 

“The Respondents to my mind are entitled to run their business as they see fit, provided that it is not done maliciously or capriciously and the arranging of one meeting without the Claimant's knowledge with one of his customers does not seem to me to be malicious, capricious or an attempt to undermine the Claimant, far from it.  Nor can it be said to be a breach of the implied term of trust and confidence.”

 

17.         This is the same thinking found in paragraphs 3.13:

 

“As a result these goods were either returned or rejected by the customers and when they were that would have to be taken into account in the Claimant's commission payments.  The Claimant does not dispute the fact that the respondents were entitled to do that.”

 

in paragraph 3.14:

 

“Clearly that makes commercial sense.  The Claimant also accept that late deliveries were not done deliberately despite the Claimant's efforts to secure orders and lose him orders or commission, likewise with poor quality products which were delivered by the Respondents’ suppliers.”

 

in paragraph 3.15:

 

“Clearly the Respondents should have discussed that with the Claimant but again, the reason for the action of the Respondents was a business/commercial reason and was not done deliberately to undermine the Claimant.”

 

and, most importantly, in paragraph 3.20:

 

“The Respondents were entitled to do this as there was no express term in the Claimant's contract that allocated him specifically and exclusively particular customers.”

 

All of the above quotations from the judgment either emphasise the commercial imperative and commercial sense of a particular decision or the contractual entitlement to make that decision or both.  It is that approach, which characterises the “Minority Conclusions” and must be taken to be what divides the majority and minority in terms of their approach to the matters upon which they did not agree.

 

18.         This can be clearly seen in paragraph 5.6, the last two sentences of which read: -

 

“Again, the Claimant does not assert this was done deliberately and bear in mind that the Respondents were very much in the hands of their suppliers.  The members did not agree on this finding.”

 

and in paragraph 5.7

 

“Had the Respondents not agreed to this, then as night follows day with buyers in these large organisations being King, the buyer/Sainsburys would simply not have dealt with the Respondents, which no doubt would have meant they would have lost substantial business.  Was the removal of the Sainsburys’ account done capriciously, maliciously, I do not think so.  Could it be said there were no reasonable and proper causes for the employer's conduct.  I do not think so.  I do not believe on the facts that the conduct of removing the Sainsburys’ account was calculated to destroy or seriously damage the relationship of trust and confidence.  Yes the Claimant was upset, yes the Claimant would have taken it personally, I say that as clearly the Claimant is a professional and a proud man with 22 years experience in sales but I think it is highly unlikely in the world of business today that where a buyer says I prefer to deal with salesman A rather than B that business would not acquiesce to that request.  In those circumstances I could not say, taking matters cumulatively with the Sainsburys' issue, that the Claimant had been constructively and unfairly dismissed.  The members did not agree with this finding.”

 

19.         So the differences between the majority and minority can be summarised in this way; the majority concluded that more than just the withdrawal of the Sainsbury’s account, which had been led to the resignation, fell to be considered, whereas the learned Employment Judge felt that no previous issues should be taken into account.  His view was that none of the matters raised, whether taken in isolation or together, amounted to a breach of the implied term of trust and confidence because there were sound business reasons for what had been done, none of which had been maliciously or capriciously directed at the Respondent personally.  The lay members took the view that there were an accumulation of matters, which had an adverse effect on the Respondent’s earnings and therefore amounted to a fundamental breach of the implied term of trust and confidence.

 

The Issue

20.         The fundamental issue on this appeal is which approach is correct.

 

The Submissions

The Appellant’s Submissions on the Appeal

21.         Ms Hadfield submitted that when the judgment of the Employment Tribunal is properly analysed, the findings of fact can be seen to be unanimous.  It might seem at first sight, both from the summary of the grounds of appeal (see page 18) and from paragraph 2 of her skeleton argument that the main plank of the appeal was perversity but both from the way that the grounds of appeal and skeleton argument are subsequently developed and from her oral submissions it became clear that Ms Hadfield was submitting there had been a misdirection on the part of the majority.

 

22.         The misdirection arises in this way.  Although not referred to in the judgment, she submitted it was clear that the learned Employment Judge had asked himself and answered the three questions suggested by the case of Bournemouth University v Buckland  [2009] ICR 1042; he had identified the conduct complained of by the Respondent, asked whether the Appellant had reasonable and proper cause for that conduct and, if so, whether that conduct had been calculated to destroy or seriously damage the mutual trust and confidence between employer and employee?  The difference between the majority and minority decisions was that the majority had ignored those questions and thus had fallen into error.

 

23.         This could be demonstrated by considering the incidents, which the majority had relied on.  Late deliveries and poor product quality were the fault of third parties; such matters lay outside the control of the Appellant, which, as the Employment Tribunal had unanimously found at paragraph 3.2 of the judgment was a comparatively small organisation.  But this had been ignored by the majority.  Likewise, the majority had failed to recognise that by finding the switching of the order to Asda, in order to avoid a significant late delivery penalty, the Appellant had made a reasonable decision on a sound business basis.  This was, as the Employment Judge had correctly found, a “reasonable and proper cause” for the conduct.  The delay in placing an order whilst exchange rates were unfavourable fell into precisely the same category; the only proper conclusion was that reached by the Employment Judge, namely that there had been “reasonable and proper cause” for it.  Above all, this analysis applied to the reason for moving the Respondent from the Sainsbury’s account.

 

The Respondent’s Submissions on the Appeal

24.         Although some part of the Respondent’s Answer addresses “perversity”, the main thrust of Mr Young’s submission was that the Employment Tribunal had correctly directed itself as to law at paragraph 2.3 of the judgment and the fulcrum of the competing arguments was not perversity but whether or not there had been a misdirection.  As to Buckland, Mr Young submitted that the test had been misunderstood both by Ms Hadfield and by the learned Employment Judge. Both in this Tribunal and in the Court of Appeal Buckland had made clear that when considering whether there had been a breach of the implied term of mutual trust and confidence, the court of tribunal should adopt the approach suggested in Malik v BCCI and the time for considering the reasonableness of the employer’s action was not at the stage of deciding whether or not there had been a dismissal but at the stage of deciding whether or not the dismissal was fair.  This was consistent with the approach of the Court of Appeal in GAB Robbins (UK) Ltd v Triggs [2007] ICR 1424 where at paragraph 32 there is discussion of cases involving the “last straw”.

 

25.         Consequently, it was the minority judgment that involved the misdirection.  The learned Employment Judge had adopted a prescriptive analysis, which focussed on the reasonableness of the employer’s actions and the need for a subjective intention by the employer of destroying the employment relationship.  This was just the kind of synthetic gloss on the judgment in Malik that had been deprecated by HHJ Clark’s division of this Tribunal in Buckland, which was a part of the decision that had survived the Court of Appeal’s reversal of the outcome.  Although the self direction as to law at paragraph 2.3 perhaps focussed too much on the speech of Lord Steyn and took it out of the context set by Lord Nicholl’s speech, the majority judgment was entirely consistent with the broad thrust of the judgment of the House of Lords in Malik and, brief though it is, there is no error in paragraph 4. 1 of the judgment.

 

Submissions on the Answer and Cross-Appeal

26.         The Respondent’s Answer sought to support the majority judgment by reference to material not alluded to at paragraph 4.1; alternatively the material formed the basis of the cross appeal.  At paragraph 23.h (of paragraph 5.1 of the ET1 form; see page 51 of the bundle) one of the matters relied on had been a failure by the Appellant to keep the Respondent informed “of important information concerning the Company’s products and clients”.  Apart from the factual finding made at paragraph 3.15 this allegation had not been addressed.  Paragraph 17 of the Answer at page 35 of the bundle sets out the other examples of lack of information to be found either in the Respondent’s witness statement or in his oral evidence.  Mr Young submitted that these other instances of the information went far beyond the factual finding at paragraph 3.15 and that they provided another basis on which the majority could have found in favour of the Respondent; alternatively, if the appeal succeeded then the cross-appeal should succeed on these grounds.

 

27.         Ms Hadfield’s response to this was that this factual material did not feature in either the majority or minority judgment because it was not regarded as having any significance by either the learned Employment judge or the lay members.  It could not bear the weight being placed on it either in the answer or the cross appeal.

 

Discussion, Conclusion and Disposal

28.         The starting point of any discussion as to the nature and extent of the implied term of mutual trust and confidence must be the decision of the House of Lords in Malik and Mahmud v Bank of Credit and Commerce International SA [1997] ICR 606 and because, in essence, this appeal is as to whether or not the majority or minority correctly directed themselves in terms of Malik, it is necessary to examine the speeches in some detail.  There were two; that of Lord Nicholls with whom Lords Goff and Mackay expressly agreed and that of Lord Steyn with whom Lords Goff, Mackay and Mustill expressly agreed.

 

29.         It is important to recognise that there had been considerable debate in the lower courts as to the precise wording of the implied term but by the time the case came before in the House of Lords it had been agreed between the parties.  It was stated by Lord Nicholls at page 609F-G as follows:

 

“In the Court of Appeal and in your Lordships’ House the parties were agreed that the contracts of employment of these two former employees each contained the implied term to the effect that the bank would not, without reasonable and proper cause, conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee.”

 

His analysis of the implied term was expressed thus at pp. 610F-611A:

 

“In other words, and this is the necessary corollary of the employee's rights to leave at once, the bank was under an implied obligation to its employees not to conduct a dishonest or corrupt business.  This implied obligation is no more than one particular aspect of the portmanteau, general obligation not to engage in conduct likely to undermine the trust and confidence required if the employment relationship is to continue in the manner the employment contract impliedly envisages.  Second, I do not accept the liquidator's submission that the conduct of which complaint is made must be targeted in some way at the employee or a group of employees.  No doubt that will often be the position, perhaps usually so. But there is no reason in principle why this must always be so.  The trust and confidence required in the employment relationship can be undermined by an employer, or indeed an employee, in many different ways.  I can see no justification for the law giving the employee a remedy if the unjustified trust-destroying conduct occurs in some ways but refusing a remedy if it occurs in others.  The conduct must, of course, impinge on the relationship in the sense that, looked at objectively, it is likely to destroy or seriously damage the degree of trust and confidence the employee is reasonably entitled to have in his employer. That requires one to look at all the circumstances.”

 

30.         Notwithstanding the agreed formulation, if necessary Lord Steyn would have been prepared to look behind that agreement.  At page 621B-C he says this

 

“The employer’s primary case is based on a formulation of the implied term that has been applied at first instance and in the Court of Appeal. … For convenience I will set out the term again.  It is expressed to impose an obligation that the employer shall not:

“without reasonable and proper cause, conduct itself in a manner calculated and[4] likely to destroy or seriously damage the relationship confidence and trust between employer and employee””

 

  Later he says at 621H-622B

 

“The major importance of the implied duty of trust and confidence lies in its impact on the obligations of the employer: Douglas Brodie, “Recent Cases, Commentary, The Heart of the Matter: Mutual Trust and Confidence" (1996) 25 I.L.J. 121. And the implied obligation as formulated is apt to cover the great diversity of situations in which a balance has to be struck between an employer’s interest in managing his business as he sees fit and the employee’s interest in not being unfairly and improperly exploited.”

 

and he continues at 622B-E

 

“Given the shape of the appeal the preceding observations may appear unnecessary.  But I have felt it necessary to deal briefly with the existence of the implied term for two reasons.  First, the implied obligation involves a question of pure law and your Lordships’ House is not bound by any agreement of the parties on it or by the acceptance of the obligation by the judge or the Court of Appeal.  Secondly, in response to a question counsel for the bank said that his acceptance of the implied obligation was subject to three limitations: (1) that the conduct is complained of must be conduct involving the treatment of the employee in question; (2) that the employee must be aware of such conduct while he is an employee; (3) that such conduct must be calculated to destroy or seriously damaged the trust between employer and employee.

In order to place these suggested limitations in context it seemed necessary to explain briefly the origin, nature and scope of the implied obligation.  But subject to examining the merits of the suggested limitations, I am content to accept the implied obligation of trust and confidence as established.”

 

31.         Before going on to examine the limitations suggested by counsel for the bank Lord Steyn made an important introductory observation.  At page 622G he says

 

“Secondly, given the existence of an obligation of trust and confidence, it is important to approach the question of breach of the obligation correctly.  Mr Douglas Brodie, of Edinburgh University, in his helpful article to which I have already referred put the matter succinctly, at pp. 121-122:

“In assessing whether there has been breach, it seems clear that what is significant is the impact of the employer’s behaviour on the employee rather than what the employer intended.  Moreover, the impact will be assessed objectively.”

Both limbs of Mr Brodie’s observations seem to me to reflect classic contract law principles and I would gratefully adopt his statement.”

 

32.         As to the first limitation he says this at page 623B-E

 

“First, counsel for the bank submitted that the dishonest behaviour of the bank was directed at the defrauding of third parties and that therefore there can be no breach of the implied obligation.  The conclusion is not warranted by the premise.  The implied obligation extends to any conduct by the employer likely to destroy or seriously damage the relationship of trust and confidence between employer and employee.  It may well be, as the Court of Appeal observes, that the decided cases involve instances of conduct which might be described as “conduct involving rather more direct treatment of employees:” [1996] I.C.R. 406, 412.  So be it.  But Morritt L.J. held, at p. 411, that the obligation:

“may be broken not only by an act directed at a particular employee but also by conduct which, when viewed objectively, is likely seriously to damage the relationship of employer and employee.”

That is the correct approach.  The motives of the employer cannot be determinative, or even relevant, in judging the employees’ claims for damages for breach of the implied obligation.  If conduct objectively considered is likely to cause serious damage to the relationship between employer and employee a breach of the implied obligation may arise.  I would therefore reject the first limitation as misconceived.”

 

33.         The second limitation is not relevant to the instant case and the third limitation was regarded by Lord Steyn as implicit in the implied term.  His speech ended with a short passage summarising the effect of his conclusions, which he introduced with the following words:

 

“Earlier, I drew attention to the fact that the implied mutual obligation of trust and confidence applies only where there is “no reasonable and proper cause” for the employer's conduct, and then only if the conduct is calculated to destroy or seriously damage the relationship of trust and confidence.  That circumscribes the potential reach and scope of the implied obligation.”

 

34.         Is there any difference between the approach of Lord Steyn and that of Lord Nicholls?  We do not think there is.  Obviously neither did Lords Goff and Mackay because they agreed with both and we would ascribe no significance to Lord Mustill not expressing agreement with Lord Nicholls.  Moreover in Buckland, both in this Tribunal and in the Court of Appeal, Malik is treated as a unitary judgment.  That Lord Nicholls used the word “likely” whereas Lord Steyn used the word “calculate”, although he also used the word likely, seems to us not to be a point of difference.  We think they are used to indicate two states of affairs.  Sometimes the employer will intend to damage the relationship; in such cases “calculate” is an appropriate word.  Sometimes there will be no such intention and then the effect of the conduct has to be judged objectively; in such cases “likely” is an appropriate word.  In the passages quoted above both Lord Nicholls and Lord Steyn were at pains to emphasise that the standpoint was an objective one. 

 

35.         Therefore, without reference to any later authority, we would regard Malik as establishing that:

 

i)      the conduct complained of, which must be without reasonable and proper cause, must be likely to destroy or damage the requisite degree of trust and confidence between employee and employer;

 

ii)    it is the effect of the conduct on the employee, when looked at objectively, which matters;

 

iii)  so the employer’s intention or motive when engaging in the conduct is not relevant.

 

36.         As to later authority, we need look no further than the judgment of this Tribunal and that of the Court of Appeal[5] in Buckland.  Ms Hadfield submits that in Buckland this Tribunal proposed a three stage test:

 

i)      What was the conduct complained of?

ii)    Did the employer have reasonable and proper cause for that conduct?

iii)  If not, was the conduct complained of calculated to destroy or seriously damage the employer/employee relationship of trust and confidence?

 

37.         The issue in Buckland was whether the range of reasonable responses test had any place in determining objectively whether there had been a constructive dismissal as a result of the employer’s conduct.  This Tribunal concluded that it did not and the Court of Appeal upheld that part of the decision.  The three questions set out at paragraph 36 above appear at paragraph 42 of the judgment of this Tribunal in Buckland (see page 1051 F-G); they are in fact taken from paragraph 30 of the judgment of a division of this Tribunal presided over by Lady Smith in the case of Abbey National plc v Fairbrother [2007] IRLR 320.  At paragraph 36 of that judgment she had introduced the range of reasonable responses as relevant to the second question posed, namely whether the employer had reasonable and proper cause for the conduct (paragraph 36 is quoted in Buckland at page 1051H).  At paragraphs 45 to 47 of the judgment in Buckland HHJ Clark says this:

 

“45 In Claridge[6] Elias J, at paragraph 36, expressed reservations as to the judicial basis of the application of the range test to the second stage of the Mahmud test [1997] ICR 606, as formulated at para 30 of Fairbrother.  Instead, he preferred to focus on the third limb of the test: was the conduct calculated (we would add, or likely) to destroy or seriously damage the relationship of trust and confidence; at para 38 he said:

“It seems to us that here is no artificiality in saying that an employee should not be able to satisfy that test unless the behaviour is outwith the band if reasonable responses.”

46 This sequence demonstrates, we think, the dangers of overlaying settled, high authority, with extraneous concepts taken from a separate branch of the law.  The informed observer may query why the range test applies at stage 2 of the Mahmud formulation of the trust and confidence term, but not at stage 3 (Fairbrother) or at stage 3, but not at stage 2 (Claridge)? Why does it apply in a case involving a grievance procedure (Fairbrother) but not a “last straw” case (Triggs, endorsed in Claridge)?

47 In summary, we commend a return to settled authority, based on the following propositions. (1) In determining whether or not the employer is in fundamental breach of the implied term of trust and confidence the unvarnished Mahmud test should be applied.  (2)If, applying Western Excavating (ECC) Ltd v Sharp [1978] ICR 221 principles, acceptance of that breach entitled the employee to leave, he has been constructively dismissed. (3) It is open to the employer to show that such dismissal was for a potentially fair reason, (4) If he does so, it will then be for the employment tribunal to decide whether dismissal for that reason, both substantively and procedurally (see Sainsbury plc v Hitt [2003] ICR 111) fell within the range of reasonable responses and was fair.”

 

38.         Although much of the above addresses the specific issue in Buckland we have set it out in full because it seems to us clear that HHJ Clark’s division of this Tribunal regarded the “unvarnished” Malik/Mahmud test as not including an analysis of the employer’s reasons and motives.  “Reasonable and proper cause” is not to be judged by placing the employer’s reasons for his conduct in a spectrum of such reasons.  In the Court of Appeal Sedley LJ at paragraphs 28 and 29 confirmed this when he said:

 

“28 It is nevertheless arguable, I would accept, that reasonableness is one of the tools in the employment tribunal’s factual analysis kit for deciding whether there has been a fundamental breach.  There are likely to be cases in which it is useful.  But it cannot be a legal requirement.  Take the simplest and commonest of fundamental breaches on an employer’s part, a failure to pay wages.  If the failure is due, as it not infrequently is, to a major customer defaulting on payment, not paying the staff’s  wages is arguably the most, indeed the only, reasonable response to the situation.  But to hold that it is not a fundamental breach would drive a coach and horses through the law of contract of which this aspect of employment law is an integral part.

29 Where, if at all, reasonableness of the employer’s conduct may enter the picture is through the statutory additions to the law of contract.  Assuming, in other words, that there can be conduct which is both reasonable and a fundamental breach of contract, a constructive dismissal claim would be impossible to decide unless stage (1) was tested objectively on ordinary principles and reasonableness deferred to stage (4).”

 

39.         Was the “unvarnished” Malik/Mahmud test applied in this case?  We have reached the conclusion, despite the brevity of expression at paragraph 4.1 of the judgment, that the majority were applying the “unvarnished” test.  The majority considered the effect of the faulty goods, late delivery, delivery diversion and removal of the Sainsbury’s account was to reduce the Respondent’s level of remuneration and that amounted to a fundamental breach of the implied term.  They had focussed on the effect on the employee; an orthodox approach rooted in the “unvarnished” Malik/Mahmud test.  Moreover, whilst the existence or not of an implied term, might be, as Lord Steyn had said, a matter of pure law whether or not there has been a fundamental breach is a not a pure question of law in the sense that whether or not there is material upon which such a finding might rest, is a matter of fact (see Pedersen v Camden LBC [1981] ICR 674 per Lawton  LJ at page678C and see Woods v WM Car Services (Peterborough) Ltd [1982] ICR 693 per Lord Denning at698F and 699G, per Watkins LJ at702E-F and per Fox LJ at 703 D-F and G).

 

40.         On the other hand, we have reached the conclusion that the minority judgment of the learned Employment Judge was, if anything, heterodox. Although the learned Employment Judge in the instant case, pointed out that there was no contractual obligation requiring the Appellant to keep the Respondent on the Sainsbury’s account and no obligation to pay commission in respect of late deliveries, goods returned as faulty or orders postponed that does not, of itself, as he concluded, establish “reasonable and proper cause”.  No doubt, as Sedley LJ accepted in the passage from Buckland cited above, such factors may have to be considered but it seems to us that the minority focus on this to the extent of not objectively considering the impact on the Respondent.

 

41.         In any event, despite the brevity of paragraph 4.1, however, there is nothing to suggest that the majority did not consider the position of the Appellant.  They agreed with many of the minority conclusions in paragraph 5 of the judgment.  In the end, it seems to us that this case is a classic example of the same facts striking different minds in different ways.  We have reached the conclusion that there was not misdirection on the part of the majority and out of deference to Ms Hadfield’s argument as to perversity we would add that it seems to us there was ample evidence upon which to base the majority judgment.

 

42.         Finally, even were the minority judgment to have more attraction for us than the majority, as Fox LJ said in Woods (703 E):

 

“There are, therefore, many sets of circumstances in which it cannot be said that the initial tribunal would be wrong to decide the case one way or the other.  It is essentially a matter of degree.  If there are grounds upon which the tribunal could reasonably have reached the conclusion which it did, then the appellate tribunal cannot reverse its determination as having been wrong in law whatever the views of the appellate tribunal themselves.”

 

43.         For the above reasons we do not think that there was any error of law in the majority decision.  Applying the same token to the Respondent’s answer and cross-appeal, we see no basis for thinking that the majority did not consider this material and properly disregard it.  In the event the appeal will be dismissed and, in so far as it is necessary, we will also dismiss the cross-appeal.