Derwent Coachworks v Kirby [1994] UKEAT 360_93_3108

EAT

Derwent Coachworks v Kirby

[1994] UKEAT 360_93_3108 · 1994-08-31

MR JUSTICE TUCKER: This case has given rise to a number of problems. It was heard by an Industrial Tribunal sitting at Leeds on 17 November 1992. The Industrial Tribunal found that the applicant had been unfairly dismissed from his employment but that he was at least 50% to blame. The difficulties that have arisen relate to the method to be adopted in assessing the amount to be awarded as compensation.

The Industrial Tribunal assessed the sum which they considered to be correct. The parties were dissatisfied. They thought that a mistake had been made. They sought a review of the Industrial Tribunal's decision. A review was held 22 March 1993. There was a Certificate of correction on 30th April. That in turn was corrected on 11th May.

The matter came before us on appeal. There were 3 arithmetical mistakes in the calculations contained in the letter whereby the Appellants gave notification of the Appeal. The parties to the Appeal were not represented before us, and we did not therefore have the advantage of being assisted by any submissions on the law. On 10th December 1993 we reached a unanimous decision that the Appeal should be allowed. I delivered our Judgment. In the course of doing so I criticised the Industrial Tribunal for the way in which they had approached the matter.

Concern was expressed about this, and my attention was drawn to two authorities bearing on the problem. These seemed to suggest that the Industrial Tribunal were correct and that we were accordingly wrong.

I am grateful for having had this pointed out. I was anxious that the matter should be clarified and if necessary corrected. I took the unusual course of asking for the case to be relisted before the Employment Appeal Tribunal constituted as before for the purpose of conducting a review, and of inviting the Attorney General to appoint Counsel to act as amicus curiae in order to assist us in arriving at a correct solution. This was because, as I have said, we did not have the advantage of having the assistance of Counsel on the original appeal. The parties, acting on their own behalf, had appeared to agree on the formula to be adopted, and we accepted this as being correct. Regrettably, none of us had had experience of the point before. On the hearing of the re-listed appeal, the parties have appeared, and we have received great assistance from Mr Rabinder Singh, appearing as amicus. His researches have revealed that there are authorities either way.

The point at issue relates to the stage in the calculations of the sum to be awarded by way of compensation at which the reduction for contributory action should be made. That sum conventionally comprises, and did comprise in the present case, two elements, i.e. the basic award and the compensatory award. In this case the Industrial Tribunal made a basic award of £2886 and reduced that by 50% for contributory action to the net figure of £1443. No dispute arises as to the correctness of this approach so far. The Industrial Tribunal calculated the compensatory award in two parts. For the period up to the date of the hearing they reached a figure of £3596. From this figure they deducted the sum of £1428 being money paid to the employee in lieu of notice, leaving a sum of £2168. They reduced that figure by 50% because of contributory action leaving a net sum of £1084. For the future, the Industrial Tribunal awarded the sum of £3324, which when reduced by 50% came to £1662. The total award made by the Industrial Tribunal was accordingly £4189.

The question raised at the appeal was whether the order in which those deductions were made is correct in law. The Appellants submitted that the payment in lieu should not have been reduced by 50%. They submitted that the Industrial Tribunal should have found the net loss first, after making deduction for contributory action, and then deducted the payment in full. In practical terms, that would have the affect of reducing the total award to the figure of £3,475. We have confirmed with the parties that they agree that if that is the proper approach then that is the correct sum to be awarded.

Compensation for unfair dismissal is governed by statutory provisions, rather than by common law principles. We are satisfied that it would be wrong to look beyond the statute, save where express reference is made to such an approach, e.g. under Sec. 74(4) of the Employment Protection (Consolidation) Act 1978 or Sec. 65 (1)(b) and 66 (1) of the Sex Discrimination Act 1975 .

The starting point is Sec 74(1) of the 1978 Act, which provides as follows-

"Subject to subsection (8) and section 76, the amount of the compensatory award shall be 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.

Sec. 74(6) is also material, and provides as follows:

"Where the tribunal finds that the dismissal was to any extent caused or contributed to by any action of the complainant it shall reduce the amount of the compensatory award by such proportion as it considers just and equitable having regard to that finding."

It is also in our opinion relevant to consider the provision of Sec 75(3) dealing with the statutory maximum for the statutory award, which is in these terms:

"It is hereby declared for the avoidance of doubt that the limit imposed by this section applies to the amount which the industrial tribunal would, apart from this section, otherwise award in respect of the subject matter of the complaint after taking into account any payment made by the respondent to the complainant in respect of that matter and any reduction in the amount of the award by any enactment or rule of law."

There is helpful guidance as to the general approach to Sec 74 contained in the judgment of Sir John Donaldson MR in Babcock Fata Ltd. v Addison

(1987) IRLR 173

at p. 179 Para. 32 where he said -

"In substance s.74 re-enacts s.ll6 of the Industrial Relations Act 1971, and I have no reason to resile from the view which, in an earlier guise or disguise, I expressed in Norton Tool Co Ltd v Tewson (1972) IRLR 86 , namely that the amount of the award is governed by the statute and nothing else, that it involves a discretionary element and is not to be assessed by adopting the approach of a conscientious and skilled cost accountant or actuary, but that the discretion has to be exercised judicially and upon the basis of principle, the object being to compensate, and compensate fully, but not to award a bonus."

There are earlier passages in the leading judgment given in the case by Ralph Gibson LJ which are of assistance. See p. 176

Para 16.

"In the absence of an agreement, express or implied to the contrary effect it seems to me to be clear that the respondent employer is to be given credit for all payments he has made to the employee on account of claims for wages and other benefits..........

.......If an employee seeks to recover a large sum of money, it is neither just nor equitable to disregard such sums as he has in fact received from the employer consequent upon his dismissal. Accordingly the whole sum paid by the employer consequent upon the dismissal should be brought into account in doing justice between the parties."

The two authorities to which our attention was originally drawn, upon which Industrial Tribunals are apparently relying, are UBAF Bank Ltd. v Davis

(1978) IRLR 442

and Parker and Farr Ltd. v Selvey

(1979) ICR 896

. They are both decisions of EAT, where it was held that reduction for contributory action should be made after deduction of any payments made by the employers.

In UBAF , Arnold J said this at p. 446, Paras 32 and 33

"Now what is said by the bank is that only half (that is to say the non ex-gratia element) should have been treated in that way. The other half should than have been deducted against the reduced sum after the application of the 50% fraction. That would of course have had the result of reducing the compensation under the compensatory award part, by some hundreds of pounds. The authority for that exercise was said to reside in a decision of this Tribunal in Powermatic Ltd vIR Bull (1977) IRLR 145. And if one looks at the headnote there is a good deal to be said for that proposition, because apparently that is how this Tribunal dealt with a situation which was entirely comparable - not comparable in the sense that that is any sort of authority for treating any part of the £3156 as a ex-gratia sum, but authority for treating whatever part of it is otherwise to be treated as an ex-gratia sum as a matter to be fitted into the computation in the way that the bank claims.

But when one comes to look at the actual Decision one finds that that was not a matter which was argued at all. It was conceded at the outset by the advocate for the employer, and the point was merely adopted by the Tribunal on the basis of that concession. We have no hesitation in saying that we think that concession was quite simply wrong. If one looks at s.76 it is apparent that what one has to compute is a loss, before one starts to embark upon the refinements and deductions and variations. If a man is given a severance payment in the form partly of wages or salary in lieu of notice, and partly in an extension of that by way of an ex-gratia payment comprehending the salary which would have been received for a longer period than the notice period, and has that money, and takes that money away, then it seems to us quite simply he has not lost; and accordingly this item never comes into the calculation at all, except purely as a matter of arithmetic."

In Parker and Farr Bristow J. said this at pp. 898G - 899A

"The industrial tribunal's approach was wholly consistent with the decision in this appeal tribunal, in UBAF Bank Ltd. v Davis (1978) IRLR 442. There the appeal tribunal, presided over by Arnold J., pointed out that what you have to compute is a loss, and in order to compute the loss you must look at what the employee would have received by way of earnings, and take into account anything which he did receive. That is how you establish the loss, and under section 74 it is the loss caused by the unfair dismissal for which the tribunal is empowered to award compensation.

But it is the loss in so far as that loss is attributable to action taken by the employer: see section 74(1). Section 74(6) then tells the industrial tribunal what to do where part of the loss is attributable to action by the employee. It is to reduce the amount of the compensatory award from what it would otherwise be, namely the full amount of the loss subject to questions of mitigation of damage under section 74(4), by such proportion as it considers just and equitable."

and concluded by saying at p. 900 -

"........If the tribunals start by establishing the net loss of earnings taking into account payments, whether ex gratia or in lieu of notice, made in respect of the post-dismissal period and apply to this their proportional reduction which they consider is required in justice and equity, they will not go wrong in law."

But there is another decision of EAT which goes in the other direction. That is Clement & Clarke Int. Ltd. v Manley

(1979) ICR 74

, where EAT held, without being referred to UBAF , which had not been reported at the date of the hearing, that the contributory action reduction should be made before any deduction of a payment made by the employer. In other words, that that payment should be deducted in full. Kilner Brown J read the judgment of the EAT. At p. 76 B-E he said this -

".....But the employers paid no less than £554.68 direct to the employee expressed to be in lieu of notice. Understandably enough the industrial tribunal gave credit and deducted this from the full entitlement. They added up the receipts and halved them before arriving at the net amount due. The short point taken here is that by doing it in this way they deprived the employer of half of his payment. Obviously this must be wrong. It means that the employer is being penalised when the employee by his conduct has contributed to the dismissal and that an employer who has to compensate an employee who is free from blame get full credit for any payments he may have made. t one time in our deliberations we were minded to conclude that as a point of principle there might be a distinction between a payment made entirely ex gratia compared with a payment made in recognition of a contractual entitlement. But this would not deal with the anomalous position that an employer is worse off where the employee has been in part to blame for his dismissal. In order to avoid unnecessary investigation as to the precise category into which the employers' payments should be put it would be simpler and fairer in our view if the employer' payment is taken into credit after the net amount has been calculated and proportionately reduced and not as part of the net calculations."

When this decision and that given in UBAF were drawn to the attention of EAT in Parker and Farr , Bristow J said in his judgment there was no conflict in the ratio decidendi of the two cases. We respectfully disagree. It is difficult to see how these three cases can be reconciled. We pay close attention to these decisions, but we are not bound by them and we can depart from them. There is no decision by the Court of Appeal on the point which\we have to consider, or by any other Court or Tribunal which is binding upon us. It is open to us to reach our own conclusion as to what is the correct approach.

The matter is dealt with in Harvey on Industrial Relations and Employment Law Vol. l Chapter 18. Compensation, in outline in Para [2502] and specifically in Para [2661] under the heading Payments made and contributory fault. At Para [2662] the learned Editor of Harvey suggests that the effect of the provisions is that the Industrial Tribunal should first determine the loss after taking account of any payments by the employer, then it should apply any reduction for contributory fault, and only after taking those steps should it apply the statutory maximum.

But unfortunately what is set out in the text of Harvey in the preceding Paragraph [2661] is not in our opinion entirely accurate.

First, we do not agree that Sec 75 (3) of the Act suggests the adoption of the course set out in the text. In our view the sub-section is neutral on the subject. Second, the reference to the decision delivered by Nolan J in Walter Braund (London) Ltd. v Marney

(1991) IRLR 100

is incorrect. The presiding Judge in that case was Ian Kennedy J. The decision to which it was perhaps intended to refer is that of Nolan J in McCarthy v British Insulated Callenders Cables PLC

(1985) IRLR 94

, which was referred to in the Walter Braund case. In any event, both those cases were concerned with the application of the statutory maximum, and only in the Walter Braund case was there any suggestion of contributory fault.

In our opinion our approach to the problem should be based upon logic and principle.

1. Logic. Since the purpose of the exercise is to assess the loss attributable to the employer's conduct, (Sec 74(1)) we should when considering the loss incurred, as a matter of logic deduct the element of contributory fault at that stage, before taking account of the payments made, because the fault was not caused by the employer's conduct.

2. Principle. The Statute itself (Sec 74(1) instructs the Industrial Tribunal to award by way of compensation an amount which is considered just and equitable. That means just and equitable to each party. It would not be just nor equitable to an employer if the value of any payment he had made were to be reduced, not because of his conduct, but by reason of the employee's conduct.

The general principle is that the purpose of the exercise should be to award full compensation, but not to award a bonus. So if an approach has the affect of awarding a bonus, that must be inconsistent with the general principle.

The effect of the decision in Parker and Farr ltd. v Shelvey is that it tends to help an employee who is blameworthy in comparison to one who is not. The corollary is that it tends to help an employer who does not pay anything, in comparison to one who does.

In our opinion the principle is, or ought to be, that full credit should be given for payments made by employers.

We bear in mind that the cases of Parker and Farr and of UBAF were both decisions of EAT, delivered by experienced Judges, and that in Parker and Farr the EAT reached a considered view after reference to previous authorities and being aware of a possible conflict which existed between them, though finding (as has been observed) that none existed.

We are also conscious of the desirability of having certainty in the law. Industrial Tribunals have been basing their decisions on these authorities for 15 years.

Nevertheless, if we are convinced that the law as decided in the cases is wrong, then if it lies within our power to do so, it is our duty to correct it, and to state what in our opinion is the correct law.

We say, with the utmost respect to the Judges and members who presided and sat in the previous cases, that in our opinion they were mistaken. We prefer the view expressed by Kilner Brown J in the case of Clement-Clarke Int. v Manley. In our view, where a payment has been made by employers in lieu of notice, as in the present case, full credit should be given for it when calculating the sum to be paid as compensation. Such a payment should not be reduced by the proportion of the employee's contributory action. In other words, the contributory action percentage should be deducted before any reduction is made for any payments made by the employer, and not afterwards.

It follows that we believe that we were right in the decision which we reached on 10 December 1993, and we confirm it. The appeal will be allowed in the terms then expressed.

However, we apologise to the Industrial Tribunal for any criticism which they might feel we made of them in their approach to the problem. They were following respectable authority which was binding upon them.