D'Costa v IBM (UK) Ltd [1994] UKEAT 73_94_0710

EAT
D'Costa v IBM (UK) Ltd
[1994] UKEAT 73_94_0710 · 1994-10-07

JUDGE HULL QC :

In this case Mr D'Costa appeals to us from a decision of the Industrial Tribunal sitting at Southampton under the Chairmanship of Mr Thomas with two Industrial Members who sat and heard his complaint that he had been unfairly dismissed on 4, 5, 6 and 7 October 1993, spending four days on their enquiry into that averment. The Respondents were his employers, IBM (UK) Ltd who of course are the United Kingdom arm of that very well known company and they appear by Mr Bear, Counsel who appeared for them before the Tribunal. Mr D'Costa is represented by Mr Segal who did not appear before the Tribunal.How the matter rose is this. Mr D'Costa was a senior manager with IBM. He had been with them for more than 20 years. He was paid a substantial salary and he had attained the office of Records and Information Management and Emergency Planning Manager. It has become clear from all that we have been told that he was in the security department of IBM. He was concerned with matters of security and that was a department which involved considerable delicacy in such matters as the integrity of employees. It was important that those who were managers in that department should themselves be beyond reproach.IBM have what are called Business Conduct Guidelines. There is a preface by the Chairman, who refers to the importance of fair dealing and other matters which are dealt with by the guidelines and when one looks into the guidelines one comes to the matter which is important here. Under the general rubric of conflicts of interest there is a subsection " Supplying IBM" and that subsection says:
"Generally, you may not be a supplier to IBM, work for a supplier to IBM, or be a member of its board of directors while you are an employee of IBM. In addition you may not accept money or benefits of any kind for any advice or services you may provide to a supplier in connection with its business with IBM. Also, you may not work on any products or services offered by a supplier to IBM."
and a further subsection "Use of IBM's Time and Assets":
"You may not perform outside work or solicit such business on IBM premises or while working on IBM time, including time you are given with pay to handle personal matters. Also, you are not permitted to use IBM equipment, telephones, materials, resources or proprietary information for any outside work."
Before those there is a section devoted to the prohibition of competing against IBM.On the face of it those are all elementary matters on which an employer is entitled to insist. With regard to supplying IBM it is clear that any supplier supplying for his own benefit when employed by the Company has a foot in both camps. It is very like an agent who takes a tip from both sides or commission from one side and a tip from the other. He on the one hand as an IBM employee is obliged to further the Company's interests which means of course that when IBM buy they must buy as economically and cheaply as they can to get the quality they want and in times and places which suit them. But of course, as a supplier to IBM, he will have the contrary interest of extracting as high a price as he properly can and supplying IBM with services in a way which suits him so far as he can. So the conflict of interest is palpable and one can think of very few companies who would not object, in the absence of special circumstances, to finding one of their employees engaged in supplying them from a separate business of his own with goods on which they rely because, putting it very simply, he then has a division of loyalty, a conflict of interest, whatever one likes to call it. So that was among the matters prohibited.IBM attach great importance to these Guidelines. I will not quote from what the Chairman says but he prefaces it with a letter inviting attention to the importance of these guidelines, which are updated from time to time and are circulated to all members of the IBM staff. When they are circulated each person is required to sign for them. We have Mr D'Costa's signature to a document as follows. It is dated 18 October 1991 (page 173 of the documents bundle):"I hereby certify that I have read the IBM "booklet" entitled "IBM Business Conducts Guidelines" edition 10/91 and fully understand my responsibility to comply with the guidelines and rules of conduct stated in it.I have resolved all questions that I had, which may have affected my ability to comply with the guidelines, with my manager or an IBM lawyer. I will discuss any future questions that arise, which may affect my ability to comply with the guidelines, with my manager or an IBM lawyer.It is understood that in signing this document I in no way give up any legal rights to protection against unfair dismissal."It was plainly the duty of an employee who felt doubt about the application of the guidelines to himself to seek the guidance of a superior manager about the matter because there might, as with any very general prohibitions and injunctions in such a text, be situations where it might be thought that an exception could be made or that a particular breach of them was entirely harmless or indeed beneficial and then the superior management could authorise the matter. Indeed, as I shall mention in a moment, Mr D'Costa did avail of himself of the right to seek guidance on those matters.What happened was this. Since 1981 Mr D'Costa and his wife had been in business, evidently not a very large business, on their own account supplying sports goods. They had a company called VSL and so Mr D'Costa sought guidance about whether his company could supply goods through his company to IBM or to the IBM Sports Club. He very properly spoke to his superior Mr Littlecott who was the security manager and Mr Littlecott got in touch with Mr Thomas of the legal department in 1986. This was not I think the first time the question had been raised and the advice from Mr Thomas (which we see at page 154) was:

"IBM UK - do not supply

IBM Club - Alright if on normal commercial basis - Club to satisfy themselves that they get value for money and can defend selection of source if challenged."That found expression in a note which Mr Thomas wrote to Mr Littlecott which is at page 155. This is a note of some importance. Mr Thomas wrote on 28 April 1986. He referred to the section of the code which I have referred to and said:
"From the above, it is clear that his Company should not be a supplier to IBM.
As discussed, I do not consider that this prevents him or the Company being a supplier to IBM Club of sports goods.I am assuming that the description of the business as "sports goods supply" is a full description. On this basis, there is clearly no competition with IBM, hence no such issue."Mr Segal (to go ahead) has suggested that that shows that what is at issue here is competition with IBM which I have said is dealt with in a separate subsection and he says: of course IBM does not deal in sports goods, supply them or in general purchase them in the course of its business and that is why it is harmless to supply the club and the club may very well be simply an extension of IBM itself. Therefore to leap over the fence and supply IBM itself could not be a serious matter.There was later some question of very small supplies. That was looked into and it was found that the supplies, in addition to being to the club, were to certain individuals employed by IBM. Sums of a very small sort were involved on particular items of sports clothing and it was decided that since that was not expressly prohibited in the code there was nothing much to that. But then we come to the incident on which all this hinges.In 1992 IBM was entering the International World Corporate Games, a sporting event of some considerable importance and IBM was putting in a substantial team. Fairly shortly before the event somebody at IBM, I will not go into the details, succeeded in persuading one of the managers that it would be a good idea if the IBM team were all dressed in identical sporting garb as a modern sporting team often is, and a quite junior person with IBM asked VSL whether they could supply it. Mr D'Costa made a considerable effort and eventually an order was placed with the company for more than £6,000 of goods being shell suits, a smart track suit; and they were supplied very reasonably and quickly, with the IBM logo on them and a logo of the games. We have no doubt they were very attractive. Looking at it without regard to any of the matters I have mentioned, it was a very sensible transaction, no doubt. But of course it was on the face of it a complete breach not merely of the code I have read but the guidance which had been given and it fairly soon came to the attention of management. Enquiries were made. They were very patient enquiries and a decision was taken after hearing what Mr D'Costa had to say about it that there had been a breach and that he should be dismissed. The view was taken that it was a serious breach.Mr D'Costa took advantage of the procedures for appealing and there were two appeals and he came before managers on each occasion who (to go ahead again) the Tribunal found behaved with fairness and propriety and the decision to dismiss him was upheld. There is no doubt that it was a strict decision. This was so far as one knows the first serious complaint against Mr D'Costa in his long period of service. He must have been a tried and trusted employee, a manager, he had risen in the company, he was a responsible person; but that was the view taken of it. There are all sorts of things which could be said. It could be said: well this was an order, in an apparent emergency, from IBM itself. It could be said: well, this might look as though IBM were waiving what was said in their code. It might well be that anybody would say: well, in the heat of the moment, seeing his own company, IBM, in an emergency like this, Mr D'Costa thought it right to help them first and foremost and think about it later and only later realised that he was transgressing the code. All those and no doubt many other comments could be made on the seriousness or otherwise of this conduct.We have of course to remember that first and foremost it was for the Company to say what enquiries it made and what conclusions it reached after those enquiries. It was their duty to conduct those enquiries fairly and reach their conclusion fairly and having done all that it was their duty and their prerogative to say what view they took and what penalty, if any, they thought appropriate for the breach of discipline, if any, which they found. All those were matters for them and it was not for the Tribunal or, a fortiori, for us, to substitute our judgment for that of the Company.It does appear that all these matters were, in the view of the Industrial Tribunal, fairly and properly looked at by the Company. For the reasons I have indicated it is not at all difficult to feel, and certainly speaking for myself I did feel, considerable sympathy for Mr D'Costa in all the circumstances, simply looking at the papers. We have to remind ourselves again the Company investigated the matter. The Company knew Mr D'Costa and knew the importance which was attached not only to the code but to the rulings which had been given as we have mentioned. The Industrial Tribunal came to the conclusion that the reaction of the Company fell within the band of reasonable responses. That conclusion is criticised by Mr Segal on behalf of Mr D'Costa.He first of all said:
"(1) The Applicant had 23 years of good, loyal service behind him. The Tribunal does not consider the relevance of this fact in reaching its decision on the reasonableness of dismissal; it wrongly confines its attention to the different question of whether IBM took that factor into account in reaching its decision to dismiss"
A point which I think I described as a rather refined one, but there it is.
"(2) The Applicant's breach was a single, first offence, with no indication of likely recurrence. Thus dismissal is only an appropriate sanction in a case of "gross misconduct" properly so defined such as physical violence, deliberate dishonesty, assisting a competitor or gross incompetence. The Tribunal paid no or no sufficient heed to this factor"
Mr Segal referred us to the case of Laws v London Chronicle (Indicator Newspapers) Ltd . Then Mr Segal says:
"(3) There was nothing underhand or secretive about the material transaction: the Applicant never tried to hide his involvement in VSL from anyone at the Respondent.
(4) The Applicant's breach did not, in any event, go to the real mischief at which the material provision of the BCG is directed: that is, conflict of interest, "On this basis [that VSL's activities were confined to sports goods supply], there is clearly not competition with IBM, hence no such issue."That is a quotation from the document I have already read. If I may pause there we shall deal with the other points later.It appears to us that that is a complete misunderstanding of the position. It is true of course that if IBM manufactured sportswear then any supplier in competition with them would experience a conflict of interest, but that seems to us not to be the point here at all. The point is the one which I have already indicated, that transparently and manifestly Mr D'Costa, whilst earning a substantial salary and holding a position of trust with IBM, was also supplying goods and in substantial quantities, something of the order of £6,000 worth of goods, and on the face of it at any rate standing to make a profit out of that and that is an obvious conflict of interest. So that point does not appear to us to be a good one.He continues:

"(5) There was no conflict of interest, properly defined."

That seems to us to be covered by the view which we take on this.
"...the fact that VSL benefited financially does not distinguish the breach from the authorised supply of sports goods to the IBM Club."
There was no evidence whatever, so far as we can see, and certainly no finding that the Sports Club was simply one entity with IBM and that a conflict arose in that way. Even if it did there had been an express ruling that that was not to be considered a breach of the code to which the Company would object.Mr Segal went on with his 6th point:
"Further, the BCG is intended only to be "general guidance for resolving [a variety of ethical and legal] questions for employees of IBM.." It was not a contractual document, nor was it expressed to be describing a range of potential disciplinary offences, still less ones for which dismissal was an appropriate sanction."
He says that this was a matter which the Tribunal gave no adequate weight to; the fact that this was never made clear by IBM either in the B.C.G. itself or in answer to the various enquiries, that breach of this provision would or might lead to dismissal. Mr Segal cited to us a number of important decisions. But of course it does not follow logically that simply because there is no prohibition of a particular breach of the employment contract, no statement that that will lead to dismissal, that dismissal is necessarily an unjust reaction; and of course the converse follows; the mere fact that there is a statement that any breach will lead to instant dismissal may very well, if followed slavishly, lead to a finding that a particular dismissal is unfair because it may be held that whatever the rule said, to apply it uncritically in the circumstances of a particular case might well be unfair. It does not follow, in our view, that the fact that the code did not contain at the material time a clear statement that any breach of this code may lead or will lead to dismissal without a warning is necessarily indicative of unfairness in the reaction on this occasion.We must now turn to deal with the other points taken by Mr Segal. The Tribunal's decision is nearly 8 pages in length. It is quite clear to us that this Tribunal devoted a great deal of care to this matter and that some of the misgivings, if not all of them, which have occurred to us, the doubts and difficulties, certainly appealed to this Tribunal. Probably all of them did and probably others beside; the seriousness of the consequences to Mr D'Costa; his long service and so forth.They begin by saying:"The main thrust of his complaint is set out clearly by Mr Dennis, [who was Counsel for Mr D'Costa before them], namely that the dismissal in the circumstances was too harsh. He relies also on what he says is "a faulty and unfair procedure which is defective in a number of respects".They found that the procedure was impeccable. There was no unfairness in the procedure and on that part of their decision there is no appeal. The appeal is based on the contention that this reaction went beyond what was fairly open to the employer, went outside the range of responses which a fair employer would show.The Industrial Tribunal set out the matters which I have referred to, and the code of business conduct and they find, having considered the fact that he had signed for his copies of these rules:
"As a senior manager he would have been expected to uphold and to observe them. The question for Mr D'Costa was according to his evidence the extent of their interpretation and applicability."
They refer to the ruling given in 1986 and they say:
"The Tribunal have placed significance upon that enquiry of 1986 because it shows that Mr D'Costa, firstly he was aware of the guidelines, secondly that he was aware of their importance, thirdly he was aware of the need to comply with them and fourthly, of the need to seek clarification as to compliance where there was doubt."
That is an important finding.They refer to something that happened in 1989. I have already mentioned that shortly where it was found that individuals had been supplied as well as the club and no great importance was attached to that and they say in paragraph 9, a finding of fact:
"Towards the end of September 1989 the Tribunal's view is that there could be no doubt that the issue of potential conflict of interest arising out of the trading of VSL to interests within IBM or to IBM must have been at the forefront of Mr D'Costa's mind."
They then went into what happened in 1992. I hope I have given sufficient indication of that. The order was a belated order for more than 200 of these special and decorative shell suits.They say that the matter came to the attention of authorities and they refer to the officers of IBM who enquired into the matter and that as a result it came to be treated as a disciplinary matter because of the breach of the code of business conduct.They refer to the various meetings in November. There were at least three meetings then with Mr Littlecott and others. They say:
"Mr Littlecott had further advice from the Personnel Department and the Legal Department and had discussions with his manager, Mr Duncan Campbell [IBM's in-house lawyer]. They jointly reviewed the facts. They came to a decision that on the facts a dismissal would be appropriate and should be made unless there was further information or extenuating circumstances which allowed them to take a different view of matters."
It seems to us that that finding and others which follow completely traverse and in effect make untenable the submissions which Mr Segal made to us, that this was so to speak an automatic reaction of saying: there has been a breach of the code and therefore the man is to be dismissed.They go on by saying that after this decision had been taken Mr Campbell reviewed matters; Mr D'Costa was advised of the appeals procedure and he mentioned a number of personal matters that he had not mentioned to Mr Littlecott. These matters were considered in private between Mr Littlecott and Mr Campbell, but the decision was made that they could not affect the correctness and reasoning behind their decision to dismiss.The Tribunal record that Mr D'Costa exercised the "open door appeal" and they find that he went to a Mr Simpson, a very thorough witness as the Tribunal found him, well aware of the implications of any decision for Mr D'Costa personally. Mr Simpson was perfectly prepared to admit on oath that he could see the strength of Mr D'Costa's plea for clemency and gave full weight to the human aspect of the matter.Then we come to passages which are central to this decision. At paragraph 23 we read:
"The Tribunal find that IBM were extremely jealous of their exemplary standards. [We would comment they are perfectly entitled to be of course]. We find that because of the guidelines and their contents which have been available to the Tribunal, the certification to be signed by each employee and also the individual evidence of senior managers whom we find to be men of integrity, namely, Mr Littlecott and Mr Duncan Campbell and Mr Ian Simpson. We find that breaches of the guidelines are regarded as extremely serious and particularly serious in this case because of Mr D'Costa's position within the department regarded as the company policeman. Again we rely upon the evidence of Mr Duncan Campbell in particular and Mr Littlecott but rely also upon the fact that a relatively lowly management worker, Mrs Valerie Cresdie, was so concerned at her possible breach that she reported the matter, despite her own indirect involvement."
24. We find that the applicant was aware of the aforementioned facts because of his pattern of enquiries and concern in 1986 and twice in 1989 and his admission in correspondence that in effect what he had been guilty of was not really a breach but merely an error of judgment."That is an express finding that Mr D'Costa was aware of the matters referred to in paragraph 23 and the seriousness with which IBM regarded any breach of the code.Having set out as I say that Mr D'Costa had said that all he had been guilty of was really an error of judgment, the Industrial Tribunal continue:
"Those words do not sit happily with his evidence before the Tribunal where he says that in effect he was not sure whether a breach had occurred or not. We find also that there was a breach of the guidelines and further that Mr D'Costa's company did benefit financially and that that would have amounted to a conflict of interest of the kind which the guidelines were designed to avoid."
Mr D'Costa had suggested at an earlier stage that he had not benefited financially in any way by this transaction.At the top of page 10 they say:
"We do not think that there is anything unfair in the decision of management to dismiss especially given the ambiguous replies to some enquiries of Mr Littlecott, namely, the denial of making money for the company [that is his own company] because it is an undeniable fact that several hundred pounds would have been received by the company [VSL] over and above its actual costs in material and packaging."
They find in paragraph 30:
"that the appeal procedure was fair, that it was a thorough appeal investigation and that it was a rehearing of all matters in which case any defect which appeared in the initial dismissal would have been cured. We accept the evidence, not only of Mr Littlecott but also of Mr Ian Simpson when they said that they did take into account the service of Mr D'Costa and his enthusiasm for the well being and interests of the company but that the matters were outweighed by the seriousness of the breach of business conduct guidelines and the ancillary use of IBM time and technology for the purposes of promoting the company interests in respect of the original breach.
31. Underlining all of the above findings, we must say that we found the applicant an evasive and verbose individual who was not prepared to concentrate on the questions asked but would choose to attempt to deflect the direction of the enquiry by simply avoiding the issue raised by the question on matters of fact where Mr D'Costa's evidence is in conflict with those of Mr Campbell, Mr Littlecott and Mr Simpson. We prefer the evidence, and accept the evidence of the respondents' witnesses."Then they referred quite correctly to section 57(3) of the Act of 1978 and:
"We ........... bear in mind that the response of the employer must be that of a reasonable employer exercising their duty following a reasonable investigation and a genuine belief in the guilt of the employee in the alleged breach. We are satisfied that the employers approached the matter on that basis. The reasonableness of treating the reason for dismissal as a sufficient reason is an issue also satisfied by the employers. It does fall, we find, within that reasonable band of responses from a reasonable employer. We find further that they did take into account those matters which an employer would be bound to take into account in considering the equity and merits of the matter, in particular the long service and good conduct of Mr D'Costa, but that they were in management's view reasonably outweighed by the seriousness of the offence and by what they saw as the negative feature of these matters being at the forefront of the applicant's mind from 1986 onwards and at what they reasonably perceived to be a failure by the respondent to be absolutely clear and frank in disclosures to the investigators of his part in the placing of the order and any financial benefits to his company."
So that was their finding and one has only to read that, with great respect to Mr Segal, to see that his points are answered expressly by the way in which the Tribunal went about their task and the findings of fact which they made, none of which are challenged as findings of fact by Mr Segal. We had cited to us by Mr Bear, for IBM, the case of Retarded Children's Aid Society v Day . We do not need to refer to that in detail, but we are reminded by what the Court of Appeal said, that we can only interfere if there is an error of law and in this case the error of law is the very special one that it is said that this is a decision which is perverse.As we understand the doctrine we will put it in our words in this way. The decision of an Industrial Tribunal is perverse if it can be said that it is so contrary to all one's sense of what is right that it tends to make one exclaim - "that must be wrong" . That is to say although there may be no error of law expressly shown by the reasoning of the Tribunal, nonetheless this decision so departs from rationality and anything that would seem to be reasonable that the Tribunal must have taken into account something which they have not mentioned, or neglected something important, of an essential sort, or acted on some wrong principle or understanding of law; in those circumstances, if the decision is so offensive to reason that something like that must have happened, so that there must be some error in their reasoning, logical or legal, some ignoring of an important matter or some taking into consideration of an irrelevant matter; if it comes up to that standard then of course it can be said to be perverse. We were warned by that very same decision, in what is said by Lord Justice Russell as he then was, that we should not search around among the language of an Industrial Tribunal who are giving reasons (and not writing a statute) for some language which might cast doubts, some word or phrase which might seem inconsistent with something else they have said or something of that sort, we must look at the broad sense of it.Having done that we have all considered this. So far from making us say -"My goodness that must be wrong" or suggesting that the Tribunal had ignored something important or taken into account something irrelevant, it appears to us that they have gone about their duty (if we may respectfully say so) in an exemplary way. They have considered the matter with great patience. It is quite plain that they had some of the misgivings and some of the sympathy which we ourselves experienced on looking at this and wondered whether Mr D'Costa might reasonably have been treated with less severity. We have to remind ourselves, of course, that that is a matter first and foremost for the employers. But all matters which arise out of such feelings were looked into, exhaustively, by this Tribunal. They held that the decision was one which IBM were entitled to reach. IBM as fair and rational employers, having made all proper enquiries and investigations and in particular listened very carefully to what Mr D'Costa had to tell them, were entitled to reach the conclusion that they would dismiss Mr D'Costa in all the circumstances and the Tribunal, having heard all that evidence, concluded that that was within the band of reasonable responses of a reasonable employer. They were entitled to reach that conclusion. They reached it by a perfectly sound, logical and legally justifiable route after an exhaustive enquiry. This appeal therefore must fail and we dismiss the appeal.