J H Dewhurst Ltd v Jack [1994] UKEAT 8_94_0711

EAT
J H Dewhurst Ltd v Jack
[1994] UKEAT 8_94_0711 · 1994-11-07

JUDGE HULL QC: The decision which I am about to give is the decision of us all.

Mr Jack, who is the Respondent here, was employed by Dewhurst Limited, the well-known butchers' chain, on the 15th June 1970 and so he has been with them for more than twenty years. In 1991 and 1992, the company was contracting; the butchers shops, at any rate, were being apparently damaged by competition and recession, and the decision was taken that a number of shops should be disposed of. Mr Jack was one of a number of gentlemen in the Estates Department, charged with responsibility for dealing with this. So far as Mr Jack was concerned, he was described as Project Manager Refurbishment, but essentially it was a Surveyor's and Valuer's job. Mr Jack is qualified in that field, in particular in the matter of valuations. As shops came to be sold, there were questions about the value of leases, if leases were to be assigned or of course the surrender value, if they were to be surrendered, and butchers' shops have valuable fixtures and fittings; if the shop was to be assigned, or even if it was to be surrendered, the value of fixtures and fittings would be an important matter. It might be an important inducement to a landlord, who was hoping to re-let at once, for the same trade. Certainly, if another butcher were coming in, it would be a very important matter for him, to be able to take over valuable equipment, possibly at a very considerable discount from what he might otherwise have to pay. He would be in some ways the best purchaser. So that would play an important part in the negotiations and it was those particular matters, no doubt among many others, for which Mr Jack was responsible.He was asked to value the fixtures and fittings in butchers' shops which belonged to the company, or which were leased to the company. He was concerned about his own position, because of the redundancies which were being announced, and it appeared to him that it was only too likely that he would be losing his own position with the company. There was a gentleman with whom he was friendly, also employed by the company, a Mr Worster. Mr Worster was a District Manager with a large number of shops for which he was responsible, and Mr Worster and Mr Jack formed a company "K & P Fresh Foods Ltd". Apparently, Mr Worster, from what we have heard, was the moving spirit. Mr Jack was a Director of K & P Fresh Foods Limited, he made himself guarantor of K & Ps debts, and he pledged his own house for them. A man can hardly be more closely involved with the good fortune or ill fortune of a company than by making himself liable for its debts to the extent of mortgaging his own dwelling. So Mr Jack was intimately involved, whatever his shareholding, whatever his share of the potential profits in K & P. Mr Worster was, apparently, the more active partner. K & P was interested in purchasing fixtures and fittings in shops which the employers proposed to close.These facts, unhappily, were not disclosed. The potential conflict of interest with his employers is obvious, if you think about it. It was Mr Jack's responsibility on behalf of his employers to value the fixtures and fittings, but as a Director of the purchasing company, of course it would be his duty, not merely to K & P, but to his co-director and anybody else interested in the company, to minimise the price which was paid for his employers' property. It would also be an important part of his duty to convey to K & P Fresh Foods Limited any intelligence which he had which might affect a purchaser. It is perfectly obvious that just that information which would be confidential and important to Dewhurst, would be confidential and important to the purchasers and of interest directly to K & P.In May 1992, the Applicant agreed to be a director of K & P and on the 9th June, the company was incorporated and evidently took steps to acquire certain of the shops, or was interested in purchasing certain of the shops, of Dewhurst.Suspicion was aroused. It was suggested to Mr Sherlock, the Estates Manager, that Mr Jack had been involved in a valuation of fixtures and fittings in one shop at £750, and that in fact an offer of £7,000 had been made for them. That was an arresting feature from an Estate Manager's point of view, and he made enquiries, and he found that Mr Worster was evasive and he found, in due course, that Mr Jack was somewhat evasive. The question which Mr Sherlock wanted answered was: exactly what is incorporated in this valuation, on the one hand, and in the offer, on the other. Of course, if we are not comparing apples with apples, but apples with pears, then that might explain the difference, but still it was a matter which required to be looked into.In due course, there was a disciplinary inquiry and we see in the letter of 4th August, which is at page 17 of our bundle, the conclusion reached by that disciplinary inquiry. It was held by a Mr Cade, and Mr Cade had before him the results of an inquiry by Mr Heasman, the Personnel Director and Mr Sherlock. Mr Cade himself held the inquiry with the assistance of Mr Heasman and Mr Sherlock. Mr Jack, of course, was present and he was asked whether he wanted to be represented and so forth.There is no criticism of the fairness of the inquiry. The conclusions which Mr Cade reached with the assistance of his colleagues, and of course after hearing Mr Jack, were as follows. First of all he dealt with an interview which had occurred on the 27th July, which had led Mr Heasman and Mr Sherlock to certain conclusions, and then he wrote as follows:
"I asked you why you had not disclosed that you were a Director of K & P Fresh Foods when Mr heasman had asked you on three occasions to explain your involvement with Mr Worster.
Your response that you did not think it relevant is not credible. I find it very significant that you did not disclose your Directorship of K & P Fresh Foods until you had been told that we had conducted a Company search."That was, of course, a direct finding of disingenuous behaviour, indeed untruthfulness, because Mr Jack was being asked about it and had failed to answer that in fact he was engaged, with Mr Worster, in a company which was formed for the very purpose of buying shops from Dewhurst. And then the letter goes on:
"Having discussed the South Ockenden and Debden shops you were asked if there were any more that we should know about. You categorically denied that there was anything else. It was only when you were asked about Harlow that you admitted that you knew about this, but had not mentioned it because K & P were not involved in it - this is not true."
Another allegation of untruthfulness.
"Turning now to our meeting of 30 July 1992, [which Mr Cade had presided over] in the presence of Mr Heasman and Mr Sherlock.
1. You claimed that you were in no way involved in the negotiations for the sale of fixtures and fittings of the South Ockenden shop. You were unable to explain why your colleague, Mr Paul Stewart, [that was a colleague in K & P, not a colleague in Dewhurst] told Dawn Stone [she was a surveyor in the Surveyors' department at Dewhurst] that he had discussed their valuation with you.2. You claimed to have had no involvement in the negotiations for the Harlow shop. When you were read the statement made byMr Davenport [another surveyor employed at Dewhurst] you admitted you had telephoned the agent on behalf of Mr Worster.3. Throughout our discussion you maintained that you had done nothing wrong and that you had intended to disclose your Directorship to Peter Sherlock on Monday 27th July 1992.In view of the number of occasions where your evidence is contradicted by others, I must say that your explanation lacks credibility.I am satisfied that you deliberately withheld the information that you were a Director of K & P Fresh Foods from us for several months and that you must have been aware of the clash of interest that this created.Having given careful consideration to all the facts, including your length of service, I advised that your employment would be terminated immediately for Gross Misconduct in that you had destroyed our trust and confidence in you."Mr Jack appealed to Mr Bumstead, the Estates Director. He heard the appeal on the 27th August. Mr Jack was represented by Mr Hayes. There were four points raised. I am looking now at Mr Bumstead's letter, pages 19 and 20.
"I will deal with each point separately.
1. It was claimed on your behalf that you were not in competition with the Company.I would respond that `competition' - in the sense that you would be involved in a retail butchery business - was not an issue. [That appears to be perfectly correct]2. It was claimed on your behalf that you were not using your position with the Company to your own advantage or to the detriment of the Company's interest and, therefore, you had not breached the implied duty of fidelity which your representative accepted was an inherent part of your Contract of Employment.It is my view that this whole matter turns primarily on this point. It is evident from Mr Cade's letter to you [that letter from which of course I have just read] that he was satisfied that you had breached the duty of fidelity. For my part having considered carefully the information available to Mr Cade and the points raised at your appeal I can find no reason to believe that Mr Cade came to an unreasonable conclusion.3a It was claimed on your behalf that you had breached no Company rule nor were you under any obligation to declare your interest in K and P Fresh Foods Limited.I reject this argument because in my opinion any reasonable person in your position would be aware that they should disclose their interest to their employer.As the evidence available to Mr Cade makes clear you were asked on a number of occasions about your knowledge of K and P Fresh Foods Limited and it was not until you had been made aware that a company search had been conducted that you disclosed your Directorship of K and P Fresh Foods Limited.3b It was claimed on your behalf that all you were doing was what other employees had been encouraged to do.My response to this point is that the other employees with which you attempt to make a comparison were quite openly, and with our encouragement, attempting to take over some of our retail properties.The position that you were in is quite different.You have accepted that part of your role was in arriving at valuations of fixtures and fittings, plant and equipment within shops for disposal.The properties discussed with you were within the geographical area for which you were directly responsible and, indeed, in your involvement with the South Ockenden shop you were party to the negotiations for the sale of the fixtures and fittings to your own company.4. It was raised that your previous good record with the Company was incompatible with the penalty of dismissal.I must say with your length of service I believe that you must have been aware of the consequences of your actions and this explains why you consistently, over a period of months, withheld this information from us and on a number of occasions failed to disclose your interest having been given every opportunity to do so.On the basis of the above I am satisfied that there are no reasonable grounds for overturning Mr Cade's decision and your appeal is therefore rejected."Now when the matter was before the Tribunal, there was no complaint that Mr Cade or Mr Bumstead had conducted their inquiries unfairly or not in good faith, in the sense that they had already made up their minds, or anything of that sort. The Tribunal did not go into those matters, not being invited to do so. Those matters were not an issue before it. What they concentrated their minds on was the reality of what had happened. They set out shortly the facts which I have already stated and they say in paragraph 2:
"The facts of the case were not really in dispute as the Respondents admitted throughout the proceedings that it was not their case that as a result of the Applicant's actions the Respondents had lost money by the Applicant undervaluing fixtures and fittings or in some other manner attempting, or that the Applicant had in any way secured a financial or other advantage to K & P Fresh Foods Ltd. The Respondents based their case on the fact that in their view such conduct was in breach of trust, i.e. that there must be by implication, if not expressly, be deemed to be in any contract of employment an obligation by the parties to treat each other with mutual trust and confidence and in the case of the employee to be full and frank about any matters which might involve a conflict of interest between himself and his employer. The Applicant did not deny that he was a Director of K & P Fresh Foods Ltd. He said that he had not played an active part in the business and had merely become a Director of the firm because the person who had formed the Company and who was an employee of the Respondents and who had formed the Company with the intention of buying out some of the shops which the Respondents intended to close, did not have sufficient finance to support the venture. The Applicant had therefore allowed his house to be given as security for that Company and its borrowing.
Our view on the position was as follows. We entirely accept that an employee is under a duty to disclose to his employer anything which might be a source of conflict of interest between himself and his employer. Any activity which he is engaging in outside his employment and which might conflict with that duty must be disclosed. In this particular case however, it was expressly agreed by the Respondents that they base their case only on a breach of trust and on this implied duty. They did not allege, and we heard no evidence that either the Applicant himself or K & P Fresh Foods Ltd, or the other employee had ever obtained any financial advantage by reason of the Applicant's Directorship in K& P Fresh Foods. it was not established by evidence and was certainly not alleged by the Respondents that fixtures and fittings at any of the Respondent's shops had been deliberately undervalued in order to secure an advantage for K & P Fresh Foods Ltd, or indeed that there had been any attempts at all to secure a financial advantage. In these circumstances it was our unanimous opinion that for an employer to dismiss an employee when all that the employee had done is to take a directorship of a company, which might at some stage in its history, be in a position where the employee's directorship might cause a conflict because he would be in a position to obtain a financial advantage, is an action which is not within the band of reasonable responses open to the reasonable employer."That is really to our minds an extraordinary way of putting it. The conflict of interest which I have tried to describe at the outset of our reasons was absolutely patent. Mr Worster was indeed engaged in negotiations. Mr Jack was engaged in valuations and considering offers and so forth, he was in the very department which was concerned with this.It was not a case of taking a directorship in a company which might become involved, it was a case of retaining a directorship in a company which very definitely had become involved, at any rate in the view of the employers. And they go on:
"If of course the employer can establish that an improper financial advantage has been obtained, or indeed that an advantage, not even financial, has been obtained by improper means, then we feel that the employer would be quite justified in dismissing the employee summarily for gross misconduct because such an action would clearly not be one in which the employee could properly engage. Where however, there has merely been a failure to disclose a possible conflict as was the position here then our view is that dismissal is not within the band of reasonable responses. The reasonable response of the reasonable employer should in our view in these circumstances be to warn the employee that there is possibly a conflict of interest and that he must make up his mind whether he intends to continue to be a director of the other company, or whether he intends to continue in employment as the two are or might become incompatible."
No doubt that might be a possible response if the employer knows about it. If the employee comes to an employer, as we have seen in other cases in this very Tribunal, and says to the employer, "I am taking an interest or thinking of taking an interest in this way, or I am thinking of selling some goods to the company, or I am doing something of that sort which might involve a conflict of interest. What view do you take?" The employer may say, "I take a very adverse view of this. Thank you for telling me about it, you mustn't go any further with this transaction, because it seems to me there is a conflict of interest and it may damage the company in various ways. It may damage you in various ways, and we mustn't allow this to go on. Thank you for telling me, but you must at once stop." But how can the employer do that if the employee is carefully keeping it from him? The employee is not disclosing it. So what the Tribunal says here sounds rather like deciding a different case, because the employer was, quite plainly, in no position whatever to take that course here.
"We do feel however, that the Applicant was a little foolish." [they say]. "There was here a possible conflict of interest. [again, they use that word `possible']. He ought to have disclosed what he had done immediately to his employers so that they could take appropriate steps either by presenting to him the alternative which he must take, or at the very least removing him from all temptation by not allowing him any further to take part in the valuation of fixtures and fittings at those shops which the Company of which he was a Director intended to try to purchase. [In other words removing him from the very job which he was employed to do.] Equally, the Applicant was foolish in persisting in a denial that he had become a Director of K & P Fresh Foods Ltd, when he knew or ought to have known that the Respondents were in a position to contradict this statement because they had obtained a company search which showed him to be a director."
We have already commented on that passage in the course of argument. But it really is extraordinary to say that a man who has repeatedly told untruths to his Company was unwise or foolish to do so, because he should have realised that there might be a company search. It seems a very strange way of regarding the duty of a trusted employee. That was how he was caught out, but it does not mean that it was mere foolishness to deny it.In the circumstances, they found Mr Jack was 25% to blame for his dismissal. The compensation he received would be reduced accordingly.Now it is pointed out to us by Mr McMaster, on behalf of the employers, that here the Industrial Tribunal were not wrestling or attempting to wrestle with the true issue which arose. The charge against Mr Jack was not that he had taken a directorship in a company which might lead to a conflict of interest, it was that he had destroyed the confidence of his employers and the trust which they held in him, or at any rate seriously damaged it, by his conduct. And that is self-evident in what I have read from the letters. If he had said straightaway to the employers, "Do you mean that really is a conflict of interest, well it hasn't arisen yet, certainly I will be frank about it. I will tell you all about it," then that might be different. It might then be a case of extreme naivety and the employers might have to treat it on that basis. Of course if they accepted his evidence, they would have to decide that. The employers were prevented from treating the matter in that way, because when they asked about the vital matters, almost certainly because of the conflict of interest Mr Jack was not frank with them. He told them untruths, he suppressed information, not just once, but several times; and of course that was part of the precise mischief against which people are warned when conflicts of interest arise. A person who has a foot [so to speak] in both camps, who has a divided loyalty, will inevitably find himself in a position of not being frank with one or not being frank with either, as the scriptural saying is:

"No man can serve two masters"

and the scriptures go on to explain exactly why that is.In those circumstances, as it is put to us by Mr McMaster, the true reason for dismissal here was not that a conflict of interest had been created by a trusted employee, which might or might not have entitled the employers to dismiss, but a conflict of interest which had been concealed, persisted in and made the subject of deliberate untruths. That is not of course our finding, it is not the Industrial Tribunal's finding, it is the finding of the employers.When this was the charge which was brought, it was the duty of the employers to look into it. They were required to do so fairly. They were required to arrive fairly at their conclusions on the matter, whether in fact it was an innocent matter, unfortunate perhaps, but not seriously blameworthy - something which could be put right, or whether there had been an irreparable breach of contract. They looked into it, and in the very course of their looking into it, they were told untruths and attempts were made to mislead them, as they found. There was no criticism of the fairness of their enquiry. There was no serious conflict about the facts that the Industrial Tribunal found. And the employers, having conducted the enquiry, found, in the letters which I have read, that not only had a conflict of interest been set up by Mr Jack, but that he had told them untruths and destroyed the relationship of trust. "And", said Mr McMaster, "Unless it is said that that decision was flawed, that they were not entitled to reach that decision, that was precisely what the Industrial Tribunal had to consider". "And", says, Mr McMaster, "they did not consider it. Hence their extraordinary remarks," says Mr McMaster, "about foolishness, and their entire failure to go into the question of the trust and confidence which the employer must have in the integrity of a trusted employee."Here was a man who owed fiduciary duties to his employer to value properties faithfully and to pass on to his employers, as surveyor and valuer, anything which they ought to know concerning the properties, who not only put himself in a position where he couldn't properly do that because of his duties to Mr Worster, but was moved to tell them untruths and try to hoodwink them about it.That is what the employers found. Of course, I have paraphrased it and what they had in fact found is set out by them in the two letters from Mr Cade and Mr Bumstead, which I have read. Mr McMaster says, "Given that, and given that there is no challenge to the fairness of the enquiry, how can it be said that the employers were not entitled to dismiss? It is true, they were not bound to dismiss. But the question for them is whether to dismiss and if their reaction (being an honest reaction, and there is no question as to that) is one which falls within the band of reasonable responses, then it is not up to any Industrial Tribunal, and a fortiori not up to this Employment Appeal Tribunal, to say that they were not entitled to reach that conclusion."Having considered this as carefully as we can, we have come to the conclusion that the submissions of Mr McMaster ought to be accepted. The employers had reached conclusions entirely adverse to Mr Jack, about as adverse as could be, apart from the fact that it is rightly said by him (and was indeed conceded), he had made no financial profit out of it.It must, in our view, in those circumstances be within the power of the employer to dismiss, provided he acts fairly. How could the Industrial Tribunal say otherwise? The answer is, and we accept this submission, self-evident. They said otherwise, because they did not ask themselves the right question and investigate the right facts. They did not go into it. They did not go into what was said at the interviews and find out the importance of what was contended by the employers, namely that untruths had been told to them and they had lost the trust which they should have for Mr Jack. In those circumstances, we must say that there was only one decision to which this Tribunal could come, procedural fairness not being challenged. It is to us self-evident that it was within the range of reasonable responses for an employer, on the facts shown by this case, to dismiss. And in those circumstances, dismissal having been decided upon by the employer, we think that the Industrial Tribunal were wrong in law. We therefore substitute our decision and say that in these circumstances, dismissal was fair and that the Application should have been dismissed and will be dismissed.I am asked by my colleague, Mr Hack, to mention that Mr Jack dealt with various matters. He went to the Notice of Appeal at page 2 of our bundle and he made his comments on certain of the matters there.We have also looked carefully at his Application to the Industrial Tribunal, which did not say that the enquiry had been unfairly conducted or anything of that sort. He underlined for us the fact that there had been no deliberate undervaluation and that is of course accepted.Then with regard to the second ground of appeal:
"The applicant together with another employee Mr Worster formed a company named K & P Fresh Foods Limited whose purpose was to acquire shops and their fixtures and fittings.."
He told us that Mr Worster was in fact district manager with 25 shops, including Debden and Harlow which figured in this story, but he is not sure about South Ockenden.In dealing with the third point, that he did not disclose his involvement in the company, he pointed out that there was no express term in his contract. The answer to that appears to us really to be almost beyond argument. It may not be a term of anybody's contract, but he must not be dishonest, he must not commit other serious offences. In our belief the obligation of good faith, which is reciprocal between employer and employee, is not one which needs to be spelled out in a contract, indeed it would be very difficult to go into all of it. It might be thought very offensive if such matters as "you should not lie and deceive your employers in matters which are important to both of you" and matters of that sort were spelled out in a contract. And we do not think in the circumstances of this case that there is anything in that, although, of course, it is often very important that matters should be spelled out in the contract.With regard to ground of Appeal (7):
"The tribunal failed to direct itself to the question whether the conduct of the applicant was such as was likely to damage the relation of trust and confidence between employer and employee. Had it done so it would have answered the question in the affirmative and concluded that dismissal was a reasonable response to the conduct."
he says it was considered, but it does appear to us, for the reasons we have mentioned, that it was not properly considered. What the Tribunal had to consider was how the employer had dealt with this. If the employer had dealt with it fairly and reached the conclusions which I set out, then it is the duty of the Tribunal to consider those conclusions in those letters and say, having those matters in mind, whether the response was justified as being within the band of responses a reasonable employer might give.Then with regard to paragraph 8:
"The tribunal's view that dismissal was not a reasonable response was perverse having regard to the appellant's findings about the conduct giving rise to the conflict of interest, the failure to disclose the conflict, and the concealment and mis-statement of which the applicant was guilty when the matter was investigated."
Mr Jack makes the point very fairly that there was a full day's hearing and he had refuted what was in the letters. Of course, it was not for the Tribunal to say whether it was refuted at all, it was for the employers to try these matters and reach a conclusion, and it was for the Tribunal to say whether they had done so fairly. But the Tribunal was not entitled, if the conclusions were fairly arrived at, to go behind them.Then he goes to certain of the other matters, and really the same comments apply to all these. That it was for the employers, by Mr Cade, and by Mr Bumstead on appeal, to go into these matters after, of course, hearing Mr Jack. Neither the Industrial Tribunal nor we are entitled to go behind findings of facts that are honestly and fairly arrived at.He said that he denied, for example, and had denied all along that he was involved in the negotiations for sale of fixtures and fittings in the shop at South Ockenden. That was a matter which he no doubt laid before the employers, and which they had to take into account in reaching an adverse decision on that matter.With regard to Harlow, he says he only passed information on to put people in contact with the selling agents, which was his duty to the company, rather to K & P. Again, that was a matter to be taken into account by his employers, to see whether they accepted that or not.He finally makes the point that the store in South Ockenden was sold to someone else.All these points, which Mr Jack perfectly fairly makes, are essentially dealt with in this way, that they were points which he was fully entitled to make and no doubt did make to the employers, and which they might have accepted but did not. It was then not for the Industrial Tribunal to enquire into those matters themselves, but merely to say whether the employers' conclusions were fairly arrived at. So far as we are concerned, all we have to do is to look and see whether there is any error of law by the Industrial Tribunal.We have found, as we say, that there was an error of law consisting essentially of a failure by the Industrial Tribunal to look at the proper question which was before them; and if they had addressed the proper question, we think that the conclusion we have reached would have been inevitable.