Moran & Anor v Kloezeman [1995] UKEAT 38_94_1601

EAT
Moran & Anor v Kloezeman
[1995] UKEAT 38_94_1601 · 1995-01-16
MR JUSTICE MUMMERY (PRESIDENT) : These are two appeals brought by Mr Moran and Mr Docherty against decisions of the Industrial Tribunal held at Liverpool. The Respondent to each appeal is Mr Kloezeman. The dispute between the parties arises out of the affairs of a company called Aldonian Ltd of which Mr Kloezeman was the majority shareholder, director and company secretary under a service agreement dated 12 April 1990. Aldonian Ltd carried on the business of managing pubs. For present purposes it is relevant to note that that Company was the owner of the freehold of a public house in Wigan called The Beer Engine at 69 Poolstock.From 14 June 1990 onwards Mr Kloezeman was also the joint manager and licensee with Mr Docherty of the Beer Engine Pub. That situation continued until March 1992 when Mr Docherty left. Mr Docherty left at a time when Aldonian Ltd was in financial trouble. In March 1992 Barclays Bank, who had a legal charge over the premises of the Beer Engine, appointed joint receivers under the Law of Property Act over the property. The two receivers were members of the firm of Grant Thornton, Mr Rowlands and Mr Ross . After their appointment, trading continued. Mr Kloezeman continued to manage the pub at the same salary as before, paid by the receivers out of the assets of and behalf of Aldonian. That situation continued, so the Tribunal found, until 23 December 1992.The receivers had continued this arrangement pending a sale of the Beer Engine as a going concern. From mid 1992 there were negotiations between the receivers for the sale of the pub. Those negotiations were with Mr Kloezeman, who had acquired an "off the shelf" company called Twin Petes Trading Limited. The proposal was that that Company would agree to acquire the pub and would carry on the business.On 19 October 1992 a sale agreement was exchanged between the receivers, on behalf of Aldonian, and Twin Petes Trading for the sale of the pub and its goodwill. Completion was to take place on 2 November. Pending completion a tenancy at will was granted to Twin Petes. The sale was never completed, because neither the Company nor Mr Kloezeman, who was the majority shareholder and a director, was able to raise the necessary finance. A Notice to Complete was served. That was not complied with. Notice was also given terminating the tenancy at will. The notice was given on 16 December 1992. Within a week an agreement had been exchanged between the receivers, on behalf of Aldonian, and the Appellants. Mr Moran and Mr Docherty agreed to buy the freehold premises of the pub and the goodwill for £195,000. They paid a deposit. They carried on the business of the Beer Engine Pub. The sale was not completed until the transfer of the freehold on 8 June 1993.That brief summary makes the case sound like a potential dispute about the sale and transfer of property. In fact, the dispute arises from an aspect not yet mentioned. That is on 23 December 1992 Mr Kloezeman finished his employment with Aldonian Ltd as manager of the pub. Some other employees were dismissed and later re-engaged. Mr Kloezeman was not. In those circumstances he brought a claim against Mr Moran and Mr Docherty for unfair dismissal. He presented an Originating Application to the Industrial Tribunal on 19 March 1993 in which he claimed unfair dismissal and redundancy. He stated in the form that he had been employed as manager of the Beer Engine from 14 June 1990 until 23 December 1992 and he was unfairly dismissed from that position. He relied expressly on the effect of the Transfer of Undertakings Regulations 1981 (TUPE). His claim was stated succinctly as follows:
"I consider that I have accordingly been unfairly dismissed (whether constructively or otherwise) without any/or proper notice with effect from 23/12/92 following a transfer of the Pub at which I was employed from the said Receivers to the persons named in paragraph 4 of the attached application [Mr Moran and Mr Docherty] and that pursuant to the Transfer of Undertaking Regulations 1981 my dismissal is for a reason connected with the Transfer and is accordingly unfair and pursuant further to the said Regulations my claim hereunder is properly directed against the persons named in paragraph 4 of the attached application."
The claim was contested; a Notice of Appearance was put in on 15 April 1993. A number of points were taken in the Further & Better Particulars which the Respondents were ordered to provide. The Further & Better Particulars state that the Respondents were partners in a public house called the Beer Engine. They refer to the circumstances in which they had purchased it on 23 December 1992 and to the completion date on 8 June 1993. They referred to the appointment of the receivers and the earlier history of Aldonian. They referred to a fire which had occurred at the premises in the morning of 23 December which they alleged was arson. They said that Mr Kloezeman was strongly suspected by the police, the Respondents, and the receivers of having started.They contended that they were not liable for unfair dismissal because there had never been a contract between them and Mr Kloezeman; there had never been a transfer of undertakings between them, Aldonian the receivers, and Mr Kloezeman. They regarded the claim as frivolous and warned that they would be seeking indemnity costs.The Tribunal hearing started at Liverpool on 27 August 1993. The Tribunal heard evidence and argument and reserved its decision. Full reasons were given to the parties on 21 October 1993. The Tribunal unanimously decided that it had jurisdiction to hear Mr Kloezeman's complaint of unfair dismissal, concluded that he was unfairly dismissed and ordered the case to be adjourned to 19 November 1993 to give the parties an opportunity to reach a settlement on remedy. It was ordered that, if no settlement was reached by that date, the case would be restored to the list to determine remedy.What then happened was that, liability having been established and the parties having failed to reach an agreement, new solicitors instructed on behalf of Mr Moran and Mr Docherty wrote a letter giving notice of evidence which they contended was relevant to the assessment of compensation and which they would wish to put before the Tribunal at the restored hearing. The restored hearing took place on 19 November 1993 to determine remedies. The Tribunal refused to allow Mr Moran and Mr Docherty to call the evidence referred to in the letter and went on to determine the question of compensation in favour of Mr Kloezeman, by awarding him the sum of £10,410.In this Tribunal there are two separate appeals. The first, dated 26 November 1993, is the appeal from the decision on liability. The second is the notice of appeal dated 20 January 1994 against the decision of the Tribunal on remedy, as explained by the Tribunal in full reasons notified to the parties on 14 December 1993.We heard first the appeal on the question of liability. Then, without giving a decision on that, we heard separate argument on the question of compensation. We have reached the following conclusions. First, that the appeal against liability should be dismissed because there has not been shown to be any error of law in the Tribunal's decision. Secondly, we allow the appeal on the question of remedy, because the Tribunal erred in law in excluding admissible evidence.Dealing first with the appeal on liability, we have heard detailed submissions from Mr Morgan. He was not the Counsel who argued the case before the Industrial Tribunal. We must look at his submissions on the basis of the findings of fact and conclusions reached by the Tribunal. The crucial reasoning of the Tribunal was that Mr Kloezeman was an employee of Aldonian. From June 1990 he was employed as manager of the Beer Engine and he remained manager down to 23 December 1992. From March 1992 to 23 December 1992 receivers appointed by Barclays Bank employed Mr Kloezeman as manager of the pub on behalf of the Company. It was conceded at the Tribunal hearing that Mr Kloezeman's employment was not affected by the fact that receivers had been appointed. The Tribunal found that the transfer of the Beer Engine Pub was of a going concern and took place, at least in part, on 23 December 1992; that there was a continuous period of employment of Mr Kloezeman by Aldonian, through the receivers, and that there was a transfer on 23 December 1992 within the meaning of the TUPE regulations. They found as a fact that Mr Kloezeman was dismissed on 23 December. He was dismissed by reason of the transfer and therefore he was to be treated as unfairly dismissed. They finally concluded that he was not dismissed for any economic, technical or organisational reason such as is mentioned in paragraph 8(2) of TUPE.In his helpful argument on behalf of Mr Moran and Mr Docherty, Mr Morgan took a number of points. His first point was that the Tribunal had erred in law in coming to the decision by failing to analyse correctly in law the position regarding the Beer Engine after 19 October 1992. The Industrial Tribunal's view was that from June 1990 to 23 December 1992, notwithstanding the intervention of the Receivers, Mr Kloezeman was employed as a manager of the pub. Mr Morgan submitted in an argument, which might be more acceptable in the Chancery Division than in the Employment Tribunal, that on 19 October 1992 there was a significant change in the position of Mr Kloezeman. His argument was that once the agreement for sale had been concluded between the receivers, on behalf of Aldonian, and Twin Petes, Mr Kloezeman's company, Mr Kloezeman was no longer employed as a manager of the Beer Engine. His capacity was as majority shareholder and director of his Company which, as prospective purchaser, was in occupation carrying on the business of the Beer Engine through Mr Kloezeman, pending completion. If this analysis is correct, Mr Morgan submits that at the date when Mr Kloezeman was dismissed, 23 December 1992, he was not an employee of Aldonian and was not dismissed by reason of the transfer: he had already changed from his status as manager as a result of negotiating the agreement for sale through Twin Petes.We are unable to accept this argument. There is an insuperable obstacle in the way of it. The insuperable obstacle is that the Tribunal have found as a fact that Mr Kloezeman was paid by the receivers on behalf of Aldonian down to 23 December. They said in paragraph 8(xii) that, after the contract with Twin Petes and the later failure of Twin Petes to complete, Mr Kloezeman continued to work as the manager:
"In the meantime the applicant continued to work as the Manager (he was also the licensee) of the Beer Engine public house and he continued to be paid his salary by the Joint Receivers. He also was hopeful, despite the fact that Twin Petes Ltd had not been [being] able to complete the purchase on 2 November 1992, that the company might be able to raise the necessary financial resources in order to purchase the public house."
In paragraph 13, the Tribunal said:
"We were also satisfied that the applicant had continued to be employed by the Joint Receivers on behalf of Aldonian Limited until immediately before they, as Agents for Aldonian Limited, transferred by way of sale the public house premises the Beer Engine, ie the buildings, the freehold and the goodwill, to the respondents."
That is a finding of fact. The evidence that the receivers had paid Mr Kloezeman's salary was evidence on which the Tribunal was entitled to conclude that his employment as manager had continued, notwithstanding the agreement on 19 October 1992 and the grant of a tenancy at will of the Beer Engine premises to Twin Petes Trading Ltd.Mr Morgan's next point was based on a service agreement. He referred to the terms of a written service agreement dated 12 April 1990 made between Aldonian and Mr Kloezeman in which Mr Kloezeman, was described as "The Executive" and was employed as company secretary from 1 May 1990. It was agreed that he would be employed and serve the company as company secretary and, in such capacity, would perform the duties and exercise the powers which might from time to time be assigned to or vested in the Executive by the Board of Directors of the Company and should in the discharge of those duties and the exercise of such powers observe and comply with all resolutions and directions from time to time made or given by the board and devote substantially the whole of his time and attention during the normal business hours, unless prevented by ill-health, to the performance of the executive duties under the agreement.It was provided in clause 4, that during the continuance of his appointment under the terms of the agreement, he should be paid a salary at the rate of £12,500 pa by equal monthly instalments on the last day of each month.Mr Morgan's point was that Mr Kloezeman's position as an employee was governed by that agreement. It was conceded that that employment was not affected by the appointment of the receiver. He was employed as company secretary. He was never dismissed from that position. There was no material on which the Tribunal conclude that there was in law a dismissal by reason of a transfer. He submitted, that upon the proper construction of the service agreement, the employment did not extend to the management of the public house. There was no other agreement relating to his discharge of those functions. It was his dismissal from that position which had given rise to the claim for unfair dismissal. If he was not employed in that position under the agreement, he could make no claim under the Transfer of Undertakings Regulations.The difficulty of that argument is that there are clear findings of fact by the Tribunal that he was not just a company secretary. He was manager. It was clear from the agreement that he could be required by the Company to discharge other duties from time to time. He had in fact discharged the duties of a manager from mid June 1990 down to 23 December and he was paid for those. The findings of fact preclude the argument Mr Morgan wishes to raise. There is also a legal fallacy in Mr Morgan's argument. There is nothing in law to prevent an employee from having a written agreement for employment, which may govern some of his duties, and having an oral agreement, or an agreement implied from conduct, relating to the enlargement of his duties, so that he is employed in another additional capacity.Mr Morgan moved to the point on whether Mr Kloezeman was dismissed. We are satisfied there is nothing in this point by way of legal error. It is a question of fact whether a person is dismissed or not. The Tribunal made a clear finding at the end of paragraph 8(xviii) of their decision:
"We were also satisfied that it was made abundantly clear on that day [23 December] at the premises by the respondents and the Joint Receiver's representative who was present at the time that his [Mr Kloezeman's] position as manager of the public house had now ceased."
It could not be clearer. He had been dismissed. He had not resigned or ceased to be employed for some other reason.Mr Morgan submitted an argument on what he described as the "proximity of time". He said that there was no transfer of the undertaking of the public house for the purposes of TUPE on 23 December. There was no transfer until 8 June 1993. What was then transferred were assets, not an undertaking. If this argument is right, Mr Kloezeman could have no claim because of the time gap between when he was dismissed and when the undertaking was transferred, if indeed there was a transfer at all. This argument ignores the fact that TUPE can apply to transfers of part of an undertaking. An undertaking includes any trade or business. Regulation 3(1) states that the regulations apply whether the transfer is effected by sale or by some other disposition or by operation of law. Transfers of undertakings may also be effected by a series of two or more transactions. They may take place whether or not any property is transferred to the transferee by the transferor. That is made clear in regulation 3.The position is that, although the freehold title to the property was not transferred until completion on 8 June 1993, the Tribunal found that the business in which Mr Kloezeman had been employed until 23 December 1992 as manager was continued by Mr Moran and Mr Docherty. Although there was no formal legal document, other than the contract for sale for the purposes of the TUPE regulations a transfer of the undertaking or part of the undertaking of the pub was made on that day. They traded in place of Aldonian. It is clear from recent decisions of the European Court of Justice and the Court of Appeal that the crucial test in deciding whether or not there is a transfer of an undertaking is whether the identity of an undertaking is preserved in different hands. The position was that, until 23 December, the undertaking was conducted by Aldonian Ltd, first by itself and then through receivers, using Mr Kloezeman as manager. It is clear from that the day he ceased to be manager and the day when the contracts for sale were exchanged, Mr Moran and Mr Docherty continued the undertaking previously carried on by Aldonian; the identity of the undertaking remained the same. It was the same pub conducted from the same premises enjoying the same goodwill. It is a case in which the Transfer of Undertakings Regulations apply.We agree with Mr Brown that the Industrial Tribunal's decision on liability is correct for the reasons stated in the decision. He submitted in his Skeleton Argument, as amplified in oral submissions, that this Tribunal had no power to interfere with the Tribunal's decision except on error of law. There was no error of law. This is an attempt to present questions of fact as questions of law.We agree that the Tribunal were correct in holding that there was continuity of employment and that the TUPE regulations applied in this case, so that Mr Kloezeman was entitled to claim under paragraph 8(1) that he should be treated as unfairly dismissed because he was dismissed by reason of the transfer of the undertaking in which he had been employed for over two years.For those reasons we dismiss the appeal against the decision of the Industrial Tribunal on liability.The second appeal is against the decision on compensation. The Tribunal's decision contains mainly mathematical calculations to achieve the sum of £10,410. That was achieved by looking at Mr Kloezeman's net weekly pay prior to dismissal, adding to that the estimated value of the use of a car provided to him for discharge of his duties, as well as private use. The Tribunal considered submissions in relation to mitigation and they concluded that he had made unsuccessful attempts to obtain permanent employment; they were reasonable efforts to mitigate financial loss. They estimated that it would be one year before he obtained full time employment. They took account of the fact that, on obtaining part-time employment, receipt of income support would cease. By that process of reasoning the Tribunal came to the sum mentioned.In his submission on this part of the appeal Mr Morgan took a number of detailed points about the Tribunal's decision on mitigation. He took the point that the Tribunal failed to have proper regard to the absence of evidence from Mr Kloezeman concerning his efforts to find full time employment or the level of income that could have been secured by part-time employment. He reverted to the point that at all relevant times he was employed as company secretary and there was no evidence before the Tribunal about steps adopted by him to secure a comparable position. He therefore argued that there was insufficient regard by the Tribunal to Mr Kloezeman's obligation to mitigate his loss.Those points are peripheral to the main point made by Mr Morgan on the appeal that the Tribunal had erred in law in refusing to admit relevant admissible evidence which Mr Moran and Mr Docherty wished to place before the Tribunal. This aspect of the case is dealt with by the Tribunal in the full reasons. Having rehearsed the dates of the hearing and the sending of the reserved judgment they said this:
"On 12 November the following letter dated 11 November 1993 was received at the Office of Industrial Tribunals Liverpool."
That was the letter already mentioned sent by the new solicitors acting for Mr Moran and Mr Docherty. The letter referred to the Tribunal Reasons sent to the parties and to the fact that there was going to a hearing on remedy on 19 November. The letter said:
"Would you please accept this letter as a request for postponement of the hearing on 19 November next. The basis of our application is that our clients will submit that there are substantial grounds for reduction of any award on the basis of information which has been discovered subsequent to the dismissal. Our clients will submit that the subsequently acquired information will justify a reduction under section 74 of the Employment Protection (Consolidation) Act 1978."
That section is concerned with compensation for unfair dismissal and it is in these terms:
"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."
The letter continued:
"The information that has come to light relates to potential dishonesty offences specifically in relation to missing cigarettes and money that was not the possession of Aldonian Ltd or Mr Kloezeman and missing monies that was handed to Mr Kloezeman as trustee but it was not handed by him to the representatives of the charity for which it was destined. Further, recent information that has come to light shows that Mr Kloezeman on behalf of Aldonian Ltd has deducted National Insurance payments from employees but had failed to account to the relevant authorities for the said money.
Our client will say that that behaviour, together with other behaviour subsequently discovered which will be pleaded at the Tribunal in due course would have given our clients the right to dismiss the applicant, Mr Kloezeman for dishonesty in any event. Our clients will therefore submit that a nil award ought to be made."They refer to other matters that were being investigated by the police and pressed the application for postponement. The application for postponement was refused by the Chairman. Another letter arrived on 16 November. It was dated 15 November. It was a letter from the solicitors acting for Mr Kloezeman objecting to the postponement on the ground that the matters which Mr Moran and Mr Docherty wished to put before the remedy hearing would be inadmissible on the basis of the EAT decision in Iggesund Converters Limited v Lewis [1984] IRLR 431. The conduct was never raised as an issue previously. It would have been open for them to introduce it, should they have wished to do so.The Tribunal referred to those two letters and set out the rival submissions of the Counsel, Mr Gibbons then instructed on behalf of Mr Moran and Mr Docherty and Mr Brown. They referred to Iggesund Converters . They stated their conclusion on the rival submissions in paragraph 12 of their decision as follows:
"We carefully considered Mr Gibbens' application made on behalf of the respondents and Mr Brown's submissions on behalf of the applicant. Having done so we were satisfied that the interest of justice demanded that the application be refused. It was clear that the respondents had decided to defend the applicant's complaint of unfair dismissal after taking legal advice. The Notice of Appearance had indeed been settled by Counsel and their sole defence to the complaint was that the applicant had not been dismissed. There had been ample opportunity to investigate the matters which they now wished to put in evidence at this very late stage before entering the Notice of Appearance."
They refused to hear evidence on any of the matters set out in the solicitor's letter dated 11 November 1993 and proceeded to decide the question of compensation on the basis of the mathematical calculations and their conclusions on mitigation already summarised.Mr Morgan's submission on this point is simple and cogent. He says the Tribunal erred in law because they refused to allow his clients to adduce admissible relevant evidence. It was relevant not to whether the dismissal was fair, (that had already been determined on the basis of the TUPE regulations as unfair); it was relevant to the question whether, under section 74 of the 1978 Act, it was just and equitable to award to Mr Kloezeman a compensatory award and, if so, in what amount. He submitted that the exclusion of relevant evidence is an error of law. That is not disputed as a proposition by Mr Brown. He submits that it is relevant on the basis of the comments of Lord Dilhorne in W Devis & Son Ltd v Atkins [1977] ICR 662 that regard may be had, in assessing compensation under section 74, to matters which are just and equitable in all the circumstances. That might include misconduct of the employee that, subsequent to dismissal, has been discovered was committed by the employee during the course of his employment. He submits that there was no chance to put these matters before the Tribunal. There was not even a proper opportunity to do, so because the only issue before the Tribunal on liability was the application or non-application of TUPE regulations. This was not like the Iggesund Converters case where the reason for the dismissal, which gave rise to the claim for unfair dismissal was based on conduct. In that case the EAT had held that, at the hearing to consider the question of compensation, the Industrial Tribunal had not erred in law in exercising its discretion to refuse to allow the Appellants to call, as a witness to establish contributory fault, someone who could have given his evidence at the first hearing when the issue of fairness was determined, and whose evidence was in any event alluded to at the initial hearing. The EAT held that any unfairness suffered by the appellants as a result of being denied the opportunity of calling witnesses at the second hearing would have been outweighed by the greater unfairness to the respondent of exposing him, in effect, to the same charge twice over, by permitting it to have been mooted prejudicially at the first hearing and then pressed home directly at the second, with the support of evidence that could have been called at the first.We agree with Mr Morgan that that is not the position in this case. That case was cited to the Tribunal and apparently relied on them, but it is not applicable. That was a case where evidence relevant to conduct, which would affect both liability and compensation, could have been and should have been called at the liability hearing. Otherwise there would be duplication and exposure of the Respondent to the same charge twice over. That is not the case here. In our view, if Mr Moran and Mr Docherty had attempted to lead evidence at the liability hearing relating to conduct it is difficult to see what relevance it could have to the issue of whether Mr Kloezeman's dismissal was unfair within the meaning of TUPE regulations. The unfairness of the dismissal under TUPE regulations depended on the question of whether the applicant was employed in an undertaking and whether he has been dismissed by reason of the transfer of that undertaking. Conduct is not a relevant issue on that aspect of the claim.In answer to this point Mr Brown made an optimistic submission that in fact the matter of conduct, had to some extent, been explored at the hearing on liability. He said there had been a lengthy cross-examination of Mr Kloezeman which took in the fact that he was suspected of arson of the Beer Engine. There had been some evidence before the Tribunal relevant to what he described as credibility of Mr Kloezeman. The Tribunal were therefore justified in exercising their discretion to exclude the evidence which Mr Moran and Mr Docherty sought to bring in at the remedies hearing.We are unable to accept that submission. It is not simply a matter of discretion. The Tribunal prima facie has a legal duty to receive admissible evidence. Having received it, it is then to decide how relevant it is, what weight it should have and to what issue it goes. It was an error of law on the part of the Tribunal to exclude without good reason, evidence that would be admissible to the issue before it. It was relevant or potentially relevant to the conduct of Mr Kloezeman while he was still an employee of Aldonian. That would be material which the Tribunal would be entitled to take into account, if established by credible evidence, in determining whether any compensatory award should be made to Mr Kloezeman and, if so, in what sum.We are satisfied there was an error of law in this case by the unjustifiable exclusion of relevant evidence. The consequence of our finding on that is that this matter must be remitted to the same Industrial Tribunal to determine the question of remedies afresh. We form the conclusion that it will be necessary for them to have a completely fresh hearing on remedies. It is not possible to salvage parts of the conclusions reached in the existing decision, because those conclusions might be affected by the evidence which is sought to be adduced in ways that we cannot predict. It is obvious we are not in a position in this appeal to come to any conclusion ourselves about the effect that the evidence might have on the remedies.For all those reasons we allow the second appeal on remedies in the Notice of Appeal dated 20 January 1994. We dismiss the appeal against liability under the Notice of Appeal dated 26 November 1993.