MR A R CHONG v MAREK & CO [2002] UKEAT 361_01_2301

EMPLOYMENT APPEAL TRIBUNAL

BAILII case number: [2002] UKEAT 361_01_2301

Case No Appeal No. EAT/361/01

Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

Between

MR A R CHONGAPPELLANT

MAREK & CORESPONDENT

Before

Mr Justice Bell Mr J C Shrigley Mr P M Smith

Date 23 January 2002

[1]APPEARANCES For the Appellant THE APPELLANT IN PERSON For the Respondent MR R BRADLEY (of Counsel) Instructed by: The Treasury Solicitor Queen Anne's Chambers 28 The Broadway London SW1H 9JS MR JUSTICE BELL This is an appeal and cross-appeal in respect of a number of aspects of the award of damages and compensation totalling £8,275.60 to the Applicant/Appellant, Mr Chong by the Employment Tribunal held at Liverpool.

[2]By a Decision sent to the parties on 2 October 2000, after a hearing on 4 May and 4 August 2000, the Tribunal found that, first, the Applicant was an employee of the Respondent; second, the contract of employment was not illegal; third, the Applicant was unfairly dismissed; fourth, the Respondent had made an unlawful deduction of wages; fifth, the Respondent was in breach of contract by failing to give the Applicant a period of reasonable notice which would have been three months, and, finally, that the question of remedy would be heard on a future date.

[3]The first matter of decision arose because the Applicant, now the Appellant, had worked for Mr Szczesniak, a chartered accountant practising as Marek & Co for many years, but under an arrangement whereby he worked at home providing accounting services such as assisting with auditing, bookkeeping, payroll and later some administrative duties. He worked in partnership with his wife and was paid a monthly sum, latterly £1,600 per month. The arrangement came to an end when Mr Szczesniak unilaterally reduced the monthly payment to £800 as from 1 August 1999. The Appellant treated himself as dismissed by this conduct as from 4 October 1999. The Tribunal found as follows at paragraph 6.4 - 6.6 of the Extended Reasons for its original Decision:

"6.4 We find that the respondent was in fundamental breach of contract by reducing the applicant's pay unilaterally, and this was the reason the applicant treated himself as discharged. He did not affirm the breach. He was therefore dismissed. 6.5 The reason for the dismissal was the respondent's desire no longer to pay the applicant £1,600 per month. This is not a fair statutory reason. The applicant was therefore unfairly dismissed. 6.6 The respondent does not dispute that if the applicant is an employee and was dismissed there has been a deduction of wages in respect of the months of August and September. He further concedes that he is in breach of contract by failing to give the applicant any payment in respect of notice. We find a reasonable period of notice to be three months."

[4]The remedies hearing took place on 4 December 2000. The Appellant was represented by a solicitor, Mr Bradley, who appears again before us today, represented the Respondent. The Decision was sent to the parties on 24 January 2001. We need only deal with the aspects of the award which are attacked in the appeal, insofar as it survived the preliminary Employment Appeal Tribunal hearing where one ground of appeal was dismissed, and in the cross-appeal. The award is said to be unsatisfactory from the point of view of one side or the other, or both, in three respects.

[5]The first relates to the damages for breach of contract, as they appear to have been treated by the Tribunal, in failing to give the Appellant reasonable notice of three months of termination of his contract of employment. The Tribunal assessed the damages for that breach of contract by taking what would have been the Appellant's net pay for the period, that is £3,360, and then assessing his net earnings from beginning to trade immediately after termination of his employment, on his own account. In the absence of documentary proof of what the Appellant earned, the Tribunal assessed his net earnings at £700 per month, and deducted £2,100 for the three month period from the £3,360, leading to an award under this head of £1,260.

[6]The Appellant, who appears before us in person, contends that it was wrong for the Tribunal to make any deduction in respect of his earnings in the notice period. He refers us to the case of Norton Tool Co Ltd -v- Tewson

[1972] ICR 501

, where it was said by the Industrial Relations Court that it was not good industrial relations to deduct earnings which an employee had made after termination from his employment, from the money which he had been paid in lieu of notice. That case has been considered on a number of occasions since, most particularly for our purposes today in the case of Addison -v- Babcock FATA Ltd

[1987] 3 WLR 122

, where the leading judgment was given by Lord Justice Ralph Gibson, but the Court was presided over by the Master of the Rolls, Sir John Donaldson, who had given the decision in Norton Tool Co Ltd -v- Tewson .

[7]The effect of Addison , accurately summarised by Mr Bradley, is that it is really a matter for the awarding Tribunal to decide whether in the circumstances of the case, when considering compensation for unfair dismissal, to deduct from money paid in lieu of notice, or payable in lieu of notice, earnings by the employee during the notice period. Whether there should be a deduction depends to a large extent on the nature of the employee's employment and the length of the appropriate notice period.

[8]In this case Mr Bradley says the Tribunal dealing with the matter as presented by Mr Chong, that is as a claim for damages for breach of contract, rather than compensation for unfair dismissal, was perfectly entitled to take the course which it did take. The difficulty we have with that is that both Mr Chong and Mr Bradley tell us that the case of Addison -v- Babcock was referred to before the Tribunal. It must have drawn to the Tribunal's attention that there could be an argument as to whether any earnings during what should have been a period of notice should be deducted from Mr Chong's loss of earnings during that period, since it was open to the Tribunal, however the matter was presented, to make an award for unfair dismissal, deciding if it so judged appropriate, that the earnings of Mr Chong during the period of notice should not be deducted in respect of such an award.

[9]The Tribunal did not enter into any consideration of that question, it simply said, at paragraph 3.3.1 of its Decision on remedies:

"The applicant's net pay for three months, had he continued in employment with the respondent, would have been £3,360 net. But the applicant commenced trading on his own account with immediate effect. In the period from his dismissal to the date of the hearing the applicant said that he had received net income of £13,663.16. He did not however provide documentary proof of the individual transactions. Neither, once the point had been raised did he apply for an adjournment in order to do so. We considered, of our own motion, whether to require him to produce the documentary evidence, but on balance declined to do so. We have come to the conclusion, doing the best we can, that he would have earned, on average, £700 per month net, during the first three months trading which makes a total of £2,100. We therefore award him £1,260 by way of damages."

In our view, although Mr Chong presented his claim under this head as a breach of contract claim, in the light of the reference to Addison before the Tribunal, he was entitled to be given reasons why his earnings during the notice period should not be taken out of account in the particular circumstances of this case, as part of the assessment of a claim for unfair dismissal. We leave that point there for the moment.

[10]The second active ground of appeal relates to the Tribunal's decision not to make an award of compensation for loss of earnings from the end of what should have been the period of notice to the date of the remedies hearing, that is from 4 January 2000 to 4 December 2000, and moreover, not to make an award for any loss of earnings from 4 December 2000 on into the future. The Tribunal dealt with this aspect of Mr Chong's claim in paragraphs3.5.1 and

3.5.2 as follows:

"3.5 Compensatory award: We do not accept that the applicant would necessarily have been granted a pay increase in July 2000. There was no contractual right to an increase; it was discretionary and we find Mr Szczesiak to be a whimsical individual who was by no means guaranteed to follow a pattern. 3.5.1 Had the applicant remained in employment he would have received a bonus payment for a twelve month period of £1,040, however it would not have become payable until July 2000; it is thus only payable for five months; it equates to a weekly sum of £20. Had the applicant remained in employment we therefore calculate his annual loss, including bonus, to be £18,156.37 gross, £12,709.45 net, which makes a weekly sum of £244.41."

Pausing there, that loss is obviously the loss before taking account of any earnings by Mr Chong. The Tribunal then continued:

"3.5.2 But on the evidence we heard, which did not include the documentary proof, which exists [our emphasis] of the breakdown of the sum the applicant claims that he has received since his dismissal, we are not satisfied that he has proved any loss. In these circumstances it is not just and equitable to award any interim or future loss of earnings."

[11]The Appellant complains about this. He says, and it does not appear to be disputed, that what in fact he produced, presumably on his solicitor's advice, were calculations of compensation which went on into the future and which included schedules which appear at pages 205, 206, 207, 208 and 209, in a bundle put before us, of income received, item by item, with an account reference in relation to each item, and an invoice reference in relation to each item. Mr Chong and, perhaps more importantly, the solicitor took the view that those schedules ought to be enough for the Tribunal to see what, in fact, Mr Chong had earned after his dismissal, and most particularly, after 4 January 2000. Then of course one would have to look at what expenses he was put to, to earn the relevant fees. Then his net earnings could be compared with what he would have earned from the Respondent, but for his dismissal.

[12]In the course of the hearing, the question was raised of "failure" to produce any documentation to support the figures in the schedules. There had been an Order dated 21 November 2000, not very long before the hearing, where the Tribunal had ordered documents requested for production by the Appellant, in a letter dated 7 November 2000 from the Respondent's solicitors. The letter required:

"documentary evidence of your client's income from all companies and partnerships being conducted by your client at the relevant period."

But Mr Chong contends that the letter, and therefore the Order, did not make it absolutely clear to him that invoices themselves were required, rather than the kind of particulars which he did in fact produce.

[13]The Tribunal, we are told, retired to consider whether it should adjourn the matter with a view to invoices etc being produced but decided not to. Neither the Appellant, through his solicitor, nor the Respondent, through Mr Bradley, applied for an adjournment for further discovery. The Appellant's solicitor continued to argue that the detailed schedules which had been produced were sufficient, and the hearing ended. In due course came the Decision to which we have referred. Mr Bradley argues that the Tribunal was perfectly entitled to come to the decision it did. The question of an adjournment did arise, yet the Appellant's solicitor did not apply for an adjournment. The Tribunal, therefore, was entitled to say that in want of more detailed documentary proof than the schedules taken with Mr Chong's evidence provided, they were not satisfied that he had proved any loss after 4 January 2000.

[14]We have two difficulties with that approach. The first is that the Tribunal does not give any reason for the difference between its approach to loss claimed before and up to 4 January 2000, where it felt able to find that there was a loss, and its conclusion that no loss had been proved thereafter. It may be that the explanation is that the Appellant's solicitor explained the absence of all detailed documentation for the period up to 4 January 2000 by saying that it was his contention that the Appellant was entitled to the full amount of payment in lieu of notice without any consideration of what he had been earning, so that no documentation in respect of what he had been earning was relevant. But if that was what the Tribunal had in mind, it certainly did not say so in its Extended Reasons. In our view, the Appellant is entitled to complain, with justification, that there really was no explanation on the face of the Extended Reasons, or which one can tease out of the Extended Reasons, as to why the Tribunal should be satisfied that the Appellant had been losing up to 4 January 2000, but not satisfied of any loss whatsoever thereafter.

[15]The second matter which troubles us is that it is apparent from the wording of paragraph 3.5.2 of the Extended Reasons, which we have quoted, that the Tribunal thought that documentary proof did exist of the breakdown of the Applicant's claim which he contained in his schedules. In those circumstances, it seems to us that the Tribunal should have expressly given the Appellant, through his solicitor, the option of an adjournment, the costs of which could be decided later when all material was before the Tribunal, in order to produce the further documentary evidence which the Tribunal could have specified as required or at least advisable, in support of the Applicant's claim. The two lay members of this Tribunal would, in fact, have been satisfied with the schedules which the Appellant produced, supported by his oral evidence, at least until the Respondent produced some rational challenge to them. Different Tribunals may take different views on that point, but in our view if the detailed schedules supported by the Appellant's own evidence were not thought satisfactory, and this was to be fatal to the claim, in a situation where the Tribunal appears to have accepted that documentary proof did actually exist, further time should have been given to produce supporting documents. The result of what happened was not fair to the Appellant. For these reasons, we propose to quash the Decision in respect of loss, or rather no loss, from 4 January 2000 onwards and remit that question to a fresh Tribunal.

[16]The third point which has been argued relates to the question of recovery of set up costs by the Appellant in respect of continuing business after his dismissal. The Tribunal dealt with that at paragraph 3.5.4 of its Extended Reasons as follows:

"In addition the applicant claimed reimbursement of his set up costs. We are satisfied that in order to continue in business it was reasonable for him to have purchased appropriate equipment; but we have concluded that he deliberately included the cost of items not purchased; without any such indication, in order to inflate his claim. The following are reasonable: a payroll program, a fax machine, a scanner, a shredder, a guillotine, a computer and sundry items in the sum of £100; we are satisfied that the sums claimed for those items is reasonable. However the applicant also claimed sums for office equipment , a typewriter and Sage software (an accountancy package), none of which had in fact been purchased; and £793 for a printer; although he was justified in purchasing a printer we are not satisfied that the price of £793 is reasonable; we believe an appropriate sum to be £250. In these circumstances we award him £2,688.98 for set up costs."

The Appellant challenges the reduction of compensation for the printer to £250 on the basis that no finding is made as to why that was the appropriate sum in circumstances, as he puts it to us, where the printer that he did buy was a like for like replacement for that which the Respondent had provided, but taken back after his dismissal. Mr Bradley makes a more fundamental attack on the Tribunal's decision to award any compensation under this head at all. He says that set up costs could only properly be considered as part of the overall claim for loss of income after the period of notice. We see merit in both those submissions.

[17]As we propose to remit the whole question of loss, if any, from 4 January 2000 to a fresh Tribunal. We remit the question of set up costs as well, as part of the overall consideration of the question of loss after 4 January 2000. In the light of the fact that we propose to remit that substantial matter to a fresh Tribunal, we also remit the question of whether any deduction by reason of actual earnings should be made from the net amount payable to the Appellant in respect of the notice period so that the fresh Tribunal can consider the factors raised in the authorities, particularly in Addison -v- Babcock , and give a reasoned decision in that respect.

[18]We have considered whether we should give directions as to exactly what disclosure or discovery should be given by either party for the new hearing. We have come to the conclusion that it would be much more satisfactory if, as we suggest, the fresh Tribunal has a pre-hearing review to deal with the question of discovery, after hearing argument on both sides. We are conscious of Mr Bradley's argument urging us to have proportionality of cost to compensation in mind, but in the circumstances of this particular case we think the most important matter is that the fresh Tribunal has all the material before it which will enable it to reach a just decision, in particular in relation to loss, if any, since 4 January 2000, whether that decision falls in favour of the Appellant or of the Respondent.