STEPHEN FIDLER & CO v MR A KAPADIA [2002] UKEAT 765_01_0210

EMPLOYMENT APPEAL TRIBUNAL

BAILII case number: [2002] UKEAT 765_01_0210

Case No Appeal No. EAT/765/01

Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

Between

STEPHEN FIDLER & COAPPELLANT

MR A KAPADIARESPONDENT

Before

Mr Justice Wall Mr P Dawson

Date 2 October 2002

[1]APPEARANCES For the Appellant MR MATTHEW GROVES (of Counsel) Instructed By: Stephen Fidler & Co Thavies Inn House 3-4 Holborn Circus London EC1 2HB For the Respondent MR BAYLISS (of Counsel) Instructed By: Reeves & Co Solicitors 27b The Mansions 252 Old Brompton Road London SW5 9HW MR JUSTICE WALL : This is an appeal by Stephen Fidler & Co (the Appellant) against one aspect of a decision of the Employment Tribunal, held at Stratford on 26 February 2001 with extended reasons being given on 23 April 2001.

[2]The Respondent to the appeal is Mr Adbul Kapadia, who is a former employee of the Appellant, which is a firm of Solicitors practising mainly in crime and other Community Funded matters.

[3]The principal focus of the proceedings was the application by Mr Kapadia to the Tribunal alleging that he had been unfairly dismissed by the Appellant. However, in addition to that matter, there were before the Tribunal claims by both Mr Kapadia and the Appellant relating to alleged breaches by each of them of Mr Kapadia's contract of employment with the Appellant.

[4]The unanimous decision of the Tribunal was that Mr Kapadia had, indeed, been unfairly dismissed on 1 December 1999 for a reason relating to his conduct, but that his entitlement to both the basic and a compensatory award was to be reduced by one third. No appeal is brought by either side against that decision.

[5]The Tribunal dismissed the complaints by both the Applicant and Mr Kapadia arising out the alleged breaches of contract which it found were not made out. The only point which arises on this appeal derives from one aspect of the Appellant's claim against Mr Kapadia, and is contained in one paragraph of the Tribunal's Decision. The point arises in the following way.

[6]Mr Kapadia gained a client for the firm called Mr Rahman. Mr Rahman was charged with a series of serious frauds. Issues arose as to the manner in which Mr Rahman's Legal Aid application was completed, with the result that the Police became involved and Mr Kapadia was charged by the police with a criminal offence in relation to false entries on the Legal Aid application. As a result, the Appellant could no longer act for Mr Rahman. It then transpired, as we understand it, that Mr Rahman was in any event entitled to Legal Aid and the Crown Prosecution Service dropped the charges against Mr Kapadia. In the meantime, however, the case was transferred to another firm, and thus lost to the Appellant.

[7]The Appellant took the view that the transfer of the case to another firm represented a substantial loss of fee-income for it and sought by way of counter-claim to recover its alleged loss against Mr Kapadia. Accordingly, the only point which arises on this appeal. Is whether or not the Tribunal was correct to reject the Appellant's claim for loss of fee income.

[8]There is, most unfortunately, an apparent ambiguity both in the way the case was presented to the Tribunal on this point and in the way in which the Tribunal expressed itself in relation to it. In essence, the question is: was the Appellant's claim – as quantified - for loss of profit or loss of gross fee income? It is that confusion which, in our view, has somewhat bedevilled the proceedings.

[9]The Tribunal found that Mr Rahman had been introduced by Mr Kapadia and that this introduction fell within both the letter and the spirit of that part of the contract between the Appellant and Mr Kapadia which would entitle the latter to commission from the Appellant on the introduction. However, the Tribunal found that no fees had been received because inevitably, with Mr Kapadia being charged in relation to the Legal Aid form, a conflict of interest arose and Mr Kapadia had to instruct other Solicitors.

[10]The critical paragraph of the Tribunal's reasoning on the point is paragraph 41(iii), which we set out in its entirety:

"The respondent's counterclaim is formulated on the premise that Mr Kapadia was in breach of a term of the contract and that loss has been occasioned as a result of that breach. We do not need to find a breach of contract by Mr Kapadia because the employer's counterclaim fails on the facts. Whilst the respondent did not profit from the Rahman case, it has not been demonstrated that any loss arose. The argument for loss of profit is unsustainable. It amounts to an assertion that profit costs in the case would amount to some £40,000 and that this is the appropriate measure of loss. The claim wholly ignores the fact that that sum required to be earned by the expenditure of considerable time and effort and that that time and effort was not so expended. No indication is made as to those individuals who would have worked on the case, the cost of their time to the respondent or the use to which that time was in fact put that would otherwise have been engaged in the Rahman case. Alternatively, it is suggested that the Rahman case was one of such complexity that it was reasonably to be expected that it would secure a significant uplift. It might have been arguable that the respondent had to settle for a lesser profit than one that might otherwise have been earned but no adequate evidence has been adduced to support such a basis. The respondent's is a busy practice and the overwhelming probability if that those who would have been engaged on the Rahman case were busily engaged handling other cases and that no loss of profit arose."

That is the paragraph in the Decision which is attacked by the Appellant.

[11]It is, we think, important to see how the matter was pleaded. When it was suggested that Mr Kapadia was in breach of contract, he put in a Notice dated 31 May 2000 stating in terms:

"1 I deny that I am in breach of contract, whether as set out in the firm's letter, or at all. I put the firm to strict proof of each and every element relied on in its claim. 2 Further or alternatively I deny that the firm has suffered any loss, whether as set out in the firm's letter or at all, flowing from any breach of contract which may be proved against me in these proceedings."

[12]In addition to this there was a Scott Schedule put before the Tribunal which reads as follows. "Item 6. Loss of Prospect (sic) of the Rahman case". Against that heading, this is written:

"The Respondent was not able to continue to deal with the case of Rahman, due to the professional difficulties caused by the Applicant's actions and subsequent conflict of interest with the client. Accordingly, the Respondent lost a case which was worth an estimated £40,000 to the Respondent." £40,000 (estimate) Against that entry is written, in what is accepted to be Mr Kapadia's handwriting: "

The Applicant takes issue on this and the quantum figure estimate".

[13]Was the figure of £40,000 an estimate of the gross fees likely to be earned for the case, or was it an estimate of the likely net profit which the firm would make? If the latter, how was the sum calculated? Because of the confusion in relation to the evidential basis of the Tribunal's findings, a number of documents have been introduced into the bundle for the purposes of this appeal. There is, first of all, the proof of evidence of Mr Keith Rudwick who was the Appellant's Practice Manager. In relation to this aspect of the case, this is what he said, in what is, in effect, his evidence-in-chief:

"43 Through the Applicant's actions, we had to withdraw from the Rahman case for a number of reasons mentioned above. From our experience of similar matters, we estimate that a trial in this case would have lasted between two to three weeks and would have attracted the services of a senior solicitor, whose charge out rate would be in the region of £115.15 an hour. Preparation for the case would have been in the region of 300 hours and it is likely that we would have instructed Stephen Fidler, as solicitor advocate, to act on the client's behalf. This would have attracted a further fee of £10,000 and £12,000. (see Scott Schedule Point 6)."

We interpolate, that is what we have just referred to. Paragraph 44 reads:

"44 It is accepted that the loss of prospect of the Rahman case can only be an estimate based upon our experience. However, this was clearly a substantial matter, where the client was facing very serious charges and it is our estimation, based upon our substantial experience, that the lost fees in this case would be in the region of £40,000 (see Scott Schedule Point 6)."

[14]For the Appellant, Mr Groves seeks to rely on these passages in support of the argument that what was under discussion was profit costs; that the calculation of 300 hours at £115.50 an hour, plus the fees to be earned by Mr Fidler, would achieve a figure substantially in excess of £40,000, and that, accordingly, what was meant here by £40,000 was plainly profit costs. In fact, 300 hours at £115.50 per hour is £34,650. With a fee of £12,000 on top (the maximum estimate) the total is £46,650. In our judgment, this passage from Mr Rudwick's statement does not assist the Appellant, particularly as, in the following paragraph in Mr Rudwick's statement, he says, "the lost fees in this case would be in the region of £40,000".

[15]Unfortunately, the matter is not cleared up in any conclusive way by the Chairman's notes of the evidence. Mr Rudwick, of course, gave evidence and was cross-examined. In his evidence-in-chief he said, according to the note, at page 70 of our bundle:

"Flat rate payable for non serious matters, an enhancement of 100% available for serious matters and for serious and complex fraud up to 200%. Rahman case would have come within that banding. Costs subject to taxation. £115.50 is an average."

[16]There is also a reference on the same page to the value of the lost opportunity being based on "substantial experience derived from handling such cases". Mr Rudwick said that this was not a run of the mill case. He also pointed out that the firm had used agents and, therefore, would be in a position to keep other members of the firm free for other work. There is a tantalising reference, at page 78 of our bundle, to:

"higher rate and based on a snap-shot. Taking away fee earner time from other issues"

. That cannot, however, we think, be specifically related to this case. Later on in his evidence he said:

"We had the Rahman case and therefore lost the opportunity to profit form the fees payable."

On the next page, still under cross-examination, he said:

"Had it not been for the breach we would not have incurred any loss."

That, however, was the extent to which Mr Rudwick, in evidence, dealt with the point.

[17]When Mr Kapadia came to give evidence, he referred to the commission which he would earn on fees such as Rahman. He accepted that delegation of work outside the office was occasionally done. He accepted that Rahman involved some 3,000 pages of documents and that it had been decided very early on that outside assistance should be sought. The first external clerk had met Rahman on 25 November 1998. Mr Kapadia accepted that Mr Fidler had been concerned that large lever arch files indicated a large amount of work required to be done; he is recorded as describing that as "time that earns money". He also accepted that Mr Fidler wanted to ensure that "we maximised the return on the case".

[18]The Chairman's note of the beginning of Mr Kapadia's cross-examination on day 9 reads:

"Rahman's case, £40,000 is top end. It was a serious case, I applied for certificate for counsel on (Mr Fidler's) prompting"

. He accepted that in relation to serious fraud cases there was an uplift. He believed that Rahman would have got 100%, not more, and he did not think that would be more than double another case he had dealt with called "Ye". It was put to him that Rahman was only worth anything if the firm had been granted legal aid. He replied that Rahman "could have been privately represented had the assets been shown to be his beneficially" and that he had been so hoping to earn commission from the case.

[19]Then, finally so far as the notes are concerned, it is recorded that in submissions, Mr Groves for the Appellant said to the Tribunal that Rahman was a lost opportunity. It was going to be a large case and would earn significant fees. £40,000 was consistent with the other case of Ye, a substantial fraud. There were 3,000 pages of documents, there had been certificate for counsel in the Magistrates Court. Ye had been a very difficult case with statements rather than documents and this was worth at least twice the fees of Ye. It had been lost because of the Appellant's conduct and that that had not been challenged.

[20]There appears to be nothing of substance on the point in the argument put to the Tribunal by of counsel then representing Mr Kapadia. Accordingly, we do in our view get very little help in the circumstances from the Chairman's notes, and we therefore have to go back to an analysis of the Tribunal's reasons.

[21]It is argued, on behalf of the Appellant, that this is effectively a perversity case. A number of citations are made in relation to perversity, beginning with the decision of Phillips J in Watling v William Bird & Son Contractors . It is plain from the number of authorities that have been cited to us that the test for deciding that a Tribunal's decision is perverse is a very high one. This point is clearly made in a number of the authorities, in particular, in cases such as British Telecommunications plc v Sheridan and in Stewart v Cleveland Guest and perhaps it can be most succinctly summarised by a paragraph in the case of Yeboah v Crofton , which we have a transcript, in which Mummery LJ says:

"That such an appeal ought only to succeed when an overwhelming case is made out but the Employment Tribunal reached a decision which no reasonable Tribunal on a proper appreciation of the evidence and the law would have reached, even in cases where the appeal tribunal has "grave doubts" about the decision of the Employment Tribunal it must proceed with great care [that being a reference to British Telecommunications v Sheridan ]."

[22]Accordingly, it seems to us that the opposing arguments really boil down to this. Did the Tribunal so seriously misunderstand the facts of the case - alternatively did they simply ignore what was an appropriate acknowledgement by Mr Kapadia that damage had occurred - as to fail to assess what was plainly an appropriate figure for damages, in the acknowledged sum of £40,000 or thereabouts?. In this respect Mr Groves, for the Appellant, submits that paragraph 41(III) is plainly perverse. Here the Tribunal specifically refers to "profit costs" amounting to some £40,000 but it then goes on to make the wholly contradictory statement that from those profit costs had to be deducted a whole number of other costs required to earn the fee, thereby rendering the figure of £40,000, on this mistaken reasoning, a wholly inappropriate figure for profit costs.

[23]For Mr Kapadia, Mr Bayliss argues that, although the Tribunal uses the word "profit costs" what it plainly means in the context of the paragraph is "gross fees" and if, for profit costs one substitutes "gross fees" for "profit costs" in paragraph 41(iii) the whole thing falls into place. On this argument, what the Tribunal was saying was simply this:

"We have been told that the gross fees to be earned from the case were likely to be in the region of £40,000. That is a guestimate and it cannot be an appropriate measure of loss in any event, because from the £40,000 gross fees would have to be deducted all the costs required to earn the fees"

. Mr Bayliss argues that no evidence has been put in to justify profit costs of £40,000, or to calculate the net figure once the gross sum £40,000 had reduced to a net profit costs figure. Since the claimant in this case, the Appellant, had not taken the trouble to put its house in order and to particularise its claim, the Tribunal was entirely entitled to say, on the evidence, that the Appellant had not proved its case. It had not put material before the tribunal which enabled it to reach a proper conclusion on damages. In those circumstances, since there was no adequate evidence adduced to support the alleged loss of profit in the case, the Appellant had failed to use the opportunity to prove its case and, therefore, there had been no quantifiable loss.

[24]We have not found it altogether easy to decide between these two approaches but in deciding that Mr Baylis' submissions are to be preferred, we bear in mind the many authorities to the effect that it is not for the Employment Appeal Tribunal to trawl through a Tribunal's reasons, line by line, or word by word, in order to see if the Tribunal can be tripped up in any way.

[25]We also bear in mind the very high test for perversity to which we have referred and, in our judgment, when paragraph 41(iii) is read as a whole, it is clear that the Tribunal is referring to the sum of £40,000 as the estimated gross fees which the Appellant hoped to earn, and not as the net profit to the firm once the costs of earning the fees had been taken into account. Read in this way, the whole paragraph makes sense and falls into place.

[26]An alternative way of looking at the position is that the Appellant was given the opportunity to prove its damage. Mr Kapadia made it very clear that he did not accept the figure of £40,000 and he put the Appellant to proof of it. The Appellant failed to prove it: it failed to put forward a coherent argument for a specific figure for net loss, which in this case one can call "profit costs", and having failed to do so, it should not be given the opportunity to reopen the issue and have what may colloquially be called a second bite of the cherry.

[27]A hearing before the Tribunal is meant to be full and complete. The litigant has the opportunity to put his case, and particularly where that litigant is a firm of solicitors, if it fails to put together a coherent case, if it does not establish a coherent figure for its damages, the Tribunal is entitled, in our judgment, to say that it has failed to prove its case.

[28]If, accordingly, we were to return this matter to the Tribunal for it to reconsider, it would inevitably mean a total reopening of the damages issue. We do not think that that would be proportionate or, indeed, just. In these circumstances, we have come to the view that this appeal should be dismissed.