STERLING DEVELOPMENTS (LONDON) LTD v MR J PAGANO [2007] UKEAT 0511_06_0105

EMPLOYMENT APPEAL TRIBUNAL
BAILII case number: [2007] UKEAT 0511_06_0105Case No Appeal No. UKEAT/0511/06Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS
Between
STERLING DEVELOPMENTS (LONDON) LTDAPPELLANTMR J PAGANORESPONDENT
Before
His Honour Judge Peter Clark Ms J Bilgan Mr T MottureDate 1 May 2007
[1]APPEARANCES For the Appellant MR SIMON PERHAR (of Counsel) (Appearing under the Direct Public Access scheme) For the Respondent MR JAMES LADDIE (of Counsel) Instructed by: Messrs Landau Zeffertt Weir Solicitors 10 Bickels Yard 151-153 Bermondsey Street London Bridge LONDON SE1 3HA SUMMARY Practice and Procedure – Bias, misconduct and procedural irregularity; Perversity Constitution of Employment Tribunal. Unlawful deductions claim; Chairman sitting alone. No procedural irregularity/want of jurisdiction (see Gladwell per Elias P). No substantive perversity. Appeal dismissed.) HIS HONOUR JUDGE PETER CLARK This is an appeal brought by Sterling Developments, the Respondent before the Watford Employment Tribunal, against the liability Judgment of a Chairman, Mr A Smail, sitting alone on 6-7 June 2006, upholding a claim of unlawful deductions from wages brought by the Claimant, Mr Pagano. That Judgment with Reasons was promulgated on 13 June 2006. We shall describe the parties as they appeared below. History[2]The Respondent is a property development company. It employed the Claimant as a Development and Investment Manager from 15 March 2004 until his dismissal on 28 September 2005. Following dismissal he presented a claim to the Tribunal on 22 December 2005. It related to outstanding commission, allegedly owed by the Respondent to the Claimant, but unpaid.[3]The claim was accepted by the Tribunal and Notice of a claim was sent to the parties on 23 December 2006. That Notice provided for a hearing on 17 February 2006 before a Chairman sitting alone. The parties were invited to apply for a hearing before a full Employment Tribunal if they so wished. They did not do so.[4]The Claim was resisted. A Response was entered by solicitors then acting for the Respondent dated 18 January 2006.[5]The matter came before a Chairman, Ms J Eady, now Queen's Counsel, for a CMD/PHR on 17 February 2006. On that occasion both parties were represented by solicitors. The written record of discussion and Case Management orders issued by Ms Eady and dated 28 February 2006 identified the nature of the claim, as described earlier and the issues arising in that claim. Directions were given, among others, for the matter to be set down for trial, on liability and remedies, with a two day time estimate. No trial date was then set; the parties were to notify the Tribunal of dates to avoid. The case was not to be listed before 5 April. No express direction was then given as to the constitution of the Employment Tribunal which would hear the case.[6]A Notice of Hearing, signed by a Miss S Bloodsworth on behalf of the Regional Secretary of the Tribunals, dated 21 March 2006, was sent to the solicitors acting for the parties. The case was listed to start on 6 June 2006.[7]The Notice added six paragraphs of information to the parties. Paragraph 3 read:
"The case will be heard by a full tribunal and therefore 6 copies of the agreed bundle of documents… will be required for the hearing."
[8]Shortly before 6 June, the Respondent decided not to be represented by a solicitor at the hearing. Mr Foux, a director of the Company, attended the hearing, both as representative and as a witness. The Claimant was represented by solicitors and Counsel, Mr James Laddie, who appears on his behalf to respond to the appeal before us.[9]When the parties arrived at the Tribunal on 6 June, they found that their case had been listed before a Chairman, Mr Smail, sitting alone; not with members as the Notice of Hearing had presaged. Neither party took any point on the constitution of the Tribunal and the case proceeded. Evidence was called. The Chairman considered the matter and gave his judgment, forming a view as to the credibility and reliability of the witnesses from whom he had heard, on liability only. He found in favour of the Claimant. The question of remedy and a costs application on behalf of the Claimant was put over to 17 July 2006, with directions given for that hearing.[10]In the course of case-managing this appeal on paper, HHJ McMullen QC made orders dated 11 August 2006 putting questions to the Chairman, Mr Smail, under the Burns/Barke procedure. Following receipt of the Chairman's Answers dated 11 September 2006, copied to the parties, HHJ McMullen QC directed, by order dated 29 September, that the appeal be set down for a full hearing. He directed that the full hearing take place before a Judge and two members.[11]Pausing there, s28(4) of the Employment Tribunals Act 1996 (ETA) provides that an appeal from a Chairman sitting alone shall be heard by a Judge of the Employment Appeal Tribunal sitting alone, unless a Judge directs that the appeal shall be heard by a full three-member Tribunal. HHJ McMullen QC so directed; that is why this division is constituted as it is.[12]Returning to the directions given on 29 September, at paragraph 5, the Respondent was ordered to lodge and serve on the Claimant an affidavit deposing to the advance knowledge of the Respondent's officers as to the constitution of the Employment Tribunal and when they learned that it might by law sit as a three-person Tribunal.[13]Pursuant to that direction, Mr Foux lodged and served an affidavit sworn on 13 October 2006. The Claimant was given the opportunity to lodge an affidavit in response but has not done so. We therefore accept the contents of Mr Foux' affidavit as true.[14]Mr Foux said (paragraph 2):
"I have not attended an Employment Tribunal previously. We did not have legal representation at the trial on 6 th and 7 th June 2006 and I do not profess to any depth [sic] knowledge of the procedure. I was slightly confused as when I saw that the Chairman was sitting alone, which was different to The Notice of Hearing dated 21 March 2006, which stated the case would be heard by a full Tribunal. However, as this was my first Tribunal Hearing, I just carried on not knowing any better or that I could say anything about it."
[15]Pausing again, we note from the comments of the Chairman, Mr Smail, this observation at paragraph 4:
"There is on file a Notice of Hearing, however, stating that the case will heard by a full Tribunal. That is dated 21 March 2006. I did not notice that until requesting the file for the purpose of these comments. I do not know why the Notice of Hearing was in those terms."
[16]Returning to Mr Foux' affidavit , unhappy with the outcome of the liability hearing, he decided to instruct Counsel direct. Hence Mr Perhar came on the scene. He represented the Respondent at the remedies hearing on 17 July 2006 before Mr Smail, again sitting alone. Again, no point was taken on the Tribunal's constitution. In the event, that hearing was postponed and has since been stayed by the Chairman pending the outcome of this appeal.[17]Following the aborted remedies hearing, so Mr Foux states in his affidavit , he had a discussion with Mr Perhar. One topic raised in that discussion by Counsel was why the case was not being heard by a full Tribunal. Mr Foux was unable to throw any light on the matter.[18]The Respondent's Notice of Appeal was lodged on 25 July 2006. The Particulars attached to the Notice raised two grounds of appeal. The first contends that at the liability hearing the Tribunal was not fully established and was therefore incompetent (the constitution point); the second raises a perversity argument in relation to a specific finding made by the Chairman (the perversity point). We shall deal first with the constitution point. Chairman sitting alone[19]The statutory composition of Employment Tribunals is dealt with in s4 ETA 1996. It is a provision which has led to considerable debate in the EAT. We have been shown a number of relevant authorities, commencing with Sogbetun v London Borough of Hackney [1998] ICR 1264 (Morison P and members) and ending most recently with the reserved Judgment of Elias P, sitting alone, in Gladwell v Secretary of State for Trade and Industry [2006] (UKEAT/0337/06/ZT. 25 October 2006). The intervening cases are Post Office v Howell [2000] IRLR 224 (Charles J presiding); Morgan v Brith Gof Cyf [2001] ICR 978 (Lindsay P); Clarke v Arriva Kent Thameside (UKEAT/0341/00. 25 July 2001. Douglas Brown J) - a case decided after Morgan in time, but that case was apparently not cited to the EAT in Clarke . We note that a Scottish EAT case, Harman v Town and Country Veterinary Group (EAT/71/01) was also cited to Elias P in Gladwell (see paragraph 40); it has also been shown to us. The Court of Appeal has not pronounced on the topic so far as we are aware. Permission to appeal was granted by Charles J's division in Howell , but not pursued.[20]As Elias P points out, in a careful review of the earlier cases in Gladwell , paragraph 36:
"Unfortunately the authorities on this issue do not speak with one voice."
[21]What strikes us about those cases, and indeed the argument on paper presented by Counsel in advance of the hearing of his appeal, is that whilst s4 ETA has been the subject of close scrutiny, little attention has been paid to the Employment Tribunal procedure regulations made under the ETA. We have therefore invited submissions from Counsel on their effect, if any, on the circumstances of the present appeal. The statutory framework[22]Section 4(1) ETA provides that proceedings before an Employment Tribunal shall be heard by a Chairman and two members. The members, or with the consent of the parties one member, shall be selected in accordance with the regulations made under the Act (presently the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004 (the Regulations). The Employment Tribunal Rules of Procedure are contained in Schedule 1 to the Regulations (the Rules).[23]However s4(2) provides that, subject to subsection (5), the proceedings specified in sub-section (3) (including unlawful deductions claims under s23 Employment Rights Act 1996 (ERA) s4(3)(c)) shall be heard by a Chairman alone.[24]Section 4(5), which has led to different views being taken within the EAT cases to which we have referred, provides:
"4(5) Proceedings specified in subsection (3) shall be heard in accordance with subsection (1) if a person who, in accordance with regulations made under section 1(1), may be the chairman of an [employment tribunal], having regard to— (a) whether there is a likelihood of a dispute arising on the facts which makes it desirable for the proceedings to be heard I accordance with subsection (1), (b) whether there is a likelihood of an issue of law arising which would make it desirable for the proceedings to be heard in accordance with subsection (2), (c) any views of any of the parties as to whether or not the proceedings ought to be heard in accordance with either of those subsections, and (d) whether there are other proceedings which might be heard concurrently but which are not proceedings specified in subsection (3), (e) decides at any stage of the proceedings that the proceedings are to be heard in accordance with subsection (1)."
[25]Standing back from the learning in the EAT for one moment, the structure of s4(5) appears tolerably clear to us. Cases shall be heard by a full Employment Tribunal (s4(1)), unless the proceedings relate to a claim specified in subsection (3), in which case they shall be heard by a Chairman alone unless a Chairman directs under s4(5) that it should be heard by a full Employment Tribunal, after considering the (non-exhaustive) four factors mentioned.[26]A number of different scenarios have been played out in the cases mentioned. In Sogbetun a Chairman directed that the claim, there of unfair dismissal, should be heard by a Chairman alone rather than a full Tribunal. Asked whether they objected to such a course, provided for in s4(5)(c), neither party objected and the hearing went ahead before a Chairman alone. Having lost her claim on its merits before the Chairman the Claimant appealed, complaining that notwithstanding the parties' agreement the Tribunal was not properly constituted. A full Tribunal ought to have been empanelled. Morison P's division agreed with her, holding that the substantive hearing Chairman's failure to consider and exercise his discretion as to the composition of the Tribunal was an error of law rendering the hearing a nullity.[27]Post Office v Howell , like the present case, involved a claim for unlawful deductions from wages. The parties expected the case to be heard by a full Tribunal (the report is silent on the point, but we infer that the Notice of Hearing, as in this case, gave that indication). Neither side raised any objection to the Chairman sitting alone. Having lost, the Post Office appealed, not arguing that the appeal should be allowed on the basis that the case below was heard by a Chairman alone; but the EAT drew the attention of Counsel to Sogbetun and invited submissions on its effect. The upshot was that the EAT in Howell declined to hold, contrary to the approach in Sogbetun , that the hearing below was a nullity, but nevertheless held that the case ought to have been heard by a full panel, allowed the appeal and remitted the matter for rehearing before a three-member Employment Tribunal.[28]In Morgan the claim was for breach of contract. Lindsay P's division disagreed with his predecessor's approach in Sogbetun , distinguishing that case on its facts.[29]In Gladwell the Notice of Hearing, at which a preliminary issue was to be determined as to whether or not the Claimant was an employee of an insolvent Company for the purposes of recovering from the fund administered by the Secretary of State, was signed on behalf of the Regional Secretary in accordance with what the President understood to be an established procedure whereby listing and allocation to a Chairman or panel is a decision taken on behalf of the Regional Chairman by the Regional Secretary.[30]The Notice stated that the hearing would be by a Chairman sitting alone. The parties were invited to apply for a full Tribunal if they desired it, giving their reasons. They did not do so. The point was never raised until the appeal (as in the present case).[31]In his analysis of the position in Gladwell , paragraphs 46-55, Elias P held:(1) That there was a discretion conferred upon the Chairman (sitting alone to hear the issue) which must be exercised in an appropriate case. He agreed with Lindsay P in Morgan that for cases falling within s4(3) the default position was that the case be heard by a Chairman alone unless he directs otherwise, taking into account the factors set out at s4(5).(2) There is nothing wrong with the Tribunal office operating a standard practice, as directed by the Regional Chairman in accordance with s4(2), that all s4(3) cases are listed before a Chairman alone but giving the parties an opportunity to make representations as to the need for a full panel if they wish. If so, a judicial decision with short Reasons should be given by a Chairman.(3) The hearing Chairman should be alert to a change of situation since the original direction was given and keep the matter under review. He need not seek the views of the parties at the hearing, but it is usually prudent to do so.(4) Departure from the usual rule will not involve an error of law by the Chairman unless the issue is raised explicitly by the parties. If the issue is then raised on appeal the EAT may ask for reasons (under the Burns/Barke procedure).(5) Failure by the hearing Chairman to give reasons for sitting alone or canvassing the views of the parties does not, contrary to the ratio in Clarke and Sogbetun , give rise to an error of law.(6) However, contrary to the ratio in Morgan , a hearing Chairman should not limit his consideration of the Tribunal's composition to cases in which it is raised by the parties. Frequently, litigants in person are unaware of the possible alternative composition (although they should have been alerted to it in the Notice of Hearing) or may not appreciate the potential merits of a different constitution. So there will be some cases where the Chairman should draw it to their attention.(7) The fact that parties have positively agreed to the composition of the Tribunal does not in all cases preclude a successful challenge on appeal. Sogbetun was an exceptional case of that nature.(8) Sometimes, once a case is ready for trial the factual complexities may point to a full panel being desirable in a s4(3) case listed for hearing by a Chairman alone. Against that may be set the costs and delay involved in assembling a full panel. Tribunals are under a duty (see rule 3) to consider the overriding objective to deal with cases expeditiously. The Regulations[32]Regulation 8 provides for three panels of members of the Employment Tribunals: the legally-qualified Chairman panel, the employee panel, and the employer panel.[33]Regulation 9 deals with the composition of Tribunals. Regulation 9(1) provides for hearings by Chairmen alone. By regulation 9(2), proceedings to be heard by a panel of three members shall draw one member from each of the three panels mentioned in regulation 8. Regulation 9(3) allows for a case to be heard by a panel of two members, consisting of the Chairman and one other, with the consent of the parties. A similar rule applies to the EAT; however, it was held by the Court of Appeal in de Haney v Brent MIND [2004] ICR 348 that, in order to provide informed consent, the parties must be told from which panel the single lay member is taken. That principle was applied to Employment Tribunals hearing a case with a Chairman and one member, with consent, under rule 9(3) by the EAT in Rabahallah v BT Group plc [2005] IRLR 184 (Burton P presiding).[34]Under the Rules, rule 10(1) gives a Chairman general powers to manage proceedings. In our view that includes the power to direct whether a case is to be heard by a full panel or Chairman alone.[35]By rule 26(2) any hearing of a claim shall be heard by a Tribunal composed in accordance with s4(1) and 4(2) of the ETA.[36]By rule 27(1), so far as is material, the Regional Chairman shall fix the date, time and place of the hearing and the Secretary shall send to each party a Notice of Hearing together with information and guidance as to the procedure at the hearing. The present position[37]Having canvassed the submissions of Counsel on the effect of s4 ETA read with the Regulations and Rules scheduled thereto, we think that the correct procedure should be as follows:(1) Listing is a judicial function. The question as to whether a hearing is to be before a Chairman alone or full panel in accordance with s4 ETA is a matter for judicial, not administrative, decision.(2) Interim case management decisions will be dealt with by a Chairman alone (see rule 17(1)). In many cases a CMD will be held prior to the substantive hearing, as in this case. It should be routine for the Chairman conducting the CMD to inform the parties as to whether, in his opinion, the substantive hearing is to be before a full panel or a Chairman alone, applying s4(2) ETA read with s4(3) and inviting any submissions as to whether he should exercise his discretion under s4(5) for the hearing to take place before a full panel. A simple explanation of the respective merits of trial mode should be given to the parties, particularly unrepresented parties. If representations are made he should rule on the point, giving brief reasons for his ruling. The mode of trial, Chairman alone or full Tribunal, will then be recorded in the Chairman's CMD written order.(3) Where no CMD has been held, a Chairman (if appropriate the Regional Chairman, by direction to the Secretary) must ensure that the Notice of Hearing sent out under rule 27(1) and read with rule 26(2) states whether the hearing is to be before a full panel or Chairman alone; if the latter, parties should be expressly invited to make representations if they wish as to why the hearing should take place before a full panel, giving reasons, including those factors referred to in s4(5) ETA. That was the procedure followed in the Gladwell and present cases. Any such representations will then be considered, after obtaining the views of all parties, and a judicial decision, with Reasons, made by a Chairman.(4) In either event, a judicial decision has been made which is susceptible to appeal. Absent any representations or appeal the mode of hearing is settled, subject to any change of circumstances which requires the hearing Chairman to revisit the question of composition. Absent any such point being raised, we see no reason why the final hearing should be susceptible to challenge on a point of law, the relevant judicial decision having been taken earlier, either at a CMD or in the form of standard directions. The present case[38]Mr Perhar relies on the final Notice of Hearing which indicated that the hearing would be before a full Tribunal. He submits that Mr Foux, effectively a litigant in person, was unaware that he could object to the composition of the Tribunal. To proceed with the hearing before a Chairman alone was, in these circumstances, a serious procedural irregularity. The Judgment must be set aside and the remitted case for rehearing before a full Employment Tribunal.[39]Mr Laddie submits that the constitution of the Tribunal in the present circumstances is not a true jurisdictional point; at most it is an irregularity, in which case the Respondent should not be permitted to take it for the first time on appeal; Glennie v Independent Magazines (UK) Ltd [1999] IRLR 719 . Alternatively, the final Notice of Hearing is a red herring; the default position is that the hearing of an unlawful deductions claim will be heard before a Chairman alone, unless a Chairman directs otherwise. There is no indication that the apparent direction in that Notice of Hearing was made by a Chairman. There was no obligation on Mr Smail to review the position; had he done so he would, as his later comments made clear, have proceeded to hear the substantive matter sitting alone.[40]We shall follow the approach of Elias P in Gladwell . We agree that, contrary to Sogbetun , it is not an error of law for the Chairman not to deal with the composition issue in the absence of challenge by either party. The challenge having been raised on appeal, the Chairman was asked for his comments. He indicates that had the issue been raised he would not have adjourned the hearing for a full Tribunal to be empanelled. The principal issue was one of construction of the contract between the parties. The factual enquiry was limited. The case was entirely suitable for trial by a Chairman alone.[41]We do not regard that assessment as legally perverse. The default position, hearing by Chairman alone, applies in this case. Accordingly we reject this ground of appeal which, applying the spirit of Glennie , smacks more of opportunism on the part of the unsuccessful Respondent than any real complaint of injustice. The perversity point[42]Mr Perhar submits that commission was only payable when a transaction concerning land introduced by the Claimant had been completed in full. He accepts the Chairman's finding that the Claimant introduced the Saracen's Head Public House, Dunstable, to the Respondent. However, commission did not become payable until the whole of that property and land was sold by the Respondent. At the relevant time only the Public House, not the adjoining land, had been sold. Mr Perhar contends that the Chairman was wrong to find that the Claimant was entitled to commission on that sale.[43]This argument, advanced at the hearing below, was not raised in the pleadings prior to the hearing. The Chairman ruled that it was too late to do so. However, he went on to consider the point on its merits. He held that "transaction" included the sale of part of any property introduced by the Claimant.[44]Mr Laddie has taken us through the relevant correspondence and the pleadings. Significantly, we think, in a letter from the Respondent's solicitors dated 29 November 2005, the only issue taken was that the Claimant had not introduced the Saracen's Head site to the Respondents; not that his claim in respect of this matter was premature. In the Response, that contention was raised in connection with other sites, but not the Saracen's Head. In the Chairman's record of discussion at the CMD before Ms Eady, the issue in relation to the Saracen's Head is said simply to be that of introduction.[45]In these circumstances were are satisfied that the Chairman was entitled(a) to hold that the point was raised too late, and(b) substantively, that in accordance with the contract between the parties the Claimant was owed commission on the sale by the Respondent of the Saracen's Head Public House. Conclusion[46]Accordingly, we shall dismiss this appeal. The matter will now return for a remedies and costs hearing before Mr Smail.