Howard & Palmer Ltd v Colebrook & Anor (Unfair Dismissal) [2015] UKEAT 0416_14_0303

EAT
Howard & Palmer Ltd v Colebrook & Anor (Unfair Dismissal)
[2015] UKEAT 0416_14_0303 · 2015-03-03
[89]“… A director’s duty to act so as to promote the best interests of his company prima facie includes a duty to inform the company of any activity, actual or threatened, which damages those interests. …” 21. Taking that principle at face value, Mr Racey complains that, on the findings of fact made by the Tribunal in respect of the earlier period, the Claimants knew that Mr Overy was intending to set up a company in competition with the Claimant. This therefore would be an activity, albeit by another, which was actual or threatened, which was capable of damaging the interest of the Respondent. It was therefore the duty of the Claimants to reveal what they knew about that to the Board of the Respondent. They did not do so. The Tribunal did not deal with that particular argument. 22. To this, Mr Kember gives effectively two responses. First, on the findings of fact as made by the Tribunal, which were thorough and careful, the Tribunal read as a whole came to the conclusion that the Claimants did not know that Mr Overy’s company would be a direct competitor of the Claimant until after they had resigned as directors. Accordingly, even applying the principle expressed in British Midland Tool at its widest, the Tribunal’s finding of fact could not be shown to be in error of law. There would have been no error of approach. The decision was purely factual. Second, though, he argued that a court had to be careful not to overstate the width of the principle, relying upon one sentence taken in isolation from paragraph 89 of British Midland Tool . He pointed out in that in paragraph 90, immediately following, the Judge directed attention to the particular facts of the case before him. It was one in which there had been a group of directors who had been conspiring together to leave their employer and set up in competition. Once one had resigned. Then, as the last sentence of paragraph 90 showed, in the Judge’s view the three who continued in office were bound to disclose to their fellow directors what was afoot, and to fail to do so necessarily involved them in a breach of their duties.[23]In doing so, he reconciled the principle he was expressing with cases such as Balston Ltd & Anr v Headline Filters & Anr [1990] FSR 385 which had suggested that an employee who was a director who proposes himself to set up in competition is not under an obligation to tell his employer that that is the case (see paragraph 94). Moreover he went on in paragraph 91 to describe it an important lesson which could be learnt from the case-law that “the extent of the duty to inform will depend on the circumstances of each case. ”24. If, then, there was a spectrum, argued Mr Kember, at one end of which there was no breach of duty and at the other end of which there obviously was, the facts of the case before me would sit well down at the bottom end furthest away from the duty to reveal. Discussion25. The resolution of the first argument turns upon a close reading of the Tribunal Judgment. It is trite law that a Tribunal Judgment must be read as a whole. At first, I was impressed with the points that Mr Racey made by reference to paragraphs 10.3 and 10.4. Viewing the Judgment as a whole, however, I note that they are careful not to say that the Claimants at that stage knew sufficient about the details of what the company would do to suppose that it would be in direct trading competition with their then employer and of which they were then directors.26. The Judge did, as I have noted, express scepticism about their claims not to have known sufficient. But, having done so, he decided, for reasons which are set out at paragraphs 11.51 down to 11.5.12 that he was persuaded on balance that they did not in fact know. This is summed up by those last three paragraphs:
“11.5.10. … I accept the claimants account that they had deliberately kept the new business at arms length and were therefore not fully aware of the details of the nature of the business. 11.5.11. However I am of the view they knew of the advertisements and would therefore have concluded that there was to be competition to the respondent. 11.5.12. I have heard no evidence to allow me to conclude they became aware of the advertisements before their resignations.” 27. From this it is apparent that the Judge thought that until advertisements were placed by the new company, the Claimants did not know that it was to be in meaningful competition with the Respondent. He had no evidence to think that the Claimants actually saw those advertisements before they resigned. Therefore he concluded that there was no proof that they had broken their duties of loyalty. Despite his initial scepticism, therefore, he took the view that they did not know enough. His reference to “arms length” was a reference to them keeping themselves out of the scope of any knowledge which might have placed them in such an embarrassing position. That is plain from viewing paragraph 11 as a whole. 28. Accordingly I am satisfied that the Tribunal, as a matter of fact, came to the conclusion that, for the first period, the Claimants did not have the knowledge which would place them in breach of the principle expressed in Midland Tool taken at its widest. It follows that the first ground insofar as it rests upon that (and it rests, it seems to me, upon nothing else) must fail. 29. There is no complaint about the Tribunal’s approach in respect of the second period, nor is the third relevant. The second aspect of this point, therefore, is therefore unnecessary for me to determine. If it had been necessary to determine, I would have come to the view, echoing that which is said at paragraph 91 in the Judgment of Hart J, that the extent of the duty to inform as a director will depend upon the circumstances of each case. 30. The duty to inform the company of any activity, actual or threatened, which might damage their interests cannot be taken so far as, for instance, to oblige a director who may read of some gossip in the newspaper as to a potential competitor’s plans to tell the board that which he has picked up. All must depend upon the particular circumstances. Here the duty, if it existed, was plainly higher than merely reading the press, for both the Claimants were involved even if they did not fully know of the details, in plans to set up a business, which could, though they did not know, possibly have come into a position of conflict with South Wales. 31. It seems to me that the Tribunal directed itself appropriately in respect of the law. It thought that was the law it was applying. Its findings of fact do not suggest it did otherwise. If it had been necessary for me to do so, I would have accepted Mr Kember’s legal argument as well as his factual one in response to this ground of appeal. Polkey 32. Mr Racey makes the separate and distinct point that the Tribunal, on the one hand, was suggesting Mr Everett was guilty of a fundamental breach of contract for which he could have been summarily dismissed, but on the other saying that it simply did not have enough information to decide whether there was a risk of dismissal at all had the Respondent acted fairly. Though he did not submit it to me, it is consistent with his submissions to note that the Tribunal itself had found that, at the relevant time, Mr Racey himself knew sufficient to suppose that Mr Everett was involved in recruiting others for another company. 33. It is tempting sometimes to determine the exercise of establishing whether the prospects of a fair dismissal are such that there should be a reduction from compensation, where there has already been an unfair one, by saying that there is insufficient evidence. It may be, for instance, that to require a Tribunal to revisit the facts would be to require it to rewrite the world as it never was. But the Tribunal here did not give any detail of why it felt that, on the one hand, there was sufficient evidence for it to be clear that Mr Everett, though not Mr Colebrook, was in breach of his duties of loyalty as an employee and that that would justify summary dismissal (i.e. it would be a fair dismissal if conducted summarily) and on the other hand say that there was no evidence from which it could conclude that he might be fairly dismissed. The two are, in my view, inconsistent and irreconcilable. 34. Elias J, in Software 2000 Ltd and Andrews [2007] ICR 825 , observed that, even if there were limits to the extent to which it could be confidently predicted as to what might have been: “54.4. … [a Tribunal] must appreciate that a degree of uncertainty is an inevitable feature of the exercise. The mere fact that an element of speculation is involved is not a reason for refusing to have regard to the evidence.”
The Tribunal set out that law. It should, in my view, have followed it. The necessary consequence of holding that Mr Everett had committed gross misconduct and could summarily and fairly be dismissed for it was that there must have been a risk, at the very least, that within the relevant period the employer, having attempted a dismissal which was unfair, might nonetheless have effected a dismissal which was fair. The principal matter in this regard which might limit the impact of any deduction on the damages awarded would be that the Tribunal was not in a position to rewrite history. Polkey does not consist of asking: what if the Tribunal had approached the dismissal which actually occurred in the right way? The fact is it did not. The question is as to compensation for the period after the actual dismissal. Thus, in a situation like this, the question is likely to be when the employer, acting fairly, would have produced sufficient information in a sufficiently clear manner to enable it to proceed to discipline Mr Everett. 35. It has to be assumed, given South Wales findings, that the employer could very well and probably would have dismissed Mr Everett, but it must be borne in mind that such a decision would have to be fair when applying the terms of section 98 of the Employment Rights Act 1996 . That is not a contractual question. It is a question purely posed by the statute. In most cases it may be that gross misconduct is likely to justify a dismissal and probably lead to a dismissal within the terms of section 98, but this need not always be the case, as this Tribunal drew attention to in the case of Brito-Babapulle v Ealing Council [2013] IRLR 854 . 36. However the one thing which seems to me clear is that subject only to the issue of timing it would simply be wrong, indeed perverse, for the Tribunal to conclude that there would be no risk of dismissal. Here timing is important, for Mr Everett had handed in his notice. The question, therefore, for a Tribunal to resolve is whether, within the notice period, the employer could fairly have dismissed Mr Everett. What were the chances of that? Compensation after that date would fall to be reduced, and any compensation beforehand to the extent that it was just and equitable, applying the usual terms of section 123 of the Employment Rights Act 1996 . 37. When it became apparent that this might be a conclusion which this Appeal Tribunal might reach during the course of the argument, I floated what the consequence would be. Though Mr Kember might prefer to leave it to this Tribunal, he did not press the point, while although Mr Racey for his part would think that the right conclusion would be that the matter should be remitted to the same Tribunal, he would rather prefer a different Tribunal but did not for his part press that point. Therefore I have concluded that remission on this particular point is the appropriate course. I have not seen the parties. I do not have the full nuances of the evidence at my fingertips. The proper decision making body is the Employment Tribunal. It is plainly in accordance with the overriding objective (seeking to save costs and to be efficient) to have the same Judge hear the matter. The chance that he might not accede to the submissions made by Mr Racey, having declared a view, would be to deny his professionalism, and in any event the basis for his decision was not that he had reached a view from which it might be difficult to retract but that the evidence did not permit him to do so. 38. The decision of this Tribunal is that if (and he will know) the evidence was sufficient for him to conclude that Mr Everett was in repudiatory breach of his contract of employment during his period of notice, then there plainly was sufficient evidence for him at least to assess as a matter of prediction what the risks would have been within the period of notice which he still remained to serve that he might have been dismissed, and fairly so. 39. As I have noted, in the particular circumstances of this case, this argument may not have a very great financial consequence as between the parties. I therefore recommend to them, though I cannot oblige them, to discuss, negotiate and mediate if they can to see if they can settle their differences to avoid the inevitable costs and dislocation of business which a return to the Tribunal, even for a short issue such as this, will involve. In order for the Tribunal to resolve the matter, it will consider the evidence it had before. It will consider the submissions of the parties. It will consider but, in my view, should not easily accede to any submission that further evidence should be received. To do so would be to assume that the parties did not produce full evidence upon an issue which was before it at the outset and therefore it would seem to me in principle, subject only to something exceptional, to be wrong for further evidence to be received. But that finally I leave to the Tribunal’s good judgment in accordance with the law. Conclusion 40. The appeal on the first ground is dismissed. The appeal on the second ground is allowed with remission to the Employment Tribunal to determine the question of whether there should be a Polkey deduction in respect of which period and of what amount, if any. 41. Can I make it clear - I hoped it was clear, but thank you for raising it - my decision only applies to the case of Mr Everett. The appeal in respect of Mr Colebrook fails completely.