Stuart Harris Associates Limited v A Gobudhun

We shall refer to the parties as “the Claimant” and “the Respondent” as they were below. The Respondent appeals against a decision of the Watford Employment Tribunal (Employment Judge Hyams presiding) (“the Tribunal”) that the Claimant had been unfairly constructively dismissed from her job as an accountant. The Respondent is a limited company controlled by Mr Stuart Harris, and which provides accountancy services mainly to small businesses. The Claimant was subject to disciplinary proceedings for “insubordination” for not adhering to an instruction from Mr Harris to include estimated figures for expenses in clients’ tax returns where there was little or no supporting documentation for such “estimates”. The Claimant was given a final written warning about her conduct and subsequently resigned claiming that the instruction required her to act unlawfully thereby destroying the relationship of trust and confidence with her employer. The Tribunal upheld her claim and awarded her compensation of over £46,000 as well as a £10,000 contribution towards her costs.

The Respondent contends that the Tribunal erred in law in that, amongst other matters, the Tribunal had prejudged the case, descended into the arena by conducting its own extensive research into the law and practice of filing tax returns, and determined that what the Respondent had instructed was “dishonest” or “incompetent” when it had not been put to Mr Harris in terms that his conduct was dishonest or incompetent.

The Claimant commenced employment with the Respondent on 1 November 2014. Both the Claimant and Mr Harris are Chartered Certified Accounts and members of the Association of Chartered Certified Accountants (“ACCA”).

The Claimant had little knowledge of the law relating to income tax before joining the Respondent and relied principally on Mr Harris for direction in this regard. The Tribunal found that Mr Harris had assured the Claimant that it was appropriate when preparing client tax returns to adopt a practice summarised by the Tribunal as the practice of:

We shall refer to this as “the expenses practice”.

During 2020, the Claimant became aware that the tax return of one of the Respondent’s clients, “KT”, had been investigated by HMRC and that HMRC had refused to accept the figure given by the Respondent for KT’s estimated expenses. The Tribunal accepted the Claimant’s evidence that Mr Harris had informed her that this was a “one off” and that he had negotiated a settlement with HMRC in respect of the relevant tax return. KT was in the building trade and had claimed to have incurred expenses in 2014 of £17,944 but had only lodged documents evidencing expenses of £7,977.20. HMRC had eventually allowed only £3,950 of the amount claimed as expenses, that figure being based on “10% of the declared turnover on a without prejudice basis”. Notwithstanding this, the Claimant was instructed to use the same “estimated expenses” as the 2014 return as the basis for subsequent returns.

The Claimant became concerned that the use of estimated expenses in KT’s subsequent returns amounted to wrongful accounting practice and that the expenses practice was also wrongful insofar as it was being applied to other clients.

On 27 May 2020, Mr Harris received an email from another client, KN, in which KN raised a number of queries as to her draft tax return which he had prepared. Whilst KN’s records for website expenses came to £409.26, her draft return had recorded her expenses as £924.00. Similarly, whilst KN’s records for print, film, photo and stationery expenses produced a figure of £467.50, the draft return had included a figure for these items as £1,297.00. KN also queried whether she should use the figure of £39,949 for net profit for her mortgage application, or the lower figure, after deduction of expenses, of £35,278. Mr Harris’s reply on 27 May 2020, explained to KN that:

Mr Harris’s explanation for this practice was that KN might have forgotten something that she had spent on the cost of earning her remuneration and that it was a matter of judgment as to whether it was a material matter which needed to be highlighted to HMRC by including further information in box 19 on the tax return.

The Claimant also responded to KN by stating that Mr Harris had instructed her that these estimated expenses be included and were the same estimated expenses used in the previous year’s tax return but “increased by 5% and £10”.

The Claimant contacted ACCA about the expenses practice and received advice that “estimated expenses” should be excluded from tax returns. On 3 June 2020, Mr Harris emailed the Claimant in respect of another client, AM, instructing her to include an estimated expense of £469 for insurance. The Claimant could not understand why a figure for insurance should be the subject of an “estimate”. She replied to Mr Harris on 4 June 2020, questioning whether such expenses would be allowed by HMRC given that similar estimated expenses had been disallowed for KT. Mr Harris responded by stating, amongst other matters, that HMRC had allowed some estimates for KT.

By a further email dated 5 June 2020 in respect of client, PG, Mr Harris instructed the Claimant to include an estimated expense of £308 for insurance, and “For other jobs, [to] please put through estimates as per previous years”. The Claimant replied that she was not willing to do that, and, in a subsequent email, stated that she would “not be following [Mr Harris’s] instructions to post the ‘estimated expense [’] as they were unsubstantiated deductions in the accounts”.

On 8 June 2020, Mr Harris emailed the Claimant to say that her refusal to follow his instructions on the inclusion of estimated expenses was a disciplinary matter and suspended her from work. A disciplinary meeting was held, via Zoom, on 15 June 2020. In the course of that meeting (which was recorded), Mr Harris accepted that “lots of estimated expenses” have been included in clients’ tax returns. He also said:

This practice of inflating expenses claims by 5% and £10 each year was also part of the Respondent’s expenses practice. Mr Harris asked the Claimant why she was questioning the use of estimates now when she had used them in previous years without challenge. She replied that it was because she had been instructed to do so and had relied on him due to her lack of experience. Mr Harris maintained that the “bottom line” was that “HMRC allow estimates”.

On 23 June 2020, the Claimant was given a first and final written warning for refusing to comply with the instruction to apply the expenses practice. On 22 July 2020, the Claimant’s appeal against that sanction was rejected. After a short holiday in early August 2020, the Claimant returned to work and resigned on 17 August 2020 with immediate effect. The reason for resignation was said to be Mr Harris’s repudiatory breach of contract.

The Claimant issued proceedings on 8 January 2021. The claim form, which was self-drafted, included the following particulars:

The Respondent resisted that claim principally on the basis that the Claimant had failed to appreciate that HMRC did permit estimates and that the expenses in question were not “unsubstantiated”. Although the Claimant did not expressly assert that she was, in effect, being required to engage in unlawful conduct, the Respondent’s Response at paragraph [24], provides:

It would appear from that statement that the Respondent well understood that the implication of the Claimant’s claim was that she was being required to engage in fraudulent or unlawful practice. As to the alleged breach of trust and confidence, the Respondent stated that it had at no time “behaved improperly” and that it had “at all times followed standard accountancy practice as set out in the [HMRC] Manual”.

The Claimant’s claim was listed to be heard by the Tribunal on 13 and 14 December 2021. During that hearing, at which both parties were represented by Counsel, the Tribunal read the documents, heard oral evidence on liability from the Claimant and Mr Harris, and read written closing submissions from both Counsel. However, there was insufficient time to hear final oral submissions and the case was adjourned to 14 February 2022 for three days. In adjourning the matter the Judge informed the parties that he would:

We are told that neither Counsel raised any objection to that course.

Between 14 and 20 December 2021, the Judge did as he said he would and conducted some research into the law (and practice) relating to income tax. Having done so, he wrote a lengthy record of the hearing as a case management summary (“the Case Summary”) with a view to: “(1) assisting the parties to prepare for the resumed hearing and (2) ensuring fairness to the parties”. The Case Summary included the factual background to the claim, an account of the evidence heard and the result of the Judge’s research. He also stated that his “provisional” view was that the Claimant had been constructively dismissed and gave his reasons for that view. The Respondent contends that the Case Summary discloses a concluded rather than a provisional view.

By the time of the resumed hearing on 14 February 2022, the Respondent had obtained a report from specialist tax counsel, Mr Barrie Akin, on the use of estimates in tax returns. The Judge granted the Respondent permission to rely on the report as a “set of submissions” rather than as an expert report. The Judge then proceeded to hear oral submissions from both Counsel. That took until 15.34 on Day 1 of the resumed hearing, at which point the case was adjourned to the following day. At the outset of Day 2 of the resumed hearing, the Judge announced his decision on liability, finding in the Claimant’s favour, before proceeding to deal with quantum and costs over the next two days.

A considerable proportion of the Case Summary was reproduced in the Judgment. As to whether the Claimant had been constructively dismissed, the Tribunal found as follows:

The Tribunal went on to conclude that the dismissal was unfair and that the Claimant had not contributed to her own dismissal to any extent.

Ms Ling of Counsel, who appears for the Respondent (but who did not appear below), relies on seven grounds of appeal:

We shall deal with each of these grounds in turn.

Although Ms Ling made clear that the Respondent was not seeking to overturn the conclusion that the expenses practice was unlawful, it is the Respondent’s case that the decision of the Tribunal is vitiated by inappropriate conduct and apparent bias on the part of the Judge. Ms Ling submits that, whilst it is open to a Judge to express a provisional view on the merits, the trenchant views expressed in the Case Summary, when scrutinised, would lead the fair-minded informed observer to conclude that the case had already been decided, notwithstanding the numerous references to those views being “provisional”. By taking the unusual step of setting out what Ms Ling describes as “findings of fact, conclusions as to the law and the determination of the issues in writing” (and thereby adopting a procedure not sanctioned by the ET Rules), the Judge was doing far more than expressing a provisional view. This is supported by the fact, she submits, that the so-called preliminary views are the subject of extensive reasoning, as opposed to being an immediate or rough and ready response to events at the hearing. This apparent bias means that the judgment must be set aside, irrespective of any view that the court might have as to strength of the case.

Mr Rees Philips (who appears for the Claimant as he did below) submits that one cannot disregard the numerous caveats expressed in the Case Summary, and notes that its entire purpose was to express a preliminary view in order to assist the parties to focus their submissions at the resumed hearing. He submits that if one focuses on the Case Summary alone, rather than viewing it with the benefit of hindsight and the Judgment (which incorporated large tracts from the Case Summary) it is clear that there is no prejudgment. Given the nature of the defence, the Judge was entitled to express the views that he did and in so doing he did not manifest a closed mind.

In Southwark LBC v Jiminez [2003] ICR 1176, the tribunal adjourned after a 10-day hearing in order to enable a further witness to attend the resumed hearing. In doing so the tribunal expressed what were said to be “preliminary views” about the respondent Council’s treatment of the claimant, which was said to be “appalling”, and concluded by inviting the parties to settle. There was no settlement and the matter was decided against the Council after the resumed hearing. The EAT allowed the Council’s appeal, holding that the use of the term “appalling” could only have been applied to the Council’s conduct if the tribunal had already reached a fixed, strong adverse view against the Council. The Court of Appeal disagreed. Having had the benefit (which the EAT did not) of the tribunal’s comments on the allegation of bias, Peter Gibson LJ said as follows:

At [38] to [40] in the same judgment, Peter Gibson LJ said this:

In our judgment, applying those principles to the present case, it is clear that there was no concluded view at the stage of the Case Summary and prior to final judgment.

It is significant that the Case Summary was produced at the conclusion of much of the evidence and having considered brief (written) closing submissions at the end of the first hearing. This was far from being a ‘knee-jerk’ or fixed reaction to the case at an early stage or before the evidence was heard. Moreover, the Judge’s purpose in producing the Case Summary was made abundantly clear at the outset, where the Judge stated in terms that it was being “written with a view to assisting the parties to prepare for the resumed hearing … with a view to ensuring fairness to the parties so that they could see the case law on which [he] was planning to base [his] determination of the claimant’s claim and the result of [his] researches”. He expressly states that the views expressed are how he is “currently” minded to determine the issues “before any further submissions are made…”. The Case Summary is peppered with references to the views being expressed as “provisional” or “before submissions”: see e.g. [19], [22], [65] and [73] of the Case Summary. At [73] in particular, the Judge, having set out his views on the issues, which views were undoubtedly expressed in strong terms, said as follows:

It seems to us, having read the Case Summary as a whole, that the Judge was at pains throughout to point out the provisional nature of his views. The fact that the Judge regarded the Respondent’s case as inherently weak or such as to require something exceptional to persuade him otherwise does not indicate a closed mind. Judges are entitled to express views on the merits as they see them, and can do so in strong terms, so long as it remains clear that they remain willing to be persuaded otherwise. The Judge did that here unequivocally. The views were not expressed in order to precipitate a settlement but to assist the parties in focusing their final submissions. That is a perfectly legitimate approach to take.

Thus, for the Judge to say that he was “struggling to see how he could lawfully come to any other conclusion” than that the Respondent was in breach of the implied term, is simply another way of stating that the Judge considered the Respondent’s case to be inherently improbable. Similarly, the use of terms such as “plainly”, “inescapable conclusion” and “the only logical answer” must all be read in the context of the Judge’s repeated statements to the effect that these were provisional views on which he remained willing to hear submissions. Even where the Judge appears to make a finding of fact by “accepting” the evidence of the Claimant on an issue, he expressly qualifies it by saying, “subject to any further submissions that may be made, i.e. provisionally.” Had that qualification not been made clear then the Respondent might have made some headway under this ground. As it is, the Judge did qualify his views, and having done so, we can see no reason to gainsay what is said.

The fact that these views are fully reasoned rather than more tersely stated cannot, in our view, be a reason to doubt their contingent nature. A preliminary view is no less so just because it is the product of extensive reasoning. Indeed, a preliminary view expressed without any supportive reasoning might be more susceptible to an accusation of apparent bias on the basis that it is a ‘knee-jerk’ or unconsidered response to the case or based on prejudgment.

Ms Ling also submits that, despite having concluded at the resumed hearing that Mr Akin was correct that there was no legal obligation to complete box 19 of the tax return, the Judge failed to revisit the view expressed in the Case Summary that Mr Harris’s responses to questions about completing the box were “evasive” and “wrong”. She submits that this is a clear instance of a fixed prejudgment which was not altered despite clear contradictory evidence accepted by the Judge. In order to understand this argument properly, it is necessary to set out the relevant passages of the Case Summary and the Judgment in full:

At [21] and [22] of the Case Summary, the Judge said:

This view in the Case Summary was largely replicated in the Judgment at [26] to [27], with the words in square brackets being replaced by, “I could not escape the conclusion…” However, by that stage the Judge had accepted that part of Mr Akin’s report stating that there was no legal obligation to declare in the return that estimates were being used. At [164] to [167] of the Judgment, in a section dealing with remedy, the Judge said as follows:

It is undeniable that the Akin Report did cause the Tribunal to alter one of its preliminary views, namely the view that there was an obligation to declare the use of estimates. That in itself indicates something other than a closed mind. The Judge also went on to explain, albeit in the section of the Judgment dealing with remedy, why that did not alter his views on whether or not there had been a breach. It also remained open to the Judge to conclude, as he did, that Mr Harris’s answers to the questions about filling in Box 19 were “evasive”. That is because those answers were not in response to a proposition that there was a legal obligation to fill that box, but to the altogether different issue of whether HMRC would have been alerted to the use of estimates if the box were not filled. It follows that we do not accept the submission that the failure to alter the views expressed at [21] and [22] of the Case Summary evidences any prejudgment.

For these reasons, Ground 1 of the Appeal fails and is dismissed.

Ms Ling submits that the Judge impermissibly entered the arena: (i) by conducting his own extensive research; (ii) by framing the issues to be determined in a manner more favourable to the Claimant; and (iii) by taking over the cross-examination of Mr Harris.

As to (i), Ms Ling submits that, as both parties were represented, it was open to the Judge to invite Counsel to undertake research into any area that he considered had been inadequately dealt with, and that by undertaking his own research to the extent that he did he gave the impression of seeking to advocate for the Claimant’s case. Furthermore, it is said that the research went beyond legitimate areas of inquiry, such as the law, and strayed into the details of HMRC practice, which does not have the status of law and is therefore evidence. Reliance was placed on dicta of Langstaff P in East of England Ambulance Service NHS Trust v Sanders [2015] ICR 293 where it was said that it was “not for the tribunal itself to investigate evidence and rely on its own investigations”. Ms Ling also submitted that such research on the lawfulness of the expenses practice was not necessary in any event given that the claim was founded on an alleged breach of the implied duty of trust and confidence, and not whether she had been required to follow an unlawful instruction.

We found that last point difficult to follow: even a cursory reading of the Claim Form and the Claimant’s evidence in support reveals that the Claimant’s primary allegation was that she was being required to do something that was unlawful. Thus we see that:

There can be no doubt, given the way in which the case was put, that the foundation of the Claimant’s case was that she was being required to follow an unlawful instruction. Moreover, the Respondent’s response to that allegation (at [24] of the Grounds of Resistance) stated that the Claimant was “not being forced to conduct any fraudulent or unlawful practice”. It is difficult to see why a case would be resisted in those terms unless it was understood that that was the allegation being made.

In these circumstances, the Judge cannot be criticised for determining whether the instruction to enter estimated expenses in the manner described above did amount to an instruction to commit an unlawful act.

As to the research itself, no issue appears to be taken to the research on the law. Whilst the better course, generally, particularly where parties are represented, will be to invite them to undertake research on any points which in the Judge’s view need more explanation, it is open to a Judge to undertake some limited, relevant research of their own, provided that the parties have a fair opportunity to deal with the fruits of any such research. That is what the Judge did here, with the parties being given an express opportunity at the resumed hearing to address in detail the points set out in the Case Summary.

In the context of this case, it cannot be said that research into HMRC practice was outside the bounds of proper judicial inquiry. Ms Ling attempted to categorise such material as ‘evidence’. However, whilst such practice statements from HMRC do not have the status of law, they are a guide to HMRC’s understanding of the law and how HMRC can be expected to deal with certain situations. Such practice was far from irrelevant to the issues in the case. Indeed, both parties sought expressly to rely on HMRC Manuals in their statements of case:

In the face of such reliance on HMRC Manuals by both sides, it is not open to the Respondent, in our view, to contend that the Judge was overstepping the bounds of legitimate inquiry by identifying other potentially relevant passages in related HMRC manuals. The critical proviso in all of this is, of course, that the parties have a fair opportunity to comment on the material so identified. As stated above, the Judge ensured that they were given that opportunity.

Ms Ling’s second point under this head is that the Judge sought to reframe the issue for determination in a manner prejudicial to the Respondent. That is to say, the Judge considered whether Mr Harris was “dishonest” or “incompetent” when following the expenses practice when in fact the only issue was whether there had been a breach of the implied duty of trust and confidence. There is not much substance in this point, not least because, as Ms Ling accepts, the judgment that there was a breach of the implied duty of trust and confidence could stand irrespective of the finding that Mr Harris’s conduct was considered to be dishonest or incompetent. As we have set out above, the issue was clearly identified as being whether the Claimant was given an unlawful instruction in relation to the entering of estimated expenses. In making that allegation, the Claimant has referred to the expenses practice as the arbitrary and routine inflation of clients’ expenses figures even where these were unsubstantiated. The Respondent has expressly understood that allegation as being one which could give rise to an allegation of fraudulent or wrongful conduct. In those circumstances, far from amounting to a re-framing of the allegation, the Judge’s references to such practices as potentially involving either dishonesty or incompetence flow inexorably from the allegation of being required to overstate expenses. That said, as we explain further below, there may be a procedural irregularity in respect of the finding of dishonesty. However, that does not assist the Respondent in its contention that there was a re-framing of the issues so as to suggest that the Judge was advocating on the Claimant’s behalf.

The final point under Ground 2 is that the Judge sought to cross-examine Mr Harris and in so doing went beyond clarifying or eliciting the evidence. Ms Ling sought to make good this contention by reference to several extracts from the cross-examination. Before turning to those extracts, we remind ourselves of the relevant principles. These were set out recently in the case of Serafin v Malkiewicz [2019] EWCA Civ 852 (upheld by the Supreme Court [2020] UKSC 23) where the Court of Appeal considered whether a trial had been rendered unfair by the trial judge’s conduct which had included aggressive questioning of a litigant in person. At [108] to [111] of its judgment, the Court of Appeal set out the principle of fairness:

Ms Ling also drew our attention to the case of Nawaz v Docklands Buses Ltd (2015) UKEAT/0104/15/DM, a judgment of Singh J (as he then was), in which the Judge below was said to have intervened excessively in cross-examination. Singh J held:

The question in the present case, therefore, is whether the Judge would be seen by the fair-minded impartial observer as acting as the Claimant’s advocate and/or whether, by asking the questions of the witness that he did, the Judge went beyond merely seeking clarification or eliciting information.

As is usual in the Tribunal, there is no transcript of proceedings. Instead, there are brief notes prepared by Counsel and more extensive notes taken by the Judge. From these, Ms Ling relies upon the following:

In our judgment, these questions amount to seeking clarification or eliciting further evidence. The Judge queries, understandably, the implied proposition that a figure of twice the recorded amount of expenses could be correct. The witness’s response is that it was “Not a lot of money; £500”. The cross-examination then resumes. At one point the witness states that there may be genuine reasons why clients do not record everything they should. The Judge puts to him that if it is not recorded then it cannot be claimed and asks two further questions. Whilst these are not open questions as such, the Judge is not seeking to put words in the witness’s mouth. Rather, he is seeking clarification and further explanation of the witness’s responses about his practice of putting through unrecorded expenses. In our judgment there was nothing illegitimate or improper about that.

Ms Ling then referred us to an intervention during which the Judge referred to his own personal experience of filing returns, in a discussion dealing with how HMRC would be aware that estimates were used. We do not see anything improper in the Judge giving some context to a question by reference to such experience.

At a later point in the cross-examination, the Judge is recorded as putting points about costs to Mr Harris and concluding with the words, “You may disagree with my judgment. The costs are what they are.” This was said following a series of questions about the assessment of expenses. Once again, the questions seek clarification of Mr Harris’s evidence.

The final comment relied upon, which Ms Ling describes as “questionable behaviour even for an advocate”, arises out of the following exchange:

We accept that this was injudicious language. Whilst the phrase “chancing an arm” could, in some contexts, refer to the taking of a substantial risk with significant adverse consequences if it does not pay off, it could also suggest to the witness that the Judge took a dim view of the conduct and was telling the witness in terms of that view. This phrase should not have been used, however surprising the Judge may have found Mr Harris’ responses. This was a clear departure from good practice.

However, as stated in Serafin citing from Michel, it is right to recognise that “by no means all departures from good practice render a trial unfair…” Ultimately the question is one of degree.”: see Serafin at [111].

This is not a case where the Judge intervened excessively – the extracts above represent a relatively small proportion of the cross-examination overall - or where the witness was repeatedly harangued or made to feel beleaguered. The witness was represented throughout. The questions were, for the most part, seeking to clarify points that were seemingly unsupportable to the Judge. Whist the Judge did on one occasion use language which we would regard as injudicious and inconsistent with good practice, we do not consider that, overall, what the Judge did or said rendered the trial unfair. The Judge’s conduct fell far short, in our judgment of the sort of serious conduct that would need to be present before it could be said that the Respondent had not had a fair trial.

Ground 2 therefore fails.

The contention here is that there was a failure to put to Mr Harris in terms that his treatment of expenses in tax returns was dishonest or incompetent and that the failure to do so amounted to a serious procedural irregularity such that the conclusion that Mr Harris was either dishonest or incompetent cannot stand. Ms Ling also submits that it was no part of the Claimant’s case that there was dishonesty or incompetence and that the question of honest belief was only raised by the Respondent to support the argument that the implied terms of trust and confidence had not been breached.

Mr Rees Phillips submitted that Mr Harris was found to be “evasive” with some of his responses and gave “pathetic and misguided” answers to seek to justify the expenses practice. Furthermore, Mr Harris would plainly have been aware, given the allegation of engaging in unlawful practices, that he may be found to be dishonest. In these circumstances, submits Mr Rees Phillips, expressly putting to Mr Harris that his practice was dishonest would not have achieved anything more than the extensive questioning on the wrongfulness and impropriety of his practice already did.

In City of London Corporation v McDonnell [2019] ICR 1175, the tribunal had upheld a whistleblowing claim. In doing so, the tribunal had reached conclusions as to the reason for dismissal, which reasons implied that the dismissing officer was acting in bad faith. However, those conclusions had been reached without giving that officer the chance to respond to the tribunal’s interpretation of his evidence. On appeal, the EAT, after a review of the relevant authorities, held as follows:

Those principles are relevant to the present case. We were also taken to the case of Kalu v University Hospitals Sussex NHS Foundation Trust [2022] EAT 168, a decision of HHJ Auerbach in which it was held that it was unfair for the tribunal to find that the claimant had acted in bad faith in raising a grievance in circumstances where the judge below had prevented the respondent’s Counsel from putting that specific point in cross examination. At [38] to [41], HHJ Auerbach said as follows:

It was contended by the employer in that case that such specific questioning on bad faith was not necessary in the interests of fairness where there had been cross-examination about a range of matters relating to the claimants’ motivation for acting as they did. The EAT rejected that contention, stating as follows:

The finding of procedural irregularity did not, however, lead the EAT in Kalu to set aside the decision overall. It went on to conclude:

Thus, where the findings on the substantive issue of (in that case) unfair dismissal could stand independently of the finding of bad faith made in respect of whether a particular grievance was a protected act, it was not necessary to treat the entire decision as vitiated.

It seems to us that the questions to be considered in the present case in light of those principles are as follows:

Dealing with each of these in turn:

Was there a finding of dishonesty

There was no emphasis on dishonesty or incompetence in the Case Summary and those matters appear not to have been the basis for the Judge’s preliminary view at that stage that the Claimant had been constructively dismissed:

The finding under challenge is at [93] of the Judgment:

Although there is a reference to an alternative finding of incompetence, that was conditional on a finding that Mr Harris did not know that what he was doing was dishonest. In other words, the Judge concluded that Mr Harris did have that knowledge. That, in our judgment, is unequivocally a finding that Mr Harris was acting dishonestly in following the expenses practice. A similar finding is made at [94] of the Judgment:

Was the question of dishonesty put to Mr Harris?

In considering whether the issue of dishonesty was put to Mr Harris, we consider first whether dishonesty, as found by the Tribunal, was alleged as part of the Claimant’s case. The ET1 did not expressly make that allegation. In our judgment, although the issues in the claim did raise the question whether the expenses practice that the Claimant was instructed to adopt was unlawful and/or likely to defraud HMRC, it was not specifically asserted that Mr Harris had acted dishonestly in engaging in the practice. The highest that the case was put is perhaps best reflected in the following extract from the Claimant’s submissions where it was stated:

We accept Ms Ling’s submission that the Claimant’s allegation (which was in qualified terms: “tantamount potentially to defrauding HMRC”) falls short of an express allegation of dishonesty on Mr Harris’s part.

We turn then to the evidence and in particular to the questioning of Mr Harris. It was perhaps because, as we have found, dishonesty was not an express part of the Claimant’s pleaded case, that experienced Counsel acting on the Claimant’s behalf did not put to Mr Harris in terms that he had been dishonest. Mr Rees Phillips did submit to us, however, that the questioning to which Mr Harris was subject was about conduct that could, in the context of completing tax returns, only be viewed as either dishonest or incompetent, and that it was inherent in all of the cross-examination that was what was being put. It seems to us, however, that the seriousness of an allegation of dishonesty in this professional context (as is evident from the investigative steps being considered by ACCA in light of the Judgment) is such that general questioning about the impugned conduct does not suffice. The question of dishonesty was a distinct point, which, if there was to be an adverse finding on it, ought to have been put to the witness.

Mr Rees Phillips further submits that the issue of whether the conduct was “fraudulent” was clearly put to the witness and that ought to suffice even if the term “dishonesty” was not used. Reliance is placed on the following passages in the cross-examination:

It can be seen from this exchange that it was Mr Harris who first raised the question of fraudulent conduct in his response to a question about conduct that was said to be “plainly wrong”. In our view, whilst this exchange does refer to fraudulent conduct, it is not put to Mr Harris that he was engaging in conduct that could be described as such. Instead, the focus of the questioning is directed to whether an accountant would wish to be associated with a return that was “plainly wrong”.

It is also notable that the Judge, whilst questioning Mr Harris about various matters (as seen above), did not suggest to him at any point that his conduct was dishonest. That is notwithstanding the following extract from the Judge’s note which suggests that the Judge did regard at least one aspect of Mr Harris’ conduct as dishonest:

It is agreed that the entry on the 6^th line of that extract (“[me; cannot see how it can be honest …]”) was not a question put to the witness, but a note to self. The witness was not, therefore, given an opportunity to address the apparent concern about dishonesty that was on the Judge’s mind.

Was it unfair?

These omissions from the questioning of Mr Harris are not just about form: they raise an issue of fairness. Whilst objectively it may be difficult to interpret the expenses practice as anything other than dishonest, it is quite possible that, if given the opportunity, Mr Harris would have sought to explain his conduct in a number of ways that did not involve dishonesty. It was part of his case that he had an honest belief that he was not instructing the Claimant to engage in improper conduct; implicit in that is that he did not believe the expenses practice to be dishonest. It was suggested that the practice itself was widespread and one in respect of which he had sought and obtained positive advice. It is relevant to note that Mr Harris, an experienced accountant of many years’ standing, was not seeking to be clandestine about the expenses practice. He was at all times open about it and went as far as to subject the Claimant to a disciplinary process for not complying with his instructions to implement the practice. This openness about the practice might have been invoked in response to a direct allegation that it was dishonest.

The improbability of a finding other than dishonesty was not a reason (in this case) to deprive the witness of the opportunity to address the allegation of dishonesty directly. Mr Harris was not given that opportunity. In our judgment, in the circumstances of this case, that was unfair and amounts to a serious procedural irregularity. The same cannot be said in relation to the finding of incompetence. Whilst incompetence was also not part of the Claimant’s case, the Judge was entitled to draw the inference that conduct was incompetent from the facts found. The failure to put the question of incompetence directly to the witness is a deficiency but is not as serious a deficiency (even in this professional context) as the failure to put the question of dishonesty to him. The former is a procedural irregularity but not one that is sufficiently serious in this context to warrant the finding of incompetence to be set aside.

What consequences (if any) flow from that?

Although the Judge made a finding that Mr Harris had been either dishonest or incompetent, he went on to conclude as follows at [96]:

It is clear from that passage, and as Ms Ling accepts, that the Judge’s finding that there was a constructive unfair dismissal stands irrespective of the finding of dishonesty (or incompetence) on Mr Harris’ part. The mere fact of requiring the Claimant to adopt the expenses practice was sufficiently serious to undermine the relationship of trust and confidence. We are fortified in our interpretation of the independent nature of this finding by the fact that the Judge expressed a strong preliminary view in the Case Summary that the Claimant had been constructively dismissed without reliance upon a finding of dishonesty or incompetence: see [71] above.

In these circumstances, the procedural irregularity that underpins the finding of dishonesty did not taint the whole trial so as to render it unfair overall. In our judgment, whilst the Judge’s conclusion as to dishonesty should be set aside on the grounds of procedural irregularity, the finding that there was a constructive unfair dismissal stands.

To that extent, Ground 3 of the Appeal is upheld.

The Supreme Court in this case confirmed that the test to be applied when considering whether a person has acted dishonestly contains both a subjective and objective element as described by Lord Hughes as follows:

Ms Ling submits that in reaching the finding of dishonesty, the Judge did not apply the first subjective stage of the Ivey v Genting test. That is to say, whilst the Judge referred to Mr Harris’s evidence at [23] to [31] of the Judgment, there were no findings as to Mr Harris’s actual (subjective) state of knowledge or belief about such matters. Thus, there were no specific findings about Mr Harris’s understanding of GAAP and the concepts of “true and fair” and “materiality” within GAAP, or as to his understanding of the advice he received about the expenses practice (both of which were relied upon to explain and justify the expenses practice), or any analysis of the openness with which he addressed it during the disciplinary meeting. Instead, submits Ms Ling, the Judge simply concluded that Mr Harris’s “words as set out in paragraph 33 and the practice followed as described in those words” were dishonest. It is said that this was an “impulsive and intuitive response” to one statement with which the Judge disagreed rather than a proper application of the two-stage test taking account of all the relevant evidence.

Mr Rees Phillips contends that the Judge plainly applied the correct test in that having decided that Mr Harris knew that he could not simply advise clients to use estimated expenses as a matter of course, such conduct was obviously and inescapably dishonest when judged by the standards of ordinary decent people.

In our judgment, Ms Ling’s submissions on this ground are to be preferred. The Judge did not refer to and was not invited to consider Ivey v Genting. That he was not referred to that case is consistent with neither side considering that dishonesty was an issue on which there needed to be any finding, a matter which we have already addressed under Ground 3 above. Of course, the failure to refer to an authority does not give rise to an error of law if the Judge has in substance applied the law correctly. In our view, it cannot safely be assumed, even on a generous reading of the Judgment, that the Judge did apply the correct test in reaching the conclusion that he did. There is, as Ms Ling submits, a dearth of findings as to Mr Harris’s subjective state of knowledge and belief about the expenses practice. The Judge did make findings as to what the expenses practice entailed and that included Mr Harris’s conduct of inflating expenses by 5% year on year and adding on £10 “just to rough it up a bit”. However, there are no findings on the contextual matters to which Ms Ling refers and which might have enabled the Judge to come to a fully informed view on the first (subjective) stage of the Ivey v Genting test. Instead, the Judge, having made findings as to the operation of the expenses practice, found that Mr Harris knew this was dishonest and moved (in effect) straight to the application of the objective test of whether the conduct would be considered dishonest by the standards of ordinary people. Whilst we would not agree with Ms Ling that the Judge’s conclusion was “impulsive” or impressionistic, it did fail to take account of Mr Harris’s subjective view. The fact that the issue of dishonesty was not put directly to Mr Harris, thereby not giving him the opportunity to express his subjective beliefs as to his conduct, lends support to that conclusion. That is a further reason that the finding of dishonesty cannot stand.

Ground 4 is therefore upheld. For the reasons set out under Ground 3, the only consequence of that conclusion is the setting aside of the finding of dishonesty.

This is a reasons (Meek) challenge that is relied upon in the alternative to Grounds 3 and 4. As those grounds have been upheld, it is not necessary to address this ground further.

These two grounds are premised on the fact that the Judge focused on the question of dishonesty and/or incompetence and in so doing failed to apply the objective test in determining whether there was a repudiatory breach of contract, and/or determined the case on the basis of a breach that had not actually been alleged. The difficulty with this submission is, as Ms Ling very fairly concedes, that the Judge’s decision on constructive unfair dismissal (as set out in [96] of the Judgment) is not dependent on a finding of dishonesty (or incompetence). Accordingly, these grounds of appeal are rendered academic, and they are, for that reason, dismissed.

Grounds 3 and 4 of the Appeal are upheld. All other grounds are dismissed.

The Judge’s findings as to dishonesty in [93] and [94] of the Judgment are set aside. However, the Judgment - that the Claimant was constructively unfairly dismissed, that there was no contributory conduct on her part, and that she is due a basic award, compensation and costs - stands.