The claimant sold his business, but not the underlying company to the respondent and worked for the respondent as an employee. He was dismissed after the respondent found, amongst other things, that he had undertaken business in competition with the respondent and that he was responsible for a number of misrepresentations in the sale agreement of the business to the respondent. His internal appeal failed and he won his claim of unfair dismissal on the basis that the respondent had not carried out adequate investigations into the matters for which the claimant was dismissed. The ET ruled that no deductions from the claimant’s compensation were appropriate. The respondent applied for a review and the ET ruled that a 35% Polkey reduction was appropriate, that the claimant’s employment would not have continued for more than 9 months from the date of dismissal, that he had contributed to his own dismissal to the extent of 50% and that he had failed to mitigate his loss. The claimant appealed on five grounds, including the assertion that the ET was wrong to exclude the claimant’s evidence as to the issue of the Polkey deduction.

The EAT dismissed most of the grounds but upheld those on the 35% Polkey deduction and the 9 month issue. They ruled that there was simply no evidence before the ET upon which it could find that there was a 35% chance that the witness relied on by the respondent, who did not give evidence at the hearing, would have confirmed the wrong doing of the claimant. On the 9 month issue, the ET had failed to consider the contract of employment, which stated that notice could only be given on or after the expiry of the 3 year fixed term period, which had not yet been reached. The EAT said that there was no reasoning as to why the ET had picked a 9 month period. The EAT also agreed that the further evidence should not have been admitted at the ET because it was an attempt to re-open matters which had already been agreed at the liability hearing.

________________

Appeal No. UKEAT/0093/10/SM

EMPLOYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 6 December 2010

Judgment handed down on 13 April 2011

Before

HIS HONOUR JUDGE BIRTLES

MR R LYONS

MRS D M PALMER

MR T PYBUS (APPELLANT)

GEOQUIP LTD (RESPONDENT)

Transcript of Proceedings

JUDGMENT

For the Appellant
MR NICHOLAS SIDDALL  (of Counsel) & MR PARAS GORASIA (of Counsel)
Instructed by:
Messrs Gosschalks Solicitors
Queens Gardens
Hull
HU1 3DZ

For the Respondent
MR NIGEL GRUNDY (of Counsel)
Instructed by:
Messrs Hill Dickinson LLP
No. 1 St Paul's Square
Liverpool
L3 9SJ

UNFAIR DISMISSAL

Contributory fault

Polkey deduction

Appeal on compensation issues. The Employment Appeal Tribunal allowed the appeal on the grounds that (a) failure in reasoning to make a 35% reduction because of the chance of dismissal on clear evidence; (b) failure to take into account the fixed term contract of employment when reducing the period of compensation. Observations about exclusion of a witness statement in a remedies hearing.

1. This is an appeal by Mr Pybus from the decision of an Employment Tribunal sitting in Hull in July and August 2009. The reserved judgment was sent to the parties on 25 August 2009. At the same time the Employment Tribunal made directions for a remedies hearing. The remedies hearing took place on 19-20 October 2009 and the reserved judgment was sent to the parties on 12 November 2009.

1. The Appellant is represented by Mr Nicholas M Siddall and Mr Paras Gorasia of counsel. The Respondent is represented by Mr Nigel Grundy of counsel. We are grateful to all counsel for their written and oral submissions.

1. The Claimant was the founder and Managing Director of a company called Sensor Electronics Ltd. In February 2007 he sold the business though not the company to Geoquip. The business retained its separate operating identity as a division of Geoquip and the Claimant became an employee of Geoquip. On 1 April 2008 he was suspended by Geoquip's Head of Operations, a Mr Bailey, on suspicion of various kinds of misconduct which we need not specify since most were not substantiated. Mr Bailey carried out an investigation over the following months, culminating in what was in effect a disciplinary hearing on 21 August 2008 before Geoquip's Managing Director, Mr Martin Scott. The Claimant's eventual dismissal on 9 September 2008 was on the grounds of three heads of misconduct (1) namely that he had undertaken, or sought to undertake, private business in competition with Geoquip; (2) that he had irregularly swapped the serial numbers on certain items of equipment sold by Geoquip; and (3) that he was responsible for a number of misrepresentations in, or breaches of, the sale agreement of the Sensor business to Geoquip. Other allegations were found not to be proved or not to be serious.

1. The Claimant appealed. The appeal was decided by Mr Dieter Schwald, a director of Geoquip's parent company. In a letter sent on 27 March 2009 he dismissed several of the allegations relied on by Mr Scott but maintained the dismissal on the basis of two charges:

(1) that the Claimant had sought to compete with Geoquip; and (2) an alleged misrepresentation in the sale agreement in relation to VAT.

1. We should say something about the nature of the evidence related to the first of the charges ultimately relied on by Geoquip. This consisted of two main elements.

1. First, an employee of Geoquip called Dave Pickering gave a statement to the effect that he had been asked by the Claimant at some unspecified date to design a business card - or it may be the logo for a business card - for a company called Outsourced Management Logistics Ltd ("OML") which bore the Claimant's home address and mobile phone number. OML was a dormant company owned by the Claimant which he had set up long before Sensor was sold to Geoquip. It had originally been called Sensor Supplies Ltd, but he had had its name changed following the sale because Geoquip did not want any other companies to exist with Sensor using the name. In the disciplinary hearing before Mr Scott the Claimant accepted that he had asked for the card to be designed, but he said that a son of a friend of his, who had mental health difficulties, was involved in a project which involved designing a website and associated materials, and that in order to assist him he had allowed the project to proceed using OML as the company in question. It is clear that the explanation was given in a somewhat muddled and unconvincing manner and the Employment Tribunal described it as having been "unsatisfactory". However, it also observed that there was no evidence that OML had in fact traded since the sale of Sensor to Geoquip, still less ever competed with Geoquip.

1. The second element of the competition case against the Claimant was what purported to be a witness statement dated 6 August 2008 from an employee called James Freear which said that a chief executive officer of a customer of Sensor in Kuwait called Sisco, a Mr Al Shawa, had told him that the Claimant had phoned him - that is to say, Mr Al Shawa - to offer to supply products of the kind offered by Geoquip at a lower price. The Claimant produced at the hearing before the Employment Tribunal a witness statement dated 19 April 2009 from Mr Freear saying that the statement of 6 August 2008 was a forgery; although it was understood that Mr Freear would be attending to give evidence in support of that statement he did not in the event do so. This second witness statement from Mr Freear was not available at the original disciplinary hearing. The Claimant's evidence was, as the Employment Tribunal noted, unclear as to when he first became aware that Mr Freear would disown the statement of 6 August 2008 and as to why, if he was aware of it before the hearing before Mr Scott, he did not tell Mr Scott.

1. In addition to these two points Geoquip relied on the fact that the Claimant refused during the disciplinary process to provide his mobile phone records for the comparatively short period which would have covered the conversation which he was alleged to have had with Mr Al Shawa. Although he explained that refusal by saying that he did not want to give Geoquip the opportunity to trawl through all this conversations over that period, the fact remained that the telephone was one for which Geoquip paid and his refusal to assist in this regard was said by Geoquip to be highly suspicious.

1. The procedural history in this case is somewhat unusual and we therefore think it necessary to set it out. The Claimant was dismissed from his employment with the Respondent on September 9 on grounds of alleged gross misconduct. By an ET1 dated March 6 2009 the Claimant presented a claim for unfair dismissal. By an ET3 dated April 6 2009 the Respondent accepted that the Claimant had been dismissed but asserted that the dismissal had been fair on the grounds of the Claimant's conduct.

1. The matter came for hearing before an Employment Tribunal sitting in Hull on July 20 23 2009. By written judgment sent to the parties on 25 August 2009 the Employment Tribunal concluded that the Claimant had been unfairly dismissed. It further determined that no deduction from the Claimant's compensation was appropriate on the basis of the principles set out in the decision of Polkey v A.E. Dayton Services Ltd [1988] ICR 142 (HL). It reserved its position as to a deduction on the grounds of the Claimant's alleged contributory fault.

1. The Respondent sought a review of the judgment of the Employment Tribunal under cover of a letter dated 8 September 2009 on the basis of the Employment Tribunal's erroneous approach to the issues of s.98A(2) of the Employment Rights Act 1996 and Polkey. It also appealed the decision by Notice of Appeal dated October 1 2009.

1. The Employment Tribunal had issued directions for a remedies hearing also dated 25 August 2009. The relevant paragraphs of that directions order are as follows:

"1. The legal representatives of both parties should be prepared to deal with the issue of the Claimant's contribution to his dismissal on which the Tribunal will hear full arguments.

2. The Claimant's solicitors should prepare an amended Schedule of Loss up to the date of the Hearing.

3. The Claimant must produce evidence that he has mitigated his loss. This should be done by the Claimant preparing a witness statement dealing with this issue (and anything else relevant to the Remedy Hearing), together with copy documentation to show job applications that have been made. The documentation should also relate to the Claimant's earnings since his dismissal. The witness statement and documents should be sent to the Respondent's solicitors by 2 October 2009.

4. If the Respondent disputes any of the Claimant's proposed evidence or assertions, including mitigation, they should serve any witness statements and/or documents on the Claimant's solicitors by 12 October 2009."

1. The matter then returned to the Employment Tribunal for determination of the issue of remedy on 19 October 2009. By a reserved judgment sent to the parties on 12 November 2009, the Employment Tribunal reviewed its previous decision and concluded that a 35% Polkey reduction was appropriate, that the Claimant's employment would not have continued for more than another nine months from the date of his dismissal, that he had contributed to his own dismissal to the extent of 50% and that he had failed to mitigate his loss. By Notice of Appeal dated 21 December 2009, the Claimant appealed against the Employment Tribunal's judgment as to remedy.

1. By order of the EAT dated 15 February 2010 (HHJ Serota QC) both appeals were set down for a preliminary hearing. That preliminary hearing was heard on 6 May 2010 before Underhill J (President). At that hearing the Respondent's appeal was dismissed and the Claimant's appeal was permitted to proceed to a full hearing. The President also gave a reasoned judgment as to the reasons for allowing the Claimant's appeal to proceed: EAT bundle pages 159-178.

1. Pursuant to the order of Underhill J the Respondent has served an Answer to the appeal: EAT bundle pages 154-157, and the parties have served additional evidence addressing the events of the hearing before the Employment Tribunal on 19 October 2009.

1. The Tribunal's broad conclusions are set out at paragraphs 75-79 of its judgment:

"75. The Tribunal cannot find that the investigation conducted by the Respondent was of the standard a reasonable employer would achieve in these circumstances. Reliance was placed by the Respondent on the 251 page dossier placed before Mr Scott but quantity is not quality. Statements of employees were used without any indication of the circumstances in which they made the statements nor were they challenged in any respect. The makers of the statements were not called to the Disciplinary Hearing so the Claimant had no chance to question them or to put their comments into context. They may have had a dispute with the Claimant; some may not have had an accurate recall of events some 18 months earlier.

76. Mr Bailey made no attempt to contact those involved in negotiations or the structuring of the Asset Sale especially the solicitors and the accountants. Despite the complexity of some of the charges relating to accounting treatment there was no evidence of any approach to the Respondent's auditors nor was a forensic accountant instructed to prepare a report nor were the stock takers questioned. Although Mr Bailey claimed at the Disciplinary Hearing (page 417) that he had used "a professional forensic accountant firm" there is no evidence of such in the dossier.

77. While the Tribunal does not accept the Claimant's charge that there was a conspiracy to get rid of him, there must be some concern about the central role played by Graham Bailey. No evidence was given about his qualifications or experience in business or his ability to conduct a complex disciplinary investigation. No information or explanation was given as to his methodology. He was dismissed by the Respondent in circumstances they were unwilling to disclose.

78. The Tribunal conclude that the investigations into the two matters for which the Claimant was summarily dismissed were inadequate and not that which a reasonable employer would have undertaken especially given the seriousness of both allegations. This means that the dismissal is therefore unfair.

79. Accordingly arguments about whether any flaws in procedure would make no difference do not need to be considered. However as mentioned above we do not find that there has been any failure by the Respondent to complete the statutory dismissal and disciplinary procedure so the Claimant was not automatically unfairly dismissed."

1. The Tribunal ended that judgment on liability by rejecting a submission from the Claimant's representative that the Respondent had no authority to discipline the Claimant in respect of conduct committed before the Respondent became his employer: judgment paragraph 80. There is no appeal against that finding.

1. Finally, having found that the Claimant was unfairly dismissed, the Tribunal then looked to see if there was evidence that the Claimant had contributed to his dismissal. It indicated at paragraph 82 of its judgment that it invited both legal representatives to make more detailed submissions on this point at the remedy hearing, and indicated five areas where it considered that there was potential contribution by the Claimant to his dismissal.

1. This took place on 19 October 2009. The reserved decision was sent to the parties on 12 November 2009: EAT bundle pages 78-87. The judgment makes the following findings:

"1. Having reviewed their decision the Tribunal confirms its finding that the Claimant was unfairly dismissed and that it was not possible to apply Section 98A(2) of the Employment Rights Act 1996 because of the speculative nature of the evidence.

2. The Tribunal accepts that a Polkey reduction of 35% is appropriate to reflect the risk that dismissal could have occurred had proper procedures been followed.

3. The Tribunal also finds that even if the Claimant had continued in employment such would not have lasted more than 9 months.

4. The Tribunal finds that the Claimant contributed to his dismissal to the extent of 50%.

5. The Claimant is awarded a Basic Award of £4,042.50 and a Compensatory Award of £9,376.25 making a total of £13,418.75 which the Respondent is ordered to pay to the Claimant."

1. In its Reasons the Tribunal refer to the Respondent's application for a review and the fact that it was ordered to take place on the same day as the remedy hearing. The Tribunal first deal with the Claimant's application to put in a further witness statement by him: EAT bundle pages 61-77. That witness statement sought to deal with the issue of mitigation: paragraphs 27-34 but also with the five points identified by the Tribunal in paragraph 82 of its liability judgment on the issue of contributory conduct: paragraphs 3-26. The Claimant also sought to introduce a witness statement from Mr Freear dated 19 October 2009 which alleged that his previous witness statement, dated 6 August 2008, which had been placed before the Tribunal at the liability hearing and was relied on by the Respondent, was a forgery. The witness statement is at EAT bundle pages 58-60. The Employment Tribunal considered this issue at the beginning of its judgment. The relevant part of paragraph 2 says this:

"Prior to the hearing however, there was an issue concerning the Claimant having served additional witness statements and also a statement from a person who did not attend to give evidence at the hearing on liability. The Claimant's statement was largely concerned with his explanation of the areas which the Tribunal had identified for submissions to be made on the issue of contribution. Having looked at the statement, the Tribunal indicated that it was not appropriate for the Claimant to put such matters in evidence. The issues relating to contribution should rest on the findings of the Tribunal at the main hearing in July 2009; the purpose of the Remedy Hearing was to hear submissions on whether or not those incidents had contributed to the Claimant's dismissal. Accordingly, only paragraphs 27 to 34 inclusive of the Claimant's witness statement which related to the mitigation of his loss was considered to be admissible. The other statement was from James Freear. Mr Freear had been scheduled to attend the liability hearing but he did not attend and no reason was given for his absence. The Tribunal did not consider it appropriate that after a decision had been made on liability and on the various issues, that the Claimant should be permitted to present Mr Freear's evidence as a witness. Accordingly he was informed that he would not be needed and his statement was not read."

1. The Employment Tribunal went on to deal with the Respondent's application for a review about (a) the applicability of section 98A(2) of the Employment Rights Act 1996 and whether it should have considered a percentage reduction pursuant to Polkey. The Tribunal concluded that given the uncertainty concerning any outcome of any further enquiries which the Respondent would undertake, section 98A(2) did not assist the Respondent since the evidence produced did not show that the Claimant could have been fairly dismissed: judgment paragraph 9. The application for a review in respect of section 98A(2) failed but the Tribunal did accept that it was appropriate to consider whether there should be a percentage reduction in accordance with Polkey.

1. The Tribunal went on to consider the application of Polkey and made a reduction of 35%: judgment paragraph 11. It also considered whether the Claimant's employment would have continued indefinitely or for only a limited fixed period. It found that it would be unlikely that the Claimant would have remained in employment for the remaining 19 months of his three year contract. It held that the issues between the parties, particularly those relating to the financial operation of Sensor, would have resulted in the Claimant's employment with the Respondent only lasting for a further 9 months from the actual date of dismissal, i.e. 9 September 2009: judgment paragraphs 12-14.

1. Finally, the Employment Tribunal considered the issue of contribution and decided that the Claimant was 50% to blame for his dismissal: judgment paragraphs 16-20. The material findings are at paragraph 20 where the Tribunal say this:

"20. Findings of contributory conduct

20.1 There are two matters which are relevant here. The first is the creation of the business card and the website for a different company. We have previously found that the Claimant gave an inadequate explanation for this conduct. Although the respondent could have investigated further, the fact remains that the Claimant's conduct was suspicious, particularly when he should not, as an employee, have been competing with the Respondent. This is one of the cornerstones on which the Respondent relied when dismissing the Claimant for competing with them.

20.2 The Tribunal also found that the persistent refusal of the Claimant to provide his mobile phone records for a 14-day period in connection with the allegation that he had contacted Mr Al Shawa to be culpable or blameworthy conduct. Although the mobile phone belonged to the Claimant, the Respondent Company reimbursed him in full for all its charges on the basis that he had to use it for business. There was little justification for his persistent refusal to reveal the records for the limited 14-day period for which they were sought and inevitably meant that the Respondent could regard his refusal as highly suspicious in the context of the purpose for which the records were required.

20.3 The Tribunal find that on the basis of these two incidents, the Claimant was 50% to blame for his dismissal."

1. The Tribunal went on to assess the compensation: judgment paragraph 21. In respect of mitigation of loss the Tribunal said this:

"21.4 When assessing the amount of financial loss in addition to the reductions referred to above, the Tribunal also considered whether the Claimant had mitigated his loss. He gave evidence that he had not been able to obtain an alternative job. However he had now set up a company in Dubai where he would represent manufacturers in Dubai and the Middle East. He intended to sell those products to other companies around the world. He would either receive a commission on such sales or he would purchase the items himself and then sell them on at a profit. Unfortunately to date he has not been successful in obtaining any orders, although he has had various enquiries and given quotations. In addition the Claimant has rented an apartment there which is occupied by his daughter who assists him in the business, although the Claimant himself remains based in the UK.

21.5 Although the Tribunal recognises that it is not easy for a man aged 54 to obtain a similar job at a similar salary, nevertheless there is some argument that the Claimant has tried very little to take steps to mitigate his loss. Although he is in a specialised industry, he was essentially a salesman and, as such, had transferable skills. He made no attempt to look for any sales jobs, either in the UK or elsewhere.

21.6 The Tribunal finds that the Claimant has not mitigated his loss and he is not entitled to compensation up to the date of the remedy hearing nor for any future loss.

21.7 The Tribunal does accept that in order for the claimant to look for and obtain a suitable job would probably take 6 months and accordingly agree that he should be awarded his net pay of £900.00 per week for that period. Although the respondent did not produce any evidence by way of advertisements or opportunities on line which would have been suitable for the Claimant of which he should reply, the Tribunal using its own knowledge of the local job market does consider that after 6 months the Claimant could have obtained a sales position at £500.00 per week. Accordingly he is entitled to the shortfall (the difference between £900.00 and £500.00) of £400.000 for three months which is the remainder of the 9 month period."

**The Notice of Appeal**

1. The Notice of Appeal is at EAT bundle pages 89-94. It raises five grounds of appeal. We take each ground of appeal in turn.

1. Mr Siddall submits that the Employment Tribunal was wrong to exclude the Claimant's evidence as to the issue of contribution/Polkey and also the evidence of Mr Freear. We have set out the relevant part of paragraph 2 of the remedies judgment which deals with this issue.

1. Before dealing with the submissions, we think it helpful to set out what we see as the relevant law. The Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004, Schedule 1, rule 14 provides as follows:

"(2) So far as it appears appropriate to do so, the Employment Judge or Tribunal shall seek to avoid formality in his or its proceedings and shall not be bound by any enactment or rule of law relating to the admissibility of evidence in proceedings before the courts.

(3) The Employment Judge or Tribunal (as the case may be) shall make such enquiries of persons appearing before him or it and of witnesses as he or it considers appropriate and shall otherwise conduct the hearing in such manner as he or it considers most appropriate for the clarification of the issues and generally for the just handling of the proceedings."

Rule 27(2) of the same Regulations provides as follows:

"Subject to rule 14(3), at the Hearing a party shall be entitled to give evidence, to call witnesses, to question witnesses and to address the tribunal."

1. In ALM Medical Services Ltd v Bladon [2002] IRLR 807 at paragraphs 15 and 19, Mummery LJ said this:

"15. A party is entitled to adduce evidence relevant to the issues in the case and to put questions on relevant matters to the other party and to his witnesses. It is for the Tribunal, with the assistance of the parties and their representatives, to identify the relevant issues for decision and to exercise its discretionary case management powers to decide whether the evidence adduced or the questions put to the witnesses in cross-examination are relevant. The exercise of the discretion will rarely be disturbed on appeal: it can only be successfully challenged if it can be shown that the Tribunal has exercised it contrary to legal principle or otherwise in a manner which is plainly wrong.

…

19. It was the duty of the Tribunal to hear and consider all the relevant evidence from ALM and to allow ALM to challenge Mr Bladon's evidence on the relevant issues, before finding the facts and reaching a decision on the issue of protected disclosure and on the reasons for the written warning and the dismissal."

1. In Digby v East Cambridgeshire District Council [2007] IRLR 585 at paragraph 12, His Honour Judge Peter Clark said this: