Appeal Nos.	 EAT/240/98 	                  & EAT/381/98

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 17 May 1999
Judgment delivered on 9 June 1999

Before
HIS HONOUR JUDGE PETER CLARK
MR A C BLYGHTON
MR T C THOMAS CBE

JARMAIN & SON LTD	APPELLANTS

MR K MANNION & MR J HAIGH	RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellants	MR A SENDALL
(of Counsel)
Messrs Dibb Lupton Alsop
Solicitors
117 The Headrow
Leeds
LS1 5JX	
For the Respondents	MR M SMITH
(of Counsel)
Messrs Baxter Caulfield
Solicitors
13 Station Street
Huddersfield
BD1 1LY	

	JUDGE PETER CLARK:	These are consolidated appeals by the employer, Jarmain & Son Ltd [“Jarmain”] against:

(1)	a reserved decision of the Leeds Employment Tribunal, Chairman: Mr C T Grazin, promulgated with extended reasons on 11th November 1997, following a hearing held over four days on 13th, 14th, 15th and 22nd October 1997, upholding complaints of unfair dismissal by the applicants, Messrs Mannion and Haigh (EAT/240/98) [“the liability decision”] and

(2)	a decision of the same tribunal, promulgated with extended reasons on 5th January 1998 following a hearing held on 8th December 1997, upholding both applicants’ complaints of wrongful dismissal and awarding compensation for unfair dismissal and damages for breach of contract to both applicants (EAT/381/98) [“the remedies decision”].

Chronological background
Jarmain carried on business as Commission Wool Scourers. It took in raw wool from customers, processed it through scouring, i.e. cleaning, and returned it to the customer. It had some 40% of the United Kingdom market, with a turnover of about £6 million per annum and employed 170-180 people at its premises in Kirkheaton, near Huddersfield. It was one of five acting trading companies within the Illingworth Morris Group [“the Group”].

	Mr Mannion commenced employment with Jarmain in 1960. In 1991 he was appointed Sales Director and in July 1995 replaced the then Managing Director, Paul Needham, in that role. At all relevant times Mr Robert Taylor was the Finance Director.

	Mr Jack Haigh commenced his last period of employment with Jarmain in 1979, having earlier been employed by the Company. At the relevant time he was Warehouse and Transport Manager.

	Mr Mannion was employed under a written service contract entitling him to 12 months notice of termination; Mr Haigh was on six months notice. 

	The Chairman of the Group was Mr Alan Lewis; the Group Finance Director was Mr Murray.

	In February 1997 two new managers joined Jarmain. Mr Bailey, formerly Managing Director of a family business, with extensive experience in the trade, was appointed Production Direction (Designate) and succeeded Mr Mannion as Managing Director following his subsequent dismissal. The second recruit was Mr Jeremy Brigg, who joined as Warehouse/Planning Manager (Designate). The tribunal could see little distinction between Mr Brigg’s job and that of Mr Haigh.

	In early 1997 a new effluent plant was installed at the Kirkheaton site. It was not an immediate success. There were difficulties over installation. It was still not operating efficiently by mid-April. The running costs greatly exceeded budget. Mr Lewis and Mr Murray were not happy. At some time during March and April 1997 there was a “general fall out” between Messrs Lewis and Murray on the one hand and Mr Mannion on the other over the effluent plaint, so the tribunal found.

	Mr Murray told the tribunal that in April 1997 he went to Jarmains’ premises in order to investigate its poor financial performance. He did not consult with Mr Mannion, the Managing Director, but carried out interviews with a number of staff members, starting with Mr Brigg. It was Jarmain’s case, advanced through the evidence of Mr Murray, that in the course of those interviews certain matters arose which led him to believe that Messrs Mannion and Haigh were guilty of failings which amounted, in some respects, to misconduct and in others incompetence in the discharge of their duties.

	Mr Mannion was on holiday from 2nd-9th June 1997. On his return both he and Mr Haigh were suspended. 

	On 17th June both attended investigatory meetings with Messrs Murray and Taylor. On 4th July Mr Murray held disciplinary hearings with both Messrs Mannion and Haigh. By letters dated 10th July both men were summarily dismissed. They did not appeal internally, instead, on 4th August 1997 both presented their complaints to the Employment Tribunal. The claims were resisted on the basis that each was fairly and lawfully dismissed for gross misconduct.

	It is against that background that the issue of unfair dismissal came on for hearing before the tribunal on 13th October 1997.

The liability decision
The unusual feature of these cases is that, although by their Originating Applications the applicants denied that Jarmain had a valid or sufficient reason for dismissing them, during the first two days of hearing there was no positive case advanced by Counsel for the applicants, Mr Smith, that the reason for dismissal in either case was other than that appearing on the face of the dismissal letter sent to the applicants on 10th July 1997.

	It is convenient at this stage to refer to those letters. The letter to Mr Mannion, signed by Mr Murray, read as follows:

“Dear Keith
DISCIPLINARY HEARING 4 JULY 1997
I have now considered the allegations put to you at the disciplinary hearing and the conclusions reached are detailed below:
1	Threatening physical violence to employee
	The evidence to support this allegation is:-
a)	Two statements from employees who allege they were threatened with physical violence
b)	A joint statement from two witnesses confirming the allegation of Marcus Whitehead
You totally deny the above allegations. I do not, however, believe that four employees would lie and make statements confirming threats of physical violence made by you. I therefore conclude that the allegation is upheld and that this is gross misconduct.
2.	Irregularities involving wool waste and the total lack of management controls to monitor wool waste
I do not have evidence to suggest there has been any personal gain, but having rescoured waste wools since your suspension, it is clear to me that there is substantial additional revenues to be earned by Jarmain re-scouring wool waste and stopping wool waste deliveries to Swallow and Holdsworth & Hargreaves.
There has been no control whatsoever, in my view, to monitor and record wool waste, the result of which is lost revenue.
I therefore conclude that you have been grossly incompetent in dealing with waste wools.
3	Knowingly allowing Jarmain & Son Limited’s premises and staff to be used as a distribution centre for wines, beer, spirits and tobacco
You have admitted that you know the above was taking place and that you condoned the practice by not stopping it and actually participated by buying wine (although you say that you only bought wine when you were sales director and not since you were managing director). You say it is custom and practice and has been going on for many years.
Although it may have been custom and practice, to allow it to continue is not exercising proper managerial control and it could be interpreted by employees as a signal to conduct or the wrong doing, such as pilferage.
I therefore conclude that the allegation is upheld and you have committed an act of misconduct.
4	Falsifying test certificates on a regular basis
You have admitted this allegation, but say it is custom and practice and that you have falsified certificates in the best interests of Jarmain’s. Prior to your appointment as managing director, I do not accept this was custom and practice and do not believe it was in the best interests of Jarmain’s. Since your suspension, specifications for customer’s wools have been met without having to falsify any certificates.
I therefore conclude that this is an act of gross misconduct.
5	Teeming and lading customer’s wools
You deny any knowledge of teeming and lading customer’s wools. Jack Haigh says, in his statement, that teeming and lading was done with the full knowledge of yourself, so either Jack Haigh is lying, or you are. This again is a very serious state of affairs. I believe you had full knowledge that this was taking place, since other members of staff were also aware that it was common practice.
	Therefore, I conclude that it is an act of gross misconduct.
Allegations 1, 2, 4 & 5 are of such a serious nature that each of them are acts of gross misconduct or gross incompetence, each of which warrants dismissal forthwith. Allegation 3 on its own would warrant a final written warning.
Although you have given long service to the group, these matters are of such a serious nature that I have no alternative but to dismiss you with immediate effect. I will arrange for your company car to be returned immediately to Jarmain & Son Limited’s premises, along with any other company property.
You have the right to appeal to the board of Illingworth, Morris Limited. Should you wish to appeal, please write to me within 5 working days stating the grounds of your appeal.
You will be paid up to an including 11 July 1997.

	In the case of Mr Haigh, the allegations of gross misconduct and gross incompetence reflected allegations numbered 2, 3 and 5 in the letter to Mr Mannion.

	What appears to have happened is this. On the afternoon of the second day of hearing Mr Mannion gave evidence that he thought he had been dismissed following a fallout in relation to the effluent plant. Mr Haigh gave evidence that Jarmain had been preparing to stab Mr Mannion in the back. The tribunal Chairman commented that the flavour of the afternoon’s evidence was that Jarmain had a hidden agenda. We then pick up the sequence from paragraph 27 of the liability decision reasons where the tribunal say this:

“... At the commencement of the third day of the Tribunal proceedings, the parties were told that the members of the Tribunal, having had a short informal discussion between themselves, took the view that there was a possibility that the reason for each of the dismissals might have been something other than that contended by the respondent to that stage and not disputed by the applicants to that point. That statement having been made, it was agreed the parties should be at liberty to call further evidence, if they so wish. The Tribunal then heard further evidence from Mr Murray and from Mr Mannion. Mr Murray was unwilling to accept that there was any other reason than those contained in the dismissal letters for each of the dismissals and, in particular, denied suggestions that any difference between the parties in relation to the effluent plant had any influence on the circumstances. Mr Mannion’s evidence was to the contrary.”

	At the close the evidence both advocates, Mr Bramhall, a solicitor, then appearing for Jarmain, addressed the tribunal. Mr Smith submitted that Jarmain had failed to establish a potentially fair reason for dismissal under s.98(1) or (2) of the Employment Rights Act 1996. Mr Bramhall accepted, as a matter of law, that it was open to the tribunal to reject the reason, conduct, advanced on behalf of Jarmain, but submitted that on the evidence it would be wrong to do so.

	The tribunal concluded that the real reason for dismissal was a determination on the part of Jarmain, acting through Messrs Lewis and Murray, to dispense with the services of the two applicants and replace them either by Mr Bailey and Mr Brigg or by some other persons. The disciplinary procedure was simply a mask to cover an earlier decision that both applicants would have to leave. In reaching that conclusion they relied on seven factors set out at paragraph 29 of their reasons. They held, in terms, that Jarmain sought to engineer or manufacture an artificial reason for dismissal in order to conceal the true reason, directing themselves in accordance with the EAT decision in Maund v Penwith District Council [1982] IRLR 399. Although no point is taken on that self-direction in this appeal, we have considered the Court of Appeal decision in Maund [1984] ICR 143. We do not consider that anything said by the Court of Appeal undermines the observations made by Waterhouse J on behalf of the EAT to which this Employment Tribunal has referred.

	The finding that Jarmain had failed to establish a potentially fair reason for dismissal effectively resolved the issue of unfair dismissal in favour of the applicants. However, the tribunal went on to make an alternative finding, on the basis that the reason for dismissal was conduct, as advanced by Mr Murray, that, looking at the specific allegations made against the applicants, the dismissals were unfair under s. 98(4) of the 1996 Act for the reasons given at paragraph 32.

	Finally, the tribunal directed themselves that it was not open to Jarmain to aggregate the individual allegations made in order to establish conduct warranting dismissal. We say at once, as Mr Smith concedes, that that was a misdirection in law.

Remedies decision
Although we have described the tribunal’s second decision as the remedies decision, it deals both with liability for breach of contract (wrongful dismissal) and the calculation of compensation for unfair dismissal and damages for breach of contract in both cases.

Wrongful dismissal
Jarmain called no further evidence on the issue of liability for breach of contract. Thus the cases proceeded on the basis of the evidence led at the liability hearing. It is clear from paragraph 11 of the remedies reasons that the tribunal correctly proceeded on the basis that it was for Jarmain to establish, as a matter of fact, the misconduct relied upon in the dismissal letters. That was a different question from (a) the reason for dismissal and (b) on the tribunal’s alternative findings in the liability decision, the reasonableness of the decision to dismiss based on the reason advanced by Jarmain. We think that that distinction is important when considering the tribunal’s reasoning in relation to the five allegations levelled at Mr Mannion and the three against Mr Haigh, set out at paragraphs 12-18 of the remedies reasons.

	The tribunal concluded, on those findings, that Jarmain had failed to establish misconduct against either applicant warranting summary dismissal at common law. The claims for wrongful dismissal succeeded.

	The tribunal’s calculation of quantum, both for unfair dismissal and wrongful dismissal in each applicant’s case, is not challenged as a matter of arithmetic in these appeals.

	Finally, we observe that no mention is made by the tribunal of the question of contribution by the applicants to their dismissals, or the just and equitable principle under s.123(1) of the 1996 Act in relation to the assessment of compensation for unfair dismissal.

The Appeals
We have been addressed on all aspects of both appeals by Counsel. Having considered the rival contentions we find it convenient to deal with those arguments under the following heads.

Reason for dismissal
Mr Sendall does not resile from the concession made by Mr Bramhall below that it was open to the tribunal to reject the reason advanced by Jarmain, subject to the caveat, articulated in ground 4.3.1 of the first Notice of Appeal and emphasised in Mr Sendall’s reply to Mr Smith’s oral argument, that the impermissible reason for dismissal, identified by the tribunal in paragraph 28 of the liability reasons, namely a policy by Messrs Lewis and Murray that alternative managers would be brought into replace the applicants, was not raised by or before the Employment Tribunal. We shall return to that point in due course.

	Subject to that caveat Mr Sendall is driven to argue that the tribunal’s finding as to the real reason for dismissal was perverse. That well-worn ground of appeal has been described in a number of ways, conveniently collected by Mummery J in Stewart v Cleveland Guest (Engineering) Ltd [1996] ICR 535, 542 G-H.

	In advancing that contention Mr Sendall takes the following points:

(1)	the tribunal failed to pay any or sufficient regard to the following factors:

(a)	that no point had been taken by or on behalf of the applicants as to the reason for dismissal, despite their being represented by solicitors throughout, until it was raised by the tribunal of its own motion. We do not regard that fact as fatal to the tribunal’s conclusions. It is for the tribunal to assess the reason advanced by the employer, on whom the burden of proof, in these case, lay. We are satisfied that the tribunal raised the issue as a direct result of evidence given by the applicants on the second afternoon of the liability hearing. The tribunal is not bound to accept the employer’s reasons in circumstances where it permissibly finds that the reason advanced was manufactured.

(b)	the point was not raised in either Originating Application. We have earlier observed that both pleadings denied that Jarmain had a valid or sufficient reason for dismissal.

(c)	the reason was not challenged until the third day of the liability hearing. That was remedied, in our view, by both Mr Murray and Mr Mannion being recalled to give evidence once the point had been raised by the tribunal.

(2)	The tribunal’s finding as to the real reason for dismissal was unsupported by evidence, alternatively was an impermissible inference. Again, we disagree. It seems to us that the seven factors set out at paragraph 29 of the liability reasons provided an adequate basis in fact for the conclusion drawn by the tribunal.

(3)	Failure to raise the reason articulated by the tribunal at paragraph 28 of the liability reasons with the parties. The tribunal having raised the issue of the reason for dismissal it was for Jarmain to establish a potentially fair reason. Mr Murray maintained that the reasons were those set out in the letters of dismissal. It was common ground that Jarmain were looking to replace the applicants. It seems to us that it was open to the tribunal on all the evidence, to infer that the real motive for the manufactured reasons for summary dismissal was the desire to effect those changes sooner rather than later, and at no cost to the employer, bearing in mind the contractual notice rights and unfair dismissal protection enjoyed by both applicants.

(4)	The tribunal should be slow to make a finding as to the reason (or principal reason) for dismissal adverse to the employer, particularly where no issue as to the reason is raised on behalf of the applicants, unless the evidence strongly points to such a conclusion. The tribunal adopted a highly proactive enquiry into the dismissal.

	Here, we think, lies the rub in these appeals. The result of these cases simply cannot be right, in the view of Jarmain. We have approached the matter dispassionately, conscious of the limit in our jurisdiction to interfere only where the tribunal has erred in law. We can see no legitimate criticism of an Employment Tribunal which has conscientiously discharged its duty to find the real reason for dismissal.

(5)	The credibility of Mr Murray. Complaint is made as to the observations contained in paragraph 13 of the liability reasons. In our view those observations were permissibly made by the tribunal of fact, charged with the often difficult task of assessing the credibility of witnesses. We did not see and hear the witnesses. It is not for us to substitute our view of the credibility of Mr Murray for that of the tribunal.

	Next, Mr Sendall attacks certain aspects of the tribunal’s findings on the individual allegations raised against the applicants in the letters of dismissal. We draw attention a distinction between the tribunal’s function (a) to find the real reason and (b) to assess the reasonableness of the dismissal where a potentially fair reason is made out or in this case assumed for the purpose of the alternative finding made by the tribunal.

	Thus, it seems to us, for the purpose of determining the reason question it is perfectly legitimate for the tribunal to make its own assessment of the factual basis for the allegations of misconduct relied on by the employer. Where, as here, the tribunal found the allegations weak for the reasons given, that may support a finding that the reason advanced is not the true reason. It is otherwise when considering the reasonableness of a potentially fair reason for dismissal; there the test is that of the reasonable employer. In our judgment the tribunal properly observed that distinction when making their findings as to the reason for dismissal, ending at paragraph 30, and their subsequent alternative findings as to the reasonableness of the dismissals based on the reasons advanced by Jarmain.

	In these circumstances we do not propose to revisit the tribunal’s findings of fact. We are satisfied that this tribunal was entitled to conclude that no potentially fair reason for dismissal had been made out by Jarmain; accordingly the claims for unfair dismissal succeeded. It is unnecessary to consider the alternative findings as to reasonableness; further, the tribunal’s error in relation to the aggregation of acts of alleged misconduct is immaterial to the principal finding of unfairness, namely that no potentially fair reason had been made out.

Wrongful dismissal
Mr Sendall does not challenge the tribunal’s finding, at paragraph 12 of the remedies reasons, that, for the purposes of justifying Mr Mannion’s dismissal at common law, Jarmain failed to establish as a matter of fact that he threatened two employees, Messrs Whitehead and Lum. That must be correct. However, he does challenge the subsequent findings that the allegations relating to the use of the premises for the sale of alcohol and tobacco; the altering of test certificates, and the applicants’ acquiescence in the practice of teeming and lading of customer’s wool did not, individually or collectively, constitute gross misconduct.

	In relation to each of those allegations the tribunal found, on the evidence, that those matters formed part of the long-standing custom and practice at the premises which the applicants had inherited. Those were permissible findings. It follows, in our view, that the tribunal was entitled to conclude that taken individually or together, these matters were not sufficient to constitute gross misconduct at common law entitling Jarmain to terminate the contracts of employment summarily.

Contribution
An issue has arisen between the tribunal on the one hand, and Mr Bramhall on the other as to whether the issue of contribution, both under ss. 122(2) and 123(6) of the 1996 Act, was raised before the tribunal.

	We do not find it necessary to resolve that conflict. On the tribunal’s findings of fact in relation to the claims of wrongful dismissal it is clear that no finding of culpable or blameworthy conduct was made such as to give rise to a finding that any deduction ought to be made from either the basic or compensatory awards for unfair dismissal.

S. 123(1)
Although it is common ground that the point here was raised and not addressed in the tribunal’s remedies reasons, it is equally clear to us on the tribunal’s findings that there was no room for what has become known as the “Polkey deduction”.

	In these circumstances we have concluded that these appeals fail and must be dismissed.