Appeal No. EAT/1172/01

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 17 October 2002

Before
HIS HONOUR JUDGE J McMULLEN QC
MR K EDMONDSON JP
MISS D WHITTINGHAM

MS O DONOVAN	APPELLANT

CENTREPOINT SOHO	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR R GOOD
Solicitor
Messrs Hodge Jones
Solicitors
31-39 Camden Road
London
NW1 9LR	
For the Respondent	MRS C RAYNES
(Of Counsel)
Instructed by:
Messrs Russell Jones & Walker
Solicitors
Swinton House
324 Gray’s Inn Road
London
WC1X 8DH	

JUDGE J McMULLEN QC

1.	This case is about the compensation for unfair dismissal and other deductions and about Tribunal procedure.  We will continue to refer to the parties in these proceedings as Applicant and Respondent.  It is an appeal by the Applicant of proceedings against the decision of an Employment Tribunal sitting at Stratford, Chairman Mr J N Leonard with Mrs C Aitchinson and Ms Osamor on 12 March and 22 June and again in Chambers on 1 August 2001.  He was promulgated with extended reasons on 8 August 2001.  The Applicant was represented by Mr Good there and here and the Respondent by Ms Rayner there and here.

2.	The Applicant claimed unfair dismissal.  The Respondent contended the Applicant was dismissed for redundancy and it was fair in substance and after following its own fair procedure.  The essential issue was defined by the Employment Tribunal was whether in order to implement a reorganisation the Respondent should have offered the Applicant an interview in a ring-fenced procedure for a newly created Head of Housing post.  The Employment Tribunal found that the Respondent failed to consult the Applicant before she was excluded from this procedure and that the dismissal was therefore unfair but he awarded no compensation to her in accordance with the principles in Polkey [1987] IRLR 503 HL.  That is that the dismissal would have occurred on the date it did in any event.  No basic award was paid because the Respondent paid severance monies over and above the basic award.  The Applicant appeals against that finding on grounds set out in a Skeleton Argument under the Notice of Appeal and further oral submissions made today.  

3.	Essentially two points arise.  The Tribunal made a perverse decision in a judging that the Respondent would have dismissed her in any event and that there should have been an opportunity provided for the parties to make submissions.  The Respondent contended that the evidence before the Tribunal was sufficient for it to make the finding that it did and that the Applicant’s case does not pass a high threshold for a condemnation on the grounds of perversity.

4.	Before we embark on a further consideration of this matter three preliminary issues arose.  First, the Respondent sought to cross appeal.  This appeared to us to be very substantially out of time and was resisted by Mr Good.  We decided that the issue raised in the cross appeal was probably inapplicord a cross appeal and it included a challenge to jurisdiction alleging that the Tribunal had acted ultra vares.  We agreed that we would hear the substance of the complaint without actually it a cross appeal and allowed Ms Rayner to develop her argument essentially in opposition to the argument put forward by the Applicant.  It was actually an argument which supported the decision of the Tribunal but if the Employment Appeal Tribunal acceded to the Applicant’s argument then Ms Rayner would say that the Tribunal had erred in law in considering the matter at all.

5.	Secondly, the Applicant’s CV is directly relevant in these proceedings.  By chance I chaired the Employment Tribunal which heard the Applicant’s case of unfair dismissal, sex discrimination and race discrimination arising out of her employment at New Islington Health Authority between 1989 and 1993.  This case was dismissed at a Tribunal in Stratford.  An appeal was heard here presided over by his Honour Judge Clark.  Three days ago, at my invitation, the Applicant confirmed that she had no objection to the present constitution of this Appeal Tribunal.  Her second job at Stoneham Housing Authority resulted in a claim of race discrimination and sex discrimination which succeeded on appeal by Stoneham to the Employment Appeal Tribunal again before his Honour Judge Clark and an EAT.  The appeal was dismissed.  In other words the finding of the Tribunal of race discrimination and sex discrimination was upheld.  Today Ms Rayner made no objection to the present constitution which leads us to the third matter.  This case is constituted under Section 28(3) of the Employment Tribunals Act since about half an hour into today’s proceedings one member became ill and with the consent of the parties this case has now been heard by a Judge and Lay Member pursuant to Section 28(3).  The Applicant was employed by the Respondent from 9 July 1997 until 30 June 2000 as a Development Manager.  It was a responsible position and attracted a salary of over £30,000 a year.  The Respondent is a charitable organisation providing accommodation and support services to young people, some of whom have mental health and drug related problems.  The Respondent employs about 200 employees.  The Respondent has established about 1970 and is responsible for managing 44 properties in London.  It is regulated by the Housing Corporation which carries out validations.  As a result of a validation exercise certain changes were sought to be made by the Respondent.  The Respondent has in place a system for dealing with such reorganisation and possible redundancies.  Part of the procedure includes an undertaking that staff who are facing redundancy will be asked to attend a ring-fenced interview where an assessment whether they have the potential to be able to do the new post will be made.  The basis of this assessment was that they would be able to meet the skill and performance needs of the job as effectively as an average new employee in that post by the end of the three month trial period.

6.	As the Tribunal identified, a key issue in this case was whether or not the Applicant was entitled to a ring-fenced interview for the newly created post of Head of Housing in early 2000.  The Respondent denied her that right.  The Tribunal found that this was a crucial part of the process and that alone as they put it was sufficient to render the decision to dismiss her, an unfair one.  That then enabled the Tribunal to decide in favour of the Applicant.  It went on however to say that is not the end of the matter because it is necessary for the Tribunal to consider what was likely to have occurred but for that failure.  It then went on to conduct what the parties agree was a Polkey exercise and it came to the conclusion that the Applicant would have been dismissed in any event and reduce her compensation to nil.  A further feature of the procedure and the Respondent was that if a person failed at the ring-fenced interview he or she would be offered the opportunity to compete externally.  The Tribunal made certain findings about that.

7.	The Tribunal expressed and directed itself in relation to the Employment Rights Act and made serious criticisms of the Respondent about its failure to allow the Applicant the automatic right to be interviewed.  That is not part of any challenge today by the Respondent.  The Applicant was not consulted about her exclusion.  The way in which the Tribunal approached the Polkey assessment has been criticised by Mr Good.  The approach of the Tribunal can be understood by reference to what happened at the time of the hearing.  The hearing was fixed as we have indicated to take place on one day but due to lack of time was adjourned for three months.  As the Tribunal recorded at the end of the evidence the parties elected to make closing submissions in writing.  Accordingly, the Tribunal adjourned into Chambers to consider those submissions and to reach a decision.  Written submissions were made by Mr Good and Ms Rayner.  It is clear that no-one directly turned their attention to the Polkey process.  That is neither advocate in their written submissions nor the Tribunal in the course of the hearing nor at the end when inviting submissions.  It follows that no opportunity was given in the present case for the Applicant to argue against the 100% redemption of her compensation.  The Tribunal however did hear evidence upon which he could make a conclusion about what we considered to be the Polkey process.  What the Tribunal said was this:

“The first question is this part of the process is to consider whether such consultation would have lead to the conclusion that the applicant, after all, did qualify for a ring-fenced interview for the Head of Housing post.  We came to the reluctant conclusion that she would not; reluctant because of the failure to consult on the issue.  Whilst it would quickly have been recognised that the fact that Ms Donovan was not on the same grade as the Head of Housing post did not constitute a bar to interview, the next stage of the process would have been to consider whether or not she met the person specification.  It was the respondent’s bona-fide and reasonable conclusion that she did not.  It was considered that she did not the necessary experience or skills to fulfil the requirements of the new job, in particular, that she had no previous experience in housing management or welfare and in the delivery of services to very vulnerable young people, a key requirement.”

8.	Thus it was that the Tribunal decided to reduce the compensation to nil.  At a Preliminary Hearing before Mr Justice Wall, Mr Thompson and Miss Whittingham on 10 May 2002 when it was decided that this case should merit a full hearing directions were given for the production of the Chairman’s notes relating to certain parts of the evidence.  The Chairman speedily produced from the laptop note that he took details of the evidence taken.  Included in the directions was the reference to an appendix to the Applicant’s witness statement.  This is known as Table 1.  In Table 1 the Applicant set out the comparison between how she sought her experience in the past and her suitability for the job as Head of Housing.  Objection was taken to the adoption of this material before us today but we ruled that it was admissible and indeed did so at a time when Miss Whittingham was still with us and she confirmed that it had been regarded by the Tribunal under Mr Justice Wall as of crucial importance.  That was perspicacious because the Table contains references directly to the Applicant’s contention that she had previous experience in housing management and welfare and that she had experience in the delivery of services to very vulnerable young people, a key requirement.  She refers to the jobs to which we have already referred that is at New Islington and Hackney and at Stoneham.  She referred to over 15 years corporate management experience gained in both flat and tiered structures.  For the past 10 years she had held the variety of middle and senior management posts and she worked directly with young people in 1982 - 1985 and indirectly between 1994 and 1997 at Stoneham and again at the Respondent.  

9.	That document was before the Employment Tribunal and there was no cross examination of it although there was no dispute registered in the evidence of the Respondent’s witnesses with Table 1 although issue was taken with other aspects of the documentary evidence put before the Employment Tribunal.  Furthermore, in evidence before the Tribunal was the Applicant’s application to the Respondent when she first applied to be with them and that has been replicated for us in the Skeleton Argument by Mr Good to which no objection is taken.  Here it is clear that she indicates her experience and it is the contention of the Applicant that the finding that we have recorded is perverse in the light of that unchallenged evidence.  The finding in fact is that it was the Respondent’s bona fide and reasonable conclusion that the Applicant did not meet the relevant criteria but since the objective standard is imported by the word ‘reasonable’ it is possible for us at this distance to examine what were the materials put before the Respondent and then before the Tribunal.  Given that as we have seen the Applicant had relevant experience it would not in our judgment be correct for the Tribunal to draw the conclusion that the Respondent had on reasonable grounds for the conclusion that she did not.  Thus it is that we find the Applicant’s case on this part of the appeal to be well founded.  The real problem, it seems to us, has occurred in the assessment thereafter based upon that finding of the Applicant’s chance of surviving in the organisation.  The approach taken by the Tribunal not expressly on Polkey but which the parties agree indicates a Polkey approach was taken without any submissions.  We will remit this case to the Employment Tribunal for it to hear the parties on the issue of remedy.  We have no doubt that the Tribunal was acting expeditiously and in order to save costs of the parties in deciding to hear written submissions at the invitation of the parties but none of these submissions focussed upon the remedy and what the Tribunal has done is to reduce the compensation pursuant to Polkey without hearing submissions.  We have no doubt that if the route had been on the other foot and the Tribunal had failed to reduce it at all or had reduced it by only a minimal amount Ms Rayner would be making the same complaint as it has been pointed to us the parties are entitled to a fair hearing when as a matter of substance the effect of the Tribunal’s ruling is to reduce what may well be substantial compensation for the Applicant to zero.

10.	It is not in every case that the Tribunal is required to describe the defect which it has identified but as the Inner House of the Court of Session said in King v Eaton Ltd (No 2) [1998] IRLR 686.  Referring to an earlier authority it seems to us that the word ‘procedural’ does not reflect some precisely identifiable category far less than it represents a category which could be precisely defined in all cases without enquiry into the facts.  In broad terms it appears to us that there will be situation where one can say that what went wrong was merely procedural.  Equally in broad terms we think there will be situation where one can say that an employee has been deprived of something of substantive importance to use the phrase of Lord Coulsfield’s.  We see no need to discard entirely terminology of this kind; and while in many cases it may be inappropriate to allocate the appropriate facts to either category, or to do so without enquiry, it seems to us that a distinction between the ‘merely’ procedural, and the more genuinely ‘substantive’ will often be of some practical use, in considering whether it is realistic, or practicable, or indeed ‘just and equitable’ to embark upon an attempt to construct the hypothesis, enabling one to assess what would have happened, if only it had.  If there has been a ‘merely’ procedural lapse or omission, it may be relatively be straightforward to envisage what the course of events would have been if procedures had stayed on track, rather than briefly leaving the track in this way.  If, on the other hand, what went wrong was more fundamental, or ‘substantive’, and seems to have gone ‘to the heart of the matter’, it may well be difficult to envisage what track one would be on, in the hypothetical situation of the unfairness not having occurred.  It seems to us the matter will be one of impression and judgement, so that a tribunal will have to decide whether the unfair departure from what should have happened was of a kind which makes it possible to say, with more or less confidence, that the failure made no difference or whether the failure was such that one simply cannot sensibly reconstruct the world as it might have been.  It does not seem to us that there is anything very wrong in using the word ‘substantive’ in connection with this latter situation.

11.	In that judgment given by Lord Prosser there is reference to O’Dea v ISC Chemicals Ltd [1995] IRLR 599 and citation from it in the speeches of Counsel.  There, the Court of Appeal was critical of the distinction drawn between ‘substantive’ and ‘procedural’.  See paragraph 15 of the King judgment but the Court of Session, while not expressly departing from it appears to have adopted as helpful the distinction which it set out in paragraph 19.  Since this is a Court of Co-ordinate Jurisdiction when dealing with matters of construction of a Great Britain statute we are faced with rather differing approaches in England and Scotland.  Since the Scottish case is later and since it did pay careful attention to the earlier English case we will follow the Scottish case.  A further Scottish case whichwas drawn to our attention and has given us some assistance is Fisher v California Cake & Cookie Ltd [1997] IRLR 212 in a judgment of the Employment Appeal Tribunal provided over by Lord Johnston.  In that case it was decided that the hypothetical question as to whether adopting a fair procedure would have achieved the same result must involve the Tribunal in conducting its own investigation and making its own decision.  In that case the Employment Appeal Tribunal was reluctant to send back to a Tribunal a decision which in substance although not expressly meant the Tribunal was deciding to reduce to zero compensation it would otherwise award for unfair dismissal.  It seems to us however, that that case reflecting a sensible approach in most circumstances was based upon a hearing in which the parties argued for and against reduction of compensation and may well have argued percentages.  That step was missed out in the case before us and it is for that reason that we will invite the Tribunal to reconstitute itself when we remit the case and to consider all aspects of remedy.  In practice, that is compensation since reinstatement is not sought but we do bear in mind that the question of remedy is always to be considered where prejudice or injustice is suffered as a result of its failure to be considered at large - see Constantine v McGregor Cory Ltd [2000] ICR 938 at 943 para 80 per Lindsay P.  A second aspect of the appeal developed by Mr Good relates to what might be described as a further hypothesis of the Tribunal in considering whether the Applicant being excluded as she was from a ring-fenced interview would have survived and succeeded at an interview which was conducted subject to external competition.  The Tribunal decided that she would not.  It is not necessary for us to make any finding about that matter either on the Applicant’s case or the Respondent’s approach to it since we propose to leave all matters of remedy to the Tribunal. Included in that will also be any submissions there may be about litigation and contribution.  We will give some directions.

12.	Since delivering this judgment orally, we have noticed the report in December of Market Force (UK) Ltd v Hunt [2002] IRLR 863 EAT in which HH Judge Clark reached the same conclusion as we have in relation to an Employment Tribunal decision on Polkey without hearing submissions.