Appeal No. UKEAT/0776/03/SM

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 12 December 2003
Judgment delivered on 1 March 2004

Before
HIS HONOUR JUDGE D PUGSLEY
LORD DAVIES OF COITY CBE
MR F MOTTURE

MRS L M COHEN	APPELLANT

IPG (EUROPE) LTD	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR R MOORE
(of Counsel)
Messrs Gales Solicitors
513 Wimborne Road
Winton
Bournemouth BH9 2ET	
For the Respondent	MR T DRACASS
(of Counsel)
Instructed by:
Messrs Lester Aldridge Solicitors
Russell House
Oxford Road
Bournemouth BH8 8EX	

HIS HONOUR JUDGE D PUGSLEY

1.	Mrs Cohen presented an originating application on 16 November 2002 claiming that she had been unfairly dismissed from her employment with the Respondent as a Sales Agent on 19 September 2002.  In addition she claimed that there was an outstanding payment due to her in respect of outstanding commission of £6000.  By a decision promulgated on 13 May 2003 the tribunal found that the Applicant was not an employee and dismissed her claim for unfair dismissal.  It is clear from the enclosures which accompanied the Originating Application that the Applicant’s case for unfair dismissal was being put on the basis that she had resigned and was justified in law in so doing and had been constructively dismissed.

2.	At a subsequent hearing on 23 July, promulgated on the 6 August 2003, the Tribunal heard the claim for unlawful deduction from wages and dismissed her claim.  It was not in dispute that she was a worker and no issue as to jurisdiction was taken as to the correctness of that finding before us. 

3.	The brief factual context of this dispute is that the Appellant worked as a commission agent for the Respondent from December 2000 until the l5 September 2002.  She dealt with the sale of properties in Florida.  The issue of the appeal is a narrow one: namely whether the tribunal was wrong in law to find the existence of an implied term that outstanding commission would not be paid under Clause 3 of the agreement if the Appellant left and went to work in breach of Clause 2 of the contract.

4.	When this Tribunal convened the members of the Tribunal expressed certain concerns.  It is common ground that the terms in which the Employment Tribunal's jurisdiction was extended to include breach of contract cases excluded a Tribunal from determining an issue as to a term which is a covenant in restraint of trade.  Although this does not preclude a Tribunal from hearing the claim it does prevent the Respondent from mounting a counterclaim against the Applicant.

5.	Moreover, as the tribunal had found that the Applicant was not an employee, the claim for unfair dismissal was dismissed.  We had some concerns that the tribunal determining the wage claim did not deal with the issue of whether the Respondent was in breach of any fundamental term of the Applicant's contract.  It is at least arguable that the issues which would have been ventilated in an unfair dismissal claim might have been relevant in deciding whether Respondents had forfeited its right to enforce the restrictive covenant.  The case of General Billposting Ltd v Atkinson 1909 AC 118 would suggest that in a contract of employment if an employer has repudiated the contract it cannot then enforce a restrictive covenant against a former employee.  Whether that case should apply when a Claimant was a commission agent rather than an employee would be a matter for argument.

6.	In brief our concerns were that the matter before was only part of a much wider issue which might feature in other litigation.  Our anxieties were justified in that we were told that there is litigation in Florida arising out of the alleged breach of the restrictive covenant.  It is always a matter of concern that there should be a multiplicity of litigation with the result that the costs may dwarf the sum in issue.  However these fears were ones which we can only articulate rather than adjudicate upon.

7.	The essential issue is within a narrow compass.  The Applicant worked as a commission agent and was paid on a commission only basis in response to invoices by her.  She received a percentage of the total commission paid to IPG.

8.	The Appellant approached the Respondents in December 2001 and requested an advance on commission in order to assist her cash flow.  Although not under any contractual obligation to do so the Respondent agreed to pay the Appellant in advance and further advances were made between January and February 2002.

9.	Sometime prior to March 2002 the Applicant had been working at a trade exhibition and had been approached by a competitor to see if she would work for them.  This became known to the Respondents who seem, in the language of the tribunal decision at Paragraph 5 (vi), to have been rather rattled by this.  Certain conversations took place and an agreement was reached which is set out in the Decision:

"In consideration of your making to me advances against commission to be earned and which is contrary to normal company policy, I hereby agree - 
1.	Whilst I am an agent for IPG I will not without your express prior written approval be involved in any capacity with any other company that is involved in overseas property. 
2.	Should I terminate my engagement as an agent of IPG I will not for a period of 12 months subsequent to such termination be involved in any capacity with any company that deals with the marketing, sale or rental of property located within a ten mile radius of the gates of Disneyworld, Florida.  This provision shall not apply if lPG gives notice to terminate my agency. 
3.	If after cessation of my agency commissions advanced exceed commissions due to me, I will upon request pay to IPG any such excess.  In computing commissions due to me shall be taken 100% of my usual commission entitlement on deal that close prior to the date of cessation plus 70% of my usual commission entitlement on deals that close subsequent to the date of cessation but for which the contracts were signed prior to the date of cessation.  If after cessation of my agency commissions due to me exceed commissions advanced, such excess shall be paid to me upon closing of the sales concerned.”

10.	This agreement was dated the 29 March 2002.  On the 15th of September the Appellant resigned.  There were a number of commissions which were due to her.  Initially the Respondents, through their solicitors letter of 12 November 2002, seemed to accept that such money was due under the agreement but thereafter by a letter dated the 18 December resiled from that position claiming that due to the Applicant's fundamental breach of contract they were no longer liable to pay the sum which would otherwise be due.  The Tribunal accepted that there was an implied term that the outstanding commission would not be payable if she left to work with another competitor.

11.	It is clear from the written proof of the Respondent's prime witness, Mr Green, that the Respondent's case before the tribunal was that there was an express term of the contract that if she terminated her association with the Respondent then she would not be entitled to any commission on deals which closed subsequent to her involvement with any competitor; see Paragraph 9, page 45 of the bundle.  During the course of the Decision the Tribunal made adverse findings about the Applicant's credibility and favourable findings in relation to Mr Green.  Yet the Tribunal made no finding of any express term of the contract that if the commercial relationship with the Respondent was terminated, and if she became associated with a competitor, that she would forfeit her contractual rights to accrued commission. 

12.	There is considerable force in the Appellant's contention that the Tribunal embarked upon a reconstruction and rewriting of the agreement based on general equitable principles.  An example of this is approach is to be found in Paragraph 5(ix): -

"The Respondents submit there is a linkage between Paragraphs 2 and 3 of the agreement on Page 61.  We find their arguments rather more compelling than the Applicant's arguments because we look to see the underlying rationale for having the agreement in the first place and to link clauses 2 and 3 certainly supports the Respondents' rationale for having the agreement in the first place."

13.	Having made it clear that it preferred the Respondent's evidence to that of the Applicant the Tribunal at times seemed to hold the subjective view of the Respondent's as of great significance (see Paragraph 5 (viii) "its true implication as far as the Respondent is concerned").  We do not consider it necessary for the purpose of this decision to deal at any length with the jurisprudential basis of the doctrine of an implied term.  As the learned editors of Chitty make clear the words implied term cover a number of somewhat dissimilar notions.  It includes terms which are to be logically implied from the express terms; terms which the parties probably had in mind but did not express; terms which the parties, whether or not they had them in mind, would probably have expressed if the question had been drawn to their attention and terms which, whether or not the parties had them in mind or would have expressed them if they had foreseen them, are implied by the court because of the court's view of fairness or policy or in consequence of rules of law.  In practice logically implied terms and the other types of implied term tend to merge imperceptibly into each other and all categories tend to be justified to be some extent by reference to the intention of the parties.

14.	The court does not have a discretion to write a new contract and it is not sufficient that it would be reasonable to make a particular implication.  One looks in vain in this decision for any direction as to law as to how the tribunal approached their task of implying a term.  Without going into the issue of whether the term implied would have been an unenforceable penalty clause rather than a lawful liquidated damages clause, as one of the members pointed out in argument, there may be issues as to proportionality.  To take a hypothetical example, if an employee or agent was owed thousands of pounds and broke the restrictive covenant within days of its expiry there may well be issues as to whether such an implied term could properly be said to have been justified by reference to the joint intention of the parties.

15.	We are left with the uncomfortable feeling that the tribunal, having formed a favourable view of the Respondents' credibility and a less favourable view of the Applicant's credibility, then construed the agreement by what it perceived to be equitable criteria based on its findings on credibility rather than by directing itself as to the generally recognised tests applicable to implied terms. In the tribunal's decision there is no hint of Lord Edmund-Davies's aphorism in Liverpool C.C. v Irwin [1977] A.C. 239 at 266 that "the touchstone is always necessity not merely reasonableness."

16.	The Respondents have argued that the Tribunal made two crucial findings of fact which the Appellant is not free to challenge:

(a)	That the Appellant, despite her claims to the contrary, entered into the contract freely being fully aware of the implications, namely that if she left and worked for a rival organisation, no other commission would be paid. 

(b)	That there was no response by the Appellant or her solicitors to the letter dated 18 December 2002.  Essentially there was no challenge to the contentions made therein. 

17.	It is therefore argued that the Tribunal were perfectly entitled to come to the view that the implied term existed.  The high water mark of the Respondent's argument, set out in Paragraph 22 of their Skeleton Argument, is that the Appellant was well aware of what would happen regarding her outstanding commission if she broke Clause 2 and the absence of any challenge to the letter dated 18 December 2003 by the Appellant or her solicitors simply served to confirm this.

18.	The difficulty with this submission is that the Respondent's primary case was that there was express oral term to the effect that if the Appellant worked for a competitor she would forfeit her outstanding commission.  The Tribunal made no finding of fact as to this and instead implied a term into the contract without either setting out any of the tests for implying a term or giving any indication that if such tests were not set out that it had in mind the appropriate tests.  We have speculated whether the tribunal have confused the distinction between making a finding that there was an express oral agreement which was binding, even though the main contractual terms were in writing, with implying a term into a contract.

19.	In these circumstances we consider that we should allow the appeal for the whole matter to be reheard by a differently constituted tribunal.  As the essence of the Appellant's case is that the Tribunal never asked themselves the right question we cannot see that we have any alternative but to direct that the whole issue be reconsidered afresh by a differently constituted Tribunal.  The parties and the Tribunal may wish to consider some of the concerns which we noted so that the parties do not have to endure the misery of multiple litigation.