Appeal No. EAT/172/92

	EMPLOYMENT APPEAL TRIBUNAL
	58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

		At the Tribunal
		On 25th April 1994
	Judgment delivered on 7th September 1994

	Before

	THE HONOURABLE MR JUSTICE MUMMERY (PRESIDENT)

	MR R JACKSON 

	MR R H PHIPPS

N GANAESHALINGHAM	APPELLANT

PRIME GARAGES LTD	RESPONDENTS

	Transcript of Proceedings

	JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR P J M HAWTHORNE
Solicitor
Witham Weld
70 St Georges Square
LONDON SW1V 3RD

For the Respondents	MR J CORBETT
(of Counsel)
Wright Hassall & Co
9 Clarendon Place
Leamington Spa
Warwickshire
CV32 5QP

MR JUSTICE MUMMERY (PRESIDENT)       This is an appeal from the Industrial Tribunal held at London (South) on four days in November and December 1991.  For Full Reasons notified to the parties on 18th February 1992 the Tribunal unanimously decided that complaints made by Mr Ganaeshalingham ("the Applicant) of unfair dismissal and racial discrimination against his former employers, Prime Garages Ltd ("the Respondent") should be dismissed.  The Tribunal found in the Applicant's favour on a claim of unauthorised deductions in contravention of the Wages Act 1986 and ordered the Respondent to pay £284.54.  There is no appeal against that part of the decision.

	The Applicant was dissatisfied with the decision and appealed by Notice of Appeal which took its present, amended form on 11th December 1992 after leave to amend was given at a preliminary hearing in the Appeal Tribunal on 8th December 1992.

The factual background
	The dispute between the Applicant and the Respondent arose in the following circumstances:-
(1)  The Applicant, a Sri Lankan, worked for the Respondent from 15th December 1986, first as a cashier and, from May 1989, as a trainee manager until he was promoted to a full manager in February 1990 and put in charge of the Nightingale Service Station in Balham.

(2)  The Respondent, a subsidiary of Mobil Oil Company, operates about 250 Mobil service stations in the United Kingdom.  The Respondent has a structure of territory managers and area managers.  The Applicant reported to the territory manager, Mr Otter, who in turn reported to the area manager, Mr Ball.  They are both white.  In the area in which Nightingale Service Station is situated there were at the relevant time 45 monthly paid managerial staff of whom 19 were Sri Lankan.  There were no Sri Lankan area managers or territory managers.  Two of the 25 territory managers were of Asian ethnic origin.

(3)  Between 21st and 24th January 1991 an audit of the stock at Nightingale Service Station was carried out by one of the Respondent's auditors, Mr Neale.  According to the dry stock count carried out there were discrepancies in the figures which led the Respondent to charge the Applicant with "altering" the stock count figures to conceal dry stock losses. 

(4)  On 20th February 1991 a disciplinary hearing took place before Mr Otter.  He gave the Applicant a first and final  written warning for unsatisfactory conduct, ie "altering stock count figures".  He was warned that a "further breach of company policy or procedures might result in dismissal".  Mr Otter sent to the Applicant a warning letter dated 21st February 1991 stating that "the nature of the unsatisfactory conduct was due to altering stock count sheet figures".  Mr Otter also made a note to file relating to the disciplinary hearing.  He noted that the outcome of the hearing was that the Applicant received "a first and final written warning for misconduct on the grounds of fraudulent accounting".  The note also stated that, after the meeting, Mr Otter had a discussion with Mr Ball on the telephone about a claim made by the Applicant for travelling expenses to a Respondent's conference.  Mr Otter and Mr Ball agreed that the Applicant should be suspended for gross misconduct on the ground of defrauding the Respondent company.

(5)  After hearing evidence, the Tribunal found that the allegations that the Applicant "had altered" stock count figures were inaccurate and that there was no evidence to justify an inference that the discrepancies were deliberate.

(6)  On 18th March Mr Otter conducted a further disciplinary hearing in relation to a charge against the Applicant of gross misconduct in making a fraudulent expenses claim for travelling by car to conference of the Respondent's managerial staff at Birmingham on 11th February 1991.  The Applicant had been suspended on full pay on 20th February following the discussion between Mr Otter and Mr Ball.  Those present at the disciplinary hearing, in addition to Mr Otter, were Mr Ball and two independent witnesses for the Applicant, the acting manager and cashier at the Nightingale Service Station.  According to Mr Otter's notes of the disciplinary hearing on 18th March, Mr Otter reminded the Applicant that he had just received a first and final written warning for "fraudulent accounting on the recommendation of audit findings".  Mr Ball also made a note of Mr Otter's explanation to the Applicant at the opening of the hearing as follows:
	"Basically explained fraudulent expenses claim following gross misconduct for altering dry count stock sheet."
At the hearing the Applicant accused Mr Ball of instigating a racist campaign against Sri Lankan managers.  Mr Otter concluded at the end of the hearing that the Applicant had deliberately claimed for the mileage to and from the Birmingham conference with the intention of defrauding the Respondent.  He told him that he would be dismissed for gross misconduct.  The dismissal letter dated 19th March 1991 was signed by Mr Otter and stated -
	"The reasons for your dismissal relate to fraudulent accounting and, in particular,  your submission of a false expenses claim."
The reference to fraudulent accounting clearly includes a reference to the earlier charge regarding discrepancies revealed on the audit in February.

(7)  On 11th April 1991, the Applicant unsuccessfully appealed against the dismissal decision to the Respondent's Board of Directors.  The appeal was heard by Mr Sims.  The notes of appeal which were in evidence before the Tribunal referred not only to the expenses claim but also to the "fraudulent accounting" charge.

Decision of the Tribunal
	The Tribunal dismissed the Applicant's claim for the following reasons:-
(1)  The principal reason for the Applicant's dismissal was a belief on the part of Mr Otter that the Applicant had submitted a claim for expenses which he had not incurred.  That was a genuine belief held on reasonable grounds and was in fact the case.  The Tribunal heard evidence from Mr Otter and the Applicant about telephone conversations which the Applicant alleged had taken place between them on 14th and 15th February.  Those conversations had not been mentioned either at the disciplinary hearing or at the Appeal hearing or in the Applicant's Originating Application.  The Applicant's evidence was that he had informed Mr Otter about expenditure on the purchase of petrol for the car in which he travelled to the conference.  Mr Otter denied that there was any such conversation.  The Tribunal accepted his evidence in preference to the Applicant's.

(2)  Before deciding to dismiss the Applicant, the Respondent had carried out sufficient investigations.  Dismissal was within the band of reasonable responses of a reasonable employer.

(3)  As for the claim for racial discrimination the Tribunal stated in paragraph 21. of its Decision 
	"We heard no evidence from which we could infer that, on racial grounds, the respondent treated the applicant less favourably than it treated or would treat other people."

The Applicant's submissions
	Mr Hawthorne, on behalf of the Applicant, argued that the Tribunal had erred in law in its decision both on the complaint of racial discrimination and on the complaint of unfair dismissal.
ARacial discrimination
The central point of Mr Hawthorne's argument was that the Tribunal failed to address the issue of race discrimination in relation to the incident of the discrepancy in stock count figures.  The evidence showed that Mr Otter, Mr Ball and Mr Sims all treated that matter as one of "fraudulent accounting".  The Tribunal held that that was inaccurate and concluded that there was no evidence from which it could be inferred that there was deliberate alteration of the figures by the Applicant.  The issue which the Tribunal should have addressed, but failed to, was whether the charge of "fraudulent accounting" was, in those circumstances, as a result of racial discrimination, as the Applicant alleged it was, or occurred simply through a misunderstanding of the situation.

In his Originating Application, presented on 10th May 1991, the Applicant had alleged discrimination in relation to the stock count incident, as well as in relation to the decision to dismiss him following the disciplinary hearing on the travelling expenses claim.  The point about "fraudulent accounting" was carried over into the discussions to dismiss but, again, that aspect of the case was not dealt with by the Tribunal.  The reasons given by the Respondent for dismissing the Applicant included "false accounting" which, on the facts found by the Tribunal, was an inaccurate description of what had happened.  It is argued that the question whether the inaccuracy of the "false accounting" charge was the result of racial discrimination affected the question whether the dismissal of the Applicant was the result of racial discrimination.

Mr Hawthorne submitted that the Tribunal erred in law in failing to address the question whether the fraudulent accounting charge was the result of racial discrimination and it could not therefore legitimately answer the question whether there was unlawful discrimination in the later decision to dismiss the Applicant.

The same factor affected a different point made by the Industrial Tribunal in paragraph 17 of the decision. That dealt with the Applicant's arguments that the Respondent had a white employee who had not been disciplined and that he, the Applicant, had suffered adverse treatment on the grounds of race in the way he had been disciplined.  The Tribunal concluded that the action against the Applicant was explicable by reference to the discrepancy between the dry stock report and the stock count.  But, in making that observation, the Tribunal failed to take account of the fact that, earlier in their decision, they had found that the allegation of deliberately altering the stock figures was an inaccurate one.

In these circumstances Mr Hawthorne argued that the Tribunal had erred in law.  It was for the Respondent to produce a satisfactory explanation for making an inaccurate charge of "fraudulent accounting" against the Applicant.  If there was no satisfactory explanation for that, then it was open to the Tribunal to infer that the adverse treatment of the Applicant was on racial grounds.  The Tribunal failed to inquire whether there was a satisfactory explanation and therefore misdirected itself in law in the statement that there was no evidence from which they could infer less favourable treatment of the Applicant on racial grounds.

BUnfair dismissal
Mr Hawthorne argued that the incident of the dry stock count led the Tribunal to err in law when it decided the question of unfair dismissal.  The letter of dismissal dated 19th March stated that -
	"The reasons for your dismissal relate to fraudulent accounting and in particular, your submission of a false expense claim."

The legal error in the decision to dismiss the Applicant was that it was taken in breach of the rules of natural justice.  It appeared from the notes of the disciplinary hearing held in February that Mr Otter and Mr Ball had already discussed on the telephone the charge relating to the expenses claim and reached the conclusion that the Applicant was guilty.  They took the decision to suspend him on full pay.  The outcome of the disciplinary hearing, attended by both Mr Ball and Mr Otter on 18th March, was a foregone conclusion.  The attitude of both of them appeared from the notes of the hearing to be that there had been "fraudulent accounting" and "gross misconduct" by the Applicant in relation to the charge at the earlier hearing.  The Tribunal held that the evidence did not warrant such a description.

Further, as Mr Ball had been involved in the decision to suspend the Applicant on the ground of "fraudulent accounting", he was not the right person to participate in the disciplinary inquiry on the travelling expenses charge.  This was a procedural failure not corrected on appeal.  The appeal was not in the nature of a rehearing.  Neither Mr Otter nor Mr Ball were present at the hearing of the appeal to be questioned by Mr Sims.

The Respondent's submissions
	Mr Corbett argued that there was no error of law either in the decision on racial discrimination or on the unfair dismissal claim.

ARacial discrimination
Mr Corbett reminded the Appeal Tribunal of the terms of S.1(1)(a) of the Race Relations Act 1976 which defines direct discrimination.  The Tribunal knew what the issues were concerning both the first and final written warning and the ultimate dismissal.  The Tribunal heard all the evidence.  There was no finding by the Tribunal that Mr Otter did not genuinely believe that the Applicant had altered the stock figures.  In any case, it did not follow that an inference of racial discrimination was the only inference which the Tribunal might have drawn from the inaccuracy in the allegation of alteration of the stock figures.  In those circumstances it could not be argued that the Tribunal decision was perverse.  The Appeal Tribunal had no jurisdiction to interfere with the decision.

B.Unfair dismissal
Mr Corbett argued that it was clear that the principal reason for the Applicant's dismissal was the expenses claim.  The Applicant's evidence on that was rejected.  The suspension of the Applicant by Mr Ball and Mr Otter did not pre-judge the issue.  On the appeal to Mr Sims the Applicant was given an opportunity to say what he wanted.  In brief, the Tribunal had rightly held that the Applicant was not dismissed on racial grounds but by reason of his fraudulent claim for travelling expenses.

Conclusion
	In our judgment, this appeal should be allowed and the matter should be remitted for rehearing by a different Tribunal on both the complaint of racial discrimination and unfair dismissal.  Our reasons for this conclusion are as follows:-
(1)  If, in a race discrimination case, an applicant shows that he has been treated less favourably than others in circumstances consistent with that treatment being based on racial grounds, the Industrial Tribunal may draw an inference that such treatment was on racial grounds.  A Tribunal will normally draw such an inference if the respondent does not persuade the Tribunal that there is a satisfactory or innocent explanation for the disparity in treatment.  The Chattopadhyay v. Holloway School [1981] IRLR 487 at 490, paragraph 18 and King v. The Great Britain China Centre [1991] IRLR 513 at 517, paragraph 38.

(2)  Although the Tribunal found as a fact that the charge for alteration of the stock figures was inaccurate, the Tribunal failed to make any finding on the issue of the Respondent's explanation for making an inaccurate charge against the Applicant.  The Tribunal never addressed the question whether the Respondents had a genuine belief based on reasonable grounds for making such a charge.  They should have specifically addressed that issue having come to the conclusion in paragraph 8 of the decision that, though there were discrepancies between the figures on the stock count, "we heard no evidence to justify an inference that the discrepancies were deliberate".

(3)  The Tribunal should have returned to that question in dealing with the unfair dismissal claim because the stocktaking incident was taken into account in reaching the decision to dismiss the Applicant.  That incident was the subject of a first and final written warning and it was one of the reasons given for the decision to dismiss.  In deciding whether the decision to dismiss was a reasonable response, the Tribunal should have addressed the question of whether the Respondents had a genuine belief on reasonable grounds that the Applicant had altered the stock figures and whether there had been an adequate investigation on that point.

	Those grounds are, in our view, sufficient to justify allowing the appeal and remitting the matter to the Tribunal.   We would add an additional concern.  That was the involvement of Mr Otter in the disciplinary hearings both on the inaccurate "fraudulent accounting" charge relating to the stock figures and on the travelling expenses claim.  If his decision on the stock count "fraudulent accounting" charge was not based on any evidence which would justify the inference that the discrepancies were deliberate, doubt must arise as to whether the view which Mr Otter had formed of the Applicant's conduct on that charge affected the fairness of the later disciplinary hearing on the travelling expenses claim.

	For all those reasons this appeal is allowed and the matter is remitted to a different Industrial Tribunal.