Appeal No.	EAT/1000/00

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 7 December 2000

Before
THE HONOURABLE MR JUSTICE LINDSAY (PRESIDENT) 
MR I EZEKIEL
MR S M SPRINGER MBE

PACIFIC HEALTH CLUB LTD	APPELLANTS

MR R P FALGATE	RESPONDENT

Transcript of Proceedings

JUDGMENT

PRELIMINARY HEARING – EX PARTE

Revised

	APPEARANCES

For the Appellants	MR M ZAMAN
(of Counsel)
The Ringrose Law Group
The Old Vicarage
Church Close
Boston
Lincolnshire
PE21 6NE	

	MR JUSTICE LINDSAY (PRESIDENT):		We have before us by way of a preliminary hearing the appeal of Pacific Health Club Ltd (sometimes described as ‘Ltd’ sometimes not) in the matter Mr R P Falgate (sometimes spelled ‘Fellgate’) against that erstwhile employer. 

1.	On 21st December 1999 Mr Falgate presented an IT1 claiming “Wrongful Dismissal, Breach of Contract, Unfair dismissal”. It is a relatively unusual situation because Mr Falgate had been a co-owner of the employer and sold out his interest in part, at least, in return, as it would seem, for a contract of employment. Under the terms of that contract of employment, at any rate as alleged by Mr Falgate, and looking at 3.1.1. of his IT1, he said:

“3.1.1	The Applicant was employed for a fixed term of 5 years, with no right on the part of his employer to terminate the contract by notice in that period save in the event of serious or persistent misconduct;
3.1.2	The Applicant was to work 30 hours per week, consisting of three afternoon shifts from 4 p.m. to 9.30 p.m. The Applicant commenced work as the Manager of the Pacific Health Club from that date.”

	I am not sure that that is a correct summary of the contract, but that, at any rate, was what was alleged. Then in paragraph 4 of the IT1 supplement it says;

“4.	In about early 1998 the Applicant was informed by his employers that they wished him to start work at 8.00 am on his day shifts. His consent to this change in hours was neither sought nor given and the Applicant contends that he undertook shifts at such times as a volunteer.”

	Then again, still looking at what Mr Falgate was alleging, he said:

“8.	On 24th September, 1999, Mr Hubbard [who was one of the two proprietors of the Club fter Mr Falgate had sold out] handed the Applicant a letter notifying the Applicant that he had been summarily dismissed, which letter purported to justify his dismissal on the basis that:-
8.1	the Applicant had been persistently late for work since 1997.
8.2	that after the meeting on 9th June that future transgressions in respect of lateness would not be tolerated; and
8.3	that “there had been no improvement”.”

	So that was the sort of case that Mr Falgate was making.

2.	On 10th January 2000	 the Club put in its IT3 setting out a fuller form of the contract and saying:

“3.	It is averred that the Contract is clear in its terms: that working hours could be changed by mutual agreement.
…
10.	It is averred that, through his persistent and unwarranted lateness and the consequent effect that his conduct had on the retention of the club’s membership, the Respondent was justified in terminating the Applicant’s employment in accordance with paragraph 6(a)(i) of the Conditions of Employment which states that the employment may be terminated “by the Employer without notice or payment in lieu of notice in the event of serious or persistent misconduct by the Employee.””

3.	Well, that was the background of claim and answer to the claim.

4.	On 22nd May 2000 there was a hearing at Lincoln under chairmanship of Mr J S Walker. On 14th July 2000 the decision was sent to the parties, and it was:

“1.	There has been a breach of contract by the respondent who is ordered to pay to the applicant damages in the sum of £25,000 in accordance with the reasons set out below.
2.	The applicant’s complaint of unfair dismissal is dismissed.”

5.	On 9th August 2000 the Notice of Appeal was dated and received shortly thereafter on 11th August and it raises three grounds.

6.	Looking at the first ground the Employment Tribunal had said this:

“8.	Accordingly, in our judgement we have to consider under the breach of contract claim whether or not the contract of employment allowed or provided for termination by Mr Hubbard on the grounds of a breakdown of relationships. It does not do so. Accordingly, termination of the contract on that ground is not within its terms and is a breach of that contract."

7.	The expression ‘a breakdown of relationships’ is ambiguous. Is it, to use the language of Lord Nicholls of Birkenhead in Malik v BCCI [1997] IRLR 462, that one side or another (and, if so, which) has engaged in conduct likely to undermine the trust and confidence required of the employment relationship if the employment relationship was to continue in the manner the employment contract implicitly envisaged - see Malik paragraph 12; or was it simply a breakdown in relationships in the sense that Mr Falgate, so to speak, no longer got on with Mr Hubbard? If it was merely the latter, the contract, arguably at least, did not provide for that sort of breakdown and the Employment Tribunal’s conclusion would have been invulnerable. But if it was the former, that sort of provision is to be regarded as implied term. Indeed, Lord Steyn in Malik discusses the possibility that it is an incident of every employment contract. If the Employment Tribunal was saying that there was no breach of contract because that implied term was not, on the facts of this particular case, to be implied, then its reasoning, arguably, did indeed involve error of law. Unfortunately, the tribunal does not sufficiently explain the nature of the breakdown in relationships which it had in mind. We cannot clearly say which category of breakdown they had in mind. One would suspect that they were talking simply of the parties not “getting on”, but whether that is so or not, needs some elucidation. So arguably, on this first point, the tribunal erred either in not implying the conventional implied term or, if they had in mind that Mr Falgate and Mr Hubbard simply did not get on, in failing adequately to explain their reasoning so as to satisfy the well known test of Meek v City of Birmingham District Council. So this first point, it seems to us, is fit to go to a full hearing, although, of course, all we are concerned about at this stage is whether it is a reasonably arguable point. We certainly do not wish to say anything that goes further than that.

8.	The second point in the Notice of Appeal concerns evidence of persistent lateness on Mr Falgate’s part. The tribunal said:

“4.	We heard a good deal of hearsay evidence about Mr Falgate’s reputation for lateness. We find that he is an unpunctual individual. Lateness may amount to misconduct. Persistent misconduct need not be regular but does import a degree of frequency. We have not been satisfied that his lateness over the length of period alleged from July 1997 to September 1999 carried with it a sufficient degree of persistence to come within clause 6(a)(I) of his contract of employment. The time clock of which we saw some unproved records was not an accurate basis for such a finding.”

	But the appellant asserts that there was, in fact. direct evidence of three employees and a director of the respondent Club as to Mr Falgate’s lateness. That evidence is not described or mentioned in any way by the tribunal and certainly is not rejected by the tribunal. It is no necessary part of a tribunal’s job to describe every bit of evidence that it hears. But the addition of the word “hearsay” in the passage that we have just cited, does suggest that a persuasive feature leading to the Employment Tribunal’s conclusion that lateness had not amounted persistent misconduct was the fact that there was no direct evidence to establish persistent lateness. If there was in fact such direct evidence, then neither to have described it or to have expressly discounted or disbelieved it but simply not to have mentioned it at all, could represent an error of law. We have seen the written evidence which was laid before the tribunal and it does include a good deal of hearsay on the subject of Mr Falgate’s lateness, but, of course, at this stage we cannot be sure what the oral evidence was on the subject. So here we cannot say for certain that there is even an arguable point of law, but equally, because we do not know what the evidence was, we cannot say that there was not one. So the better course, it seems to us, is to allow that second point also to go to a full hearing.

9.	The third point in the Notice of Appeal concerns quantification of loss. I yield to no one in the uncertainty of my arithmetic, but the contract was made on 18th July 1997 for five years and therefore would run till 17th July 2002. The dismissal was on 24th September 1999, the hearing was in May 2000. At the point of dismissal the contract had, as it seems to me, two years ten months to run, that is 34 months to run, but it also had this feature and the tribunal so held:

“2. … He says [Mr Falgate] that … his contract was for a fixed term of 5 years from 18 July 1997 and thereafter from year to year until terminated by him. …”

	The parties apparently agreed a common approach on the effect of that added term, because in the tribunal’s paragraph 18 they say, helpfully:

“… the parties have discussed that matter in the light of our findings about and agreed that it should be assessed as likely to run for a further year after its original contract term. …”

	So if there was 34 months of the fixed part of the contract still to run, one should add 12 months and get 46 months. That is exactly the figure that the tribunal used, because they say that there was £40,250 arrived at at £875 per month, which is 46 months. Speaking for myself, I do not see error in that part of the computation. But that is not an end of the matter. There is no figure reducing that £40,250 on account of Mr Falgate’s earnings during the period of the contract, namely in the 48 months that figures in the computation, and there is no discount for the fact that a lump sum would be provided as a lump at the outset rather than being paid month by month as salary over a longer period. We cannot be sure what, if any, oral evidence was given as to Mr Falgate’s remuneration from others than the Club during the relevant periods. His written evidence does show that he had obtained work and one would therefore expect some lay off from the gross figures to account for the fact that he was earning elsewhere. There might or might not be a truly material point of law here, because there is a statutory cap. The tribunal mentions a statutory cap of £25,000, and, if the gross figure is £40,250, it could be that whatever has to be deducted by way of mitigation would still leave a figure of £25,000 or more. Again, because we do not know the oral evidence in the area, we cannot be sure. We do not stop that third point either going to the full hearing.

10.	So the whole Notice of Appeal goes to a full hearing. It seems to us that at the full hearing the tribunal will need to know what was the oral evidence on some subjects. We propose to request the Chairman to provide his notes as to oral evidence, be it in chief, cross-examination or re-examination; firstly, as to Mr Falgate’s lateness or the absence of lateness on his part; secondly, as to the breakdown in relationship to which they referred in their paragraph 8; and thirdly, as to mitigation of loss by Mr Falgate, including as to his prospective employment in the balance of the period which was being compensated for. If they received any oral evidence as to a discount to reflect the receipt of a lump sum up front rather than earning over a period, that, too, is a subject on which the full hearing would wish to know what oral evidence was given. So, subject to those requests for oral evidence notes, we allow the matter to go to a full hearing on the issues in the Notice of Appeal.