Appeal No	EAT/1000/00

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 5 November 2001

Before
HIS HONOUR JUDGE A WILKIE QC
MS S R CORBY
MR I EZEKIEL

PACIFIC HEALTH CLUB LTD	APPELLANT

MR R P FALGATE	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR MOHAMMED ZAMAN
(of Counsel)
Instructed by:
The Ringrose Law Group
The Old Vicarage
Church Close
Boston 
Lincolnshire PE21 6NE	
For the Respondent	MR BENJAMIN UDUJE
(of Counsel)
Instructed by:
Messrs McKinnells 
Solicitors
188 High Street
Lincoln
LN5 7BE	

JUDGE A WILKIE QC

1	This is an appeal by Pacific Health Club Ltd against a unanimous Decision of the Employment Tribunal which upheld the claim of Mr Falgate that he had been dismissed in breach of contract by the Respondent and which ordered them to pay him the sum of £25,000, the maximum of the Tribunal’s jurisdiction in respect of that breach of contract.  

2	There is also a cross-appeal on behalf of Mr Falgate against the Tribunal’s Decision that his complaint of unfair dismissal was dismissed.  The Tribunal’s Decision was dated 14 July of last year, after a one day hearing on 22 May.  At that hearing, Mr Uduje represented Mr Falgate, as he has done before us today.  The Appellant was at first instance, represented by a Mr Cogan, Legal Executive and they have been represented by Mr Zaman today.  We are greatly indebted to both Counsel for the quality of their submissions as well as the great common sense which each of them has brought to their arguments.  

3	In essence, Mr Zaman’s case is to the effect that the Extended Reasons for the Decision fall short of the requirements of such decisions as enunciated by the Court of Appeal in the case of Meek v City of Birmingham City Council, namely that although the decision is not required to be an elaborate formalistic product of refined legal craftmanship, it must contain an outline of the story which has given rise to the complaint, a summary of the Tribunal’s basic factual conclusions and a Statement of the Reasons which have led them to reach the conclusions which they do on those basic facts.  The parties are entitled to be told why they have won or lost.  There should be sufficient account of the facts and of the reasoning to enable an appellate Court to see whether any question of law arises.  

4	The background to this claim was that Mr Falgate used to own and operate the club which was, after an acquisition, owned and operated by Pacific Health Club Ltd  It was part of the terms of that acquisition that Mr Falgate be employed as manager of the club under a contract which was for a fixed term of five years and thereafter, from year to year, until the employee should give to the employer one month’s notice.  

5	The Appellant dismissed Mr Falgate on 24 September 1999 by a letter of that date, citing grounds of unpunctuality.  In terms of the contractual claim, the express grounds for termination of employment were set out in clause 6 (a) of the contract.  In sub-paragraph (i) it provides:
“(a)  The employment may be terminated:
(i)  by the Employer without notice or payment in lieu of notice in the event of serious or persistent misconduct by the Employee.”

In addition to the express terms of the contract, however, this contract of employment, as all contracts of employment, contained the implied term that, in brief, each party to it would not act in such a way as would destroy the mutual relationship of trust and confidence which is the foundation of any employment relationship.  

6	The Decision of the Tribunal was that they did not accept that the reason for the dismissal of Mr Falgate was his record of unpunctuality.  In so concluding, the Tribunal were aware that they were departing from the battleground which both parties and their representatives had fought over.  It is apparent that much of the evidence in the case, and much of the argument concerned the nature and extent of his want of punctuality. The Tribunal characterised the reason for his dismissal as being a breakdown of the relationship between employer and employee in circumstances where Mr Falgate had owned the club, sold out his interests to the Appellant, the main moving force of which was Mr Hubbard, and had, as part of the price of that deal, obtained a long term contract with very limited rights of termination granted to the employer.  

7	In addressing the question whether the dismissal was or was not in breach of contract, the Tribunal focused exclusively on clause 6(a)(i) of the contract and, in particular, the second half of that, namely whether the employee, Mr Falgate, was guilty of persistent misconduct.  Although the reason for the dismissal was categorised by the Tribunal as being the breakdown in the relationship between employer and employee, there is nowhere in the Decision any mention at all of the implied term, nor is there anywhere in the Decision any examination of what may or may not have constituted the material on which they concluded that relationships had broken down, focussing on specific incidents.  Nor is there any examination as to where, if at all, the responsibility for those various incidents might have lain.  

8	At best, there is a reference to documentation in the form of a diary kept by Mr Hubbard, which was an exhibit in the case, from which both parties, and indeed this Tribunal, have spent some time delving into the entries, in order to see whether we can identify what incidents they might have been referring to, and what conclusion they came to in respect of those.  As far as that exercise is concerned, we are indebted both to Mr Zaman, and to Mr Uduje, for the care that they have taken in pointing us in the direction of a number of apparent incidents which might have formed the basis of that conclusion.

9	The Tribunal did make findings of fact on the allegation of unpunctuality as a basis of persistent misconduct.  They did find as a fact that Mr Falgate is an unpunctual individual.  However, they indicated that they were not satisfied that his lateness over the period from July 1997 to September 1999 carried with it a sufficient degree of persistence to come within the terms of clause 6(a)(i) as constituting persistent misconduct.  In dealing with that part of the case, their only comment on the evidence was that they heard a good deal of hearsay evidence about Mr Falgate’s reputation for lateness.  There is no mention whatsoever of the quantity of evidence that they undoubtedly heard, being direct evidence from the observation of the individuals of Mr Falgate’s actual lateness.  There is no indication whether that evidence was accepted or whether they rejected it or what weight they gave it.  All that we do know is that the evidence was insufficient on criteria which are not explained to satisfy the requirements of 6(a)(i).  

10	Having concluded that there was no contractual basis for the dismissal, the Tribunal then went on to consider whether the claim for unfair dismissal succeeded.  They correctly identified for themselves the fact that it need not necessarily have the same conclusion as the contractual claim, and they also correctly directed themselves that the reason for the dismissal that they found need not be the reason put forward by the employer. Consistent with their previous finding of fact, they concluded that the real reason was the breakdown in relationships.  

11	However, they rejected the application by Mr Falgate that the dismissal was unfair.  Having cited the statutory test, they limited themselves, having referred to certain of the authorities, to saying that they had noted that the employer was a small company with limited administrative resources, the relationship between Mr Hubbard and Mr Falgate and Mr Falgate’s brother, who remains as Mr Hubbard’s partner in the ownership of the business, is very close; they referred to an authority to the effect that in such a small set up the absence of an appeal process may not be fatal to the question of reasonableness and fairness, and they therefore rejected the application.

12	There is nowhere any consideration of what, if any, steps might have been taken, but were not taken, over a period of months and years in the respect of the deteriorating relationship between the parties, which may or may not have informed the reader as to why they concluded that, notwithstanding the finding of breach of contract, nonetheless the dismissal was still a fair one.  The reader of this Decision looks in vain for any elucidation of what, on the face of it, does seem to be a surprising inconsistency in the reasoning of the Tribunal as between the different parts of the Decision.

13	Finally, in dealing with the question of the award for the breach of contract, the Tribunal had the benefit of agreement between the parties that the relevant unexpired period of the contractual entitlement was forty six months, that is to say the unexpired period of the five year initial contractual period, plus a period of twelve months to reflect the ongoing nature of the employment obligation.  

14	The Tribunal calculated the damages due to Mr Falgate by simply multiplying his agreed net income at the end of his employment of £875 per month, by forty six monthly payments amounting to £40,250.  They noted that that figure exceeded the maximum of the Tribunal’s jurisdiction which is limited to £25,000 and therefore concluded that that was the amount that was ordered to be paid by the Respondent to Mr Falgate.  

15	They received, apparently, little in the way of argument or assistance in this exercise, particularly from the Respondent.  For example, the Respondent’s then representative did not seek to argue that there should be a discount for accelerated lump sum payment of a sum intended to compensate for lack of payment over a period of years, which is the way that it is conventionally calculated.  

16	However, much more seriously than that, the Tribunal were in receipt of evidence from Mr Falgate, in his own witness statement, that he had in fact mitigated his loss, to some degree, since the date of his dismissal by obtaining work as a security guard, and he had quantified his continuing loss, namely £415 per month.  

17	In the light of that evidence, manifestly, this Tribunal failed to take into account a highly relevant factor in calculating the damages claimed, and it failed to take into account other material which it had at its fingertips, namely the contractual entitlement, on his part, to have the salary increase annually by not less than the RPI increase and the evidence of Mr Falgate of additional expenses, which he had in respect of his new employment.  Nor did they consider the question whether that new employment would run the totality of the three years and ten months period for which compensation was being awarded.  

18	Taking each of these areas into account, we have reluctantly come to the conclusion that the Decision of this Tribunal does not satisfy the requirements imposed by the Meek -v- City of Birmingham District Council test and therefore, inevitably, this appeal has to be allowed, together with the cross-appeal and the matter will have to be remitted to a different Tribunal for the case to be reheard on each of the contractual and unfair dismissal claims, and to the extent that Mr Falgate succeeds in either or both of them for a proper assessment of damages to be conducted.