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	United Kingdom Employment Appeal Tribunal
You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Hayes v. Charman Underwriting Agencies Ltd [2001] UKEAT 242_00_1912 (19 December 2001) URL: http://www.bailii.org/uk/cases/UKEAT/2001/242_00_1912.html Cite as: [2002] Emp LR 130, [2001] UKEAT 242__1912, [2001] UKEAT 242_00_1912

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APPEARANCES

 

For the Appellant	LAURA COX QC MELANIE TETHER (of Counsel) Instructed by: Messrs Norton Rose Solicitors Kempson House Camomile Street London EC3A 7AN
For the Respondent	ANDREW CLARKE QC MISS S McKIE (of Counsel) Instructed by: Messrs Fox Williams Solicitors Citygate House 39-45 Finsbury Square London EC2A 1UU


 


JUDGE PETER CLARK

1. By an Originating Application presented to the then London (North), now London (Central) Employment Tribunal on 10 September 1998 the Appellant, Mrs Hayes, complained of constructive unfair dismissal, sex discrimination and breach of contract on the part of her former employer, the Respondent Charman Underwriting Agencies Ltd. The claims were resisted.
2. The matter was heard by a Tribunal chaired by Mr A Glossop. By a Decision with Extended Reasons promulgated on 19 November 1999 that Tribunal upheld her claim of breach of contract but dismissed the remaining claims. Against those findings the Appellant appeals with the permission of a division of the EAT presided over by Mr Recorder Langstaff QC sitting on 24 July 2000.

Background

3. The Appellant commenced employment with Postgate and Denby Agencies Ltd as a graduate trainee underwriting assistant on 24 October 1983. In 1986 the business in which she was employed was transferred to the Respondent. The Tribunal found that at all relevant times Mr John Charman was the effective total owner of the Respondent Company.
4. The Appellant is described by the Tribunal as a capable employee, specialising in the offshore energy field, subject at all times to the overall control of Mr Charman himself.
5. Between 10 June and 1 November 1994 she took maternity leave. This was her second child. She had earlier taken her first spell of maternity leave in 1991.
6. In about August 1994, whilst the Appellant was on maternity leave, the Respondent entered into negotiations with American Investors with a view to selling part of the company to them. The mechanism was to involve a separate company, Tarquin, which was to acquire 25% of the Respondent's share capital, with the remainder being transferred twelve months later. The object of this exercise was to obtain Lloyds approval to the acquisition.
7. Material to these proceedings was that prior to the advent of Tarquin senior staff, other than Mr Charman and his family, held shares in the Respondent as follows; Mrs Hayes 5,000 shares, Mr Ryan, a leading employee dealing with reinsurance also held 5,000 shares; Mr Gressier, described by the Tribunal as being on the same level as Mrs Hayes, held 1,000 shares; a Mr Strachan held 2,500 shares and other employees held less, including a Mr Lubin who held 1,750 shares.
8. At the time of the Tarquin arrangement certain senior employees were allocated "earn out shares". Mr Gressier received 76,923 shares in the company; Mr Ryan 51,282. Further shares were allocated to other male employees. Mrs Hayes and Mr Lubin received none.
9. It was the non-allocation of earn out shares to the Appellant, not revealed to her until 1998, which formed the basis of her complaint of direct sex discrimination.
10. In May 1998 the Respondent was in negotiations to sell Tarquin to an American insurance underwriting group, Ace, for a sum in excess of $750 million. That would make the shares in Tarquin extremely valuable. On Ace's valuation of Tarquin it would result in Mr Ryan's shareholding being worth £4.55 million; Mr Gressier's £4.21 million, Mrs Hayes £2.55 million and Mr Lubin £0.9 million.
11. Mr Charman was concerned that the Appellant might be upset and cause trouble so he recommended to his fellow directors that she be allocated a further 10,000 shares. That proposal was rejected by the other members of the board.
12. On 12 June 1998 the position was revealed to the employees at a meeting. Half way through that meeting Mrs Hayes was asked to leave because the earn out shares were to be discussed. She asked why, to be told by Mr Charman that this was something that happened while she was away having a baby, a remark which the Tribunal described as "unfortunate".
13. The Tribunal had no doubt that this remark was the catalyst which convinced the Appellant that she had been the subject of sex discrimination in the allocation of the earn out shares.
14. On 15 June 1998 a meeting took place between the Appellant and Mr Charman. There was a conflict as to what was said. The Tribunal preferred Mr Charman's account, namely that he told the Appellant that her remuneration package including her equity and involvement was fair and proper for her ability; he did not, as the Appellant asserted, repeat what he had said on 12 June.
15. Later that day a meeting took place at which certain employees, including the Appellant, were to sign personal contracts. The Tribunal found that the Appellant behaved extremely badly at this meeting and refused to sign her contract, not because she had insufficient time to study it but because she was attempting to blackmail Mr Charman into improving her equity position, thinking that if she did not sign Ace would withdraw.
16. In fact Ace proceeded without the Appellant's signature. Thereafter relations between the Appellant and Mr Charman were fraught. On 10 July 1998 she tendered her resignation, giving her contractual notice which she then worked out.

Direct sex discrimination

17. It is convenient to deal first with this part of the Appellant's claims.
18. It was her case, in a nutshell, that the Respondent's failure to allocate earn out shares to her in 1994, a decision subsequently affirmed in 1998, amounted to unlawful discrimination on grounds of her sex contrary to the Sex Discrimination Act 1975 (SDA) either because the true reason for her exclusion from the earn out allocations was because she was at the relevant time in 1994 on maternity leave, in which case no comparator is required. Webb -v- Emo (No 2) [1995] IRLR 645 or by comparison with two actual male comparators, Messrs Ryan and Gressier. SDA section 1(1)(a).
19. Thus the issues for the Tribunal were:

(1) was the treatment complained of afforded to her by the Respondent because she was on maternity leave? If not,

(2) were either Ryan or Gressier true comparators? If so, she was less favourably treated in that she did not receive any earn out shares.

(3) If the answer to either of the above questions is yes, was the less favourable treatment on grounds of her sex?

(4) If so, was that treatment unlawful as discriminating against her in the way the Respondent afforded her access to any other benefits or by refusing or deliberately omitting to afford her access to them. SDA section 6(2)(a).

20. The legal principles to be applied in answering the section 1(1)(a) question were summarised by Miss Melanie Tether, who appeared below on behalf of the Appellant, in her closing written submission to the Tribunal at paragraph 9 thus:

"9. In applying section 1(1)(a) the Tribunal would wish to have regard to the following legal principles:

(1) the onus of proof is on the Applicant. If, however, the Tribunal is satisfied that the Applicant was treated less favourably [than a man] it should look to the Respondent for an explanation. If the Tribunal considers the explanation which has been offered to be inadequate or unsatisfactory, it will be legitimate for it to infer that the discrimination was on grounds of sex - see King -v Great Britain & China Centre [1991] IRLR 513;

(2) It is not necessary for the Applicant to show that sex was the only or even the main cause of her less favourable treatment. It is sufficient if it had a significant effect on the outcome - see Nagarajan -v- London Regional Transport [1999] IRLR 572;

(3) The Applicant does not have to demonstrate that the Respondent consciously decided to treat her less favourably on grounds of sex. In Nagarajan, Lord Nicholls of Birkenhead said that "Members of racial groups need protection from conduct driven by unrecognised prejudice as much from conscious and deliberate discrimination;" see paragraph 17. The same principle must apply equally in the context of sex discrimination."

21. Those submissions were advanced and the Tribunal reached their Decision without the benefit of the judgment of the Court of Appeal delivered by Sedley LJ on 22 March 2001 in Anya v University of Oxford [2001] IRLR 377. We should say something about the effect of that case in this appeal.
22. Both Mrs Laura Cox QC and Mr Andrew Clarke QC, appearing before us, submit that Anya does not represent a departure from earlier authority. We agree. Were it to do so it would be in danger of conflicting with the leading House of Lords authorities of Zafar -v- Glasgow City Council [1998] IRLR 36, expressly approving the guidance given by Neill LJ in King and Nagarajan.
23. The significance of Anya, it seems to us, is in highlighting that which emerges particularly from the speeches in Nagarajan, that is, that discrimination (or victimisation) on the grounds of race (or sex) may be subconscious as well as conscious.
24. A passage from the speech of Lord Nicholls,at paragraph 17 of the IRLR report puts the matter clearly:

"I turn to the question of subconscious motivation. All human beings have preconceptions, beliefs, attitudes and prejudices on many subjects. It is part of our make-up. Moreover, we do not always recognise our own prejudices. Many people are unable, or unwilling, to admit even to themselves that actions of theirs may be racially motivated. An employer may genuinely believe that the reason why he rejected an applicant had nothing to do with the applicant's race. After careful and thorough investigation of a claim members of an employment tribunal may decide that the proper inference to be drawn from the evidence is that, whether the employer realised it at the time or not, race was the reason why he acted as he did. It goes without saying that in order to justify such an inference the tribunal must first make findings of primary fact from which the inference may properly be drawn. Conduct of this nature by an employer, when the inference is legitimately drawn, falls squarely within the language of s.1(1)(a). The employer treated the complainant less favourably on racial grounds. Such conduct also falls within the purpose of the legislation. Members of racial groups need protection from conduct driven by unrecognised prejudice as much as from conscious and deliberate discrimination. Balcombe LJ adverted to an instance of this in West Midlands Passenger Transport Executive -v- Singh [1988] IRLR 186, 188. He said that a high rate of failure to achieve promotion by members of a particular racial group may indicate that 'the real reason for refusal is a conscious or unconscious racial attitude which involves stereotyped assumptions' about members of the group."

25. Dr Anya, a black academic at Oxford University, complained of direct race discrimination in the award of a postdoctoral research assistant's post for which he had applied. The post went to the other equally well qualified short-listed candidate who was white.
26. The selection panel of three interviewing both candidates for the post included Dr Roberts, the Second Respondent to Dr Anya's complaint, who had been his supervisor. It was Dr Anya's case that Dr Roberts had formed an adverse view of his suitability for the post.
27. The Employment Tribunal concluded that despite inconsistencies which emerged in his evidence during cross-examination Dr Roberts was essentially a truthful witness. He had explained his reasons, entirely related to Dr Anya's qualities as a scientist, for not choosing him for the new post. It followed, in their judgment that despite the less favourable treatment afforded to Dr Anya, he did not get the post and there was a difference in race between him and the successful candidate, the failure to obtain the post had nothing to do with his race. The complaint was dismissed. His subsequent appeal to the EAT was also dismissed.
28. In allowing the appeal and remitting the case for rehearing before a fresh Tribunal the Court of Appeal, through Sedley LJ, accepted that such a conclusion was open to the Tribunal, but only provided it was arrived at after proper consideration of indicators which the complainant relied on as pointing to an opposite conclusion. At paragraph 15 of his judgment Sedley LJ sets out those factors on which Dr Anya relied, in particular a preconceived hostility to him by Dr Roberts, which he sought to evidence by five separate events. Sedley LJ observed that on none of these matters did the Tribunal record its findings of primary fact and, based on those findings what if anything it indicated in terms of racial bias.
29. What we draw from the Court of Appeal judgment in Anya, particularly paragraph 19, is that whilst the credibility of the main protagonists is an important factor in following the approach suggested by Neill LJ in King as to the drawing of inferences, it is not the end of the enquiry. An honest and credible witness may be mistaken as to the subconscious factors at work in affording racially (or sexually) discriminatory treatment to the complainant. In order to investigate the subconscious motivation of the alleged discriminator it is necessary to make findings of primary fact on those surrounding circumstances on which the complainant relies in order to properly consider the matter in the round before deciding whether or not to draw the inference of unlawful discrimination.
30. With that assistance in mind we return to the approach of the Tribunal in the present case.
31. We begin with their self-direction as to the law. Curiously, the issue as to direct sex discrimination is summarised at paragraph 1(a) of their Reasons in these terms:

"whether she has suffered detriment under the terms of the Sex Discrimination Act 1975 ;"

We say curiously because, although the concept of detriment is highly material to indirect discrimination (see SDA ss 1(b)(iii) and 6(2)(b)) it plays no part in a complaint of direct discrimination (cf. S1(1)(a) and 6(2)(a) SDA), as in this case.

32. The reference to detriment is repeated at paragraph 50, where they say:

"50. The Applicant complains that exclusion from the earn out amounted to unlawful discrimination contrary to section 1(1)(a) and section 6(2)(a) of the Sex Discrimination Act 1975. Clearly as the Applicant did suffer a detriment in that she was omitted from the earn out shares, then, if such detriment and omission was caused by the fact that she was a woman or that she was on maternity leave at the relevant time and that was the reason for the omission, she must succeed."

33. From this we infer that, without saying so in terms, the Applicant had established less favourable treatment to the satisfaction of the Tribunal, the question was whether that treatment was on grounds of her sex, i.e. because she was a woman or, more particularly, because she was on maternity leave.
34. Their self-direction as to the drawing of inferences is expressed thus at paragraph 51:

"51. The important case to consider from the point of view of guidance as to how the Tribunal should approach the matter is King -v- Great Britain-China Centre [1991] IRLR 513, Court of Appeal. To paraphrase this case, it instructed a tribunal to see first if there was prima facie evidence of a possibility of discrimination, as there certainly was in this case, from the unfortunate/inept remark made by the respondent and the certain fact that the discrimination, if there was such, took place adjacent to the time when the applicant was on maternity leave. In those circumstances, this case reminds the Tribunal that it should examine closely the reasons given by the Respondent for behaving in the way that they did and if, upon such examination, the Respondent's case lacks credibility, then the inference may fairly be drawn that the reason for the detriment is the sex discrimination alleged."

35. Based on that self-direction they express their conclusions on the sex discrimination claim succinctly at paragraph 52:

"52. The Tribunal have therefore examined most carefully the evidence of Mr Charman. When on peripheral issues there was as factual dispute between the Applicant and Mr Charman, Mr Charman's evidence is preferred. However, on the fundamental point as to how the decision came about in 1994 there is no contrary evidence. It is therefore a question of examining the evidence given by Mr Charman and seeing whether in all the circumstances of the Company it was likely to be true. For the reasons previously stated, the Tribunal accept that it was. The Applicant was not, in the finding of the Tribunal, omitted from the earn out shares because she was either a woman or because she was on maternity leave at the time. The shares were allocated on a system that admittedly left open the chance that it could be influenced consciously or unconsciously by sex discrimination but nevertheless, upon the Tribunal's finding, Mr Charman did honestly calculate the shares or lack of shares in the way that he said. That disposes of the claim for sex discrimination."

36. In short, they followed the task which they set themselves at paragraph 4, where they said this:

"4. In essence however, the crucial witness was Mr Charman himself. His credibility or otherwise is fundamental to the Tribunal's decision. If his evidence is accepted, then the Applicant's case must fail and if Mr Charman's evidence likewise is rejected, then the inference that there was sex discrimination and hence unfair dismissal is irresistible."

37. Mr Clarke, in supporting the Tribunal's Decision on this part of the case, submits that the Tribunal's approach cannot be faulted. The Appellant's case below was run largely, if not wholly, on the basis of deliberate discrimination by Mr Charman. Isofar as any question of unconscious discrimination arose the Tribunal had it in mind because they refer to that possibility at paragraph 52 of their Reasons. They decided the principal issues of fact arising out of the evidence, resolving those issues in favour of the Respondent.
38. In considering those submissions we have found it helpful to consider the way in which the respective cases were put in closing by experienced Counsel below. Whilst the credibility of the witnesses was an important part of the Tribunal's task, it did not end there, as Sedley LJ pointed out in Anya, paragraph 19. Looking at the Tribunal's Reasons as a whole, and we have merely extracted what appear to us to be the important passages for present purposes, the Tribunal was persuaded, perhaps by the way in which credibility was put at the forefront of Mr Clarke's submissions in closing below, to see the case in stark terms. Paragraph 4 of their Reasons puts their thinking plainly. If Mr Charman's evidence is accepted, then the Applicant's case must fail; if his evidence is rejected, then she succeeds ("the inference that there was sex discrimination and hence unfair dismissal is irresistible"). That is the approach which they followed. They accepted Mr Charman's evidence. Therefore the claim of sex discrimination failed.
39. Such an approach is, in our judgment, fatally flawed in law. We regard this case as a good example of the Anya principles in practice. We return to this Tribunal's reasoning. First, they have failed to ask themselves, in clear terms, the statutory questions raised by ss 1(1)(a) and 6(2)(a) SDA. Secondly they have sought to paraphrase Neill LJ's guidance in King and in so doing have led themselves astray. They find prima facie evidence of discrimination in both the "unfortunate/inept" remark by Mr Charman on 12 June 1998 and the fact that the Appellant was on maternity leave when the earn out share allocation was made in 1994, however, instead of looking to the Respondent for an explanation for the less favourable treatment of the Appellant, assuming it to have been accepted, they ask themselves whether the Respondent's case lacks credibility. By that we do not accept, as Mr Clarke submits, a credible case as a whole but whether they can believe Mr Charman. We repeat, the credibility of Mr Charman as a witness and the explanation which he gives for the difference in treatment complained of, is an important factor in the Tribunal's deliberations. But it is not the sole and determinative factor.
40. Mrs Cox has pointed to evidence relied on before the Tribunal which, it is submitted, amounts to objective indicia that the account given by Mr Charman cannot be accepted at face value. She has taken us to the Appellant's salary progression and bonuses received when set against her comparators to undermine the claim by Mr Charman that she was not a "key employee", his explanation for not allocating earn out shares to the Appellant in 1994. Organisational charts which, she contends, demonstrate the pivotal nature of the Appellant's role in the Respondent's organisation; the way in which she was held out to the world at large in the Respondent's annual reports; the fact that in June 1998 she was asked to sign a key employee contract, together with her comparators, prior to the Ace sale.
41. It is a fact that none of these matters are referred to in the Tribunal's Reasons. Mr Clarke submits, correctly, that it is not the duty of the Employment Tribunal to record and set out their evaluation of all the evidence heard. However, as Anya makes clear, it is necessary for the Tribunal to consider the surrounding circumstances relied upon by the Applicant in support of her claim. This, in our judgment, they have manifestly failed to do, contenting themselves instead with deciding the case solely on the credibility of the witnesses. The question of subconscious discrimination was referred to by Miss Tether below at paragraph  9 of her closing submissions. The Tribunal refer to the possibility, at paragraph 52 of their Reasons, of unconscious discrimination, but they fail to go on to deal with that possibility on the facts.
42. The danger of that approach is encapsulated in the Tribunal's own observation at paragraph 52 of their Reasons:

"However, on the fundamental point as to how the decision came about in 1994 there is no contrary evidence. It is therefore a question of examining the evidence given by Mr Charman and seeing whether in all the circumstances of the Company [sic] it was likely to be true."

43. It is precisely because, as Neill LJ pointed out in King, it is unusual to find direct evidence of racial (sexual) discrimination, that Tribunals must look at all the surrounding circumstances in order to determine whether the Respondent is motivated by subconscious, not simply conscious discrimination. This the Tribunal has failed to do in the present case.
44. In these circumstances we uphold Mrs Cox' principal submission that the Tribunal's approach to the question of direct sex discrimination was flawed in law. They failed to apply the correct legal test for the drawing of inferences.
45. However, we cannot accept her further, bold submission that the Tribunal's conclusion on this part of the case was perverse, that is, a conclusion which no reasonable Tribunal, properly directing itself in law could reach. Her submissions, attacking the Tribunal's findings of fact as to the date of the allocation of earn out shares in 1994 and the events of the 15/16 June 1998 and even their assessment of the Appellant's character strike us as just that, an attempt to re-argue the facts on appeal. That we cannot and will not do.

Constructive dismissal

46. The short answer to this aspect of the appeal is that below the Tribunal proceeded on the basis that if the Appellant succeeded on her primary case of unlawful sex discrimination then it would follow that she would also succeed on her claim of constructive dismissal based on a breach of the implied term of mutual trust and confidence. That was conceded by Mr Clarke (Reasons. paragraph 52).
47. It therefore necessarily follows that since we have upheld the appeal against the Tribunal's decision to dismiss the sex discrimination complaint, the finding on constructive dismissal must also be set aside.
48. That is not quite the end of the matter because the Appellant raised two further and separate arguments below on constructive dismissal. First, that an arbitrary and unfair decision to allocate earn out shares to some employees but not the Appellant, albeit discretionary, undermined the trust and confidence term of the contract of employment. The Tribunal rejected that argument as a matter of law (Reasons paragraph 54). We are not satisfied that they were right to do so. See now Clark -v- Nomura International PLC [2000] IRLR 766, decided by Burton J after the Tribunal's Decision in this case.
49. Secondly, the Appellant pointed to various events after 12 June 1998 which she contended cumulatively amounted to a fundamental breach of the trust and confidence terms. The Tribunal rejected that case on the facts as they found them. They were entitled to do so. However, having set aside their Decision as a whole (save for the breach of contract finding, not the subject of an appeal or cross-appeal before us) it would not be right to exclude the Appellant from putting this case before the next Tribunal on the remitted hearing.

Disposal

50. The result is that this appeal must be allowed and the Tribunal's Decision on both sex discrimination and constructive dismissal is set aside. Having rejected Mrs Cox' perversity ground of appeal the case must be remitted for rehearing, she submits before a fresh Tribunal.
51. Ms Suzanne McKie, on behalf of the Respondent, argued for remission to the same Tribunal. We decline to do so. As Lord Hope of Craighead observed in Anyanwu -v- South Bank Students Union [2001] IRLR 305, para 37, the questions of law that have to be decided in discrimination cases are often highly fact-sensitive. This case is no exception. The Tribunal formed a strong view as to the credibility and thus, in a loose sense, the merits of the respective parties' cases here, should the matter be remitted to that same Tribunal and the outcome was the same after a further hearing, we can well understand that the Appellant may be left with the perception that justice had not been done. Regrettable though it is, we can see no realistic alternative to a complete rehearing before a fresh Tribunal and we so direct.

The judgment in this case must be handed down no later than 20 December. Any comments received before then will be gratefully received, otherwise too late.