Appeal No. EAT/0031/03 ZT

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 29 May 2003

Before
HIS HONOUR JUDGE J MCMULLEN QC
MR B V FITZGERALD
MR A D TUFFIN CBE

MR A R CHONG	APPELLANT

MAREK & CO	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised 15 September 2003

	APPEARANCES

For the Appellant	MR A R CHONG
(the Appellant in Person)	
For the Respondent	No Appearance or Representation By or on Behalf of the Respondent	

HIS HONOUR JUDGE J McMULLEN QC

1.	This case is about the calculation of compensation for unfair dismissal.  The judgment represents the views of all three members.  We will refer to the parties as Applicant and Respondent.

2.	The appeal arises as a result of a Notice of Appeal issued by the Applicant and a cross-appeal by the Respondent, in proceedings against a corrected decision of an Employment Tribunal sitting at Liverpool, Chairman Miss E R Donnelly, registered with Extended Reasons on 11 October 2002.

3.	The Applicant represented himself.  The Respondent is in reality Mr Szczesniak who also represented himself.  Today the Applicant continues to represent himself.  Mr Szczesniak wrote on 14 April 2003 indicating that he had not at that time decided whether to attend the hearing.  He is not here.  We have read his representations and Skeleton Argument and treat those as written submissions.

4.	The Applicant had claimed unfair dismissal, unlawful deductions from pay and breach of contract.  The Respondent denied the employment relationship existed at all and further denied all claims.

Introduction

5.	The procedural history of the case is set out in a judgment of Mr Justice Bell and members of 23 January 2002:

2	“By a Decision sent to the parties on 2 October 2000, after a hearing on 4 May and 4 August 2000, the Tribunal found that, first, the Applicant was an employee of the Respondent; second, the contract of employment was not illegal; third, the Applicant was unfairly dismissed; fourth, the Respondent had made an unlawful deduction of wages; fifth, the Respondent was in breach of contract by failing to give the Applicant a period of reasonable notice which would have been three months, and, finally, that the question of remedy would be heard on a future date.
3	The first matter of decision arose because the Applicant, now the Appellant, had worked for Mr Szczesniak, a chartered accountant practising as Marek & Co for many years, but under an arrangement whereby he worked at home providing accounting services such as assisting with auditing, bookkeeping, payroll and later some administrative duties.  He worked in partnership with his wife and was paid a monthly sum, latterly £1,600 per month.  The arrangement came to an end when Mr Szczesniak unilaterally reduced the monthly payment to £800 as from 1 August 1999.  The Appellant treated himself as dismissed by this conduct as from 4 October 1999.  The Tribunal found as follows at paragraph 6.4 - 6.6 of the Extended Reasons for its original Decision:
“6.4	We find that the respondent was in fundamental breach of contract by reducing the applicant’s pay unilaterally, and this was the reason the applicant treated himself as discharged.  He did not affirm the breach.  He was therefore dismissed.
6.5	The reason for the dismissal was the respondent’s desire no longer to pay the applicant £1,600 per month.  This is not a fair statutory reason.  The applicant was therefore unfairly dismissed.
6.6	The respondent does not dispute that if the applicant is an employee and was dismissed there has been a deduction of wages in respect of the months of August and September.  He further concedes that he is in breach of contract by failing to give the applicant any payment in respect of notice.  We find a reasonable period of notice to be three months.”
4	The remedies hearing took place on 4 December 2000.  The Appellant was represented by a solicitor, Mr Bradley, who appears again before us today, represented the Respondent.  The Decision was sent to the parties on 24 January 2001.  We need only deal with the aspects of the award which are attacked in the appeal, insofar as it survived the preliminary Employment Appeal Tribunal hearing where one ground of appeal was dismissed, and in the cross-appeal.  The award is said to be unsatisfactory from the point of view of one side or the other, or both, in three respects.”

6.	As a result, the decision was quashed and the matter was remitted to a fresh Employment Tribunal with specific directions which were clarified at a Directions Hearing of the Employment Tribunal and recited in the Decision under appeal.  The substantive decision, declaring the Applicant to have been unfairly dismissed, was not affected by the appeal.

7.	That decision is:

6.1	“The Respondent unilaterally reduced the Applicant’s pay.  The Applicant on 23 September 1999 objected to the reduction, asserted that he was an employee and stated that he would claim the difference as an unauthorised deduction of wages.
6.2	By letter dated 30 September 1999 the Respondents asserted that the Applicant was a sub-contractor.
6.3	By letter dated 14 October 1999 the Applicant’s solicitors informed the Respondent that the Applicant regarded the reduction in pay to be a fundamental breach of contract and that he treated himself as dismissed with effect from 4 October 1999.
6.4	We find that the Respondent was in fundamental breach of contract by reducing the Applicant’s pay unilaterally, and this was the reason the Applicant treated himself as discharged.  He did not affirm the breach.  He was therefore dismissed.
6.5	The reason for the dismissal was the Respondent’s desire no longer to pay the Applicant £1,600 per month.  This [was] not a fair statutory reason.  The Applicant was therefore unfairly dismissed.
6.6	The Respondent does not dispute that if the Applicant is an employee and was dismissed there has been a deduction of wages in respect of the months of August and September.  He further concedes that he is in breach of contract by failing to give the Applicant any payment in respect of notice.  We find a reasonable period of notice to be three months.”

8.	Following that decision, the Applicant has been required to chase his unappealed awards through protracted proceedings in the County Court.  The case has thus been through hearings as follows: substantive, remedy, appeal, directions, remedy again, EAT Preliminary Hearing, two refusals of applications for review by the EAT and now this full appeal.

9.	The essential issues on remission were as follows:

1	(a)	“whether it was appropriate to deduct the Applicant’s earnings from his compensatory award relating to the notice period;
	(b)	the determination of any loss beyond the notice period; and
	(c)	the treatment of “start up” costs in the Applicant’s new business.”

The Legislation

10.	The relevant legislation is the Employment Rights Act 1996, the relevant provisions of which have thus far not been recited in the Employment Tribunal’s Reasons.  They are sections 118 (1), 123 (1) and (4):

118	(1)	“Where a tribunal makes an award of compensation for unfair dismissal under section 112 (4) or 117 (3) (a) the award shall consist of –
(a)	a basic award (calculated in accordance with sections 119 to 122 and 126), and
(b)	a compensatory award (calculated in accordance with sections 123, 124, 126 and 127).
…
123	(1)	Subject to the provisions of this section and sections 124 and 126, the amount of the compensatory award shall be such amount as the tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal in so far as that loss is attributable to action taken by the employer.
		…
	(4)	In ascertaining the loss referred to in subsection (1) the tribunal shall apply the same rule concerning the duty of a person to mitigate his loss as applies to damages recoverable under the common law of England and Wales or (as the case may be) Scotland.”

11.	The jurisprudence relevant to one aspect of the case is set out in the judgment of Mr Justice Bell at paragraphs 6 to 9:

6	“The Appellant, who appears before us in person, contends that it was wrong for the Tribunal to make any deduction in respect of his earnings in the notice period.  He refers us to the case of Norton Tool Co Ltd -v- Tewson [1972] ICR 501, where it was said by the Industrial Relations Court that it was not good industrial relations to deduct earnings which an employee had made after termination from his employment, from the money which he had been paid in lieu of notice.  That case has been considered on a number of occasions since, most particularly for our purposes today in the case of Addison -v- Babcock FATA Ltd [1987] 3 WLR 122, where the leading judgment was given by Lord Justice Ralph Gibson, but the Court was presided over by the Master of the Rolls, Sir John Donaldson, who had given the decision in Norton Tool Co Ltd -v- Tewson.
7	The effect of Addison, accurately summarised by Mr Bradley, is that it is really a matter for the awarding Tribunal to decide whether in the circumstances of the case, when considering compensation for unfair dismissal, to deduct from money paid in lieu of notice, or payable in lieu of notice, earnings by the employee during the notice period.  Whether there should be a deduction depends to a large extent on the nature of the employee’s employment and the length of the appropriate notice period.  

8	In this case Mr Bradley says the Tribunal dealing with the matter as presented by Mr Chong, that is as a claim for damages for breach of contract, rather than compensation for unfair dismissal, was perfectly entitled to take the course which it did take.  The difficulty we have with that is that both Mr Chong and Mr Bradley tell us that the case of Addison -v- Babcock was referred to before the Tribunal.  It must have drawn to the Tribunal’s attention that there could be an argument as to whether any earnings during what should have been a period of notice should be deducted from Mr Chong’s loss of earnings during that period, since it was open to the Tribunal, however the matter was presented, to make an award for unfair dismissal, deciding if it so judged appropriate, that the earnings of Mr Chong during the period of notice should not be deducted in respect of such an award.  
9	The Tribunal did not enter into any consideration of that question, it simply said, at paragraph 3.3.1 of its Decision on remedies:
“The applicant’s net pay for three months, had he continued in employment with the respondent, would have been £3,360 net.  But the applicant commenced trading on his own account with immediate effect.  In the period from his dismissal to the date of the hearing the applicant said that he had received net income of £13,663.16.  He did not however provide documentary proof of the individual transactions.  Neither, once the point had been raised did he apply for an adjournment in order to do so.  We considered, of our own motion, whether to require him to produce the documentary evidence, but on balance declined to do so.  We have come to the conclusion, doing the best we can, that he would have earned, on average, £700 per month net, during the first three months trading which makes a total of £2,100.  We therefore award him £1,260 by way of damages.”
In our view, although Mr Chong presented his claim under this head as a breach of contract claim, in the light of the reference to Addison before the Tribunal, he was entitled to be given reasons why his earnings during the notice period should not be taken out of account in the particular circumstances of this case, as part of the assessment of a claim for unfair dismissal.  We leave that point there for the moment.”

12.	It is important to note that the dismissal was on 4 October 1999 and thus, by section 124 of the Employment Rights Act 1996, the limit on the Applicant’s compensation award is £12,000.

The Decision

13.	The Decision of the first Employment Tribunal is not affected by the appeal, and in addition certain findings, which we have cited above, remain unchallenged.  These include the finding that the Applicant was paid £1,600 gross per month.  Thus, the Applicant’s claims for unlawful deductions and breach of contract were upheld by the Employment Tribunal at £2,096.62 and £1,260 respectively, and the calculation of the basic award of £1,980 is again unchallenged.
14.	The first Employment Tribunal (that is, on liability) found that the Applicant was entitled to a compensatory award of £2, 938, consisting of loss of statutory rights (which is not appealed, £250) and £2,688.98 set up costs.  On remission the third Employment Tribunal awarded loss of wages post-dismissal of £6,367.74, having deducted the £1,260 awarded and paid for breach of contract.

15.	The Employment Tribunal approached its task as follows:

4	“The Applicant was dismissed on 4 October, 1999.  The Tribunal which presided at the original hearing decided that three months was a reasonable period of notice.  It awarded no loss after the expiry of that notice, which was 4 January, 2000.   The original remedies hearing took place on 4 December, 2000.  The Applicant presented a schedule of loss to this Tribunal which included loss of income from 4 January, 2000, loss of pay increases, loss of bonus payments, loss of accrued holidays from September, 1999 to 4 December, 2000 and “start up” costs for the start of his new business which he began after his dismissal.  The amount claimed for these was £5,515.92.  The Applicant did not claim future loss, because of the application of the then statutory maximum of £12,000, but the additional sum claimed was £7,801.02.
5	The Tribunal could see no reason why loss should not be awarded between 4 October, 1999 and 4 December, 2000.  The Applicant had not contributed to his dismissal.  The Applicant claimed the income earned during the period from 4 January, 2000 to 4 December, 2000 as £14,159.03 gross.  He produced invoices showing the income earned during that figure and the Tribunal accepted that amount.  It accepted that all sums should be shown gross, because the original Tribunal had agreed this on a previous occasion.  The Tribunal calculated the Applicant’s weekly wages on the basis of the figures before the original Tribunal at paragraph 3.5.1 of its decision as £18,156.37 gross, but adding a further £20 per week in respect of bonus.  The weekly wage was therefore £369.23 gross.  The calculation of loss between 4 October, 1999 and 4 December, 2000 was therefore as follows:
Loss of income, including bonus, from 4 October, 1999
To 4 December, 2000 – 61 weeks 5 days @ £369.23
Per week	£22,786.77
Less income from 4 January to 4 December, 2000	£14,159.03
	-------------
	£8,627.74
Less amount already paid by Respondent	£1,260.00
	-------------
	Loss of wages:	£6,367.74”

The Appeal

16.	The Applicant appeals against those findings on four grounds which are now maintained, the fifth having been resolved; a matter of the calculation of interest.  The Respondent cross-appeals on three.  Directions sending this appeal to a full hearing were given in chambers by Mr Justice Elias.  I directed that the cross-appeal should in the same way go on to a full hearing on the grounds of expedition and efficiency, but not, it should be noted, on the ground that there were reasonably arguable points.

17.	The Tribunal in substance:

(1)	found earnings during the notice period should not be offset, following the judgment of Mr Justice Bell;
(2)	awarded some forward losses;
(3)	awarded no “start up” costs but gave a sum representing interest on that.

The Applicant’s Case

18.	The Applicant submitted that the Employment Tribunal had erred in law in that:

(1)	It made an arithmetical error of £1,000; this is not resisted;
(2)	It failed to add on top of the £1,600 per month a weekly bonus of £20;
(3)	It failed to award “start up” costs.  The Tribunal alternatively, if it were correct in its Decision not to so award “start up” costs, should have awarded interest upon the figure deployed by the Applicant and should not have devalued that figure.  The figure should have been at a percentage rate of 8%.
(4)	At the remitted Employment Tribunal there was no consideration of the Applicant’s claim for future losses;
(5)	The rate of interest is incorrect.

The Respondent’s Response

19.	The Respondent does not challenge the arithmetic error.  He contends that the issue of bonus raised by the Applicant is “divisory, misleading and certainly would not stand up to audit”, and criticises the Applicant for being knowingly mendacious in his evidence and having misled the Employment Tribunal.  As to the rate of interest, this is a matter which Mr Szczesniak leaves to the EAT.

20.	In respect of start up costs, the Respondent does not deal with the substantive matter of the failure by the Tribunal on the Applicant’s case to award start up costs at all and the Respondent simply addresses the issue of interest.  We will take it that he does oppose the substantive appeal on that point.

21.	As to the failure to consider loss of earnings, it is contended that the Applicant did not pursue that matter.

The Principles

22.	It seems to us that the principles can be derived from the following authorities:

(1)	In Gardiner Hill v Roland Berger Technics Ltd [1982] IRLR 498 (EAT) Browne-Wilkinson P decided that it was appropriate for a person in a senior position instead of seeking employment to seek self-employment and a Tribunal erred in failing to allow in the consideration of his losses what he had had to deploy by way of establishment or start up costs: see paragraphs 13 and 14.  That authority was not available to the Employment Tribunal since it indicated in the passage we have cited that it had no authority before it.

(2)	Where a claim is made for losses following unfair dismissal a Tribunal should consider the heads of loss set out in Norton Tool Co Ltd v Tewson [1972] ICR 501: see R W Tidman v Abling Marshall Limited [1977] IRLR 218 at paragraph 5, followed and applied in Langston v Cranfield University [1998] IRLR 172 (EAT) Judge Peter Clark at paragraph 21.

(3)	The calculation of such losses should be what is in all the circumstances just and equitable and attributable to the wrong done by the Respondent in dismissing the Applicant.

(4)	The authorities cited at (2) above place a positive duty on an Employment Tribunal, and, in a case of a litigant in person, particularly an accountant who has produced figures, to calculate all of the matters put in issue and thereafter to apply the statutory cap and of course to make adjustments for payments already made by the Respondent.

Our Conclusions

23.	We accept the arguments of the Applicant in respect of the four heads under which he advances his claim.  It seems to us that the issues can be simply resolved:

24.	As to arithmetic, that no longer is in dispute and is valued at £1,000.  The Tribunal made an arithmetical error and we correct it.

25.	As to the inclusion or exclusion of bonus, the survival of the finding by the first Tribunal of the rate of pay, coupled with the intention of the third Tribunal to find an addition to that a bonus, indicates that the correct figures for the Applicant’s salary are £19,200 a year basic plus £1,040 by way of bonus.  We think the Tribunal fell into error by dealing with figures based upon a 48-week year rather than a 52-week year and we correct that error as well.

26.	As to “start up” costs, the starting point has to be that the Applicant chose to become self-employed.  It could have been attacked as being a failure to mitigate.  There is no finding that the Applicant, in his decision as a professional accountant to set up his own practice, was failing to mitigate or was unreasonable.  Thus the costs of setting up the business would seem to us on applying Gardiner Hill v Roland Berger, to be entirely appropriate.

27.	The costs in this case amounted to £5,500 odd and we see no reason why that figure should not have been awarded, given no contrary finding about unreasonableness on the part of Applicant; £5,515.92 was the figure.

28.	As was pointed out in argument, the Applicant will have some benefit by way of the writedown of his equipment and there is some force in his argument that the Tribunal’s decision not to award him this figure because the equipment would go up in value is wrong.  That is certainly not the way in which businesses are run in the experience of the lay members here, nor is it the way in which the Revenue treats the matter.  He will of course get some benefit, but then he outlaid those sums in the year 2000 and will, on our order, receive payment for that only today.

29.	It is not appropriate to do a minute accountancy exercise on the assessment of what is just and equitable and we take no account of whatever tax advantage of writedown will have occurred by way of depreciation.

30.	In our judgment the Tribunal erred in its approach to start up costs and it should have awarded him that figure.  If we are wrong about that, the approach based on interest upon which the Tribunal indicated that it had seen an authority seems to us to have been correct.  The finding which it made was that the appropriate rate of interest was 7%.  The Tribunal said this:

10	“The Tribunal then considered whether it should grant “start up” costs and if so, how much it should award.  The Tribunal noted that the Applicant had elected to claim his compensation under the unfair dismissal provisions of the 1996 Act.  The Tribunal considered the cases on unfair dismissal claims in general in the award of “start up” costs.  It could find no example of these having been given, but did find an example of interest on the cost of starting up a business being allowed.  Most importantly, the Tribunal found it unacceptable that the Respondent should be required to pay the total capital costs of “start up”, since these included assets which might either increase in value or which could be written off.  The Tribunal therefore awarded the Applicant interest at 7% on the “start up” costs of his business from 4 October, 1999 to 4 December, 2000.

31.	As the Applicant concedes, there is no error on the face of its decision to award 7% interest.  It may have been in the Tribunal’s mind to award whatever was the court rate of interest, said to be 8% at the relevant time, but since the Extended Reasons are the reasons upon which the appeal is launched, and since there is no identified error in its decision to award interest at 7% rather than some other rate, we cannot find an error of law in that calculation.

32.	We make that decision as the alternative, lest we are wrong on the issue of “start up” costs.

33.	Turning then to forward losses.  The Applicant told us that he had sought a review of the decision and in response the Chairman had written as follows:

(d)	“you are right that the Tribunal did not consider future loss.  This was because you said you were not pursuing it.  You cannot now decide that you intend to pursue future loss.”

34.	We think there is a misunderstanding about the Applicant’s position.  Knowing that his compensation was capped, he would not need to pursue the issue of forward losses had he succeeded on his claim for start up costs.  But we are satisfied he did present the argument to the Tribunal and the arithmetic upon which the loss is based is clear.  It is £94.25 a week.

35.	The Applicant claimed a further 13 weeks from the date of the first remedy hearing; that is, from 4 December 2000.  There is no particular logic, in our view, about that date, since that decision was quashed by Bell J’s EAT.  But the Applicant claimed that he put the figures before the Tribunal for his weekly loss and the Tribunal should have awarded a period of time or decided not to award any forward loss at all.  Instead, the Tribunal failed to deal with the matter and in our judgment the correct approach would have been to address the Applicant’s claim.

36.	It is difficult for us at this distance to do, but bearing in mind the other aspects of the appeal which we are allowing, we have sufficient material for us to substitute our decision that the Applicant should be entitled to a further 13 weeks forward loss from 4 December 2000, since as we have indicated there is no particular value in retaining that date.  Had the Tribunal considered this matter properly at its remitted hearing on the figures demonstrated to it, it would, we find, have had no difficulty in acceding to the Applicant’s case and thus we award that figure.  Credit has to be given for payments made by the Respondent and a schedule has been drawn up, partly indicating those matters.

37.	On the basis which we have set out above, the appeal is allowed.

38.	We now turn to the cross-appeal.  The cross-appeal includes in the Skeleton Argument the following:

“Marek & Co do not dispute the Employment Appeal Tribunal’s decision of law.  However, in view of our submissions of 28 April 2003 we seriously have to ask the question whether the Employment Appeal Tribunal looked at the documentary evidence in relation to the figures quantified in the award.  The award was not in line with the documentary evidence provided and we have tried to highlight this point in our submissions.”

39.	That is not the only place in which there appears to have been an error in the Respondent’s understanding of which Tribunal was being addressed.  The reference there is plainly to the Employment Tribunal and not to the EAT.  Once it is conceded, as this Skeleton Argument does, that there is no error of law upon which the cross-appeal could be based, we cannot take the matter further.  In any event, as the Applicant points out, the error which we have identified is replicated by the submissions which appear to argue the case afresh before us and indeed are summarised in the use of the word “counter-claim”.

40.	Included within this are new matters which are not properly the remit of either us or the Employment Tribunal now.  We will dismiss the three aspects of the counter-claim or cross-appeal (however it is described).  In doing so we note Mr Chong’s contention that both it and the document headed “Respondent’s Bundle of Documents” includes highly pejorative and tendentious allegations against Mr Chong.  Quite properly he was anxious that they should form no part of our judgment and made an application at the outset.  We reassured him that we do not regard those matters as properly before us and we assure him that they are not matters which we have considered.  They should not have been raised by the Respondent in this case at all.

41.	To summarise the calculations, the loss of income including bonus from 4 October 1999 until 5 March 2001 is £29,081.04.  During that period of 75 weeks and 5 days the Applicant received £17,993.77.  The difference between the two therefore is £11,087.27.  They represent his losses.  Added to those are the set-up costs of £5,515.92 and the award for loss of statutory rights which remains unchallenged.  Total losses, therefore, amount to £16,853.19.

42.	The Applicant has been paid by the Respondent £8,627.  Capitalised to the former figure, deducting the receipts from the cap of £12,000, gives the Applicant £3,399.73, which is the figure we substitute for the sum awarded by the Employment Tribunal and is now due.
43.	The Applicant sought an award of costs under Rule 34 as indicating unreasonable conduct by the Respondent.  He has submitted a schedule which includes his own work and work of his solicitor, together with dispersements and travelling time, amounting to £1,142.14.

44.	The basis of the claim is that the latest documentation from the Respondent includes the unfortunate remarks which should not have been included and it contains serious allegations of fraud.  Understandably the Applicant required to be advised by his solicitor and we have seen a bill from the solicitor of £528.75 incurred since the date of the Respondent’s allegation.  The Respondent has not advanced argument before us about this matter, nor was it a proper matter to advance.  It was unreasonable conduct.  The sum sought will be awarded.

45.	As to the other sums, which are the Applicant’s attendance and preparation, they would have been incurred in any event because the Respondent could not be described as being unreasonable in seeking to defend a decision of an Employment Tribunal.

46.	The application is dismissed in respect of those additional costs, but £528.75 is awarded by way of costs.