Appeal No.UKEAT/0100/04/DA

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 21 July 2004

Before
THE HONOURABLE MR JUSTICE MITTING
MR M CLANCY
MRS A GALLICO

ATOS ORIGIN IT SERVICES UK LIMITED	APPELLANT

MR JOHN HADDOCK	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR J BOWERS QC
(Of Counsel)
Instructed by:
Messrs Bird & Bird
90 Fetter Lane
London
EC4A 1JP	
For the Respondent	MR P DEAN
(Of Counsel)
Instructed by:
Messrs Clarke
Solicitors
No 1 Finsbury Square
The Forbury
Reading  RG1 3EB	

SUMMARY

8(R):  Respondent who has not entered Notice of Appearance in Employment Tribunal held entitled to appeal on remedy.

12(J):  Applicant must give credit against award for future loss for payment likely to be made under Permanent Health Scheme by employer.

THE HONOURABLE MR JUSTICE MITTING

1.	The Appellant, (“Sema”) is a multinational company in the information technology and business service sector employing 22,000 people world-wide.  The Respondent, Mr Haddock is a computer engineer who has been employed in a variety of increasingly responsible jobs by Sema since 1983.  By 1997 he was a sales manager.  He was hard working and well regarded.  Unfortunately in early 1998 he suffered what is colloquially called a nervous breakdown.  He was diagnosed as suffering a severe depressive illness which kept him wholly away from work from 20 January until the 27 July 1998.

2.	He returned part-time and still in fragile health to a less demanding but still senior position, Development Area Manager under a sympathetic Manager, Mr Weeks.  He made good progress and at the end of 1998 received a good appraisal.  At the end of 1998 Mr Weeks took early retirement and was replaced by Ms Davies whom Mr Haddock found a less sympathetic Manager than had been Mr Weeks.  On 12 January 1999 Ms Davies told Mr Haddock that he would be re-deployed as Customer Development Manager, a post for which he felt he was over qualified.  She said that because of his depressive illness she could no longer cope with the pressure of supporting him as Development Area Manager.  Mr Haddock was extremely distressed and that night suffered what the Employment Tribunal described as his second nervous breakdown.  The medical evidence satisfied the Employment Tribunal that he has since then suffered a severe depressive illness which has not responded to treatment.  He has not worked since.  He has, however, remained to this date, an employee of Sema.

3.	By an Originating Application received on 9 April 1999, Mr Haddock claimed, as was put in the application, “damages” for:

(1)	Disability discrimination 

(2)	Breach of duty to provide a reasonable and safe working environment.

The second claim has not been actively pursued.  The claim has had a tangled procedural history.  Sema did not enter a Notice of Appearance as required by Rule 3 of the Employment Tribunal Rules of Procedure 1993.  Mr Haddock asked for, and was granted, several adjournments on account of his depressive illness. 

4.	On 4 September 2000 his claim was heard by the Employment Tribunal sitting at Reading, in the absence of representation or evidence for Sema.  In a decision sent to the parties on 13 September 2000 the Employment Tribunal decided that Mr Haddock was at the material time (on or before 12 January 1999) a disabled person for the purpose of the Discrimination Act 1995, that the announcement that he would be moved to a different post amounted to a detriment to which a person who did not suffer from his disability would not have been subjected, and that his treatment amounted to direct discrimination within Section 4(2)(d).  It also held that the failure to make reasonable adjustments amounted to a breach of the duty owed to him under Section 6 and also constituted discrimination under Section 5(2).  The Employment Tribunal went on to award compensation of £35,000 for psychiatric injury, £20,000 for injury to feelings and £10,000 as “aggravated damages”.  It adjourned the assessment of all claims for financial loss to future dates.

5.	On 25 September 2000 Sema applied under Rule 13 of the 1993 rules, for an extension of time to enter a Notice of Appearance.  On 27 October 2000 the same Employment Tribunal refused to extend the time and in a decision sent to the parties on 3 November 2000 gave careful and detailed reasons for doing so.  Sema appealed to the Employment Appeal Tribunal against:

(1)	That refusal

(2)	The assessment of compensation by the Employment Tribunal.

In accordance with the Practice Direction then applying to appeals to the Employment Appeal Tribunal, both appeals were considered at a Preliminary Hearing on 9 May 2001.  The Appeal Tribunal ordered that the appeal should proceed to a full hearing.  That took place on 18 December 2001.  The decision was sent to the parties on 7 January 2002.

6.	A division of the Appeal Tribunal, presided over by Judge Clark, dismissed the appeal against the refusal to extend time to enter a Notice of Appearance, as “hopeless” and ruled that, in consequence, Sema could not challenge, on appeal, the Employment Tribunal’s assessment of compensation.  The correctness of that ruling is in issue in this appeal.

7.	Sema sought permission to appeal to the Court of Appeal from the Appeal Tribunal.  That was refused by the Appeal Tribunal and renewed again in the Court of Appeal.  On 7 March 2002 Buxton and Latham LJs refused permission to appeal against the Appeal Tribunal’s rejection of the appeal against the refusal to extend time to enter a Notice of Appearance, but gave permission to appeal two elements of the compensation award.  In so doing it held in unqualified terms, that the Employment Appeal Tribunal was in error in holding that the dismissal of the appeal against the Employment Tribunal’s refusal to extend time for entering the Notice of Appearance precluded Sema from appealing the assessment of compensation.  

8.	Perhaps surprisingly, for those familiar with the hierarchy of judicial decisions, the correctness of that ruling is also in issue in this appeal.  The appeal to the Court of Appeal was compromised and on 28 October 2002, a Consent Order was made, whereby the appeal was dismissed upon withdrawal.

9.	It is thankfully not suggested that the effect of that Consent Order was to leave the order and reasoning of the Employment Appeal Tribunal on the issues, on which leave to appeal was given, intact.

10.	Mr Haddock applied to the Employment Tribunal to determine three (in fact, as we shall show, four) issues relevant to the assessment of his pecuniary loss.  The matter was heard on 27 and 28 October 2003 and a reasoned decision was sent to the parties on 28 October 2003.  The Employment Tribunal decided that:

(1)	On the balance of probabilities, Mr Haddock would never return to work,

(2)	Mr Haddock would have been promoted once, probably in 2001, 

(3)	Mr Haddock had no direct contractual relationship with the underwriters of a Permanent Health Insurance policy taken out by Sema in respect of its senior employees, Swiss Life, and no right to enforce it against them.

The Employment Tribunal went on to hold, as it was invited to do by Mr Haddock, that in consequence of its decision on the third issue, the Employment Tribunal should make its calculation of loss by reference to the entirety of Mr Haddock’s loss of salary and benefits and should make no allowance for payments which might be made under the Permanent Health Scheme backed by the Swiss Life policy.  This was, in fact, the fourth issue which the Employment Tribunal decided.  

11.	Sema do not appeal against the Employment Tribunal’s decision on Issues (1) and (2), but appeal, if they are able to do so, against the decision on Issues (3) and (4).  In reality, the challenge is confined to Issue (4).

12.	Mr Haddock resists the appeal on the merits and contends that because Sema have not entered a Notice of Appearance, it is not entitled to appeal at all.  We must therefore deal with that issue first.  Sub Rule 3 of the 1993 Regulations now re-enacted as Rule 3(3) of the Employment Tribunals (Constitution and Rules of Procedure) 2001 provides:

“(3)	A respondent who has not entered an appearance shall not be entitled to take any part in the proceedings except –
(a)	to apply under rule 17 for an extension of the time appointed by this rule for entering an appearance;
(b)	to make an application under rule 4(1) for a direction requiring the applicant to provide further particulars of the grounds on which he relies and of any facts and contentions relevant thereto;
(c)	to make an application under rule 13(4) in respect of rule 13(1)(b);
(d)	to be called as a witness by another person;
(e)	to be sent a copy of a document or corrected entry in pursuance of rule 12(5), 12(9) or 12(10);”

It is to be noted that the 2001 rules now apply to proceedings before the Employment Tribunal whenever commenced – see Article 14 of the 2001 Regulations.  The Employment Tribunal’s rules of procedure are to be interpreted so as to further the over-riding objective of dealing with a case justly and amongst other purposes the purpose of saving expense – see Article 10 of the 2001 Regulations.

13.	Free from authority, we would hold that the “proceedings” referred to in Rule 3 were in 1993 and are now proceedings before the Employment Tribunal, and that Rule 3 has no bearing on entitlement to appeal to this Tribunal for the following reasons:

(1)	The 1993 and 2001 Rules were made under Section 7 of the Employment Tribunals Act 1996 or its statutory predecessor.  Section 7 only gives power to the Secretary of States to make, and lay before Parliament, Regulations for those purposes specified in Section 7, which are the regulation of proceedings by and before the Employment Tribunal,

(2)	On a natural construction of the word “proceedings”, it refers to proceedings in the Employment Tribunal.  If it had been intended to apply to proceedings in the Appeal Tribunal and above, express words could easily have so provided,

(3)	The matters expressly referred to in Rule 3 all concern, and concern only, proceedings in the Employment Tribunal,

(4)	All questions concerning appeals to the Appeal Tribunal are governed by Practice Directions issued pursuant to Section 30(3) of the Employment Tribunals Act 1996 just as all questions concerning appeals to the Court of Appeal are regulated by Part 52 of the CPR and to the House of Lords by Standing Orders,

(5)	Nothing in Section 30 of the Employment Tribunals Acts 1996, or the Employment Appeal Tribunal Rules 1993 purport to restrict the right to participate in an appeal of respondents who have not entered a Notice of Appearance in the Employment Tribunal.  On the contrary, respondents who have not entered a Notice of Appearance are entitled to be, indeed are required to be served with a Notice of Appeal by an appellant who was an applicant below and to participate in the appeal – see Rule 5(a) of the Employment Appeal Tribunal Rules 1993,

(6)	Paragraph 16 of the 2003 Practice Direction requires a respondent who has not entered a Notice of Appearance and has been refused an extension of time to do so to include in the Notice of Appeal and to lodge a witness statement giving, particulars of a good excuse for failing to enter the Notice of Appearance and of reasonably arguable grounds of defence to the claim in the Originating Application.  Paragraph 16 has in terms no application to an appeal against any element of the remedy ordered by the Employment Tribunal.  Further, the wording is significantly different from paragraph 16 of the 1996 Practice Direction, which expressly provided that an appellant who had been refused an extension would “not be permitted to pursue an appeal unless the Employment Appeal Tribunal is satisfied”, that there was a good excuse for failure to enter a Notice of Appearance.  There is no such precondition in the new paragraph 16,

(7)	There must be some avenue by which a challenge to the decision of an Employment Tribunal on the grounds that it has exceeded its jurisdiction or been guilty of bias can be made by a respondent who has not entered the Notice of Appearance.  It might also be thought right that a challenge should be capable of being made to a decision of an Employment Tribunal which was unlawful, in a wider sense - in other words that it made a decision which was founded on an error of law.  If there is no avenue of appeal to the Employment Appeal Tribunal, the only avenue would be to the Administrative Court by proceedings for judicial review.  Though some judges sit in both Courts, no lay members can sit in the Administrative Court.  The collective experience of this specialist Tribunal will therefore not be available to determine appeals, but only because of a quirk of procedure.  This cannot be desirable,

(8)	Even if that construction of the rules is wrong, the Employment Appeal Tribunal has power to direct that a respondent who has not entered a Notice of Appearance should be added as a party to an appeal under Rule 18 of the Employment Appeal Tribunal Rules. 

That is the view which we have reached in the absence of consideration of the authorities.  Is there any authority which prohibits such a construction?

14.	The Court of Appeal in this case was satisfied that there was no such prohibition.  Latham LJ, with whom Buxton LJ agreed, stated in paragraphs 22-26 of the decision of the Court of Appeal:

“24 	Turning to the way in which the Employment Appeal Tribunal dealt with the merits it is clear, in my judgment, that it fell into error.  The only rules which deal with the way in which a notice of appearance is to affect the ability of a respondent to take part in proceedings in the absence of a notice of appearance, are the Employment Tribunals (Constitution and Rules of Procedure) Regulations 1993, provide by rule 3(2):

“A respondent who has not entered an appearance shall not be entitled to take any part in the proceedings except –
…
(1)	to apply under rule 13(1) for an extension of time.”

25.	The question of how that impacts on the ability of a respondent who has not entered an appearance to appeal was considered by the Employment Appeal Tribunal in Charlton v Charlton Thermosystems (Romsey) Ltd [1995] ICR 56.  Giving the judgment of the Appeal Tribunal, Mummery J held at page 60 that this rule did not preclude the party in default from appealing.  In other words, his conclusion was that the only restriction was the restriction expressly provided for in rule 3(2) and no more.  He concluded that in that case that a respondent was entitled to appeal to the Employment Appeal Tribunal, both in relation to any decision following an application for extension of time in relation to the notice of appearance and as to the merits.  However, again at page 60, he set out what he considered should be the appropriate approach of the Appeal Tribunal.  He made it clear that the Appeal Tribunal should consider any appeal at a preliminary stage to determine, in relation to the merits aspect, whether there was any reasonably arguable defence to the claim.  If there was such a defence, then the matter could proceed to a full hearing.  If there was not, then the implication of his judgment was that the appeal in relation to the merits should be dismissed.

26.	I see no reason to doubt the correctness of Mummery J’s approach in that case and the procedure which he considers is appropriate for dealing with an appeal in circumstances such as this is.”

15.	Mr Dean, before Mr Haddocks, submits that that is a misreading of what Mummery J said.  With respect to the Court of Appeal, Mr Dean has a point.  Mummery J said at page 60B-61A of the report:

“The legal position is as follows
(1)	A respondent who fails to enter an appearance to an Originating Application within 14 days of receiving a copy of it should apply for an extension of time.
(2)	If an extension of time is refused by the industrial tribunal and the respondent still wishes to contest the originating application, his proper course is to appeal against the refusal.  The provision in rule 3(2) of the Rules of 1985 and the equivalent provision in rule 3(2) of the Rules of 1993 that: “A respondent who has not entered an appearance shall not be entitled to take any part in the proceedings except (i) to apply under rule 13(1) for an extension of time …” does not preclude the party in default from appealing.  The prohibition in rule 3(2) refers to proceedings before the industrial tribunal is not such a proceeding.  An appeal to the appeal tribunal from a decision of the industrial tribunal is not such a proceeding.  Rules for the proceedings before industrial tribunals cannot fetter the statutory right contained in section 136(1) of the Employment Protection (Consolidation) Act 1978 to the effect that : “An appeal shall lie to the appeal tribunal on a question of law arising from any decision of, or arising in any proceedings before, an industrial tribunal ….”  The words “any decision” include both a decision made by an industrial tribunal rejecting an application for an extension of time and a decision by an industrial tribunal on the merits of the case reached after an extension of time has been refused.
(3)	As an appeal to the appeal tribunal is confined to questions of law, the notice of appeal by the person in default of appearance must identify with precision the error of law on which the appeal is based.  The appeal tribunal will set down such an appeal for a preliminary ex parte hearing, since it would not be proper to allow an appellant, who has never entered an appearance, to pursue such an appeal without the appeal tribunal first dealing with the appellant’s failure to enter a notice of appearance.  In readiness for a preliminary hearing the appellant will be required to swear an affidavit explaining his failure to enter an appearance within the time prescribed by the Industrial Tribunals (Constitution and Rules of Procedure) Regulations 1993 and, if relevant, his failure to apply to the industrial tribunal for an extension of time.  The appeal tribunal will also need to be satisfied by the affidavit evidence that the appellant has a reasonable arguable defence to the claim on the merits.  The affidavit should therefore exhibit a draft notice of appearance, verify the contents of it and exhibit relevant documents.  The appeal tribunal needs to have all this information in order to decide whether it is a proper case in which to allow the appellant to enter an appearance and to argue that the decision of the industrial tribunal erred in law.  If the appellant fails to satisfy the appeal tribunal on these matters his appeal will be dismissed at the preliminary hearing.  If, on the other hand, the appeal tribunal is satisfied that the appellant has a reasonably arguable answer to the claim and a reasonable arguable point of law in his appeal, directions will be given by the appeal tribunal for the entering of an appearance and the prosecution of the appeal.  The appeal tribunal cannot emphasise too strongly the importance of respondents complying with the time limits for entering an appearance in order to avoid later expense and delay in the hearing of applications by the industrial tribunal and appeals from it.”

16.	What Mummery J was doing was to lay down proper procedures for respondents who had not entered a Notice of Appearance in the Employment Tribunal to follow if they wished to appeal to the Employment Appeal Tribunal.  He did not purport to interpret “proceedings” in Rule 3, save to the extent of observing in the passage to which we have referred, that they applied to proceedings in the Employment Tribunal.  He certainly did not decide that, as a matter of jurisdiction, a respondent who had not entered a Notice of Appearance in the Employment Tribunal was disentitled to appeal to the Employment Tribunal against any decision made below.

17.	Mummery J’s observations were therefore directed to how the Employment Tribunal should govern its own procedure not with the question of jurisdiction.  His judgment was incorporated into paragraph 16 of the former Practice Direction.  As we have already observed paragraph 16 of he current Practice Direction is in different terms.

18.	The Employment Appeal Tribunal in its decision of 18 December 2001 also did not purport to construe “proceedings” or to consider jurisdiction to entertain an appeal.  The only question is asked having cited the judgment of Mummery J was that posed in paragraph 31:

“But in the absence of a valid Notice of Appearance, how can the Respondent be permitted to launch an appeal against the substantive Employment Tribunal decision without having entered a valid Notice of Appearance?  We do not consider that he can.”

It is true that in paragraph 40 it went on to observe:

“In the absence of a valid Notice of Appearance the Company has no standing to pursue that appeal before us.”

If contrary to our view that was an observation directed to jurisdiction then in our respectful view it was mistaken and unsupported by the judgment on which it purported to be founded that of Mummery J.  There is nothing in our view nothing in the authorities which we have reviewed which prevents the Employment Appeal Tribunal from entertaining an appeal by a respondent who has not entered a Notice of Appearance.  As in all appeals the ground of any such appeal must be error of law but there are no other restrictions on the rights of appeal.

19.	We turn therefore to the merits.  Section 8(3) of the Disability Discrimination Act 1995 provides:

“(3)	Where a tribunal orders compensation under subsection (2)(b), the amount of the compensation shall be calculated by applying the principles applicable to the calculation of damages in claims in tort.”

The basic principle upon which damages are calculated in claims in tort was stated by Lord Blackburn in Livingstone v Raywards Coal Co [1880] 5 Appeal page 25 and page 39:

“That sum of money which will put the party who has been injured in the same position as he would have been if he had not sustained the wrong for which he is now getting his compensation.”

Subject to its power to award further compensation under Section 8(5)(a) of the 1995 Act the Employment Tribunal only has power to make an award of compensation in a lump sum which reflects its best estimate at the date of hearing of the past and future loss proven to have been sustained by the employee as a result of the unlawful discrimination by the employer.  The estimation of past loss can be achieved with reasonable accuracy, but that of future loss depends on manifold contingencies and chances, so that, it has often been observed in the Courts the eventual award will almost certainly prove to be too high or too low.

20.	Certain well known principles are however settled:

(1)	Unless a future loss is certain to occur or a chance that it will not is so small that it can be disregarded the chance that it will not occur must be allowed for.

(2)	As in personal injury cases, to which this case is closely analogous, the ordinary contingencies of life must be allowed for.

(3)	Credit must be given for acceleration of receipt.

(4)	Compensation will be assessed on the footing that the claimant or applicant will take reasonable steps to mitigate his loss.  The award will be abated by the amount by which the loss would be reduced if he were to do so.

(5)	Subject to two well-established exceptions, the Appellant is not entitled to compensation for a loss which will in fact be avoided.

(6)	To the extent that it is uncertain that a loss will be avoided, the chance that it will be must be estimated and appropriate credit given.

(7)	The exceptions to the rule in (5) are that payments resulting from the benevolence of third parties and from an insurance policy for which the claimant or applicant has paid or contributed to the premiums are not to be taken into account.

21.	The Employment Tribunal has only begun to embark on the task of estimating future loss.  SEMA contend that it has gone wrong in its approach to benefits likely to be payable under the permanent health scheme in future years.  The Employment Tribunal posed the question which it was going to answer in paragraph 11 of its Decision:

“11.	The issue so far as calculation of the losses is concerned is simply this.  Assuming that the respondent continues to receive 75% of the applicant’s salary from Swiss Life as they do at present and pay an equivalent sum to the applicant, are his losses to be calculated on the basis that they are 25% of the salary that he would have been receiving?  In any event the salary figure may have to be adjusted to take account of pay rises from time to time and the resulting capital figure will have to be actuarially reduced to reflect the hazards of life and the value of an accelerated capital sum.  The alternative argument is whether or not the calculation that the Tribunal must undertake should be based on the entirety of his annual salary and to order the respondent to pay compensation calculated on that basis.  The former approach envisages that that Swiss Life will continue to make payments either direct to the applicant or, as they have been up to now direct to the respondent, who will then pay them to the applicant direct.  The second approach is that the respondent will pay a capital sum which will be substantially very much more than had it been based on the alternative calculation but will recoup 75% of the applicant’s salary over the ensuing years up to the age of 60 when the applicant would have retired.”

22.	It has already been noted that the Employment Tribunal approached that question on the footing that Mr Haddock will not resign his employment, so that he will remain an employee of Sema for the purposes of the Swiss Life policy.  It made that assumption on the basis of a letter from Mr Haddock’s solicitors to Sema’s solicitors dated 1 August 2003 under which in return for the assessment of the loss on the full basis Mr Haddock offered the following undertakings:

“1.	not to resign, since his continuing employment is a pre-condition of payment under the policy;
2.	not to sue the company under the terms of the handbook provisions, since he will already have received the benefit;
3.	to attend any medical examinations required by Swiss Life.”

It is to be noted that pursuant to that offer Mr Haddock would therefore have remained until normal retirement age an employee of Sema and obliged to attend any medical examinations required by the under writers.

23.	The Employment Tribunal found that Mr Haddock was employed under a Contract of Employment signed in 1983, which incorporated the terms of employment set out in the edition of the staff handbook, produced in 1989.  The contract provided for payments to be made by Sema during the first 26 weeks of absence due to illness and thereafter:

“The following minimum provisions may apply -
ii.	Grade 6 and above a claim will be made on the company’s insurance policy.  It must be noted that benefits may not be obtainable under certain circumstances.”

The handbook provided:

““The company insures the income of staff in the event of their permanent incapacity for work.  The cover provides for up to 75% of salary less statutory deductions and National Insurance sickness benefit.  It becomes payable at the company’s discretion 12 months after the staff member falls ill until Sema Group’s normal retirement date or the staff member is fit enough to return to work whichever is the sooner.””
 
The Employment Tribunal noted that Swiss Life had accepted the claim in respect of Mr Haddock from 12 months after 12 January 1999.  It then went on to analyse the detailed terms of the Swiss Life policy to determine “whether or not the existence of the insurance scheme is a contractual benefit under the terms of the Applicant’s Contract of Employment and the handbook”.  It determined, in effect, that it was not.

24.	Mr Bowers QC does not criticise the Employment Tribunal’s analysis of the contractual status of the Swiss Life policy.  He is right not to do so.  The Employment Tribunal were plainly correct to conclude that, save in the event of acceptance by Swiss Life that Mr Haddock was permanently incapacitated from following any occupation at all or that Sema ceased to trade as a business, in which case payments under the policy would be made direct to Mr Haddock under one of the  policy terms, Swiss Life had no contractual relationship with, or obligation enforceable by, him.  Any payments will be made by Sema to Mr Haddock and will be recovered by it from Swiss Life.  The conclusion which the Employment Tribunal drew is stated in paragraph 18:

“18.  Having reached that conclusion we now address the issue as to the proper basis upon which the applicant’s losses of earnings should be computed.  If the applicant has no enforceable right at present against the insurer, it seems to us that he will be placed in a difficult position is the insurer, for whatever reason, ceases payment.  The most likely reason for ceasing payment in this sort of situation would seem to be where the insurer formed the view that the individual is no longer incapacitated.  We do not think that is likely to happen in Mr Haddock’s case and we hope that it is a view the insurance company will never form.  The other alternative would be if the insurers went out of business.  Under the terms of the policy it is expressly provided that if the respondent ceases to trade then Mr Haddock may then seek to recover directly against the insurance company but if the insurance company collapsed financially it would not extinguish the respondent’s liability to the applicant.  An analogy may be drawn between this situation and that of a tortfeasor who is insured, such as a motorist if he causes an accident he is liable to the injured party but relies on his insurers to indemnify him.  Apart from certain statutory exceptions, the injured party has no enforceable right against the insurer.  If we calculate the applicant’s losses on the basis of 100% loss of salary this will result in the respondent paying out a sum very much greater than if we calculated on the alternative basis.  So far as possible, it would relieve the applicant of the risk of having to take action against the insurer himself, where he is in a position to do so, and of course on that basis any payments made by the insurer to the respondent would be retained by the respondent to recoup the capital sum they will have paid to the applicant.  In our judgment the appropriate basis upon which the Tribunal should make its calculation is that it should be based on the entirety of the applicant’s loss of salary.”

25.	It is this conclusion which Mr Bowers QC criticises.  In a nutshell, he contends that it does not accord with the approach of the Courts to the assessment of future pecuniary loss in personal injury cases as authoritatively to be set forth in Lord Bridge’s speech in Hussain v New Taplow Mills Ltd [1988] IRLR 167 and in the judgment of Dyson LJ in Pirelli General plc v Gaca [2004] EWCA Civ 373, an unreported decision of 26 March 2004.  The facts in Hussain were that the plaintiffs sustained an injury in the course of his employment for which his employers were partly liable.  The injuries prevented him from resuming his pre-accident work as a machine operator.  The employers offered alternative, less well-paid employment as a weighbridge operator.  The plaintiff’s terms of employment incorporated a public health insurance scheme, underwritten by NEL.  In the case of an employee whose earnings were reduced by incapacity, the scheme made up half the difference.  The obligation to pay was the employer’s alone.  It recouped its outlay from NEL.  Save that the payment was obligatory and may not be obligatory in this case, the basic structure of the scheme was indistinguishable from that here.  The plaintiff claimed that the payments funded by the insurance scheme should not be taken into account in assessing his future loss.  The Defendant claimed that they should be deducted.  Lord Bridge stated the general rule at paragraph 6:

“Financial gains accruing to the plaintiff which he would not have received but for the event which constitutes the plaintiff’s cause of action are prima facie to be taken into account in mitigation of losses which that event occasions to him.”

26.	He noted the existence of the two exceptions to which we have referred in the same paragraph.  In paragraph 10 of his decision in reference to the payments made under the scheme he said:

“They are payable under a term of the employee’s contract by the defendants to the employee qua employee as a partial substitute for earnings and are the very antithesis of a pension which is payable only after employment ceases.  The fact that the defendants happen to have insured their liability to meet these contractual commitments as they arise cannot affect the issue in any way.”

He cited the judgment of the High Court of Australia in Graham v Baker in paragraph 12 of his decision to the following effect:

“‘But the contract contemplates the possibility that circumstances of a defined character may arise and prevent the employee from performing his duties.  In those circumstances he is to be entitled to absent himself on sick leave, and subject to specified limits, to receive “full pay” whilst on leave.  In our view the respondent’s contract says no more and no less than that, if he becomes unable by reason of sickness or other specified causes to perform his ordinary duties, nevertheless his right to “full pay” or, in other words, his ordinary wages, shall continue to be payable subject to limits specified, during the period of his absence.  If, therefore, the claim be made, as it was, that the respondent lost the whole of his wages between the date of the accident and the date of trial then the appellant was entitled to answer it by showing that for a period of 178 days he received his full wages’

Mutatis mutandis, (Lord Bridge observed) this reasoning seems to me entirely applicable to the receipt by the plaintiff of half his lost earnings under the terms of his contract embodying the scheme.”

He concluded at paragraph 15 that:

“It positively offends my sense of justice that a plaintiff, who has certainly paid no insurance premiums as such, should receive full wages during a period of incapacity to work from two different sources, her employer and the tortfeaser.  It would seem to me still more unjust and anamolous where, as here, the employer and the tortfeaser are one and the same.”

27.	In Pirelli General plc v Gaca, the claimant had been seriously injured at work in an accident for which the defendant employers were liable.  His employment was terminated on the ground of ill-health.  He received substantial payments from the underwriters of a group personal accident policy, for which the premiums were paid by the defendants and a gratuity of £10,000 from the defendants themselves.  The provision of insurance was not a contractual term and the claimant made no direct contribution to the premiums.  The claimant contended that the payments by the underwriters and the gratuity paid by the defendants should not be taken into account in assessing his lost earnings.  The Court of Appeal held that both categories of payment were deductible from the award: the gratuity, because any payment by tortfeasers or voluntary or otherwise was deductible.  The “third party” benevolent exception did not apply.  Dyson LJ observed at paragraphs 30 and 31:

“Where ex gratia payments are made by the tortfeaser to the victim, the position is very different.  Nobody could reasonably suggest that it would be revolving to the ordinary man’s sense of justice or startling that the victim’s damages should be reduced to take account of an ex gratia payment made by the tortfeaser.  On the contrary, as was said by Llyod LJ in Hussain and by Lord Bridge in Hunt v Severs, there is no good public policy reason for requiring in tortfeaser to compensate the victim of his negligence twice over.  In fact, it offends one’s sense of justice that a claimant should be compensated twice by the tortfeaser.  Moreover, there is a further important policy consideration which militates against treating ex gratia payments by tortfeasers as coming within the benevolence exception.  As Lloyd LJ said, employers should be encouraged to make ex gratia payments where their employees are injured during the course of their employment.  They are likely to be discouraged if such payments are not deducted from awards of damages.  Brooke LJ made the same point in Williams.
31.	As a matter of principle, therefore, and on the basis of the authorities (apart from McCamley) I would hold that ex gratia payments made to victims by tortfeasers do not normally fall within the benevolence exception, even if it can be shown that they are made from motives of benevolence.”

Nor did the “insurance” exception applied as Dyson LJ observed in paragraph 56:

“It follows that an employee is not to be treated as having paid for, or contributed to the cost of insurance merely because the insurance has been arranged by his employer for the benefit of his employees.  The insurance monies must be deducted unless it is shown that the claimant paid or contributed to the insurance premium directly or indirectly.  Payment or contributions will not be inferred simply from the fact that the claimant is an employee for whose benefit the insurance has been arranged.”

Mummery LJ and Brooke LJ agreed.

28.	It is therefore settled law that both of the following categories of payment fall to be deducted in calculating an award for pecuniary loss:

(1)	Payments made by a tortfeaser, of whatever category.

(2)	Payments made by the underwriters of an accident or health insurance policy for which the premiums were paid by the tortfeaser, without contribution from the claimant.

29.	Mr Dean submits that the underlying reason behind those rules of policy is simply to prevent double recovery on the part of the claimant.  We have no doubt at all that that is an important reason for the existence of the rules but it is not the sole one, although it is stated in the judgments which we have recited as a clear supporting principle.  There is no reason to conclude that the principles would not be the same even in the absence of such a compelling supporting principle.  The basic rule is that avoided loss, save in the benevolence and insurance exception cases, is to be treated as avoided, so that a claimant cannot recover damages in respect of it.  

30.	The effect of Section 8(3) of the Disability Discrimination Act 1995 is that the same deductions must be made from an award of compensation to victims of disability discrimination as would be made in the case of claimants to whom an award of damages for personal injury was made.  Does it make any difference that the payments will be made in the future rather than as in Pirelli General Plc v Gaca in liquidated sums in the past?  The answer is in principle that it makes no difference.  As in the case of any assessment of future loss, contingencies and chances must be allowed for.  A contractual entitlement to a payment may make it more certain that a loss will be mitigated than a mere expectation that a discretion will be favourably exercised or as in the case of Hussain that the employers would continue to employ the plaintiff.  The obligations of underwriters may need to be considered and if they have a discretion to exercise so may the chances of their doing so in a way favourable to a beneficiary.  The exercise may be difficult and as we have observed it is unlikely to produce a figure which is precisely right but it must be undertaken.  Even though the approach of the Employment Tribunal has its attractions, it is simply not an approach which is open to it under Section 8(3).

31.	It is not entirely clear from the Employment Tribunal’s decision or the documents supplied to us whether Sema are under any contractual obligation to make payments to Mr Haddock while he remains an employee.  There is an apparent conflict between the contractual and handbook terms referred to in paragraphs 12 and 13 of the decision which speak of discretion and paragraph 17 which appears to assume an obligation.  The issue requires in due course to be addressed.

32.	For the reasons given if the primary remedy which is to be provided to Mr Haddock for the disability discrimination from which he has suffered is the award of lump sum compensation, the exercise which we have indicated will have to be undertaken on the basis of the principles which we have identified.  It is however not necessary that such an exercise should be undertaken at all.  There is, in fact, a means of insuring that Mr Haddock will receive and that Sema will pay all that he should receive but no more.

33.	Section 8(2)(c) permits the Employment Tribunal to recommend that Sema continues to employ Mr Haddock until his normal retirement age and to pay him 100% of the salary and to provide all of the contractual benefits which he would have enjoyed but for his disability on the condition that he continues to comply, as he has indicated that he will do, with all reasonable requirements of Sema and/or Swiss Life, to submit to medical examinations so as to ensure continued payment of the benefits under the insurance scheme by Swiss Life to Sema.  If such a recommendation were to be made and if Sema failed to comply with it then Mr Haddock would be entitled to seek, and no doubt the Employment Tribunal would unhesitatingly award, additional compensation under Section 8(5)(a).  If, for example, Mr Haddock were to be dismissed while such a recommendation remained in place then his loss would crystalise and crystalise without argument in such a way as to ensure that no account was required to be taken of payments under the insurance policy because such payments are only to be made while a member of the scheme remains an employee of Sema. 

34.	This method of ensuring that Mr Haddock is properly compensated for the loss which he has undoubtedly suffered does however, require him to amend his IT1 to claim that relief.  If he does not do so and the Employment Tribunal is required to make a single lump sum award its task would be made much easier and the risk of avoidable error would be diminished if Sema were invited to take at least a limited part in the assessment.  It is not entitled to do so under Rule 3, but there is nothing to prevent the Employment Tribunal from permitting it to do so under its Case Management powers in Rule 4(1) in furtherance of the over-riding objective identified in Article 10 of the 2001 Regulations.  Mr Haddock is unlikely to be disadvantaged if Sema is permitted to adduce oral or documentary evidence about current contractual arrangements for its senior staff about, for example, the pay and contractual benefits which he would have received had he, as the Tribunal found, been promoted in 2001.  

35.	The Employment Tribunal would doubtless be assisted by hearing orally from Sema witnesses about its future intentions in relation to Mr Haddock and other matters relevant to his future loss.  It would also avoid the need or greatly diminish the possibility of appeals to this Tribunal by Sema in the event of any arguable error of law being made if it were to permit representations as to the law either orally or in writing to be made.  In making those suggestions we, of course, cannot bind in Employment Tribunal nor do we seek to limit the assistance which the Employment Tribunal might derive from some limited participation in its proceedings by Sema.

36.	These are however matters for the future conduct of this case.  We observe that despite its unfortunate procedural history there appears to us to be no good reason to suppose that if the parties’ advisers co-operate constructively as we believe they are willing to do this matter cannot be resolved without the need for anything more than a formal hearing - either to make the recommendation that we have indicated or failing that to arrive as an agreed lump sum compensation or failing that to agree to submit to mediation with a view to arriving to an acceptable solution.  For those reasons this appeal is allowed.