Appeal No.UKEAT/0438/04/CK

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 17 January 2005

Before
THE HONOURABLE MR JUSTICE BURTON (PRESIDENT)
MR P GAMMON MBE
MR R LYONS

MR F E MORGANS	APPELLANT

ALPHA PLUS SECURITY LTD	RESPONDENT

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	MR MARTIN WYNNE JONES
(of Counsel)	
For the Respondent	MR ANDREW KNORPEL
(Solicitor)	

SUMMARY

Unfair Dismissal

Employment Tribunal correct in law to deduct (100% of) incapacity benefit in calculating loss.  Inconsistency between EAT decisions in Puglia (Mummery P) and Rubenstein (HH Judge Hicks) resolved in favour of Puglia.  Hardy v Polk approved.  Dunnachie (HL) followed: s123 requires actual loss to be calculated.

THE HONOURABLE MR JUSTICE BURTON (PRESIDENT)

1.	This has been the hearing of an appeal by the Applicant, Mr Morgans, against a Remedies Decision of the Employment Tribunal at London South, after a hearing on 27 January 2004, by way of Reasons sent to the parties on 26 February 2004.  By its Decision the Employment Tribunal ordered the Respondent, Alpha Plus Security Ltd, following the earlier finding by the same Tribunal, in Reasons handed down on 9 September 2003, that the Applicant had been unfairly dismissed by the Respondent, to pay to the Applicant the sum of £14,349.99.  

2.	Although the Applicant’s Notice of Appeal raised other matters, this appeal has been limited to one point only, namely the Applicant’s challenge to the Decision by the Employment Tribunal to deduct, in arriving at the compensation payable by the Respondent, the amount of incapacity benefit which he had received during the relevant period, in a total sum of £2,780.38.  Incapacity benefit does not fall within the provisions of the Employment Protection (Recoupment of Jobseeker’s Allowance and Income Support) Regulations 1996, and the Tribunal concluded that as no recoupment was to be made of the incapacity benefit, the Applicant must give credit for it in the calculation of his loss. Incapacity benefit was introduced on 13 April 1995 to replace (inter alia) Invalidity Benefit, to which reference is primarily made in the authorities.

3.	The relevant paragraphs of the Tribunal’s Decision read as follows:-

“5.	The Applicant was unemployed from the date of dismissal (18 February 2003) to the date of the hearing on remedies.  During this time, the Applicant received Incapacity Benefit. 
6.	Between his dismissal and September 2003, he was declared unfit to work by his General Practitioner by reason of psychological difficulties attributable to his loss of employment.  He therefore did not begin looking for work unti1 September 2003, when he went to the Job Centre, after which he sent off his c.v.  3 times and tried to find work through friends. 
7.	The Applicant told the Tribunal that he was “99% certain” of being given another job by January 2004, having just received a very firm offer of alternative employment.  He had not discussed income with his new employer but thought he might receive £5-6 per hour.  The Tribunal therefore found it highly likely that he would find this alternative employment. 
8.	Based upon these findings of fact, the Tribunal drew the following conclusions.  The Applicant was unemployed as a result of his dismissal.  His inability to work until September arose from his psychological state attributable to the action taken by the Respondent in dismissing him. 
9.	From September 2003, he took reasonable steps to find alternative employment and the fact that he has almost certainly found such alternative employment within 3 months suggests that he has acted reasonably in seeking to mitigate his loss. 
10.	 The Tribunal concluded that it was reasonable to take the middle of January 2004 (January 15th) as the likely date the Applicant would find alternative employment.   As the Applicant was unable to speak with any certainty about the details of his future employment, the Tribunal was unable to conclude that he would be suffering any continuing loss.  Therefore, the Applicant was entitled to loss of earnings for the period 19 February 2003 [to] 15 January 2004 at the weekly net rate of £330.40.
11.	The Tribunal could see no reason why the compensatory award should not be reduced to reflect the payment of Incapacity Benefit (which is not a recoupable benefit).  The Applicant referred to Hilton International Hotels (UK) Ltd v Faraji [1994] IRLR 267, Rubinstein v McGloughlin [1996] IRLR 557 and also Sun & Sand Ltd v Fitzjohn [1979] ICR 268.  The Tribunal obtained copies of these and considered them when it met in Chambers.  Without rehearsing those cases and others to which they refer, it is fair to say that the case law shows a diversity in approach to this issue. 
12.	Although assisted by authority, the Tribunal did not find itself in any better position than if it asked itself what was just and equitable.  In the circumstances of this case, it was just and equitable to make a full deduction of the amounts received, particularly as the Applicant would otherwise be in a better position than had he remained in employment.”

4.	At the preliminary hearing of this appeal, HH Judge Ansell ordered a full hearing limited to the one point to which we have referred.  Paragraph 1 of his Order of 28 September 2004 reads:-

“This appeal be set down for a full hearing on grounds relating to deduction of incapacity benefit, there being conflict between Rubenstein v McGloughlin (1996) IRLR 557 and Puglia v C James and son (1996) IRLR 71.”

5.	The conflicting authorities at the Employment Appeal Tribunal variously so referred to are as follows:-

5.1	Sun & Sand: a decision of Employment Appeal Tribunal, presided over by Arnold J.  This related to the deduction of sickness benefit received by an applicant who had been unfairly dismissed.  On the facts the Employment Appeal Tribunal upheld a decision not to deduct the sickness benefit because of the term of the applicant’s contract of employment which would have entitled her, if she had been ill, as she was in fact, during the period of her contract of employment, to be paid wages under a continuing contract of employment and to receive and retain sickness benefit as well (see paragraph 4 of the judgment).  However, Arnold J concluded at paragraph 3 of the judgment that 

“…if either she was obliged to accept some reduced amount of pay by reference to the sickness benefit she had received or so long as she was being paid under a continuing contract of employment was disentitled from receiving sick benefit at all, then in either of those cases it seems to us that the compensatory award for lost  pay should be reduced by the amount of the sickness benefit which she received.”

	There is, of course, no such term of the contract of employment suggested in this case.

5.2	Hilton v Faraji (“Faraji”): a decision of the EAT, presided over by HH Judge Hargrove QC.  Sun & Sand was not cited in this case.  The EAT concluded that the Employment Tribunal had been correct in not deducting invalidity benefit.  In Puglia v James (“Puglia”), Mummery P, giving the judgment of the EAT, was persuaded that the judgment in Faraji was per incuriam, because not only Sun & Sand but also other authorities were not cited.

5.3	Puglia.  The EAT per Mummery P decided that the Employment Tribunal was correct in deducting from the compensation awarded both sick pay and invalidity benefit received by the applicant.  So far as sick pay was concerned, Mummery P at paragraph 29followed Sun & Sand, citing the passage from Arnold J’s judgment at paragraph 3.  As for invalidity benefit, Mummery P concluded that this also should be deducted:-

“39. The decision of the Appeal Tribunal in Sun & Sand… was not cited to the Appeal Tribunal in Faraji….  As mentioned earlier, a deduction is made for statutory sick pay in cases where there is no provision in the contract of employment which entitles the employee to receive full wages in addition to statutory sick pay.  [Counsel for the respondent] argued that there was no distinction in logic or principle why invalidity benefit received by an employee should be dealt with in a different manner than statutory sick benefit.  If no deduction were made for invalidity benefit the result would be an employee receiving compensation for unfair dismissal would find himself in a better position than if he had never been dismissed.  Regard must be had under s74 to loss sustained by the employee.”

The italics used for the word loss were Mummery P’s.  s74 of the Employment Protection (Consolidation) Act 1978, to which he refers, was the equivalent provision to what is now s123 of the Employment Rights Act 1996 (“the 1996 Act”), to which we shall return below.  There was reference in Mummery P’s judgment to the case of Rubenstein v McGloughlin (“Rubenstein”), which had not yet then been reported, but in relation to which at that stage there had simply been argument before a different panel of the EAT, presided over by Judge Hicks QC, as a result of which a provisional decision had been handed down, to which we shall refer further.  At paragraph 44 of his judgment, Mummery P said as follows:-

“The present position is confused and uncertain.  At one point we considered adjourning the matter for assistance from an amicus, but we are reluctant to incur further delays and costs in this matter.  We have been persuaded by the citation of authority not cited to the Appeal Tribunal in Faraji… or in the case of [Rubenstein v] McGloughlin, that there was no error of law in the deduction of both invalidity benefit and statutory sick pay.  We therefore dismiss the appeal on that point.”

5.4	Rubenstein.  The panel presided over by Judge Hicks QC heard further argument in the light of the judgment in Puglia, but stood by its conclusion, which was, perhaps surprisingly, neither chalk nor cheese, but a halfway house.  The judgment was neither, as in Puglia, to deduct the whole of the benefit from the compensation, nor, as in Karaji, to disregard it and deduct none, but to deduct half of the invalidity benefit received, by reference to what at paragraph 26 of its first or provisional judgment it had described as the “ “half deduction” in personal injuries cases.”  In the following paragraphs of that provisional judgment Judge Hicks QC explained their conclusion:-

“28.	We therefore return to the statute and to principle.  Section 74(1) of the 1978 Act provides that, with irrelevant exceptions, the amount of a compensatory award is to 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’. 
29.	That, it has been held, is a statutory provision constituting its own code for the assessment of compensation, and not to be assumed to be equivalent to the common law of damages.  Nevertheless there are many respects in which common law authority is helpful.  What is ‘the loss sustained’ raises questions similar to those of the quantification of damages, and whether that loss is ‘attributable’ to the employer’s actions and sustained ‘in consequence’ of the dismissal involves familiar issues of causation.  As is apparent from the discussion in Hilton, such common law authorities as Gourley and Parry v Cleaver are unquestioningly accepted as being of direct authority in the field with which we are now concerned. 
30.	The autonomy of s.74(1) remains, however, and one important feature of that provision is the incorporation of the requirement that the award shall be of such amount as the tribunal considers ‘just and equitable’.  In our view that is of particular relevance in dealing with a field such as the deductibility of benefits, in which the case law of damages has had to adopt an ‘all or nothing’ approach to a topic in which (to take only the ‘insurance’ exception to Gourley) there can be an infinite gradation from an insurance policy fully funded by the claimant to a pension or benefit to which his contribution has been minimal.  We see no reason why an industrial tribunal, in awarding what is just and equitable, should be similarly limited. 
31.	Another consequence of the autonomy of s.74(1) and of the jurisdiction to do what is just and equitable is, in our view, that in looking to analogous situations it is legitimate to take into account not only case law but the regime of common law damages as a whole, including the statutory element, for it is to be assumed that Parliament itself is aiming at just and equitable solutions.  We therefore find it instructive that for a number of social security benefits, including invalidity benefit, there are statutory provisions affecting the damages recoverable for personal injury which for smaller awards continue the deduction of half benefit for five years referred to in Hilton (Law Reform (Personal Injuries) Act 1948, s.2, as amended) and for all others impose a system of recoupment similar to that operated under the 1977 Regulations in relation to compensation for unfair dismissal, as described above (Social Security Administration Act 1992, s.82).  It would of course be wrong to apply these provisions directly or to treat the detailed distinctions between smaller and larger claims or between the first five years and later as of any particular assistance, but the broad conclusion to emerge clearly from the 1977 Regulations and the statutory provisions as to personal injuries is that, throughout, Parliament has treated the employer and the employee equally, either by depriving both of the relevant benefits or by dividing the value of those benefits between them by the device of half deduction. 
32.	We conclude that in the case of invalidity benefit, which is clearly not a pure ‘insurance’ payment, fully funded by the employee’s contributions, to produce a ‘just and equitable’ solution requires either detailed evidence of the funding position or a broader approach.  In our view the latter is to be preferred and, having regard to the analogy of the statutory system as well as to more general considerations of equity, we consider that one half of the invalidity benefit received should be deducted.”

The Appeal Tribunal in Rubenstein reconsidered its provisional decision in the light if seeing the judgment in Puglia and its approval of Sun & Sand – but remained of the same view.  An Addendum of 28 paragraphs was included, reciting in paragraph 24 its 
“starting point as... the autonomy of s74(1) of the 1978 and our conclusion, in particular, that the requirement that the tribunal shall award what is ‘just and equitable’ releases it from the straitjacket of the ‘all or nothing’ approach of the common law.”

6.	The Employment Tribunal in this case followed the conclusion in Puglia, as has been seen.

7.	The Applicant, who was represented before the Tribunal by Mr Martin Jones of Counsel, acting as a friend and pro bono, has again had the benefit of Mr Jones’ representation before us, and he has urged the Applicant’s case before us with ability and determination.  The Applicant has invited us to prefer the decision in Rubenstein to that in Puglia, stating in paragraph 10 of the Skeleton prepared for the preliminary hearing:-

“It follows that in Rubenstein the Tribunal specifically considered the issue that the Tribunal in the instant case did, namely whether it was just and equitable for a claimant to benefit from one half of a benefit which was not subject to the statutory recoupment provision and was not in the nature of an employee insurance”

and invited us to follow Rubenstein.

8.	The Respondent, for whom Mr Knorpel, solicitor, appeared both before the Tribunal and before us, has supported the decision of the Employment Tribunal in this case and the conclusion of Mummery P in Puglia.  

9.	In an able and persuasive Skeleton Argument, the Respondent relied upon additional authorities in support of its case:-

9.1	Hardy v Polk (Leeds) Ltd [2004] IRLR 420.  This was a recent decision of the EAT, presided over, as it happens, by me.  Two paragraphs of our judgment in that case are specifically referred to in the Respondent’s Skeleton.  In the first paragraph cited, paragraph 21, I addressed s123 of the 1996 Act:-

 “The principle underlying the statute is thus clear, so far as the compensatory award is concerned:  
(1) It is a claim based on compensating the victim of an unfair dismissal for his or her loss; it is not a penal award, penalising the employer for its conduct.  
(2) There is the same duty to mitigate that loss, so far as the employee is concerned, under the statute as there is at common law.  ‘Duty to mitigate’ means that an employee must take reasonable steps to obtain alternative employment.”

	The other paragraph was at 34.3:-

“34.3  The basis  of a compensatory award is one founded upon establishment of what the loss of the applicant is, and if the applicant has suffered no loss, he or she recovers nothing over and above the basic award to which he or she is entitled to in any event.  The “just and equitable” arises in respect of the calculation of that loss.  There is no way, and this has been said on many occasions, by both this Appeal Tribunal and the Court of Appeal, in which a compensatory award, whether to be regarded as “just and equitable” or otherwise, is to be used in order to penalise misconduct by an employer, if such there has been, either on the basis that it is thought to be just and equitable so to punish the employer, or otherwise.  The statute does not say that the award will be such an amount as the Tribunal considers just and equitable by reference to the conduct of the employer.  It is wholly by reference to the loss suffered by the employee, and the award is properly described in the headnote to the section, albeit such is not strictly determinative, as a compensatory award.”

9.2	The second authority referred to, in paragraph 17 of the Respondent’s Skeleton, is Cerberus Software Ltd v Rowley, a decision of the Court of Appeal [2001] IRLR 160.  The Respondent cites paragraph 27 of Sedley LJ’s judgment in that case:-

“The principle that a claimant’s damages should not exceed his real losses is a bedrock of our law”

9.3	Finally the Respondent refers to the recent House of Lords judgment in Dunnachie v Kingston Upon Hull City Council [2004] IRLR 727, and to paragraph 28 of the speech of Lord Steyn, with which the rest of their Lordships agreed.
10.	
The Respondent’s case is well summarised in its Skeleton:-

“18.	The Respondent contends that, in accordance with statute, it is necessary to calculate “the loss sustained by the complainant”.  If the Claimant’s losses have been reduced by non-recoupable non-insurance benefit, then there is no reason why regard should not be given to the actual pecuniary loss suffered.  The ET should then consider what award would be just and equitable in those circumstances.
…
20.	As receipt of incapacity benefit clearly reduced the pecuniary loss suffered by the Claimant, any attempt to apply a reduced deduction by specific reference to the amount of incapacity benefit received would, in effect, be making an award for non-pecuniary loss.
21.	Statute requires a compensatory award to be “just and equitable” and this allows an ET to make a reduction in what would otherwise be awarded, by reference to, say, conduct- or Polkey.  However it is contended that the actual pecuniary loss suffered must be the maximum sum which a complainant might be awarded.
22.	The Respondent therefore suggests that, rather than ruling on the deductibility of incapacity benefit when assessing loss, the EAT should consider the issue of whether actual loss may be enhanced by any amount of incapacity benefit received.
…
24.	The Respondent… contends that had the ET not set off any amount of incapacity benefit, this would have amounted both to penalising the Respondent employer and allowing the Claimant to recover non-pecuniary loss… neither of which would have been permissible.
25.	The Respondent contends that the argument and accepted in paragraph 39 of the EAT’s judgment in Puglia is correct.”

11.	Central to consideration of this appeal is s123 of the 1996 Act.  This reads in material part as follows:-

“(1)… 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.”

By s123(4) the tribunal is required, in ascertaining such loss, to 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.

12.	
We are inevitably influenced by the fact that the decision in Puglia was given by the then President, Mummery P, with his substantial experience of employment law, whereas it is apparent that Judge Hicks QC was drawing on his own considerable experience of the law of personal injuries; but consideration of a matter such as this, where there is inconsistency between earlier decisions of this Appeal Tribunal, is not and cannot be simply a numbers game, and we have been tasked by Judge Ansell with the resolution of that inconsistency.  We resolve it without any doubt at all.

13.	We turn first to the three authorities referred to by way of additional support by the Respondent, to which we have referred, consideration of which we have found very helpful.  They are not authorities relating to deduction of benefits.  However, particularly where there is inconsistency in the decisions directly on point, considerable assistance can be gained from those authorities, not only by reference to the particular dicta relied upon by the Respondent in its Skeleton, but also by to the common issues of loss, and of how to deal with receipts of monies by an applicant during the period of unemployment (or what would have been unemployment) resulting from the unfair dismissal.

14.	The first of the three is Hardy, as we have stated a recent decision of the EAT.  It was a case in which the employment tribunal had deducted, in calculating the compensation payable by the respondent to the applicant for unfair dismissal, the monies earned by the applicant from a new employer during the notice period.  The applicant, opposing such deduction, relied upon the decision of the National Industrial Relations Court (the “NIRC”) in Norton Tool Co Ltd v Tewson [1972] ICR 501 per Sir John Donaldson, and the subsequent decision of the Court of Appeal (Sir John Donaldson MR presiding) in Babcock FATA Ltd v Addison [1987] IRLR 173, in both of which decisions it was concluded that the applicants did not have to give credit for earnings during the period of notice from a from a fresh employer.  In Hardy we concluded that, in considering whether and to what extent the applicant had suffered loss, credit had to be given for compensation (which in that case had been received at a higher rate of salary, such that, when credited, it wholly extinguished any loss).  Norton Tool was decided by reference to the Industrial Relations Act 1971, which had created the short-lived animal of the unfair industrial practice, a creature which did not survive the repeal of the 1971 Act in 1974.  It is apparent that Sir John Donaldson was very much addressing this new concept, when he concluded that no credit needed to be given.  He referred to s116 of the 1971 Act, which was then the equivalent (in materially identical terms) to the present s123 as follows, at page 503B of his judgment:-

“Section 116 of the Industrial Relations Act 1971 sets out the general principles to be applied in the assessment of compensation.  Those principles are not solely applicable to cases of unfair dismissal, but apply to all awards of compensation in respect of unfair industrial practices, of which unfair dismissal is only one.”

He concluded, at 505G to 506B, as follows:-

“The Contracts of Employment Act 1963, as amended by the Act of 1971, entitles a worker with more than ten years’ continuous employment to not less than six weeks’ notice to terminate his employment.  Good industrial practice requires the employer either to give this notice or pay six weeks’ wages in lieu.  The employee was given neither.  In an action for damages for wrongful, as opposed to unfair, dismissal he could have claimed that six weeks’ wages but would have had to give credit for anything which he earned or could have earned during the notice period.  In the event he would have had to give credit for what he earned in the last two weeks, thus reducing his claim for about four weeks’ wages.  But if he had been paid the wages in lieu of notice at the time of his dismissal, he would not have had to make any repayment upon obtaining further employment during the notice period.  In the context of compensation for unfair dismissal, we think that it is appropriate and in accordance with the intentions of Parliament that we should treat an employee as having suffered a loss insofar as he receives less than he would have received in accordance with good industrial practice.  Accordingly no deduction has been made for his earnings during the notice period.”

15.	In Babcock, the Court of Appeal upheld a decision by the Employment Tribunal that the applicant should not give credit for wages earned in his new employment.  Sir John Donaldson at paragraph 32 saw “no reason to resile from the view which, in an earlier guise or disguise, I expressed in Norton Tool”.  Ralph Gibson LJ said as follows at paragraph 21:-
“I would uphold the principle, first, because it is not shown to have worked unfairly or in a manner contrary to the intention of Parliament in the limited form in which it was stated and applied in the cases cited.  The first step in the reasoning of the court in Norton’s case is that when a payment is made of wages in lieu of notice at the time of the dismissal the employee would not have to make any repayment upon obtaining further employment during the notice period.  That is in accordance with the normal intention of both sides when such a payment is made without stipulation of any special terms.  The next step in the reasoning is, in my respectful opinion, of a different nature: because good industrial practice requires that the employer either give the notice or pay six weeks’ wages in lieu, the employee, who is given neither notice nor payment, should not be worse off and therefore he also should not have to give credit for wages earned from another employer during the period of notice notwithstanding the direction that the rule as to the duty to mitigate shall be applied.  I do not doubt that the industrial practice referred to was a good practice and right to be applied in a case such as Norton Tool, and such a case must be typical of a very large proportion of the cases coming before industrial tribunals.  In such a case the employer, if he was acting fairly, would pay the sum due in lieu of notice.  It is usually convenient for the employer if the dismissed employee leaves the premises and if the wages for the whole period are paid in advance; and it is convenient for the employee to be released to look for other work; and the immediate receipt of wages for the period of notice, coupled with the chance of getting other employment during that period, may soften a little the blow of losing employment…. circumstances may arise in which, having regard to the length of notice required, and the known likelihood of the employee getting new employment within a short period of time, or for other sufficient reason, an employer may show that a payment less than the wages due over the full period of notice did not offend good industrial practice…. The number of cases in which an employer will be able, in the view of an industrial tribunal, to justify departure from the general practice will probably be small.  But in my view no rule of law exists to prevent the industrial tribunal from considering such a case or from giving effect to it if it is established.”

16.	We drew attention in Hardy to the decision of Popplewell P in Isleworth Studios Ltd v Rickard [1988] IRLR 137, recording, in paragraph 26 of our judgment, that in that case:-

“… the Employment Appeal Tribunal concluded that a result which ignored those earnings would be bizarre.  We read paragraph 31 of the decision:
‘Any other finding than that the applicant has suffered no loss in fact would be perverse in the extreme.  We do not believe that the Norton… principle nor anything which was said in Babcock… compels us to come to a conclusion that there is anything for which the applicant needs to be compensated.’ ”

17.	In an appeal recently argued before this Appeal Tribunal, differently constituted and presided over by HH Judge McMullen QC, Voith Turbo Ltd v Stowe, in which Mr Knorpel was also instructed, and in which judgment was reserved and has not yet been handed down, it was pointed out in argument that at paragraph 28 of Hardy I said that “Neither the decision in Norton Rose nor the decision in Babcock made any reference to the duty to mitigate”: and that that was not accurate because the duty to mitigate is mentioned in terms both by Sir John Donaldson in Norton Tool at 503D and by Ralph Gibson LJ in Babcock at paragraphs 21 and 24.  However, as was canvassed in the course of argument in this appeal, what I intended to say, and what we meant, and explained, in that very paragraph of Hardy was that the impact of the statutory duty to mitigate upon the construction of s123(1) was not considered in Norton Tool and Babcock, and that is what we then addressed in paragraph 28 of Hardy:-

“It appears to us that had the Tribunal in either of those two cases specifically addressed the duty to mitigate… it would have been the more difficult for either of the Courts to reach the conclusions they did, not only by reference to the statutory definition of loss, but also by reference to the obligation to mitigate: because, of course, where an employee has mitigated, it would appear irrational for the consequences of that mitigation to be ignored, if there was a duty to mitigate to start with.  If there is to be no consequence of a failure to mitigate, or of a fulfilment of the duty to mitigate, because of some rule which ignores the consequences of the mitigation, then it would undermine the existence of the provision at all.”

18.	The main point that we were seeking to make in Hardy, and which formed the fundamental basis for our conclusion, is that where, whether by virtue of the consequences of the duty to mitigate or as a result of actual receipts by an applicant, resulting from mitigation or otherwise, no – or a reduced - economic loss is suffered, then the compensation under s123 must similarly be so reduced.  It appears to us that the issue of mitigation is still relevant to the facts of this appeal, by reference to the availability of benefit, as indeed appears from what Judge Hicks himself said in Rubenstein, where, at paragraph 22 of the Addendum, Judge Hicks  refers to s74(4), the then equivalent of what is now s123(4):-

“That provision had not been overlooked in argument but was not mentioned in our first judgment because it was common ground that it had no bearing on the issues in this appeal.  The same was true when the appeal was reargued… however, we should indicate why we accept the parties’ tacit concession that s74(4) does not assist either of them.  In our view the subsection is not concerned with the rule that benefits actually obtained and flowing from the same cause as the loss claimed must be set off; although such benefits can be described in a general sense as ‘mitigating’ the damage, the issue can equally well, or better, be characterised as one of causation or remoteness, or simply as part of the quantification of the loss truly suffered.  The use of the word ‘duty’, however heretical to some minds, does in our view serve the purpose of indicating clearly that the subsection is directed to situations in which the question is whether the claimant has failed to take reasonable steps to avoid or reduce loss in circumstances in which credit would have to be given for such avoidance or reduction.  Here the reverse situation obtains; the benefit has without doubt been obtained and it is the question whether credit should be given which is the matter in issue.”
19.	We leave aside entirely the question of whether there could be said to be a duty to mitigate, in the sense of a duty to claim benefits. That might arise for argument in some future case, dependent perhaps on the precise facts. But in this passage Judge Hicks himself confirms that “such benefits can be described in a general sense as ‘mitigating’ the damage”, i.e. the damage has been mitigated, reduced or extinguished as a result of the receipt of the benefits.  It is not therefore “the reverse situation” to one where there is an issue as to the  duty to mitigate, but one where, irrespective of whether there is a duty, the mitigation has occurred.  If credit is then not given, then the tribunal would be compensating the applicant in a greater amount than the loss he or she has suffered.

20.	We turn to Cerberus.  This decision is, on the face of I, not directly relevant, because it was a claim for damages for wrongful dismissal, not for compensation for unfair dismissal.  However, the Respondent in its Skeleton refers to Sedley LJ’s dictum at paragraph 27 cited above, which does not differ from what Judge Hicks himself, in the passage we have referred to above at paragraph 24 of the Addendum judgment in Rubenstein, referred to as the “straitjacket of the ‘all or nothing’ approach of the common law”.  The further significance however is that Sir John Donaldson’s conclusion in Norton Tool was, as appears above, so fundamentally tied to the concept that fair industrial practice would have led to payment of notice pay up front, and had it been so paid then the applicant would have been able to keep it and the monies subsequently received (from any third parties, new employer or benefit office), so as to justify a concept of disregard of such receipts in the assessment of compensation: and in Cerberus it was sought similarly so to justify disregard of receipts by reference to the power that the respondent employer in that case had in the contract of employment to terminate by paying a sum in lieu of notice – the employment tribunal had found that in those circumstances the duty to mitigate did not arise.  We said in Hardy at paragraph 32:-
“The Court of Appeal rejected this submission… on the basis that, even in such a case, the ordinary obligation to mitigate damage arose, and that the claim by the employee was still a claim for damages, against which the consequences of mitigation fell to be offset.  It appears to us clear that Cerberus… is a decision of the Court of Appeal, and a very recent one, which we must and should and would wish to follow; it accords entirely with common sense, as we see it, and with the proper construction of s123(4) and s86 of the Employment Rights Act 1996.”

Granted that compensation for unfair dismissal by reference to s123 is as loss-based as damages for wrongful dismissal, the Respondent is entitled to seek support from Cerberus for its submissions on this appeal.  

21.	We turn then to Dunnachie in the House of Lords.  The House of Lords approved Sir John Donaldson’s decision in Norton Tool that compensation within what is now s123 for unfair dismissal is not recoverable in respect of non-economic loss (Norton Tool 503A-505F).  The House of Lords did not, however, address the other conclusion of Sir John Donaldson in Norton Tool that credit did not need to be given for receipts from third parties such as new employers (Norton Tool 505G-506D).  The basis for this conclusion by Lord Steyn, on behalf of their Lordships, and in particular for his rejection of the approach of Sedley LJ in the Court of Appeal in Dunnachie, is plain in the following passages, which are of obvious significance.  In paragraphs 15-17 of his speech Lord Steyn turns to consider the meaning of the word “loss” in s123 (and in s116(1) of the 1971 Act), and he continues as follows:-

“18.	In the Court of Appeal only Evans-Lombe J thought that “loss” in section 116 could include non-economic loss: paragraph 63.  I am not persuaded by his reasoning. I agree with the statement of Brooke LJ that it is inconceivable that in this particular context Parliament intended the word to mean anything other than financial loss: paragraph 93.  It is noteworthy that Sedley LJ accepted that the “more natural meaning [of the word “loss”] in section 123 is pecuniary loss”: paragraph 34.  He then proceeded to conclude that tribunals may award compensation for non-economic damage on the different basis that “in section 123(1) loss is not the defining category but a subset of the larger category of just and equitable compensation”: paragraphs 32-33.
19.	Counsel for the employer made a telling point about the consequence of adopting the reasoning of Evans-Lombe J on the meaning of the word “loss” in section 123.  He asked: What in the language of section 123(1) would then rule out an award of aggravated or exemplary compensation by way of penalisation of the conduct of the employer?  The answer is that only if the word “loss” in section 123(1) is restricted to financial loss are such awards ruled out on the face of the legislation.  And nobody could seriously suggest that Parliament intended to allow such awards.
…
23.	On this hypothesis I must now turn to the different ground of decision of Sedley LJ which counsel for the employee urged on the House.  Counsel summarised the point as follows: The governing principle is expressed in the requirement in section 123(1) of the 1996 Act to award “such amount as the tribunal considers just and equitable in all the circumstances.”  In exercising its discretion, the EAT is to “have regard to” the “loss” sustained by the complainant which is attributable to the unfair dismissal, but this is not the only consideration which bears upon its determination of the compensatory award.  The word loss does not limit what may be awarded under the controlling principle.
24.	Sedley LJ concluded that the construction in Norton Tool “leaves the governing concept - compensation which is just and equitable - without a role”: para 30.  I would not accept this proposition.  It will be recalled that in Norton Tool Sir John Donaldson explained that the claims with which tribunals are concerned are more often than not presented in person and informally, and that it is therefore not to be expected that precise and detailed proof of every item of loss will be presented.  The phrase “just and equitable” gives the tribunal a degree of flexibility having regard to the informality of the procedures, and the fact that the maximum award is capped.
25.	Sedley LJ relied on the decision of the House in W Devis & Sons v Atkins [1977] IRLR 314.  He held that Devis established that resultant loss is not the only element to which regard is to be had.  The leading opinion in Devis was given by Viscount Dilhorne.  He stated that (at 955G):
“The paragraph does not, nor did section 116 of the Act of 1971, provide that regard should be had only to the loss resulting from the dismissal being unfair.  Regard must be had to that but the award must be just and equitable in all the circumstances, and it cannot be just and equitable that a sum should be awarded in compensation when in fact the employee has suffered no injustice by being dismissed.”
This reveals a decision to the effect that it is open to a tribunal to consider whether it is just and equitable in all the circumstances for the complainant to be awarded all or any of the loss attributable to the dismissal. It was not a ruling that a tribunal is free to award additional sums not amounting to loss.
26.	In my view section 123(1) must be construed as a composite formula.  The interpretation preferred by Sedley LJ splits up the formula in a way which, with great respect, is more than a little contrived.  It unjustifiably relegates the criterion of loss to a subordinate role.  Given the hypothesis that the legislature expressly provided for the recovery of economic loss, it fails to explain why the legislature did not also expressly provide for compensation for injury to feelings.  It also fails to take full account of the context.  For example, on this expansive interpretation there would as already mentioned be nothing on the face of the statute to exclude the award (subject to the cap which is now standing at £55,000) of aggravated or exemplary damages.  This could not have been intended.  The better view is that the provision was not intended, in the words of Brooke LJ, to provide for “palm tree” justice.
27.	In his already cited note Professor Collins argued that Norton Tool reversed the grammar of the statute. He said that Norton Tool “elevated the sub-principle of causation of loss to the main principle, and then relegated the general standard of just and equitable compensation to the status of a minor limitation on the application of the principles of causation of economic loss”: at 202.  For substantially the same reasons as I have already given I find this argument unpersuasive.”

The underlining of the rejected proposition in paragraphs 23 and 24 and  of the sentence in paragraph is ours.

22.	We turn to our conclusions, which are as apt to deal with issues as to giving credit for receipt by the applicant of earnings from a new employer as for receipt of benefits which would not have been paid had the applicant remained employed and are not recoupable:-

22.1	Just like the fundamental concept of recovery of damages at common law, as enunciated by Sedley LJ in Cerberus at paragraph 27, the statutory basis for recovery of compensation for unfair dismissal in s123 of the 1996 Act is the reimbursement of loss suffered.  Thus Sir John Donaldson himself in Babcock stated, by reference to the then equivalent to s123, at paragraph 32, that:

“the discretion has to be exercised judicially, and upon the basis of principle, the object being to compensate, and compensate fully, but not to award a bonus”   [our underlining].

As Mummery P stated in Puglia at paragraph 39

“If no deduction were made for invalidity benefit, the result would be that an employee receiving compensation for unfair dismissal would find himself in a better position than if he had never been dismissed.  Regard must be had under [what is now s123] to loss sustained by the employee.”

22.2	Lord Steyn’s speech in Dunnachie makes this entirely clear.  The approach of Judge Hicks in Rubenstein, e.g. in paragraph 30 of his judgment and paragraph 24 of his Addendum, based upon the suggested broad jurisdiction of “just and equitable”, is founded upon the same heresy as has been laid to rest by Lord Steyn in paragraphs 18 and  23-26 of his speech.  The purpose of s123 is to reimburse the applicant’s (economic) loss, and the just and equitable approach is adopted towards calculation of that loss:  what is clear, however, is that it is not a measure of calculation or compensation of itself.  It does not enable recovery of more than the loss.  There is no room for the approach of Sir John Donaldson in Norton Tool at 506B or Ralph Gibson LJ in Babcock at 22, whereby “the employee is to be treated as having suffered a loss insofar as he recovers less than he would have received in accordance with good industrial practice”.  To treat something which is not a loss as being a loss, by disregarding receipts, is to reward a mistreated (i.e. unfairly dismissed) employee by awarding a bonus – contrary to the principle enunciated by Sir John Donaldson MR himself at paragraph 32 of Babcock, referred to above. If there is no loss, no compensation can be recovered even for the most unfair of unfair dismissals (even if aggravated by a further unfair industrial practice of not paying notice pay up front): but the basic award marks the disapproval of the Tribunal. The duty to mitigate and the obligation to give credit for receipts are not affected.

22.3	Leaving the matter to the good sense of the employment tribunal to decide when and whether and to what extent to disregard receipts, so as to treat the applicant as having suffered a loss when he had not, is not only wholly to offend against s123, and to introduce into unfair dismissal a penal jurisdiction, but is a recipe for uncertainty.  It is to legitimise the palm tree justice which Brooke LJ and Lord Steyn deprecated (paragraph 26 of Dunnachie).  A grant of extra damages or compensation – non-economic, aggravated, exemplary – is no different in principle from a conclusion that, in whole or in part, receipt of monies from third parties, by way of earnings in mitigation or non-recoupable benefits, will be disregarded.

22.4	Just as this conclusion would be exemplified in a situation where a tribunal is to be left to decide (retrospectively) whether in a case of dismissal - or even constructive dismissal - it was an unfair industrial practice for the employer not to have paid for the notice period on the employee’s departure in full up front, so too is it exemplified in the adoption by Judge Hicks of his 50:50 approach to benefits in Rubenstein.  The reality is that the Applicant suffered a loss reduced by the total amount of the benefits.  To allow him to retain half the benefits is to give him a bonus of that half.  Loss which is in fact recovered and recouped by receipt of monies from third parties is simply not a loss suffered, and in our judgment such receipts cannot be disregarded.

23.	The only basis whereby it is said to be “just and equitable” to calculate the loss by disregarding the benefits (or part of them) or by not giving credit for them (or all of them) is by reference to practice in personal injury cases.  Mr Jones for the Applicant had two cases, a primary case and what he called a fallback case, which latter in the event he abandoned in the course of argument.  That fallback case, as originally formulated, was, by reference to Faraji so as to suggest that the whole of the incapacity benefit should be disregarded: this would be on the basis that the benefits should be seen as equivalent to an insurance payment.  It is plain, however, that the entitlement to claim and receive benefits is not equivalent to purchasing and receiving an insurance claim from a commercial insurance company.  In personal injury cases, this could amount to the purchase of a policy to cover personal accident insurance.  There can be similar provisions which might provide for the circumstance of unemployment: this most usually arises in respect of insurance to cover mortgage or hire-purchase payments.  Such purchase of insurance is regarded (latin still being permissible in these courts) as res inter alios acta or, as Judge Hicks himself described it in Rubenstein in paragraph 15 of his Addendum a “policy with commercial insurers, negotiated independently of the employment relationship”.  In abandoning the argument Mr Jones conceded, and it must obviously be the case, that such a description cannot be applicable to benefits receivable from the Government, and it is plain that at common law such benefits would be recoverable, as Judge Hicks describes, and as is, for example, plain from such authorities as Hodgson v Trapp [1989] 1 AC 807.  As Judge Hicks points out in paragraph 25 of his Addendum, it was thus left to Parliament to pass legislation
“in mitigating the extremity of the common law as it applies to contributory benefits within the statutory social security regime”,

adopting 

“solutions which involved treating employer and employee usually, either by dividing the value of the benefits between them by the device of half deduction or by removing it from both by requiring recoupment….the authorities refer to the statutory provision for half deduction as an example of a compromise (by inference desirable) unavailable in quantifying common law damages.”   

24.	 This leaves Mr Jones’ primary submission, by reference to Rubenstein, and the suggestion of 50:50 deduction.  However he is only able to achieve that result by  what is called the analogy of such statutory provisions.  Judge Hicks recognises (in paragraph 26 of the Addendum) that the

“manner in which contributions are nominally apportioned between employer and employee is largely irrelevant; the industrial reality is that wage levels take that apportionment into account and that the whole difference between what the employer pays and what the employee receives goes into the pool from which benefits are funded”,

i.e. that it can by no stretch of the imagination be said that an employee is receiving back in benefits his or her own money.  It is clear from Rubenstein that this whole argument only arose by reference to the personal injuries practice, and the personal injuries practice was introduced statutorily by section 2 of the Law Reform (Personal Injuries) Act 1948.  However:-

24.1	That section expressly limited the practice to personal injury claims:-

“2(1)	In an action for damages for personal injuries (including any such action arising out of a contract), there shall in assessing those damages be taken into account, against any loss of earnings or profits which has accrued or probably will accrue to the injured person from the injuries, one half of the value of any rights accrued or probably will accrue to him there from in respect of industrial injury benefit, industrial disablement benefit or sickness benefit for the five years beginning with the time when the cause of action accrued.”

This is, or rather was, a very restricted provision: and there is no such statutory provision in relation to compensation for unfair dismissal.

24.2	In any event, although this was not clear in the course of argument before us, as the relevant legislation was not in the bundle, but as has now been clarified by us  subsequent to the hearing (and by way of incorporation in this judgment), section 2 of the 1948 Act, which was in amended form at the time it was considered by Judge Hicks in Rubenstein has, subsequent to Rubenstein, been entirely repealed: by section 33 and schedule 3 of the Social Security (Recovery of Benefits) Act 1997. By sections 1 and 8 and schedule 2 of that Act invalidity benefit is now recoupable in full against personal injury damages.  We had already reached the conclusion, which we announced at the close of the hearing, that the existence of statutory provisions relating to personal injury damages introducing the 50:50 reduction was of no relevance to determination of compensation for unfair dismissal.  The absence of such statutory provision since 1997, and thus at any relevant time, only re-emphasises that conclusion. 

25.	We agree with the propositions in the Respondent’s Skeleton, at paragraphs 21 and 25 in particular, which we have set out above: “The actual pecuniary loss suffered must be the maximum sum which a complainant might be awarded”.  Whether by reference to the so called (but now as it turns out superseded) practice in personal injury claims, or by reference to Norton Tool, there is in our judgment no jurisdiction to disregard receipts, or to claim and recover a sum in excess of the actual loss, or the fundamental purpose of s123 would be evaded.  The Applicant has suffered a lesser loss, by virtue of his receipt of benefits, which would not have been paid had he remained employed, and he must give credit for them.  The concept of justice and equity does not lead to recovery of a greater sum than the actual loss suffered, and neither by way of penalising an employer for an unfair industrial practice nor by way of adopting some broad brush just and equitable approach is there any basis in our judgment for treating a loss which has not occurred as having occurred.

26.	We consequently resolve the inconsistency between the decisions of the EAT, by Mummery P in Puglia and by Judge Hicks in Rubenstein (and a fortiori that by Judge Hargrove in Faraji), in favour of Puglia.  This appeal is dismissed.