Appeal No. UKEAT/0077/06/ZT

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 1 September 2006

Before
HIS HONOUR JUDGE ANSELL
MS J DRAKE OBE
MR B WARMAN

PREMIUM CARE HOMES LTD	APPELLANT

MRS V OSBORNE	RESPONDENT

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	MR S AWAN
(Representative)
Premium Care Homes Ltd
10 The Glebe
Clapham
Bedford
MK41 6GA	
For the Respondent	Miss Collignon
(of Counsel – pro bono)

SUMMARY

Practice and Procedure – Striking out/dismissal 

Striking out on liability but allowing employers to argue or remedy was a proportionate response to serious defaults.

Tribunal dealt correctly with issues of illegality and mitigation of loss

HIS HONOUR JUDGE ANSELL

1.	This is the hearing of an appeal from a Truro (Cornwall) Tribunal.  It followed a hearing on 17 and 18 November of last year.  Reasons were sent to the parties on 5 December.  The Tribunal debarred the Appellant from defending the unfair dismissal claim in relation to liability.  The claim related to unfair dismissal having made a protected disclosure (the employee having been employed for less than a year).  The Tribunal but allowed the Appellant to appear in respect of the quantum issue and awarded compensation in the sum of £12,280.  That sum was considerably less than the figure which had appeared on the schedule of loss, which claimed a sum in excess of £100,000.  

2.	The hearing of today’s appeal is pursuant to leave granted at a preliminary hearing at a court presided over by Silber J.  The original notice of appeal had run to some 20 pages.  At the preliminary hearing leave was given for this hearing but on the basis of an amended notice of appeal and I quote from paragraph 1 of the order, “so that all the existing grounds are deleted and that only the following grounds are included.”  Three grounds are set out, one relating to the debarring order, one relating to an allegation of illegality and one relating to the allegation that no proper reasons were given for the calculation of the compensation.  

3.	The strike-out was said to be made pursuant to ET rules 13 and 18.  No actual point has been taken on that today, although rule 18 deals with strike-outs that follow or are part of a pre-hearing review.  This strike-out occurred on the morning of what was scheduled to be the first of two days of a final hearing and it seems to us that rule 13 was the relevant provision.  The reason for the strike-out was said to be a continuing failure to deal with court orders, which resulted in particular in the Appellant’s lengthy witness statement not being produced until the morning of the hearing.  
Background
4.	The background facts were that the Respondent was employed as the manager of the Appellant’s nursing home on 1 July 2004.  Some time later she became concerned as to various aspects in relation to the financial viability of the home when, according to what she told the Tribunal, she discovered that tax and national insurance were not being accounted for to the Inland Revenue.  She had some discussions with Mr Freeman who was a local inspector for the Commission for Social Care Inspection, which is the statutory body that looks after these homes, and she was left with the impression that he was going to take some sort of action.  In March 2005, it appeared that Mr Awan, the director, had found out about the disclosure.  He believed that it was one of two employees who had reported it, and one (not the Respondent) had denied it.  There was a further meeting on 12 April when Mr Awan complained that she was too friendly with Mr Freeman, and in that meeting she was dismissed.

5.	The Tribunal formed the view that the only inference to draw was that the reason for her dismissal was her disclosure.  She had commenced proceedings on 23 June 2005 and the ET3 was submitted on or about 21 July.  The Tribunal in their reasons suggest that the Appellant had not responded to the ‘dates to avoid’ form.  That appears to be an error on the part of the Tribunal.  There is a document in front of us which suggested that he had in fact complied with that requirement.   There was a case management discussion fixed for 10 August by telephone.  As it happens, Mr Awan had been and was still, abroad in France for some four or five weeks. He did not telephone in.  Attempts were made to contact him but to no avail.  Directions were given, documents to be agreed by 12 September, witness statements exchanged by 19, and a final hearing fixed for 3 October.  He telephoned in on 12 August, was informed of the directions and stated that he would be back in England on 21 August.  It also seems that around that time he made contact with his insurers, as it appears that he had a policy that might cover these proceedings.  The Respondent began to comply with the directions as far as documents were concerned and also witness statements, and that was completed by the required date of 19 September.  

6.	Meanwhile on 12 September, the date when the documents should have been exchanged, the Respondent telephoned the Tribunal office to point out the Appellant’s failure and later the same day the Appellant contacted the Tribunal to ask for an extension of time and for a re-listing of the hearing.  There was a further case management discussion on 26 September conducted by phone.  As a result of the delay, the new hearing dates of 17 and 18 November were given, documents to be exchanged by 28 October, statements by 9 November, with a direction also that at the final hearing the Tribunal should consider the question of costs and who was responsible for the delay.  

7.	The Appellant was in default with exchange of documents and on 31 October she complained to the Tribunal that this had not taken place.  It does appear that in the interim the Appellant was involved in discussions with his insurers about representation and towards the end of October it seems that authorisation had been given for his own solicitors to be involved.  On 10 November, which was the day after witness statements should have been exchanged, the Respondent wrote to the Tribunal to say she had not received the documents.  On 14 November the Tribunal wrote to the Appellant to say that he would be debarred from defending unless he gave a reason in return why this should not be done.  On 15 November the Tribunal has a file note from the Appellant that the insurers had now appointed solicitors, bundles were being prepared, and a letter from the Tribunal was sent saying that the response was not struck out, and that the hearing would proceed.  

8.	Meanwhile, the Respondent filed an application to the Tribunal that if the bundle was not received by noon on 16 November, the hearing would be adjourned for her to consider it and if it was received after that time, he should be debarred.  The Tribunal directed that the application should be renewed at the hearing.  

9.	Thus, the matters came before the Tribunal on 17 November and in their findings they recorded that at 9.15 that morning, Counsel for the Respondent had received a 26-page statement with exhibits running to many more pages and contended that it was impossible for a fair trial to take place in the light of that very long statement.  He wanted to take instructions, and to consider which witnesses ought to be contacted and called in connection with the matters raised by Mr Awan.

Grounds of Appeal
10.	The first ground of Appeal relates to the striking out order made by the Tribunal.  The ground says this: 
“the Employment Tribunal was not entitled to debar the Appellant from defending the claim save in respect of compensation, bearing in mind that 1.  it had precluded the Appellant from relying on the witness statement to Mr Awan which was served on the morning of the hearing; 2. the parties were then ready to proceed at the hearing.” 

 This ground, as we have indicated already, emerged from the hearing which took place before Silber J, and we must at the outset make it clear that we are in some difficulty as to precisely to what issue it relates.  It seems to be raising an argument that an alternative course which the Tribunal could have adopted would have been to allow Mr Awan, through his Counsel, Ms Misra, to cross examine the Respondent and her witnesses on the various matters that had been raised, some of which were raised for the first time in the lengthy statement that appeared that morning, but at the same time not call any evidence called directly from Mr Awan.  This was not a course which had ever been suggested to the Tribunal at the time and we are somewhat at a loss to understand why that course should be regarded by the preliminary hearing of this court as a possible alternative.  It is not even clear how it emerged in the discussions that Mr Awan had with this court when they heard the matter on 11 May.  Mr Awan has put it forward today as a possible suggestion, but quite frankly it seems to us fanciful that one possible way out would be for Mr Awan who was, it is found by the Tribunal, late in putting in his statement, to have the ability to put all this material to the Respondent, much of it without her having any proper notice of it and in a sense to create an aura through that cross examination and then at the same time not have any direct evidence of these facts from either the Appellant or any of the Appellant’s witnesses.  “Grossly unfair” is the expression that was used in the course of argument and we can see that that is in a sense an understatement of what we feel about it.  

11.	We have however given Mr Awan some discretion. He appears today to represent Premium Care Homes, and we have allowed him to expand ground 1 to suggest that the course taken by the Tribunal of only allowing him to be heard on quantum, was not a proportionate response to his default, and that either he should have been allowed in to deal with all the matters or alternatively the Tribunal should have adjourned the hearing, allowing the Respondent and her representatives time to consider the documents, bearing in mind that the court could possibly have accommodated a further hearing in the early part of 2006.   

12.	The Tribunal in dealing with the matter set out the timetable of events, and in paragraph 17 reminded themselves that striking out was a major step and in particular they were referred to two authorities, Bolche v Chipman [2004] IRLR 114, and Weir Valves & Controls (UK) Ltd v Armitage [2004] ICR 371.  They also refer to having taken into account rules 13 and 18.  Rule 13 provides that if a party does not comply with an order a Chairman or Tribunal has a discretion to make an order for costs and strike out the whole or part of the response, or order that the Respondent be debarred from responding to the claim altogether.  They reminded themselves that the Appellant was in breach of two orders which had resulted in one hearing in October being postponed and also a direction that at the postponed hearing the Tribunal was to give consideration as to whether there should be an order for costs.  Although they were not referred to the most recent authority of Blockbuster Entertainment Ltd v James [2006] EWCA Civ 684, the Court did give consideration to the factors that they had to take into account.  

13.	The first issue was whether or not it was possible to have a fair hearing.  Mr Awan has concentrated very much on one aspect of a fair hearing, which the Tribunal relied upon, namely the fact that the two days which had been set aside could not now be used because they would have to allow Counsel to take full instructions, which would mean a delayed hearing.  The Tribunal went on to suggest that the hearing would therefore have to be put off again until after Christmas.  It seems to us that that is only concentrating on one aspect of the Tribunal’s decision.  

14.	Two other matters exercised the Tribunal’s mind.  Most importantly, in paragraph 23 they made the point that Mr Awan had had the advantage of seeing the Claimant’s statements which had been provided much earlier on in September and in the view of the Tribunal had obtained an unfair advantage and thus, as the Tribunal said, a fair hearing was prejudiced.  True, they reminded themselves that this would be a second postponement and would necessitate a further delay until after Christmas.  A further consideration on this aspect was that the Respondent was instructing Counsel acting pro-bono, and clearly, from paragraph 27 of their decision they were raising the possibility as to whether or not that would be available to her at any adjourned hearing and making the point also that an alternative remedy, namely postponement with costs, was not possible in this case as it would achieve nothing.  The most recent authority of Blockbuster Entertainment Ltd really repeats the principles that one has seen in earlier cases.  It is of particular relevance, it is said by the Appellant, to today’s hearing since again that was a striking out which had occurred on day one of what was to be a six-day hearing.  The original Tribunal decision had taken the view that the arrival of late signed witness statements, together with an absence of particulars which had been requested on many occasions, was sufficient to justify a striking out following various orders that had been made.
  
15.	The EAT decision reversing the striking out had been based almost exclusively on the EAT’s view that the Tribunal had been in error over the issue of particulars, since it appeared that in fact some particulars had been supplied and the Tribunal had been in error in failing to examine carefully what information had in fact been provided in that case.  There was also a secondary reason, namely that although the signed witness statements had only arrived very late on, they had not made any substantial alteration to draft statements that had appeared at a much earlier stage.  An appeal to the Court of Appeal against the EAT’s decision failed, the EAT having sent the matter back for reconsideration to the Tribunal.  At paragraph 5 of his decision Sedley LJ said this, referring to the power to strike out: 

“This power, as the employment tribunal reminded itself, is a Draconic power, not to be readily exercised.  It comes into being if, as in the judgment of the tribunal had happened here, a party has been conducting its side of the proceedings unreasonably.  The two cardinal conditions for its exercise are either that the unreasonable conduct has taken the form of deliberate and persistent disregard of required procedural steps, or that it has made a fair trial impossible.  If these conditions are fulfilled, it becomes necessary to consider whether, even so, striking out is a proportionate response.”

Later on in the decision, Sedley LJ pointed out at paragraph 19 that striking out a hearing on the first day of the main hearing of the case “takes something very unusual indeed to justify the striking out, on procedural grounds, of a claim which has arrived at the point of trial.” He made the point that the time to deal with persistent or deliberate failures if possible at an early stage, but before one has reached the point of no return.  

16.	The Court of Appeal therefore was re-stating principles which had emerged in earlier cases such as Arrow Nominees Inc v Blackledge [2002] BCLC 167, and De Keyser Ltd v Wilson [2001] IRLR 324.  The two cardinal conditions are, as he said, said to be unreasonable conduct in the form of deliberate and persistent disregard of required procedural steps, or that the default has made a fair trial impossible.  We agree with the submissions made by Ms Collignon on behalf of the Respondent that either condition being satisfied would be sufficient.  In this case it appears that the Tribunal were not saying that the breaches by the Appellant fell into the deliberate and persistent disregard of required procedural steps, since it appears that they chose to have regard to both the default and whether or not a fair trial was or was not possible.  Therefore the Tribunal it seems to us did not take the view that default in this case, taken by itself, was sufficient to fall within the category justifying a possible striking out.  

17.	We have already referred to the Tribunal’s consideration of fair trial and it seems to us that the Tribunal concentrated very much on two important issues, one was the fact that the damage had in a sense already been done because Mr Awan had had the advantage of seeing the witness statements from the other side and secondly, the possible risk to the Respondent in losing her pro-bono representation.  The issue of delay until after Christmas seems to us to be a secondary issue, and certainly taken by itself and on its own would not be, in our view, normally sufficient.  Witnesses’ recollections had already been committed to paper and it seems to us therefore that a further two-month delay, taken by itself, would not justify a Tribunal suggesting that a fair trial would not be possible.  But as we have indicated already, there are two other very important factors in this case.  

18.	In relation to the default, the Tribunal made their findings, and in paragraph 29 went further.  They came to the conclusion that there had been a total disregard on Mr Awan’s part, and then they went on to say this: 

“He has delayed and procrastinated unreasonably, such that it prejudices a fair hearing.  We conclude that the Respondent has deliberately adopted delaying tactics in the hope that the Claimant would give up.  She was a litigant in person until today, but has persevered throughout despite the various problems put in her way.  We consider that this is one of those cases where there is such a serious default on the part of the Respondent that serious action should be taken.”

It seems to us therefore that the Tribunal was effectively saying that the misconduct taken by itself fell within the persistent disregard of required procedural steps but even taking that at a lower level it is to us a very clear finding of deliberate disregard of court orders. It seems to us therefore that the Tribunal were then entitled to go on and consider the second stage which is that of a proportionate response.  On this issue Mr Awan’s major complaint, perhaps prompted by comments from us during the hearing, was that if the Tribunal were prepared to let him be heard on the issue of quantum why not on the issue of liability.  Alternatively he puts forward the possibility which we have already rejected of, as it were, the half-way house of cross examination without putting in the witness statement.  We reject that as a sensible course of action.  

19.	Ms Collignon’s answer to this is to suggest that the Tribunal clearly had in mind the issue of proportionality, which is why the came to the decision they did which is to allow the Appellant on one issue and not the other.  This indeed is a course which has been suggested on two recent occasions by this court.  In Bolch [2004] IRLR 140, the then President, Burton J, giving the Tribunal’s decision set out in paragraph 55 that one of the options that a court should consider was to debar on liability, but to permit a party in default to take part on the question of compensation.  

20.	The Tribunal in our view clearly felt that the Respondent would be able to deal with the specific matters raised by the Appellant in his witness statement that concerned compensation, although as it turned out there were some fairly wide-ranging issues raised, one  of which was illegality in relation to the issue of whether or not the Respondent had to be registered as a manager of the home.  The second was an allegation in relation to an alleged forged reference, and the third was the general area in relation to issues of mitigation of loss.  Indeed today Ms Collignon queries whether the Tribunal were right to allow even the Appellants in on these issues since they raise, particularly as far as the false reference was concerned, matters which had not been previously raised within the documents.  The Tribunal clearly analysed the issues and came to the view that it would not create too much of a sense of unfairness if the Respondent was to be asked questions and indeed evidence was to be called on these issues, whereas to allow the Appellant in on liability would have opened up many many areas on which the Respondent had not been given notice and for which she did not have available evidence to counteract what was being said.  We are quite satisfied that allowing the Appellant in on these issues, a course which has already been commended on a number of occasions by this court, was a proportionate response to what they described as a very very serious default on the part of the Appellant.  We therefore reject ground one.

21.	The second ground relates to the illegality issue.  Taken very shortly, the suggestion is that the Respondent was participating in an illegal contract.  It was argued that under the Care Standards Act 2000 and the Regulations made in 2001, it was necessary for her to be registered, that she had refused to take part in the registration process, and as a result she was placing both her employers and indeed possibly herself at the risk of prosecution for failing to be registered and yet seeking to run a nursing home.  The Tribunal, whilst not going into the terms of the statutes and regulations in any great detail took the view that the Care Standards Authority were aware of her status and, as they have described it, took no point on it and in effect the Tribunal came to the view that the Authority were tolerating the situation and they did not find that this was an illegal contract.  

22.	The Appellant argues that whilst the contract may not have been illegal in its formation, by the manner in which it was carried out it became illegal, and this illegality was known to the employee and therefore, as an illegal contract, should disentitle her to any losses arising out of its breach.  He referred in particular to the recent authority of Colen v Cebrian (UK) Ltd [2004] ICR 568, which suggests that if a contract, whilst legal in its creation becomes illegal in its performance and the party and the employee knowingly participates in that illegal performance, it would render the contract therefore illegal.  Both sides have attempted to take us through the regulations and we are not entirely content that we have indeed received the complete picture as far registration is concerned  but our view of regulations 7, 8 and 9 of the Care Home Regulations 2001 appears to suggest to us that first of all the owners of the care home, in this case Premium Care Homes Ltd, have to be registered with the relevant authority but that if they do not intend to be in full time day-to-day charge of the care home it is necessary for them to appoint an individual under regulation 8 to “manage the care home”.  That person’s name has to be given forthwith to the Commission and under regulation 9, that person has to satisfy requirements set out in schedule 2 of the regulations, which sets out the requirements such as providing a clear criminal record, references and documentary evidence of qualifications and training.  

23.	Without seeking to introduce evidence into this decision which was not available to the Tribunal, it appears from documents before the Tribunal that part of the process of the Commission satisfying themselves is that the person who is to be, as it were, the de facto manager of the care home has to go through what is described as a fitness interview.  It is not entirely clear where that requirement comes from and certainly we have not been given any guidance today by the parties as to the precise regulation that requires that to happen.  It appears that that fitness interview was due to take place on one or possibly more than one occasion but was postponed by the Respondent because of her increasing concerns about what was going on at the care home.  That fact was known to the Commission and certainly they had not suggested in any correspondence that as a result of the Appellant’s failure to attend that interview the legality or lawfulness of the running of the home was being put in jeopardy.  There is no finding from the Tribunal that her failure to attend that interview led her to the conclusion, or should have led her to the conclusion, that she was participating in an illegal act or putting the home into the position of illegality because of those actions.  At the time of her dismissal it appears that there was as it were a tolerated stand off.  The Commission were waiting to hear the results of discussions that were going to take place between the Respondent and her employers.  The next event was that she was dismissed.  We are therefore not satisfied that - certainly at the time her dismissal – there was any illegality which tainted her employment contract.  

24.	The suggestion in the grounds of appeal, although again it is not entirely clear whether this was raised before the Tribunal, was whether that illegality might have tainted her future losses.  Effectively she was awarded a sum of money which represented her losses up to the time of the Tribunal hearing in November, less a small amount discounted because she had obtained some income from a Bed & Breakfast business that she had begun to set up.  Those details were amplified slightly by information given in a letter from the Tribunal Chairman, dated 9 June.  The suggestion, it appears from the second ground, is that the illegality may well have affected her continuing performance of the job even up to the time of the Tribunal hearing because her continuing failure to attend the interview may have resulted, for example, in the home being perhaps closed down or her being asked to no longer continue in the role of manager because of her failure to attend the interview.  We repeat that it is by no means clear whether that was raised as a possible issue in terms of mitigation.  The Tribunal do refer in their decision in paragraphs 42 and 43 to the possibility that if she had remained at the home, the home may not have remained open.  They also suggest that more likely she would  have left at some point, precisely when was virtually impossible to predict, and that it is a matter the Tribunal took into account.  

25.	It seems to us therefore that the Tribunal were aware of the ongoing difficulties at the home and the ongoing problems that may well have affected her future employment, but took the view that they were entitled to award her losses up to the date of the Tribunal hearing although, as we have pointed out already, claims for substantial sums that were asked for by way of future losses were in fact refused by the Tribunal, no doubt on the basis that they regarded both the future of the home and the future of the Appellant’s connection with the home as a matter of some doubt and therefore they could not say with certainty that her losses would run into the future.  

26.	The third ground really deals with issues that we have already touched upon.  It complains that no reasons were given for the calculation of the sum of £10,000.  The Tribunal’s letter, to which we have already referred, sets out that effectively they were dealing with her losses up to the date of the hearing, less a possible reduction for income received and it is clear to us from the Tribunal’s reasons that they were not awarding future losses beyond that date for the reasons that we have set out.  Their reasons were sufficient.

27.	In conclusion therefore, we are satisfied the Tribunal dealt properly with the issues, both of illegality and of calculation of future losses within their decision and we can find no grounds for overturning their decision.  It is therefore our conclusion that the award should stand and this appeal is accordingly dismissed.