Appeal No. UKEAT/0113/07/JOJ

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 2 November 2007

Before
HIS HONOUR JUDGE RICHARDSON
MR M CLANCY
MR T HAYWOOD

PREMIER MORTGAGE CONNECTIONS LTD	APPELLANT

MISS M A MILLER	RESPONDENT

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	MR ROBERT HULSTORM
(Solicitor)
Premier Mortgage Connections Ltd
57 High Street
Huntingdon
Cambs 
PE29 3DN	
For the Respondent	MR LIAN PIKE
(of Counsel)
Instructed by:
Messrs PJH Law Solicitors
Orion House
14 Barn Hill
Stamford
Lincolnshire
PE9 2AE	

SUMMARY
Public Interest Disclosure
Section 43C Employment Rights Act 1996 – disclosure to ex-director. For the purpose of section 43C(1)(b)(ii) a worker must reasonably believe that the person has legal responsibility for the matter at the time of disclosure.  It is not enough that the worker reasonably believes that the person once had legal responsibility for the matter.

HIS HONOUR JUDGE RICHARDSON

1.	In what, if any, circumstances is a qualifying disclosure by a worker to a former director of the company for whom she is employed protected by section 43C of the Employment Rights Act 1996?  That is the question of law raised by this appeal.

2.	The appeal is by Premier Mortgage Connections Limited (“PMC”) against a judgment of the Employment Tribunal sitting at Bury St Edmunds dated 12 December 2006.  By its judgment the Employment Tribunal found that PMC had dismissed Miss Miller for making a protected disclosure.  It held that she was automatically and unfairly dismissed.  

The facts
3.	PMC was incorporated in the year 2000.  Initially it had two directors and shareholders, one of whom was Mr Patrick Day.  By 2003 there were three directors and shareholders – Mr Day, Mr Hulstrom and Mr Mansfield.  Until 2005 Mr Day, who had other business interests, left day to day control of the business to Mr Hulstrom and Mr Mansfield.

4.	In March 2005, however, Mr Day took a greater interest in the day to day running of PMC.  He introduced Miss Miller.  She was a long standing friend and colleague of his.  PMC employed her as marketing and office manager.  However, Mr Day’s greater involvement was short-lived.  There were major disagreements between him and Mr Hulstrom and Mr Mansfield.  He resigned his directorship on 11 July 2005.  He retained his minority shareholding. 

5.	Miss Miller continued to be employed by PMC although (as she told the Tribunal) she did not trust or respect Mr Hulstrom and Mr Mansfield.  The disclosure around which the case turned was made at the end of November or the beginning of December 2005.  The Tribunal did not say a great deal about it.  They stated the position as follows –

“It is common ground that after Mr Day’s departure and her retention as office manager she had reason to believe that a substantial amount of money (some £60,000 or £65,000) had been wrongly appropriated and without an adequate paper trail out of the Respondent’s accounts and into the hands of another organisation with which Mr Mansfield was specifically if not exclusively involved.  She believed that this transfer of funds was as an act of defiance towards Mr Day and effected to deplete the Respondent’s resources.  She made certain enquiries concerning this but in the absence of a proper paper trail and in line with her previously understood business obligation chose to go directly to Mr Day.”  

The Tribunal found that the making of this disclosure to Mr Day was the principal reason for Miss Miller’s dismissal, which took place on 3 January 2006.  

6.	It is only right to say, in order to complete the picture, that the Tribunal found Miss Miller had herself behaved badly in other ways, had lost her interest and enthusiasm for employment by PMC, and retained an ongoing business relationship with Mr Day.  For that reason the Tribunal expressed the view that it did not intend to award her any large sum for future loss of earnings.

7.	It is also right to add that it was always PMC’s case that the transfers in question were lawful and proper.  It was not necessary for the Tribunal to decide that issue, and there is no finding upon it.

The Tribunal’s reasoning
8.	The Tribunal found that the disclosure to Mr Day was a qualifying disclosure under section 43B(1)(a) and (b) of the 1996 Act, because she was disclosing –

“that which she genuinely believed to be wrong and a criminal offence if not a blatant failure by the Respondent of its obligations to account lawfully for its income as was derived from its commercial operations”

The Tribunal also found her belief was a reasonable one.  
9.	However a qualifying disclosure is only protected if it falls within one or more of sections 43C to 43H of the 1996 Act.

10.	The Tribunal found that the disclosure fell within section 43C.  The key paragraphs of its reasoning are the following:

“29 Section 43C(1)(b)(ii) (see above) provides that “if the disclosure is made in good faith It may be made to… a person other than his employer [who has] legal responsibility”.
30 We are mindful of the fact that the disclosure, albeit in November, referred to the Claimant’s belief in the Respondent’s wrongdoing from April 2004 onwards. If there had been wrongdoing or criminal misbehaviour then clearly Mr Day, who at material times was a Director of the Respondent, would still retain responsibility. Simply his resignation in July 2005 would not rid him of that burden. Thus we are entirely satisfied the Claimant’s protective umbrella includes her disclosure to Mr Day in these circumstances.”

11.	The Tribunal found also that the disclosure was in good faith.

Submissions
12.	On this appeal PMC were not professionally represented.  Mr Hulstrom made submissions to us on behalf of PMC.  

13.	Mr Hulstrom argued that disclosure to a former director was not within section 43C because Mr Day, as a former director, had no legal responsibility for the matter.  He submitted that it would draw the ambit of the provision far too widely if a former director such as Mr Day were caught by it.  He submitted that section 43C was essentially directed at affording protection to a worker who attempted to deal with an issue either within the organisation or by approaching the person legally responsible for acting on the kind of complaint he was making.  He submitted that it was essential that the employee should make the complaint to someone who has responsibility for that kind of complaint; it was not sufficient that he should make it to someone who once had responsibility for that kind of complaint.

14.	Mr Hulstrom further argued that, at most, Mr Day had joint and several responsibility for the matter in question.  He was therefore not solely or mainly responsible for it, and not within section 43C.

15.	On behalf of Miss Miller, Mr Pike made the following submissions.

16.	Firstly, he submitted that for the purpose of section 43C Mr Day was Miss Miller’s employer, and that she was for that reason entitled to make the disclosure to him.

17.	Secondly, he submitted that in any event the Tribunal was correct to find that the relevant failure related solely or mainly to a matter for which Mr Day had legal responsibility.  He pointed out that the Tribunal’s reasons refer to a belief in the wrongdoing from April 2004 onwards.  Between April 2004 and July 2005 Mr Day was a director, and was responsible with his fellow directors for keeping accounting records (section 221 of the Companies Act 1985) and preparing accounts (section 226 of the Companies Act 1985).  Further there were potential liabilities in respect of section 213 and 214 of the Insolvency Act (fraudulent and wrongful trading).

18.	Mr Pike submitted that the Tribunal had sufficiently asked and answered the questions posed by section 43C in paragraph 30 of its reasons.

19.	We gave both parties an opportunity to address us on Babula v Waltham Forest (2007) IRLR 346, a recent decision of the Court of Appeal relating to reasonable belief in the context of section 43B.  

Legal considerations
20.	The key statutory provisions relating to this appeal are the following.

“43A	Meaning of “protected disclosure”
In this Act a “protected disclosure” means a qualifying disclosure (as defined by section 43B) which is made by a worker in accordance with any of sections 43C to 43H.

43B	(1) In this Part a “qualifying disclosure” means any disclosure of information which, in the reasonable belief of the worker making the disclosure, tends to show one or more of the following-
(a) that a criminal offence has been committed, is being committed or is likely to be committed,
(b) that a person has failed, is failing or is likely to fail to comply with any legal obligation to which he is subject,
(c) that a miscarriage of justice has occurred, is occurring or is likely to occur,
(d) that the health or safety of any individual has been, is being or is likely to be endangered,
(e) that the environment has been, is being or is likely to be damaged, or
(f) that information tending to show nay matter failing within an one of the preceding paragraphs has been, or is likely to be deliberately concealed.
	(5) In this Part “the relevant failure”, in relation to a qualifying disclosure, mans the matter falling within paragraphs (a) to (f) of subsection (1).

43C	Disclosure to employer or other responsible Personnel Department
	(1) A qualifying disclosure is made in accordance with this section if the worker makes the disclosure in good faith-
	(a) to his employer, or
	(b) where the worker reasonably believes  that the relevant failure relates solely or mainly to-
		(i) the conduct of a person other than his employer, or 
	(ii) any other matter for which a person other than his employer has legal responsibility,
	to that other person.
	(2) A worker who, in accordance with a procedure whose use by him is authorised by his employer, makes a qualifying disclosure to a person other than his employer, is to be treated for the purposes of this Part as making the qualifying disclosure to his employer.”

Although these are the key statutory provisions, it is important to keep in mind that section 43C finds its place within a carefully crafted group of sections which define to whom disclosures may be made and in what circumstances if they are to be protected.
21.	Section 43C, with which we are concerned, protects a disclosure by a worker to his employer and to another responsible person if the disclosure is made in good faith.  This provides a wide measure of protection.

22.	Section 43D protects a disclosure in the course of obtaining legal advice without even the requirement for good faith.  This provides the widest measure of protection.

23.	Section 43E protects a disclosure by certain workers to a Minister of the Crown if the disclosure is made in good faith.  This provides a similar level of protection to that contained in section 43C.

24.	Section 43F protects a disclosure to prescribed bodies if the disclosure is made in good faith and the worker reasonably believes that the information disclosed and any allegation contained in it are substantially true.  Bodies prescribed under the Act include many regulatory bodies.  The level of protection here is less, for the worker must reasonably believe in the substantial truth of what he discloses.

25.	Section 43G protects a disclosure to others, but only if it is made in good faith, not for personal gain, and if the worker reasonably believes the information disclosed and any allegation contained in it are substantially true.  Even then disclosure to others is only protected if other conditions are met and if it is reasonable to make the disclosure.  The level of protection here is closely circumscribed.

26.	Section 43H protects a disclosure of an exceptionally serious failure but only if it is made in good faith, not for personal gain, and if the worker reasonably believes the information disclosed and any allegation contained in it are substantially true.  Even then it must be reasonable to make the disclosure.  Again, even though the disclosure is of an exceptionally serious failure, the level of protection is closely circumscribed.

27.	These provisions of the Employment Rights Act 1996, it must be remembered, protect a worker from action by his employer. 

28.	Against this background, we think the legislative purpose of section 43C is reasonably clear.  It is to provide workers with a high level of protection where they make disclosures to their own employers or to those whom they reasonably believe to be responsible either by their conduct or by virtue of the law for the matter they are disclosing.

29.	In the course of argument we discussed an example which is often used to illustrate the effect of section 43C.  Suppose that a teacher, employed by a school, takes his children on an adventure holiday, organised by a specialist firm.  He hears that an employee of the specialist firm has told a child to ignore a safety precaution.  The teacher may report the matter to his own school and if the report is in good faith it will be protected by virtue of section 43(1)(a).  He may complain about it to the employee of the specialist firm who in his belief told the child to ignore the safety precaution: that will be protected by section 43(1)(b)(i) if it is in good faith, so long as the teacher reasonably believes that the matter was wholly or mainly about his conduct.  Finally, he may report the matter to the man’s employer, so long as he reasonably believes that the matter solely or mainly relates to health and safety and that the firm has legal responsibility for the safety of the undertaking; that will be protected by section 43(1)(b)(ii).

30.	To our mind, preferring in this respect the argument of Mr Hulstrom to that of Mr Pike, section 43C is directed to protecting a disclosure which the employee reasonably believes is made to the person who has ongoing legal responsibility for dealing with it at the time the disclosure is made.  The language of the statute is in the present tense. 

31.	Again, an example may illustrate.  Suppose a worker in the course of his work for his own employer visits a factory which he believes has for some years been operated in a way which is hazardous.   A disclosure made in good faith to his own employer will be protected.  A complaint made in good faith to any person actually operating the factory in a hazardous way will be protected.  A disclosure made to the current health and safety director of the factory will be protected.  But we see no reason why a disclosure to a former director of the company which owns the factory should be protected, even if the worker thought he was once legally responsible for safety.  We see no indication of any statutory purpose in drawing the protection afforded by section 43C as widely as this.

32.	That, however, is not the end of the matter.  Section 43C does not only protect a worker where the worker is correct in thinking that a person has legal responsibility for a matter.  It also protects a worker where the worker reasonably believes that to be the case, even if the worker is wrong.

33.	In construing this provision, we derive assistance from the recent decision of the Court of Appeal in Babula v Waltham Forest DC [2007] IRLR 346.  In this case the Court of Appeal was concerned with the meaning of the phrase “in the reasonable belief of the worker” within section 43B(1), which we have already quoted.

34.	In that case it was held that so long as the worker had a reasonable belief that the information disclosed tended to show that (for example) there was likely to be a breach of a legal obligation, it did not matter whether his belief proved to be correct or incorrect.
35.	Wall LJ said –

	“The purpose of the statute, as I read it, is to encourage responsible whistle-blowing. To expect employees on the factory floor or in shops and offices to have a detailed knowledge of the criminal law sufficient to enable them to determine whether or not particular facts which they reasonably believe to be true are capable, as a matter of law, of constituting a particular criminal offence seems to me both unrealistic and to work against the policy of the statute.”

36.	Similar considerations apply to section 43C.  A worker must have a reasonable belief that the information he was disclosing related solely or mainly to a matter for which the other person had, at the time of disclosure, legal responsibility.  A worker cannot always be expected to have in mind the precise terms of the other person’s legal responsibility.  The belief, if reasonable, need not necessarily be correct.  He must, of course, make the disclosure in good faith.

37.	It follows from these considerations that there is no bright line as to whether a disclosure under section 43C to an ex director will be protected.  This is because section 43C directs attention to what the worker reasonably believes, not to whether the worker was correct.  

38.	It will, we think, be rare that a worker will have a reasonable belief that information he is disclosing relates solely or mainly to a matter for which an ex-director still has legal responsibility.  An ex-director is not generally legally responsible for errors and omissions which take place after he ceases to be director, and we can see no reason why an employee should generally think that he is.   Each case, however, turns on its own facts.

Applying the law
39.	It is first convenient to consider whether Mr Day was, as Mr Pike suggests, the “employer” of Miss Miller.  In our judgment he was clearly not her employer.  In its context within section 43C the word “employer” is of course wide enough to encompass a disclosure made by a worker to the company which employs him by presenting it to a serving director, for a company acts through its directors, and it must be open to a worker to make a disclosure to a serving director on the company’s behalf.  But once a director resigns he no longer represents the company, and a disclosure by a worker to an ex-director does not amount to a disclosure by the worker to the company which employs him.

40.	We can also deal briefly with Mr Hulstrom’s submission that Mr Day did not have sole or main responsibility for the matter in question.  It is no doubt true that directors have joint responsibility for many matters.  For the purposes of section 43C(1)(b)(ii) that does not prevent a complaint from being made to one of them.  The test is not whether the failure relates to a matter for which the person has sole or main responsibility, but whether the failure relates solely or mainly to a matter for which he has responsibility.

41.	In considering section 43C(1)(b)(ii) the starting point is to identify the relevant failure.  This means the type of information disclosed under section 43B(1): see section 43B(5).  

42.	As we have seen, the Tribunal did not identify the type of information disclosed with any great precision.  Broadly, it was transferring money from PMC to another entity in circumstances where the transfer was criminal and without any good cause, and failing to keep proper accounts in respect of the transfer.  The transfers appear to have started in April 2004; the Tribunal does not say when they came to an end, but it is common ground that it was prior to the resignation.

43.	The question then is whether Miss Miller, some months after the resignation, reasonably believed that the information in question related solely or mainly to a matter for which Mr Day had, at the time of disclosure, legal responsibility.
44.	In paragraph 30 of their reasons the Tribunal elide this question.  They say, in essence, that because the matter related to a belief in wrongdoing from April 2004 onwards, Mr Day who was a director of the company at the time would still retain responsibility.  That, in our view, is the wrong approach.  It is no doubt true that if Mr Day had in some way defaulted in his duties as director during the period of his directorship, he could still be prosecuted or sued for it.  That is because, during the period of his directorship, he had legal responsibility, and he can still be held to account for any failure to meet his legal responsibility.  By the time of the disclosure he no longer had that responsibility.  He no longer had the powers and duties of a director.  Section 43C is directed to legal responsibility.  He had no enduring legal responsibility to deal with the complaint.  

45.	We return, however, to the words of section 43C.  The words do not require Miss Miller to be correct in her belief that Mr Day was responsible for the matter in question, so long as she held that belief and it was reasonable to do so.  The Tribunal, because they elided the question they had to answer, never considered this matter.

46.	The answer is not one which the Appeal Tribunal can supply.  It is not inconceivable that Miss Miller did believe that the failure which she disclosed related solely or mainly to a matter for which Mr Day had, at that time, legal responsibility and that she had reasonable grounds for doing so.  We know there is evidence that Mr Day was still regularly visiting the office and that there is an issue as to why he did so.  On the other hand, it is possible that Miss Miller never formed the belief in question, but rather disclosed the information to him because she thought he was a victim or because she disliked her fellow directors.  These are matters for the Tribunal to consider.

47.	The appeal will therefore be allowed and the matter remitted to the Tribunal to consider the question posed by section 43C in the light of this judgment.  Did Miss Miller reasonably believe that the relevant failure related solely or mainly to a matter for which Mr Day had legal responsibility at the time when she made the disclosure?