Appeal No. EAT/0072/02 SM

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 14 April 2003

Before
HIS HONOUR JUDGE PETER CLARK
MR J R CROSBY
MR D A C LAMBERT

PACIFIC DIRECT LTD	APPELLANT

MISS N RIAZ	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MISS JANE McCAFFERTY
(of Counsel)
Instructed by:
Messrs Woodfine Batcheldor Solicitors
Exchange Building
16 Cuthbert Street
Bedford MK40 3JG	
For the Respondent	MR DANIEL BARNETT
(of Counsel)
Instructed by:
Messrs Hodge Jones & Allen Solicitors
Twyman House
31-39 Camden Road
London NW1 9LR	

HIS HONOUR JUDGE PETER CLARK

1	This appeal raises primarily a construction point on compensation for unfair dismissal.  It is brought by the Respondent below, Pacific Direct Ltd, against part of a decision of an Employment Tribunal sitting at Bedford, under the chairmanship of Ms Jennifer Eady, promulgated with Extended Reasons on 22 November 2001.

2	The Applicant (we shall use the same description of the parties as below) was employed by the Respondent as a Senior Export Sales Executive, that employment having commenced on 3 August 1998.  The Respondent was a sales-based business, supplying toiletries to hotels, cruise lines and airlines.  The Applicant worked from home.  She received a basic salary plus commission.

3	In January 2000 a new General Manager, Richard Percival, joined the Respondent.  He carried out a review of the company’s operations and concluded that the commission structure required revision.  The Applicant was unhappy with the proposed new structure.  She would not accept it and was dismissed with effect from 5 January 2001.

4	The Tribunal found that dismissal to be unfair.  The Applicant was entitled to her full losses properly flowing from that unfair dismissal.  There is no appeal against those findings.

5	In calculating the compensatory award to the Applicant the Employment Tribunal approached the head of loss of earnings in this way.  They found that following termination of her employment with the Respondent the Applicant set up in business on her own account, working from home.  By 24 October 2001, when the Tribunal hearing took place, she had generated a gross income since 5 January of £10,300.  On 3 June 2001 she suffered a set back when a fire at her flat destroyed her business records and equipment.  Her evidence was that she had to move out of her flat whilst it was being refurbished, not returning until 25 August 2001.  During the months of June, July and August she was unable to generate work for her business.  Since September 2001 she had been seeking paid employment, without success, but continued to pursue her own business career.

6	The Tribunal found that she was entitled to recover lost earnings on the basis of an income of £30,000 per annum with the Respondent from 5 January 2001 until a date 15 months hence (5 April 2002).  From that figure fell to be deducted monies which the Applicant had earned and could reasonably be expected to earn by way of mitigation of her loss.

7	As to that, at paragraph 39 of their reasons, the Employment Tribunal say this:

“From this sum [that is, 15 months at £30,000 per annum; £37,500 gross] needs to be deducted sums received by the Applicant in mitigation, presently standing at the sum of £10,300.  Whilst the Applicant has made more positive projections as to the sum she might receive through her business for the future it is difficult to project forward as to the likely sum that should be added to this income and, therefore, deducted from the loss suffered by the Applicant for the remainder of the 15 month period under consideration.  Given the setbacks suffered by the Applicant due to the fire at her flat, but seeking to balance this out by the fact that she has been able to make some headway in establishing connections with her business, we feel the best we can do is to assume that the Applicant might earn half as much as what she has already received during the remainder of the 15 months we have taken to be the period of loss in this case.  That would give a total sum to be taken into account by way of mitigation of £15,450 less expenses of £2,985.56, giving a total sum to be deducted by way of mitigation of £12,464.44.  Deducting this from a loss of £37,500 (the loss of £30,000 per annum over a 15 month period) the sum payable to the Applicant under this head is a total of £25,035.56.  To this should be added the sum of £250 by way of compensation for loss of statutory rights.”

8	It is the Tribunal’s finding that the Applicant be treated as having an earning capacity of £15,450 gross (less expenses) over the 15 month loss period as found, which forms the focus of this appeal.

9	Miss McCafferty takes, principally, two points.  First, she submits that, on a proper construction of section 123 (1) of the Employment Rights Act 1996 (ERA), the Tribunal ought to have found that the fire at the Applicant’s flat in early June 2001 broke the chain of causation and that no loss after that date was recoverable.  Section 123 (1) provides:

(1)	“Subject to the provisions of this section and sections 124…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.”

10	Miss McCafferty draws attention to the analysis of that provision in the judgment of the EAT given by Lord Johnston in Simrad Ltd v Scott [1997] IRLR 147, paragraph 6 where he said:

“In looking at this matter broadly before considering the specific facts of this case, it has to be recognised that the approach adopted by the Appellants [employers] is, in our opinion, correct with regard to a construction of s.74 (1) [of the Employment Protection Consolidation Act 1978, now section 123 (1) ERA].  The process is a three-stage one, requiring, initially, factual quantification of losses claimed; secondly, but equally importantly, the extent to which any or all of those losses are attributable to the dismissal or action taken by the employer, which is usually the same thing, the word ‘attributable’ implying that there has to be a direct and natural link between the losses claimed and the conduct of the employer in dismissing, on the basis that the dismissal is the causa causans of the particular loss and not that it simply arises by reason of a causa sine qua non, i.e. but for the dismissal the loss would not have arisen.  If that is the only connection, the loss is too remote.  The third part of the assessment in terms of the reference to the phrase ‘just and equitable’ requires a Tribunal to look at the conclusions they draw from the first two quarters and determine whether, in all the circumstances, it remains reasonable to make the relevant award.  It must again be emphasised, however, what has to be considered under the third test already has to have passed the second.  Finally, it has to be observed that while the facts relating to a question of mitigation will frequently bear upon the question of causative link, mitigation is essentially an equitable plea to be judged in the context of reasonableness at common law and thus on not too fine a balance.  Accordingly, the issue of mitigation will feature in the application of the third test rather than the second, and subsection (4) of the section merely directs the Tribunal as to the proper approach to mitigation if that is what is being considered.

An Applicant’s common law duty to mitigate her loss is now contained in section 123 (4) ERA.

11	We have found some further assistance in the Court of Appeal judgments in Dench v Flynn [1998] IRLR 653, correcting something which I said in Whelan v Richardson [1998] IRLR 114.  At paragraphs 18 – 21 of the judgment of Beldam LJ, with which Mummery LJ and Sir Christopher Stoughton agreed, in Dench v Flynn, it was made clear that the chain of causation was not necessarily broken by an Applicant securing alternative employment at a similar level of earnings to that enjoyed before the unfair dismissal by the Respondent, regardless of how that new employment itself came to an end.

12	It is for the Tribunal of fact to consider the appropriate effect of the unfair dismissal in those circumstances.  As Sir Christopher Stoughton put the matter at paragraph 28 of Dench v Flynn, was the loss in question caused by the unfair dismissal or by some other cause?  The Tribunal must ask and answer that common sense question and then ask itself what amount it is just and equitable for the employee to recover.

13	Bearing in mind the correct approach it seems to us that the Tribunal’s conclusion cannot be impugned on appeal.  They accepted that the Applicant had made reasonable attempts to mitigate her loss by commencing business on her own account.  They took into account the setback to that business resulting from the fire in June 2001.  They did not regard that event as terminating the loss consequent upon the dismissal and attributable to the actions of the Respondent.  They found that, taking all reasonable steps to mitigate her loss, the Applicant would not achieve the earnings level which she would have enjoyed with the Respondent until April 2002.  That, in our judgment, was a permissible approach to take.  They were not bound to conclude, as Miss McCafferty submits, that the attributable loss ended with the fire.

14	Her second point relates to the figures.  She submits that it was the Applicant’s evidence that she would earn £20,000 in her first year of self-employed trading and £35,000 in the second year.  As to the first year she gave evidence, first that she had earned £10,300 to the date of the Tribunal hearing in October and, secondly, that she would probably receive a further £9,000 from a project on which she was then working in January 2002.  That fits in with a figure of £20,000 for the first year, during which she was effectively out of action for three months due to the fire.  Thus the Tribunal, submits Miss McCafferty, ought to have set against the gross figure of £37,500 for the 15 month period from January 2001 £20,000 or more for the first year and one quarter of £35,000 for the second year commencing January 2002, that is, £8,750.  There was no warrant to limit the figure to one and a half times monies already earned.

15	We see the logic of that submission but we cannot accept that an error of law is here made out.  It is for the Tribunal to assess and weigh the evidence which it hears.  At paragraph 39 of their reasons they describe the Applicant’s projection as “more positive”, that is, more positive than the actual earnings received to date.  The Tribunal, in its judgment, was more sanguine as to the prospects.  It assessed the likely future earnings accordingly.  There is no rule of law which requires a Tribunal to accept without question projections given by an Applicant off the cuff during oral evidence.  It is a judgment for them and one with which, on this occasion, we decline to interfere.

16	Finally, it is suggested that the Tribunal’s reasons were not “Meek compliant” in explaining why the chain of causation had not been broken by the fire in June 2001.  We disagree.  It seems to us that it is clear from paragraph 39 that the Tribunal took into account the fact of the fire, which they regarded as a setback to the Applicant’s earnings potential, not a break in the chain of causation.  No further elucidation was necessary to explain to the Respondent why they lost on that point.
17	In these circumstances we shall dismiss this appeal.