Appeal No.UKEAT/0605/05/DM

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 10 November 2005

Before
HIS HONOUR JUDGE RICHARSON
(SITTING ALONE)

KREDENZA LTD	APPELLANT

MR M JOVICEVIC	RESPONDENT

Transcript of Proceedings

JUDGMENT

		
	APPEARANCES

For the Appellant	MR JAMES HOLMES-MILNER
(Of Counsel)
Instructed by:
Messrs Skelly & Corsellis Solicitors
77-79 St John’s Road
London SW11 1QX	
For the Respondent	No appearance or representation by or on behalf of the Respondent	

SUMMARY
Practice and Procedure

In confirming its decision not to accept the Response out of time the Tribunal left out of account in several respects the Appellant’s prospects of success on the merits, and therefore did not perform the exercise of discretion required by Kwik Save v Swain and Moroak v Cromie in a satisfactory way.  

HIS HONOUR JUDGE RICHARDSON

1.	This is an appeal by Kredenza Ltd (hereafter “Kredenza”) against an Order of the Employment Tribunal sitting at London (South) by Chairman alone dated 24 October 2005.  The Tribunal had refused an application by Kredenza to review its earlier decision not to accept Kredenza’s response.  The appeal was instituted on 26 October 2005.  It has been sifted and allocated to the fast track hence it is being heard today just two weeks later.

2.	Kredenza wished to present a response to a claim by Mr Jovicevic, a former employee.  Mr Jovicevic’s solicitors have put in an answer to the appeal, received on 3 November in which they make it clear that the appeal is resisted.  They said at the same time that they did not intend to be present or represented at the appeal.  Enquiries by the Tribunal clerk indicate that the solicitors for Mr Jovicevic do not intend to make any written submissions.  Kredenza’s solicitors have very properly told me that in correspondence to them, Mr Jovicevic’s solicitors have made it plain that no concessions of any kind are made as regards the appeal or even any papers in the appeal bundle.

The History of Proceedings
3.	Mr Jovicevic presented his claim to the Tribunal on 15 July 2005.  On 20 July 2005 the claim was served on Kredenza.  The response would have been due on 17 August but Kredenza’s solicitors were granted an extension of time to 19 September on the ground that the person from whom they needed to take instructions, Mr Dejan Jovicevic would be out of the country until 5 September.  No response was received by 19 September.  On 21 September, Kredenza’s solicitors applied for a further extension saying that they had not been able to take their client’s full instructions and the matter was of considerable complexity.  They indicated they were meeting their clients soon.  On 23 September the application was refused, both as being itself out of time and as lacking merit.  On 28 September, Kredenza’s solicitors applied for a review.  They enclosed the proposed response.  This application for a review was the one with which the Chairman dealt and which is under appeal today.

The Claims and Potential Issues
4.	It seems to be common ground that Mr Jovicevic was employed by Kredenza from 15 September 2003.  Kredenza was a company making and installing kitchens and kitchen units.  Mr Jovicevic shares his surname with Mr Dejan Jovicevic.  It seems to be common ground that Mr Dejan Jovicevic was the principal investor in Kredenza and that Mr Stojanovic and Mr Novicic were also in positions of management.  It seems to be common ground that Mr Jovicevic was paid £11 an hour at first, rising thereafter to £12 or £12.50 an hour and that he was paid overtime for at least some of the time.

5.	Mr Jovicevic has two principal claims.  The first is for unpaid wages in the sum of £23,324.   The second is for unfair dismissal.  As to unpaid wages Mr Jovicevic’s case is set out at paragraph 21 of the his Grounds of Claim:

“The Claimant was provided with itemized pay statements during the period of his employment, however the Claimant was not paid the money due and owing to him under the said pay statements; further the pay statements were inaccurate in that the hours worked by the Claimant, as stated within the pay statements were wrong.  The Claimant was not paid for the correct number of hours and overtime that he worked each month and/or he was not paid the minimum annual salary of £29,000.”

6.	This is said to be an unlawful deduction from wages and a breach of contract of employment.  A schedule was attached to the claim.  The schedule does not, as far as I can see refer to, or relate to the itemized pay statements which Mr Jovicevic was provided.  

7.	Kredenza by way of principal answer says in paragraphs 8 and 9 of its proposed response that Mr Jovicevic would tell Kredenza the hours he had worked every month and would be paid accordingly.  Extra for overtime was not payable initially but was subsequently agreed.  The only respect in which Kredenza admits any underpayment arises, Kredenza says, because Mr Jovicevic did not initially have a bank account and was paid either in cash, or by cheque.  Some of the cheques were never cashed.  Therefore, a sum is due of £7,030 but the balance of the claim over £15,000 is denied.  In addition to this point, Kredenza takes two other points.  The first relates to illegality.  I will come to this in a moment.  The second is that contrary to section 32 of the Employment Act 2002, no grievance was stated by Mr Jovicevic before bringing this claim.  

8.	As to unfair dismissal Mr Jovicevic’s claim is set out in paragraphs 12 to 17 of his Grounds of Claim.  He says he put in a memorandum on 5 April 2005 raising financial and other irregularities.  He says he was summarily dismissed on 20 April.  It is clear that on 20 April, Mr Jovicevic was removed as Director but he says he was originally appointed without his knowledge and found out about his appointment only subsequently.    

9.	Kredenza says that Mr Jovicevic was indeed the sole Director of the company from the commencement of his employment.  Kredenza says there was a falling out in 2005 as a result of which Mr Jovicevic refused to sign off accounts.  Therefore  he was removed as Director.  But Kredenza says he was not dismissed on 20 April 2005.  Kredenza says that he left of his own accord and later asked for a P45 which was dated 20 May.  It is certainly true that there is in my papers a P45 dated 20 May setting out total pay as £960.

10.	The defence which is said to be common both to the claim for £23,000 and to the unfair dismissal claim is that Mr Jovicevic procured his work permit and employment by false and misleading documents and is thereby disentitled to bring any claim arising out of his employment by reason of illegality.  Kredenza has produced copies of the documentation by which Mr Jovicevic obtained his work permit.  Kredenza says that this documentation is untrue in several respects.  It might be observed, although this was no part of the Tribunal Chairman’s reasoning, that if the documentation was untrue in these respects, Kredenza’s own employees, including in particular Mr Dejan Jovicevic, might have been expected to know of it.  

The Tribunal’s Reasons
11.	The Tribunal’s Reasons are principally set out in paragraph 7 of its judgment.  The Chairman has already, prior to this paragraph, directed himself in accordance with Moroak v Cromie [2005] IRLR 535.  He then says:

“I had regard to the reason for the delay.  The Respondent is a limited company.  It was allowed 8 weeks to return the response.  That should be ample time for solicitors to obtain instructions.  The extended deadline of 19 September was two weeks after the solicitors said that Mr Jovicevic would return to the country.  Their letter of 21 September did not say that Mr Jovicevic had not returned, neither did it explain why the application was made after the expiry of the deadline.  It did not explain why they had been unable to obtain instructions.  I am extremely sceptical of the explanation offered in the letter of 28 September.  Having five days earlier sought an extension of 28 days; the solicitors were suddenly able to send detailed grounds of resistance. They offered no explanation why they could not have obtained instructions from Mr Jovicevic while he was abroad.  The proposed response refers to Mr Stojanovic, a director of the Respondent Company.  No explanation is offered as to why instructions could not have been obtained from him in Mr Jovicevic’s absence.  I considered the merits of the proposed response.  In my view the allegation of illegality has no reasonable prospect of success, because it alleges deception in the way the Claimant obtained employment.   Such circumstances, if true, do not oust the jurisdiction of the Tribunal.  I have considered the relative prejudice to the parties.  In my view, the prejudice to the Claimant of permitting the Respondent to take part in the proceedings, when it has unreasonably delayed the submission of a response, and when an important element of the proposed grounds of resistance has no reasonable prospects of success, outweighs the prejudice to the Respondent of refusing the application.  In all the circumstances it is not just and equitable to grant the application.”

The Law
12.	It is common ground that the Chairman’s basic legal approach cannot be faulted.  He was correct to direct himself to Moroak v Cromie [2005] IRLR 535 recently confirmed by Burton P with minor adjustments to his reasoning in Pendragon v Copus EAT/0318/05.  Moroak v Cromie in turn applied the tests set out in Kwik Save Stores v Swaine [1997] ICR 49 at 44-55.  The judgment of Mummery P is summarized by Burton P in Moroak v Cromie.  Tribunals exercising their discretion will be familiar with the whole passage in Kwik Save Stores v Swaine and the whole passage bears re-reading when the exercise of discretion is considered

13.	This Appeal Tribunal deals only with questions of law.  An interlocutory decision of the kind under appeal here will only be challengeable where the Tribunal exercised its discretion under a mistake of law or in disregard of principle or under a misapprehension as to the facts; where it took into account irrelevant matters, left out of account essential matters, or where the conclusion was outside the generous ambit within which reasonable disagreement is possible.  If an error of law is demonstrated the Appeal Tribunal may, itself, exercise the discretion vested in the Tribunal below if, and only if, it is plain on the material before the Employment Appeal Tribunal how that discretion should be exercised; otherwise it must remit the matter to the Tribunal.

Submissions
14.	Mr Holmes-Milner today has supplemented and focused his Skeleton Argument by taking essentially three points.  Firstly, he says that the Tribunal underestimated the lines of defence which Kredenza had available to it.  As regards the claim for £23,000 the Tribunal should have borne in mind that the claim was radically overstated, that it was barred by public policy and that no grievance procedure had been followed.  As regards illegality he submits that the Tribunal went wrong in law in holding that the matter was one which related to jurisdiction and that the allegation of illegality had no reasonable prospect of success because it alleged deception in the way Mr Jovicevic obtained employment.  He thirdly says that the Tribunal’s balancing of the prejudice to the parties, quite apart from leaving out of account the lines of defence to which he has referred was demonstrably flawed.  He says that a delay which was no more than about nine days in putting in the response can have caused little prejudice compared to the overwhelming prejudice which Kredenza would suffer if it was unable to defend the proceedings at all.

My Conclusions
15.	Firstly, the Tribunal Chairman, in my judgment, without doubt had in mind the correct principles.  He correctly referred himself to Moroak v Cromie.  He would not have had the advantage of the President’s recent remarks in Pendragon v Copus but those do not change the essential legal position which the Chairman had well in mind.  

16.	Secondly, in my judgment the Tribunal Chairman was entitled to reach the conclusions he did as to the explanations given by Kredenza for the delay.  Mr Holmes-Milner pointed out that the Chairman’s extreme scepticism of the explanation offered in the letter of 28 September seems to have been based on the solicitor’s ability suddenly to send in detailed grounds of resistance having five days earlier sought an extension of 28 days.  He points out that the solicitors had in their letter of 21 September made it clear that they had made an appointment to take full instructions from their client.  The point which Mr Holmes-Milner makes does not involve any error of law on the part of the Tribunal nor in reality did Mr Holmes-Milner suggest that it did.  
17.	Thirdly, however, when the Tribunal Chairman came to consider the merits of the response he did leave out of account, in my judgment, matters which it was essential for him to consider.  The first was the claim for earnings of £23,324.  He did not take this claim into account at all in his evaluation of the merits; but it was an important claim to consider.  The defence related to more than £15,000.  The defence was that Kredenza’s schedule was based on the hours given by Mr Jovicevic himself.  Mr Jovicevic seems to accept that month by month he received itemized pay statements which do not accord to his present claim.  A matter of this kind can only fairly be resolved by hearing evidence on both sides.  There is no indication in paragraph 7 of his Reasons that the Chairman saw the importance of bringing this matter into account in his evaluation of whether the response should be permitted.  

18.	The second was matter which the Chairman left out of account was the alternative response to the unfair dismissal claim.  This alternative again is one which can only be resolved fairly by hearing evidence on both sides.  The claim for unfair dismissal is potentially a substantial one.   

19.	I turn against this background to the way in which the Chairman dealt with the illegality point.  He said:

“In my view the allegation of illegality has no reasonable prospect of success because it alleges deception in the way the Claimant obtained employment.  Such circumstances, if true, do not oust the jurisdiction of the Tribunal.”

20.	In my judgment the mere fact that an allegation of illegality relates to a deception in the way in which the Claimant obtained employment does not, in and of itself, bar such a claim.  See for example Vakante v Addey [2004] 4 All ER 1056.  Moreover, such a matter can be characterized not only as a matter of jurisdiction but also, and in this case more relevantly, as a matter of defence, a defence commonly dealt with if necessary at a preliminary hearing.  See again Vakante v Addey.  I am far from saying that the illegality claim in this case will eventually succeed.  Indeed, whereas in Vakante v Addey the employer was wholly innocent of any involvement in illegality, in this case it would seem very surprising if Kredenza and Mr Dejan Jovicevic were not aware, at least in part, of the matters upon which Kredenza now relies in its response.  That, however, is not the way in which the Tribunal Chairman dealt with the matter.  He dealt with it as a jurisdictional bar and a bar by reason of the nature of the deception alleged.  In these respects, in my judgment he was wrong.

21.	The Chairman’s balancing exercise must, in my judgment, be vitiated by the failure to consider the other aspects in which the response had potentially more merit than the illegality claim as he believed it to have.  The balancing exercise cannot, in my judgment, stand in those circumstances.  I would make two other observations about the balancing exercise.  

22.	Firstly, if some defences do have reasonable prospects of success and those defences are important it will not generally be a sufficient reason for barring a response merely that one important element of the proposed grounds of resistance has no reasonable prospects of success.  There are other ways of dealing with a single ground of resistance that has no reasonable prospect of success.

23.	Secondly, it will always be important for a Chairman carrying out the balancing exercise to have regard to the length of the period of delay.  In this case there is no express reference to the length of the period of delay in the balancing exercise and bearing in mind that the period of delay is relatively short it would be an important matter to consider.  

24.	This brings me finally to the question whether in this case the matter has to be returned to the Tribunal for the Tribunal itself to exercise its discretion afresh on this matter or whether it is a matter on which I can properly substitute a decision by the Appeal Tribunal.  It must be plain on the material before the Appeal Tribunal how that discretion should be exercised before I can exercise it afresh.  In my judgment when one takes into account all the potential lines of defence in this case which I have adumbrated and when one takes into account the length of the delay in putting in a response in this case, unsatisfactory though the explanation for that delay may have been, the case is sufficiently plain for me to substitute my own judgment.  In my judgment this response ought to have been accepted and I will direct that the appeal is allowed, the decision below not to accept the response is set aside, and a decision to accept the response is substituted.  

25.	I wish to say just two further words.  Firstly, how to deal with the response hereafter, how to case manage it, for example, is entirely a matter for the Tribunal to consider.  Nothing that I have said in this judgment is meant to pre-judge how the Tribunal for example will case manage and deal with the question of illegality.  These are matters for the Tribunal.  Secondly, I have said nothing about the line of defence raised by virtue of section 32 of the Employment Act 2002.  It is not necessary to say anything about that for the purposes of this decision.  Section 32 raises very real difficulties in some circumstances and I should not be taken as expressing any view as regards section 32 one way or the other by this judgment.