Appeal No.	 EAT/120/96

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 27 January 1997
Judgment delivered on 10 March 1997

Before
HIS HONOUR JUDGE PETER CLARK
MRS M E SUNDERLAND JP
MR N D WILLIS

KVAERNER FSSL LTD	APPELLANTS

MR R ARORA	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellants	MS J OMAMBALA
(of Counsel)
Messrs Memery Crystal
Solicitors
31 Southampton Row
London WC1B 5HT

For the Respondent	MS S DREW
(of Counsel)
Ms S Campling
Brentwood Community Law Centre
389 High Road
London NW10 2JR	

	JUDGE PETER CLARK:   The factual background to this appeal is set out in a reserved decision of the London (North) Industrial Tribunal following a hearing held on 18th August 1995. Full reasons for that decision are dated 15th December 1995. The tribunal upheld the complaint of unfair dismissal.

	The employee, Mr Arora, whom we shall refer to as the applicant, commenced employment with Kvaerner FSSL Ltd, the appellant before us, whom we shall call the employer, as an Accounts Assistant on 3rd July 1986.

	Initially his state of health was good, however from about 1991 a pattern of sick absences began to emerge. In 1989 he had been diagnosed as suffering from ulcerative colitis. On 18th April 1994, after a week’s sick absence due to a cold, the applicant submitted a three week sick note due to ulcerative colitis. That was followed by further sick notes, citing the same condition, which took him through to 20th September 1994.

	Not surprisingly this continuous absence from work placed the employer in some difficulty in providing cover. The Financial Controller, Mr Shotton, decided to obtain medical opinion as to the applicant’s prognosis for a return to work.

	An appointment was made for the applicant to see the employer’s medical adviser, Dr Carter, on 19th August 1994. Following examination Dr Carter prepared a report dated 19th September 1994 which he forwarded to the employer’s solicitors. He also gave the gist of his report to Mr Shotton over the telephone; it came to this; Dr Carter, having seen a report from a consultant who had examined the applicant fully in hospital on 27th May 1994, accepted that consultant’s prognosis that the applicant suffered from a mild disease clinically, and that provided he followed medical advice and took the prescribed medicine he ought to be able to resume a normal working pattern. A further medical consultation with the consultant in charge of the applicant’s case was due to take place later in September 1994, although on 16th September the applicant presented a further three month sick note.

	The progress of the matter was further complicated by a report received by Mr Shotton that the applicant was involved in a taxi business whilst ostensibly unfit for work. As a result, private investigators were instructed by the employer. The applicant was kept under observation by the investigators between 11th October and 11th November 1994. A report was submitted on those observations on the latter date. The report was inconclusive; it did not, in the view of Mr Shotton prove or disprove the applicant’s connection with a taxi firm; however, the observations recorded tended to suggest that the applicant was not suffering from a serious illness.

	Also on 11th November 1994 Mr Shotton received a further report from Dr Carter which referred to the in-depth investigation on 21st September, the diagnosis being that the applicant had a clinically mild disease of a recurring nature which was usually fairly easily controlled by using certain medication. The prognosis was that his condition was subject to flare ups and could be, although was not necessarily, disabling. It was controllable. The tribunal found the report to be somewhat ambiguous; it referred to the consultant’s examination on 12th August following which the consultant stated that the applicant had stopped most of the therapy that he had been prescribed. He saw the applicant again on 21st September and on that occasion no reference was made to the applicant not taking the medication as prescribed, although Dr Carter was of the opinion that the applicant would have been fit for work on 21st September even though he last saw him on 19th August.

	Following receipt of that report, the tribunal found, Mr Shotton took no immediate steps either to discuss the report with Dr Carter or to consult with the applicant, but knowing that the current sick note expired on 16th December he decided to telephone the applicant to find out whether he would be returning to work and what the likely prognosis was. To this end Mr Shotton telephoned the applicant’s home on 2nd December and his call was referred to a mobile telephone. The applicant returned the call two hours later and said that he was still having trouble with irritable bowel syndrome and had seen his doctor but that the first appointment he could get at the hospital was not until February 1995. He said that he was trying to get one in December and Mr Shotton asked the applicant to let him know how that developed.

	At this stage Mr Shotton decided that the time had come to bring matters to a head. Having consulted with colleagues and the company’s solicitors, he wrote to the applicant on 9th December 1994. The letter reads, so far as is material:

“I have reviewed the position and my current view is that the Company will have to terminate your employment with immediate effect for the following reasons:
1.	If it is the case that you are unable to work due to sickness and have been for the last eight months and given that there is no prognosis from your Doctor as to when you would be able to return to work, your contract of employment is effectively frustrated by your inability to work and the Company is entitled to terminate your employment with immediate effect.
2.	My understanding from the report from the Company Doctor which in turn refers to your consultant is that you have a clinically mild disease of a recurring nature which should usually be fairly easily controlled by use of medication but that you have not been taking the medication as prescribed. On this basis, the Company is entitled to terminate your employment with immediate effect as you are in breach of your duties under your contract of employment.
3.	I have reason to suspect that you are working for a firm and have been during your “sickness absence”.” [Mr Shotton then sets out the grounds of his suspicion.]

Accordingly, Mr Shotton invited the applicant to attend a meeting with him at an hotel on 13th December 1994, after which, he said he would consider any representations made by the applicant and then reach a final decision as to the applicant’s employment.

	That meeting took place on 13th December 1994. It was followed by a letter of 15th December 1994 in which Mr Shotton said:

“It is an implied term of a contract between employer and employee that there be mutual trust and confidence and I am sorry to say that in view of my continuing concerns regarding the matters set out in my letter of the 9th December and my remaining concerns on the points you put to me, I have decided that the Company should terminate your employment with immediate effect the reasons being as set out in paragraphs numbered 1 to 3 of my letter of the 9th December and also my remaining concerns on the points you addressed to me.”

	Mr Shotton concluded by advising the applicant of his right of appeal to Mr Patel. The applicant did so appeal, and his appeal was dismissed by a letter from Mr Patel dated 29th December 1994, following an appeal hearing on 19th December 1994.

The employer’s case
By a Notice of Appearance, settled by solicitors, the employer gave a detailed response to the applicant’s complaint. Although setting out the employer’s evidential case fully, it does not answer in clear terms Question 3. The Notice reads:

“3. Was the Applicant dismissed?
If “yes” what was the reasons?
Please see answer to question 8.”

That is a reference to the lengthy grounds for resistance at Question 8 in the Notice. The Industrial Tribunal, at paragraph 20 of its reasons, refers to paragraph 8.20 of the Notice of Appearance which reads:

“Having considered the representations of the Applicant, the Respondent considered that it had no choice but to terminate the Applicant’s employment. The Respondent wrote to the Applicant on the 15th December 1994 setting out the reasons for termination of the Applicant’s employment and advised the Applicant that he had opportunity to appeal the decision to Hamant Patel. The Applicant wrote on the 16th December 1994 requesting an appeal.”

	From that the tribunal deduced that the reasons for dismissal relied upon were those contained in the letter dated 15th December 1994, which in turn refers back to the letter of 9th December 1994, the material parts of the texts of which are earlier set out. Those reasons were, first, that the contract was frustrated and consequently as a matter of law there was no dismissal; alternatively if there was a dismissal, the reasons for dismissal were those set out in the letters of 9th and 15th December 1994. It seems to us, as it did to the Industrial Tribunal, that those reasons may properly be characterised as relating to conduct reasons.

	However, before the Industrial Tribunal the employer’s case was put on a different basis. The frustration argument was maintained, but in the alternative it was submitted by Ms Omambala, Counsel for the employer, that if there was a dismissal, the reason related to capability, that is the applicant’s medical incapacity, and that the employer acted reasonably in treating that reason as a sufficient reason for dismissal. Employment Rights Act 1996 s.98(4).

The Issues
If follows that the issues to be determined by the Industrial Tribunal, were these, listing them in the order in which they fell to be considered:

(1)	Was the contract frustrated prior to 15th December 1994, when notice of summary dismissal was given? If so, the contract came to an end by operation of law. There was no dismissal. The claim failed.

(2)	If the contract was not frustrated, the dismissal took effect on 15th December 1994. What was the reason or principal reason for dismissal? Had the employer shown a reason falling within s.98(2) of the Act, in this case either conduct or capability? If not, then the dismissal was unfair.

(3)	If one of the prescribed reasons was made out by the employer, did the employer act reasonably under s.98(4)? Here, there is a ‘neutral’ burden of proof. Boys & Girls Welfare Society v McDonald [1996] IRLR 129.

The Tribunal decision
We say at once that the tribunal’s reasoning, set out a paragraphs 18 to 27 of the reasons, is not clearly and logically structured. However, we bear in mind the dictum of Bingham LJ in Meek v City of Birmingham District Council [1987] IRLR 250, 251, where he said at paragraph 8:

	“It has on a number of occasion been made plain that the decision of an Industrial Tribunal is not required to be an elaborate formalistic product of refined legal draftsmanship, but must contain an outline of the story which had given rise to the complaint and a summary of the Tribunal’s basic factual conclusions and a statement of the reasons which have led them to reach the conclusion which they do on those basic facts. The parties are entitled to be told why they have won or lost. There should be sufficient account of the facts and of the reasoning to enable the EAT or, on further appeal, this court to see whether any question of law arises; ... “

	Reading the tribunal’s reasons in that spirit we discern the following material findings:

(1)	The contract was not frustrated.

(2)	The employer had failed to establish a prescribed reason for dismissal; therefore the dismissal was unfair.

(3)	Even if the employer had established either conduct or capability as the reason for dismissal, in either event such dismissal was unfair applying s.98(4).

The appeal
In this appeal Ms Omambala advances three lines of attack, each of which merits careful consideration:

(1)	Frustration
	We observed earlier that the tribunal’s reasoning is not set out in a clear and logical way. Specifically, at paragraph 18 the tribunal begin:

“18 Having considered the evidence and the contentions of the parties herein we first of all ask ourselves what was the main reason for the dismissal. ...”

	Plainly the first question is in fact whether or not the contract was frustrated. That issue is dealt with at paragraph 20 where, having referred to the medical evidence, they conclude, having referred to paragraph 1 of the employer’s letter dated 9th December 1994:

“... Many of the factors pointing to frustration were present; The Applicant by December had been absent sick since April and his absence was causing great though not insuperable problems for the Respondents and the time was approaching when they could not reasonably be expected to wait any longer for the Applicant to return but before taking steps to treat his absence as a frustration of the contract it was essential to consider the prospects of his recovery as the illness was one the outcome of which was uncertain. This they did in that they sought the opinion of Dr Carter but in concluding that the contract was frustrated they clearly acted unfairly. ...”

	Miss Omambala submits, with some force, that the tribunal appears to have misunderstood the legal doctrine of frustration. The question is not whether the employer acted fairly or unfairly in treating the contract as discharged by frustration; it is whether as a matter of law it had been so discharged. That is a question for the tribunal to decide on the facts.

	Whilst recognising the force of that submission we remind ourselves that it is not for an appellant to take a ‘fine toothcomb’ to the tribunal’s reasons, taking a phrase out of context, in order to mount an appeal. We are quite satisfied that the principles of the doctrine of frustration were correctly put before the tribunal by Counsel on both sides; the submissions of Mr Parnell, who then appeared for the applicant, are summarised at paragraph 16 of the reasons; those of Ms Omambala at paragraph 17. We are further satisfied that the Industrial Tribunal did in fact apply those principles to the facts as found, and reached a permissible conclusion that the contract was not frustrated for the adequate reasons given in paragraph 20. The reference to the employer acting unfairly in concluding that the contract was frustrated means, in our judgment, that the employer was wrong to say in the letter dated 9th December 1994 that the contract was frustrated. It was not, so the tribunal found.

	In these circumstances we reject Ms Omambala’s first submission.

(2)	The Industrial Tribunal substituted its own view for that of the employer:

	It is submitted that the tribunal substituted its own view for that of the employer in concluding in paragraph 22 of the reasons:

“22 Dismissal was clearly on the grounds of conduct but we find that the Respondent has not satisfied us that he held a genuine belief on reasonable grounds after reasonable investigation; ...”

	The way the point is put is that during the tribunal hearing it was never suggested in evidence that the reason related to conduct, nor was that case advanced on behalf of the employer in closing submissions. The case was that, if the frustration argument failed, the reason related to the applicant’s capability.

	We accept that the label which the employer attaches to the set of facts which make up his reason for dismissal is not necessarily conclusive. Abernethy v Mott Hay & Anderson [1974] ICR 323. However, in our judgment it was open to the tribunal to find, as we are satisfied it did, that the reason put forward by the employer at the time of the dismissal related to conduct and not capability, as the employer later sought to argue before the Industrial Tribunal.

	That does not end the matter. It is for the employer to show an honest belief in the reason put forward. The tribunal found that it had not done so. Two conduct grounds were raised in the letter of 9th December 1994. The first was that the employer stated its belief that, based on the medical evidence, the applicant was at fault in not taking the medication as prescribed. In paragraph 22 the tribunal conclude that this was not a genuine belief held by the employer. Equally, the tribunal found that the employer did not genuinely believe that the applicant had been working for a third party during his sick absence from the employment. That finding was based on the admission by Mr Shotton in evidence that his own conclusion, based on the private investigator’s report, was that there was no proof that the applicant was working elsewhere during his sick absence.

	In our judgment the tribunal here adopted a permissible approach in the light of the House of Lords decision in Smith v City of Glasgow District Council [1987] IRLR 326.

(3)	Reasonableness
	Ms Omambala submits that in relation to the issue of reasonableness of a conduct dismissal, the tribunal placed the burden of proof on the employer to satisfy it that the employer had reasonable grounds for its belief in the misconduct, based on a reasonable investigation.

	It does appear to us that the tribunal fell into error in placing the burden of proof in relation to these matters on the employer. However, in light of our conclusion that the tribunal was entitled to find that the employer had not established a prescribed reason for dismissal, in particular conduct, any finding as to reasonableness in this regard is immaterial. In the absence of a prescribed reason being shown, the dismissal is unfair.

	For completeness we should add, that the tribunal’s further finding, in the alternative, that if the reason for dismissal was capability, that dismissal was unfair under s.98(4) (Reasons; paragraphs 24-26), is in our judgment unassailable, and were it necessary to do so we should affirm the tribunal’s decision on that ground.

Conclusion
We have not found this an easy case, principally due to the way in which the tribunal’s reasons have been set out. A step by step analysis of the issues, facts and conclusions would have been greatly to be preferred. But for the careful and sustained argument of Miss Drew we should have been inclined to allow this appeal and remit it for rehearing a fresh Industrial Tribunal. In the event we are just persuaded that this decision can stand and accordingly we shall dismiss the appeal.