Panama v Hackney

LORD JUSTICE PETER GIBSON: I will ask Hooper J to give the first judgment.

MR JUSTICE HOOPER: This is an appeal by Felicia Panama from an order of the EAT on 12th March 2002 dismissing her appeals from two decisions of the Employment Tribunal, sitting at Stratford, dated 2nd June 2000 and 2nd November 2000.

In the first of those two decisions, the Tribunal, whilst dismissing complaints of direct discrimination and victimisation on the ground of sex and race, held that the appellant had been unfairly dismissed. The finding that the dismissal was unfair was based on four reasons set out in paragraph 38 of the decision. Whilst accepting that the appellant could have been properly dismissed, the dismissal was unfair in the light of a failure to follow proper and fair procedures.

The Tribunal further held that, had she not been unfairly dismissed, the probability is that she would have secured alternative employment with the respondent. This finding was, however, subject to a further important finding that she would have been dismissed shortly afterwards at the conclusion of disciplinary proceedings which had not taken place because she had been dismissed (paragraph 39). The Tribunal concluded that following such disciplinary proceedings:

That finding was upheld by the Employment Appeal Tribunal which concluded that:

The Tribunal adjourned to a remedies hearing what loss, if any, she had suffered in the period of three weeks before she would, on the findings of the Tribunal, have been fairly dismissed following the disciplinary proceedings. The remedies hearing took place on 20th October 2000. For reasons that are not relevant to this appeal, the appellant was awarded no compensation in respect of those three weeks.

The appellant was granted permission to appeal to this court:

It is not necessary to set out the history of the appellant's employment with the respondent. It is necessary, however, to set out in some detail the background to the finding by the Tribunal that the appellant would have been dismissed summarily for gross misconduct if the disciplinary proceedings had continued.

The appellant had obtained a law degree. In December 1994, some three years after starting work for the respondent, the appellant obtained work with a firm of solicitors, Bhardwaj & Co, in South Molton Street, London. It was the appellant's intention to complete her training contract with that firm. The Tribunal was satisfied that the appellant secured appropriate permission from the respondent for this work,

In March 1998 the appellant commenced a period of maternity leave and gave birth to a child on 13th May 1998. For various reasons she did not in fact return to work until 1st June 1999.

On 28th May 1998, two letters were sent by Bhardwaj & Co to the respondent. Both letters deal with the same matter, namely a housing assessment that the respondent had made and which concerned a Mrs Daramola. Mrs Daramola had had an on-going complaint against the respondent regarding her housing. Another firm of solicitors, Dowse & Co, had previously been involved. (Page 131) In both letters the "our reference" was "SS/FP/RA". It was the respondent's case that "FP" was a reference to this appellant.

The longer letter stated:

Although there were two letters, the Tribunal refers only to one letter.

The matter raised by the letters fell within the appellant's area of responsibility. On receipt they were dealt with by her job-share partner, Miss Parker. (Paragraph 28) In any event, the appellant was not at work having, as I say, given birth on 13th May 1998.

The Tribunal found that, on receipt of the 28th May letters, Miss Parker telephoned the firm of solicitors and asked to speak to the "reference" shown on the letter. She was told that the person dealing with the matter for the firm of solicitors was Felicia Panama. She was told that Felicia Panama was not working in the office that day, but she was working from home where Miss Parker could contact her. A telephone number was provided. There is no record of that number. Miss Parker did not call that number, but she did inform her manager of the circumstances. (Paragraph 28) (See also page 131 for the statement made by Miss Parker.)

According to Mr Armand's witness statement (page 141), he attempted to investigate the matter further but left the respondent's employment on 14th February 1999 and gave the letters in question to another employee.

Criticism was made by the appellant of the delay in investigating the matter prior to her suspension on 1st July 1999. The respondent's explanation for the delay was that it was not thought appropriate to raise such a matter with her while she was on maternity leave. That explanation was accepted by the Tribunal. (Paragraph 26)

The Tribunal also had a statement from a solicitor, Mr Matthew Gold, who had been employed in the litigation department of the respondent from September 1998 to November 1999. He did not give oral evidence and so, as the Tribunal found, his evidence "has not been tested under cross-examination". (Paragraph 29) According to his statement (pages 135 to 136), on 23rd June 1999 he telephoned Bhardwaj & Co. According to his attendance note (page 137), he was told that "FP" equalled Felicia Panama and that she still worked for the firm. As to this evidence, the Tribunal said:

At a meeting on 1st July the appellant was suspended because of the letters of 28th May. (The notes of that meeting are at page 233.)

On 27th August 1999 it was concluded on the basis of the information then available that the conduct of the appellant would not constitute gross misconduct and a decision was made that her suspension should be lifted. The appellant was told of this decision on 15th September 1999. A disciplinary hearing was arranged for Thursday 30th September 1999. (Paragraph 30)

On 24th September 1999, the appellant was told, by letter, that her employment ceased from that day and that she would receive pay in lieu of notice amounting to seven weeks. (Paragraph 33) She was also told that:

On the same day, 24th September 1999, a senior investigator, Sylvia Caprice, wrote a report which included the following paragraphs:

The report does not state that the "solicitor" to whom Mrs Daramola spoke was the appellant. Mrs Daramola does not name the solicitor, Sylvia Caprice was not called as a witness and there was no statement from her before the Tribunal.

I turn to the evidence given by the appellant in her witness statement and in her evidence before the Tribunal. In her witness statement (see pages 101 to 103, 113 to 114), the appellant describes how she initially worked with Bhardwaj & Co in the evenings. Later, because she was "job sharing", she was able both to work for the respondent and the solicitors. She worked under a training contract with the ultimate aim of becoming a solicitor. She ceased working for the firm of solicitors in March 1997 because she had her Law Society finals coming up in August of that year. She says that she wrote to the Law Society advising them that she was no longer working under her training contract and that they had confirmed by letter that the training contract was cancelled from 5th April 1997. She produced a copy of that letter. By this time she only had another six months to complete on her training contract. She says that she had agreed with Bhardwaj that when she passed her exams she would return to finish her traineeship. However, that did not happen, so she said, because Mr Bhardwaj returned to India and the firm closed down. Having finished her Law Society exams in 1997 she decided to find another part-time job to complement the Hackney Council job-share. From September 1997 to April 1998 she said that she worked as an assistant solicitor for a firm of solicitors in Peckham, called Andrews. She did primarily immigration work and about 10% housing work.

In her statement she describes the 1st July 1999 meeting. She states that she was told that she was being suspended because she had compromised the respondent by writing a solicitor's letter on behalf of the tenant. One of the two letters of 28th May was put to her, probably the longer one. She denied writing the letter. She wrote in her statement (paragraph 50):

The appellant later stated that she only received copies of the 28th May letters when she received the respondent's bundle for the Tribunal hearing.

She continued (paragraph 51):

The allegation that the appellant had suggested to Mrs Daramola that she should falsely claim that her children were brain damaged is not dealt with in the statement. The grounds of resistance dated 10th September 1999 did not refer to this allegation. (Page 48) However they were served prior to the Sylvia Caprice report.

That report (page 244) would have been disclosed prior to the hearing, but the report does not suggest that either the writer, or whoever made handwritten comments on the report, believed that the appellant herself was guilty of fraudulent behaviour. That allegation appears to have arisen for the first time at the hearing. Mr Sutton took us to page 67 of the bundle, where she is being asked questions by him during cross-examination about the letters. According to the Chairman's notes:

Mr Sutton assures us that although the Chairman's notes may not be as clear as they could be, it was at this point that he put to her the allegation that she had engaged in fraudulent conduct in writing a letter which she knew not to be true.

One can find further reference to this issue at page 92 of the Chairman's notes. There Mr Armand is giving evidence and he states that he had no reason to doubt the statements contained in the letter:

It appears as if counsel for the appellant did not pick up at the Tribunal that this serious allegation was being made. Counsel makes no reference to the allegation in her final submissions. She does, however, come back to the matter in a response, after she had read the respondent's final submissions, in which the allegation is clearly made. I shall come back to that shortly.

In her affidavit for the appeal before the Employment Appeal Tribunal, the appellant says that only at the hearing was it alleged that she had attempted to defraud the respondent by writing the two letters dated 28th May. (Page 54)

In evidence to the Tribunal she gave a similar account to that contained in her witness statement.

She said that Bhardwaj & Co had closed between April 1997 and late 1999. She expanded on her contact with Mrs Daramola. She said she was referred to her at Andrews:

She denied that either Miss Parker or Mr Gold would have been told in May/June 1998 that she was still working there. She accepted in evidence that the letter implied some knowledge of internal procedures. She said that, whilst suspended, she was working at the Town Hall where she saw Mrs Daramola:

Later in her evidence she returned to the matter of Mrs Daramola:

In the appellant's response (pages 188 and 189) to the closing submissions of the respondent to the Tribunal (145 to 146) counsel for the appellant submitted that the appellant had not written the 28th May letter, relying upon the appellant's evidence and the date of the birth of the baby. She pointed out that a simple phone call by Miss Parker would have cleared the matter up immediately. As to Mrs Daramola, she pointed out that there was no direct evidence from her and any notes of the interview with her have not been produced. Paragraphs 1.13 and 1.14 of those submissions read as follows:

On behalf of the respondent it was submitted to the Tribunal that, in answer to the Chairman, the appellant had contended that the firm might have remained in practice until the end of 1999, and reliance was placed on her assertion that she had been in touch with representatives of the firm since leaving.

I turn to the Tribunal's finding.

As to her time at Bhardwaj & Co the Tribunal found (at paragraph 16):

I have already set out the Tribunal's findings about information given to Miss Parker and Mr Gold by someone at Bhardwaj & Co.

The Tribunal rejected the appellant's case that she had not written the letter of 28th May. The Tribunal pointed out, as the appellant admitted, that the letter revealed an understanding of the respondent's practice and procedure relating to housing matters. The Tribunal, however, primarily relied upon the information given by Miss Parker and Mr Gold. The Tribunal also concluded that the appellant should not have been involved in acting on behalf of the client then in dispute with her employer within her area of responsibility. (Paragraph 27 to 28) Later the Tribunal said (paragraph 41):

As to the Sylvia Caprice report, the Tribunal stated at paragraph 40:

The Tribunal went on to state (paragraph 41):

The finding that she was part of the attempt to defraud the respondent was decisive. On 27th August 1999 the decision was made that the mere writing of the letter or letters of 28th May did not justify dismissal. What changed the position was the allegation contained, or said to be contained, in the report of 24th September that the appellant was involved in fraud. This changed matters, and it was this allegation, which the Tribunal found "proved", which would have resulted in the dismissal. That conclusion depended upon findings that, not only had she been responsible for the letter or letters, but that Mrs Daramola was right when she said that she had been told by a solicitor to make a false claim and that that solicitor must have been the appellant.

I turn to the hearing before the EAT.

Before the EAT the point was taken that the appellant had been given no indication prior to the hearing that the respondent considered that she had been fraudulent. It was said that the appellant had therefore had no opportunity to defend herself against the suggestion. (Pages 24 and 198) In answer it was submitted that she had dealt with Mrs Daramola (at pages 50 to 51 of her witness statement) and that she had had the opportunity of defending herself.

The EAT did not address this issue.

She also said in her affidavit for the EAT that at the hearing she asserted that she stopped working for Bhardwaj & Co in 1997, "but as this was not an issue prior to the hearing I did not have any evidence to support me other than a letter from" a former legal secretary. (Page 55 and the letter at page 57) That seems to me not to be right. She knew at the 1st July meeting that it was being alleged that she had written a letter or letters on 28th May 1998. Before the EAT she sought to put in further support for her contention that she was not working for Bhardwaj & Co, but the EAT refused her permission to adduce fresh evidence and she was refused permission to appeal on that point.

As to the disputed findings regarding the letters and the appellant's role in the fraud, the EAT found that the Tribunal was entitled to come to the conclusion which it did.

Mr Sutton, on behalf of the respondent, seeks to uphold the conclusions reached by the Tribunal. He puts the case in this way. She having been found by the Tribunal to be involved in the writing of the letter or letters of 28th May, it must follow that when Mrs Daramola said that she had taken advice from her solicitor that solicitor must be the appellant.

It is submitted on behalf of the appellant that the Tribunal ought not to have reached the conclusion that she sent the letters. Notwithstanding the close proximity of the letter to the birth of the child, I take the view that the Tribunal was entitled to reach the conclusion that she had written the letters given the compelling evidence of Miss Parker, as supported by Mr Gold, and the appellant's accepted contact with Mrs Daramola.

That, however, does not dispose of this appeal. What is of much more concern is the finding that, to the appellant's knowledge, the letter or letters were fraudulent. This obviously is a very serious allegation.

I am doubtful whether the appellant on this issue had a fair hearing. There seems no doubt that this issue arose for the first time during her cross-examination. Mr Pullen rightly reminded us of a passage from a decision of the Employment Appeal Tribunal in Hotson v Wisbech Conservative Club [1984] IRLR 422. In paragraph 19 the Tribunal said:

In my judgment it is not right that this appellant should have learnt about this very serious allegation for the first time during the course of cross-examination. Indeed, as I have already indicated, I note that her counsel did not, on the face of it, appreciate, even then, that such a serious allegation was being made. If she had done I am sure she would have referred to it in her closing submissions and not for the first time in her response to the respondent's closing submissions.

The Tribunal was asking itself a hypothetical question: What would have happened at the disciplinary hearing? The Tribunal answered that question by saying that there was an overwhelming probability that the appellant would have been found guilty of gross misconduct. But that finding depended on a further finding that the appellant would be found at the disciplinary tribunal to have acted fraudulently in sending the letter or letters of 28th May. Although the question which the Tribunal is asking itself is hypothetical, it must still approach the issue bearing in mind section 98 of the Employment Rights Act 1996 and the well-known decision in British Home Stores Ltd v Burchell [1978] IRLR 379.

Section 98(4) provides:

Thus, a tribunal must not only ask itself what conclusion would a disciplinary hearing have reached, but also whether a dismissal would be fair or unfair having regard to that subsection. The relevant passage from Burchell, is to be found set out in Sainsbury Supermarkets Ltd v Hitt at paragraph 10:

I turn the second and third of those guidelines into questions: Did the employer have in his mind reasonable grounds upon which to sustain the belief? Had the employer at the stage at which he had formed that belief on those grounds carried out as much investigation into the matter as was reasonable in the circumstances of the case?

The Tribunal did not ask itself whether a dismissal would have been fair or unfair I bear in mind that this case was heard by the Tribunal in March 2000, some six months after the proposed disciplinary hearing. No further evidence had been obtained to support the case, as developed during the hearing, that the solicitor to whom Mrs Daramola was referring was the appellant. A simple phone call might well have sufficed. Absent such evidence to support an allegation of fraud, the answer on the facts of this case to the second question in Burchell would have probably been "No".

As to the third question, if the Tribunal had asked itself this question, then it seems very likely that the answer would have been "No". The employer would not have carried out as much investigation into the matter as was reasonable in all the circumstances of the case. A dismissal on the grounds of fraud would not therefore have been fair.

For these reasons I would allow the appeal.

LORD JUSTICE MANCE: I agree.

LORD JUSTICE PETER GIBSON: I also agree that this appeal should be allowed. As we are differing from the two specialist tribunals below and in deference to Mr Sutton's well presented argument for Hackney, I add a few words of my own.

The only question for us on this appeal is whether the Tribunal erred in law in concluding that if, contrary to the facts, Felicia Panama had not been dismissed by the notice given to her by Hackney on 24th September 1999, she would not have been entitled to compensation but would have been found guilty in the disciplinary procedures which by then had been instituted and would have been dismissed for gross misconduct.

Prior to the commencement of the Tribunal hearing Ms Panama and her advisers could have had no inkling that it was any part of Hackney's case that she had engaged in fraudulent conduct in writing a letter to Hackney on behalf of a client of Bhardwaj & Co and that such conduct would have led to her summary dismissal for gross misconduct in the disciplinary process so that she was in any event not entitled to compensation. It had repeatedly been said to her by Hackney that Hackney's concern was that she was guilty of misconduct because of the conflict of interest between acting as a rehousing manager for Hackney and acting for a client of the firm of solicitors for whom she was alleged to work, the latter work involving communications with Hackney in relation to a housing matter. The formal charge made against her on 15th September 1999 was that she had breached Hackney's code of conduct, by undertaking outside employment without Hackney's permission, and that the work she did for Bhardwaj & Co created a conflict of interest with her employment as an officer of the Council. She was expressly told in that letter from Hackney that whilst there would be a disciplinary hearing on 13th September 1999, as the allegation against her was of misconduct and not gross misconduct, this would not result in a dismissal. Accordingly her suspension was lifted at that point.

Although Ms Caprice, the senior investigator for Hackney, had conducted an interview with Mrs Daramola on 17th September 1999 and had reported in writing on 24th September recording what she had been told by Mrs Daramola, it does not appear to have occurred to Ms Caprice that Ms Panama had been fraudulent as Ms Caprice only recommended a disciplinary hearing to deal with Ms Panama's misconduct.

It is not in dispute that, following the presentation of Ms Panama's originating applications, Hackney's notice of appearance did not assert a case that Ms Panama was not entitled to compensation in any event because she would have been dismissed for fraudulent behaviour in the course of the disciplinary proceedings. Nor was there any mention of this point in the written evidence for Hackney which was produced for the Tribunal hearing. In particular it is to be noted that Mr Armand, the manager of Ms Panama, did not say anything about what would have happened had the disciplinary hearing gone ahead. It is apparent from the Chairman's notes of the hearing, which included notes of the opening submissions made by Ms Panama's counsel, that Mr Sutton did not inform the Tribunal that Hackney would be making the allegation that compensation should not be awarded to Ms Panama in any event because of her fraudulent conduct. The first time that an allegation of fraud appears to have been made was during the cross-examination by Mr Sutton of Ms Panama in the way my Lord has described. It was added to by Mr Armand's evidence of what would have happened in the disciplinary process, but an allegation offraud against Ms Panama was still no part of Hackney's formal case.

At the end of the hearing there was no time, it appears, for oral submissions and the parties were directed to exchange closing submissions and each was given the opportunity to put in a reply to the other's closing submissions. It is significant that when Ms Panama's counsel prepared her closing submissions she did not deal with this point in them. It was only in Mr Sutton's closing submissions for Hackney that Hackney's case was made plain. Counsel for Ms Panama then in her reply dealt with it by strongly rejecting the suggestion. Nevertheless, the Tribunal felt able to accept Mr Sutton's submissions.

I have to say that it seems to me highly unfortunate that this part of Hackney's case should emerge in the way it did. What was alleged by Mr Sutton was that Ms Panama knowingly advised Mrs Daramola to make a false claim to Hackney and wrote the letter to Hackney in which the false claim was made. That is fraud. Fraud is a most serious accusation to make, particularly when the person against whom the accusation is made is training to become a solicitor, as Hackney well knew.

If fraud is to be proved, it has to be clearly proved. Fairness seems to me to demand that such allegation must be made in such a way that the accused person has the fullest opportunity to meet it, to consider its implications and to answer it: see the Hotson case, to which my Lord has referred, at paragraph 18 per Waite J, the then President of the EAT. Waite J went on to say that in the tribunal system, where informality often prevails, part of the price necessarily paid for informality is that misadventures occur.

I fear that in this case such a misadventure did occur. Hackney should have sought to amend its notice of appearance to make clear that its case was one of fraud, and that should have been done well before the Tribunal hearing and not left to emerge for the first time in cross-examination. I also agree with Hooper J that there has been a failure to comply with the well-known requirements set out in the Burchell case as to what an employer must do if it is to dismiss an employee on the ground of misconduct. It seems to me that while the employer can be accepted to have believed in the guilt of the employee in this case, the second and third of the requirements of Burchell, that the employer had reasonable grounds for belief and that the employer had carried out as much investigation into the matter as was reasonable in all the circumstances of the case, were not complied with. Although it would have been a hypothetical question for the Tribunal to consider, there is no indication that it did properly consider those tests. In particular, it seems to me plain that obvious questions which should have been asked by Hackney were not asked. It is to my mind astonishing that as part of her investigation Ms Caprice did not ask Mrs Damarola what was the name of the solicitor in Bhardwaj & Co who advised her to make a claim to Hackney and whether that solicitor knew that Mrs Daramola's sons were not brain-damaged. As those questions were not asked, there is no reason to think that they would have been asked if the disciplinary process had been completed.

Accordingly, for these, as well as the reasons given by my Lord, I too would allow this appeal.