J U D G M E N T

Monday, 1 November 2004

1. LORD JUSTICE MUMMERY: I will ask Maurice Kay LJ to give the first judgment.

2. LORD JUSTICE MAURICE KAY: Frederick Wynn Parry was employed by National Westminster Bank Plc for a total of 33 years before he was dismissed on 6 June 2002. At the time of his dismissal he was the manager of the University of Birmingham branch. On 7 May 2003 an Employment Tribunal held that he had been unfairly dismissed, and adjourned the issue of remedies to a subsequent hearing. In the course of the remedies hearing, the bank submitted a document to the Tribunal making it clear that if the Tribunal were to order reinstatement the bank would not comply with the order. Nevertheless, the Tribunal concluded that reinstatement was practicable. In a reserved decision following the remedies hearing, it ordered reinstatement, but added:

"Upon [the Bank] confirming that it will not reinstate [Mr Parry] the tribunal makes an award of compensation including an additional award."

It quantified the total compensation in the sum of £94,583.72.

3. As anticipated, the Bank did not reinstate Mr Parry and that sum became payable under the order. The sum of £94,583.72 contained four elements: (1) a basic award of £6,375; (2) a compensatory award of £53,500 (that being the statutory cap at the material time); (3) an "additional" award of £13,520 under section 117 of the Employment Rights Act 1996; and (4) £21,188.72 representing arrears of pay and benefits from 6 June 2002 to 1 September 2003, that period extending from the date of dismissal until the point in the proceedings when the Bank made it clear that it would not comply with an order for reinstatement.

4. Mr Parry appealed to the Employment Appeal Tribunal, his complaint being that the total award did not fully compensate him for his actual losses. His appeal failed because of the statutory cap. He has been refused permission to pursue that point in this court.

5. The Bank cross-appealed on the ground that the fourth element of the compensation ought also to have been subjected to the statutory cap and thereby wiped out. The Employment Appeal Tribunal (His Honour Judge JR Reid QC, Mr JC Shrigley and Miss B Switzer) allowed the Bank's appeal on that point. Mr Parry has since been given permission to appeal against that decision to this court. Thus, the present appeal raises a single issue. Is the fourth element ring-fenced so as not to be caught by the statutory cap? It is necessary to begin by setting out some of the statutory provisions.

6. An order for reinstatement is the child of sections 113 and 114 of the 1996 Act. Section 114(2) provides:

"On making an order for reinstatement the tribunal shall specify -

(a) any amount payable by the employer in respect of any benefit which the complainant might reasonably be expected to have had but for the dismissal (including arrears of pay) for the period between the date of termination of employment and the date of reinstatement."

Plainly that envisages a sum which will be payable whether or not the order for reinstatement is obeyed. It is that sum which was quantified by the Employment Tribunal at £21,188.72 in the present case and is the point in issue on this appeal.

7. Section 117(1) and (2) provide for an award of compensation where an order for reinstatement is made and the complainant is reinstated, but the terms of the order are not fully complied with. The amount compensates for the shortfall. On the other hand, if an order for reinstatement is not complied with at all, the tribunal must make an award of compensation for unfair dismissal, calculated in accordance with section 118, and an additional award of compensation of between six months and one year's pay. Those provisions are to be found in section 117(3)(a) and (b).

8. The provisions for the calculation of compensation are to be found in the ensuing sections. Section 118 provides that where a tribunal makes an award of compensation for unfair dismissal under, amongst other things, section 117(3)(a), the award shall consist of a basic award and a compensatory award. Compensatory awards are dealt with under section 123, which provides that, subject to the provisions of that section and some other provisions:

"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."

9. The crucial provision is section 124, the material parts of which are in these terms:

"(1) The amount of -

(a) any compensation awarded to a person under section 117(1) and (2), or

(b) a compensatory award to a person calculated in accordance with section 123

shall not exceed [£53,500] ...

(3) In the case of compensation awarded to a person under section 117(1) and (2), the limit imposed by this section may be exceeded to the extent necessary to enable the award fully to reflect the amount specified as payable under section 114(2)(a) ... or section 115(2)(d).

(4) Where -

(a) a compensatory award is an award under paragraph (a) of subsection (3) of section 117, and

(b) an additional award falls to be made under paragraph (b) of that subsection,

the limit imposed by this section on the compensatory award may be exceeded to the extent necessary to enable the aggregate of the compensatory and additional awards fully to reflect the amount specified as payable under section 114(2)(a) ..."

The decision of the Employment Tribunal

10. The hearing before the Employment Tribunal took an unusual turn. It began on 31 July but was adjourned part-heard until 1 September. Although the Bank had been represented by its solicitor on 31 July, she did not attend on 1 September, but sent a letter setting out the Bank's case. In effect, and subject to some uncontroversial fine-tuning, it conceded the first three of the four items of compensation (to which I have referred) thus accepting that the additional award under section 117(3)(b) was not caught by the statutory cap by reason of section 124(4). The letter made no express reference to any amount which might be payable under section 114(2)(a), but it did assert that the concession which it was making resulted in a total figure "equal to the maximum amount that the Tribunal can award."

11. The terms of section 114(2)(a) are such ("shall specify") that the Tribunal was duty-bound to quantify the amount payable by the employer under that provision. The Tribunal was therefore correct to do so. Perhaps because it was no longer receiving assistance from the Bank's solicitor at the resumed hearing it did not expressly address the argument which later succeeded in the Employment Appeal Tribunal and is now the issue on this appeal. Plainly, it proceeded on the basis that there was no statutory inhibition in the way of the sum under section 114(2)(a) taking the total award above the statutory cap provided by section 24.

The decision of the Employment Appeal Tribunal

12. The Employment Appeal Tribunal allowed the Bank's appeal. In so doing, it adopted the reasoning of an earlier Employment Appeal Tribunal decision in Selfridges Ltd v Malek[1998] ICR 268, which had in turn been followed by the Employment Appeal Tribunal in Midland Mainline v CM Wade, 4 November 2002 (unreported). It is the Selfridges judgment which considered the issue in detail. Giving the judgment of the Employment Appeal Tribunal on that occasion, His Honour Judge Peter Clark said at paragraphs 37-42:

"In our judgment, the construction contended for by the employer is correct for the following reasons:

(1) The s.114 loss is payable on reinstatement by the employer pursuant to the tribunal's order.

(2) If the order is not complied with, the applicant is entitled under s.117(3) to a compensatory award calculated in accordance with ss.118-127, together with an additional award in accordance with s.117(5)(b) and a basic award.

(3) By s.123, the gross compensatory award, in this case, will include the s.114 loss and the future loss calculated by the tribunal, as well as the loss of statutory rights.

(4) However, that compensatory award is limited by section 124. It is not limited to £11,300.00 [the then statutory cap] by section 124(1) because of the overriding provisions of section 124(4).

(5) Section 124(4) provides that where, as here, the compensatory award is made under section 117(3)(a), the limit under section 124(1) may be exceeded to the extent only of the s.114 loss less the additional award made under s.117(3)(b). That is the calculation advanced by the employer.

(6) This tribunal fell into error by treating the s.114 loss as a free-standing head to be awarded whether or not the order for reinstatement was complied with. It is not. It is payable under a reinstatement order which is complied with. In the event of non-compliance, it forms part of the compensatory award made under s.117(3(a). That award, calculated in accordance with s.123, will include the s.114 loss and any future loss post the date ordered for reinstatement. However, the gross loss so calculated is limited to the maximum provided for in s.124(4), which in this case cannot exceed the s.114 loss less the additional award. To that compensatory award, so limited, the additional award and basic award must be added to arrive at the total compensation payable."

13. In Midland Mainline, His Honour Judge McMullen QC described that as "the correct approach". He added at paragraph 35:

"The difficulty presented by the legislation and the statutory cap has now been largely ameliorated by the removal of a relatively low cap, and its replacement by a cap of £52,600 [which has since been further increased]. That would go a very long way to effecting justice for people who suffer substantial losses. The effect of section 124(4) was to correct the injustice recognised by Lord Donaldson MR in his judgment in O'Laoire v Jackel International Ltd [1990] ICR 197. But that provision, as Judge Clark makes clear, deals only with recognition of a shortfall in the award of money to an employee up to the date of the putative re-engagement, so that in that situation, it is permissible to aggregate the compensatory and additional award, and then to consider whether the cap ... should be exceeded."

14. In the present case, His Honour Judge Reid said that these two previous decisions "appear to us to be correct".

Discussion

15. This is the first occasion when this issue has been considered in the Court of Appeal. In presenting his own case, Mr Parry has on occasion sought to address or re-open matters which are not before this court on appeal. His main submission on the issue before us is that it is unfair and inappropriate for the Act to be construed in such a way that deprives a dismissed employee of some of his proven losses. He therefore invites us to adopt a bold construction.

16. I have no difficulty in sympathising with a dismissed employee (who will usually be a relatively high-earner) who is unable to recover compensation that would otherwise be due because of the operation of a statutory cap. There is a degree of arbitrariness in such a cap, and anyone against whom it operates is bound to see it as unfair. However, that does not enable us to go beyond the words of the statute if their meaning is clear.

17. At one point it seemed to me that the words of section 124(4) might work in favour of Mr Parry. I was concerned as to whether a compensatory award could be said "fully to reflect" an amount specified under section 114(2) if, in effect, the amount specified under 114(2) was being lost as a result of the statutory cap. This led me to pose the questions: (1) What if the amount specified under section 114(2) in itself exceeds the statutory cap? (2) How can the compensatory award "fully reflect" it if the cap applies?

18. I am now satisfied by the answers given to these questions by Mr Napier on behalf of the Bank. If the figure under section 114(2) in itself exceeds the statutory cap, then the statutory cap will be exceeded so as to permit "full reflection", albeit that any other elements of the compensatory award will be irrecoverable because of the statutory cap. I also accept Mr Napier's argument that section 124 specifically and comprehensively provides for situations in which the statutory cap is disapplied. First, there are the public interest exceptions set out in section 124(1)(a) (which refer to health and safety and trade union factors and the like); secondly, there is the additional award against a recalcitrant employer under section 117(3)(d); thirdly, there is the amount under section 114(2), which is itself in excess of the statutory cap.

19. Parliament has created these exceptions in the interest of fairness and policy. If it had intended that a figure under section 114(2), which by itself does not exceed the cap, should be disregarded when applying the cap, it would surely have said so. It follows that I am not persuaded that the previous Employment Appeal Tribunal decisions, which underlay the judgment of the Employment Appeal Tribunal in the present case, contained any legal error. It further follows that the error in this case was that of the Employment Tribunal which, in effect, ring-fenced the sum under section 114(2). The Employment Appeal Tribunal correctly identified that error.

20. Accordingly, I would dismiss Mr Parry's appeal.

21. LORD JUSTICE GAGE: I agree.

22. LORD JUSTICE MUMMERY: I agree.

(Appeal dismissed; no order for costs).