Appeal Nos.UKEAT/0672/03/MAA
                 & UKEAT/0673/03/MAA

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 20 November 2003

Before
HIS HONOUR JUDGE PETER CLARK
MR D J HODGKINS CB
MR S M SPRINGER MBE

1) MRS P MACK 2) MR C WATERMAN	APPELLANTS

1) MR M ALLEN 2) LIGHT SOUND IMAGE LTD	RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR I WILSON
Solicitor
Messrs Dean Wilson Laing
Solicitors
96 Church Street
Brighton
East Sussex
BN1 1UJ	
For the 1st Respondent	MR M PORTER
(Of Counsel)
Instructed by:
Messrs Asb Law 
Solicitors
108 High Street
Crawley
West Sussex
RH10 1AS	

JUDGE PETER CLARK

1.	By an Originating Application dated 14 June 2002 presented to the London South Employment Tribunal the Applicant, Mr Allen, complained of unfair constructive dismissal, wrongful dismissal and unlawful deductions from wages.  He named as sole Respondent and his employer Light Sound Image Ltd (the Company) by whom he was employed as director from 1 September 2000 until his summary dismissal by way of resignation on 5 June 2002.

2.	The nature of his case, set out in particulars attached to the application, was that the Company’s secretary Mrs Mack, had gradually reduced his role in the Company and later indicated that he would not receive his salary for April 2002, nor payment whilst on holiday.  He resigned by letter dated 5 June, contending that in the circumstances he was constructively dismissed both unfairly and wrongfully at common law.  He further claimed wages for the months of April and May 2002.

3.	By its Notice of Appearance dated 8 July 2002 and signed by Mrs Mack the Company resisted the claims, contending that the Applicant had misconducted himself and had agreed to leave the Company without payment of outstanding salary.

4.	The matter came before an Employment Tribunal chaired by Mr N A Halton on 30 September 2002.  On that occasion the Applicant appeared in person; the Company was not present or represented.  An application was made by the Applicant for the Notice of Appearance to be struck out under Rule 15(2)(c) or (d) of the Employment Tribunal Rules of Procedure 2001.  The Employment Tribunal declined to strike out the Notice of Appearance but instead decided to hear the application under Rule 11(3) and to dispose of it in the absence of the Respondent, taking into account the contents of the Notice of Appearance and any written representations by the Respondent.

5.	By a decision with summary reasons promulgated in writing on 18 October 2002 the Employment Tribunal upheld the Applicant’s claims.  They found that as well as being a founding shareholder and director of the Company the Applicant was also an employee.  They accepted his evidence that he had not been paid his salary since 1 April 2002.  That was a fundamental breach of the contract entitling him to treat himself as constructively dismissed on 5 June.  That dismissal was both unfair and wrongful.  They assessed compensation for unfair dismissal in the total sum of £6,033.19; for wrongful dismissal in the sum of £5,912.14 (taking care to avoid double recovery) and in respect of unpaid wages £5,784.61.  A total award of £17,729.94.

6.	Thus far the story is unexceptional.  That award was made against the Respondent Company, his employer.

7.	However, matters did not end there.  It is clear from paragraphs 22-26 of the summary reasons, later expanded in the Employment Tribunal’s Extended Reasons promulgated on 10 December 2002, that the Employment Tribunal took a dim view of the behaviour of the Applicant’s fellow company officers, Mrs Mack and Mr Waterman, his initial Co-Director.  They formed the view, based on the evidence which they heard from the Applicant only and accepted that Mrs Mack and Mr Waterman had taken concerted action to force the Applicant out of the Company, paying scant heed to the formal structure of the Company and to the parties respective rights and obligations.

8.	In these circumstances the Employment Tribunal took what they describe as the unusual course of making the award against not only the Company but also against the 2 individuals, Mrs Mack and Mr Waterman, all 3 “parties” being jointly and severally liable to the Applicant. 

9.	Although described as parties, in fact Mrs Mack and Mr Waterman had not been joined as Respondents in the proceedings prior to the 30 September hearing.  That they had not, in these circumstances attended the hearing did not apparently trouble the Employment Tribunal.  At paragraph 18 of their Extended Reasons, following on from paragraph 25 of their summary reasons, they said:

“18.	  The Tribunal notes that each Mrs Mack and Mr Waterman (sic) has had the opportunity to attend the hearing in their respective positions (or in the case of Mrs Mack her purported position) within the corporate organisation.  It was or must reasonably have been absolutely clear to each that the question would arise as to whether or not their respective actions and omissions took them outside the corporate organisation.  They were thus given the opportunity to respond individually to the Applicant’s complaints and to challenge his evidence.  This they failed to take up.”
 
10.	Having had sight of the Employment Tribunal’s original decision dated 18 October Mrs Mack and Mr Waterman consulted solicitors.  As a result Mr Wilson (a) applied on their behalf for them to be joined as Respondents to the Employment Tribunal proceedings; an order to that effect was made by Mr Halton on 10 December 2002 and (b) served Notice of Appeal to the Employment Appeal Tribunal against the Employment Tribunal’s decision with Extended Reasons on 20 December 2002.  (PA/0149/03/MAA; now EAT/0672/03).

11.	The appeal was considered on paper by His Honour Judge Ansell who directed, on 14 February 2003, that the Appellants have liberty to apply to the Employment Tribunal for a review of its decision.  Consequently on 21 February the Appellant’s solicitors made application for review.  The matter was listed for hearing before Mr Halton’s Employment Tribunal on 25 June.  On that occasion the Applicant was represented by Counsel, Mr Porter; the Appellants by Mr Wilson and the Company again did not appear and was not represented.

12.	The Employment Tribunal decided to hold a review and having done so confirmed their original decision.  In a decision with Extended Reasons promulgated on 11 August 2003 (the review decision) the Employment Tribunal noted that the Appellants did not challenge the findings of fact made by the Employment Tribunal in paragraphs 14-19 of their Extended Reasons for the original decision.  On those facts the Employment Tribunal characterized the conduct of the Appellants as amounting to a concerted and illegitimate manipulation and use of the Company structure for the principal purpose of undermining and removing the Applicant and of gaining control for themselves.

13.	On the question of law raised by Mr Wilson on behalf of the Appellants, that there was no warrant under the Employment Rights Act 1996 (ERA), Section 112(4) to hold responsible for unfair dismissal anyone other than the employer; in particular directors or members of a corporate employer could not be held liable; further, on general Company Law principles, there had been no finding of fraud and no suggestion that the Company had been formed to defeat the Applicants’ rights, the Employment Tribunal upheld a submission by Mr Porter that it was open to the Employment Tribunal to make orders against the Appellants as well as the Company.  They concluded that limiting liability to the corporate employer would be an unduly restrictive interpretation of Section 112(4) ERA; on the facts as found the Appellants could not hide behind the corporate structure which they themselves had breached.

14.	Following the review decision the Appellants entered a further Notice of Appeal on 14 August 2003, implicitly against the review decision (PA/1158/03/MAA; now EAT/0673/03).  On 18 August Judge Ansell directed that both appeals proceed to this full appeal hearing with both parties present.  The Company continues to take no part in the proceedings.

The causes of action
15.	It is useful to remind ourselves at this stage of the statutory basis for the claims brought by Mr Allen and upheld by the Employment Tribunal.

(1)	Unfair Dismissal
By Section 94(1) ERA an employee, having, as here, completed 1 year’s qualifying service (Section 108(1)) has the right not to be unfairly dismissed by his employer.  A complaint may be presented to an Employment Tribunal against an employer by any person that he was unfairly dismissed by the employer (Section 111(1)).  Where the Employment Tribunal finds, on a complaint under Section 111, that the grounds of the complaint are well-founded the tribunal shall, where the remedy sought is compensation as opposed to reinstatement or re-engagement, as in this case, make an award of compensation to be paid by the employer to the employee (Section 112(4)).

(2)	Wrongful dismissal
16.	Wrong dismissal is the Common Law action for damages arising out of dismissal without proper notice or pay in lieu.  It is a claim for breach of contract.

17.	Jurisdiction to consider claims for wrongful dismissal was finally granted to Employment Tribunals (then Industrial Tribunals) by the Employment Tribunals Extension of Jurisdiction (England and Wales) Order 1994.  (The 1994 Order).

18.	By Article 3, Proceedings may be brought before an Employment Tribunal in respect of a claim of an employee for the recovery of damages … if

(a)	the claim is one to which Section 131(2) of the 1978 Act (Employment Protection Consolidation Act; now Section 3(2) of the Employment Tribunals Act 1996) applies. 

Section 3(2) ETA provides that the section applies to a claim for damages for breach of a contract of employment.

20.	We pause to observe that a claim for damages for breach of contract must be made by one party to the contract against the other party or parties.  In the case of an employment contract the parties are the employer and employee.

(3)	Unlawful deductions from wages
The position is now covered by Part II of the ERA (formerly the Wages Act 1986).

21.	By Section 13(1) unauthorised deductions from wages are unlawful.  On a complaint of unlawful deductions made under Section 23(1)(a), if the Employment Tribunal finds the complaint well-founded it shall make a declaration to that effect and shall order the employer to pay to the worker the amount of any deduction made in contravention of Section 13.

23.	We are not concerned in this case within the extended meaning of worker under Section 230(3) ERA.  It is enough that the Applicant was an employee.  However, we note the definition of employer under Section 230(4).  ‘Employer’, in relation to an employee or worker, means the person by whom the employee or worker is (or where the employment has ceased, was) employed.

The Appeals
24.	In these appeals Mr Wilson raises essentially 2 issues, which may be shortly described as the procedural and the substantive issues.

25.	We shall deal first with the substantive issue.

26.	The question here is whether the Employment Tribunal had power to make separate awards in respect of any or all of the successful claims brought by the Applicant against the Appellants as well as the Company.  Mr Wilson submits that it did not.

27.	In a spirited defence of the Employment Tribunal’s approach Mr Porter acknowledges that it is a novel one, he could point to no case in the books, nor are we aware of one, in which Directors had been held jointly and severally liable with the corporate employer.  That observation applies equally to cases within this jurisdiction and Common Law cases of wrongful dismissal.  However, he submits that because it is novel does not mean that it is wrong.

28.	He relies on a passage, not necessary we think for the decision in that case, from the speech of Lord Buckmaster in Rainham Chemical Works Limited v Belvedere Fish Guano Company Limited [1921] 2AC 465, 476, where His Lordship said:

“If the company was really trading independently on its own account, the fact that it was directed by Messrs Feldman and Partridge (directors of the Company) would not render them responsible for its tortious acts unless, indeed, they were acts expressly directed by them.  If a company is formed for the express purpose of doing a wrongful act or if, when formed, those in control expressly direct that a wrongful thing be done, the individuals as well as the company are responsible for the consequences, but there is no evidence in the present case to establish liability under either of these heads.”

29.	Atkin LJ, as he then was, referred to that passage in Performing Rights Society Ltd v Ciryl Theatrical Syndicate [1924] KB1, 14-15 concluding:

“If the directors themselves directed or procured the commission of the act they would be liable in whatever sense they did so, whether expressly or impliedly.”

30.	On the facts the Managing Director in question in that case was found not personally liable.

31.	In response, Mr Wilson draws our attention to the general statement of the law as to directors’ liability in Halsbury Laws of England Volume 7(1) paragraph 616.  Creditors of the company have no remedy for breach of contract by the Company against directors, save in cases whereby under the Company’s Memorandum the directors’ liability is unlimited; nor are they liable in negligence save where particular circumstances exist, eg, by way of agreement or a contractual guarantee.

32.	In our judgment the proposition advanced by Mr Wilson is correct.  It was not open to the Employment Tribunal to find these Appellants jointly and severally liable together with the corporate employer, it not being found that they were the Applicant’s employer.  In the case of the ERA claims it is absolutely plain from the provisions earlier cited, that the complainants’ redress is against the employer only.  In the breach of contract claim, justiciable in the Employment Tribunal by virtue of Section 3(2) ETA and Article 3 of the 1994 Order, the claim is in contract; the parties to the contract of employment were the Applicant and the corporate employer, his claim is against that employer only.

33.	We find further support for this conclusion in the contrasting provisions of the discrimination legislation eg the Race Relations Act 1976.  By Sections 33 and 54 of the Act, a remedy is available against a person who aids and abets the principal discriminator.  Thus a corporate employer will, subject to the statutory defence, be vicariously liable for the discriminatory acts of its servants or agents.  Those individuals will also be separately and jointly liable as aidors and abettors.  It is, we think, not insignificant that no similar provisions have been enacted in the ERA to deal with the wider liability of directors, or employees of corporate employers found to be in breach of its provisions.

34.	That disposes of the appeal substantively.  It must be allowed and the orders made against these 2 Appellants must be set aside.

35.	In these circumstances the procedural point, as to whether the review hearing cured any procedural defect in the original decision, finding liability on the part of non-parties, is, as both advocates agree, moot.  Accordingly it is unnecessary for us to adjudicate upon it.