Appeal No.	 EAT/18/03/MAA

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	                   At the Tribunal
	               On 6 March 2003
Judgment delivered on 3 April 2003

Before
HIS HONOUR JUDGE ANSELL
MRS D M PALMER
MR G H WRIGHT MBE

MS L BARTON	APPELLANT

INVESTEC HENDERSON CROSTHWAITE SECURITIES LIMITED	RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised 15/4/03	

	APPEARANCES

For the Appellant	MR ROBIN ALLEN
(of Counsel) 
MR DAVID READE
(of Counsel)
Instructed by:
Messrs Bird & Bird
Solicitors
90 Fetter Lane
London EC4A IJP

For the Respondent	MR ROY LEMON
(of Counsel)
Instructed by:
Messrs Hammonds Suddards Edge
Solicitors
7 Devonshire Square
Cutlers Gardens
London EC2M 4YJ	

HIS HONOUR JUDGE ANSELL

1	This is an appeal from a Decision of an Employment Tribunal sitting at London Central who, following a hearing held in June 2002, by a Reserved Decision promulgated on 30 September 2002, unanimously held that:
(1) the Respondent had proved that the variation in salary and LTIPs between the Appellant and her comparator, Mr Matthew Horsman, was genuinely due to a material factor which was not the difference of sex.
(2) Difference in treatment between the Appellant and Matthew Horsman in relation to the grant of share options was due to a material factor which was not the difference of sex for the purposes of the Equal Pay Act or, if the share options were not regulated by the contract of employment, did not amount to less favourable treatment of the Applicant on the grounds of her sex.  
(3) The Respondents did not treat the Appellant less favourably on the grounds of sex in awarding bonuses.

2	This case raises important issues both as regards the burden of proof in sex discrimination cases, following the insertion of section 63A into the Sex Discrimination Act in October 2001, and also with regard to what are termed the “opaque pay structures” in City of London financial institutions particularly those structures which allow individual managers considerable discretion, which the Appellant contends, runs contrary to the whole ethos of the equal pay and anti-discrimination legislation over the last thirty years.  

3	The Appellant, aged fifty two at the time of the hearing, has twenty three years’ experience in the fund management and broking investment banking fields, and in particular, twenty years as a respected media expert.  She joined the Respondents as an analyst in June 1990, and by the late 1990s she had become their Research Director.  She was particularly successful in the old style of backroom analysis, but said to be less happy with the more modern role of the analyst involving a high profile image for both herself and her employer.  Over the years, she had also involved herself in stock sales for her clients, although, again, the modern trend was towards concentrating sales with specialist salesmen. The Tribunal found that the Appellant’s way of doing her own sales was not appreciated or encouraged by senior management.  The Tribunal’s conclusion was, however, that the Appellant had a genuinely high profile in a limited specialist media context, but less so in the developing broader media world of broadcasting and the internet.  

4	The Respondents employ a hundred and fifty staff, comprising forty in credit finance, forty in sales, forty in research and the rest in support functions.  They are a subsidiary of a larger organisation, Investec Bank UK, who are themselves linked to Guinness Mahon and the Bank of Yokohama.  Their only witness before the Tribunal was Perry Crosthwaite, the Chairman, and the person who the Tribunal found was very much the key figure in the setting of salaries and other benefits and bonuses.  The Tribunal found that that the four elements to the final package of the employees concerned in these events comprised the basic salary, a bonus awarded at the end of the financial year, share options and LTIPs.  LTIPs are amounts awarded but paid over a period of time between two to four years, whose principal aim is to keep valuable employees within the organisation.  

5	Matthew Horsman joined the Respondents on 1 January 1997 as a Research Director, having previously been a respected financial journalist with The Independent newspaper.  The Appellant had been actively involved in his recruitment.  In the years after his arrival, the Appellant and Mr Horsman pooled their bonuses, although they were not necessarily shared.  By June or July 1999 the Tribunal found that Mr Crosthwaite had been made aware that there were attempts being made by other organisations to poach Mr Horsman.  He was desperate not to lose him as he was regarded as one of the three key members of staff within the organisation.  At that time, both he and the Appellant were on a basic salary of £105,000, and a decision was made to increase Mr Horsman’s salary to £150,000 and to award him an LTIP of £75,000.  Further, in December 1999, he was granted 12,000 share options, whereas the Appellant only received 7,500.  It is these three aspects of pay that give rise to the claim under the Equal Pay Act, although, as we have already indicated, the Tribunal were unsure as to whether or not share options fell within the ambit of the Equal Pay Act.  

6	By early 2001, the Appellant had been given information in relation to the possible disparity of salaries between her and Mr Horsman; that information did not extend to the disparity as regards share options or LTIPs.  As a result of a complaint to her employers, they increased her salary from April 2001 to £150,000, the same as Mr Horsman, but said nothing to her about the other aspects of salary.  She only found out about those matters much later in the year, once proceedings had been commenced.  The other main issue in the case relates to the setting of bonuses.  The Tribunal held that after 1998 bonuses were less closely based on the revenue produced by the particular employee.  The determination as to what factors were taken into account with regard to bonus setting after that date, and the nature of the process involved are very much at the heart of this case.  

7	Michael Savage joined the media term as a specialist media salesperson in June 2000, having fourteen years’ experience in the City and trained both as a Research Analyst and then developed specialist sales skills.  The Tribunal found that the Respondents saw him as a very valuable acquisition, combining sales, analytical organisational and client-handling skills, and to secure him they offered him a salary of £150,000 and an LTIP of £150,000 per annum for two years, and a guaranteed minimum bonus of £50,000, although the LTIP element in the remuneration did involve some compensation for benefits that he had lost from his previous employment.  He was not the comparator for equal pay purposes, since the Tribunal held, and it is not disputed, that he was not involved in like work with the Appellant.  The Tribunal also held, although the issue had been a matter of some argument within the Tribunal hearing, that Mr Savage was put in charge of the team at the end of 2000.  They found that the Appellant had received this news badly and became increasingly non-cooperative, declining to contribute to a team budget and compiling her own.  

8	The Sex Discrimination Act claim arises from the award of the 2001 budget in the spring of that year.  The Tribunal found that in the Respondents’ bonus setting was:
“ a rough and ready process, not a precise science.  It was not a paper based exercise.”
They also spoke of an:
“underlying philosophy of avoiding precision and written material to prevent giving individuals the material on which they could challenge their bonuses.”

The bonuses awarded in the spring of 2001 were £1 million to Mr Horsman, £600,000 to Mr Savage and £300,000 to the Appellant.  It is said that she had generated revenue of £3.2 million, Mr Savage £5.3 million and Mr Horsman £10 million.  There was considerable cross-examination in the Tribunal as to respects in which the Appellant’s figures had been undervalued and Mr Savage’s overvalued.  The Appellant’s complaint was in relation to the differential between her bonus and that of Michael Savage, particularly as he had been in the organisation for only ten months of the bonus year.   

9	The Tribunal found that comparing the cases of the Appellant and Matthew Horsman, the genuine material factor defence in section 1(3) of the Equal Pay Act 1970 was made out.  They referred in particular to the Respondents’ concern about the threat of Mr Horsman being head-hunted, their desire to keep him on a par with the other two key players in the organisation, and they went on to find that:
“all the increases were conscientious, unscientific efforts to secure Matthew Horsman for the future of the business by putting his benefits at the top of the range sustainable within the Respondent organisation: putting his benefits in line with those of other key players established proportionality.”

10	With regard to the bonus issue, the Tribunal held that after 1998, the approach to bonuses was “multi-factorial” and not simply driven by revenues.  They referred to public profile, client management and team participation as being relevant considerations.  In paragraph 81 of their Decision, the Tribunal had said the following.  
“The Tribunal also had questions in relation to the history of the litigation in this case, the avoidance of disclosure of information and the changing of the Respondent’s case over time.  More generally, the Tribunal were also concerned about the backdrop of an unwritten, non-transparent bonus policy in an organisation, without an appraisal system and without an equal opportunities policy.  It took into account that this was a culture with a significant preponderance of men where the Applicant was the most senior female.”

Later, in paragraph 88, they said this:
“The Tribunal took as part of their industrial knowledge that it is a vital component of the City bonus culture that bonuses are discretionary, scheme rules are unwritten and individuals’ bonuses are not revealed.  They were satisfied that the cultural reason for this is that invidious comparisons would become inevitable.  If such comparisons were generally possible the bonus system would collapse.  The Tribunal accepted the Respondent’s unwillingness to disclose bonuses until compelled by law to do so as part of that culture, particularly bearing in mind that the Applicant was until January 2002 an employee still in employment, seeking bonus details about fellow employees.  They found Perry Crosthwaite’s unwillingness to be open on the subject of bonus figures consistent with that culture.”
Yet they concluded in paragraph 90 that:
“….they did not conclude that the differentials were consciously or subconsciously motivated or permeated by discrimination.”

11	The Appellant contends that this case raises important issues for this Court to consider.  Firstly, we are invited to look at the issue of the burden of proof and sex discrimination claims in the light of the changes brought about by section 63A of the Sex Discrimination Act 1975.  Next, we are asked to consider the proper approach to a failure to comply with the questionnaire procedure and/or the code of practice.  Then we are asked to consider effectively whether the Court should condone, as the Tribunal appeared to do, an “opaque” procedure for bonus setting, involving lack of transparency and objectivity which, according to the Tribunal’s views, appears to be prevalent in some financial institutions.  Indeed, Mr Allen QC, on behalf of the Appellant, with his usual clear and erudite manner, called this case a “paradigm example” of how inequality occurs in a system.  

Statutory framework
12	Section 1 of the Equal Pay Act 1970 which did not come into operation until 29 December 1975 provided that:
“Requirement of equal treatment for men and women in same employment
(1) If the terms of a contract under which a woman is employed at an establishment in Great Britain do not include (directly or by reference to a collective agreement or otherwise) an equality clause they shall be deemed to include one.
(2) An equality clause is a provision which relates to terms (whether concerned with pay or not) of a contract under which a woman is employed (the “woman’s contract”), and has the effect that -
(a) where the woman is employed on like work with a man in the same employment -
(i) if (apart from the equality clause) any term of the woman’s contract is or becomes less favourable to the woman than a term of a similar kind in the contract under which that man is employed, that term of the woman’s contract shall be treated as so modified as not to be less favourable. ….
(3) An equality clause shall not operate in relation to a variation between the woman’s contract and the man’s contract if the employer proves that the variation is generally due to a material factor which is not the difference of sex and that factor -
(a) in the case of an equality clause falling within subsection (2)(a) or (b) above, must be a material difference between the woman’s case and the man’s; ……

(4) A woman is to be regarded as employed on like work with men if, but only if, her work and theirs is of the same or a broadly similar nature, and the differences (if any) between the things she does and the things they do are not of practical importance in relation to terms and conditions of employment; and accordingly in comparing her work with theirs regard shall be had to the frequency or otherwise with which any such differences occur in practice as well as to the nature and extent of the differences.”

Section 1 of the Sex Discrimination Act 1975 provides that:
“(2) In any circumstances relevant for the purposes of a provision to which this subsection applies, a person discriminates against a woman if -
	(a) on the ground of her sex, he treats her less favourably than he treats or would treat a man”
Section 5(3) provides that:
“A comparison of the cases of persons of different sex or marital status under [section  1(2) ….must be such that the relevant circumstances in the one case are the same, or not materially different in the other.”

13	The said section 1(2)(a) of the Act applies to discrimination in the employment field and by section 6(2):
“It is unlawful for a person, in the case of a woman employed by him at an establishment in Great Britain, to discriminate against her -
(b) by dismissing her, or subjecting her to any detriment.
(6) Subsection (2) does not apply to benefits consisting of the payment of money when the provision of those benefits is regulated by the woman’s contract of employment”
Section 63A provides:
“(1) This section applies to any complaint presented under section 63 to an employment tribunal.
(2) Where, on the hearing of the complaint, the complainant proves facts from which the tribunal could, apart from this section, conclude in the absence of an adequate explanation that the respondent -
(a) has committed an act of discrimination against the complainant which is unlawful by virtue of part 2, …
the tribunal shall uphold the complaint unless the respondent proves that he did not commit, or, as the case may be, is not to be treated as having committed, that act.”

14	Section 56A provides for the procedure for the Equal Opportunities Commission to issue codes of practice for certain purposes including the elimination of discrimination in the field of employment and the promotion of equality of opportunity in that field between men and women.  These codes, once prepared by the Commission, have to obtain approval of the relevant Secretary of State and both Houses of Parliament.  Section 56A(1) provides that:
“A failure on the part of any person to observe any provision of a code of practice shall not of itself render him liable to any proceedings; but in any proceedings under this Act [or the Equal Pay Act 1970] before an [employment tribunal] any code of practice issued under this section shall be admissible in evidence, and if any provision of such a code appears to the tribunal to be relevant to any question arising in the proceedings it shall be taken into account in determining that question. “

15	The Equal Opportunities Commission Code of Practice on Equal Pay was issued on 26 March 1997 and was brought into force on that date.  
16	Under the heading “Transparency” the code provided as follows:
“19,  It is important that the pay system is clear and easy to understand; this has become known as transparency.  A transparent pay system is one where employees understand not only their rate of pay but also the components of their individual pay packets and how each component contributes to total earnings in any pay period.  Transparency is an advantage to the employer as it will avoid uncertainty and perceptions of unfairness and reduce the possibility of individual claims.  
20.  The ECJ has held that where the organisation concerned applies a system of pay which is wholly lacking in transparency and which appears to operate to the substantial disadvantage of one sex, then the onus is on the employer to show that the pay differential is not in fact discriminatory.  An employer should therefore ensure that any elements of a pay system which could contribute to pay differences between employees are readily understood and free of sex bias.”

Paragraphs 25 onwards in the Code set out a suggested review of pay systems for sex bias and in paragraph 29 bonuses were highlighted as an area of potential difficulty.  Finally, paragraph 39 provided as follows:

“It is good employment practice for employees to understand how their rate of pay is determined.  Information about priorities and proposed action could be communicated to employees as part of the process of informing them about how the pay systems affect them individually.  This will serve to assure employees that any sex bias in the payment system is being addressed.”

Section 74 of the Sex Discrimination Act 1975 set out a questionnaire procedure and allowed the Secretary of State to prescribe:

“(a) forms by which the person aggrieved may question the respondent on his reasons for doing any relevant act, or on any other matter which is or may be relevant; 
(b) forms by which the respondent may if he so wishes reply to any questions.”
Subsection (2) provides:
“Where the person aggrieved questions the respondent (whether in accordance with an order under subsection (1) or not) - 
(a) the question, and any reply by the respondent (whether in accordance with such an order or not) shall, subject to the following provisions of this section, be admissible as evidence in the proceedings;
(b) if it appears to the court or tribunal that the respondent deliberately, and without reasonable excuse, omitted to reply within a reasonable period or that his reply is evasive or equivocal, the court or tribunal may draw any inference from that fact that it considers it just and equitable to draw, including an inference that he committed an unlawful act.”

Proof of discrimination - burden of proof
17	The Courts have always acknowledged that it was rare for an applicant complaining of discrimination to have evidence of overtly discriminatory words or actions, therefore the affirmative evidence of discrimination will normally consist of inferences to be drawn from the primary facts.  Having established those inferences, a concept of a shifting burden began to be developed whereby the employer was then called upon to give an explanation so as to negative those inferences.  In Khanna -v-Ministry of Defence [1981] ICR 653 the Employment Appeal Tribunal (Mr Justice Browne-Wilkinson presiding) dealt with these evidential problems in the following way at 658F:

“In the future, we think industrial tribunals may find it easier to forget about the rather nebulous concept of ‘the shift in the evidential burden’ …..
In this case, the Industrial Tribunal would, we suspect, have found the case rather more straightforward if, looking at all the evidence as a whole, they had simply decided whether the complaint had been established.  No useful purpose is served by stopping to reach a conclusion on half the evidence.  The right course in this case was for the Industrial Tribunal to take into account the fact that direct evidence of discrimination was seldom going to be available and that, accordingly, in these cases the affirmative evidence of discrimination would normally consist of inferences to be drawn from the primary facts.  If the primary facts indicate that there has been discrimination of some kind, the employer is called upon to give an explanation and, failing clear and specific explanation being given by the employer to satisfaction of the Industrial Tribunal, an inference of unlawful discrimination from the primary facts will mean the complaint succeeds…….”.  

18	Later, in the same year in Chattopadhyay -v- Headmaster of Holloway School [1982] ICR 132 Mr Justice Browne-Wilkinson repeated the concept that he had outlined in Khanna at 137B:  

“It is for this reason the law has been established that if an applicant shows that he has been treated less favourably than others in circumstances which are consistent with that treatment being based on racial grounds, the industrial tribunal should draw an inference that such treatment was on racial grounds, unless the respondent could satisfy the industrial tribunal that there is an innocent explanation…….”

In two subsequent cases in the Court of Appeal May L J expressed a degree of dissatisfaction with the passages in Khanna see Morris -v London Iron and Steel Company Ltd [1987] ICR 855 and North West Thames Regional Health Authority -v- Noone [1988] ICR 813.  Eventually clarification was sought and obtained from the Court of Appeal in the case of King -v- GB China Centre [1992] ICR 516 and the frequently quoted passage of  Neill LJ at 528F:
“From these several authorities it is possible, I think, to extract the following principles and guidance. (1) It is for the applicant who complains of racial discrimination to make out his or her case.  Thus if the applicant does not prove the case on the balance of probabilities he or she will fail.  (2) It is important to bear in mind that it is unusual to find direct evidence or racial discrimination.  Few employers will be prepared to admit such discrimination even to themselves.  In some cases the discrimination will not be ill-intentioned but merely based on the assumption that “he or she would not have fitted in”.  (3) The outcome of the case will therefore usually depend on what inferences it is proper to draw from the primary facts found by the tribunal.  These inferences can include, in appropriate cases, any inferences that it is just and equitable to draw in accordance with section 65(2)(b) of the Act of 1976 from an evasive or equivocal reply to a questionnaire.  (4) Though there will be some cases where, for example, the non-selection of the applicant for a post or for promotion is clearly not on racial grounds a finding of discrimination and a finding of a difference in race will often point to the possibility of racial discrimination. In such circumstances the tribunal will look to the employer for an explanation.  If no explanation is then put forward or if the tribunal considers the explanation to be inadequate or unsatisfactory it will be legitimate for the tribunal to infer that the discrimination was on racial grounds.  This is not a matter of law but, as May LJ put it in North West Thames Regional Health Authority -v- Noone [1988] ICR 813, 822, “almost common sense”.  (5)  It is unnecessary and unhelpful to introduce the concept of a shifting evidential burden of proof.  At the conclusion of all the evidence the tribunal should make findings as to the primary facts and draw such inferences as they consider proper from those facts.  They should then reach a conclusion on the balance of probabilities, bearing in mind both the difficulties which face a person who complains of unlawful discrimination and the fact that it is for the complainant to prove his or her case.”

This passage was approved by the House of Lords in Glasgow City Council -v- Zafar [1988] ICR 120.

19	The importance of the Tribunal’s fact-finding role in these cases was emphasised in Anya -v- University of Oxford & Another [2001] ICR where Sedley L J at page 855F referred to the 
“ubiquitous need to make the findings of primary fact without which it is impossible to consider the drawing of relevant inferences.”

20	The European Community Treaty (Treaty of Rome) in Article 2 set out the need for the community to develop policies to promote “equality between men and women”.  The Community Charter of the Fundamental Social Rights of Workers (Social Charter) spoke in its preamble of the aims to combat discrimination on the grounds of sex and to implement equal pay for men and women for equal work.  Paragraph 16 provided as follows:
“Equal treatment for men and women must be assured.  Equal opportunities for men and women must be developed.  
To this end, action should be intensified wherever necessary to ensure the implementation of the principle of equality between men and women as regards in particular access to employment remuneration, working conditions, social protection, education, vocational training and career development.”  

Council Directive 97/80/EC of 15 December 1997 dealt with the burden of proof in cases of discrimination based on sex.  The preamble to the Directive provided as follows:
“(17) Whereas plaintiffs could be deprived of any effective means of enforcing the principle of equal treatment before the national courts if the effect of introducing evidence of an apparent discrimination were not to impose upon the respondent the burden of proving that his practice is not in fact discriminatory.”
(18) Whereas the Court of Justice of the European Communities has therefore held that the rules on the burden of proof must be adapted when there is a prima facie case of discrimination and that, for the principle of equal treatment to be applied effectively, the burden of proof must shift back to the respondent when evidence of such discrimination is brought.”
Article 2(1) provided that :
“for the purposes of this Directive, the principle of equal treatment shall mean that there shall be no discrimination whatsoever based on sex ……..”

Article 4 provided as follows under the heading “Burden of Proof”:
“1.  Member States should take such measures as are necessary, in accordance with their national judicial systems, to ensure that, when persons who consider themselves wronged because the principle of equal treatment has not been applied to them establish, before a court or other competent authority, facts from which it may be presumed that there has been direct or indirect discrimination, it shall be for the respondent to prove that there has been no breach of the principle of equal treatment. “

Thus section 63A of the Sex Discrimination Act 1975 was introduced as a result of this Directive and was inserted by the Sex Discrimination (Indirect Discrimination and Burden of Proof) Regulations 2001.  The commencement date of 12 October 2001 was in relation to any proceedings under section 63 in an Employment Tribunal whenever instituted, except proceedings which were determined before that date.  

21	Mr Allen argues that the new section clearly introduces a new approach to sex discrimination cases, requiring, effectively, an amendment to the guidelines in King -v- GB China Centre and he highlights the words “could …..conclude in the absence of an adequate explanation”.  Thus he submits that the first stage of the procedure is for the Tribunal to consider primary facts proved by the Applicant to see what inferences of secondary fact could be drawn from them from which they could conclude that an act of sexual discrimination had been committed absent any explanation from the employers.  He submits further that these inferences could include in appropriate cases, inferences that it is just and equitable to draw in accordance with section 74, e.g. from an evasive or equivocal reply to a questionnaire, and also any inferences that it is proper to draw from a failure to comply with any relevant code of practice under section 56A.  He submits that at this stage the Tribunal does not have to reach a definitive determination that such facts would lead it to the conclusion that there was an act of unlawful discrimination but only that the facts could lead to that conclusion.  

22	In those circumstances he submits that the burden of proof will then move to the Respondents to prove that he did not commit, or as the case may be, is not to be treated as having committed that act.  To discharge that burden, it would be necessary for the Respondents to prove on the balance of probabilities that the treatment in question was in no sense whatsoever on the grounds of sex, since he argues “no discrimination whatsoever” is compatible with the Equal Treatment Directive or the Burden of Proof Directive.  In other words, the burden of proof is upon the employer to show that sex was not any part of the reasons for the treatment in question.  

23	Mr Lemon, for the Respondents, argues that the new section does not have such a dramatic effect as contended for by the Appellant.  He referred us to the most recent authority in this area Shamoon -v- Chief Constable of RUC [2003] UKHL 11, a decision given on 27 February 2003, only a few days before the hearing of this appeal.  The appeal raised an issue concerning identification of the appropriate comparator and the assumption made by their Lordships that the appropriate comparator was a hypothetical comparator rather than the two male Chief Inspectors who had originally been put forward as comparators by the Applicant.  Lord Nicholls in paragraph 12 of his opinion states as follows:

“The most convenient and appropriate way to tackle the issues arising on any discrimination application must always depend upon the nature of the issues and all the circumstances of the case.  There will be cases where it is convenient to decide the less favourable treatment issue first.  But, for the reasons set out above, when formulating their decisions employment tribunals may find it helpful to consider whether they should postpone determining the less favourable treatment issue until after they have decided why the treatment was afforded to the claimant.  Adopting this course would have simplified the issues, and assisted in their resolution, in the present case.”

Mr Allen submits that this case is of little assistance to us because:
(a) there was an actual comparator in our case, and
(b) the Tribunal decided the case prior to the implementation of section 63A which was not considered at all by their Lordships.  
We agree with his submissions.

24	Mr Lemon, however, contends that the Tribunals should not use a too rigid and prescriptive approach to these issues.  The Tribunal is seeking an answer to a single question: did the employee, on a prescribed ground, receive less favourable treatment than others -  which question is to be answered on the balance of probabilities.    He submits that if the Tribunal, having considered all the evidence, are unable to decide where the balance of probabilities lies and the employee has proved facts from which the Tribunal could conclude that the employer had committed an act of unlawful discrimination, it would the uphold the complaint, unless the employer proves that it did not commit or is not to be treated as having committed the act of discrimination.  We cannot agree with this submission which does not appear to accord with the proper approach, as set out in both the Council Directives and section 63A.  

25	We therefore consider it necessary to set out fresh guidance in the light of the statutory changes:
(1) Pursuant to section 63A of the Sex Discrimination Act 1975, it is for the Applicant who complains of sex discrimination to prove on the balance of probabilities facts from which the Tribunal could conclude, in the absence of an adequate explanation, that the Respondents have committed an act of discrimination against the Applicant which is unlawful by virtue of Part 2 or which by virtue of section 41 or 42 SDA is to be treated as having been committed against the Applicant.  These are referred to below as “such facts”
(2) If the Applicant does not prove such facts he or she will fail.
(3) It is important to bear in mind in deciding whether the Applicant has proved such facts that it is unusual to find direct evidence of sex discrimination.  Few employers would be prepared to admit such discrimination, even to themselves.  In some cases the discrimination will not be an intention but merely based on the assumption that “he or she would not have fitted in”.
(4) In deciding whether the Applicant has proved such facts, it is important to remember that the outcome at this stage of the analysis by the Tribunal will therefore usually depend on what inferences it is proper to draw from the primary facts found by the Tribunal.
(5) It is important to note the word is “could”.  At this stage the Tribunal does not have to reach a definitive determination that such facts would lead it to the conclusion that there was an act of unlawful discrimination.  At this stage a Tribunal is looking at the primary facts proved by the Applicant to see what inferences of secondary fact could be drawn from them.
(6) These inferences can include, in appropriate cases, any inferences that it is just and equitable to draw in accordance with section 74(2)(b) of the Sex Discrimination Act from an evasive or equivocal reply to a questionnaire or any other questions that fall within section 74(2) of the Sex Discrimination Act see Hinks -v- Riva Systems EAT/501/96.
(7) Likewise, the Tribunal must decide whether any provision of any relevant code of practice is relevant and if so, take it into account in determining such facts pursuant to section 56A(10) SDA.  This means that inferences may also be drawn from any failure to comply with any relevant code of practice.  
(8) Where the applicant has proved facts from which inferences could be drawn that the Respondents have treated the Applicant less favourably on the grounds of sex, then the burden of proof moves to the respondent. 
(9)  It is then for the respondent to prove that he did not commit, or as the case may be, is not to be treated as having committed that act.
(10) To discharge that burden it is necessary for the respondent to prove, on the balance of probabilities, that the treatment was in no sense whatsoever on the grounds of sex, since “no discrimination whatsoever” is compatible with the Burden of Proof Directive.
(11) That requires a Tribunal to assess not merely whether the respondent has proved an explanation for the facts from which such inferences can be drawn, but further that it is adequate to discharge the burden of proof on the balance of probabilities that sex was not any part of the reasons for the treatment in question.  
(12) Since the facts necessary to prove an explanation would normally be in the possession of the respondent, a Tribunal would normally expect cogent evidence to discharge that burden of proof.  In particular the Tribunal will need to examine carefully explanations for failure to deal with the questionnaire procedure and/or code of practice.

26	We now deal with two matters of law raised in relation to the Equal Pay Act.  The Tribunal set out in paragraph 60 of their Decision the test to be satisfied to establish the material factor defence as set out in Brunnhofer -v- Bank der osterreichischen Postsparkasse AC [2001] ECR 4961 and Bilka-Kaufhaus GmbH -v- Webers Von Hartz [1987] ICR 110.  Mr Allen submits, therefore, that the burden was on the Respondents to prove:
(1) that there were objective reasons for the difference;
(2) unrelated to sex; 
(3) corresponding to a real need on the part of the undertaking;
(4) appropriate to achieving the objective pursued; 
(5) it was necessary to that end;
(6) that the difference conformed to the principle of proportionality;
(7) that was the case throughout the period during which the differential existed.

27	Mr Lemon submits that no requirement for objective justification arises and cites in support of a decision of this Court Tyldesley -v- TML Plastics Ltd  [1996] IRLR 395 where the headnote reads:
“In the absence of evidence or a suggestion that the factor relied on to explain the differential was itself tainted by gender, because it was indirectly discriminatory or because it impacted adversely upon women as  a group in the sense indicated by the European Court of Justice in Enderby v Frenchay Health Authority, no requirement of objective justification arises, and it is sufficient in law that the explanation itself cause the difference in pay or was a sufficient influence to be significant and relevant, whether or not that explanation was objectively justified”

Mr Allen now argues that that authority cannot apply in this case because, on the facts of this particular case, the discrimination was both tainted by sex and involved a lack of transparency.  He relies on dicta from Lord Browne-Wilkinson in Strathclyde Regional Council -v- Wallace[1998] IRLR 147:
“Where the factor explaining the disparity in pay is tainted by sex discrimination, whether direct or indirect, the employer can still establish a valid defence under s.1(3) by objectively justifying such discrimination.”

We agree with his submissions on this point as to the seven factors correctly identified by the Tribunal.

28	A further issue arises as to whether it is appropriate to draw adverse inferences under section 74(2) Sex Discrimination Act in relation to the equal pay claim.  Mr Allen firstly submits that since the Equal Pay Act was amended and completely re-enacted and set out in one of the Schedules to the Sex Discrimination Act, as a matter of construction where section 74 referred to “this Act”, it should be taken to include the Equal Pay Act.  We cannot agree with that submission.  When one considers other sections within the Act e.g. sections 4, 53, 71 and 73, they refer to the Equal Pay Act as well as sections of the Sex Discrimination Act.  Mr Allen further argues that, by inference, there should be no less favourable treatment in the Equal Pay Act to combat discrimination than there is in the Sex Discrimination Act and accordingly, the questionnaire procedure should apply.  Whilst we did not hear lengthy submissions on this area, we are not persuaded that section 74 should be incorporated into the Equal Pay Act on this basis; indeed we understand that in April 2003 a questionnaire procedure will be introduced into the Equal Pay Act legislation.  However both parties do agree that under normal common law rules of evidence, inferences against the employers which can be drawn under section 74, particularly if they fail to deal with questions in relation to aspects of contractual pay, could be used against the employers in the Equal Pay Act proceedings.

29	Having attempted to determine the difficult issues of law that arise in this case, how do our decisions impact on the Tribunal’s findings?  In relation to the Sex Discrimination Act claim, the Appellant contends that the facts established in relation to both the lack of transparency and the failure of the Respondents to deal properly or at all with the questionnaire, must have invoked the operation of section 63A, thus requiring firstly an indication in the Decision of the Tribunal that it had reversed the burden of proof and, secondly, consideration of the adequacy or otherwise of the Respondents’ explanation.  The Appellant further submits that whilst the Tribunal had made reference to the relevant statutory provisions including section 63A, they did not carry out the two-stage process and, indeed, in the final paragraph of their Decision, had effectively sought to roll up the two stages by looking for the “effective and predominant cause” without undertaking the precise task imposed by section 63A.  As we have already indicated, Mr Lemon submits that on the facts of this particular case, the Tribunal having considered both the lack of transparency and the deficiencies in the questionnaire process, had accepted the Respondents’ reasons for the differences in bonus between the Appellant and Mr Savage, being unrelated to sex without having to invoke s.63A.  

30	Dealing with transparency, the Appellant’s substantial complaint was in relation to certain paragraphs of the Decision, in particular 38, 39 and 88, wherein the Tribunal found and appeared to condone, in part relying on their “industrial knowledge”, that the City “bonus culture” was one of secrecy and lack of transparency.  The Tribunal’s alleged “industrial knowledge” of this culture certainly conflicted with the lay members of this Court, who had experience of many large institutions operating transparent bonus systems, including formal end of year appraisals, followed by a properly documented bonus setting procedure.  This Court would certainly wish to make it clear that no Tribunal should be seen to condone a City bonus culture involving secrecy and/or lack of transparency because of the potentially large amounts involved, as a reason for avoiding equal pay obligations.  Mr Allen highlighted the Tribunal’s findings in relation to “the backdrop of an unwritten, non transparent bonus policy in an organisation, without an appraisal system, without an equal opportunities policy” coupled with the Tribunal’s findings that they were not satisfied that the Respondents had given all discovery possible on the topic.  The Respondents had not produced any documents relating to the process of determination of the bonuses; there was no documentation as to the determination of the salary increase and LTIP increases for Mr Horsman, or the basis upon which the amount of those increases had been determined.  The Tribunal had observed, concerning Mr Crosthwaite’s evidence:

“He was not forthcoming either in the conduct of the litigation or in the course of evidence as to pay differentials and reasons for them”

The Respondents had refused to give any details of bonuses for anyone other than the Appellant and her two comparators and, indeed, the process to obtain information about both the bonuses and salary package of Messrs Horsman and Savage, was extremely protracted.  The agreed history placed before this Court showed that the basic pay of Mr Savage was not disclosed until 18 September 2001; the salary for Mr Horsman and his LTIPs together with those for Mr Savage, and their bonuses, were not completely disclosed until 18 December 2001, and Mr Horsman’s share options were not disclosed until 28 February 2002.  

31	This history leads into the second major area of complaint from the Appellant which concerns the Tribunal’s failure to draw proper inferences from the Respondents’ failure to deal with the litigation process, and, in particular, the questionnaire process.  Both Counsel in the hearing before us spent some time taking us through the questionnaire and the replies, in an effort to satisfy us that there had been serious default on the part of the Respondents, and more particularly Mr Crosthwaite, to deal with these matters.  The Tribunal dealt with these issues firstly in paragraphs 47 - 52 under the heading “Litigation Process”.  In dealing with the alleged failure to provide details of Mr Savage’s bonus and LTIP, the Tribunal found:
“That there was a consistent avoidance of providing these details until an order was made by the Tribunal for their disclosure in December.”  

They also refer to an answer in the questionnaire which denied that Michael Savage was intended to be the Head of Media Team, although the Tribunal in paragraph 33 had found that there was an intention that Mr Savage should lead the team.  The Tribunal also pointed out that it took until April 2002 for final details of all payments made to Mr Horsman to be disclosed.  The Tribunal also found that behavioural issues against the Appellant were not expressed to be a significant component in the bonus calculation until the amended IT3 was lodged on 29 January 2002.  Again, in paragraph 81 the Tribunal referred to the:
 “questions in relation to the history of the litigation in this case, the avoidance of disclosure of information and the changing of the Respondent’s case over time.”

Mr Allen in both his written and oral submissions referred to certain other inconsistencies, some of which Mr Lemon has sought to answer.  We do not find it necessary to go into each and every allegation.  The Tribunal’s findings, albeit somewhat brief, coupled with the agreed history of this case make it clear that there were a number of serious matters arising out of the failure of the Respondents to deal properly with the questionnaire procedure and/or to give clear and consistent replies that should have required the Tribunal to draw adverse inferences.

32	We are, therefore, quite satisfied that there was an abundance of primary fact material from which the Tribunal could, and indeed should, have drawn inferences, in the absence of an adequate explanation from the Respondents, such that they could conclude that an act of discrimination had been committed and that therefore the burden of proof was placed upon the Respondents to prove that sex was not a reason for the less favourable treatment in relation to the bonus setting. 

33	Mr Allen further submits that since the Tribunal made no adequate findings in relation to why the Respondents failed to deal properly or at all with the questionnaire procedure, then it must follow that the Respondents have failed to discharge the burden of proof that was upon them and the Appellant is entitled to a finding of discrimination.  Mr Lemon argues that the burden is upon the Respondents to prove that they did not commit the act of discrimination and that even if they do not have a satisfactory answer to all aspects of the questionnaire procedure, provided that they can satisfy the Tribunal that the difference in sex played no part in their less equal treatment, then they would have discharged the burden.  We can see the force of Mr Lemon’s submission, although since the Appellant’s case rested principally on the lack of transparency and/or the failure to deal with the questionnaire procedure, the Tribunal would certainly need to satisfy themselves about these matters and examine carefully the Respondents’ explanations before coming to the conclusion that the Respondents had discharged the burden upon them, particularly in the light of the importance given to both these aspects by the Code of Practice and the section 74 procedure.  However, since the Tribunal clearly did not, in our view, deal with the matter in the required two-stage process as we have indicated, we would propose to remit the matter to a fresh Tribunal for them to reconsider the matter.  

34	In relation to the equal pay claim, Mr Allen criticises the Tribunal’s Decision, particularly in relation to their alleged failure to deal with the Brunnhofer criteria that we have set out above.  In particular he makes the following submissions.
(a) In the Respondents’ reply to the questionnaire, they advanced three reasons for differential in salary, two of which were related to criticisms of the performance of the Appellant; at the hearing, the only reason advanced for the difference was that Mr Horsman was being head-hunted
(b) Mr Crosthwaite’s evidence was only that he had been told by another person that Mr Horsman was being head-hunted and had not made any enquiries with him about this or as to the incentives that he was being offered.  Mr Allen therefore submits that there was no evidence upon which the Tribunal could make findings of fact that there was a real need on the part of the Respondents to increase Mr Horsman’s salary and linked benefits in the way that he did.
(c) Even if there was a need in 1999 to provide some additional benefit for Mr Horsman, there was no evidence before the Tribunal that the increases in salary/LTIPs/share options was proportionate to meet that need.  The only evidence came from Mr Crosthwaite who said that Mr Horsman’s salary was just increased to the highest that they could.  In particular, there was no reason why there should have been a differential of share option when they were granted in December 1999.

35	It was necessary for the Respondents to show that the material difference had existed throughout the period where there had been a difference in salary up to the point where the Appellant’s salary had been increased to that of Mr Horsman’s in April 2001.  The Appellant’s LTIPs had not then been increased to the same as those of Mr Horsman, and when asked for an explanation for this failure in cross-examination, Mr Crosthwaite’s response was that “it did not occur to us”.  Mr Allen argues that there was therefore no evidence to support the genuine material difference in relation to LTIPs after equality of salary was restored in April 2001,  particularly as the letter accompanying the salary increase in April 2001 had referred to the Appellant’s improved performance prior to the increase in her salary.

36	Finally, Mr Allen argues that the inferences that could be drawn from the lack of transparency and/or the failure to deal with the section 74 procedure are equally applicable within the equal pay claim.  

37	Mr Lemon argues that the Tribunal clearly, in paragraphs 77 and 78, deals with the seven criteria the Respondents have to prove to establish the material factor defence emanating from the desire to prevent Mr Horsman being head-hunted, which he contends was a continuing threat through 2000 and 2001, and that, as the Tribunal found in paragraph 78, the differences:

“.. conformed to the principal of proportionality in that they corresponded to a real need of the undertaking, were appropriate to achieve that objective and necessary to that end.”

However, we cannot agree with that approach.   Bearing in mind the background to this case to which we have already made reference, namely the lack of transparency and the serious failure to deal with the questionnaire process, these were important factors which the Tribunal failed to take into account when assessing the material factor defence.  In particular, the Tribunal failed properly to deal with (1) whether the Respondents had proved that there were objective reasons for the difference (2)  the issues of proportionality, and (3) whether there was a real need on the part of the business for those differences existing throughout the period of the difference, i.e. between 1999 and 2001, particularly in the light of the Respondents’ willingness in April 2001, following a complaint from the Appellant, to increase her salary level to that of Mr Horsman without his salary then being further increased.  Accordingly in relation to the equal pay claim we propose to allow the appeal and direct a re-hearing before a different Tribunal.