Dunnachie v Kingston upon Hull City Council

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLORD NICHOLLS OF BIRKENHEAD,LORD STEYN,LORD HOFFMANN,LORD RODGER OF EARLSFERRY,LORD BROWN OF EATON-UNDER-HEYWOOD
Judgment Date15 Jul 2004
Neutral Citation[2004] UKHL 36

[2004] UKHL 36

HOUSE OF LORDS

The Appellate Committee comprised:

Lord Nicholls of Birkenhead

Lord Steyn

Lord Hoffmann

Lord Rodger of Earlsferry

Lord Brown of Eaton-under-Heywood

Dunnachie
(Respondent)
and
Kingston-upon-Hull City Council
(Appellants)
LORD NICHOLLS OF BIRKENHEAD

My Lords,

1

I have had the advantage of reading in draft the speech of my noble and learned friend Lord Steyn. For the reasons he gives, with which I agree, I would allow this appeal.

LORD STEYN

My Lords,

2

This appeal raises an important point on the proper construction of section 123(1) of the Employment Rights Act 1996. Section 123 provides for the making of a compensatory award for unfair dismissal. It reads, so far as it is material, as follows:

"(1) Subject to the provisions of this section and sections 124 [,126, 127 and 127A(1), (3) and (4)], 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.

(2) The loss referred to in subsection (1) shall be taken to include -

(a) any expenses reasonably incurred by the complainant in consequence of the dismissal, and

(b) subject to subsection (3), loss of any benefit which he might reasonably be expected to have had but for the dismissal.

(3) The loss referred to in subsection (1) shall be taken to include in respect of any loss of -

(a) any entitlement or potential entitlement to a payment on account of dismissal by reason of redundancy (whether in pursuance of Part XI or otherwise), or

(b) any expectation of such a payment,

only the loss referable to the amount (if any) by which the amount of that payment would have exceeded the amount of a basic award (apart from any reduction under section 122) in respect of the same dismissal."

Omitting the opening words of qualification in section 123(1), which are not directly relevant, the question is whether this provision allows compensation to be awarded for non-economic damage. An employee, who claims to have suffered humiliation, injury to feelings and distress, as a result of a constructive dismissal, argues that properly construed section 123(1) allows for the recovery of non-pecuniary heads of loss. The employer argues that section 123(1) only permits recovery of pecuniary loss. This is the central dispute of statutory construction before the House.

3

The ultimate genesis of section 123(1) of the 1996 Act was section 116(1) of the Industrial Relations Act 1971. For present purposes the re-enactment of section 116 by Schedule 1, para 19, of the Trade Union and Labour Relations Act 1974, by section 76 of the Employment Protection Act 1975 and by section 74 of the Employment Protection (Consolidation) Act 1978 are not material. Section 116(1) of the 1971 Act provided:

"… the amount of the compensation shall … be such amount as the Court or tribunal considers just and equitable in all the circumstances, having regard to the loss sustained by the aggrieved party in consequence of the matters to which the complaint relates, in so far as that loss was attributable to action taken by or on behalf of the party in default."

The differences in wording between section 116(1) of the 1971 Act and section 123(1) of the 1996 Act do not affect the issue before the House. The statutory formula for the making of a compensatory award remained exactly the same.

4

In Norton Tool Co. Ltd v Tewson [1972] ICR 501 the question arose whether under section 116(1) compensation could be awarded for injury to feelings. The point was directly in issue in the proceedings and the court heard contrary arguments on it. Sitting as president of the National Industrial Relations Court Sir John Donaldson ruled (504D-505A):

"In our judgment, the common law rules and authorities on wrongful dismissal are irrelevant. That cause of action is quite unaffected by the Industrial Relations Act 1971 which has created an entirely new cause of action, namely, the 'unfair industrial practice' of unfair dismissal. The measure of compensation for that statutory wrong is itself the creature of statute and is to be found in the Act of 1971 and nowhere else. But we do not consider that Parliament intended the court or tribunal to dispense compensation arbitrarily. On the other hand, the amount has a discretionary element and is not to be assessed by adopting the approach of a conscientious and skilled cost accountant or actuary. Nevertheless, that discretion is to be exercised judicially and upon the basis of principle.

The court or tribunal is enjoined to assess compensation in an amount which is just and equitable in all the circumstances, and there is neither justice nor equity in a failure to act in accordance with principle. The principles to be adopted emerge from section 116 of the Act of 1971. First, the object is to compensate, and compensate fully, but not to award a bonus, save possibly in the special case of a refusal by an employer to make an offer of employment in accordance with the recommendation of the court or a tribunal. Secondly, the amount to be awarded is that which is just and equitable in all the circumstances, having regard to the loss sustained by the complainant. 'Loss' in the context of section 116 does not include injury to pride or feelings. In its natural meaning the word is not to be so construed, and that this meaning is intended seems to us to be clear from the elaboration contained in section 116(2). The discretionary element is introduced by the words 'having regard to the loss.' This does not mean that the court or tribunal can have regard to other matters, but rather that the amount of the compensation is not precisely and arithmetically related to the proved loss. Such a provision will be seen to be natural and possibly essential, when it is remembered that the claims with which the court and tribunals are concerned are more often than not presented by claimants in person and in conditions of informality. It is not, therefore, to be expected that precise and detailed proof of every item of loss will be presented, although, after making due allowance for the skills of the persons presenting the claims, the statutory requirement for informality of procedure and the undesirability of burdening the parties with the expense of adducing evidence of an elaboration which is disproportionate to the sums in issue, the burden of proof lies squarely upon the complainant.

(Emphasis supplied)

There was no appeal. The decision in Norton Tool was generally assumed to reflect the correct legal position until it was called into question in the judgment of Lord Hoffmann in Johnson v Unisys Ltd [2003] 1 AC 518.

5

While there may arguably be differences of opinion about the exact ratio decidendi of Johnson v Unisys, I am content to accept that the central legal decision of the majority (Lord Bingham of Cornhill, Lord Nicholls of Birkenhead, Lord Hoffmann and Lord Millett) was as summarised in the headnote of the Appeal Cases report. It reads as follows (518H-519A):

"… under Part X of the Employment Rights Act 1996

Parliament had provided the employee with a limited remedy for the conduct of which he complained; that, although it was possible to conceive of an implied term which the common law could develop to allow an employee to recover damages for loss arising from the manner of his dismissal, it would be an improper exercise of the judicial function for the House to take such a step in the light of the evident intention of Parliament that such claims should be heard by specialist tribunals and the remedy restricted in application and extent;"

This is the context in which Lord Hoffmann, who gave the leading opinion, commented on the meaning of section 123 of the 1996 Act. He said that Parliament adopted "the practical solution of giving the tribunals a very broad jurisdiction to award what they considered just and equitable but subject to a limit on the amount": para 54. He continued:

"55. In my opinion, all the matters of which Mr Johnson complains in these proceedings were within the jurisdiction of the industrial tribunal. His most substantial complaint is of financial loss flowing from his psychiatric injury which he says was a consequence of the unfair manner of his dismissal. Such loss is a consequence of the dismissal which may form the subject matter of a compensatory award. The only doubtful question is whether it would have been open to the tribunal to include a sum by way of compensation for his distress, damage to family life and similar matters. As the award, even reduced by 25%, exceeded the statutory maximum and had to be reduced to £11,000, the point would have been academic. But perhaps I may be allowed a comment all the same. I know that in the early days of the National Industrial Relations Court it was laid down that only financial loss could be compensated: see Norton Tool Co Ltd v Tewson [1973] 1 WLR 45; Wellman Alloys Ltd v Russell [1973] ICR 616. It was said that the word 'loss' can only mean financial loss. But I think that is too narrow a construction. The emphasis is upon the tribunal awarding such compensation as it thinks just and equitable. So I see no reason why in an appropriate case it should not include compensation for distress, humiliation, damage to reputation in the community or to family life.

56. Part X of the Employment Rights Act 1996 therefore gives a remedy for exactly the conduct of which Mr Johnson complains. But Parliament had restricted that remedy to a maximum of £11,000, whereas Mr Johnson wants to claim a good deal more. The question is whether the courts should develop the common law to give a parallel remedy which is...

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