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Cite as: [1998] IRLR 23, [1998] ICR 242, [1998] 1 All ER 790, [1998] WLR 637, [1998] 1 WLR 637, [1997] EWCA Civ 2647

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MINISTRY OF DEFENCE v. D.J WHEELER and MINISTRY OF DEFENCE v. S. DONALD and MINISTRY OF DEFENCE v. NIXON and MINISTRY OF DEFENCE v. J. JOSLYN [1997] EWCA Civ 2647 (5th November, 1997)

IN THE SUPREME COURT OF JUDICATURE EATRF 96/0735/B
COURT OF APPEAL (CIVIL DIVISION) EATRF 96/0736/B
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL EATRF 96/1103/B
EATRF 96/1104/B




Royal Courts of Justice
Wednesday, 5th November 1997



Before:

LORD JUSTICE HIRST
LORD JUSTICE SWINTON THOMAS
LORD JUSTICE MANTELL

- - - - - - - -


MINISTRY OF DEFENCE

Appellant
-v-


MRS. D.J WHEELER
Respondent

and

MINISTRY OF DEFENCE
Appellant

-v-


MRS. S. DONALD
Respondent

and

MINISTRY OF DEFENCE
Appellant

-v-


MRS. NIXON
Respondent


and




MINISTRY OF DEFENCE

Appellant
-v-


MRS. J. JOSLYN
Respondent

- - - - - - - -



(Transcript of the Handed Down Judgment of Smith Bernal Reporting Limited, 180 Fleet Street, London, EC4A 2HD. Telephone No: 0171-421 4040. Shorthand Writers to the Court.)

- - - - - - - -

MR. D. PANNICK Q.C. and MR. R. McMANUS (instructed by the Treasury Solicitor) appeared on behalf of the Appellant Ministry of Defence.


MISS D. ROSE (instructed by Messrs Fuglers, London, W1) appeared on behalf of the Respondent Wheeler.


MISS D. ROSE (instructed by Messrs Tyndallwoods, Birmingham) appeared on behalf of the Respondent Donald.


THE RESPONDENT NIXON did not appear and was not represented.


MR. B. LANGSTAFF (instructed by Messrs Glenisters, Middlesex) appeared on behalf of the Respondent Joslyn.



- - - - - - - -

J U D G M E N T
(As approved by the Court )








Crown Copyright

Lord Justice Swinton Thomas.

These appeals from the Employment Appeal Tribunal were heard together because they raise two important points of principle in relation to the assessment of damages for wrongful dismissal. In each case the Ministry of Defence appeals against the decision of the Employment Appeal Tribunal. In the cases of Mrs. Wheeler and Mrs. Donald there are cross appeals by them. The claims by the Claimants against the Ministry of Defence arise from the admitted wrongful act of the Ministry in discharging them from the Armed Forces as a result of pregnancy.


Mrs. Wheeler.

Mrs. Wheeler was born on the 19th March, 1959. She joined the Womens Royal Army Corps on the 6th April, 1976, on a 22 year engagement. In November, 1981, she married her husband, also a soldier. In 1985 she became pregnant. She was then an Acting Sergeant. She was discharged from the Army in 1985. She was earning £9,752.80 per annum. In 1987 she gave birth to a second child. In 1992 her husband completed his 22 year engagement in the Army, and Mrs. Wheeler then obtained alternative employment as a civilian with the Ministry of Defence.

The Industrial Tribunal by its decision of the 8th December, 1994, found that the chance that Mrs. Wheeler would return to the Army if she had been permitted to do so following maternity leave after the birth of her first child was 100%. The Tribunal assessed the chance of her returning to the Army following maternity leave after the birth of her second child as 85%, and the chance that she would have completed 22 years service at 20%. The Ministry of Defence appealed to the E.A.T. raising a number of issues. On the 8th December, 1985, the E.A.T. (Maurice Kay, J. Presiding) allowed the Ministry’s appeal by which it was submitted that the Industrial Tribunal had adopted the wrong approach to their calculation of cumulative percentage chances. The Ministry’s appeal on the other grounds was dismissed, including their appeal on the main issue that arises in these appeals, namely the correct approach to the assessment of compensation in cases where the applicant has or should have mitigated her loss by obtaining alternative employment.

Mrs. Donald.

Mrs. Donald was born on the 3rd July, 1956. She joined the Womens Royal Army Corps on the 9th October, 1973, on a 22 year engagement. In 1977 she was promoted to Corporal. In July, 1979, she found that she was pregnant and she married her husband on the 18th of August of that year. On the 3rd October, 1979, she was discharged. She gave birth to her child on the 5th February, 1980, and to a second child on the 26th June, 1982. On the 10th April, 1995 the Industrial Tribunal found that if she had not been unlawfully discharged from the Army there was a 100% chance that she would have taken maternity leave, a 90% chance that she would have returned to the Army if allowed to do so after her maternity leave, a 50% chance that she would have taken maternity for the birth of her second child, and 25% chance that she would have returned to the Army after the birth of her second child. The Industrial Tribunal adopted the same approach to the assessment of loss as in Mrs. Wheeler’s case. The Ministry appealed to the E.A.T. and on the 8th December, 1995, the E.A.T. (Maurice Kay, J. Presiding) dismissed the appeal on that issue. They allowed the Ministry’s appeal in relation to the Industrial Tribunal’s approach to cumulative chances and remitted the claim to the Industrial Tribunal for reconsideration on that issue.

Mrs. Nixon.

Mrs. Nixon was born on the 2nd April, 1958. She enlisted in the Royal Navy on the 2nd April, 1975. By September, 1978, she had been promoted to Chief Wren. She found she was pregnant in July, 1989, and her child was born on the 27th January, 1990. She was discharged from the Navy on the 5th April, 1991, as a result of her pregnancy. On the 9th May, 1995, the Industrial Tribunal found that there was a 100% chance that she would have taken maternity leave if available to her, a 60% chance of her returning to work after maternity leave, and a 40% chance that she would have completed her engagement which would have ended in 1999. The Ministry appealed to the E.A.T. raising the issue as to the proper approach as to compensation and mitigation of loss, and on the 24th June, 1996, the E.A.T. (Morison, J. Presiding) dismissed the appeal.

Mrs. Joslyn.

Mrs. Joslyn was born on the 16th August, 1958. On the 30th January, 1978, she joined the W.R.A.C. on a 22 year engagement. In September, 1982, she was promoted to Acting Sergeant. On the 12th May, 1984, she married and very shortly thereafter she found that she was pregnant. On the 27th August, 1984, she was discharged. On the 19th July, 1988, she gave birth to a second child. On the 10th April, 1995, the Industrial Tribunal found that there was a 100% chance that she would have taken maternity leave prior to the birth of her first child, and an 80% chance of her returning to the Army after the birth of the first child, a 60% chance that she would have taken maternity leave in respect of the birth of the second child, a 40% chance that she would return to the Services after the birth of the second child, and a 20% chance that she would complete 22 years service.

The Ministry appealed to the E.A.T. on the issue as to the proper approach to assessment and mitigation of loss, and on the 24th June, 1996, the E.A.T. (Morison, J. Presiding) dismissed the appeal. The cumulative chances point also arose in Mrs. Joslyn’s case in that the Industrial Tribunal approached that issue in the same way as in Mrs. Donald’s case, but the Ministry did not appeal on that issue in Mrs. Joslyn’s case.

The Ministry appeals to this Court in all four cases with leave. The Respondents, Mrs. Wheeler and Mrs. Donald cross appeal on the cumulative chances issue.

The First Issue

Each of the Applicants obtained alternative employment for varying periods of time, after their dismissal from the Armed Forces, but at lower rates of pay with the result that they mitigated their loss. The point of principle that arises in relation to the calculations relates to the proper approach to those post-service earnings in the calculation of loss.

The Ministry contends that the approach should be to take the total sum that the Applicant would have earned had she remained in the Services for the period of years as found by the Tribunal that she would have remained in the Forces, at that point apply the percentage discount which is the percentage discount found by the Tribunal to reflect the chance that the claimant would or would or not have remained in the Armed Forces, and then deduct from that sum the total amount that the claimant has or should have earned during that period. This is described as Method 1.

The Respondents contend that the proper approach is to take the sum that the claimant would have earned in the Forces, deduct from that sum the amount that she has, or should have, earned elsewhere, and then apply the percentage discount to the net loss. This has been described as Method 2.

The difference between the two approaches can be illustrated by a simple example. The complainant was earning £10,000 per annum in the Services. She was wrongfully dismissed on account of pregnancy. In the course of a particular year she earned £5,000 in civilian life. The Tribunal finds that she had a 50% chance of returning to Service life following the birth of her child. Under Method 1, the formula adopted by the Ministry, the discount of 50% is applied to the Service earnings of £10,000, leaving £5,000, and her earnings of £5,000 then fall to be deducted in total, so that she has no loss at all. Under Method 2, take the notional earnings in the Services of £10,000 and apply the 50% discount, arriving at £5,000. Then take the figure of £5,000 for actual earnings and discount that by 50% to £2,500 to represent the finding by the Tribunal that the prospect of earning £10,000 in the Forces or £5,000 in civilian life were both 50%. Thus the total loss leaving aside the mitigation is £7,500 and when mitigated is £7,500 less the £5,000 earned, that is £2,500. Put another way, looking into the future there was a 50% chance that the claimant would earn £10,000 and a 50% chance that she would earn £5,000. Deduct one from the other and you arrive at a figure of £2,500. This, the Respondents submit, represents the claimant’s true loss. In other words there was an equal chance that had she not been dismissed she would have remained in the Forces earning £10,000 or leaving the Forces and earning £5,000.

There has been a radical conflict, or difference of view, in Industrial Tribunals and in the E.A.T. as to the correct approach to this problem. Method 1 was adopted by the E.A.T. in Clement Clark International v. Manley (1979) I.C.R. 74, Derwent Coaches v. Kirby (1995) I.C.R. 48, Ministry of Defence v. Bristow (1996) I.C.R. 554. It was also favoured in Digital Equipment Co. Ltd. v. Clements (1996) I.C.R. 829. Method 2 was adopted by the cases presently under appeal sub. nom. Ministry of Defence v. Hunt and ors. (1996) I.C.R. 555 and Ministry of Defence v. Joslyn and ors. (Transcript 24th June, 1996) and in Digital Equipment Co. Ltd. v. Clements No. 2 (1996) I.C.R. 829. In the two Digital Equipment cases apparently conflicting conclusions were arrived at. The payment in issue in that case was a severance payment and not money subsequently earned mitigating the loss, and different considerations may apply to severance payments depending upon whether the payment was made in lieu of earnings or as compensation in respect of an overall loss.

The parties agreed that the Court must approach this problem on the principle that the complainants should, as far as possible, be placed in the same position as they would have been in but for the unlawful act. In the field of unlawful discrimination this principle is echoed by the European Court of Justice in Marshall v. Southampton etc. Health Authority (No. 2) (1993) ICR 893 where the Court said at page 932 that compensation “must be adequate in that it must enable the loss and damage actually sustained as a result of the discriminating dismissal to be made good in full in accordance with applicable national rules”. This principle is less easy to apply in respect to future as opposed to past losses and less easy in respect of percentage chances as opposed to ascertained facts. However the Courts have had to grapple with these problems in other fields, for example in relation to the percentage loss of a chance in litigation where the chance of success has been lost as a result of the negligence of a professional adviser, or in assessing the value of an injured plaintiff’s loss of earning capacity which will not affect his actual earnings until some time in the future. As Scarman, L.J. said in Smith v. Manchester Corporation 17 K.I.R. 1 at page 7, the loss of earning capacity is not “a possible loss”, but is an “existing loss”. So in the case of wrongful dismissal, subject to proof and assessment by the Tribunal, the loss sustained by those wrongfully dismissed is not a speculative loss but is an existing loss.

Some, although perhaps limited, assistance of a general nature can be found in the authorities. In Silliphant v. Powell Duffryn Timber Ltd. (1983) I.R.L.R. 91 Browne-Wilkinson, J. said at page 96:

“There is no need for an all or nothing decision. If the Industrial Tribunal thinks that there is a doubt whether or not the employee would have been dismissed, this element can be reflected by reducing the normal amount of compensation by a percentage representing the chance that the employee would still have lost his employment.”

This statement was expressly approved by Lord Bridge of Harwich in Polkey v. O.E. Dayton Services Ltd. (1988) ICR 142 at page 163. These dicta, as was pointed out by Maurice Kay, J. In Hunt (supra) at page 566, tend to support the concept that the appropriate point to make the deduction of the sums earned by way of mitigation of loss is at the later stage (Method 2) rather than the earlier stage (Method 1).

Davies v. Taylor [1974] A.C. 207 was a case in which the Plaintiff was the widow of a man who had been killed in an accident. The Plaintiff and the deceased had separated, and the Court had to consider the percentage chances of a reconciliation and the damages that would be recoverable in those circumstances. Lord Reid said at page 212:

“In each case the Tribunal would determine what its award would have been if the spouses had been living together when the husband was killed, and then discount it or scale it down to take account of the probability of her not returning to him.”

The circumstances of that case are different from the circumstances of the instant cases, but, nonetheless, there is an indication in that statement that on those facts the correct approach was first to assess the Plaintiffs loss and then to award an appropriate percentage of that loss.

In a powerful submission Mr. Pannick, Q.C., for the Ministry submitted that Method 1 was in accordance with the principle that the claimant should be placed in the position she would have been in but for t he wrongful dismissal. He submits that Method 2 results in over payment or an unwarranted windfall. In order to achieve the objective of placing the claimant in the position that she would have been in, he submits that it is necessary to identify the total loss sustained as a result of the dismissal, (a percentage of her earnings in the Forces with the appropriate multiplicand) and then deduct the total of the sums actually earned. He then submits that Method 2 confuses total loss and mitigation because that method involves the deduction of the sums earned in mitigation before applying the percentage chance figure. The error, he submits, is in applying the percentage chance figure both to the earnings in the forces and to the sums earned in mitigation. In those circumstances, the claimant is not giving full credit for the mitigation and in consequence receives a windfall.
Mr. Pannick, and Mr. Langstaff, Q.C. and Miss Rose for the Respondents, adopted mathematical formulae to illustrate their respective submissions.

X equals the earnings the claimant would have received had she remained in the Armed Forces and had not been wrongfully dismissed.

Y equals the earnings earned or which could or should have been earned in alternative employment.

Z equals the percentage reduction to reflect the chance that she would not have remained in the Armed Forces with higher wages than in civilian life. (If her wages are higher in civilian life then there is no loss under this head of claim).

Under Method 1 the compensation is X x Z % - Y.
Under Method 2 the compensation is X - Y x Z %.

Mr. Pannick submits that X x Z % represents the total figure for loss of future earnings, and the employee must, after that calculation has been carried out, give credit for the total sum earned in alternative employment. However in my judgment X x Z% does not represent the total figure for loss of earnings. It represents the amount that the claimant would have earned in the Armed Forces but discounted for the chance that she might not have earned it. That figure disregards the fact that if she had remained in the Forces she would not have earned a lesser sum, or any sum, in civilian employment. Accordingly, in the example given at the outset of this judgment, if there was a 50% chance of earning £10,000 in the Army, there was equally a 50% chance that she would not earn only £5,000 in civilian employment, and to arrive at a true figure of actual loss the latter must be put into the equation as well as the former. Mr. Pannick’s equation ignores the real, existing loss in a comparison between the £5,000 actually earned, and the £10,000 which the Applicant had a 50% chance of earning. It is impossible, in my judgment, to say that a woman who is earning £5,000 per annum following her dismissal has suffered no loss when she had a 50% chance of earning twice that amount, £10,000.

Mr. Pannick gave an example which is similar to the example given at the outset of this judgment.

(1) An employee earns £10,000 a year. She is dismissed by reason of her pregnancy.

(2) The Industrial Tribunal finds that there was a 50% chance that the employee would have gone back to work for one year after confinement and no chance that she would have worked thereafter.

(3) The Industrial Tribunal also finds that in the year of loss, the employee did not earn any money by way of mitigation and could not earn any such money.

(4) Under Method 1 and under Method 2, the employee is entitled to £5,000 compensation from the employers.

(5) Suppose however, that the Industrial Tribunal changes its mind before delivering judgment, and decides to accept the employer’s evidence that the employee did in fact earn £2,500 (or could have earned that sum) in the relevant year.

(6) It would be natural to think that instead of having to pay £5,000 compensation, the employer would only have to pay £5,000 minus £2,500 which equals £2,500. That is because the total loss of the employee was reduced by the figure of £2,500. Thus applying Method 1:

X = £10,000
Z = 50%
X x Z = £5,000
- Y (£2,500) = £2,500.

(7) But if Method 2 is applied a different result accrues.

Under Method 2 the calculation is:

X = £10,000
Y = £2,500
X - Y = £7,500

The compensation is, accordingly, £7,000 x Z (50%) = £3,750.

Mr. Pannick submits that Method 2 is unfair and results in a windfall. I do not agree. The true calculation, in my judgment, is that the employee has earned £2,500 and had a 50% chance of earning an extra £7,500, so that her true loss is indeed £3,750.

At first sight Mr. Pannick’s example, and the reasoning put forward to support it, appears to be attractive and was certainly attractively put. However it is, in my judgment, clearly flawed. As Mr. Langstaff submitted Mr. Pannick’s equation, and his example, focus solely on the amount that the Applicant would have earned in the Armed Forces instead of focusing on the entire picture which is the amount she would have earned in the Armed Forces and the lesser amount that she has or would have earned in civilian life and deducting one from the other. Thus it is clearly wrong to take, for example, 60% of the salary that she would have earned in the Armed Forces and deduct from that 60%, 100% of the sums earned in civilian life. The same discount must be applied to both sides of the equation to obtain a fair and just result and an accurate calculation as to the amount that the claimant has actually lost. (Accordingly to reach that result you take 60% of the potential earnings, and 60% of the actual earnings and deduct one from the other).

Mr. Langstaff applies that reasoning to Mr. Pannick’s example. He agrees, of course, that if the Applicant would have had a 50% chance of earning £10,000 in the Armed Forces and has no earnings and no earning capacity then her loss is £5,000. Turning to the Applicant who has earned £2,500 Mr. Langstaff’s equation is as follows:

Potential Earnings

£X (earnings in the Forces) x Z% (say 50%) + £Y (100 - Z%) (say 50%)

Thus the loss = Potential Earnings - Y.

Thus in Mr. Pannick’s example the equation is:

£10,000 x 50% (£5,000) + £2,5000 x 50% (£1,250) = £6,250.

Loss = £6,250 - £2,500 = £3,750.

By this method Mr. Langstaff submits credit is given in full for every pound earned by way of mitigation. The equation is the same as would be achieved by deducting the figure of £2,500 from £10,000 (£7,500), and then applying the 50% discount.

To illustrate his proposition Mr. Langstaff takes the example of a woman who is employed at the rate of £8,000 per annum. She had the opportunity of being promoted to a job earning £12,000 per annum but is wrongfully deprived of the opportunity of doing so. The Court finds that her chances of promotion to £12,000 per year were 50%. According to Mr. Pannick’s formula the loss would be £6,000 (half of £12,000 - £8,000, current earnings) meaning that not only had she suffered no loss but was better off. The proper equation is to say that her loss was £12,000 less £8,000, namely £4,000 and then apply the 50% discount resulting in a loss of £2,000 per annum. Mr. Langstaff submits that that example illustrates the importance of not focusing solely on the proposed income which has been lost but on the totality of the picture.

Miss Rose gives an example which was adopted by Morison, J. in Joslyn. A woman was earning £500 a week (X) in the Armed Forces and was unlawfully discharged by reason of her pregnancy. She then takes civilian employment earning £400 a week (Y). The Industrial Tribunal finds that, had she not been unlawfully discharged, there was a 60% chance that she would have remained in the Armed Forces earning £500 a week. Applying Method 1, the Ministry approach, the Tribunal would take 60% of her potential earnings in the Armed Forces, namely £300, and then subtract her actual earnings of £400 from that figure which would result in a conclusion that she is £100 a week better off as a result of being dismissed although she is earning substantially less than she could have earned had she remained in the Army. According to Method 2, the approach adopted by the Respondent, £400 (Y), the actual earnings, are deducted from £500 (X), the potential earnings, to establish the net loss of £100 and then apply the 60% reduction. The weekly loss is £500 - £400 x 60% = £60 per week. She has lost a 60% chance of earning an extra £100 a week. Miss Rose submits that this method produces the true loss and puts the claimant in the position that she would have been in but for the wrongful dismissal and that the method by the Ministry produces an absurd result. The correct approach is to assess the claimant’s net loss and then to reduce that figure by the appropriate percentage to reflect the chance if the loss might not have been suffered. The error in the Ministry’s approach is that it fails to take any account of the fact that, had the Applicant not been unlawfully discharged, she had a 100% chance of earning at least what she is earning as a civilian and, in addition, a 60% chance of earning an extra £100 per week if she had remained in the Forces. Method 1 fails to take into account the fact that whether the Applicant had been unlawfully discharged or not she would always have been able to earn the sums that she is now able to earn in civilian life. This results by reason of taking the civilian earnings into account only as a deduction from losses and not as part of the sums that she would have been able to earn had she not been unlawfully dismissed.

Miss Rose illustrates the point that she makes in two of the cases under appeal.

Further, take the example of the woman earning £10,000 per annum who is unlawfully dismissed and is able to earn £5,000 per annum in civilian life. She had a 50% chance of continuing to earn £10,000. Take a single period of 12 months. If Method 1 is adopted and it is said that there is no loss, then in these circumstances, that is the equivalent of saying that she would not work for 6 months of the year, or that she would earn for 6 months of the year earning £5,000 and for the remainder of the year earning nothing, whereas in truth she has lost the opportunity (assessed at 50%) of earning the difference between the two figures for the whole year.

I have no doubt that the submissions made by Mr. Langstaff and Miss Rose are correct. The method of assessing loss adopted by the Ministry would not in a case where post dismissal earnings have to be taken into account as mitigation of loss put the claimant in the position she would have been in had she not been unlawfully dismissed. The examples given illustrate that very clearly. On the other hand, the method of calculation proposed by the Respondents does give full value for the mitigation. This is so once it is recognised that it is essential not only to consider the percentage chance of earning the greater sum in the Armed Forces but, also, and counter balancing that chance, the percentage chance that if she had not been unlawfully discharged she would not have earned the sums that she has or will earn in civilian life.

That this is clearly the correct approach can be further illustrated by an example in the field of personal injuries where an employee has been injured, and the employer and the employee have both been found partly to blame for the accident. Mr. Pannick agreed that no distinction can be drawn between that case and the issue that arises in these cases as to the appropriate approach to percentage reductions. An employee earning £10,000 a year is injured in an industrial accident. As a result of his injury he is no longer able to carry on with his pre-accident work but obtains alternative employment at the rate of £5,000 a year. The Court finds that the employer was 50% to blame for the accident and the employee likewise 50% to blame. On the basis of the Ministry’s approach to the calculation of damage one takes the earnings of £10,000, applies the 50% factor arriving at the figure of £5,000 and then deducts the post accident earnings with the result, so the Ministry say, that there is no loss at all. Mr. Pannick submitted that if the Courts adopted any other approach then it must be wrong. In my judgment, taking that analogy, quite plainly the employee has suffered a continuing loss for which he must be compensated. Not only would the Ministry’s approach fail to compensate the employee on the basis of the Court’s findings but it is wholly contrary to the approach to damages for personal injury taken by the Courts which has been established for many years.

Direct support can be found for the approach of the Respondents, in the recent case in this Court of Hartle v. Laceys (a firm) (Unreported. Transcript 28th February 1997). The issue that arose was the evaluation of the chance of a more advantageous sale of property which was lost as a result of the negligence of the Defendants. That chance was assessed at 60%. The Plaintiff had a 60% chance of selling the property at a figure of £360,000 after deduction of the costs of sale. The property was later sold for £150,000.

In his judgment Ward, L.J., with whom Beldam, L.J. and Schiemann, L.J. agreed, said:

“When I put my tentative views to the parties, I said, without giving it much thought at all, that credit against the damages of £216,000 should be given for the £150,000 actually received. That would mean judgment for £66,000. But is that the right approach? Prompted by Mr. Davidson once again so fairly sowing seeds of doubt about the correctness of that approach, I have wrestled with the mathematics. If ‘a’ is the lost sale proceeds and ‘b’ the actual proceeds, are the damages properly to be awarded (a x 60%) - b or are they (a - b) x 60%. That can be further reduced to either 0.6a - b or 0.6a - 0.6b. On the figures, is it £216,000 - £150,000 i.e. £66,000 or is it 60% of the difference between £360,000 and £150,000 i.e. £126,000.

Reducing the formulae to appropriate language, is the measure of damages the difference between the value of the opportunity to sell before 18th November 1988 and the value of the opportunity to sell after that date or is it the difference between the price he lost the chance of achieving and the actual selling price, that difference being reduced by 40% to reflect the value of the chance? I confess I have not found it easy to decide.

I have come to the conclusion the latter approach is the correct one. Take slightly different facts. Assume just for the sake of the argument that Berkeleys were in Mr. Wyllys’ office with the banker’s draft for £375,000 in one hand and pen poised in the other to sign contract and conveyance when the Sloggets telephoned to say they had registered their charge, so the deal was lost. One might well then say that Mr. Hartle had lost a certain sale, or one as certain as certain can be. His damages would be a - b with no discount because the chance is assessed at 100%. If the chance were 99%, one would make the 1% reduction. On the facts we have found a - b is to be reduced by 40%. The unfairness of the former solution can be tested in this way. Assume we had found an 80% chance of a sale. 80% of £375,000 is £300,000. Assume the property was sold 12 months later for £300,000. It cannot be right that the loss of such a high chance does not sound in damages. If the 0.6a - 0.6b formula is adopted, then the loss of the chance always has a value.

Look at it another way. When Miss Chaplin lost the opportunity to participate in Mr. Hick’s beauty contest, there was nothing left for her. She had lost the only chance she would ever have of winning the prize. Having lost the chance, she was left with nothing. Mr. Hartle did not lose everything when he lost this sale. He lost the chance of the sale but he did not lose the property itself. He retained the chance to sell it at some indeterminate time for some indeterminate price. He lost the chance of getting the excess of a over b but his chance of getting a - b was only 60% and so he should only recover 60% of it.

In my judgment Mr. Hartle is entitled to damages of £126,000 under this head of his claim.”

Mr. Pannick was unable to distinguish that case from the present cases save to submit that Hartle v. Laceys related to a different type of problem. That is true but, in my judgment, the principle to be applied is identical. Alternatively, Mr. Pannick submitted that Hartle v. Laceys was wrongly decided. I do not agree, and it provides powerful support for the submissions made by the Respondents on this issue.

For those reasons I would dismiss the Respondent’s appeals on this issue.

Second Issue.

The second issue is to the proper approach by Industrial Tribunals to “cumulative chances”. Making the assumption that the Applicant had not been wrongfully dismissed, she would have varying prospects of remaining the Armed Forces at different point in her career, and the Tribunal must make an assessment of those chances. For example, in Mrs. Donald’s case the Tribunal assessed the chance of her returning to the Army after the birth of her first child at 90%, the chance that she would have taken maternity leave for the birth of her second child as 50%, and the chance that she would have returned to the Army after the birth of her second child at 25%.

The Ministry submits that the percentage chances must be applied cumulatively. Miss Rose, on behalf of Mrs. Wheeler and Mrs. Donald, submitted that it was open to the Tribunal to approach the task in the way submitted by the Ministry but that, equally and alternatively, it was open to the Tribunal to consider each period in the round and reach an overall conclusion which takes account of the Applicant having left the Services prior to the commencement of the relevant period. At the end of the argument, there was not a great deal dividing the parties because Mr. Pannick agreed that the approach adopted by Miss Rose was acceptable providing, and only providing, the Tribunal made it crystal clear that they were adopting the correct approach.

In the case of Mrs. Wheeler the Industrial Tribunal said at paragraph 37:

“Again, looking at what Mrs. Wheeler did do, we assess that there was an 85% chance that she would similarly have taken maternity leave for the second child and returned to work thereafter. However, again, bearing in mind what Mrs. Wheeler actually did after that, we assess that there was only a 20% chance that she would have completed 22 years.”

In Mr. Donald’s case the Industrial Tribunal said at paragraph 14:

“As to the award we have when completing our calculations stood back and used a due sense of proportion and we set out the award. This required the Tribunal to deliberate at length at each stage of its percentage chance consideration and to pay due regard to its findings of percentage chances at the preceding stage. We appreciate that there is a school of thought that will calculate such chances on a percentage of a percentage but if we had adopted such a method we would not have reached a just and sensible award and would have had to reappraise our chance findings.”

Accordingly the Tribunal did not, in this case, adopt a cumulative chance approach. On the contrary, they rejected the approach that the second percentage chance must be a percentage of the first percentage chance and indicated that if they had adopted that approach they would have reached a different result. Mr. Pannick submits that that approach must be wrong in principle and the E.A.T so found.

In Ministry of Defence v. Hunt and ors. (Supra) the E.A.T. said at page 561:

“The three questions required to be asked by Ministry of Defence v. Cannock [1994] I.C.R. 918 will usually result in the differential quantification of chances. For example, an Industrial Tribunal on the evidence in a particular case, may conclude that there was an 80% chance that a woman would have availed herself of maternity leave before returning to Service but only a 40% chance that she would have proceeded to complete the full period of her engagement thereafter. In quantifying loss of earnings, this would require an Industrial Tribunal to apply the 80% figure to the first period. However, for the subsequent period the appropriate calculation would be cumulative, this is to say 40% of the 80%, and not 40% of the original 100%.”

In Mrs. Wheeler’s case the E.A.T. said at page 578:

“The Industrial Tribunal sets out the principles to be applied to the calculation or compensation of paragraph 46 of the decision. It refers to a period of 100% of Army earnings, followed by the period of 85% of such earnings, and a subsequent period of 20% of those earnings. Mr. McManus submits that this amounts to a misdirection in law by failing to assess Mrs. Wheeler’s chance of completion from 6 months after the birth of the second child to the end of 22 years by multiplying percentage chances cumulatively. He submits that the Industrial Tribunal ought to have awarded Mrs. Wheeler 17% of her lost earnings for that final period, viz. 85% of 20%. Miss Simler seeks to deal with this submission by contending that there is no error of law or misdirection. She submits that the Tribunal made an overall assessment of the relevant chances and made findings of fact which justify the final figures of 85% and 20%. In our judgment, it is clear from the wording of paragraph 46 that the Industrial Tribunal was contemplating the application of different percentage figures at different stages but to the same base earnings figures. There is nothing on the face of the decision to suggest that the Tribunal was giving discounted figures which took into account the effect of cumulative chances. In our judgment, the submission on behalf of the Ministry of Defence on this issue is correct and its appeal on this point will be allowed. The consequences are purely arithmetical and do not necessitate a remission to the Industrial Tribunal.”

In Mrs. Donald’s case the E.A.T. said at page 584:

“On behalf of the Ministry of Defence, Mr. McManus submitted that the Industrial Tribunal carried out the calculation by applying the percentage chance at each stage in isolation from the preceding stage. That, he submitted, is a misdirection which leads to over compensation. The submission is that the chance at each stage should be assessed by multiplying the percentages cumulatively so that the figure applied at each stage is a percentage of a percentage......

On behalf of Mrs. Donald, Miss Rose submits that the Tribunal explained in that passage that the percentages selected by it were selected on the basis that they were not applied cumulatively. It is clear, she submits, that if the Tribunal had applied cumulative percentages the percentages would have been much larger. In our judgment, the proper approach is for the Tribunal first to quantify the percentage chance or chances. It should do that before considering the consequential arithmetic. Having arrived at differential percentage chances, it is then incumbent on the Tribunal to make a cumulative calculation on the basis of a percentage of a percentage. This the Tribunal did not do in the present case.”

Accordingly the matter was remitted to the Industrial Tribunal for reconsideration.

Mr. Pannick submits that as a matter of plain logic, if there are a series of contingencies, the possibility of the second factor occurring is a percentage of the first factor. The first question that must be asked is what is the percentage chance that the Applicant would return to the Forces on the first day that she could after the birth of her child. The second question is the percentage chance that she would have remained in the Forces for 5 years. The next question is whether she would have remained after the period of 5 years. That question can only be answered logically as a further percentage chance of the percentage chance on day 1.

In my judgment, Mr. Pannick is correct in submitting and the E.A.T. were correct in concluding that the percentage chances must be applied cumulatively. Miss Rose was concerned that if Tribunals take this approach then there is a risk of injustice to Applicants in that Tribunals are likely to assume that there is a decreasing percentage chance that the claimant would remain in the Forces after the conclusion of the first period. Thus, for example, if they find that there is, say, a 50% chance that the Applicant would have returned for the Forces for a period of 5 years, the natural inclination is to assume that the prospect of remaining in the Forces for a further period is less than 50%. Miss Rose says that in many cases, once it is found that there is a 50% chance that the claimant would have returned initially there is then a more than 50% chance, say a 70% chance, that she would have remained after the conclusion of the first period. Thus the factor in such a case would be 50% x 70%, namely 35% whereas the temptation is to reduce the first factor of 50% for the first period to, say, 30% for the second period so arriving at 50% x 30% = 15%. I understand this point, and no doubt Tribunals in making their assessments with the assistance of the parties' representatives will be alive to it.

Accordingly, in my judgment, the cumulative percentage approach must be adopted. However, whereas this Court must decide questions of principle it does not tell Tribunals how they should carry out their tasks. That is a matter for them. As Mr. Pannick agreed, provided they make it clear that they have adopted the correct approach, they are entitled then to approach their task in the way that they find most satisfactory, although they may find it simplest to set out the mathematical cumulative discount.

I would dismiss both Mrs. Wheeler’s and Mrs. Donald’s appeals on the question of principle on this second issue. Mrs. Donald’s case will, as ordered by the E.A.T., be remitted to the Industrial Tribunal. In Mrs. Wheeler’s case the E.A.T. held that the consequences of their finding were purely arithmetical and so did not require a remission to the Industrial Tribunal. That conclusion may be correct, but I am not wholly convinced that it is. I have concluded that it is fairer to Mrs. Wheeler that her case should also be remitted to the Industrial Tribunal for consideration in the light of the judgments of the E.A.T. and this Court.

Lord Justice Mantell.

I agree that the appeals and cross appeals should be dismissed and that the cases of Mrs Wheeler and Mrs Donald should be remitted to the Industrial Tribunal for reassessment.

I would only wish to add a few words on the point arising in the women's appeals. Taking the famous example, a correct analysis would seem to be as follows: the claimant has lost and is entitled to be compensated for a 50% chance of recovering the difference between what she would have earned over a 12 month period in the service and what she did earn or could have earned in alternative employment. In the example, therefore, the claimant would be entitled to recover 50% of the difference between £10,000 and £5,000, that is £2,500. If, as I believe it to be, that analysis is correct nothing is achieved by seeking to express the principle in terms of a mathematical formula and looked at in that way it is immediately apparent that full weight has been given to the money earned from alternative employment and that there is no question of the claimant being over compensated. Similarly, in calculating the ´difference' and in an appropriate case full credit would have to be given for any sum paid by way of compensation. The discount for contributory negligence, if any, does not arise until that loss has been established when one looks to see what proportion of the loss it is just and equitable for the claimant to bear. It follows that the Employment Appeal Tribunal did not err in its approach which unlike that of the Ministry of Defence produces a result which is consistent with justice, commonsense and the decision of this court in Hartle -v- Laceys (A Firm) (Unreported Transcript 28 February 1997).

Lord Justice Hirst.

I agree with both judgments.
Order: Appeals and cross appeals dismissed; appellant to pay the respondents' costs; legal aid taxation of the respondent Joslyn's costs; costs of the cross appeals to be borne by the respondents Donald and Wheeler; application for leave to appeal to the House of Lords refused.

Order not part of the judgment of the court


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