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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Dolphin Drilling Ltd v. Tor Drilling (Uk) Ltd [2005] ScotCS CSIH_64 (23 August 2005)
URL: http://www.bailii.org/scot/cases/ScotCS/2005/CSIH_64.html
Cite as: [2005] CSIH 64, [2005] ScotCS CSIH_64

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Dolphin Drilling Ltd v. Tor Drilling (Uk) Ltd [2005] ScotCS CSIH_64 (23 August 2005)

FIRST DIVISION, INNER HOUSE, COURT OF SESSION

Lord President

Lady Cosgrove

Lord Mackay of Drumadoon

 

 

 

 

 

[2005CSIH64]

XA140/04

OPINION OF THE COURT

delivered by THE LORD PRESIDENT

in

APPEAL TO THE COURT OF SESSION

under Section 37(1) of the Employment Tribunals Act 1996

by

DOLPHIN DRILLING LIMITED

Appellants;

against

TOR DRILLING (U.K.) LIMITED

Respondents;

 

 

_______

 

 

Act: Brailsford Q.C.; Simpson & Marwck (for Appellants)

Alt: Napier, Q.C.; Tods Murray (for Respondents)

23 August 2005

 [1]      This appeal concerns the applicability of the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("the regulations") to certain former employees of the respondents, Tor Drilling (U.K.) Ltd ("Tor"). The employees, Mr. Michael Gordon and Mr. Victor Rowlands, took no part in the discussion.

[2]      The circumstances of this case, which are not in dispute, are set out in the judgment of the employment tribunal, which was affirmed by the Employment Appeal Tribunal. In brief they are as follows. On 14 June 1999 Tor entered into a management agreement with China National Star Petroleum Corporation ("CNSP") under which, in return for a management fee and the reimbursement of expenditure, Tor were, inter alia, to maintain Kan Tan IV, a semi-submersible drilling rig owned by CNSP, in a fully operational condition, ship-shape and seaworthy, and to provide a sufficient qualified crew. Tor were also to undertake the marketing of the rig for hire. As is normally the case with such an arrangement, Tor supplied personnel but not plant and equipment. After an agreed programme of refurbishment had been carried out, the rig was by May 2000 "hot stacked", i.e. it was in a condition in which everything was working, engines were tested daily and the rig could be made ready for operations within a short time. At that time there were normally eight persons on board. Apart from a representative of CNSP they were either employed by, or contracted to, Tor. If the rig had been merely "cold stacked", i.e. when all engines were shut down and only an auxiliary generator used to keep on a few lights, Tor would have had only four personnel on board.

[3]      By the end of 1999 no hire contract had been acquired. Relations with CNSP began to deteriorate. In the early part of 2000 CNSP stopped authorising any further major expenditure. Despite further efforts the rig remained unused. By fax dated 14 March 2000 a vice president of CNSP informed Tor that they had decided to terminate the management agreement. In response Tor claimed that CNSP were in breach of contract, and that the purported termination was invalid. A further letter from the vice president on 11 April 2000 stated that he intended giving Tor three months notice of termination, as from the earlier letter of 14 March.

[4]      Meanwhile in August 1999 agents for CNSP had contacted the appellants, Dolphin Drilling Limited ("Dolphin"), whose activities include the operation and management of mobile drilling units. CNSP informed Dolphin that they intended to seek a change in the management of the rig. Negotiations between them led to the signing in March 2000, in Beijing, of a management agreement, the terms and scope of which were, in the words of the employment tribunal, "in all salient respects", identical to those of the agreement between CNSP and Tor. It stated: " This agreement will be effective from date of the signing, but will only enter into full force and effect once the owner has notified the current manager that it intends to terminate the existing management agreement and such termination has become effective". None of these events were known to Tor at the time. On 20 April 2000 CNSP wrote to Dolphin referring to the fact that formal notice of termination had been given to Tor, and confirming that CNSP wished to appoint Dolphin initially to supply crew for the rig once the crew supplied by Tor had left. In their reply, on the same day, Dolphin confirmed that they were willing to supply crew on an interim basis while longer term arrangements for the management of the rig were being finalised, and that during the interim Dolphin would not charge any administration fee, but only direct costs. In discussions before this exchange of letters Dolphin had indicated that they wanted there to be " a clean break", lest an unresolved dispute with Tor might make the marketing of the rig impossible. It was anticipated that, after a short period of "watch-keeping", Dolphin would assume full management of the rig, including its marketing.

[5]      It may be noted that the employment tribunal concluded that, by reason of their language and typescript, the letters of 11 and 20 April, to which we have referred, had been created in Dolphin's office and with their assistance.

[6]      On 19 May 2000 CNSP raised proceedings against Tor in the Court of Session, seeking declarator, interdict and damages based on Tor's alleged breach of contract. On that date the Court interdicted Tor ad interim

"by themselves or by their agents or servants, or by the instruction, procurement or encouragement of anyone else from holding themselves out as having the continuing right to manage or market...the Kan Tan IV... and from boarding or attempting to board or by any means gain access to the Kan Tan IV except with the prior written consent of the pursuers".

[7]      Despite that order, it was agreed between Tor and CNSP that Tor would continue to manage, but not to market, the rig until 11 a.m. on 24 May 2000, at which time they would remove all personnel from the rig. Mr Ian Mitchell, a senior vice president of Dolphin, to whom a copy of the interim interdict was supplied on 23 May, gave evidence to the employment tribunal that he understood the order as meaning that Dolphin could not have Tor personnel on the rig, and that all involvement of Tor was terminated. He claimed that for that reason no contact was made with Tor's personnel. Mr William Clelland, Dolphin's personnel manager, also gave evidence that he understood that the interim interdict prevented him from engaging Tor's personnel to remain on the rig. On 24 May a boat took six Dolphin personnel out to the rig where the Tor personnel introduced them to it. The same boat took Tor's personnel off the rig to the shore. The Dolphin personnel were primarily of marine disciplines, and corresponded approximately to the personnel whom Tor had on board.

[8]      On the same day Tor arranged for arrestments to be placed on the rig in connection with an action at their instance against CNSP. This prevented the movement of the rig, and hence its immediate hiring. In the event the arrestment remained in place until 23 Mar 2001. As at 24 May 2000 funds provided by CNSP, and amounting to $3.5 million, remained in Tor's control. These funds were arrested by CNSP on a warrant granted in their action. Tor presumed that but for the arrestment they would have transferred them to Dolphin.

[9]      Initially Dolphin sent reports to CNSP about the status of various parts of the rig. In July 2000 they obtained authority in regard to the submission of a tender for the hire of the rig, but this did not lead to a contract being made. They remained in charge of the rig, despite expressing a desire to withdraw. In January 2001 they made a further report to CNSP about the status of various items of plant, equipment and systems on the rig. The work involved in this report was of the same kind as Tor had carried out. Eventually, on 23 June 2001, management of the rig was taken over by Maersk, another offshore-related company.

[10]      The discussion before the employment tribunal was concerned with a number of preliminary issues. It was claimed by Dolphin that regulation 2(2) of the regulations was ultra vires, and that in any event the regulations did not apply, in respect that there was " a transfer of a ship without more" within the meaning of regulation 2(2). These claims are no longer maintained by Dolphin. There were two remaining issues for the employment tribunal. The first was whether, with reference to the position on 24 May 2000, there was an undertaking which was capable of being transferred.

[11]      The employment tribunal concluded that the business activity of Tor amounted to an undertaking. Tor had been specifically brought in to existence to carry out the work described in the management agreement. There was an organised grouping of persons devoted to and engaged in the different aspects of the work. They were clearly exercising the activities of providing crew and carrying out repair and maintenance, as well as marketing activities, all in return for a management fee. In the circumstances there was an undertaking consisting of the economic activity of providing the services under and within the framework of the management contract. The totality of that work was separable into (a) the crewing and (b) the marketing, each of which was capable of amounting to an autonomous economic activity.

[12]      For Dolphin Mr Brailsford did not dispute that there had been an undertaking carried on by Tor. He maintained, however, that the interim interdict affected the stability of the entity and required it to cease prior to any putative transfer. In his submission the employment tribunal was in error in concluding that the interim interdict "did not alter the fundamental characteristics of the activity which Tor had been undertaking up to that point" (para 86). The interim interdict was to protect the status quo, which was the termination of the management agreement. Mr Napier, who appeared for Tor, pointed out that the reference to the "stability" of an undertaking derived from the decision of the European Court of Justice in Rygaard [1996] I.C.R.333. However, that decision was generally regarded as having an application which was limited to cases in which an entity was carrying on only a single contract or operation and was likely to have a limited duration (NUMAST v P & O Scottish Ferries, EAT 24 February 2005 at paragraph 24). Mr Napier also submitted that the employment tribunal had been correct in concluding that the interim interdict was not decisive. This was in view of its nature. Permanent interdict might be a different matter. The court should be cautious about accepting that the effect of the regulations could be inhibited by the actions of a third party. In any event it was doubtful whether the interim interdict had the effect of disabling Tor. It was not relevant to crewing: it had not become impossible for Tor employees to remain on board. It was sufficient that there was written consent for them to do so. In these circumstances there was no error of law on the part of the employment tribunal.

[13]      In our view there is no substance in the argument that by 24 May 2000 there had already ceased to be an undertaking which was capable of being transferred. Despite the interim interdict Tor's activities, other than marketing, did not cease. There was no judicial determination that their management agreement was at an end. CNSP could have chosen to insist on their immediate removal, but agreed to their remaining on the rig in order to continue its management until 11 a.m. on 24 May 2000.

[14]      The next issue for the employment tribunal was whether, if there was an undertaking, it was transferred from Tor to Dolphin. It was not in dispute that, if there was such a transfer, it took place on 24 May 2000. The employment tribunal concluded that essentially the same operation was continued. Even if they were wrong in treating the marketing activity as delayed pending clearance of the arrestment, the remainder of the contract, namely the crewing and management of the rig, remained as before. While Tor's employees were not transferred, Dolphin had formed the intention not to engage them. The interdict would not have prevented them from doing so. Dolphin did not have staff of their own to do the work, and engaged others from outside their organisation when there was no valid reason for them not to take on Tor's employees. No material assets were transferred from Tor to Dolphin, but this was not of particular significance when viewed against the contract as a whole. They concluded that the more significant elements were the similarity of activities as between Tor and Dolphin, being the same management responsibilities for the same rig and for the same client, and, further, the position in regard to the employees. They found that these factors pointed to the retention of identity and hence a transfer of undertaking.

[15]      Mr Brailsford submitted that the employment tribunal had erred in law in assessing Dolphin's contract with CNSP. It was subject to a suspensive condition, namely that it would enter into full force and effect only when CNSP had notified Tor of intention to terminate the management agreement and such termination had become effective. In the event Tor did not accept that their management agreement was terminated, and CNSP went to court to make their termination of the contract effective. Furthermore, the employment tribunal was wrong to treat as unconvincing Dolphin's portrayal of themselves as being only caretakers. Mr Brailsford went on to submit that the terms of the interim interdict should be taken along with the evidence of the officials of Dolphin that it had prevented the transfer of Tor's employees. The employment tribunal had wrongly proceeded on the basis that analysis and legal advice would have informed Dolphin's officials that taking on Tor's employees would have fallen outside the scope of the interim interdict, and that there was no valid reason for Dolphin not engaging them. The employment tribunal had superimposed their judgment in place of that of Dolphin. Mr Brailsford also pointed out that the employment tribunal had considered that, unless an incoming contractor had some duty to take positive steps to take on the existing workforce, the whole purpose of the Directive 77/187/EEC, to which the regulations were designed to give effect, might be frustrated. The employment tribunal had not addressed the fact that, until the Dolphin agreement came into effect, there was no legal basis for Dolphin acting in that way. If Tor were maintaining that their management agreement was still in being, any attempt by Dolphin to approach their employees would be wrongful.

[16]      In E.C.M.(Vehicle Delivery Services) Ltd v Cox [1999] I.C.R.1162 at page 1168 the Court of Appeal affirmed that the decision of the European Court of Justice in Spijkers v Gebroeders Benedik Abattoir C.V.(Case 24/85) [1986] 1119 remained authoritative as to the approach to be adopted in determining whether an undertaking had continued and retained its identity in different hands. In Spijkers the Court stated at paragraph 13 that " it is necessary to consider all the facts characterising the transaction in question, including the type of undertaking or business, whether or not the business's tangible assets, such as buildings and moveable property, are transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees are taken over by the new employer, whether or not its customers are transferred and the degree of similarity between the activities carried on before and after the transfer and the period, if any, for which those activities were suspended. It should be noted, however, that all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation". With particular reference to the last of these statements we note that in RCO Support Services Ltd v Unison [2002] I.C.R.751 it was held that the fact that none of the workforce was taken on was not necessarily conclusive on the issue of retention of identity, but was a factor to be considered in making an overall assessment of all the facts characterising the transaction, with no single factor being considered in isolation. It was also held that, as a matter of Community law, a transfer of an undertaking was not precluded even though neither assets nor workforce were transferred.

[17]      As has often been pointed out, the question whether an undertaking has been transferred depends on a factual assessment. We are not persuaded that the assessment made by the employment tribunal in this case was vitiated by any error of law. The contract between CNSP and Dolphin should, as Mr Napier submitted, be seen in the light of the whole circumstances. These included that, as he put it, Dolphin were "in the wings" for long before Tor were aware of their involvement. It appears that Dolphin had a hand in the preparation of the letters from CNSP to themselves dated 11 and 20 April 2000. We agree with Mr Napier that it would be artificial to treat Dolphin as unable to take up a transfer of undertaking from Tor. The employment tribunal were entitled to take into consideration that CNSP's agreements with Tor and Dolphin were in virtually identical terms, and that there was no difference in substance, let alone a temporal gap, between their activities on the rig, as least in regard to crewing and maintenance. The fact that Dolphin did not take on any of Tor's employees was a factor for consideration by them. However, it was for them to consider all the factors objectively. These included their findings that representatives of Dolphin were aware of the application and effect of the regulations, and formed the intention not to take on Tor's employees. They also found that even before the interim interdict they made no contact with Tor or any of their employees, and sought apparently to conceal the fact that they were to take over until the last moment. They said that, in the light of Dolphin's "inexplicable failure" to refer in any of their exchanges to the existence of their agreement with CNSP, they were forced to suspect a pretence that it did not exist.

[18]      We should add that, following the hearing of the appeal, the appellants drew to the attention of the court the decision of the European Court of Justice on 26 May 2005 in Celtec Ltd. v. John Astley and Others (Case C-478/03). At the invitation of the court, parties submitted written argument in regard to the significance, if any, of this decision for the purposes of the present appeal. The judgment of the court is of some interest in respect that it sets out the general purpose of the Directive. However, the point with which the decision was concerned was whether the "date of transfer" in Article 3(1) of the Directive referred to a particular point in time, or whether it could cover events taking place over a period of time. The court concluded that the expression referred to the date on which responsibility for carrying on the business moved from the transferor to the transferee (paragraph 36). In the present case, as we have already indicated, the date of transfer was not an issue between the parties. The question whether there was an undertaking which was capable of being transferred, and the question whether there was such a transfer, were understood by both parties as relating to the position as at 24 May 2000. In these circumstances we do not consider that the decision in Celtec Ltd. affects our views in regard to either of the issues which were debated before this court.

[19]      In these circumstances we are of opinion that the attack on the conclusion of the employment tribunal is not well founded, and, like the Employment Appeal Tribunal, we refuse Dolphin's appeal.

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