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You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Ibex Trading Co Ltd (In Administration) v Walton & Ors [1994] UKEAT 911_93_2106 (21 June 1994) URL: http://www.bailii.org/uk/cases/UKEAT/1994/911_93_2106.html Cite as: [1994] UKEAT 911_93_2106

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BAILII case number: [1994] UKEAT 911_93_2106

Appeal No. EAT/911/93

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 21 June 1994

Judgment delivered on 13th July 1994

Before

THE HONOURABLE MR JUSTICE MORISON

MRS M E SUNDERLAND JP

MR G H WRIGHT MBE

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IBEX TRADING CO LTD (IN ADMINISTRATION)          APPELLANTS

(1) R W WALTON & OTHERS

(2) ALPINE (DOUBLE GLAZING) CO LTD          RESPONDENTS

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Transcript of Proceedings

JUDGMENT

Revised


 


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APPEARANCES

For the Appellants MR J BOWERS

(of Counsel)

Messrs Wilde Sapte

Solicitors

Queensbridge House

60 Upper Thames Street

London EC4V 3BD

For the Respondents MR A HOGARTH

(of Counsel)

Messrs O H Parsons

& Partners

Solicitors

212-224 Shaftesbury

Avenue

London WC2H 8PR


 


MR JUSTICE MORISON:

Background

Alpine Double Glazing were, before certain events in 1991, a well known company which sold double glazing products to the public. It was not a profitable venture. The Furniture, Timber and Allied Workers Union was a recognised union and had negotiated for the company's employees rates of pay more favourable than that provided for in the National Agreement. At the beginning of 1991 no wage increase was on offer and the employees voted for strike action; they were locked out but on their return to work they were paid for the time they were out but not given any wage increase.

In July 1991, Alpine's parent company decided not to continue to support it and caused it to apply for administrative receivership. On 8 August 1991 an Administration Order was made and a Mr Barry and a Mr Montjack, accountants, were appointed joint administrators. Because of underlying debt and future obligations under guarantees, it was not judged sensible to seek to dispose of the shares, but rather to make an arrangement whereby the business could be transferred free of debt and commitments. The administrators sought to reduce the size of the workforce and to reduce the wages of those who remained. To this end a meeting was held which was attended by the shop stewards, a full-time official and one of the two administrators. The workforce was told by the administrator that a new method of payment was being put into operation which would mean a substantial reduction in wages. He also announced the start of the 30 day consultation process, although the number of redundancies he had in mind were not disclosed.

Letters were sent to each of the employees which they were asked to sign, accepting the new lower wage arrangements. Although the letter did not say that this would be the consequence, those who refused to accept, that is 40 out of a total of 94, were dismissed by reason of redundancy. The fact that the Production Manager calculated that he needed only to retain exactly 54 people, the precise number who had accepted the reduction, was said to be a co-incidence.

The decision was implemented and the 40 refuseniks were dismissed, despite the Union's suggestions that if 40 redundancies were called for it should be done on the basis of last in first out.

The dismissals were effected by letters sent on October 16 1991 which took effect at 4 November 1991. On November 11 1991 an offer to purchase the business was made, which ultimately led to a purchase of Alpine's business by a shell company which then changed its name to Alpine. The negotiations with the prospective purchaser proceeded and came to fruition when a contract was signed on 13 February 1992.

The transferor company changed its name to Ibex Trading Company Limited and the new company, the transferee, is called Alpine (Double Glazing) Company Limited; that company went into liquidation whilst the hearings before the Industrial Tribunal were taking place.

To avoid any confusion arising from company name changes, throughout this Judgment we shall refer to the companies as the transferor and the transferee, respectively. We shall refer to the dismissed employees as the employees.

The employees presented complaints to an Industrial Tribunal alleging that they had been unfairly dismissed and claimed relief against the transferor and transferee. The matter came before an Industrial Tribunal held at Newcastle upon Tyne on May 11 1993, a considerable time after the IT1s had been presented and after the dismissals of which complaint was being made. At that date, the transferee was still in business and, as counsel, who appeared for the employees at that time, as well as on the appeal, acknowledged, it was perceived to be to his clients' advantage that there should be a finding against the transferee so that any award they obtained would be against a solvent target. However, around the third day of the hearing the transferee went into liquidation, and it became clear that the employees would be better off if their claim succeeded against the transferor, which, although in administration, had some assets; whereas it was believed that there would be no dividend from the liquidation of the transferee. As a result, the emphasis of the case changed in midstream. This sequence of events may go some way to explaining why, in certain parts of their well-reasoned Decision, the Industrial Tribunal may have fallen into error. Further, we have had the benefit of able argument and assistance from counsel, Mr John Bowers, on behalf of the transferor; whereas the transferor was not legally represented in the Industrial Tribunal.

The Industrial Tribunal Decision

The reasoning behind the Decision may be summarised thus:

1. As to the dismissals, the reason for them was either redundancy [paragraph 13] or "one connected with a relevant transfer" within the meaning of Regulation 8(1) of the Transfer of Undertakings (Protection of Employment) Regulations 1981 ["the Regulations"]. "The reason was not the sale to [the transferee]. That had not been contemplated at that time." The business needed to be made attractive to a prospective purchaser; it was uneconomic "and it was hoped to make it more economical and therefore saleable by reason of the redundancies" [paragraph 14].
2. The dismissals were not automatically unfair because of the application of Regulation 8(2), and the Tribunal had to consider whether or not they were fair within the meaning of section 57(3) of the Employment Protection (Consolidation) Act 1978 ["the Act"] [paragraph 14].
3. The Industrial Tribunal found as facts [paragraphs 9, 13 & 15] that: there was no customary arrangement or agreed procedure relating to redundancy; the employees were never specifically told that their jobs were at risk if they refused to accept the lower wages; there was no consultation or discussion with the recognised Union about the method of selection; the employees were never consulted and given the chance to accept a change in their wages rather than face dismissal. Accordingly, they concluded that the dismissals were "clearly unfair".
4. The employees were not employed immediately before the transfer, within the meaning of Regulation 5(3). Even if a dismissal can be connected with a relevant transfer within the meaning of Regulation 8(1) where, as here, there was no identified purchaser and no certainty that there would ever be a sale, it would be extending the decision in Litster v Forth Dry Dock Co Ltd [1989] ICR 341 too far to say that employees were employed immediately before a transfer when many months elapsed between dismissal and transfer. They noted that in Litster there was a gap of one hour between dismissal and transfer and there had been collusion between transferor and transferee in an attempt to avoid the impact of the Regulations. The Industrial Tribunal, therefore, concluded that on a proper construction of the Regulations the liability remained with the transferor and was not transferred under Regulation 5.

Shortly before the Appeal was due to be heard, the employees sought from us leave to join the administrators as additional respondents, in the mistaken belief that following the decision of the Court of Appeal in Powdrill & Another v Watson & Another

The Independent 22 March 1994, administrators were personally liable in respect of contracts of employment which they adopted. That application was refused as being misconceived.

THE APPEAL

Without doing full justice to them, we summarise the main points which were argued on this appeal.

A. Arguments on behalf of the Transferor (the Appellant)

(1) The Industrial Tribunal should have applied Litster rather than seeking to distinguish it. The House of Lords held that, in order to give effect to the purpose of the Regulations and the Directive, the words "so employed immediately before the transfer" should be construed to include those persons who would have been so employed had they not been dismissed unfairly before the transfer for a reason connected with the transfer. Therefore, on the finding by the Industrial Tribunal that the employees had been dismissed in connection with a transfer, they were persons who, but for that dismissal, would have been employed immediately before the transfer on February 13 1992. The House of Lords decision is not to be treated as applying only where there is a very short gap between the dismissal and the transfer; nor is it to be confined to those cases where there has been collusion between transferor and transferee to avoid the application of the Regulations. In support, reliance was placed on a decision of this Tribunal in Harrison Bowden Ltd v Bowden [1994] ICR 186 at page 191F.

5. The Industrial Tribunal gave an unduly wide meaning to the word "economic" in Regulation 8(2) where the words are:

"Where an economic, technical or organisational reason entailing changes in the workforce of either the transferor or the transferee before or after a relevant transfer is the reason or principal reason for dismissing an employee ..."

In Wheeler v Patel & Another [1987] ICR 631 the EAT chaired by Scott J, as he then was, refused to follow a decision of the EAT held in Scotland and presided over by Lord Macdonald [Anderson v Dalkeith Engineering Ltd [1985] ICR 66], and said:

"A desire to sell a business so as to obtain in money the value of the business is an economic reason for the sale; a desire to obtain an enhanced price is an economic reason. If Lord Macdonald's view as to the scope of the phrase "economic, technical or organisational" is correct, it is difficult to think of any case falling within paragraph 8(1) where the reason for dismissal would not be an "economic" reason for the purposes of paragraph 8(2). Paragraph 8(1) applies where "the transfer or a reason connected with it is the reason or principal reason" for the dismissal. The transfer is, itself, in a sense an economic reason. If the case is to be taken out of paragraph (1) wherever the reason for the transfer is an economic reason in the broad literal sense, it does not seem to us that any scope will be left for paragraph (1). We think "economic" must be given a more restricted than literal meaning.

.................

The references to "technical" and to "organisational" reasons seem to us to be references to reasons which relate to the conduct of the business. In our view, the adjective "economic" must be construed eiusdem generis with the adjectives "technical" and "organisational". The "economic" reasons apt to bring the case within paragraph (2) must, in our view, be reasons which relate to the conduct of the business. If the economic reason were no more than a desire to obtain an enhanced price, or no more than a desire to achieve a sale, it would not be a reason which related to the conduct of the business. It would not, in our judgment, be an "economic" reason for the purposes of paragraph (2). We think the need to leave a sensible scope for paragraph (1) similarly requires a limited meaning to be given to the adjective "economic" in paragraph (2)."

[See also Gateway Hotels Ltd v Stewart & Others [1988] IRLR 287, a subsequent decision of an Appeal Tribunal held in Scotland, which followed Wheeler rather than Anderson]

6. Thus, the Industrial tribunal should have concluded that:

(a) the employees were dismissed for a reason connected with the transfer within the meaning of paragraph 8(1) of the Regulations and were deemed to have been unfairly dismissed;

(b) the reason for the dismissals did not fall within paragraph 8(2) of the Regulations;

(c) but for their dismissal, they would have been employed in the undertaking at the time of the transfer to the transferee, within the meaning of paragraph 5(3), as interpreted by the House of Lords in Litster, and, therefore, the liability for unfair dismissal was transferred to the transferee under paragraph 5(2).

7. The decision that the dismissals were unfair was perverse or demonstrated a misdirection.

B. Arguments on behalf of the employees

8. The fair result of the case is that the transferor should be liable.
9. The EAT should follow the decision of the EAT, sitting in Scotland and presided over by Lord Coulsfield, in Allan & Others v Stirling District Council [1994] IRLR page 20. There, employees of the Council were dismissed when, as a result of compulsory competitive tendering, the work done by the employees in the Council's direct services organisation was contracted out to a third party company. The Industrial Tribunal held that the dismissals were unfair under Regulation 8(1) of the Regulations and that the employees would, but for their dismissal, have been employed in the undertaking which was transferred to the third party, and, following Litster, they were employees to whom Regulation 5(3) applied and, thus, under Regulation 5(2), responsibility for the dismissals and for the payment of compensation fell solely upon the third party. The EAT, in an interesting judgment, held that

"... it would not be right to regard Regulation 5(2) as transferring to the transferee responsibility for a dismissal carried out entirely by the transferor and taking effect before, or simultaneously with, the transfer, to the exclusion of any liability on the transferor in the absence of an express provision to that effect."

10. Thus, it was argued, in this case, both the transferor and transferee are liable for the unfair dismissal.
11. Alternatively, the dismissals were effected before the transfer was more than a mere possibility and, therefore, Regulation 5(3) did not apply and this was simply a case of unfair dismissal by the administrators on behalf of the transferor, and that liability is not passed over to the transferee.

The application of the Regulations is seldom straightforward, as anyone who sits on Industrial Tribunals and in this Tribunal know. There is always a real danger, in this area, of hard cases making bad law and of points being decided beyond what is strictly necessary for the particular decision. For understandable reasons, it is sometimes tempting for parties to open up issues which do not strictly arise: whether it be people who frequently act as administrators or Unions who frequently have to confront transfer situations. The circumstances in which points relating to the Regulations, or the analogous continuity provisions in Schedule 13 to the Act, vary. As the House of Lords pointed out in Litster a purposive approach to the construction of the Regulations required an extended interpretation of the words of Regulation 5(3): it was unsatisfactory to leave employees to whistle for their money from the transferor, who was frequently not in a position to pay. In this case, it is somewhat anomalous that the administrators of the transferor should be striving to have the liability transferred to the transferee, whereas the employees are anxious to say that the transferor is liable, either solely or jointly with the transferee. Normally, one would expect each to take exactly the opposite position. In issues as to continuity, an Industrial Tribunal is likely to be influenced by the presumption in favour of continuity and to find a transfer of a business wherever the facts make such a finding possible.

It is, therefore, necessary that we tread warily because of the unusual circumstances in which this case comes before us.

That said, we have not had any real difficulty in reaching our conclusions which may be summarised thus:

12. Contrary to what was said in the Harrison Bowden case, we attach significance to the definite article in Regulation 8(1) "that employee shall be treated .... as unfairly dismissed if the transfer or a reason connected with it is the reason or the principal reason for the dismissal". The link, in terms of time, between the dismissals and the transfers will vary considerably. In Litster the time difference was one hour; often it will be more. A transfer is not just a single event: it extends over a period of time culminating in a completion. However, here, the employees were dismissed before any offer had been made for the business. Whilst it could properly be said that they were dismissed for a reason connected with a possible transfer of the business, on the facts here we are not satisfied that they were dismissed by reason of the transfer or for a reason connected with the transfer. A transfer was, at the stage of the dismissal, a mere twinkle in the eye and might well never have occurred. We do not say that in every case it is necessary for the prospective transferee to be identified; because sometimes one purchaser drops out at the last minute and another purchaser replaces him.
13. In any event, it seems to us, on the facts, to be difficult to say, by reason of the timing of the dismissal and the sale of the business, that the employees would have been employed at the date of completion but for their dismissal, and we adopt what the Industrial Tribunal said on this point towards the end of paragraph 16 of their Decision.
14. Therefore, adopting the interpretation of the House of Lords in Litster, under Regulation 5(3) the employees were not employed in the undertaking immediately before the transfer and their dismissal was not for a reason falling within Regulation 8(1). Accordingly, Regulations 5(1) and 5(2) do not apply to make the transferee liable.
15. We agree with the submission that the Industrial Tribunal erred in their approach to Litster. They took the view that they were not prepared to imply further words into the Regulations or to extend the principles enunciated there. We, for our part, do not think that any question of implying further words is required: it is simply a question of seeking to apply the decision as it stands. Further, we do not think that Industrial Tribunals should seek to distinguish the case on the basis that in Litster there was collusion between transferor and transferee, whereas in this case there was none. We do not read the speeches in the House of Lords as being confined in that way.
16. If, as we hold, Regulation 8(1) did not apply to render the dismissals automatically unfair, the question as to the application of Regulation 8(2) does not arise. We should say, however, that Industrial Tribunals would be well-advised to have regard to the judgment in Wheeler, to which we have referred, when considering whether there is an economic, technical or organisational reason for the dismissal. It follows, therefore, that we are of the view that the Industrial Tribunal fell into error when it moved from the premise that the business was uneconomic and the dismissals were designed to make it more economic and therefore saleable, to the conclusion that the reason for the dismissal fell within Regulation 8(2) [paragraph 14]. That was the very argument adopted by Lord Macdonald in Anderson, which may now not be regarded as a decision to be followed.
17. We understood from counsel for the employees that the transferee does not have any money and they would be content with a finding merely against the transferor. In these circumstances the question as to whether we ourselves would be prepared to follow Allan, does not strictly arise for decision in this case. We understand that Allan is under appeal to the Inner House. We have not heard full argument on the question and, accordingly, our views are obiter and necessarily tentative. For our part we would not have been prepared to follow Allan. Although Article 3(1) of Council Directive No 77/187 leaves open to a Member State the power to

"provide that, after the date of transfer within the meaning of Article 1(1) and in addition to the transferee, the transferor shall continue to be liable in respect of obligations which arose from a contract of employment or an employment relationship"

the United Kingdom Parliament, when it introduced the Regulations into our law, did not avail itself of that opportunity. In other words, contrary to the approach of the Scottish EAT, we would have said that, in the absence of express language, subject to Regulation 5(4), where Regulations 5(1) and 5(2) apply the transferor ceases to be the employer of those whose contracts of employment are transferred; all [we emphasise] his rights powers, duties and liabilities in relation to the contract are transferred and, for the avoidance of doubt, everything he did prior to the transfer shall be treated as though it had been done by the transferee. The scope of Regulations 5(1) and (2) could not be wider and is inconsistent, we think, with the transferor remaining liable, after the transfer, for anything connected with the employment of those to whom the Regulation applies. The primary meaning of "transfer" in the 1989 edition of the Oxford English Dictionary is

"To convey or take from one place, person, etc to another, to transmit, transport, to give or hand over from one to another"

In other words, the use of the word 'transfer' in its natural and ordinary meaning suggests a taking away from one and a handing over to another. This is more consistent with the transferee taking on obligations in place of the transferor than that the transferor retains liability.

We were told by counsel that they were unaware of any academic support for the view adopted in Allan. Having regard to the definition of "transferor" in the Directive and the decision in Wendelboe v LJ Music [1985] ECR we consider that the interpretation in Allan, namely, that in the absence of express language to the contrary, the transferor remains liable, is inconsistent with the Directive and has no support in any decision of a United Kingdom court or tribunal.

We stress, we did not have the benefit of full argument on the point.

18. It seems to us that the argument that the Industrial Tribunal had wrongly approached the question of unfairness is unsustainable. It is said that they failed to refer or apply the 'band of reasonable responses' test or to recognise the purpose and effect of the Administration Order or to take account of the size and administrative resources of the transferor. None of these points has any merit, in our view. There is no need for a Tribunal to mention the band of 'reasonable responses test' merely to show that they have applied themselves to section 57(3) correctly: we look at the substance and not form of the decision. Nor is a Tribunal to be criticised for failing to mention the size and administrative resources of the employer simply for form's sake. Where such a matter is important no doubt it will be mentioned. The Tribunal were fully alert to the purpose of the Administration Order as what they said in paragraph 14 of their Decision makes clear. This was a very plain case of unfairness, as the Tribunal themselves said. We hope that there is no view going about that administrators can behave as they like to the employees of the company of which they are the agent, and use, as an excuse for unfairness, the economic circumstances of the company which brought them there in the first place. Employees are always entitled to be treated with respect, especially where their jobs may be at risk due to economic circumstances which may be out of their own control to a greater or lesser extent.
19. Accordingly, we do not need to deal with an argument raised on behalf of the employees that the Industrial Tribunal were perverse in concluding that there was neither an agreed procedure or customary arrangement for selection for redundancy and that these dismissals were in breach of such. Suffice it to say we considered in advance of the hearing that such an argument was likely to be as hopeless as the challenge to the finding of unfairness.

It follows, therefore, that we have differed from the Industrial Tribunal on two matters:-

(1) the application of Regulation 8(1);

(2) the proper interpretation of Regulation 8(2).

It was submitted to us, on behalf of the transferor, that we should remit the matter back to the Industrial Tribunal for it to re-consider the matter in the light of our Judgment. Under paragraph 21(1) of Schedule 11 to the Act, for the purposes of an appeal we may exercise any powers of the Industrial Tribunal. There has been considerable delay in this case. Further, we do not think that there would be any point in remitting the matter: the Decision on unfairness was clear and obvious and we can, without injustice to either party, resolve the matter ourselves.

Accordingly, we can simply dismiss the appeal on the grounds that the employees were unfairly dismissed by the transferor who, alone, is responsible for meeting any liability.

It seems to us that a further hearing by the same or a differently composed Industrial Tribunal should be arranged as soon as is practicable so that the question of compensation can be determined, in default of agreement.