EXTRA DIVISION,
INNER HOUSE, COURT OF SESSION
|
Lord Nimmo Smith
Lord Philip
Lord MacLean
|
[2007] CSIH 56
XA143/06
OPINION OF THE COURT
delivered by LORD NIMMO SMITH
in
APPEAL
from the Sheriffdom of
Glasgow & Strathkelvin at Glasgow
in the cause
JOHN MORRISH
Pursuer and Respondent:
against
NTL GROUP LIMITED
Defenders and Appellants;
_______
|
Act: S. Reid, Solicitor
Advocate; Maclay Murray & Spens
Alt: Fairley; Brodies LLP
3 July 2007
Introduction
[1] This is an action of damages for breach
of a contract of employment between the pursuer and respondent ("the employee")
and the defenders and appellants ("the employers"). The employee is the former financial director
and company secretary of the employers.
His conditions of employment were regulated by an agreement dated 6
July 1984
("the agreement") entered into between him and Clyde Cablevision Limited. By operation of the Transfer of Undertakings
(Protection of Employment) Regulations 1981 the rights and obligations of Clyde
Cablevision Limited were transferred to the employers.
[2] Clause 1
of the agreement was in the following terms:
"1. The
Company shall employ the Appointee and the Appointee shall serve the Company as
Financial Director and Company Secretary of the Company and subject to the
provisions for determination of this Agreement hereinafter contained such employment
shall be for a period of three years commencing on First June, Nineteen hundred
and eighty four (notwithstanding the date hereof) and thereafter shall continue
unless and until terminated by either party giving to the other not less than
twelve months written notice thereof expiring on or at any time after Thirty
first May, Nineteen hundred and eighty seven."
[3] By letter
dated 6 January 2005 the employers informed the employee
that his employment was terminated with effect from 29 December
2004 "as a
result of your position being made redundant".
The employee avers that by thus terminating his employment without
giving twelve months written notice thereof as provided by Clause 1 of the
agreement, the employers were in breach of contract. If this is so, then the employee is entitled
to an award of damages in accordance with well-established principles. The leading authority is Hadley v Baxendale (1854) 9 Ex 341, in which Alderson B said, at p.355:
"Where two parties have made a
contract which one of them has broken, the damages which the other party ought
to receive in respect of such breach of contract should be such as may fairly
and reasonably be considered either arising naturally i.e. according to the
usual course of things, from such breach of contract itself, or such as may
reasonably be supposed to have been in the contemplation of both parties, at
the time they made the contract, as the probable result of the breach of it."
Among many subsequent cases, reference may be made to Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 K.B. 528. The employee has raised a commercial action
in Glasgow Sheriff Court in which he claims, in accordance
with these principles, damages under various heads. It is sufficient for present purposes to
refer to these heads simply as they appear in the pleadings: "Diminution in Value of Pension Rights",
"Value of Pension Rights", "Loss of Opportunity to receive 2004 Executive Bonus
Payment", "2004 Executive Bonus Scheme", "Loss of Opportunity to receive LTIP
[Long Term Incentive Plan] Payment", "Loss of Opportunity to exercise Share
Options" and "Breach of Promise to pay one-off Bonus of £50,000".
[4] The response
of the employers is that they were not in breach of contract because the
contract of employment between the parties was subject to an implied term
giving right to the employers lawfully to terminate the contract by making
payment to the employee of a proportion of his salary and emoluments
corresponding to the period of notice stipulated in the contract. Consistently with this approach, it appears
from the letter dated 6 January 2005 that the employers have throughout
been willing to make a payment in lieu of notice ("PILON") to the employee,
together with additional payments "as compensation for loss of contractual
benefits". The question for determination
is whether they are contractually entitled to adopt this position.
[5] By agreement
between the parties, the sheriff heard a debate upon the issue whether the
agreement was subject to the implied term contended for by the employers. Secondary issues in relation to
quantification of the damages claimed were left over for subsequent
resolution. By interlocutor dated 27 February
2006 the
sheriff found that the agreement was not subject to the implied term contended
for by the employers. As appears from
the relative note, the sheriff held that as a matter of general law there is
implied into employment contracts an entitlement in favour of the employers to
dismiss without notice on paying wages and other contractual entitlements in
lieu, but the express provisions of Clause 1 of the agreement were
effective to oust this entitlement in the present case. The employers appealed to the sheriff principal,
who by interlocutor dated 14 June 2006 refused the appeal. He held:
"In my opinion the words used by the
parties in their contract are clear.
They are more than sufficient to oust the term implied ex lege.
The express term has supremacy over the implied term."
He also said:
"In the instant case the implied term
was not necessary to give the contract efficacy but rather it is said to be
implied as a matter of law. I accept
that because the term is implied as a matter of law very clear words are required
in the contract to exclude the implied term.
In the present case I consider that a similar clash occurs between the
express term and the implied term contended for."
The employers have now appealed to this court.
The appeal to this
court
[6] Before us, parties were agreed that, in
general, the Scottish courts will not grant the remedies of interdict or
specific implement with a view to enforcement of a contract of employment. No such remedy is sought in the present case. Accordingly any remedy available to an
employee whose contract of employment has been terminated by his employers is a
pecuniary one. The issue between the
parties is whether, if the employers have terminated the contract without
giving the period of notice provided for by the contract, that constitutes a
breach of contract, entitling the employee to payment of damages in accordance
with the normal principles referred to above, or whether it constitutes the
exercise by the employers of their contractual right under the implied term
contended for by the employers. We intend,
so far as possible, to address this issue only so far as is necessary to
determine the respective rights of the parties under this particular contract
of employment.
[7] Counsel for
the employers submitted that there was an implied term which applied
specifically to every contract of employment, under which satisfaction might be
given by payment in lieu of wages. The
principle under the law of Scotland was that every contract of employment
included an implied right on the part of the employers lawfully to terminate
the contract without giving notice but by making instead a payment to the
employee of a proportion of the salary and emoluments corresponding to the
period of notice expressed or implied under the contract. Counsel sought to derive support for this
from Gloag, Contract, 2nd
ed., p.731:
"[I]n contracts of employment, where
the whole time of the party engaged is devoted to his duties, it is a general
rule that, even although no definite period of employment is specified, neither
party is entitled to terminate the relationship without reasonable notice... Dismissal without notice is not properly a
breach of contract on the part of the employer, but brings into operation an
implied condition of the contract that payment in lieu of notice is due."
The cases cited by Gloag in support of this latter
proposition were Cooper v Henderson (1825) 3 S. 619 (in which no opinions
are reported) and Morrison v Abernethy School Board (1876) 3 R.
945. (Reference was also made before us to
Graham v Thomson (1822) 1 S. 309, another case in which no opinions are
reported.) Since Morrison v Abernethy School
Board is the cornerstone of the grounds of appeal for the employers and
their counsel's submissions, we require to examine it in a little detail.
[8] The old common
law rule was that parish schoolmasters appointed by the heritors had tenure ad vitam aut culpam. This was overridden by section 55 of the
Education (Scotland) Act 1872, which provided:
"After the passing of this Act the
right and duty to appoint teachers of public schools shall be in the respective
school boards having the management of the schools, who shall assign to them
such salaries or emoluments as they think fit, and every appointment shall be
during the pleasure of the school board."
A schoolmaster appointed by a school board at a salary of
£150, and with a free house and garden, was dismissed by the school board
without notice, but received fifteen days' pay, being his salary to the end of
the quarter current at the date of his dismissal. The case came originally before the Second
Division of the Court of Session, whose opinions were equally divided, and, the
matter being of some general public importance, it was heard again before the
Second Division with three judges of the First Division. It was held by a majority (Lord Neaves and
Lord Ormidale dissenting) (1) that although in terms of the 1872 Act the
pursuer held office only during the pleasure of the board, he was entitled at
common law to reasonable notice before dismissal, or to a money payment in lieu
thereof, and (2) that, in the circumstances, three months' notice would have
been reasonable, and that the pursuer was entitled to £50 in lieu thereof.
[9] Lord Deas
said at p.948:
"[T]he pursuer's claim, if he has
one, is, in my opinion, not for damages but for an allowance, or, as he
alternatively calls it, compensation in lieu of notice; ...".
At p.949 Lord Deas said that the contract fell under the
category of an ordinary contract of service for no specific period, and
consequently terminable at pleasure. He
went on:
"The next question is, Does such a
contract imply, in a case like the present, an obligation on the master or
employer to give notice or to make a pecuniary allowance in lieu of notice when
he means to terminate the contract, without alleging fault on the part of the
servant? And my answer to that question
is, that, by the law and practice of Scotland, such a contract does imply that
obligation."
At p.952 he said:
"The contract was that they should
retain the pursuer in their service during pleasure, but it was an implied
condition of that contract that, when they dispensed with his services without
cause assigned, he should be allowed the means of livelihood for a period
within which he might reasonably be expected to find another situation. That I think the fair and reasonable
construction to be put upon such a contract."
Lord Ardmillan concurred in the result of Lord Deas's
opinion. He said, at p.956:
"In requiring reasonable notice, or
reasonable compensation in lieu of notice, I concur with Lord Deas."
Lord Mure said, at p.961:
"By the rules of the law of Scotland I have always understood that in all
cases between master and servant there must either be reasonable notice given
of the intention to make a change or reasonable compensation."
Lord Gifford agreed with Lord Deas and the majority
of the court. Lord Justice Clerk
Moncreiff gave the last opinion. He
said, at p.964:
"The statute necessarily imports the
common law by providing that the teacher shall hold office during the pleasure
of the school board. We are compelled to
resort to the common law to ascertain what are the incidents of a tenure at
pleasure. I think that a tenure at pleasure,
while it implies the right of the employer to dismiss the employed at any time
without reason assigned lays upon him an obligation either to give reasonable
notice or compensation in lieu of notice.
It is not necessary to go into the principle of this rule, because it
has been applied in so very many cases;
but the rule is based on obvious equity.
Our judgment will not allow a schoolmaster to retain his office one day
longer than the board thinks fit; but it
will secure to men offering their services as teachers to school boards that
they will not be obliged to leave suddenly without compensation."
[10] Counsel for
the employers said that he had found no case relating to a contract of
employment which contained an express provision relating to notice and in which
it had also been held that there was the implied term contended for by him.
[11] Morran v Glasgow Council of Tenants Associations and Others 1997 S.C. 279
was a case in which a claim by the employee for damages failed because there
was an express contractual provision that the employers might make a payment in
lieu of notice. The court reserved its
opinion on the question of the relevancy of such a claim in a case where the
employers did not have a specific right under the contract to make a payment in
lieu of notice. Counsel sought to derive
support, however, from passages in various textbooks. In addition to the passage in Gloag quoted
above, reference was made to Fraser, Master
and Servant, 3rd ed. (1881) pp.50-51, Miller, Industrial Law in Scotland (1970),
p.396, Craig and Miller, Employment Law
in Scotland, 3rd ed. (2004), paras.3.87 and 4.3 and the Stair Memorial Encyclopaedia Reissue,
Employment (2000), para.125. It is
sufficient to quote from the last mentioned of these:
"Except in the case of an appointment
ad vitam aut culpam or a contract for
a determinate period, in the absence of an express or implied term relating to
notice a contract of employment may be terminated by either party giving to the
other reasonable notice of termination or, in the case of termination by the
employer, payment in lieu of such notice."
After quoting from Morrison
v Abernethy School Board the passage
continued:
"Thus it is not a breach of contract
for the employer to dismiss without notice provided payment in lieu of notice
is made."
The footnote to this last sentence refers to Graham v Thomson and Cooper v Henderson.
[12] In Scottish Power plc v Kvaerner Construction (Regions) Ltd 1999
S.L.T. 721 Lord Macfadyen held that while there were cases where terms not
necessary to give a contract business efficacy might be implied by the court,
in particular where terms required to be implied as a matter of necessity from
the nature of the contract, as one of the legal incidents of a contract of a
particular sort, such cases had to be regarded as exceptional; and that while no term could be implied which
was contradictory of an express term, the existence of an express term did not
necessarily exclude the possibility of an implied term touching on the same
subject matter. On this basis, counsel
submitted that the implied term he contended for, derived from Morrison v Abernethy School Board, was implied not by reason of business
efficacy, but ex lege. He did not suggest that such a term could not
be excluded, but it could only be excluded by an express, clear and unequivocal
provision. It was more difficult to
displace a term which was implied ex lege
than one implied for business efficacy:
McBryde, The Law of Contract in
Scotland, 2nd ed. (2001), para.9-07. The implied term here was the option to the
employers lawfully to terminate the contract without the giving of notice by
making a payment to the employee of a sum representing the salary and other
emoluments to which he would have been entitled during the period of
notice. This would include all payments
to which he was contractually entitled, such as salary, bonus and pension
contributions, but not any consequential losses he might suffer which were
referable to his status as an employee, but were not part of his contractual
emoluments. Where the option was to
dismiss the employee in one of two ways, the employers were entitled to
exercise the less burdensome of the two options.
Discussion
[13] We are not persuaded by the submissions of
counsel for the employers. The 19th
century cases related to contracts of employment which contained no express
provision for the giving of notice. The
courts recognised that an employee whose contract of employment was terminated
without notice and without payment in lieu of notice might suffer hardship,
particularly where the employee was provided with accommodation by his
employers. For these reasons, out of
considerations of "obvious equity" (Morrison
v Abernethy School Board, per Lord Justice Clerk Moncreiff at
p.964), the courts held that, in a contract at pleasure, there was an implied
term entitling the employee to reasonable notice before dismissal, or to a
money payment in lieu thereof. None of
the decided cases to which reference was made goes so far as to state, as
counsel for the employers invited us to hold, that such a term is implied ex lege into every contract of
employment, irrespective of an express provision entitling the employee to
notice. We can see no reason whatever
for holding that such a condition is implied into a contract, such as the present,
which expressly provides for a period of notice. The passages in the textbooks to which we
were referred, in particular the passage in the Stair Memorial Encyclopaedia quoted above, all appear to us to
relate to contracts of employment without such express provision. Provisions are not to be held to be implied
into contracts except for good reason.
It was not suggested to us that business efficacy required such a
provision to be implied, or that it was required for the protection of the
employee. Such protection is only required
where the employee is not otherwise entitled to a period of notice.
[14] It appears to
us that the purpose of Clause 1 of the contract of employment in the
present case was to allow the parties to the contract to know where they stood
for the period of not less than twelve months after the giving by either of
them of written notice of termination of the contract. The employee, in particular, would have the
security of knowing that during that period he would continue to receive his
salary and emoluments and the other benefits flowing from his continuing to be
employed during that period. The implied
term contended for does not provide the employers with alternative options, as
their counsel submitted: it would be
manifestly contradictory of the express terms of Clause 1. We can see no reason for holding that a term
should be implied which would have the effect of depriving the employee of the
normal remedy of damages for breach of contract, the purpose of which would be
to put him in no worse a financial position than that in which he would have
been had the employers fulfilled their contractual obligations to him. Even express provisions which have the effect
of limiting or excluding damages are subject to strict rules of construction,
and a fortiori the same approach
should be applicable to alleged implied terms.
We are satisfied therefore that the present action is relevantly pled as
an action of damages for breach of contract.
[15] The solicitor
advocate for the employee addressed us at some length on the question whether
the sheriff and the sheriff principal had been right to hold that, as a matter
of general law, there is implied into employment contracts an entitlement in
favour of the employers to dismiss without notice on paying wages and other
contractual entitlements in lieu, which implied term was ousted by the express
provisions of the present contract. He
recognised, however, that if we were to hold, as we do, that such an implied
term would be incompatible with the express provisions of the present contract,
the more general issue would properly be regarded as academic. As he pointed out, the 19th
century cases may now be of little more than historical interest. Section 86 of the Employment Rights Act
1996 gives a statutory entitlement to employees under contracts of employment
to which the section applies to a minimum period of notice. As Lord Hoffmann said, under reference to
this provision, in Johnson v Unisys Ltd [2003] 1 AC 518, at
para.37:
"[A]ny terms which the courts imply
into a contract must be consistent with the express terms. Implied terms may supplement the express
terms of the contract but cannot contradict them. Only Parliament may actually override what
the parties have agreed."
There would therefore appear to be little remaining scope for
the implication, at common law, of a provision such as is contended for
here. We have said enough to indicate
that we have strong reservations as to whether, in the 21st century,
there is any scope for the implication of such a term. But we think it preferable to express no
concluded view on this matter, since it is not necessary for the disposal of
this appeal, and we therefore reserve our opinion on it.
Disposal
[16] For the above reasons we shall refuse the
appeal, adhere to the interlocutors of the sheriff and the sheriff principal,
and remit the case back to the sheriff to proceed as accords.