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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Martin v Lancashire County Council [2000] EWCA Civ 155 (16th May 2000)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/155.html
Cite as: [2000] EWCA Civ 155, [2000] IRLR 487, [2001] ICR 197
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Case No: QBENF/1999/0213/A2
QBENF/1999/0806/A2
QBENF/1999/0815/A2
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MANCHESTER DISTRICT REGISTRY
His Honour Judge Fawcus and
THE HIGH COURT QUEEN'S BENCH DIVISION
Blofeld J.
Royal Courts of Justice
Strand, London, WC2A 2LL
Tuesday 16 May 2000
LORD JUSTICE PETER GIBSON
LORD JUSTICE HENRY
and
LORD JUSTICE CLARKE
1st Appeal |
MARTIN |
Respondent (Claimant) |
- and - |
||
LANCASHIRE COUNTY COUNCIL |
Appellant (Defendant) | |
2nd Appeal (and Cross Appeals) |
BERNADONE |
1st Respondent (Claimant) |
PALL
MALL SERVICES GROUP and |
1st
Appellant (1st Defendant) |
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
__________________________________
Mr. John Hand Q.C and Mr. Andrew Hogarth (instructed by Messrs Thompsons of London for the Respondent in the 1st Appeal and by Messrs O. H. Parsons and Partners of London for the 1st Respondent in the 2nd Appeal)
Mr. Adrian Lynch (instructed by Max Winterbottom LLB of Lancashire County Council for the Appellants in the 1st Appeal)
Mr. Colin Edelman Q.C. (instructed by Messrs Davies Lavery of Maidstone for the 1st and Appelllants in the 2nd Appeal)
Mr. Ronald Walker Q.C. and Mr. Stephen Worthington (instructed by Messrs Hextall Erskine of London for the 2nd Respondent in the 2nd Appeal)
Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE PETER GIBSON:
1. There are two appeals before us, each raising the same primary issue. Where there has been the transfer of an undertaking to which the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("TUPE") apply, is a liability of the transferor in tort to an employee, which has accrued before the transfer, transferred by TUPE to the transferee? Differing answers have been given to that question in the High Court in the two cases, and in earlier County Court cases. The second case also raises a further issue in circumstances where the transferor had effected an employers' liability insurance policy: is the insured employer's right to an indemnity under the policy in respect of a liability to an employee transferred by TUPE to the transferee? Both issues are of some general importance.
2. In the first case the Claimant, David Martin, alleges that while working for the Refuse Department of the Defendant, Lancashire County Council ("the Council"), between 1978 and 1993 he suffered progressive injury to his back and neck and on 23 February 1991 a specific injury to his wrist. By s. 3 Employers' Liability (Compulsory Insurance) Act 1969 ("the 1969 Act") the Council, like other public bodies, are exempted from the requirement in s. 1 of that Act to have employers' liability insurance. Such bodies are expected to be their own insurers. In fact the Council did have a policy but one which carried a large excess, so large that the insurance would not have enabled the Council to recover under it.
3. On 13 May 1993 the Council transferred their entire waste disposal and refuse services including the business in which Mr. Martin worked to an independent waste disposal company, Lancashire Waste Services Ltd. ("LWS"). That was effected by a Transfer Scheme and Business Agreement dated 15 May 1993 and made pursuant to s. 32 of and Sch. 2 to the Environmental Protection Act 1990. By clause 9.2 it was expressly stated that TUPE should apply and that pursuant thereto the contracts of employment between the Council and its employees (as defined; Mr. Martin was named as such an employee) and certain collective agreements would have effect after the transfer as if originally made between LWS and the employees (or their trade union). For the sake of completeness I should mention two further provisions of the agreement. Clause 3.2 provides for the inclusion in the transfer of all liabilities of and incurred in connection with the business and assets which were transferred (save for any taxation liability already incurred). Clause 8.2 provides that LSW should indemnify the Council against all liabilities in respect of any act or omission on the part of the Council prior to the transfer, provided that where any such act or omission resulted in a third party making a claim or suffering a loss in respect of injury, details of that claim or loss or incident are supplied by LWS to the Council within 28 days of the transfer. But we have not heard argument on the effect of those clauses, and I say nothing further about them.
4. Mr. Martin commenced proceedings against the Council on 21 August 1995, claiming damages for personal injuries. By their Amended Defence the Council took the point that by virtue of TUPE any right of action or cause of action possessed by Mr. Martin and arising from his employment by the Council became on and after 13 May 1993 a right or cause of action against LWS. The case was then transferred to the High Court where His Honour Judge Fawcus, sitting as a Deputy High Court Judge, was asked to determine the following matters as preliminary issues:
(1) whether the rights of [Mr. Martin] as against [the Council] have been transferred to [LWS] by virtue of [TUPE];
(2) whether [Mr. Martin's] claim ought to be struck out as disclosing no cause of action against the [Council].
5. The Judge on 12 February 1999 declared that TUPE did not transfer liability in tort from the Council to LWS. The Judge adopted the reasoning of His Honour Judge Neligan in Cramer v Watts Blake Bearne & Co. plc, unreported, 31 December 1997. The second issue did not arise. He gave permission to appeal.
6. In the second case the Claimant, Theresa Bernadone, was employed by the First Defendant, Pall Mall Services Group Ltd. ("Pall Mall"), as a catering assistant in St. Ann's Hospital in North London. On 18 December 1996 she hurt her hand in an accident at work. On 1 April 1997 the Second Defendant, Haringey Health Care National Health Trust ("the Trust"), took over the activity carried out by Pall Mall. Until that takeover, Pall Mall had an employers' liability insurance policy ("the policy") with Independent Insurance Ltd. ("Independent") in force. In 1998 Mrs. Bernadone commenced proceedings in the Central London County Court against Pall Mall for damages for negligence and breach of statutory duty under s. 2 Occupiers' Liability Act 1957. Mrs. Bernadone then joined the Trust as a Defendant and on 6 October 1998 amended her Particulars of Claim to allege in the alternative that when the Trust took over from Pall Mall there was a transfer of an undertaking to which TUPE applied and that Pall Mall's liability to compensate her passed to the Trust which became liable for the acts and omissions of Pall Mall. In its Amended Defence Pall Mall admitted and averred that there was a relevant transfer to which TUPE applied and that any liability rested with the Trust. The Trust by its Defence denied that liability had been transferred to it under TUPE. Alternatively it averred that by TUPE the rights of Pall Mall under the policy were transferred to the Trust.
7. The District Judge ordered that a preliminary issue be heard in the High Court. Two preliminary issues were agreed before the Master:
(1) whether the Trust had become liable for the acts and omissions of Pall Mall by virtue of TUPE;
(2) whether the policy by virtue of TUPE was deemed to have been entered into by the Trust.
The second issue was later amended by consent to "whether the right of [Pall Mall] to an indemnity in respect of [Mrs. Bernadone's] claim under the policy .... is by virtue of [TUPE] transferred to [the Trust]."
8. On 5 March 1999 a Third Party Notice was issued by the Trust to Independent. On 25 May 1999 Independent was given liberty to appear at the hearing of the preliminary issues.
9. The preliminary issues came before Blofeld J. He was not referred to the decision of Judge Fawcus. He answered both preliminary issues in the affirmative, holding that TUPE did transfer the liabilities in tort of Pall Mall to the Trust and that TUPE conferred on the Trust the right to an indemnity under the policy in respect of Mrs. Bernadone's claim by virtue of an implied term in Mrs. Bernadone's contract of employment that she would be protected by employers' liability insurance. He ordered Independent to pay Mrs. Bernadone's and the Trust's costs. He gave permission to appeal and cross-appeal.
10. On the second issue it is not in dispute, even by Mrs. Bernadone whose argument had been accepted by Blofeld J., that he was wrong to hold that there was such an implied term. Whilst there is an implied term of a contract of employment that the employee should not be required to do an unlawful act (such as driving on a public road without insurance), there is no implied term as to insurance under the 1969 Act, the object of which is that the employer should have insurance against his own liability for causing injury to his employees. In Richardson v Pitt-Stanley [1995] Q.B. 123 this court held that non-compliance with the 1969 Act does not give rise to any civil liability for breach of statutory duty, even on the part of the directors of a company who are, with the company, exposed to criminal sanctions for non-compliance with the 1969 Act. Mr. Hand Q.C. for Mrs. Bernadone reserved the right to challenge the correctness of that decision if this case goes further. However, it is in issue before us whether the transferor's rights under its employers' liability insurance in respect of an employee are transferred by TUPE.
11. There are therefore two main issues for us to decide. The first is whether the liability in tort of an employer to an employee is transferred by TUPE. On this Mr. Hand for Mr. Martin and Mrs. Bernadone argues that it is not transferred, as does Mr. Walker Q.C. for the Trust. Mr. Lynch for the Council and Mr. Edelman Q.C. for Pall Mall and Independent argue to the contrary. The second issue is whether Pall Mall's rights under the policy were transferred. On this Mr. Hand and Mr. Walker argue that they were. Mr. Edelman argues to the contrary.
12. With that introduction I turn now to the relevant European and United Kingdom statutory provisions.
13. The progenitor of TUPE was the Acquired Rights Directive (Council Directive No. 77/187/EEC) ("the Directive"). This recited (so far as is material):
"Whereas it is necessary to provide for the protection of employees in the event of a change of employer, in particular, to ensure that their rights are safeguarded;
Whereas differences still remain in the Member States as regards the extent of the protection of employees in this respect and these differences should be reduced".
14. By Article 3 (1):
"The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer within the meaning of Article 1 (1) shall by reason of such transfer, be transferred to the transferee. Member States may 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."
A number of Member States have taken advantage of the second sentence of Article 3(1) to provide that the transferor should continue to be liable after the transfer, but the United Kingdom has not done so. Article 7 provided that the Directive should not affect the right of Member States to apply or introduce laws, regulations or administrative provisions which are more favourable to employees.
15. By TUPE the United Kingdom implemented the Directive, doing so pursuant to the powers granted by s. 2(2) European Communities Act 1972. In neither of the appeals before us is there any dispute that the provisions of TUPE apply to the transfer and I can therefore pass over those provisions relating to whether a relevant transfer to which TUPE apply occurs. It is sufficient to go to Regulation 5, which is headed "Effect of relevant transfer on contracts of employment, etc." The material parts of that Regulation are these:
"(1) .... a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor in the undertaking or part transferred but any such contract which would otherwise have been terminated by the transfer shall have effect after the transfer as if originally made between the person so employed and the transferee.
(2) Without prejudice to paragraph (1) above, .... on the completion of a relevant transfer -
(a) all the transferor's rights, powers, duties and liabilities under or in connection with any such contract, shall be transferred by virtue of this Regulation to the transferee; and
(b) anything done before the transfer is completed by or in relation to the transferor in respect of that contract or a person employed in that undertaking or part shall be deemed to have been done by or in relation to the transferee.
(3) Any reference in paragraph (1) or (2) above to a person employed in an undertaking or part of one transferred by a relevant transfer is a reference to a person so employed immediately before the transfer ....
(4) Paragraph (2) above shall not transfer or otherwise affect the liability of any person to be prosecuted for, convicted of and sentenced for any offence."
Regulation 12 provides that any provision of any agreement is to be void in so far as it purports to exclude or limit the operation of Regulation 5.
16. It is not in dispute that TUPE must be given a purposive construction having regard to, and, so far as possible, consistently with, the Directive. In Berg v Besselsen [1990] I.C.R. 396 the European Court of Justice held that under Article 3 (1) of the Directive the transfer of an undertaking entailed the automatic transfer to the transferee of the employer's obligations arising from a contract of employment or an employment relationship, subject to the right of Member States to provide for joint liability of the transferor and transferee following the transfer. Whilst an employee of the transferor was not obliged to remain in the transferee's employ, the transfer took place even if the employees to whom the transferor owed obligations did not consent to the transfer. The second sentence of Article 3 (1) of the Directive was said to enable Member States to reconcile the rule of automatic transfer with the principles of their domestic legal systems.
17. In a Memorandum dated 4 March 1997 on acquired rights of workers in cases of transfers of undertakings, the European Commission gave guidelines on the application of the Directive. In para. 2.1 it was stated:
"In accordance with Article 3.1 of the Directive, the transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer are, by reason of such transfer, transferred to the transferee .... Thus, the transferee is bound by all the transferor's obligations resulting from an employment contract or an employment relationship, including those which arose before the date of transfer. In the Court's view, the Directive refers unreservedly to the transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of transfer. It is the transferee who assumes liability for bearing the burden resulting from employees' rights existing at the time of transfer."
18. In Annex I, to question 7: "After a transfer who is responsible for assessing obligations, the transferor or the transferee?" the Commission answered: "The transferee is liable for all the transferor's obligations, including those arising prior to the date of transfer. Except where national legislation provides for joint liability of the transferor and transferee after the transfer, the consequence of the transfer is to release the transferor from his obligations."
19. Consistently therewith, in Wilson v St Helens Borough Council [1999] 2 AC 52 at pp. 83, 4 Lord Slynn, giving the only reasoned speech in the House of Lords, said this:
"In my opinion, the overriding emphasis in the Court of Justice's judgments is that the existing rights of employees are to be safeguarded if there is a transfer. That means no more and no less than that the employee can look to the transferee to perform those obligations which the employee could have enforced against the transferor. The employer, be he transferor or transferee, cannot use the transfer as a justification for dismissal, but if he does dismiss it is a question for national law as to what those rights are. As I have already said, in English law there would as a general rule be no order for specific performance. The claim would be for damages for dismissal or for statutory rights .... The object and purpose of the Directive is to ensure in all member states that on a transfer an employee has against the transferee the rights and remedies which he would have had against the original employer."
20. There have been a number of decisions in the United Kingdom courts on what is transferred by the transferor employer to the transferee employer under Regulation 5 (2) (or under analogous provisions giving effect to the Directive).
21. In Angus Jowett & Co. Ltd. v National Union of Tailors [1985] I.C.R. 646 a protective award under s. 101 (4) Employment Protection Act 1975 was made against an employer, which in breach of s. 99 of that Act had failed to consult with recognised unions on impending redundancies and had transferred goodwill and other assets, but not the workforce, to a purchaser. The employer contended that by Regulation 5 (2) of TUPE all liability in connection with the employees' contracts of employment had been transferred to the purchaser. The Employment Appeal Tribunal rejected that argument on the basis of a distinction between the liabilities arising in connection with individual contracts of employment and liabilities arising in connection with a failure to consult on a collective basis.
22. However in Kerry Foods Ltd. v Creber [2000] IRLR 10 the Employment Appeal Tribunal held that, in the light of events subsequent to Angus Jowett (in particular infraction proceedings against the United Kingdom in which the European Court of Justice in 1994 clarified the nature of obligations to consult), that decision was no longer good law, that the employer's duty to consult arose in connection with the employee's contract of employment, that the employer's liability was in connection with a contract of employment within Regulation 5 (2)(a), and that also Regulation 5(2)(b) caused the liability to transfer.
23. Before leaving Angus Jowett I should note that (at p. 656) Beldam J. referred to Article 3(1) of the Directive and said obiter:
"It seems to us unfortunate that the comparatively simple requirements of the E.E.C. Directive were not sought to be incorporated into English law in as simple and direct a manner. Further, as a result of the arguments and discussions in the course of this case, it would seem desirable that the Secretary of State should consider whether, to avoid such arguments in the future, there is a need to make provision under the additional part of article 3(1) to which we have referred, to preserve to an employee rights which have already vested on insolvency of the employer or against the redundancy fund under s. 122 [of the Employment Protection (Consolidation) Act 1978] and, for example, such other rights as a claim to damages in respect of which the employer would be entitled to indemnity under his employers' liability policy."
But, as already noted, the United Kingdom has not taken advantage of the second sentence of Article 3(1).
24. In Secretary of State for Employment v Spence [1987] Q.B. 189 at pp. 189-190 Balcombe L.J. made some obiter observations on the language of Regulation 5 (2). He said:
"The words "or [in respect of] a person employed in that undertaking or part" clearly can have the effect of transferring obligations other than contractual obligations; for example, as has been put in argument, they may well embrace obligations arising in tort. I say no more about that at this stage because it may well be that the precise effect of the regulation in a tortious situation may have to be considered by another court. However, it does appear to me clearly that on the wording of the regulation the addition of the words "or a person employed in that undertaking or part" can give rise to a transfer of obligations wider than merely contractual obligations."
25. Balcombe L.J. (at p. 190) made two further references to the liabilities which are transferred as including obligations arising in tort. He pointed to the restriction in Regulation 5 (4), (that paragraph (2) does not affect the liability of any person to be prosecuted for, convicted of and sentenced for any offence) as bearing out his interpretation of paragraph (2) as capable of including tortious as well as contractual liability.
26. In Morris Angel & Son Ltd. v Hollande [1993] I.C.R. 71 it was held by this court that Regulation 5 (1) had the effect of giving the transferee of a business standing to enforce a restraint of trade clause in the service agreement of an employee of the transferor who was dismissed by the transferee on the same day as the transfer agreement.
27. In Wilson v West Cumbria Health Care NHS Trust [1995] P.I.Q.R. P38 His Honour Judge Hawkins in Newcastle-upon-Tyne County Court was concerned with whether liability for personal injury claims made by employees of a health authority were transferred to a NHS Trust when the undertaking was transferred. Ss. 6 and 8 National Health Service and Community Care Act 1990 contained provisions which were intended to implement the Directive and were in terms similar to Regulation 5 of TUPE. The Judge held that liability did transfer.
28. In Allan v Stirling District Council [1995] I.C.R. 1082 immediately before a relevant transfer employees had been unfairly dismissed by the transferor. The industrial tribunal held that liability for the unfair dismissal had been transferred to the transferee under TUPE. The Employment Appeal Tribunal allowed the employee's appeal, but the Court of Session allowed the transferor's appeal, holding that all the transferor's liabilities, accrued or continuing, under or in connection with the contract of employment of any person employed by the transferor passed to the transferee and the transferor was no longer subject to any of them.
29. In DJM International Ltd. v Nicholas [1996] I.C.R. 214, a female employee on reaching 60 was made to retire but was reemployed on a part-time basis shortly before a relevant transfer. She was dismissed on the ground of redundancy the next year. She complained to an industrial tribunal under the Sex Discrimination Act 1975 that she had been discriminated against by the transferee when forced to retire on reaching 60. The tribunal held that the liability of the transferor to the complainant transferred to the transferee under TUPE. That was not disputed before the Employment Appeal Tribunal. It accepted (at p. 221) that the words of Regulation 5(2)(b), "anything done in respect of a person employed in that undertaking", must be read in the light of, and consistently with, the reference to an employment relationship in Article 3 of the Directive and should be construed as referring to obligations other than those which arise out of the contract of employment. Mummery J. said (at p. 222):
"The fallacy in [the transferee's] arguments .... is that they seek to apply to the second limb of regulation 5(2)(b) words used in regulation 5(1), 2(a) and the first limb of (2)(b) which limit the matters transferred to those which arise "under or in connection with" or "in respect of" a contract which would otherwise have been terminated by the transfer. The wide words of the second limb of regulation 5(2)(b) make it clear, in our view, that a liability may be incurred by an employer to an employee and that a subsequent change in the contractual relationship between the employer and the employee does not prevent that liability from transferring to the transferee of the undertaking."
30. Taylor v Serviceteam [1998] P.I.Q.R. P201 was decided by Mr. Recorder Pawlak in Romford County Court on facts very similar to those in the present case. Shortly before a relevant transfer a dustman was injured in the course of his work for the transferor council. He claimed that they had been negligent and in breach of statutory duty. The question was whether the liability of the transferor was transferred by TUPE to the transferee. The Recorder followed the approach adopted in DJM International and said:
"on a construction of Article 3 [of the Directive], the tort consequent upon a breach of the primary duty of care and the breach of the statutory duty committed, did transfer with the contract. Plainly that duty of care arose by virtue of the contract of employment between the plaintiff and the employer/transferor and I therefore find the words "in connection with" do transfer the liability here to the transferee. Any difficulty with regard to construing regulation 5(2)(a) is relieved by the language of regulation of 5(2)(b) .... In my judgment the tort and the breach of statutory duty which in this instance was a duty owed expressly by the employer to the employee was something "done" in respect of the person (the plaintiff) employed in the second defendant's undertaking. Accordingly they are each deemed to have been done by the transferee. If that is the effect of regulation 5(2)(b) then, reminding myself of the language of Article 3 ".... obligation arising .... from an employment relationship ...." I feel compelled to construe the words ".... liabilities .... in connection with any such contract", as including the failure to operate a safe system of work and a breach of a regulation containing a duty placed directly on an employer."
31. The Recorder recognised as "one of the curious consequences of such transfer" that whereas an employee would be certain to recover damages from the transferor or its insurance company because of the employer's liability insurance, the transferee would probably not have such cover for an event occurring before the transfer, and might not be able to meet that liability. The Recorder suggested that contracts made between transferors and transferees should cater for such contingencies and provide for an indemnity where necessary.
32. In Cramer v Watts Blake Bearne & Co. plc, unreported, 31 December 1997, His Honour Judge Neligan in the Bristol County Court had to consider whether Regulation 5(2) operated after a relevant transfer to transfer the liability of an employer to an employee in tort which arose before the plaintiff's employment was transferred to the transferee. The Judge was referred to the relevant authorities including Mr. Recorder Pawlak's decision. He had regard to public policy considerations. He said that TUPE would have expressly provided for the transfer of a liability in tort if that had been intended. He referred to the consequences which could flow from a transfer of a tortious liability by virtue of TUPE and gave as an example the possibility that an injured employee might not recover compensation due to him in respect of an injury or disability suffered prior to the transfer to a transferee which then went into liquidation, receivership or bankruptcy and which was uninsured. He said that that could not have been the intended effect of TUPE or the Directive. He did not think that the possibility of the inclusion of an indemnity clause in any contract between the transferor and the transferee would suffice to meet the point that employees might not be able to recover compensation. He regarded the object of TUPE to be to protect the rights of employees with access to the Industrial Tribunal if employers complained that those rights had been infringed.
33. This survey of the authorities demonstrates that the courts have not always answered consistently the question what is transferred by the transferor to the transferee by TUPE. Even before us Counsel arguing for the same answer on the first issue have disagreed on particular points: thus Mr. Walker accepts that a liability under the Sex Discrimination Act 1975 will transfer whereas Mr. Hand says that it does not.
34. On the first issue, I start with the Directive. It is clear that its purpose is to safeguard the rights of employees on a change of employer by a transfer of an undertaking. The economic entity carrying on the undertaking after the transfer will be the transferee, and in general the employees are more likely to be protected if the rights and obligations to be transferred are more rather than less comprehensive. But such rights and obligations must of course fall within the limiting words "arising from a contract of employment or from an employment relationship". It would seem to me to be surprising if the rights and obligations were to be limited to contractual claims and to exclude claims in tort. Why should there be such a dividing line (in accordance with the distinction in English law between tort and contract) in a European Directive? It is the more surprising when the language used in the Directive is broad ("arising from") and when it is not only a contract of employment but also an employment relationship (which is plainly something different) from which the rights and obligations must arise. The European Commission guidelines and the remarks of Lord Slynn in the Wilson case which I have cited in para. 19 do not support the exclusion of non-contractual rights and obligations.
35. When one goes to TUPE, it is noticeable that the language does not mirror that of the Directive, although it is of course necessary to construe TUPE consistently with the Directive if possible. Again one notes the width of the language used in para. (a) of Regulation 5(2): "all the transferor's rights, powers, duties and liabilities under or in connection with" the contract of employment. The rights etc. are not limited to those under the contract but include those "in connection with" the contract. That prepositional phrase is far wider and it does not suggest that the rights etc. need be contractual. That is supported by para. (b) of Regulation 5(2). It is not just what is done by the transferor in respect of the contract that is deemed to have been done by the transferee but also anything done by the transferor in respect of the employee. That does not suggest that it is limited to what will result in contractual rights and liabilities. It is further supported by Regulation 5(4). That suggests that but for that paragraph the liability of a person to be prosecuted for, convicted of and sentenced for any offence would or might have been transferred, and that para. (2) therefore cannot be limited to contractual rights and liabilities. Considerations such as these weighed with Balcombe L.J. in Spence and with Mummery J. in DJM International.
36. It is to my mind significant that by common consent all contractual rights and liabilities are transferred. They are not limited to those which are still contingent. Thus fully accrued rights and liabilities are transferred. That demonstrates the far-reaching effect of TUPE. But if such contractual rights and liabilities are transferred it is hard to understand why tortious rights and liabilities are not transferred. There will be many circumstances which enable an action to be brought either in contract or in tort or both. Take, for example, a case where the employee is injured at work and can claim both that the employer, who owed him a duty of care, has been negligent and that the employer has been in breach of an implied term of the contract of employment that the employer would take all reasonable care for the safety of his employee. In Matthews v Kuwait Bechtel Corp. [1959] 2 Q.B. 57, this court rejected an argument that in such a case the plaintiff's cause of action was in tort and not in contract, holding that the employee was entitled to claim damages either in tort or for breach of contract. Mr. Walker reserved the right to argue that that case was wrongly decided. But the decision (described by Lord Goff in Henderson v Merrett Syndicates Ltd. [1995] 2 AC 145 at p. 187 as "of high authority") binds this court, as he accepted. It would be very strange if the effect of TUPE was that the contractual claim of the employee was transferred so that the transferee alone became liable in exoneration of the transferor employer but that the tortious claim remained enforceable against the transferor.
37. Does such a tortious liability arise from the contract of employment (in the words of the Directive) or under or in connection with that contract (in the words of Regulation 5 (2)(a))? I would not say that it arose under the contract, but I have no difficulty in saying that it arose from or in connection with the contract. In this context the observations of Lord Wright in Wilson & Clyde Coal Co. Ltd v English [1938] A.C.57 are helpful. At p. 78 he referred to "those fundamental obligations of a contract of employment .... for the performance of which employers are absolutely responsible." "The employer's obligation" was said at p. 81 to include the provision of a proper system of working. The duty of care arises out of the relationship of employer and employee, and in my judgment any liability for its breach arises from and is in connection with the contract of employment.
38. In the present cases although Mr. Martin and Mrs. Bernadone sued in negligence, they could have sued in contract for breach of an implied term to provide a safe system or place of work. I would hold, in agreement with Blofeld J., that the liability in negligence was transferred to the transferee under TUPE. I do not accept the reasoning of Judge Neligan which was adopted by Judge Fawcus. The language of Regulation 5(2) is wide enough, without any express reference to tortious rights and liabilities for the reasons already given, and, so construed, accords with the Directive and its purpose. I shall come to the effect of TUPE in relation to employers' liability insurance, but in any event it would be surprising if the insurance point could be determinative of whether non-contractual rights and liabilities were transferred by TUPE. There are many large employers exempted by s. 3 of the 1969 Act from having to take out employers' liability insurance, the Council included.
39. In Mrs. Bernadone's case, her claim against the Council was not limited to that in negligence and also included a claim under s.2 Occupiers' Liability Act 1957. By that section the occupier of premises owes the common duty of care to all his visitors. Mr. Edelman submitted that Mrs. Bernadone could only have been a visitor of Pall Mall for the purposes of her employment. Her pleading makes clear that it was in the course of her employment that she went into the storeroom of the cafeteria at the hospital, when and where she suffered her injury. Mr. Walker and Mr. Hand say that that is not sufficient, the duty under the Occupiers' Liability Act being imposed on occupiers, not employers. In my judgment, the particular circumstances of the alleged liability must be examined to see whether it did arise from or was in connection with Mrs. Bernadone's contract of employment. On the pleaded facts I would hold that there was a sufficient connection with the contract of employment and that that liability was also transferred.
40. Finally on the first issue I should deal with the argument of Mr. Hand that if liability for personal injury was transferred under TUPE, that part of Regulation 5(2) that had that effect was ultra vires. That argument proceeds on the premise that the Directive does not provide for the transfer of tortious liabilities and that TUPE therefore went wider than the Directive. For the reasons already given I do not accept the correctness of that premise.
41. I come now to the question whether the transferor's rights under any employers' liability insurance effected by the transferor are transferred by TUPE.
42. I have already referred to the purpose of the Directive as being to safeguard the employee's rights on a change of employer by a transfer of an undertaking and to the obligation on the court to construe TUPE purposively. TUPE therefore must if possible be construed in such a way as to ensure that on the transfer the employee is not deprived of rights against his employer, which he would otherwise have, had he continued to be employed by the transferor and arising out of or in connection with his contract of employment with the transferor.
43. For an employer not exempted by s. 3 of the 1969 Act, it was his statutory duty under s. 1(1) to insure against liability for "injury sustained by his employees and arising out of and in the course of their employment .... in that business." Although an employee does not have a right of action under the 1969 Act against the employer, the Act was enacted partly for his benefit because it enabled the employer to recover from his insurers the amount of any liability to the employee, whether in tort or in contract, arising out of his employment. If the employer becomes insolvent, the employee could sue the insurers direct under the Third Parties (Rights Against Insurers) Act 1930. The employee is thus protected while employed by the transferor employer.
44. There can be no doubt that on a transfer a liability which is transferred ceases to be enforceable against the transferor: see Allan. It is very unlikely that the transferee would have employers' liability insurance which covered liability arising before the employee became the employee of the transferee. The transferee could become insolvent. Unless the employee had the same benefits and potential rights under the 1969 Act and the 1930 Act after the transfer as he had before, he could be seriously disadvantaged by the transfer. That would be contrary to the purpose of the Directive and TUPE.
45. The transferor prior to the transfer has a vested or contingent right to recover from his insurers under the employers' liability policy in respect of the liability to the employee. On the basis of the conclusion reached on the first issue that obligation arising from or being in connection with the contract of employment is transferred by TUPE to the transferee. It follows that the transferor's vested or contingent right to recover from his insurers is a vested or contingent right to recover from them in respect of a liability to his employee arising from or in connection with the employee's contract of employment.
46. The question under Article 3 of the Directive and Regulation 5 (2)(a) is whether the right against the transferor's insurers is a right arising from or in connection with the employee's contract of employment.
47. Mr. Edelman submits that it is not, because, he says, rights and obligations of the transferor under contracts with third parties cannot fall within the intendment of the Directive or TUPE. He urges us not to find what might be seen to be a legislative lacuna, when, he submits, the obvious solution to the problem lies in the hands of the United Kingdom in the form of the rights reserved by the second sentence of Article 3 (1) under which the United Kingdom could provide that there should be joint liability of the transferor and transferee. He argues that to construe Article 3 of the Directive and Regulation 5 (2)(a) so widely as to allow or require rights and obligations under third party contracts to transfer would greatly widen the scope of those provisions and would go far beyond the purpose of the Directive and TUPE, and he contends that such construction to achieve what may, in the context of the application of the Directive to English law, be a just result would be to allow domestic considerations to affect the interpretation of Community obligations. That he says is impermissible.
48. I acknowledge the force of these submissions, but I am not persuaded by them. Mr. Edelman would read into the Directive and TUPE words limiting the relevant rights and obligations so as to exclude rights and obligations under contracts with third parties. The transferor employer's right is to recover from the insurers an indemnity in respect of the transferor's liability arising from or in connection with the contract of employment. That is the very liability which the transferor was required to insure under the 1969 Act. True it is that that right is under the contract of insurance with third parties, the insurers. But the important point is that the right arises from and is in connection with the contract of employment, because the liability insured under the contract is such a liability.
49. Such a solution is, in my judgment, consistent with the purpose of the Directive and of TUPE. Moreover it is just, because the transferor's insurers have received premium in respect of this very liability and there is no good reason why TUPE should be construed in such a way as to enable the insurers to keep the premium but avoid liability.
50. I have not found it necessary to deal with an ingenious but controversial argument advanced by Mr. Lynch which was based on the Civil Liability (Contribution) Act 1978.
51. For these reasons in Mr. Martin's case I would allow the appeal of the Council, set aside the order of Judge Fawcus and declare that the rights of Mr. Martin as against the Council have been transferred to LWS by virtue of TUPE, and in Mrs. Bernadone's case I would dismiss the appeal of Mrs. Bernadone and the Trust from Blofeld J.'s determination of the first preliminary issue and I would dismiss the appeal of Pall Mall and Independent from Blofeld J.'s determination of the second preliminary issue.
LORD JUSTICE HENRY:
52. For the reasons set out in the judgments of my Lords, Lord Justice Peter Gibson and Lord Justice Clarke, I would agree with the suggested course for the disposal of both of these appeals.
LORD JUSTICE CLARKE:
53. I entirely agree with the judgment of Peter Gibson LJ. I add a few words of my own only because the issues raised by this appeal are of some general importance and, in the case of the second issue, because I have found the questions involved to be of particular interest.
First issue
54. The question identified by Peter Gibson LJ as the first issue is whether the liability in tort of an employer to an employee in respect of personal injury is transferred by TUPE. It is common ground that such a liability in contract is transferred because it is a liability `under or in connection with' the contract of employment within the meaning of Regulation 5(2)(a). It would also be a liability in respect of an obligation `arising from a contract of employment or from an employment relationship' within the meaning of Article 3(1) of the Directive.
55. The duties of an employer to his employees are essentially the same, whether they are framed in contract or in tort. It is a matter for the employee whether he sues in contract or in tort. Sellers LJ (with whom Willmer LJ agreed) made that clear in Matthews v Kuwait Bechtel Corporation [1959] 2 QB 57. He said at page 67:
The argument of counsel for the defendants was that the common law had imposed certain duties upon employers in regard to the safety of the workman in the course of his work but the obligation so imposed, it was said, was entirely in tort. That the duties arose from the common law I think is established. That was the view of the law taken in Wilsons and Clyde Coal Co v English [1938] AC 57,81. I do not need to make any citation from it. The admitted obligations which are imposed on the employer were restated in that case by Lord Wright, who cited from the speech of Lord Cairns in Wilson v Merry (1868) LR 1 Sc&Div 326,332. The question is whether those duties are contractual duties. The authorities to which I have referred show that they may be implied terms of the contract, attached to or incorporated in the contract, to apply Lord Tucker's view [in Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555,594]. It is at the election of the workman in circumstances such as these whether, relying on the recognised common law duties as established in Lord Cairns' speech in Wilson v Merry and following decisions, he will sue in contract or sue in tort. In this case, if it suits his purpose, he may sue in contract. It may be that that will have a somewhat limiting effect on his rights against the employer as compared with his more extensive rights at common law if he sues in tort, but I make no further comment on that.
56. It is clear from that passage that the employer's obligations are essentially the same both at common law and under an ordinary contract of employment. In these circumstances it would make no sense to hold that the employer's liability in contract was a liability `under or in connection with' a contract of employment or `arising from a contract of employment or from an employment relationship' but that his liability in tort was not. In my opinion in both cases the liability was, at the very least, a liability `in connection with' the contract of employment.
57. For these reasons, in addition to those given by Peter Gibson LJ, I agree that an employer's liability in tort is transferred to the transferee under Regulation 5(2)(b).
Second Issue
58. The second issue is whether the transferor's rights under any employer's liability insurance effected by the transferor are transferred by TUPE. I agree with Peter Gibson LJ that they are.
59. The purpose of the Directive and the Regulations is to protect employees on a transfer of their employers' business to a transferee. It is well settled that both the Directive and the Regulations should be construed purposively. The Regulations should therefore if possible be construed in such a way as to ensure that the employees are not deprived of benefits which they would otherwise have while employed by the transferor and arising in connection with their contracts of employment with the transferor.
60. It was the duty of the transferor under section 1(1) of the Employers' Liability (Compulsory Insurance) Act 1969 to insure against liability to injury `sustained by his employees and arising out of and in the course of their employment ... in that business'.
61. Although an employee did not have a right of action under that Act, it was enacted partly for his benefit because it enabled the transferor to recover from his insurers the amount of any liability to the employee, whether in tort or contract, arising out of his employment. If the transferor became insolvent, the employee could sue the insurers direct under the Third Parties (Rights Against Insurers) Act 1930. The employee was thus protected while employed by the transferor. Unless the employee has the same benefits and potential rights under the 1930 Act after the transfer as he had before, he will be seriously disadvantaged by the transfer, which would be contrary to the purpose of the Directive and the Regulations.
62. The argument on this issue assumes that the conclusion on the first issue is correct and therefore that the transferor's liability to an employee in tort is a liability `in connection with' the contract of employment within Regulation 5(2)(a) and an `obligation arising from a contract of employment or from an employment relationship' within Article 3.1 of the Directive. The transferor has a vested or contingent right (as the case may be) to recover from his insurers in respect of that liability. It follows that he has a vested or contingent right to recover from them in respect of a liability to his employee `in connection with' or `arising from' the employee's contract of employment.
63. The question under Regulation 5(2)(a) is whether that right against the transferor's insurers is a right `in connection with' the employee's contract of employment and the question under article 3 of the Directive is whether that right is a right `arising from' the contract of employment or the employment relationship. In my judgment the answer to both questions is yes because the right is to recover from the insurers an indemnity in respect of the transferor's liability `in connection with' or `arising from' the contract of employment, which is the very liability which the transferor was required to insure under the 1969 Act. The right is under the contract of insurance but in connection with and arising from the contract of employment because the liability insured under the contract is such a liability.
64. Such a solution is consistent with the purpose of the Directive and the Regulations and is just because the transferor's insurers have received premium in respect of this very liability and there is no good reason why the regulations should be construed in such a way as to enable them to keep the premium but avoid liability. I would not therefore construe Regulation 5(2)(a) as limited to the transfer of rights and liabilities only as between the employee and the transferor.
65. For these reasons, which are I think in essence the same as those given by Peter Gibson LJ, I agree that the appeals should be disposed of as he has proposed.
(Order does not form part of the approved judgment)