England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL

		Royal Courts of Justice Strand London WC2 Wednesday, 9th May 2001

LORD JUSTICE CLARKE:

1. The appellant is Maurice Silvey. By November 1997 he had some 38 years of service with the respondent or its predecessors who were motor dealers in Dorset. On 6th November 1997 a Ms Beverley Packwood, who is described in the letter as a dealer principal, wrote to him on behalf of English Ford. It is common ground that the letter was written on behalf of his employer who at that time was the respondent. The letter included the following:

"Further to our recent discussions, we write to confirm the following.

It is with great regret that we must terminate your employment with immediate effect on the grounds of redundancy. In pursuance of the 1978 Employment Protection (Consolidation) Act you are entitled to 12 weeks notice, for which payment will be made in lieu of your working. This equates to £3668.71."

2. The letter added that he was entitled to redundancy pay of £5565.00 based on his age and experience. He was born on 18th November 1942 and was thus 54 years of age. His employment had begun on 8th June 1959. Those facts were said to entitle him to 26.5 weeks redundancy pay. The letter concluded:

"You are also owed 13 days holiday pay which equates to £945.00 (less deductions). There are no details in your personnel file concerning any holiday pay owing from your initial year's employment. If you have any details in writing regarding this, please provide us with a copy in order that we may calculate the necessary payment.

The payment that the company would make in lieu of your having use of a company car during the notice period would be £282.75.

The management are extremely regretful that your employment had to be terminated in this manner, considering the contribution you have made to our company during your valued service...."

3. The only response to the letter which we have seen is a note dated 10th November 1997 signed by the appellant, which refers only to the paragraph in the letter of 6th November about the car and simply says:

"I confirm that I do not accept the above offer and choose to keep the use of the company car during my notice period."

It appears that the respondent subsequently paid the sums referred to in the letter which the appellant retained.

4. The appellant was 55 on 18th November 1997 which was only 12 days after the date of the letter. If he had remained in the respondent's employment until then, he would have been entitled to accrued pension rights which it is agreed amounted or would have amounted to £5788.57 more than he in fact received. He subsequently made a number of claims against the respondent in an Employment Tribunal. The only one with which we are directly concerned is a claim for the sum of £5788.57 in respect of lost pension rights which were claimed by way of damages for breach of contract. The appellant did not return to work after receiving the letter which was handed to him on the same day, namely 6th November. As indicated in the letter, he thereafter received £5565 by way of redundancy payment, £3668.71 by way of pay in lieu of notice and £945 by way of holiday pay less statutory deductions.
5. The Employment Tribunal first made a decision on 11th August 1998, after a four day hearing, in which it considered the claims of a number of applicants. It conducted a review and issued a further decision dated 12th April 1999. It is only that decision with which the subsequent appeal to the Employment Appeal Tribunal and this appeal are concerned. The Employment Tribunal held that the sum of £3668.71 had been miscalculated. It held that the basic calculation of the appellant's pay was wrong by some £27 and that it failed to take account of his right to a bonus. In the result, it held that his pay, including his bonus, in lieu of the 12 weeks' notice, should have been £950.51 or, say, £950 more. It also held that he should have received a further £105 by way of redundancy payment. As a result, it ordered the respondent to pay both those further sums to the appellant.
6. The Employment Tribunal, however, rejected his claim in respect of his pension rights, although it held that the respondent was in breach of contract. The Employment Tribunal expressed its conclusions in this way in paragraphs 9 and 10:

"9. The respondents do not dispute that there was a transfer of an undertaking from Lex to them so as to preserve the continuity of Mr Silvey's contract of employment. We find that they were in breach of that contract by failing to give Mr Silvey his notice entitlement or make payment in lieu of such entitlement to him when they dismissed him on 6 November 1997. They made him a payment in lieu of notice and miscalculated it. Had they made a correctly calculated payment, Mr Silvey would still have been dismissed on 6 November and their breach of contract has no effect upon that termination date.

10. We have sympathy with Mr Silvey who was dismissed just 12 days short of his 55th birthday, with adverse effects to him in respect of his statutory redundancy payment and his rights under the pension scheme. Those adverse effects stem from the date of the termination of Mr Silvey's employment, not from a miscalculation by the respondents of what his payment in lieu of notice should be. We are unanimous in finding that the adverse effects of which Mr Silvey complains rose from the selection of the termination date and not from the breach of contract claim. The applicant's case fails."

The Employment Tribunal thus seems to have thought that the cause of the appellant's loss was the choice of termination date and not the respondent's breach of contract. I shall return to this analysis in a moment.

7. The appellant appealed to the Employment Appeal Tribunal. The Employment Appeal Tribunal dismissed the appeal. The judgment was given by the President, Lindsay J. The Employment Appeal Tribunal concluded that the point raised in the appeal was determined by the decision of the National Industrial Relations Court in Dixon v Stenor Ltd [1973] IRLR 28. The reasoning of the Employment Appeal Tribunal can be seen from paragraphs 4 to 6 of the judgment which are in these terms:

"4. The case is slightly distorted because Pendragon had, by a relatively small amount, miscalculated the payment in lieu of notice; the arithmetic was wrong. They underpaid by £27 and also it was later realised that Mr Silvey had a claim based on bonus for £950. But it cannot be denied, and Mr Tatton-Brown does not seek to deny, that Mr Silvey did indeed accept the offer of payment in lieu of notice and received the payment to which he thereby became entitled. What then is the consequence of accepting an offer in respect of payment in lieu of notice?This, as it seems to us, is regulated by a case J.T. Dixon v Stenor Ltd [1973] IRLR 28 per Sir John Donaldson, as he then was. At paragraph 3 of that case, one finds this:

'Both the Industrial Relations Act 1971, in relation to dismissal, and the Redundancy Payments Act 1965 count the time of employment as being from the moment when a man starts in employment until the moment when his employment ceases. If a man is dismissed without notice but with money in lieu, what he receives is, as a matter of law, damages for breach of contract. During the period to which the money in lieu of notice relates he is not employed by his employer.'

5. Sir John Donaldson continued with an exposition of the reasoning that lay behind the conclusion that during the period to which money in lieu of notice relates, the man is not employed by his employer. It follows, as far as we can see, that as Mr Silvey accepted the payment in lieu of notice his employment ceased as at 6 November 1997. He cannot simultaneously receive money in lieu of notice and claim the benefit of the continuing employment which would have occurred had he not accepted money in lieu of notice.

6. The Employment Tribunal's reasoning is, everyone agrees, not entirely clear but they were of the view that the employment ended on 6 November 1997 and, in our judgment, they were right in that view. Had Mr Silvey wished to claim that employment had continued down to the expiry of the 12 weeks of the notice, as he was entitled to, he would have had either to refuse the offer of payment in lieu or make it abundantly clear that his acceptance of it was without prejudice to his employment continuing for the remaining 12 weeks. It is an odd factor that occurs in this case that, if only he had done that, the likelihood is that Pendragon might well have said 'By all means continue to be employed' because they had no particular reason to oppose that, but that was not done. This Dixon v Stenor point seems to us to be an answer to the appeal. Mr Tatton-Brown has sought to avoid the point but we find no way of escaping it. The employer was undoubtedly in breach, and that is not denied by Mr Pritchard, but the case is therefore that on his accepting the offer of payment in lieu of notice the right of the employee to assert that he continued to be employed ceased at the beginning of the period to which the payment in lieu of notice related, namely on 6 November 1997. That date was, of course, on the facts of this case, before Mr Silvey's 55th birthday. He thus lost the right to claim that he would have been employed until after that date, not by reason of the employer's breach but by reason of his accepting to receive payment in lieu of notice in respect of that breach. The fact that he accepted £4,618 or so for a loss which, if only he had realised it, could have been quantified at a good deal greater, is unfortunate from his point of view but it does not, of itself, ground any recovery from the employer. He voluntarily accepted a basis upon which his employment ended on 6 November and hence cannot claim that he has lost the ability to claim as if his employment had continued for the further 12 weeks."

The Employment Appeal Tribunal also added in paragraph 10:

"So, had we needed to decide the remoteness question, it would have been decided in the appellant's favour, but, coming back therefore to the Dixon v Stenor point, we have not seen an answer to it, in other words, that as Mr Silvey voluntarily accepted a basis on which his employment ended on 6 November 1997 he is unable to claim that it was the employer's fault that he was not treated as if his employment had continued beyond his 55th birthday."

I will return to that reasoning below.

8. This is an appeal from that decision, brought with the permission of Mummery LJ, who said this in granting permission to appeal:

"This is a hard case which should have the benefit of a full appeal hearing. There is a real prospect of persuading the court that, for the reasons set out in the skeleton argument, the damages for breach of contract should include loss of enhanced pensions rights which Mr Silvey would have obtained had he remained in employment beyond the age of 55."

9. It is common ground that the letter of 6th November 1997 was a repudiatory breach of the contract because the respondent was not entitled to bring the appellant's contract of employment to an end without giving him 12 weeks' notice. In accordance with the ordinary principles of the law of contract the appellant was put to his election. He had a choice. He was entitled either to treat the breach of contract as bringing the contract to an end and to claim damages for the breach, or to refuse to accept it as bringing the contract to an end, but, on the assumption that it amounted to a contractual notice, to work out the notice period. It is not in dispute that he chose the former, since he did not thereafter work for the respondent. His employment came to an end when he communicated that decision to the respondent which has been treated as 6th November 1997, when he received the letter.
10. When he received the letter of 6th November and chose to accept it as bringing the contract to an end, the appellant was in principle entitled simply to claim damages, which would be made up of the amount that he would have been paid but for the respondent's repudiatory breach of contract. Since the breach of contract was the dismissal of the appellant without giving him the 12 weeks' notice, those amounts would include wages or salary, including holiday pay, bonuses and the like, and the value of any pension rights which accrued or would have accrued during the period of notice. He would also have been entitled to a redundancy payment.
11. As I see it, the appellant was entitled to damages calculated on that basis unless the appellant's reaction to the letter amounts to a binding agreement to the contrary or the respondent can show some kind of waiver, election, estoppel or acquiescence which prevents him from exercising what would otherwise be his legal rights. It is important to note that the damages are assessed not on the basis that the employment continued after the acceptance of the repudiation, but on the basis that it did not, because they are assessed by identifying the amount which the appellant would have received if the employment had continued for another 12 weeks which it did not.
12. This can be seen from what in fact happened. I ignore for this purpose the holiday pay which has never been in dispute and which played no part in the deliberations of the Employment Tribunal. As to the wages or salary and bonus, the Employment Tribunal held that the appellant would have earned £4618.32 in the 12 weeks' notice period. It follows that, omitting holiday pay which gave rise to no issue, he would have been entitled to that sum by way of damages under this head. Since the respondent had paid only £3668.71 under this head, as set out in its letter of 6th November, it followed that he had been underpaid by £950.51 or, as the Employment Tribunal put it, say, £950. As already stated, the Employment Tribunal awarded the appellant that amount.
13. The Employment Tribunal does not discuss the juridical basis for that award, but as I see it it must have been damages for breach of contract since the appellant did not in fact earn the £950 but would have done if he had been given the 12 weeks' notice to which he was entitled. There is no suggestion that the appellant was not entitled to that sum as a result either of the letter of 6th November or his response to it. Mr. Prichard has confirmed that no such argument was advanced before the Employment Tribunal.
14. The juridical basis of the extra redundancy payment of £105 ordered by the Employment Tribunal was different. It is agreed that the effect of section 145(5) of the Employment Rights Act 1996 was, at any rate for the purpose of calculating the redundancy, that the respondent was deemed to have been given 12 weeks' notice so that he was entitled to a redundancy payment calculated on the basis of 27 and not 26.5 weeks. That calculation is not, however, relevant for present purposes.
15. In my judgment, the same analysis is in principle applicable to the lost pension rights as to the lost pay. Just as the appellant would have been entitled to the extra £950 if his employment had lasted another 12 weeks, so he would have been entitled to an extra pension of £5788.57 if his employment had lasted another 12 weeks, because it would have lasted beyond his 55th birthday. It follows, in my judgment, that he was in principle entitled to recover that sum as damages for breach of contract.
16. Why then was he deprived of it? I have quoted the two crucial paragraphs in the Employment Tribunal's decision, namely paragraphs 9 and 10. In short, it concluded that that loss arose from the selection of a termination date and not from the breach of contract. In my opinion, it was plainly wrong so to hold. Just as in the case of the lost pay, the cause of the loss of pension rights was the wrongful termination of the contract without notice which prevented the appellant's extra pension rights from accruing.
17. Insofar as the Employment Appeal Tribunal upheld the decision of the Employment Tribunal because of the decision of the NIRC in Dixon, it was in my opinion wrong to do so. It is to my mind important to identify what Dixon decided. The facts of Dixon are significant. Mr. Dixon began to work for Stenor Limited on 25th June 1970. He was told on 5th June 1972 that he would have to be dismissed and that he would finish three days later, when he would receive two weeks pay in lieu of notice. The period from 25th June 1970 to 8th June 1972 was a little less than 104 weeks. Mr. Dixon made a claim for compensation for unfair dismissal which had failed before the Industrial Tribunal. Sir John Donaldson, giving the judgment of the court, said that Mr. Dixon's proper claim was for a redundancy payment, but that it did not matter because the ground upon which the Industrial Tribunal had dismissed his claim, namely that he had not been employed long enough to qualify, which was 104 weeks, applied to both. Sir John Donaldson identified the question for decision as whether the tribunal were wrong in law in deciding that Mr Dixon had not completed the qualifying period of 104 weeks of continuous employment. The NIRC held that the industrial tribunal was correct because his employment ceased on 8th June. If Mr Dixon's employer had given him a fortnight's notice on 8th June, and he had worked out his notice, he would, as Sir John Donaldson said, have qualified for a redundancy payment.
18. I have already quoted the part of the judgment of Sir John Donaldson which was set out by the Employment Appeal Tribunal. Mr. Dixon's appeal failed on the simple ground that his employment terminated on 8th June 1970 and that it followed that he had not been employed over 104 weeks of continuous employment so as to be entitled to a redundancy payment under the relevant statute. As I read Dixon, the only question was whether Mr Dixon continued to be employed after he stopped working. The court was not considering the measure of damages for the employer's breach of contract. Indeed, it could not have been considering such a claim because we have been told that at that time an industrial tribunal had no power to award damages for wrongful dismissal in breach of contract. Nor, for the same reason, was the NIRC considering the quantum of damages in Mr Dixon's case.
19. Indeed, it seems clear that the claim was not advanced on the basis that Mr Dixon was entitled to damages for breach of contract, if only for reasons of jurisdiction. As indicated earlier, Sir John Donaldson said:

"If a man is dismissed without notice but with money in lieu, what he receives is, as a matter of law, damages for breach of contract."

I entirely agree that that is so, but that proposition says nothing about how those damages are to be assessed. In these circumstances, I do not think that there is anything in the decision or reasoning in Dixon which determines the correct measure of damages in the instant case.

20. That view of Dixon is confirmed by the reasoning of this court in Gothard v Mirror Group Newspapers Ltd [1988] IRLR 396, although that was a very different case on the facts. Sir John Donaldson first set out the passage from Dixon which I have quoted. He added:

"Whilst it is open to this court to overrule this statement, I would not do so in the context in which it was made, namely, a consideration of whether an employee was still employed by the employer during the notice period when he had been paid 'money in lieu'. If I had been confronted with the present problem, I hope and think that I should have rephrased it so that it read: 'If a man is dismissed without notice, but with money in lieu, what he receives is, as a matter of law, payment which falls to be set against, and will usually be designed by the employer to extinguish, any claim for damages for breach of contract, ie wrongful dismissal. During the period to which the money in lieu relates he is not employed by his employer.

This tells us nothing about the amount of those damages..."

21. I have already quoted the key paragraphs in the judgment of the Employment Appeal Tribunal, namely paragraphs 4 to 6. Insofar as the Employment Appeal Tribunal was saying that the appellant could not base a claim on the assertion that his employment in fact continued, I entirely agree. However, insofar as it is said that because the appellant accepted payment in lieu of notice he lost his right to claim damages based on what he would have received if the employer had not been in breach of contract, I disagree. The appellant was entitled to damages for breach of contract, namely dismissal without notice.
22. Of course, he could make a binding agreement to settle the amount of damages. Equally, he could be estopped from claiming more than the amount that he had claimed, but only if he made some relevant, clear and unequivocal representations or there was some unequivocal conduct which was relied upon by the employer. There is no evidence or finding of such an agreement or clear and unequivocal representation or conduct here. Moreover, Mr. Prichard recognized that no such argument was advanced, either before the Employment Tribunal or before the Employment Appeal Tribunal. He has not sought to uphold the decision of either tribunal on any such basis. Hence the appellant was entitled to recover more pay and indeed greater redundancy than was originally referred to in the letter. Equally, I can see no reason why the appellant should not be entitled to the value of the lost pension rights. In the course of the argument this afternoon Mr. Pritchard has essentially conceded that that is the true position.
23. It follows that, in my judgment, this appeal must succeed, subject to one point upon which Mr. Pritchard sought to uphold the decision, though not its reasoning. He submits that the loss of pension rights was too remote to be recoverable in law.
24. Before considering that submission I should say a little more about the facts. If the respondent had given 12 weeks' notice the appellant would have been contractually entitled to pay and he would also have been entitled to the value of certain pension rights which accrued on his 55th birthday. The respondent, as the employer of the appellant, would have been liable in respect of the pay. It would not have been liable to pay the amount of the pension. That is because of the workings of the Transfer of Undertakings Protection of Employment Regulations 1981 as amended ("TUPE").
25. The appellant was originally employed by English Ford in June 1957. Subsequently Lex became his employers before they transferred the dealership with which he was involved to the respondent on 1st October 1997. The appellant had pension rights under the Lex Service Pension Scheme. The effect of TUPE was to transfer his employment to the respondent and, for the most part, to give him the same rights against the respondent as he had had against Lex before the transfer. However, it is common ground that the effect of regulation 7 of TUPE was that his pension rights were not transferred, so that he had no such right exercisable against the respondent. It is for that reason that the respondent would not have been contractually bound to pay the sum at present in dispute of £5877. It is perhaps for that reason that the respondent was willing to pay the extra £950 but has been unwilling to pay the £5877.
26. These facts have no bearing upon the true measure of damages because the appellant's loss includes the pension rights, whether the liability to pay the pension was that of the trustees or of the respondent. However, Mr. Prichard refers us to them because he says that the particular rights under the Lex Pension Scheme are peculiar to that scheme. He draws attention for example to the fact that there is a jump in the amount of pension that a male employee becomes entitled to at 55.
27. I accept that not all pension schemes are likely to be the same. However, it is common knowledge that it is common for the amount of an employee's pension to increase with length of service, and indeed for that increase to occur in steps. It is not uncommon for those steps to be 55 and 60. The Employment Appeal Tribunal rejected Mr Prichard's submission that the loss of pension rights was too remote to be recoverable.
28. The Employment Appeal Tribunal directed itself by reference to the well known principle in Hadley v Baxendale (1854) 9 Ex 341. It did so by reference to the discussion in Treitel on Contract, pages 322, 323 and 324. Mr. Prichard has referred us not only to Hadley v Baxendale but to a number of well known cases which succeeded it, including Victorian Laundry (Windsor) Ltd v Newman Industries [1949] 2 KB 528, The Heron II [1969] 1 AC 350, Kpohraror v Woolwich Building Society [1996] 4 All ER 119, University of Nottingham v Eyett [1999] IRLR 87, and most recently Johnson v Unisys Ltd [1999] ICR 809 and [2001] 2 WLR 1076. That last case shows that the ordinary principles of remoteness in the law of contract apply in principle to contracts of employment. Mr. Prichard submits that the authorities show that the test of remoteness in contract is different from the test of remoteness in tort. It is not simply a question whether it was reasonably foreseeable that loss of the type which was sustained might be successful. I accept that submission.
29. The formulation of the correct test has been much discussed in the authorities over the years. The test that the loss sustained must be "on the cards" has now been authoritatively rejected: See The Heron II. In Treitel on Contract, 10th Edition, at page 900 the author summarizes the position thus:

"Various expressions are used in The Heron II to describe the degree of probability required to satisfy the test of remoteness in contract. There must be a 'serious possibility' or a 'real danger' or a 'very substantial' probability of loss; it must be 'not unlikely' or 'easily foreseeable' that loss will occur. The result of the decision is that a higher degree of probability is required to satisfy the test of remoteness in contract than in tort. When used in contract cases, the word 'foreseeability' refers to this higher degree of probability."

In paragraph 27-042 of Chitty on Contracts the editors of Chitty, after referring to Hadley v Baxendale, Victoria Laundry (Windsor) Ltd v Newman Industries Ltd and The Heron II, summarised the position in this way:

"The combined effect of these cases may be summarised as follows: a type or kind of loss is not too remote a consequence of a breach of contract if, at the time of contracting (and on the assumption that the parties actually foresaw the breach in question), it was within their reasonable contemplation as a not unlikely result of that breach."

In The Heron II Lord Reid identified the key question thus at page 385:

"The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation."

In the course of his submissions Mr. Tatton-Brown also referred to paragraph 27-045 of Chitty, which is entitled "The type or kind of loss" and is in these terms:

"The reference to 'the loss' in the formulations of the test for remoteness of damage is to be interpreted as the type or kind of loss in question. The party who has suffered damage does not have to show that the contract-breaker ought to have contemplated, as being not unlikely, the precise detail of the damage or the precise manner of its happening. It is enough if he should have contemplated that damage of that kind is not unlikely."

30. In these circumstances, as I see it, in assessing what was in the reasonable contemplation of the parties the court must consider that question at the time that the contract is made. On the other hand, in seeking to answer it the court must have regard to the actual breach of contract which was committed.
31. In the course of his submissions, Mr. Tatton-Brown submitted that, on the facts of this case, the question should be posed as follows: whether it was within the reasonable contemplation of the parties when the contract was made that it was not unlikely that, if the employer gave 12 weeks' notice to the employee as he approached his 55th birthday and was a member of a pension scheme, he would lose pension rights on his 55th birthday. To my mind, that is an appropriate question to ask.
32. It appears to me that the answer to that question is plainly yes. As I indicated earlier, it is well known that the value of pension rights depends upon pensionable service. It also appears to me to be well known that the value of those rights increase by stages and that typically those stages would be likely to be at 55 and 60. In those circumstances, I am clearly of the view that it was indeed not unlikely that, if a breach such as occurred here did occur, the appellant employee would lose significant pension rights as a result of the contract of employment terminating before his 55th birthday. The type or kind of loss was well within the reasonable contemplation of the parties, namely loss of pension rights. This is not a case like, for example, the Victoria Laundry case where a particular type of loss of profits was outside the reasonable contemplation of the parties.
33. It appears to me that the answer is the same whichever of the formulations of the test is taken. For example, if one asks the question posed by Lord Reid, namely whether a reasonable man in the position of the respondent would have realised that such loss (that is the £5,000 loss of pension rights) was sufficiently likely to result from a breach of contract to make it proper to hold that the loss flowed naturally from the breach or that a loss of that kind should have been within his contemplation, the answer would again be yes.
34. For these reasons I would hold that the Employment Appeal Tribunal was correct to hold that this loss was not too remote in law to be recoverable. For all these reasons I would allow the appeal.

MR. JUSTICE BELL: I agree.

LORD JUSTICE THORPE: I also agree.

Order: Appeal allowed with costs assessed in the sum of £6,102.73; agreed minute of order to be supplied.