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
HIS HONOUR JUDGE ANSELL
UKEAT/0495/04/LA

		Royal Courts of Justice Strand, London, WC2A 2LL
		6 May 2005

Lord Justice Mummery :

Introduction

1. Like other people, employers and employees sensibly settle most of their disputes. The law encourages them to mend their differences. It upholds and enforces their compromises. The last thing that they want and the employment tribunals need is a dispute about an agreement aiming to resolve a dispute. Yet that is what has happened here. To make matters worse, there are conflicting decisions on the validity of a compromise agreement made between the parties, the employment tribunal going one way and the employment appeal tribunal going the other way. The opinions of experienced tribunal members differ on the construction both of the agreement itself and of the statutory provisions to which it must conform.
2. Certainty is vital in this part of the law. As far as possible, parties and their advisers are entitled to know what they should do in order to achieve a valid compromise and to avoid the risk of disagreement about it.
3. Employment law practice on compromise is governed by the ordinary law of contract and by section 203 of the Employment Rights Act 1996 (the 1996 Act). The section imposes restrictions on contracting out of the right to bring proceedings under the 1996 Act before an employment tribunal. Various conditions regulating compromise agreements have to be satisfied in order to make a compromise agreement under the 1996 Act valid and binding on the parties.
4. The general rule is that an agreement contracting out of the right to bring tribunal proceedings is void. This rule does not, however, apply to a compromise agreement to refrain from instituting or continuing certain proceedings, provided that the specified conditions are satisfied. The agreement must be in writing. The employee should receive independent legal advice on the terms and effect of the proposed agreement before signing it. The agreement must state that the conditions regulating compromise agreements under the 1996 Act are satisfied. The relevant condition is that "the agreement must relate to the particular proceedings." The short point is how particular does the agreement have to be for it to "relate to the particular proceedings" within section 203(3)(b)?

Section 203

5. Section 203 (omitting immaterial parts) provides that-

"(1) Any provision in an agreement (whether a contract of employment or not) is void in so far as it purports-

(a)………

(b) to preclude a person from bringing any proceedings under this Act before an employment tribunal.

(2) Subsection (1)-

…..

(f) does not apply to any agreement to refrain from instituting or continuing ….any proceedings within the following provisions of section 18(1) of the Employment Tribunals Act 1996 (cases where conciliation available)-

(i) paragraph (d) (proceedings under this Act),

if the conditions regulating compromise agreements under this Act are satisfied in relation to the agreement.

(3) For the purposes of subsection (2) (f) the conditions regulating compromise agreements under this Act are that-

……

(b) the agreement must relate to the particular proceedings."

Preliminary issue

6. The preliminary issue of jurisdiction, on which the employment tribunal sitting at Stratford (extended reasons 18 May 2004) and the employment appeal tribunal (judgment given by HHJ Ansell on 22 October 2004) differed, was whether the agreement in writing dated 21 July 2003 (the Agreement) under which Dr David Hinton, the appellant, took early retirement from his post as Principal Lecturer in Cultural Studies with the respondent University of East London (the University), precluded him from pursuing complaints against the University of continuing detriment under s47B of the 1996 Act (the public interest disclosure provisions), as identified in his originating application of 23 0ctober 2003. His employment came to an end on 31 July 2003. It has been confirmed that he does not intend to pursue any complaints of detriments or claims arising out of any post-employment events.
7. Lunt v. Merseyside TEC Ltd [1999] IRLR 458 (Lunt), a decision of the employment appeal tribunal, was discussed at length by the tribunals below. It is the only reported case touching on the construction of s203, but it is not directly on the point raised by the appeal. An authoritative ruling and guidance are required from this court in view of the differing conclusions reached on s203 below.
8. I granted permission to appeal on 26 November 2004 against the decision of the employment appeal tribunal on the basis that the appeal had a real prospect of success and that the construction of section 203 was a point of general importance. The appeal tribunal had allowed the University's appeal against the decision of the employment tribunal that Dr Hinton was not precluded from pursuing his tribunal proceedings under section 47B.

The Agreement

9. According to the opening section of the Agreement headed "Background" the agreement of the parties was to settle

"(B) …..all outstanding claims which the Employee has or may have arising out of or in connection with or as a consequence of his employment and/or the termination of his employment or otherwise against the University, its officers or employees including in particular those statutory complaints which the Employee intimates in this Agreement."

(C) The parties intend that this Agreement should satisfy the conditions relating to compromise agreements set out in the Acts (as defined below)."

10. The central provision of the Agreement was clause 9 -

"9. Settlement

9.1 This Agreement is made without any admission of liability on the part of the University on the basis that its terms are in full and final satisfaction of all claims in all jurisdictions (whether arising under statute, common law or otherwise) which the employee has or may have against the University officers [sic] or employees arising out of or in connection with his employment with the University, the termination of his employment or otherwise including in particular the following claims which have been raised by or on behalf of the Employee as being claims which he may have for: …."

11. There followed a list of numbered paragraphs 9.1.1 to 9.1.11, itemising 11 particular kinds of claim at common law, under the 1996 Act and under the discrimination Acts. Some of the items in the list related to claims, such as discrimination, which were not relevant to the circumstances of Dr Hinton's case. The itemised list did not include any claim of the kind falling under section 47B of the 1996 Act. At the end of the list there was an exception for certain claims, such as pensions and personal injury claims, but again no mention of section 47B or a claim of a kind covered by it.
12. I share the employment tribunal's surprise that section 47B and public interest disclosure were omitted from the long itemised list in clause 9, as in the correspondence between the parties prior to the Agreement Dr Hinton's advisers raised the issue of detrimental treatment allegedly suffered by Dr Hinton as a result of a number of alleged qualifying protected public interest disclosures in the period 1999 to 2001. The disclosures concerned alleged procedural and financial irregularities in the University.
13. Clause 10.1 stated that the Agreement satisfied the conditions for regulating compromise agreements under the 1996 Act and other Acts. Under clause 11.1 Dr Hinton agreed to refrain from instituting or continuing any proceedings before an employment tribunal in relation to any claims or complaints comprised under clause 9.1.

The employment tribunal

14. In holding that the Agreement did not preclude Dr Hinton from pursuing his complaint under s47B, the employment tribunal noted a number of points: Dr Hinton had raised a potential claim under s47B of the 1996 Act at the time of the Agreement; it was a particular complaint under the 1996 Act; but it was not mentioned in the particular itemised claims listed in the Agreement. The Agreement did not comply with section 203. Further, section 47B was a "grave omission" from the Agreement and was not caught by the general words in clause 9.1 of the Agreement. The section 47B claim was not contractually compromised. The tribunal said-

"48. ….In effect this was a badly drafted agreement and we are not able to construe that it has the effect of excluding the particular complaint now brought by the Applicant which it omitted to particularise."

The employment appeal tribunal

15. I agree with the employment appeal tribunal (paragraph 11) that it is not easy to ascertain from some of the concluding paragraphs of the employment tribunal's extended reasons whether it was deciding the case as a matter of construction of section 203(3) or as a matter of the particular construction of the document. The employment appeal tribunal was satisfied (paragraph 37) that section 47B fell within the scope of the general words at the beginning of clause 9.1 and that the list that followed was only intended to be illustrative. It was not an exclusive list. The appeal tribunal accepted the submission of the University's counsel that

" 22. ….it was not necessary that the compromise agreement specifically mentioned the cases being compromised as long as they had previously been raised and that it was within the scope of the compromise agreement as a matter of construction , i.e. it relates to the proceedings and as in Lunt he contended that the general settlement clause contained in paragraph 9.1 was sufficient to compromise the claim under section 47B."

16. Counsel for the University asserted and the appeal tribunal accepted that the phrase "relate to" in section 203(3)(b) connotes a broad connection rather than a specific reference. For example, the statute could have said, but did not say, "specified in" (see paragraph 23(i) and also paragraph 27). The appeal tribunal concluded-

"25. On the section 203 issue we have no hesitation in agreeing with the Appellant's submissions, and in particular we are satisfied that the Lunt case can be regarded as authority for the proposition that the words "relate to" simply refer to proceedings or claims which have been raised as opposed to the necessity of setting them out within the body of the compromise agreement."

Discussion and conclusion

17. The construction of section 203(3)(b) is the crux of this case. I would focus on the following features of section 203 and its context:

(1) The legislative policy is to protect employees from signing away the right to bring employment tribunal proceedings under the 1996 Act except in cases where a number of closely defined conditions are satisfied. The most obvious target of the section is the blanket or sweep-up form of general waiver or release covering all future claims and inserted in a contract of employment issued to an employee on his engagement. The elaborate code of employment protection in the 1996 Act would be worthless, if, at the stroke of a pen, it could be removed by a general waiver or release of rights.

(2) As it is the policy of the law to encourage the settlement of disputes, an exception to the general rule is made for "compromise agreements." In the absence of an exception they would be caught by the general rule of invalidity, as a compromise agreement normally includes an agreement by the employee not to bring proceedings in the tribunal. If such an agreement is always void, employers would be deterred from settling disputes.

(3) The effect of the exception is that, if such an agreement is made before employment tribunal proceedings, it may validly provide that the employee will refrain from instituting such proceedings. If made after employment proceedings have been instituted, it may validly provide that the employee will not continue the proceedings. What proceedings are being compromised is, in the first instance, simply a matter of contract. Ordinary principles of contractual interpretation apply. If the compromise agreement does not, on its proper construction, cover the particular proceedings which an employee has brought or later brings, the employee is not contractually precluded from bringing or continuing the proceedings. The statutory safeguards only operate when the employee is contractually precluded from bringing or continuing proceedings.

(4) The employees' safeguards are to be found in the statutory conditions regulating compromise agreements. They must be satisfied in relation to the agreement. If they are not satisfied the exception does not apply and the agreement is void. On general principles of statutory interpretation the conditions should be construed, so far as is possible, to promote the purpose for which they are imposed, that is to protect employees when agreeing to relinquish the right to bring proceedings under the 1996 Act in the employment tribunal.

(5) Although the language of the exception is not as clearly drafted as it might have been, it is reasonably plain that a compromise agreement may be validly made even if there are no actual employment tribunal proceedings. If tribunal proceedings already exist, no problem under s203(3)(b) would normally arise: the compromise agreement would "relate to the particular proceedings" in existence.

(6) The dispute centres on the case where there are no actual employment tribunal proceedings at the time of the compromise agreement. It might be thought that, if there are no actual proceedings, there could be no "particular proceedings" falling within s203(3)(b). It is correctly argued by the University, however, that the exception applies to the compromise of anticipated proceedings in relation to a claim or complaint raised between the parties prior to the compromise, though not the subject of any actual proceedings. If this were not so, it would be impossible to give any effect to the words "to refrain from instituting any proceedings" in s203(2). No sensible or useful purpose would be served by requiring an employee to go through the formal steps of issuing tribunal proceedings for the sole purpose of enabling a valid and binding compromise agreement to be made.

(7) A sensible construction of section 203 does not require the parties to have a separate document to deal with the compromise of each particular proceeding. One document can be used to compromise all the particular proceedings. No useful purpose would be served by requiring the parties to multiply the number of documents to be drafted and signed by them.

18. With those points in mind I return to the terms of the Agreement and to section 203(3)(b).

Conclusion on the Agreement

19. As for the Agreement I am in no doubt that contractually its terms are wide enough to cover the section 47B claim raised by Dr Hinton against the University. The Agreement made it as plain as it could be that the intention of the parties was to settle all their differences, actual and potential, arising under statute and at common law.
20. Mr Ivan Hare, who appeared for Dr Hinton, criticised the employment appeal tribunal for failing to attach weight to the findings by the employment tribunal on the facts relevant to the background of the Agreement and to its contextual construction in accordance with the principles laid down by Lord Hoffmann in ICS v. West Bromwich BS [1998] 1 WLR 898: that the Agreement was basically a standard document used by the University in similar situations; that the University did not obtain legal advice before drafting, amending and signing the Agreement; that it was poorly drafted and contained errors; and that it included a series of claims that had no relevance to Dr Hinton's circumstances.
21. In my judgment, the factual findings do not limit the scope of the general words in clause 9.1. They are contractually adequate, when read in the context of the Agreement, to compromise Dr Hinton's section 47B proceedings. It was not contractually necessary for an effective compromise agreement to refer expressly to section 47B or to the legal nature and factual basis of Dr Hinton's allegations of detriment resulting from qualifying public interest disclosures. I agree with the conclusion of the employment appeal tribunal on the contract construction point (paragraphs 30 to 38).

Conclusion on section 203

22. The construction and application of s203(3)(b) to the Agreement is more difficult. I understand why the employment tribunal and the appeal tribunal arrived at different conclusions after considering the statutory language, the legislative policy, the preparatory materials, the case law and their knowledge of common practice. For me the decisive point is in the formulation of the key question. I would formulate it in this way: how does the Agreement relate to the particular proceedings under s47B? The opening part of clause 9.1, on which the University relies, is very general indeed: it relates to all claims "arising under statute." It relates to proceedings, but not to "particular proceedings." Particularity on this point is required, but it is missing from clause 9: no particular statute is stated expressly; no particular description is supplied of the legal nature or the factual basis of any proceedings "arising under statute"; no mention is made of public interest disclosures or of any detriment suffered by Dr Hinton as a result of making them.
23. This approach to the construction of section 203 is consistent with the policy of the section and its language. Its practical consequences should not give rise to difficulties and it should provide clear guidance to the parties and their legal advisers.
24. If actual proceedings are compromised it is good practice for the particulars of the proceedings and of the particular allegations made in them to be inserted in the compromise agreement in the form of a brief factual and legal description.
25. If the compromise is of a particular claim raised which is not yet the subject of proceedings, it is good practice for the particulars of the nature of the allegations and of the statute under which they are made or the common law basis of the alleged claim to be inserted in the compromise agreement in the form of a brief factual and legal description.

Lunt

26. In Lunt the employment appeal tribunal (Morison J presiding) held that an applicant who had entered into a compromise agreement with her employer agreeing to refrain from instituting any complaint or proceeding before an employment tribunal could proceed with her claims under the Sex Discrimination Act 1975 because the agreement did not satisfy the requirement of the 1975 Act (section 77 (4A)(f) corresponding to section 203(3)(f) of the 1996 Act) that the agreement must state that the conditions under the 1975 Act have been complied with. She had raised a complaint of sex discrimination before the compromise agreement, but there were no actual proceedings. It does not appear from the report that the compromise agreement made a specific mention of any claim under any discrimination legislation.
27. The decision was not directed to the "particular proceedings" point arising under s203(3)(b) of the 1996 Act. Mr Fodder appearing for the University relied on Lunt as implicitly lending support to his contention that, for an agreement to relate to particular proceedings, it was not necessary for the compromise agreement specifically to mention the claims that are being compromised, as long as they are within the contractual scope of the agreement. Mr Fodder emphasised the broadness of the expression "relate to" as illustrated in the case of Inland Revenue Commissioners v. Maple & Co (Paris) Limited [1908] AC 22 at 26 (a decision on the Stamp Act 1891). The expression did not mean the same as requiring that proceedings are "specifically referred to" in the compromise agreement. The Agreement accordingly related to the particular proceedings under section 47B for the purposes of section 203(3)(b).
28. I found Lunt helpful on a number of aspects of section 203, such as its application to proceedings anticipated in communications between the parties prior to the agreement and the availability of single compromise agreement to cover multiple proceedings or claims. I am clear, however, that the judgment given by Morison J was not directed to the "particular proceedings" point and is not an authority on it. I do not agree with the employment appeal tribunal (paragraph 25) that Lunt can be regarded as authority for the proposition that the words "relate to" simply refer to proceedings or claims which have been raised as opposed to the necessity of setting them out within the body of the compromise agreement. Lunt was not binding on the appeal tribunal for that proposition and it is not, in any case, binding on this court.

Result

29. The employment tribunal did not err in law. It rightly held that, by reason of section 203, the Agreement did not preclude Dr Hinton from bringing before the employment tribunal his complaint under section 47B of the 1996 Act. The employment appeal tribunal ought to have dismissed the appeal by the University. I would allow Dr Hinton's appeal. Subject to any further case management decisions by the employment tribunal, the matter should now proceed to a full merits hearing.

Lady Justice Smith:

30. I have read the judgment of Mummery LJ in draft and agree with it. I add a few words to explain my own particular reasons for concluding, like Mummery LJ, that, within itself, the Agreement was sufficient to compromise Dr Hinton's potential claim under Section 47B of the Employment Rights Act 1996 but that it did not comply with the requirement of section 203(3)(b) of that Act.  The agreement did not 'relate to the particular proceedings' and was therefore not effective to compromise that claim. 
31. Mr Fodder contended that the words 'relate to the particular proceedings' in section 203(3)(b) do not require that an agreement should identify the particular proceedings to be covered by the compromise.  It required only that the agreement should relate to them.  He contrasted this with the stipulation in section 203(3)(e) that the agreement must 'identify' the legal adviser who had advised the claimant as to the terms and effect of the agreement.  He submitted that, if Parliament had meant to require the 'particular proceedings' to be identified in the agreement, it would have used a word such as 'identify' or 'specify'.  It had not; it had said only that the agreement must relate to the particular proceedings.  If the wording used in the agreement was wide enough to relate to, in the sense of 'cover' the particular proceedings in question and if the possibility of such a claim had been previously raised between the parties, the requirements of section 203(3)(b) were satisfied.
32.  Mr Hare, on the other hand, contended that section 203(3)(b) required that the all the claims or potential claims to be covered by the agreement should be expressly identified.  If a catch-all provision such as appeared here was sufficient, the word 'particular' could have no meaning.  He suggested that the particular proceedings to which the agreement related could be identified either by reference to the nature of the claim (eg unfair dismissal or sex discrimination) or by reference to the relevant statutory provision (eg Section 47B of ERA 1996).  He went so far as to concede that it might be sufficient if the agreement referred to 'all claims under Employment Rights Act 1996.' However, he contended that the catch-all reference in this Agreement to 'all claims in all jurisdictions (whether arising under statute, common law or otherwise)' did not sufficiently identify the particular proceedings which it was intended to compromise so as to comply with section 203(3)(b).
33.  I accept that there is some force in Mr Fodder's contention that, if Parliament had intended that the particular proceedings covered by the agreement had to be identified, it could have used more explicit language.  However, in my judgment, the purpose of section 203 is clear. It is to protect claimants from the danger of signing away their rights without a proper understanding of what they are doing.  In order to achieve that purpose, I consider that section 203(3)(b) must be construed as requiring the particular proceedings to which the agreement relates to be clearly identified.  It is not sufficient to use a rolled-up expression such as 'all statutory rights'. In my view, Mr Hare went too far when he conceded that it might be sufficient to identify the proceedings only by reference to the statute under which they arise. In my judgment, it is not sufficient. Many employment rights arise, for example, under the Employment Rights Act 1996 and, to comply with section 203(3)(b), the particular proceedings to which the agreement relates must be more clearly identified.  In my judgment, in order to comply with section 203, the particular claims or potential claims to be covered by the agreement must be identified, as Mr Hare suggested, either by a generic description such as 'unfair dismissal' or by reference to the section of the statute giving rise to the claim.
34.  That is all that can be required for compliance with section 203(3)(b). However, I agree with Mummery LJ that the requirements of good practice should dictate that the particular proceedings covered by the agreement should be spelled out by means of a brief factual and legal description.  I agree with him that this should not cause practical difficulty and will not be unduly onerous.  I would add that I would not regard it as good practice for lawyers to draft a standard form of compromise agreement which lists every form of employment right known to the law.  Compromise agreements should be tailored to the individual circumstances of the instant case.   Only in that way can the purpose behind this provision be fully satisfied.   

Sir Martin Nourse:

35. I agree.