England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM Sir Donald Rattee
sitting as a judge of the Chancery Division
of the High Court of Justice on 17 October 2007

		Royal Courts of Justice Strand, London, WC2A 2LL
		11/06/2008

Lord Justice Wall :

This is the judgment of the court, to which each of its members has contributed.

The appeal and the underlying facts giving rise to it

1. Mr Haine, as a representative of the former employees of a company in liquidation called Compound Sections Limited (the company), and the Secretary of State for Business Enterprise and Regulatory Reform (the Secretary of State) join forces to appeal against an order made by Sir Donald Rattee, sitting as a judge of the Chancery Division of the High Court of Justice on 15 October 2007. The respondent is the Liquidator of the company.
2. The appeal raises a pure point of law. The facts are not in dispute, and we can do no better than to take them from paragraphs 1 to 12 of Sir Donald's judgment, [2007] EWHC 2691 (Ch), in which, in addition to the facts, Sir Donald sets out most of the relevant statutory provisions With the exception of references to the Employment Rights Act (ERA 1996) we will, moreover, throughout this judgment use Sir Donald's abbreviations of the various Statutes and Rules to which he refers -

1. This is an application by the liquidator of Compound Sections Limited ("the company") for directions pursuant to section 112 of the Insolvency Act 1986 ("the 1986 Act"). The directions sought concern proofs of debt submitted by a number of former employees of the company in respect of protective awards made in their favour by an Employment Tribunal pursuant to section 189 of the Trade Union and Labour Relations (Consolidation) Act 1992 ("the 1992 Act").

2. The awards were made on 31st August 2006. The employees, in whose favour the awards were made, are represented on this application by one of their number, Mr. Robert Haine, the first respondent. The second respondent is the Secretary of State for Business Enterprise and Regulatory Reform who was added as a party to the proceedings at the Secretary of State's own request because the Secretary of State has an interest in the directions sought. For as under section 182 of the Employment Rights Act 1996 the Secretary of State is under an obligation in part to indemnify the employees in respect of any inability on their part to recover the protective awards from the company in liquidation.

3. The material facts, as to which there is no dispute, are as follows. On 10th February 2006 the company, which was by then irretrievably insolvent, terminated the employment of 40 of its employees. The company went into administration and on 16th February 2006 the liquidator was appointed as administrator pursuant to paragraph 29 of schedule Bl to the 1986 Act. After only a short time the administration was converted into a liquidation and the liquidator was appointed liquidator pursuant to paragraph 83 of schedule Bl to the 1986 Act with effect from 13th April 2006.

4. By virtue of section 188 of the 1992 Act before the company terminated the employment of 40 of its employees on 10th February 2006, it was under an obligation to consult about the proposed dismissals appropriate representatives of the employees concerned as defined in the 1992 Act. The company did not carry out any sufficient consultation to comply with section 188. Section 188(8) of the 1992 Act provides that:

"This section" — i.e. section 188 — "does not confer any rights on a trade union, a representative or an employee except as provided by sections 189-192 below".

5. Section 189 provides by subsection (1) that, where an employer has failed to comply with a requirement of section 188, a complaint may be made to an Employment Tribunal by the affected employees or their representatives. Section 189(2) provides:

"If the tribunal finds that the complaint is well-founded it shall make a declaration to that effect and may also make a protective award."

6. The following subsections of section 189 define the protective award as, in effect, an order that the employer pay remuneration to the dismissed employees for a protected period beginning with the date of the dismissal of the first of them and being of such length as the tribunal determines is just and equitable in all the circumstances, but not exceeding 90 days.

7. Section 190(1) provides that, where a tribunal has made a protective award every employee of a description to which the award relates is entitled, subject to other provisions of the Act not material for present purposes, to be paid remuneration by his employer for the protected period.

8. Section 192 of the 1992 Act provides that an employee may present a complaint to an Employment Tribunal, that the employer has failed to pay the remuneration due under a protective award and that the tribunal shall, if it finds such a complaint well-founded, order the employer to pay the complainant the amount due. Section 192(4) of the Act provides that:

"The remedy of an employee for infringement of his right to remuneration under a protective award is by way of complaint under this section and not otherwise".

9. On 9th May 2006 AMICUS, a trade union recognised by the company, brought proceedings in the Employment Tribunal in Bedford on behalf of a number of employees who had been dismissed by the company. Proceedings were brought under section 189 of the 1992 Act and alleged that the company had failed to perform its consultation obligation under section 188 of the Act.

10. On 31st August 2006 the Employment Tribunal upheld the complaint and made a declaration to that effect under section 189(2) of the 1992 Act. The tribunal also, as it had power to do under section 189(2), made protective awards against the company in favour of each employee dismissed by the company in the series of dismissals to which the proceedings related for the maximum period allowable by section 189(4).

11. By the present proceedings the liquidator seeks directions as to whether the employees' entitlements to remuneration under those protective awards are provable in the liquidation. If they are so provable, then at least in part they will constitute preferential debts by virtue of paragraph 9 of schedule 6 to the 1986 Act. Whether such entitlements are provable in the liquidation depends on the application of rule 12.3 of the Insolvency Rules 1986. Rule 12.3(1) provides that:

What is provable Subject as follows, in administration, winding up and bankruptcy, all claims by creditors are provable as debts against the company or, as the case may be, the bankrupt, whether they are present or future, certain or contingent, ascertained or sounding only in damages.

Rule 12.3(2) provides that certain claims are not provable. It is of no materiality to the present case.

Rule 12.3(3) provides as follows:

Effect of Rule Nothing in this Rule prejudices any enactment or rule of law under which a particular kind of debt is not provable, whether on grounds of public policy or otherwise.

12. Rule 13.12 defines debt and liability for the purposes of Rule 12.3. Rule 13.12(1) provides:

Definition 'Debt', in relation to the winding up of a company, means (subject to the next paragraph) any of the following:

(a) any debt or liability to which the company is subject at the date on which it goes into liquidation;

(b) any debt or liability to which the company may become subject after that date by reason of any obligation incurred before that date; and

(c) any interest provable as mentioned in Rule 4.93(1).

Rule 13.12(3) provides:

Debt or liability For the purposes of references in any provisions of the Act or the Rules about winding up to a debt or liability, it is immaterial whether the debt or liability is present or future, whether it is certain or contingent, or whether its amount is fixed or liquidated, or is capable of being ascertained by fixed rules or as a matter of opinion; and references in any such provision to owing a debt are to be read accordingly.

Rule 13.12(4) provides:

'Liability' In any provision of the Act or Rules about winding up, except in so far as the context otherwise requires, 'liability' means (subject to paragraph (3) above) a liability to pay money or money's worth, including any liability under an enactment, any liability for breach of trust, any liability in contract, tort or bailment, and any liability arising out of an obligation to make restitution.

3. Sir Donald decided that the protective awards made pursuant to section 189(2) of the 1992 Act did not constitute debts provable in the liquidation of the company within the meaning of rules 12.3 and 13.12 of the Insolvency Rules 1986 (the Rules). He also decided that the awards were not expenses of the liquidation within the meaning of rule 4.218(1) of the Rules. It is against the first of these rulings that Mr. Haine and the Secretary of State appeal.
4. Sir Donald thought the outcome harsh, but unavoidable. The final paragraph of his judgment so says:

38 I appreciate this seems to produce a harsh result for the employees concerned, but in my judgment it is a conclusion I am compelled to reach on the present state of the law. The harshness of the result is no doubt remediable by Parliament for the future, if it thinks fit.

5. Actually the result is not so much harsh on the employees as on the taxpayer. For if the Liquidator does not need to pay, the Secretary of State will have to (see below).
6. It was this reasoning, together with Sir Donald's conclusion that the case raised issues of public importance which he though this court should have the opportunity to consider, which led him to give permission to appeal.

Overview

7. Although the problem arises in the context of insolvency, it is essentially one of employment law, and particularly employment law in the context of an EU Directive. It seems that before Sir Donald the case was argued primarily as a technical problem of insolvency law rather than in the context of legislation intended to implement an EU Directive. Had the case been argued before him in the way in which it was argued before us, we think it at the lowest possible and, in reality probable, that he would have reached a different conclusion.
8. For us, the principal question is whether or not the provisions of the 1992 Act can be properly construed so as to fulfil and enact into English law the provisions of the consolidated Council Directive 98 / 59 / EC of 20 July 1998 on the approximation of the laws of the Member States relating to collective redundancies (the Directive). The Directive, does not feature in Sir Donald's judgment, and was not in our papers. We had to call for it. Yet it is central to the case, for, if Sir Donald is right, the UK will have failed to implement the Directive properly.
9. As Mr. R.B. Ritchie, for the Secretary of State, put it – and this was not controversial - the UK has a duty under EU law to take all measures necessary to ensure that infringements of EU law are penalised under conditions which make the penalty "effective, proportionate and dissuasive": - see EC Commission v Greece Case 68/88 [1989] ECR 2965 at 2985 (paragraph 24). However, if Sir Donald is right, then - as he himself recognised - the effect of the 1992 Act is to provide a perverse incentive to unscrupulous employers operating through the medium of companies not to fulfil their obligations under the 1992 Act.
10. Putting the matter starkly, a by no means improbable scenario is as follows: the directors of a company know that the business is failing and that the company will probably end up going into liquidation. The workforce is going to have to be laid off, made redundant, or dismissed. The directors know they have a duty to consult the workforce under section 188 of the 1992 Act. They breach that obligation just before the company goes into administration or liquidation. After liquidation the workforce obtains from the Employment Tribunal the "protective award" provided by section 189 of the 1992 Act. If Sir Donald is right, there is no way in which the company can be made to meet its obligation to pay the protective award.
11. In our judgment, it is no answer to say that - even if events occur in this way - the workforce will be protected. It is true that they will be, because the Secretary of State, under the provisions of section 182 in Part XII of the ERA 1996 is obliged to step into the employer's shoes and to pay the workforce the protective award which should have been paid by the employer. The simple fact remains that, on Sir Donald's analysis of the statutory provisions and the authorities, employers are able wholly to escape from the liability which Parliament has imposed on them. Added to which, of course, the Secretary of State, to whom are transferred the workforce's rights under the 1992 Act has no means of recouping his expenditure from the employer by proving in the company's liquidation.
12. Far from providing penalties which are "effective, proportionate and dissuasive", the result, in our judgment, would be the opposite.
13. One of the principal reasons Sir Donald reached his conclusion, was because he regarded himself as bound by two particular cases decided in this court, each of which we will have to examine with some care. They are, respectively, Glenister v. Rowe [2000] Ch 76, and Regina (Steele) v Birmingham City Council and another [2005] EWCA Civ 1814, [2006] 1 WLR 2380. We will discuss them once we have identified the relevant statutory provisions, and considered the terms of Sir Donald's judgment. But at the outset we observe that neither was concerned with EU law, still less a possible failure to implement a Directive.

Other relevant statutory provisions

(1) The Directive

14. We begin with the Directive. Originally 75/129 / EEC of 17 February 1975, it is now consolidated in Council Directive 98/59/ EC of 20 July 1998. We do not need to set out the detail. It is, we think, sufficient for our purposes to record the terms of Article 6, which read:-

Member States shall ensure that judicial and / or administrative procedures for the enforcement of obligations under this Directive are available to the workers' representatives and / or workers.

(2) The provisions of the 1992 Act and ERA 1996

15. Sir Donald has, we think, sufficiently set out the relevant sections of the 1992 Act, and we do not need to repeat them, nor do we need to set out the relevant sections in Part XII of ERA 1996, since it is common ground that, as Mr. Ritchie puts it in his skeleton argument, the latter "is in effect the statutory guarantor of all or part of the company's obligations to pay the protective award, and is entitled to be subrogated to the employees' rights against the company".

(3) The 1986 Act and the Insolvency Rules 1986 (The Rules)

16. We do not think that anything turns on the 1986 Act, and Sir Donald has set out all the relevant Rules, which we need not repeat. Section 382 of the 1986 Act, which defines "bankruptcy debt" and which was the statutory provision under discussion in both Glenister and Steele is indistinguishable from Rule 13.12, and we do not need to set it out.

The judgment

17. Against this background we go straight to Sir Donald's judgment. Having recited the facts and set out the relevant statutory provisions, Sir Donald firstly rejected an argument advanced on Mr Haine's behalf based on the decision of the House of Lords in Julius v Lord Bishop of Oxford (1880) 5 App Cases 214. The argument, based on the use of the word "may" in section 189(2) of the 1992 Act, was that although the word "may" appeared to give the Employment Tribunal a discretion, it should be construed as meaning that the Tribunal was bound in the circumstances of the case to make a protective award.
18. Julius v Lord Bishop of Oxford centred around a phrase in the Church Disciplinary Act (3 & 4 Vict. C. 86) to the effect that in any case in which a clerk in holy orders was charged with any one of certain offences "it shall be lawful" for the bishop to issue a commission of enquiry. Counsel relied on the speeches of the Lord Chancellor, Lord Cairns, and Lord Blackburn. At (1880) 5 App Cases 214, 243, the latter had said: -

...though giving a power is prima facie merely enabling the donee to act, and so may not inaccurately be said to be equivalent to saying he may act, yet if the object of giving the power is to enable the donee to effectuate a right, then it is the duty of the donee of the power to exercise the power when those who have the right call upon him so to do. And this is equally the case where the power is given by the word 'may', if the object be clear."

19. Sir Donald rejected the argument in the following words: -

I cannot see that this principle is applicable to the present case, where, by virtue of section 188(8) of the 1992 Act, the only right of the employee in relation to the protective award is to apply to the Employment Tribunal for an exercise of its discretion under section 189(2).

20. Sir Donald then moved on to consider Glenister and Steele. Having done so, he rejected the argument that these two cases could be distinguished: -

25. The respondent sought to persuade me that I am not bound to apply the conclusions of the Court of Appeal in Glenister v Rowe and the R (ex parte Steele) v Birmingham City Council to the facts of the present case, because both these cases were concerned with the provability of the relevant claims in bankruptcy and not in the liquidation of a company. Counsel for both respondents rightly submitted that there is a significant difference between the effect of a determination that a claim is not provable in a bankruptcy on the one hand, and a determination that it is not provable in a company liquidation on the other. As counsel for the Secretary of State neatly put it, a bankrupt survives a bankruptcy; a company does not survive a liquidation.

26. In bankruptcy, if the relevant claim is not a bankruptcy debt within the meaning of section 382 of the 1986 Act, it will survive the bankruptcy and be enforceable against the erstwhile bankrupt after discharge of the bankruptcy. In a case of a winding up of a company, if the claim is not a provable debt within rule 12.3 of the Insolvency Rules 1986, the claimant has no possible future right of recourse against the company. The result is, therefore, much more draconian so far as the claimant is concerned than in the case of bankruptcy.

27. In my judgment, this affords no justification for construing the words of Insolvency Rules 12 and 13 differently from the similar words of section 382 of the 1986 Act. As Arden LJ recognised in the passage of her judgment in Steele's case, from which I have earlier cited:

"The same basic rule as to proof of debt applies to both corporate and individual insolvency

21. Having set out an extract from the judgment of David Richards J in Re T & N Limited [2006] 1 WLR 1728 at 1775 on what the judge in that case described as the application of as "the bankruptcy template of section 382 to the rules governing the winding up of companies", Sir Donald concluded:-

Thus, in my judgment, the reasoning of the Court of Appeal in both Glenister v Rowe and Steele's case is equally applicable to the provisions of Insolvency Rules 12 and 13 in the case of the liquidation of a company, with the result of the dismissed employees in the present case have failed to establish any debt or liability to which the company was subject at the date on which it went into liquidation within rule 13.12(l)(a) of the Insolvency Rules 1986.

22. Sir Donald then went on to consider the argument under Rule 13.12(1)(b) which, he points out, was not considered in Glenister because it had been raised too late, and which had been rejected in Steele for reasons which did not preclude Sir Donald from reaching his own conclusion on the point. This is what he said:-

32 I hope and believe I do the argument justice by stating it in the following way. Before the date on which the company went into liquidation, by proposing to dismiss as redundant 20 or more employees at one establishment, the company incurred a statutory obligation under section 188(1) of the 1992 Act to carry out a process of consultation in accordance with section 188. By reason of that obligation, and of course its breach, the company became subject to a liability for the protective awards when made. That liability is therefore within the terms of Rule 13.12(l)(b) of the Insolvency Rules 1986 and therefore provable in the liquidation.

33. In my judgment that argument is fallacious. For, as I have already pointed out, by virtue of the provisions of section 188(8) of the 1992 Act, the company's breach of the duty to consult gave rise to no enforceable rights in the employees against the company. All it did was to give the employees concerned the right to apply to the Employment Tribunal for a determination of breach and an exercise of its discretion to make a protective award. Of course it is true to say that the protective awards would not have been made but for the company's duty to consult and its breach, but I do not consider that it can be said that, when made, the protective awards became liabilities of the company by reason of the company's duty to consult. They became liabilities of the company by reason of the exercise of the Employment Tribunal's discretion to make awards.

34. In my judgment the reference in the Insolvency Rule 13.12(l)(b) to an obligation incurred means an obligation incurred by the company enforceable by the creditor seeking to prove the consequent debt or liability arising from that obligation. An example of such an obligation is a contract entered into by the company before it went into liquidation with the creditor who subsequently seeks to prove in the liquidation for a debt arising from a breach of that contract occurring after the commencement of the liquidation as contemplated in the case of bankruptcy by Lord Hoffmann in Secretary of State for Trade and Industry v Frid [2004] 2 AC 506, in paragraph 9 of his speech at page 511.

35. In my judgment obligation incurred does not include a duty such as the duty of the company to consult created by section 188 of the 1992 Act, which gives no enforceable rights to the purported creditor, save to the extent that its breach gives the creditor a right to apply for the exercise of a discretion by the court, a tribunal or a third party.

23. Sir Donald once again found support for his conclusion in the judgment of David Richards J in Re T & N Limited [2006] 1 WLR at 1775, paragraph 142, in which the judge had decided that the phrase "obligation incurred" in Rule 13.2(1)(b) was inapt to describe a common law duty of care in negligence which existed on and was breached by a company before liquidation, but where actionable damage occurred only after the commencement of the liquidation. Sir Donald accordingly rejected the argument based on Rule 13.12(1)(b).
24. Finally, Sir Donald dealt with the submission that the company's liability under the protective award was a necessary disbursement by the Liquidator within Rule 4.218(1)(m).

The attack on the judgment

25. Although in this court Mr Arfan Khan, counsel for Mr. Haine, took the lead, we mean no lack of respect to him, when we say that we propose to concentrate on the argument advanced on behalf of the Secretary of State After all it is the Secretary of State who has the principal interest in this appeal, since he is obliged by ERA 1996 to honour the company's obligations and pay the protective award to the workforce. Equally, under his rights of subrogation, it will undoubtedly be the Secretary of State, if the right exists, who will seek to prove for the debt in the liquidation. Given the overall importance of the case, therefore, we will set out the argument advanced on behalf of the Secretary of State in some detail.
26. Mr Ritchie began by submitting that the general policy behind the 1986 Act was that all the debts and liabilities of the company should be provable in the liquidation: - see the terms of Rule 12.3. He accepted that the same principle applied in bankruptcy. The reason behind the policy was that in the case of liquidations the debts or liabilities of a company were not likely to be dealt with in any other way. Companies rarely survived insolvent liquidations. In the case of bankruptcies, the policy was necessary so that the bankrupt could obtain a complete release from his debts. There were only very limited exceptions to this general rule. These were contained in rules 12.3(2) and (3)).
27. Over the years, Mr. Ritchie argued, the definition of debt and liability contained in rule 13.12 had been widened so that more and more claims were provable. He referred us to the historical review in In re T & N Limited [2006] 1 WLR 1728 at paragraphs 76 to 94. Following that decision, Rule 13.12(2) had been amended by the Insolvency (Amendment) Rules 2006 (S.I. 2006/1272) so as to reverse its effect. In bankruptcy certain debts were not released on discharge. This had the effect of allowing the creditor to prove and obtain what benefit he could from the bankruptcy (provided the debt was provable) and to retain his rights to pursue the bankrupt after discharge. For obvious reasons there were no similar provisions in liquidations.
28. Mr. Ritchie accepted that for a debt to be provable in a liquidation it had to come within the definition in Rule 13.12(1)(a) or (b). Apart from the provisions of the Rules, it did not matter, he argued, whether the debt or liability was present or future, certain or contingent, of fixed or liquidated amount or was capable of being ascertained by fixed rules or only as a matter of opinion (see the terms of Rule 13.12(3)). "Liability" was widely defined. As Lord Hoffmann had said in Secretary of State for Trade and Industry v Frid [2004] A.C. 506 at para 19 "How those debts arose - whether by contract, statute or tort, voluntarily or by compulsion - is not material."
29. Since contingent claims or liabilities had to come within Rule 13.12(1)(b) - (see In re T & N [2006] 1 WLR 1728 at para 115), and looking at the wording of Rule 13.12(1)(b) without the aid of authority, the question was: does a protective award made under section 189 of the 1992 Act after date of liquidation in respect of a failure to consult that took place prior to the date of liquidation come within Rule 13.12(1)(b)? Mr Ritchie submitted that it plainly did. The protective award was a debt or liability to which the company had become subject after the date of liquidation by reason of an obligation incurred before that date, namely the obligation to consult. The 1992 Act made it clear that if the obligation to consult was breached, a protective award may be made. Had it been provided that the tribunal was bound to make a protective award, the debt would not be within Rule 13.12(1)(b) but Rule 13.12(1)(a). The fact that the Employment Tribunal had a discretion whether or not to make the award meant only that it was something that might happen, and therefore fell within Rule 13.12(1)(b).
30. Mr. Ritchie submitted that the fact that the obligation which had been breached was an obligation to consult rather than an obligation to pay a protective award did not matter. In this regard, he argued, it was no different from the consequences of a breach of contract. The contractual obligation may not be to pay money (for example the price of goods) but an obligation to sell goods or provide services or carry out some task. When the primary obligation was breached, the party in default became under a secondary obligation to pay damages, which was an obligation imposed by law. Under the 1992 Act, the consequences of failing to consult were also imposed by law – in this case by the 1992 Act itself.
31. Similarly, Mr Ritchie argued, it did not matter that the liability or contingent liability to pay the protective award arose under statute: - see the terms of Rule 13.12(3). The position was very similar to a contractual situation. The obligations under the 1992 Act to consult were a statutory overlay to the contracts of employment between a company and its employees. These obligations formed part of the employment relationship. The obligations could be incorporated directly into the contract. An employer could agree with his employees that he would consult employee representatives where he proposed redundancies and that he would pay as liquidated damages such remuneration, if any, for a period not exceeding 90 days as an independent arbitrator decided. If the employer breached the obligation and then went into liquidation before the arbitrator's determination, any subsequent award would seem clearly to be a provable debt under Rule 13.12(1)(b).
32. Why had Sir Donald had come to the opposite conclusion? He had held in paragraph 33 that at the date of the liquidation the Company's breach of section 189 "gave rise to no enforceable rights in the employees against the company. All it did was to give the employees concerned the right to apply to the Employment Tribunal for a determination of breach and an exercise of its discretion to make an award." Mr Ritchie submitted, however, that this was a major substantive right. It was a right to go to the tribunal and ask for what was essentially a punitive award to be imposed on the Company. In common parlance, and in fact, from the moment of breach the Company was liable to have a protective award imposed upon it. It was thus, he argued, under a contingent liability for a protective award.
33. Sir Donald had held in paragraph 34 of his judgment that the reference in Rule 13.12(1)(b) to an obligation incurred meant an obligation incurred by the company enforceable by the creditor seeking to prove the consequent debt or liability arising from that obligation. An example of this was a contract entered into prior to liquidation with the creditor who subsequently sought to prove for a debt arising from a breach occurring after the liquidation. Sir Donald had held that rule 13.12(1)(b) did not cover the duty under section 188 of the 1992 Act which gave no enforceable right to the purported creditor except a right on breach to apply to the tribunal to exercise its discretion. That reasoning, Mr Ritchie submitted, was not easy to follow. All that Rule 13.12(1)(b) required was "any debt or liability by reason of any obligation" (emphasis added). There was no requirement that the obligation should have been owed by the company to the person proving as a creditor. Nor was there any requirement that the creditor should have been able to enforce the original obligation directly. The fact that the only remedy for the breach was to go to the Employment Tribunal rather than apply for specific performance or an injunction was irrelevant. The obligation in fact gave enforceable rights: the right to go to the tribunal. All that Rule 13.12(1)(b) required was that there was an obligation prior to liquidation and by reason of that obligation the company may become subject to a debt or liability. The fact that the obligation could only give rise at worst to a protective award did not mean that it was not an obligation or that the award was not a debt or liability.
34. Mr. Ritchie submitted that there was no justification for seeking to reduce the scope of the wide words contained in Rule 13.12(1)(b). To do so was contrary to the purpose and intent of the Rule. He reminded us that when dealing with Rule 4.90 (mutual set off – and only provable debts can be set off) Lord Hoffmann in Frid (supra) had said at paragraph 9:

It is not however necessary for the purposes of rule 4.90(2) that the debt should have been due and payable before the insolvency date. It is sufficient that there should have been an obligation arising out of the terms of a contract or statute by which a debt sounding in money would become payable upon the occurrence of some future event or events."

35. The protective awards, Mr. Ritchie submitted, fell squarely within this statement. Furthermore, at paragraph 35, Sir Donald had sought to draw a parallel with a cause of action and in particular with a cause of action in negligence. However, rather than showing that no obligation had been incurred, as Sir Donald had concluded, the parallel with negligence showed that under the 1992 Act an obligation had been incurred prior to the liquidation for two reasons. As was apparent from the passage in T & N Ltd quoted by Sir Donald, in negligence there was no obligation until damage was suffered, because the obligation was to compensate the victim. There was no obligation not to be negligent as such. One can be as negligent as one likes with complete impunity provided one causes no damage to anyone else. Mr Ritchie thus accepted that in negligence the obligation did not arise unless the negligence caused loss or damage to someone else. By contrast, under section 189 of the 1992 Act there was a clear freestanding positive obligation - indeed "an absolute obligation" - on the Company to consult, which existed irrespective of any consequences for anyone else. Therefore there was an obligation and it was not necessary to find any loss or damage for the obligation to arise.
36. Secondly in relation to negligence, Mr Ritchie submitted that causing damage was also essential for the cause of action, so that normally the obligation and the cause of action would go hand in hand. Under the 1992 Act, however, the position was that once there had been a failure to consult, the cause of action arose and was complete and the employees were in a position to bring proceedings in the Employment Tribunal. That cause of action only arose because there had been a prior obligation, which had been breached. Thus, unlike the future victims in T & N Ltd, who had not suffered damage at the date of liquidation, the Company's obligation to the employees already existed and, following the failure to consult, the Company's employees had a fully fledged cause of action prior to liquidation. If they had a cause of action it is impossible to say that there was no obligation by that stage at the latest for the purpose of Rule 13.12(1)(b). It followed, he argued, that the Company was under a contingent liability to pay the protective award at that date.
37. On Glenister and Steele, Mr Ritchie, like Mr. Khan, reserved his position on the correctness of those decisions should this case go higher. However, Mr. Ritchie and Mr Khan contended that both cases were plainly distinguishable. Sir Donald appeared to have considered that the ratio decidendi of each was that, wherever a liability or debt was dependent on the exercise of a discretion by a court or tribunal or other third party, the debt was not provable and that there could be no prior obligation within Rule 13.12(1)(b). That, Mr. Ritchie submitted was not so. The ratio of each case was simply that whenever the debt or liability only arose on the exercise of a discretion and there was no prior obligation, then the debt was not provable. It was not, Mr Ritchie argued, that whenever there was a discretion, there cannot be a prior obligation. If there was a prior obligation, that obligation could not disappear simply because at some later stage a discretion existed which might mean that no debt would in fact arise. That simply meant that the debt or liability was contingent. The existence of a discretion might be a relevant factor in establishing that there was no prior obligation but it did not follow that wherever there was a discretion there could be no prior obligation.
38. In fact, Mr. Ritchie submitted, both cases were in reality propositions for no more than that the debts in question were not contingent liabilities at the date of the bankruptcy. Glenister, Mr. Ritchie argued, had been concerned with whether an interlocutory order for costs made after the date of bankruptcy was provable. In essence in the case of costs, at any rate in relation to an application by the person now bankrupt, the underlying obligation arises at the same time as the discretion is exercised to impose the order for costs. Until that happens it is not possible to identify any underlying obligation.
39. Steele, Mr Ritchie argued, followed Glenister. Two judgments had been delivered. The court had approached the matter as a question of whether there was an obligation to repay prior to the bankruptcy order. The submission on behalf of Mr. Steele was that as soon as a misrepresentation had been made, he became under an immediate liability to repay, which only needed to be crystallised by a formal decision that the overpayment was recoverable. This was rejected by Sir Martin Nourse on the simple basis that until the Secretary of State had made a determination under section 71 of the Social Security Administration Act 1992 (SSAA) there was no obligation to repay. Sir Martin Nourse had only considered S.382(1)(b) of the 1986 Act in relation to the submission that Mr. Steele had been under an obligation in restitution to repay. The answer to this was that section 71 ousted common law remedies.
40. Mr Ritchie reminded us that Arden L.J. in reaching the same conclusion, did not refer specifically to S.382(1)(b) of the 1986 Act. She had, however, applied a similar test derived from Pennycuick J. in re William Hockley [1962] 1 W.L.R. 555, 558 and agreed with Sir Martin Nourse that a person who may become subject to a determination under section 71(1) of SSAA but was not so subject at the date of the bankruptcy was not subject to a contingent liability for the purposes of section 382 of the 1986 Act. Thus in Steele this court had focussed solely on section 71 of SSAA, which it had clearly regarded as a self-standing remedy similar to the self-standing or free-standing power of the court to award costs. In that context the only obligation this court had been concerned with was the obligation to repay derived from section 71 itself.
41. By contrast, Mr. Ritchie argued, section 189 of the 1992 Act could not be regarded as self-standing. It was part of a fasciculus of sections dealing with employee consultation prior to redundancy. Section 189 of the 1992 Act could not be viewed separately from section 188 and the obligation to consult. Section 189 looked back to section 188 (and section 188A) and was dependent upon it. The power to make a protective award only arises because of the obligations in section 188 and 188A. In this case the only relevant obligation was the obligation to consult in section 188. In this case the power to make a protective award only arose because of the obligation to consult and existed in order to enforce it.
42. Mr Ritchie argued further that the definition of "contingent creditor" in re William Hockley Ltd was "a person towards whom under an existing obligation a company may become subject to a present liability on the happening of some future event or some future date." On the facts of Steele there was no existing obligation. On the facts of the instant case there clearly was. The Company was under an existing obligation to consult under which it may, and in fact did, become subject to a present liability.
43. Mr Ritchie further submitted that if one applied the "cause of action" test, both Glenister and Steele were clearly distinguishable on this ground as well. In the case of a claim for costs no cause of action could be said to arise until the court made its determination on costs or at least gave a verdict in the underlying action or application. In the case of section 71(1) of SSAA, the Secretary of State did not have a cause of action until he had made a determination under that section: in effect, therefore until he gave himself a cause of action. In both cases the relevant events occurred after the date of bankruptcy. By contrast in the instant case, the employees had their cause of action prior to the date of the liquidation from the moment of the dismissals without prior consultation.
44. Mr. Ritchie thus submitted that neither Glenister case nor Steele was authority for the proposition that if there was a discretion there could be no prior obligation or that a prior obligation ceased for some reason to exist or be relevant, because of a later discretion. The existence of a subsequent discretion could not have the effect of making what would otherwise be a provable debt a non-provable one. It simply meant that rather than being a certain debt it is a contingent one.
45. Sir Donald had held the existence of a discretion was fatal. However, Mr Ritchie argued, this gave no effect to the word "may" in rule 13.12(1)(b) or the fact that debts and liabilities can be contingent. Whenever they are contingent they will not become debts or liabilities solely by reason of the prior obligation. They will become debts or liabilities because of the prior obligation and some other event. There were no restrictions on what may constitute the contingent event. What was important is the existence of a prior obligation. Here the protective awards had been made because of, or by reason of, the statutory obligation on the Company to consult. Had that obligation not existed, no protective awards could have been made and the making of them was a punishment for and a direct consequence of the breach of that obligation.
46. The tribunal's discretion, Mr Ritchie argued, was not relevant except to create a contingency. The discretion would not have arisen and there would not have been any basis upon which to determine the amount of the award without the obligation to consult. The discretion, moreover, was a judicial discretion to be exercised according to proper legal principles: - see GMB v Susie Radin Ltd [2004] EWCA Civ 180, [2004] 2 All ER 279 (Susie Radin). The Employment Tribunal was not free to impose or not impose a protective award as it pleased.
47. Mr. Ritchie provided other examples. He submitted that if a person was sued for specific performance or an injunction and after he had gone bankrupt the court decided to grant damages in lieu, the damages would be provable even though their existence depended on the exercise of a discretion. Similarly, he argued, the position on costs was not that no orders for costs made after the date of the liquidation or bankruptcy could be proved. Such orders for costs could be proved where the action was in respect of a provable debt or liability. In such a case they were regarded as an addition to the sum recovered: - see re British Gold Fields of West Africa [1899] 2 Ch 7. This could only be on the basis that the costs were a debt or liability to which the insolvent may become subject after that date by reason of an obligation – that is to say the obligation that gave rise to the provable debt or liability, incurred before that day.
48. Mr Ritchie thus argued that the fact that costs were ultimately in the court's discretion did not mean they ceased to be provable. However, the position was otherwise when the person, now bankrupt, was the claimant - as in the interlocutory application in Glenister. Then, if an order for costs was made against him after the date of the bankruptcy order, it would not be provable because there was no prior obligation on him to pay. It is not the existence of a discretion as such which was fatal, but the fact that there was no prior obligation.
49. Mr. Ritchie gave an example of the position in an arbitration. In In re Smith ex parte Edwards (1886) 3 Morrell 179 the parties to an arbitration agreement had agreed to pay whatever costs the arbitrator decided in his discretion to award. The losing party then went bankrupt. His bankruptcy did not relieve him of his liability for the costs. The existence of the discretion in the arbitrator had not been fatal.
50. Mr Ritchie argued that the situation here was no different. Statute had imposed an obligation on the Company. That obligation existed prior to the liquidation. Statute also provided for the consequences of breach of that obligation. The Company was in no different a position from someone who had contractually agreed that if he breached his obligation he would pay such sum as an arbitrator awarded up to a certain maximum. The fact that the regime was imposed by statute and not contract was irrelevant. Accordingly, the protective awards fell squarely within Rule 13.12(1)(b). To hold otherwise was contrary to the intention and purpose of insolvency legislation and to the punitive effect of a protective award. The learned judge's decision should be reversed and a declaration made that the debts are provable.

The case for the Liquidator

51. It is not necessary to set out Mr. Alaric Watson's able submissions, both oral and in writing in the same degree of detail. For there was no respondent's notice, and Mr. Watson was essentially adopting the same reasoning as the judge.
52. Although Mr Watson referred us to authorities not referred to by the judge, it seemed to us that his fundamental submission was encapsulated in paragraphs 39 to 41 of his written submissions, in which he said: -

39. The fundamental fallacy running through the skeletons on behalf of each Appellant is the (sometimes overt, sometimes implicit) analogy with breach of statutory duty. The arguments advanced by both Appellants effectively amount to saying that the obligations under section 188 of the 1992 Act in some way confer rights on the employees analogous to (if not actually consisting of) a cause of action for breach of statutory duty. Such a cause of action could only lie if the statutory duty in question was capable of giving rise to the right in the employee to sue for breach. Again, section 188(8) makes it absolutely explicit that no such right exists in relation to the obligations imposed by section 188. Just as with the regime under section 71(1) of SSAA, the protective award regime is totally self-contained.

40. An employee in the position of A1 has no "right" to compensation. His sole right is to present a complaint to an employment tribunal and seek a declaration that the employer has not complied with his (or its) obligations under section 188 of the 1992 Act. If the Tribunal upholds his claim it must make a declaration to that effect and may go on to make an award. As already noted, a protective award is not in any event "compensation" at all; it is a penalty imposed by the Tribunal, in its discretion, against the employer. If, as at the date of insolvency, no award has yet been made, the employee has no "right" to compensation, contingent or otherwise, to which the decision of the Tribunal gives vindication. Contrary to (the argument advanced by the appellants), therefore, the failure to consult gives rise to no "entitlement to compensation" whatsoever: the "entitlement" (which is not to "compensation") only arises under section 190(1) of the 1992 Act, that is once a protective award has been made.

41. The employee's right to complain pursuant to section 189(1) is not, therefore, a cause of action as such. The analogy here with the position of the (Secretary of State) in Steele is exact: prior to making his determination under section 71(1) of SSAA, the Secretary of State has no cause of action in relation to recoupment under that section (whether or not he has any concomitant rights in restitution or otherwise): see Steele at paragraphs [22]-[28], per Arden LJ. This "right" of the employee or the trade union to complain to the tribunal is no more than the "right" that Mrs Rowe possessed at the time of Mr Glenister's bankruptcy to seek an order for costs or than the "right" the Secretary of State had to consider making a determination under section 71(1) of SSAA.

53. As this extract from his skeleton argument makes clear, Mr. Watson placed great emphasis on the fact that the breach of the employer's duty to consult (section 188 of the 1992 Act) did not, of itself, give rise to a cause of action on the part of the wronged employees. All it gave them, he argued, was the right to make a complaint to the Employment Tribunal (the Tribunal); thereafter, under section 189(2), if the Tribunal found the complaint well-founded, the Tribunal was mandated to make a declaration to that effect, but was thereafter given a discretion to make a protective award.
54. The words in section 189(2) on which Mr. Watson fastened were, accordingly, "shall make a declaration to that effect and may also make a protective award". In other words, the making of a protective award was an exercise of a judicial discretion, akin to the discretion to award costs in adversarial proceedings, with the consequence that the "debt" comprised within the protective award did not arise until the award was actually made. It is, of course, self-evident from the chronology that the protective award was made after the company had gone into liquidation. Accordingly, such a debt was, Mr Watson argued, was outwith Rule 13.12(1)(b) and was not provable in the liquidation.

Analysis and conclusion

55. We have come to the clear conclusion that this appeal must be allowed. We do so for two interlinked reasons:

i) Firstly we consider that as a matter of language the liability to pay a protective award is a "liability to which the company may become subject after [the date of liquidation] by reason of an obligation incurred before that date subject at the date when it goes into liquidation." True it is contingent on the Tribunal making the award later, but rule 13.12(3) says it is immaterial whether a liability is present or future, fixed or liquidated. The liability stems from the pre-liquidation breach of obligation.

ii) Secondly, given the complete breach of the obligation to consult, the Tribunal realistically did not have a discretion to refuse an award. If it had done so it would have erred in law. Putting it another way the "discretion" could only rationally be exercised one way.

56. We turn to elaborate. Of major importance to both reasons is the underlying basis of a protective award – that it is to be a measure that enforces the obligation placed on the employer and the failure to comply with that obligation is backed by a penalty which is to be "effective proportionate and dissuasive." That can only be so if it is visited on the employer. It is to our mind unrealistic to say it is not imposed "by reason of an obligation incurred" before the liquidation.
57. Moreover in accordance with general principles, our legislation should be read so as to comply with a Directive which it is intended to implement. The Directive requires that the judicial or administrative procedures for the enforcement of obligations are available. So to treat the liability as no more than discretionary would be wrong. It is at the very least a contingent liability within the meaning of r.13.12(3).
58. That is really all there is to be said about our first reason. The only remaining question is whether Glenister or Steele compel us by force of precedent to hold otherwise. We will return to these cases.
59. Our second reason, that in truth there was no discretion, is established by the decision of this court in Susie Radin, a decision to which Sir Donald did not refer. Susie Radin was an employer's appeal from the Employment Appeal Tribunal (EAT) which had upheld an Employment Tribunal's protective award for the maximum period permitted under section 189 of the 1992 Act. This was the first occasion on which the principles on which a protective award fell to be made had been considered at the level of this court: - see the judgment of Peter Gibson LJ at para [1].
60. The Employment Tribunal found that the company had provided none of the information required by section 188(4) of the 1992 Act. There had been no consultation. The company had failed completely to comply with section 188. The Employment Tribunal had regarded that as "serious" and concluded that it was appropriate to make the protective award for the maximum period.
61. The EAT dismissed the employer's appeal, taking the view that the award made by the Employment Tribunal was one which "could properly be considered just and equitable in the circumstances". Having described the background in some detail (including a reference to EC Commission v Greece) and having set out both the relevant sections of the 1992 Act and the rival submissions addressed to the court, Peter Gibson LJ made a number of important observations on the proper approach for Employment Tribunals to take to protective awards under the 1992 Act. For present purposes it suffices, we think, to cite his summary at paragraph 45:-

I suggest that ETs (Employment Tribunals), in deciding in the exercise of their discretion whether to make a protective award and for what period, should have the following matters in mind. (1) The purpose of the award is to provide a sanction for breach by the employer of the obligations in s 188: it is not to compensate the employees for loss which they have suffered in consequence of the breach. (2) The ET have a wide discretion to do what is just and equitable in all the circumstances, but the focus should be on the seriousness of the employer's default. (3) The default may vary in seriousness from the technical to a complete failure to provide any of the required information and to consult. (4) The deliberateness of the failure may be relevant, as may the availability to the employer of legal advice about his obligations under s 188. (5) How the ET assess the length of the protected period is a matter for the ET, but a proper approach in a case where there has been no consultation is to start with the maximum period and reduce it only if there are mitigating circumstances justifying a reduction to an extent which the ET consider appropriate.

(Emphasis supplied)

62. As our emphasis demonstrates, we are particularly struck by Peter Gibson LJ's fifth conclusion, which amply reflects other passages in his judgment, notably his agreement with the dissenting lay member of the EAT (Mr Bill Sirs) in the case of Talke Fashions ltd v Amalgamated Society of Textile Workers and Kindred Trades [1978] 1 WLR 558, whose views seem to be the basis for his ultimate conclusion – see [2004] 2 All ER 279 at 288b-c.
63. A number of points emerge from Susie Radin. The first is that although the word "may" plainly appears in section 189(2) in the same sentence as "shall", we read the former as a word of empowerment rather than as the statutory bestowal of a judicial discretion. Absent section 189(2) there would be no power in the court to make a protective award. Thus although there are plainly circumstances in which an award might not be appropriate – and Peter Gibson LJ posits some examples in his judgment - the power is likely to be exercised by making an award for the maximum period permitted, and will only be reduced where there are mitigating circumstances.
64. Sir Donald was, we think, right to reject the argument based on Julius v Bishop of Oxford since there can be no doubt that the Employment Tribunal retains the discretion not to make a protective award. At the same time, in the context of Susi Radin, it is the manner in which the discretion falls to be exercised which is important.
65. In the instant case, what we know is that there was a total failure to consult under section 188 of the 1992 Act, and that the Tribunal made a protective award for the maximum period permitted. This causes us no surprise. The dates which Sir Donald gives in paragraph 3 of his judgment are striking. The employees were dismissed on 10 February 2006 and the Liquidator was appointed as administrator six days later on 16 February. Furthermore, as Sir Donald points out, the company was "hopelessly insolvent" by 10 February. It would, we think, we difficult to imagine a worse case under sections 188 and 189, and in our judgment a protective award for the maximum period permitted by the 1992 Act was not only right, but inevitable.
66. In our judgment, therefore, whilst we cannot go so far as to say that the Employment Tribunal does not have a discretion under section 189(2) of the 1992 Act, the correct approach to the exercise of its powers, in accordance with the guidelines provided in Susie Radin will be; (a) that the purpose of the award is to provide a sanction for the employers' breach of their duty to consult under section 188; and (b) that where there is no mitigation for the breach (as here) the proper award is for the maximum period permitted by the Act.
67. In these circumstances, and against this background, it seems to us unreal to describe the protective award as depending upon the exercise of a judicial discretion. The Tribunal had no option but to make an award. If it had failed to do so its ruling would have been open to challenge as perverse. In our judgment, therefore, it is in no sense stretching the language of Rule 13.12(1)(b) to describe the protective award as being "a liability to which the company may become subject after it went into liquidation by reason of an obligation incurred before that date." Indeed, we think that is precisely what it is.
68. As we understood him. Mr. Watson was prepared to accept that if we took the view the Employment Tribunal effectively had no discretion, but was bound to make a protective award, then the award would be within Rule 13.12(1)(b) and would be provable in the liquidation. Given the force of Peter Gibson LJ's judgment in Susie Radin we have been strongly tempted to take that view, although its consequence, in our judgment, would be to place the protective award within Rule 13.12(1)(a). We have, however, come to the conclusion that Rule 13.12(1)(b) provides a safer and more comfortable route to the same conclusion.
69. Assuming therefore, as we do, that the Employment Tribunal retains a discretion not to make a protective award, there is no doubt in our minds that an Employment law analysis of the case, based as it is on the Directive and the decision of this court in Susie Radin, provides a powerful basis upon which to distinguish both Glenister and Steele. It is, accordingly, to these cases that we now turn. We will take them one by one.

Glenister

70. Mrs. Rowe sued Mr. Glenister for breach of trust. Her proceedings were struck out for want of prosecution by the judge. Mrs. Rowe appealed to this court. Whilst her appeal was pending, Mr. Glenister was made bankrupt. He was, however, discharged from bankruptcy about a month before Mrs. Rowe's appeal was heard and allowed. This court made an order for the costs of the appeal in her favour. After the costs had been taxed, Mrs Rowe sought to enforce the order.
71. The question, as summarised by Mummery LJ, who gave the leading judgment, was whether or not Mr Glenister (as a person against whom a costs order may in the future be made) had, before the order was actually made, a "contingent liability" for such costs within section 382 of the 1986 Act (the equivalent, for our purposes of Rule 13.12). It was common ground that if the costs were a contingent liability, they were a "bankruptcy debt" within section 382 of the 1986 Act, and that Mr Glenister's discharge from bankruptcy released him from the debt.
72. This court decided that the costs incurred by Mrs Rowe in the proceedings were not a contingent liability. The rationale behind the decision is, we think, neatly encapsulated in the first paragraph of the headnote in the Official Report ([2000] Ch 76:

Notwithstanding the risk inherent in any legal proceedings of an order for costs, there is no certainty that the court will exercise its discretion to make an order, and, although for insolvency purposes a contingent liability can exist without an underlying obligation, the discretionary nature of the court's power means that there is no liability, contingent or otherwise, in the absence of an order for costs. Accordingly, a person against whom a costs order may be made does not, before an order is actually made, have a "contingent liability" for such costs within section 382(1)(a) and (3) of the Insolvency Act 1986...

73. Although Mummery LJ conducted an exhaustive review of the cases on contingent liabilities, it appears to us that he based his decision on the proposition that there was no certainty, in advance of the actual order, that the court would exercise its discretion to make an order for costs. Thus at [2000] Ch 76 at 84, Mummery LJ says: -

(3) The fact that an order for costs (a) creates an obligation to pay money and (b) is a contingency in legal proceedings is not sufficient, however, to make a claim that the court should exercise its discretion to make such an order a "contingent liability" of the person against whom such an order may ultimately be made. It is accepted that before an order is made there is no present liability to pay. Nor can there be a future liability: there is no certainty that the court will exercise its discretion to make such an order. If, as some of the authorities hold, a contingent liability must arise out of an existing or underlying liability, no such liability can exist simply by reason of a claim for costs made in a writ, summons, application or notice of appeal to the judge or to the Court of Appeal.

74. In a short, concurring judgment, Thorpe LJ added ([2000] Ch 76 at 85):

I am in complete agreement. In my judgment Mr. Arnold's endeavour to uphold the judge founders on his inability to distinguish between liability and risk of a liability. Of course when his client issued his strike-out application he exposed himself to the risk of a liability for costs contingent on the future exercise of the court's discretion when determining the pending application. The element of contingency is certainly satisfied but, in my judgment, the element of liability is not. The future exercise of the court's discretion might eliminate that risk of liability. Equally it might elevate the risk of liability into an actual liability, either present, in diem, or subject to taxation. This essential distinction between incurring a liability and exposing oneself to the risk of liability should not be undermined.

75. In our judgment, Glenister is readily distinguishable for the reasons advanced by the Secretary of State and counsel for the employees. We do not doubt either the correctness of the decision, or the fact that it is binding on us. However, we are of the view that there is a plain distinction between a prospective and discretionary award of costs (which is not only dependent upon outcome but upon a host of case specific factors and is wholly uncertain) and a liability for a protective award which has arisen directly from the breach of the duty to consult and which, based on the legislative scheme we have described, will be for the maximum period and will only be reduced if there are mitigating circumstances justifying a reduction.
76. Under the 1992 Act, the breach by the employer of the duty to consult under section 188 gives rise directly to the right of the workforce to apply to the Employment Tribunal for a mandatory declaration that the employer is in breach. The protective award flows directly from that declaration, and is coupled with the duty to make the declaration. In our judgment, the protective award is an inherent part of the statutory scheme, and, in practice, in the light of Susie Radin the power to make such an award will be exercised where there is a breach.
77. In this context, we gain support from the definition of debt and liability contained in Rule 13.12(1)(b). Given the rationale and purpose of the statutory scheme, we can see no reason why a protective award under section 189 is not "any debt or liability to which the company may become subject after that date by reason of any obligation incurred before that date". The word "any" is plainly very wide. In our judgment, the Secretary of State and counsel for the employees are both correct when they submit that the employer's breach of the obligation to consult gives rise directly to the Employment Tribunal's duty to make the declaration under section 189(2) and to the power to make a protective award – a power which, as Susie Radin demonstrates, the Tribunal is not only empowered to exercise, but which it will exercise.
78. In these circumstances, we repeat that it does not seem to us that we are stretching the language either of the 1992 Act or the Rules in taking the view that a protective award is a "contingent liability" and thus provable within the liquidation. Indeed, in our judgment, once the breach of section 188 occurs, the protective award fits comfortably within the definition provided by IR rule 13.12(1)(b).

Steele

79. The second case is Steele. In this case, Mr Steele had been overpaid jobseeker's allowance (JSA). The reason for this was that he had failed, when making his application for JSA in December 1999, to disclose the fact that he was in receipt of an occupational pension. He was also in receipt of incapacity benefit. In September 2001 he was adjudged bankrupt. Whilst he was bankrupt, the Secretary of State made a determination under section 71 of SSAA that Mr Steele had been overpaid between December 1999 and March 2001 (a period before his bankruptcy). The Secretary of State then – post bankruptcy - began to recover the overpayment by means of deductions from Mr. Steele's incapacity benefit.
80. Mr. Steele sought a judicial review of the Secretary of State's decision to recover the overpaid benefit, on the ground that his liability to repay was a contingent liability and thus a bankruptcy debt under section 382 of the 1986 Act from which, following his discharge from bankruptcy, he was released. That argument succeeded before the judge, but failed in this court.
81. Once again, we think that this court's reasoning is neatly encapsulated in the headnote:-

Held , allowing the appeal, that until the Secretary of State had made his determination under section 71(1) of the Social Security Administration Act 1992 the claimant was under no obligation or liability to repay the overpaid benefit; and that, accordingly, a person who might become subject to a determination under section 71(1) but who was not so subject at the date of his bankruptcy was not subject to a contingent liability for the purposes of section 382 of the Insolvency Act 1986, and thus the overpayment was not a "bankruptcy debt" for the purposes of a release on discharge from bankruptcy under section 281(1) of the Act.

82. It is, we think, important to keep in mind what this court decided. Mr Steele's debt was not a "contingent liability" and he was thus not released from it on his discharge from bankruptcy. In other words, the Secretary of State was entitled to recover the overpayment from him following his discharge from bankruptcy.
83. This court followed and applied the reasoning in Glenister: - see the judgment of Sir Martin Nourse at [2006] 1 WLR 2380 at 2386 (paragraph 14):-

14 In my judgment the reasoning of Mummery and Thorpe LJJ in Glenister v Rowe [2000] Ch 76 (with which Butler-Sloss LJ agreed) is equally applicable to the present case. Until the Secretary of State had made his determination under section 71(1) of the 1992 Act Mr Steele was under no obligation or liability to repay the overpaid benefit. Since it was necessary, before the determination was made, for the Secretary of State to be satisfied that there had been a misrepresentation of a material fact in consequence of which the overpayment had been made, it is impossible to treat the determination as being a mere formality. To adapt the words of Mummery LJ, on 14 September 2001 there was no present liability to pay, since there was no certainty that the determination would be made, could there be a future liability. I must respectfully disagree with the judge's view that it was only the extent of the enforcement of the liability and the method of enforcement that were to be determined.

84. In her concurring judgment, Arden LJ made it clear, in a brief discussion of In re Sutherland, deceased [1963] AC 235; (1) that she favoured a narrow construction of the term "contingent liability"; (2) that it was not a term of art, and that its meaning depended on its context; and (3) that in the context of section 382 of the 1986 Act, there had to be an existing legal obligation in order for there to be a contingent liability. It followed that a person who might become subject to a determination under section 71(1) of SSAA but was not so subject at the date of his bankruptcy was not subject to a contingent liability for the purposes of section 382. She too was thus content to follow and apply the reasoning of this court in Glenister.
85. In our judgment, Steele is distinguishable for reasons similar to those which makes Glenister distinguishable. In Steele, the Secretary of State plainly had a discretion whether or not to make the determination referred to, and until he did so, no liability arose. However, and for the reasons we have already given, this is, in our judgment in no sense analogous to the "discretion" which arises in the Employment Tribunal following a breach by employers of their duty to consult under section 188. Under the latter it is the employer's breach which triggers the procedure under sections 189 and 190, and rendered them liable both to the declaration and the protective award under section 189(2).
86. Once again, we think that in reaching this conclusion we are in no sense stretching the language of either the 1992 Act or the Rules. We are, we think, giving a purposive construction to both in the light of the government's obligations under the Directive and under the scheme of the 1992 Act.
87. Finally we gain support from In re Smith, ex parte Edwards, to which we referred in paragraph 49 of this judgment. In that case, there was the reference of a dispute to arbitration, it being agreed that the costs of the arbitration were to be in the discretion of the arbitrator. During the course of the arbitration, one of the parties became bankrupt, and when the arbitrator announced his award, the bankrupt party sought to escape from his liability to pay the costs, on the ground that the bankruptcy operated as a revocation of his agreement to pay. The argument failed. Pollock B said (at pages 184:-

The bankruptcy is no revocation of the submission to arbitration, as is shown by several cases . Mere bankruptcy is no revocation; a mere attempt to revoke is no revocation. The award was made and the costs were ordered to be paid. (The relevant statutory provision) provides that debts and liabilities to which a debtor may become subject before this discharge by reason of an obligation incurred before the date of the receiving order, shall be deemed to be debts provable in bankruptcy. This is an obligation incurred before the date of the receiving order.

88. In our judgment, the obligation to consult under section 188 plainly arose before the liquidation of the company, and the protective award is a debt or liability to which the company at that point "may become subject" in due course.
89. For these reasons, we have come to the clear conclusion that the protective awards in this case were indeed contingent liabilities of the company and within rule 13,12(1)(b). We are not, accordingly, obliged to reach the harsh result to which Sir Donald felt driven, and this appeal will be allowed.