England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Royal Courts of Justice Strand. London. WC2A 2LL
		19th October 2007

SIR DONALD RATTEE:

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."

13. The liquidator has understandably felt some doubt as to whether the employees' entitlement under the protective awards are provable in the liquidation of the company by virtue of the provisions to which I have referred and has properly sought the directions of the court. He has by counsel very helpfully put forward the reason why he considers the claims may not be provable, having regard to the provisions of the 1992 Act, which make clear that the making of a protective award by an Employment Tribunal is a matter of discretion on the part of the tribunal, which in this case was not exercised until after the commencement of the liquidation. Although the liquidator has, of course, no personal interest in the question whether the employees' claims are provable debts, his counsel rightly made submissions as to why they may not be.
14. The respondents made submissions to the contrary, namely that the claims are provable debts of the company. It is rightly common ground that to be provable in the liquidation as debts of the company the claims have to be claims by creditors of the company, though the claims may be present or future, certain or contingent, ascertained or sounding only in damages (see rule 12.3(1) of the Insolvency Rules 1986). This provision has to be applied in the case of liquidation of a company having regard to the provisions which I have quoted in rule 13.12 of the 1986 Rules. By virtue of rule 13.12(1) a claim by a creditor, i.e. the debt, to be provable in the liquidation has to be

(a) a debt or liability to which the company was subject at the date on which it went into liquidation; or

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

(see rule 13.12(l)(a)and b)).

Rule 13.12(l)(c) is not material in the present case. For this purpose the debt or liability may be present or future, certain or contingent (see rule 13.12(3)).

15. In the present case, on the date on which the company went into liquidation, there was no certainty that the employees would ever have an enforceable claim against the company, even though the company was already in breach of its duty to consult under section 188 of the 1992 Act. For such a breach conferred no rights on the employees concerned except the right to complain to an Employment Tribunal under section 189 (see section 188(8)). Whether the tribunal made a protective award was a matter within the discretion of the tribunal (see section 189(2), "shall make a declaration and may also make a protective award").
16. It is convenient to mention here an argument by counsel for the employees to the effect that, although the language of section 189(2) ("may also make a protective award") suggests the tribunal has a discretion whether or not to make such an award, in reality the tribunal was bound to make it in the circumstances of this case since it has found a clear breach of a company's obligation to consult. For such submission counsel rely on dicta of the House of Lords in Julius v Lord Bishop of Oxford [1880] 5 App Cases 214 In that case the House was considering a provision of the Church Disciplinary Act (3 & 4 Vict. c. 86), to the effect that in any case where 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 inquiry. At page 222-223 of the report the Lord Chancellor, Lord Cairns, said this:

"The words 'it shall be lawful' are not equivocal. They are plain and unambiguous. They are words merely making that legal and possible which there would otherwise be no right or authority to do. They confer a faculty or power and they do not of themselves do more than confer a faculty or power. But there may be something in the nature of the thing empowered to be done, something in the object for which it is to be done, something in the conditions under which it is to be done, something in the title of the person or persons for whose benefit the power is to be exercised, which may couple the power with a duty, and make it a duty of the person in whom the power is reposed, to exercise that power when called upon to do so. Whether the power is one coupled with a duty such as I have described is a question which, according to our system of law, speaking generally, it falls to the Court of Queen's Bench to decide, on an application for a mandamus. And the words 'it shall be lawful' being according to their natural meaning permissive or enabling words only, it lies upon those, as it seems to me, who contend that an obligation exists to exercise this power, to show in the circumstances of the case something which, according to the principles I have mentioned, creates this obligation."

17. Counsel for the employees failed to satisfy me that there are any circumstances in the present case that made the tribunal discretion into an obligation and I reject this argument. The words of section 189(2) clearly provide that the making of a protective award is a matter of discretion for the tribunal. Counsel for the employees also relied on a dictum of Lord Blackburn at page 243 of the report of Julius v Lord Bishop of Oxford where Lord Blackburn 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."

18. 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).
19. Thus, as at the date which on the company went into liquidation, the employees had no certain debt or claim against the company. Did they at that date have a contingent debt within the meaning of Insolvency Rule 12.3(1) and Insolvency Rule 13.12(3)? Counsel for the liquidator submitted that they had not. He relied on two recent decisions of the Court of Appeal, to the effect that the claim which at the date of the commencement of a bankruptcy is dependent on the future exercise of a discretion by the court or a third party is not a contingent debt within the meaning of section 382(1) of the 1986 Act, which contains provisions to similar effect in the case of bankruptcy as have the provisions of Insolvency Rule 13.12(1) in a case of winding up of a company. The first of these cases was Glenister v Rowe [2000] Ch 76. The issue in that case was whether a liability of a discharged bankrupt for costs of proceedings commenced before his bankruptcy, the order for costs not having been made until after his discharge from bankruptcy, was a bankruptcy debt within section 382 of the 1986 Act. The Court of Appeal held that it was not. Since the liability depended for its existence on the future exercise after the commencement of the bankruptcy of a discretion by the court to make a costs order, it was not a contingent liability of the bankrupt at the date of the commencement of the bankruptcy. As Mummery LJ put it at page 84/F of the report of the case:

"...the discretionary nature of the court's power to order costs indicates that there is no liability, contingent or otherwise, in the absence of a court order."

Thorpe LJ and Butler-Sloss LJ agreed.

20. The second decision of the Court of Appeal relied on by counsel for the liquidator is R (ex parte Steele) v Birmingham City Council and the Secretary of State for Work and Pensions [2005] EWCA Civ 1824. In that case the issue was whether the entitlement of the Secretary of State under section 71 of the Social Security Administration Act 1992 to recover from a bankrupt the amount of job seeker's allowance he had received on the basis of an innocent misrepresentation of fact by him was a bankruptcy debt within section 382 of the 1986 Act. Before the commencement of his bankruptcy the bankrupt had applied for and obtained job seeker's allowance, but in doing so had innocently declared that he was not in receipt of an occupational pension, when in fact he was. Section 71 of the Social Security Administration Act 1992 provides that:

"Where it is determined that, whether fraudulently or otherwise, any person has misrepresented, or failed to disclose, any material fact and in consequence of the misrepresentation or failure -

(a) a payment has been made in respect of a benefit for which this section applies; or

(b) any sum recoverable by or on behalf of the Secretary of State in connection with any such payment has not been recovered,

the Secretary of State shall be entitled to recover the amount of any payment which he would not have made or any sum which he would have received but for the misrepresentation or failure to disclose."

21. Section 77(11)(aa) provides that section 71 applies to a job seeker's allowance. After the commencement of the bankruptcy the Secretary of State exercised his power under section 77(1) by issuing a repayment notice. As Sir Martin Nourse, giving the lead judgment in the Court of Appeal said in paragraph 6 of his judgment:

"The following features of s 71(1) of the 1992 Act are clear and not in dispute:

(1) Before any benefit can be recovered it is necessary for the Secretary of State to make a determination to that effect.

(2) Before a determination can be made it is necessary for there to have been a misrepresentation of, or a failure to disclose, a material fact, the consequence of which an overpayment of benefit has been made.

(3) Where a determination has been made the Secretary of State is not obliged to recover the amount of the overpayment; he is 'entitled' to do so."

22. In paragraph 14 of his judgment Sir Martin Nourse expressed his conclusion thus:

"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, nor, 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."

23. Arden LJ in paragraph 25 of her judgment said:

"I agree that it follows from the authority cited by Sir Martin Nourse that a person who may become subject to a determination under s 71(1) of the 1992 Act but who was not so subject at the date of his bankruptcy is not subject to a contingent liability for the purposes of s 382 of the 1986 Act. That conclusion is supported by a decision of Pennycuick J In re William Hockley Ltd [1962] 1 WLR 555. I say that because the same basic rule as to proof of debt applies to both corporate and individual insolvency. That is contained in r 12.3(1) of the Insolvency Rules 1986 which provides that:

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

May LJ agreed with both judgments.

24. Clearly both these decisions of the Court of Appeal are binding on me and unless there is some valid ground for distinguishing them, it seems to me to follow that, as of the date of the liquidation of a company, the employees dismissed by the company in breach of the company's duty of prior consultation had no contingent or other debt owing by the company and were not creditors of the company for the purposes of rule 12.3(1) of the Insolvency Rules 1986. For as of that date the only right the employees enjoyed was a right to apply to the Employment Tribunal under sections 189-192 of the 1992 Act. They would have no debt due from the company unless and until they had made such an application and the tribunal had exercised its discretion to make particular awards in their favour.
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".

28. To a similar effect in Re T&N Limited [2006] 1 WLR 1728, at page 1775, paragraph 140, David Richards J said this:

"...the difference between the bankruptcy and winding up regimes is important. I have already made the point, as did counsel, that a claim which cannot be proved in a bankruptcy can be pursued against the bankrupt after his discharge. An exclusion from proof for causes of action in tort accruing after the commencement of the bankruptcy will not necessarily produce an injustice and may be beneficial to the claimant, depending on the debtor's financial position after his discharge. This may strike a fair balance, provided that the debtor does emerge from bankruptcy, except to such extent and on such conditions as the court may direct. Further, in the case of personal injuries claims, Parliament provided that, even if provable, they were not released by the debtor's discharge from bankruptcy, except for such extent and on such conditions as the court may direct. In choosing to apply the bankruptcy template of section 382 to the rules governing the winding up of companies, an approach has been adopted which leaves no room for these mitigating factors. This does not however enable the court to construe the substantially identical terms of section 382 and rule 13.12 in radically different ways."

29. 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.
30. The respondents put an alternative argument based on rule 13.12(l)(b), to the effect that the protective awards constituted in the case of each employee concerned a debt or liability to which the company became subject after the date on which it went into liquidation by reason of an obligation incurred before that date within rule 13.12(l)(b), which therefore is provable in the liquidation. The obligation incurred before the date of liquidation was, submitted both respondents, the obligation which the company was under by virtue of section 188 of the 1992 Act to carry out the defined consultation process before dismissing the relevant employees.
31. A similar argument based on section 382(l)(b) of the 1986 Act was sought to be put in both Glenister v Rowe and Steele's case. In the former the Court of Appeal declined to deal with as it has been raised too late. In Steele's case the Court of Appeal rejected it, because on the facts of that case the court decided that the common law obligation to make restitution of overpaid job seeker's allowance alleged by the respondent in that case did not as a matter of law exist (see paragraph 16 of the judgment of Sir Martin Nourse).
32. I am therefore not precluded from reaching my own conclusion on the argument in this case. 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. I find support for my conclusion that the words "obligation incurred" are not apt to include some duty not of itself conferring any enforceable rights on the purported creditor from a passage in the masterly judgment of David Richards J in Re T&N Ltd. [2006] 1 WLR 1728, page 1775, paragraph 142, in which he considered the meaning of "obligation incurred" in insolvency rule 13.12(l)(b), and in particular whether the words were apt to include a common law duty of care existing on and breached by a company before liquidation, where actionable damage occurred only after the commencement of the liquidation:

"The proponents' submissions also relied on a reading of 'obligation incurred' in rule 13.12(l)(b) to include the situation where a duty of care in tort was engaged or broken before the liquidation date but no injury was caused until after that date, if at all. In my judgment, the words 'obligation incurred' are not apt to describe the duty of care or its breach. An analysis of the tort of negligence, such as that given by Viscount Simonds in The Wagon Mound [1961] AC 388, is important. It is not just the liability in damages, but also the underlying obligation, which is incurred when damage is suffered and a cause of action accrues. The obligation in negligence is to compensate for loss caused by the defendant's careless act or omission. While the act or omission will, if followed by material loss, lead to an obligation to compensate the victim, it is not in my view correct to say that by the careless act or omission alone the company incurs an obligation."

36. Thus, I reject the respondent's argument based on Insolvency Rule 13.12(l)(b).
37. Finally, counsel for the representative employee submitted that alternatively the company's liability under the protective award made after the commencement of the liquidation is a necessary disbursement by the liquidator in the course of his administration within Insolvency Rule 4.218(l)(m) and therefore payable out of the company's assets in priority to the company's debts, by virtue of rule 4.218. In my judgment, this argument is misconceived. Rule 4.218 deals with the order of priority for "expenses of liquidation" (see the opening words of rule 4.218(1)). I fail to see how liability for protective awards can possibly be said to be an expense of the liquidation. I find nothing in Re: Toshoku Finance UK Plc [2002] 1 WLR 671, on which counsel for the employee relied, to give any support for his argument on this point.
38. In my judgment, the liquidator's submissions are correct. The protective awards are not provable as debts of the company in the liquidation and are not payable as expenses of the liquidation. 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.

I shall hear counsel as to the appropriate form of order to make.

Yes, Mr. Watson?

MR. WATSON: My Lord, the form of the declaration would follow from the last words that it is not approvable and it is not an expense in the liquidation. That leaves the question of costs. In my submission the appropriate order for costs, and what we indicated we would be seeking, would simply be that there would be no order for costs save that the costs be costs in the liquidation.

SIR DONALD RATTEE: Yes, thank you. Who is going first?

MR. RITCHIE: I do not mind going first. On the question of the form of order, that would seem to be correct. On the question of costs, we are content with that. The question of whether the liquidator gets his costs out of the State is a matter for your Lordship and we certainly would not be opposing that. It is not our position to do so anyway.

There is then the question of appeal. Obviously we would wish to appeal your Lordship's judgment. The only question for us is whether we go to the Court of Appeal or whether we go to the House of Lords, as we could I think leapfrog on the state of authorities and go straight to the House of Lords. We would obviously have to make an application to your Lordship for permission to do that because your Lordship has to grant a certificate. We have a slight problem on our side, in that if we were going to argue that the R v Steele case was incorrectly decided that would be cutting across another government department.

SIR DONALD RATTEE: I see, yes.

MR. RITCHIE: So for that reason we actually need to get permission from the Law Offices to do so. What I would respectfully ask is that your Lordship perhaps extends time for appeal generally.

SIR DONALD RATTEE: To what?

MR. RITCHIE: I think we need about 28 days to get permission from the Law Offices. SIR DONALD RATTEE: You want me to give permission to appeal, is that it, or do I not do anything except extend time for appeal?

MR. RITCHIE: I would ask you just to extend time for appeal at this stage. We could then come back to you for whatever permission we need. The alternative, of course, is for me to ask for permission to appeal to the Court of Appeal now and then reserve my position as to whether I come back.

SIR DONALD RATTEE: Which do you want?

MR. RITCHIE: I am perfectly happy to get permission to go to the Court of Appeal and reserve my position. I understand my learned friend Mr. Khan is maybe thinking more seriously about going straight to the House of Lords.

SIR DONALD RATTEE: Right. So you want me to give you permission to appeal to the Court of Appeal and extend the time for appealing by 28 days to give you the chance to come back to leapfrog; is that it?

MR. RITCHIE: Yes.

SIR DONALD RATTEE: Yes, Mr. Khan?

MR. KHAN: On reflection, my Lord, I would reiterate a similar application: permission to the Court of Appeal and I will reserve my position with respect to the leapfrog application and would seek an extension in respect of that.

SIR DONALD RATTEE: You are content with that as well?

MR. KHAN: Yes.

SIR DONALD RATTEE: What about the form of order and costs, anything on them?

MR. KHAN: My Lord, as far as the costs are concerned, my understanding was that each party would bear their own costs, so I do not have any objection as to what the position is in respect of the costs. I do not have objections to the form of the order.

SIR DONALD RATTEE: Thank you very much. Yes, Mr. Watson, do you want to say anything about appeal?

MR. WATSON: My Lord, only in respect of the unnecessary costs of having to come on another occasion. In my submission the right thing to do is to deal with it now if your Lordship is minded.

SIR DONALD RATTEE: I cannot deal with it now. I cannot deal with the leapfrog now. If either of the respondents wants to come back they may do so at their own risk as to costs, I presume.

MR. WATSON: My Lord, that is right. In my submission the right step would be to go to the Court of Appeal in any event. If your Lordship is minded to grant appeal, and in my submission nothing yet has been said as to the basis upon which an appeal is to be launched, I do not see how your Lordship can make up his mind, with respect, as to whether this is a matter which has any chance of success and therefore whether permission to appeal is appropriate where no grounds to appeal have been advanced at all.

SIR DONALD RATTEE: Yes.

MR. WATSON: Obviously I am not asking for permission to appeal.

SIR DONALD RATTEE: You are not asking for permission to appeal. Well, Mr. Watson suggests we need to hear a bit more.

MR. RITCHIE: Well, my Lord, the two grounds the court may grant permission to appeal are the court considers the appeal would have a real prospect of success, or there is some other compelling reason why the appeal should be heard. So far as the real prospect is success is concerned, this is obviously basically a question of law. Your Lordship has decided it on the basis of the Steele and Glenister cases and we have submitted your Lordship has rejected the argument that they are distinguishable. In my submission the Court of Appeal might take a different view. As my learned friend Mr. Watson said to your Lordship in opening, nobody apart from my learned friend Mr. Watson's clients has ever sought to challenge the fact that a protective award is a provable debt. So this is obviously novel ground. In those circumstances, in my submission, obviously the Court of Appeal could take the same view as your Lordship, the Court of Appeal could equally take the view that your Lordship's judgment is wrong on that and it is, in fact, distinguishable and, therefore, in my submission on that ground we certainly should have permission to appeal. We should also have permission to appeal in my submission on the other ground, for some compelling reason, because it is obviously quite an important matter.

SIR DONALD RATTEE: Just remind me, where do I find the rule?

MR. RITCHIE: This is at page 1529 of the White Book.

SIR DONALD RATTEE: Yes.

MR. RITCHIE: It is 53.3(6) permission to appeal may only be given where....

SIR DONALD RATTEE: Yes.

MR. RITCHIE: There are implications on liquidation generally, the policy of the court has implications to the Secretary of State and on top of that there are also implications because it could be that if your Lordship's judgment is correct then we are in breach of the EC Directive because we have not made a sufficiently effective punishment on people who do not comply with their duties to consult.

Therefore, for those reasons we would submit we should have permission to appeal.

SIR DONALD RATTEE: Thank you. Mr. Khan, do you want to add anything?

MR. KHAN: My Lord, I repeat the same submissions. Insofar as the leapfrog matter is concerned, I do have a skeleton prepared, anticipating my Lord's judgment, with respect the leapfrog matter. I could deal with it now if my Lord wishes it to be dealt with now.

SIR DONALD RATTEE: I do not want to deal with it now. As far as I am concerned, I am quite happy to consider whether you should have permission to appeal. It is a question of whether you want to apply for whatever the appropriate direction from me is if you want to leapfrog. Mr. Ritchie is not in a position to do that at the moment.

MR. KHAN: My Lord, one of the problems I would have in terms of making that application in respect of the leapfrog matter is consent of the parties. One of the grounds that my Lord has to be satisfied on is that each of the parties consent with respect to the leapfrog certificate which we would be seeking under section 12 of the Administration of Justice Act 1969, hence the reason why I will reserve my position in respect of that and reiterate my position to appeal to the Court of Appeal and make the same points that my learned friend Mr. Ritchie makes about these cases of Steele and Glenister are distinguishable in my submission.

Secondly, that it is a case which is of immense importance and it has not been argued before and the Court of Appeal may well take a different view. I reiterate the submissions made in respect to the EC Directive point and suggest that my Lord should grant permission on that basis.

SIR DONALD RATTEE: Yes, thank you. Mr. Watson, do you want to come back on the grounds of appeal?

MR. RITCHIE: My Lord, I am entirely in your hands on that. I do have one submission in relation to the leapfrog question, if your Lordship is still entertaining that application. I am not sure whether your Lordship is.

SIR DONALD RATTEE: No. I am not going to grant any direction for a leapfrog at this stage.

It does seem to me appropriate in the circumstances of this case that the respondents should have permission to appeal to the Court of Appeal. The case obviously does raise issues of important public interest having regard to the generality of the application of the issues.

I will grant permission to appeal. I will make a declaration as asked by Mr. Watson, on behalf of the liquidator, and I will say it shall be no order for costs, save the liquidator's costs shall be — what is the appropriate form — paid in the liquidation?

MR. WATSON: My Lord, it is be an expense in the liquidation.

SIR DONALD RATTEE: All right. Am I not also to make some order, a representation order about the first respondent or is that not necessary? Is there a need to make some representation order that he represents all the employees? I thought that somewhere in the papers I was asked to make such an order. Is that not part of your application?

MR. WATSON: My Lord, I think it was dealt with by the Registrar.

SIR DONALD RATTEE: That has been done, has it?

MR. RITCHIE: My Lord, yes. The parties were joined by an order of the Registrar.

SIR DONALD RATTEE: I see. Very well. I will grant permission to appeal. I will extend the time for appealing — was it to 28 days, is that what you were asking for?

MR. RITCHIE: I think about a week after 28 days. 28 days is the time it will take us —

SIR DONALD RATTEE: What is the normal time?

MR. RITCHIE: The normal time is about 21 days.

SIR DONALD RATTEE: You want to extend that by seven days?

MR. RITCHIE: Extend it by 14 days.

SIR DONALD RATTEE: Yes, I will do that.

Mr. Watson, if you would kind enough to draw a minute of order and get it approved by other counsel and lodge it, I would be grateful. Is there anything else?

MR. RITCHIE: My Lord, there is one thing. Under the Practice Direction you are required when entertaining an application for permission to appeal to do various things, and this is at page 1571 of the White Book, paragraph 4.3A(1):

"This paragraph applies where a party applies for permission to appeal against a decision at the hearing at which the decision was made. (2) Where this paragraph applies, the judge making the decision shall state - (a) whether or not the judgment or order is final"

— I think the answer to that is that it is.

SIR DONALD RATTEE: Yes.

MR. RITCHIE:

"(b) whether an appeal lies from the judgment or order and, if so, to which appeal court"

— obviously to the Court of Appeal.

SIR DONALD RATTEE: Yes.

MR. RITCHIE:

"(c) whether the court gives permission to appeal"

— which your Lordship has done — and so on. I think that is all of them.

SIR DONALD RATTEE: Yes. Very well, I say the appropriate words. Thank you. Is there anything else? No. Thank you all very much for your help.