Scottish Court of Session Decisions

Introduction
In about August 1981 the pursuer took up employment with the defenders, who are the Cawdor Estate Trustees. His position was that of an estate accountant. This action, in which the pursuer seeks damages, arises out of a claim made by the pursuer on the basis of terms of his contract of employment relating to long-term sickness benefits.

The Contract of Employment
It appears that in 1986 the defenders revised the terms and conditions of employment on the Cawdor Estate and in June 1986 the pursuer was furnished with what bore to be a written contract of employment, a copy of which forms No 5/1 of process. It consists of a number of pages containing standard terms and conditions evidently intended to apply generally to employees on the Estate prefaced by a type-written single sheet or form containing, in manuscript, individual details applicable to the pursuer. Under a centred, typed heading "Normal Working Week" there appear on that sheet two columns of entries. In the left-hand column appear first the words "Monday - Friday" underneath which appear certain provisions relating to "Holiday Entitlement" and below that entry are the words:

In the opposing right-hand column opposite the entry just quoted is the following:

The Insurance Policy
It is averred by the pursuer that "in terms of the pursuer's contract of employment, the defenders agreed to provide him with permanent health insurance". It is further averred by the pursuer and admitted by the defenders that (at least after 1990) the defenders effected a "group permanent health insurance policy" with Norwich Union Healthcare Ltd. The policy has been lost but a copy of what are understood and averred to have been the standard terms applicable to it is produced. Those terms require the submission initially, and thereafter annually on renewal, of a schedule of the names of employees in respect of whom benefits might be payable, their salaries and occupations. It is averred by the pursuer that his name was included in the schedule submitted by the defenders at the inception of the policy in 1990 and that he thus became an "Insured Person" in terms of the policy. While the employees on the schedule are thus all defined as "Insured Persons" it should be noted that the standard terms make plain that "The Insured" is the employer, that is to say the defenders and that in terms of clause 6 of the standard terms any benefits payable under the policy are payable to "The Insured" and not to the "Insured Person".

As regards the benefits payable to the employers under the policy, the standard policy conditions provide in clause 2 as follows:

Clause 3 of the standard terms and conditions is headed "Duration of Cover and Payment of Benefit" and provides as follows:

Although not vouched in the documents, there is agreement between the parties in their pleadings that the "deferred period" was six months from the date of the initial absence from work with the Insured by reason of an injury or illness giving rise to the disablement.

Clause 6 of the standard conditions is headed "Claims Procedure". The text which thereafter follows is in these terms:

The Pursuer's Illness and Redundancy
The pursuer avers that in January 1991 he became ill. He began to be absent from work on or about 21 January 1991 and it is admitted by the defenders that he was absent from work from that date. At a different point in his pleadings the pursuer avers that he was absent from work from 19 January 1991 but the difference is not material and Mr Cullen, who appeared for the defenders, was content to proceed on the basis that the pursuer's absence began on 19 January 1991 with the consequence that the six month deferred period referred to in the policy would expire on 20 July 1991. It is averred by the pursuer that on 11 March 1991 the pursuer's general practitioner wrote to Lord Cawdor advising that it was difficult to give an accurate estimation of when the pursuer would be fit to return to work. It is further averred that the pursuer himself wrote to Lord Cawdor on 29 March 1991 stating that he, the pursuer, had been advised by his general practitioner that it was likely to be "a few months" before he would be fit to return to work.

However, in April 1991, financial considerations required the defenders to re-organise their enterprise at Cawdor Estate. As a result of that re-organisation on 12 April 1991 the post held by the pursuer became redundant. It is admitted by the pursuer that the Earl of Cawdor met with the pursuer, explained the position to him and offered him alternative employment as a computer operator; that the pursuer was given the opportunity of considering his position and the offer of alternative employment with the defenders; that the Earl thereafter wrote to the pursuer confirming the offer of alternative employment and explaining what the pursuer would receive financially on redundancy. The pursuer did not accept the offer of the alternative post as a computer operator. He was accordingly made redundant and his contract of employment was terminated with effect from 1 May 1991, the pursuer being offered and accepting a statutory entitlement to redundancy pay, salary in lieu of notice and accrued holiday pay.

It is not suggested by the pursuer that the defenders' decision to re-organise the estate office with the consequent result of the pursuer's becoming redundant was anything other than a genuine decision arrived at for proper reasons not involving anything unfair or contrived.

The defenders had not intimated any claim to Norwich Union Healthcare Ltd under the policy prior to the pursuer's being made redundant. His contract of employment having come to an end on 1 May 1991 the defenders made no claim to the insurers thereafter.

The pursuer avers that after the termination of his contract of employment he continued to be unfit for any work by reason of his illness, a post-viral syndrome. If he had continued in employment with the defenders and not been made redundant he would have received benefits after the expiry of the deferred period for the duration of his incapacity. The matter is averred thus at page 12D of the Closed Record:

For their part the defenders do not admit those averments. The pursuer now claims damages in respect of the loss of payments of benefits which he contends he would otherwise have received under the policy.

The Bases of the Pursuer's Claim
The pursuer claims damages from the defenders on the bases of (a) alleged breaches of contractual terms said to be implied in the pursuer's contract of employment and (b) in delict, the defenders having been guilty of fault and negligence. The alleged breaches of implied terms of the contract of employment are treated in Article III and Article IV of the Condescendence. The case in delict is pled in Article V.

In essence, what is claimed in Article III is firstly that it was an implied term of the contract of employment that the defenders "would take all necessary steps to secure that [the pursuer] received payment of benefit under the said policy". It is further averred:

Article IV of the Condescendence proceeds on the basis that the defenders are correct in their contention that once the pursuer's contract of employment was terminated no obligation to notify the insurers existed. On that premise it is averred by the pursuer that it was an implied term of the contract of employment that "the defenders would not terminate the employment of the pursuer in circumstances where to do so would cause the pursuer not to be entitled to benefit under the policy." The pursuer goes on to aver that the defenders breached that implied term by terminating his employment.

The delictual claim is advanced in Article V in which, having averred a duty to take reasonable care not to cause the pursuer loss and damage, particularisation of that duty is given in the averment that it was "the defenders' duty to comply with each of the duties condescended upon in Article III hereof". Counsel were at one in thinking that the delictual case made in Article V had added nothing to the case for the pursuer based on implied contractual terms and if that case were irrelevant the delictual case would fall to be treated similarly.

Submissions
In submitting that the action was irrelevant and fell to be dismissed Mr Cullen, for the defenders, prefaced his argument by referring to McWhirter v Longmuir 1948 S.C. 577 and in particular the relatively well known passage on the implying of contractual terms to be found in the opinion of Lord Jamieson at pages 588-9.

Turning to what was pled in Article III of Condescendence counsel submitted that the first term which it was claimed should be implied in the contract of employment amounted either to a replication of the insured's obligations under the policy or suggested something further, in which event that additional component was too vague and imprecise to be given effect. In order to give practical effect to the arrangements contended for by the pursuer it was not necessary to imply anything additional to the claims procedure stipulated in the insurance contract. There was no justification for implying a contractual obligation that an employer be required to take steps not required by the policy of insurance. It could not be the case, for example, that an employer was obliged to intimate claims immediately any insured employee fell sick. However, turning to the latter part of Article III counsel for the defenders observed that the pleader appeared to seek to particularise the implied contractual obligation in a duty to give notice of the start of the illness without unnecessary delay. Counsel pointed out in the course of his submissions that the policy covered disablement only after the expiry of the "deferred period". It could not be said that there could be any obligation to notify - at least prior to the expiry of the four week period preceding the end of the deferred period - simply because an employee was sick or injured. The provision in the insurance contract referring to intimation "without unnecessary delay" was imprecise and could not at all imply a duty to give intimation at the beginning of any sickness or injury which might or might not result in disablement at the end of the deferred period. The pursuer did not aver any date at which the defenders knew that the pursuer would be totally disabled from pursuing his work with them after the end of the deferred period. The averments at Closed Record page 9B-C relating to correspondence with the general practitioner were wholly insufficient for that purpose. The pursuer did not aver a date at which the defenders were obliged to intimate to the insurance company failing which the claim would be rejected by the insurers. In the absence of such an averment the assertions of "unnecessary delay" were without meaning.

Turning to the alternative case advanced in Article IV, Mr Cullen submitted that the claimed limitation on the employers' power to terminate the contract of employment could not be implied. The term sought to be implied into a contract of employment would mean that an employer could not dismiss a sick employee, for whatever reason, including misconduct. Further, an employee who was ill could not enter into the pool of employees being considered for potential redundancy. The term which it was said should be implied was not one to which a reasonable employer would give his assent. In further support of his proposition that one could not imply into a contract of employment a term which would thus restrict the employers' right to bring the contract of employment to an end for genuine reasons of redundancy Mr Cullen referred to the decision in Hill v General Accident Fire & Life Assurance Corporation plc [1998] I.R.L.R. 641; 1998 S.C.L.R. 1030. In his decision in that case Lord Hamilton had held that the existence of a possible future entitlement to long-term sickness benefit did not restrict the power of the employer to dismiss a

sick employee for genuine reasons of redundancy. Counsel also referred to Aspden v Webb's Poultry & Meat Group (Holdings) Ltd 1996 I.R.L.R. 521 and Adin v Sedco Forex International Resources Ltd 1997 I.R.L.R. 280 and the discussion of those cases by Lord Hamilton in Hill. The pursuer's contract of employment having been terminated on genuine and proper grounds of redundancy the defenders could not be said to have been in breach of contract.

On behalf of the pursuer Mr Sutherland invited the allowance of a proof before answer under deletion of certain averments in the defences which, put briefly, set out the defenders' contention to the effect that properly construed, the contract of employment entitled the pursuer to payment of 75% of his salary after 26 weeks absence from work; it did not give him a health insurance as such; but in order to cover that contractual requirement of paying 75% of salary the defenders had taken out the Norwich Union policy.

Counsel for the pursuer submitted that the heading in the contract of employment "Permanent Health Insurance Scheme" meant that the defenders were bound to take out a permanent health insurance policy for the benefit of the pursuer which would give him benefits amounting to 75% of his salary after 26 weeks absence from work on the ground of sickness. That interpretation, said counsel, gave the words their ordinary meaning and it was reflected in what the defenders actually did by taking out the policy in issue. Having thus described the obligation in those terms counsel went on to state that he accepted that the defenders had duly fulfilled that obligation in making the insurance arrangements which they had in fact made.

The defenders having obtained such insurance cover the benefits might "cut in", said Mr Sutherland, at a time when the pursuer was or was not employed by the defenders. Where an illness occurred during the currency of employment the insurance benefits might or might not "cut in" before dismissal but that could have no effect on whether benefit was payable. The question which then followed was what obligation arose on the employer when the employee became sick. In the present case the averments at page 9B-C were sufficient to show that the pursuer was what counsel described as "long-term sick". Since it was the employers' insurance policy it was for the employers to "trigger" the policy. The obligation under the claims procedure was to intimate a claim without unnecessary delay. It had to be implied as a term of the contract of employment that the employer would trigger the benefits otherwise the provision in the contract of employment would not work. Counsel referred to Crawford v Bruce 1992 S.L.T. 524 and the discussion relating to the implication of contractual terms to be found particularly at page 531. Additionally counsel referred to my own decision in O.B.C. Caspian Ltd v Thorpe 1998 S.L.T. 653 at 658D. It was not correct and was artificial to say that any obligation to intimate a claim ceased on the pursuer's dismissal. The obligation to "trigger" the policy could not come to an end by the employers' unilateral act.

So far as the case advanced in Article IV was concerned, Mr Sutherland stressed that it was an esto case predicated on the defenders' contention that after termination of the contract of employment there could be no obligation to intimate a claim. The decisions in Aspden, Adin and Hill were no doubt all correct on their particular facts but in Hill Lord Hamilton was wrong to indicate that motive for dismissal was a relevant factor. Further, in Hill the benefits were payable directly by the employer and were not covered by an insurance policy. On that ground Hill was distinguishable. If the defenders were correct in saying that there could be no obligation to intimate a claim after termination of the employment relationship one had to imply the restriction on the power to dismiss for which the pursuer contended.

In responding to Mr Sutherland, counsel for the defenders pointed out that his submission on the relevancy of the pursuer's case proceeded on the basis that the pursuer's averments as to the proper construction of the contract of employment were assumed to be correct. He maintained that the proper view of the contract of employment was that which was set forth in the defences and that there was no inconsistency between that view and the terms of the policy of insurance which had been taken out and which provided that the benefits were payable to the employer. However, he considered that resolution of that particular issue, were it necessary, would properly require a proof before answer.

Decision
As just indicated Mr Cullen's attack on the relevancy of the pursuer's case proceeded on the assumption that the import of the contract of employment contended for on behalf of the pursuer, namely that it required the defenders to take out a permanent health insurance policy, was correct. Counsel for the pursuer expressly accepted that in making the insurance arrangements which they are said to have made the defenders fulfilled that obligation under the contract of employment. Accordingly, for the present, I am also prepared to proceed on that basis.

Even so, it is I think clear from the pursuer's averments and his counsel's submissions that it is not contended that the insurance policy was one to provide cover against disability arising after the employee had left employment with the insured. Thus, for example, it is not said that if an employee resigned on, say, 31 March and were then severely and permanently injured in a road traffic accident on 3 April, benefits would be payable to him 26 weeks after that latter date. To that extent, at the very least, the policy is linked to the employee's continuing in the employment of the insured. The argument advanced by counsel for the pursuer concerning the implied terms claimed in Article III of Condescendence appeared however to proceed on the averred assumption that benefits would be payable at the expiry of the deferred period provided that the employee was employed by the insured at the start of the deferred period, notwithstanding that he may have lost that status long before the expiry of the deferred period. I have to say that in view of the, albeit incomplete, terms of the insurance policy produced and relied on in the pleadings I have reservations as to whether that assumption is sound.

However, taking as I must the averred assumption to be correct, in looking to the legitimacy of implying the terms contended for in Article III of the Condescendence one has, I think, to postulate the circumstance of the termination of an employment relationship by resignation, or dismissal for good cause, shortly after the inception of an illness. At that point the contractual relationship between the two parties is severed. The employee is plainly free to go his own way without obligation to report to the employer for work. The employer will thus not know whether, say 20 weeks later, the former employee is still disabled and without work. Having regard to the well recognised tests or criteria for the implication of contractual terms discussed in the jurisprudence to which I was referred I do not consider that one can imply a unilateral obligation on the employer to seek out the former employee and discover whether or not he might yet be disabled from taking up and pursuing the "insured occupation" (were the "insured occupation" still open to him, which ex hypothesi would not be the case). I therefore do not accept the contention advanced by counsel for the pursuer - perhaps not truly reflected in the pleadings - that there was an implied continuing obligation on the employer to make notification spontaneously after the termination of the employment relationship.

One then turns to what might properly be implied as a contractual obligation on the part of an employer prior to termination of the contract of employment. The proper perspective for viewing that issue is of course the optic of those entering into the employment contract. In my opinion Mr Cullen's submissions on this matter are to be preferred.

I do not consider that in order to give effect to the employers' obligations under the contract of employment there is any scope for requiring the employer to do more than was contractually necessary under the terms of the insurance policy in order to progress a claim. Insofar as the averments in Article III of Condescendence suggests some additional requirement I reject that suggestion. It is of course averred that the defenders neglected their obligations under the insurance policy by delaying unnecessarily. That contention requires a consideration of the terms of the policy. While the exhortation to submit claims without "unnecessary delay" may not infrequently be found in insurance policies, the concept is not in my view sufficiently precise to amount to a condition precedent (cf. Scott Lithgow Ltd v Secretary of State for Defence 1989 S.C.(H.L.) 9 at 21). It was not suggested by Mr Sutherland that - assuming the pursuer had remained in the defenders' employment - the insurers would have had grounds for refusing a claim intimated immediately prior to the beginning of the last four weeks of the deferred period on the ground that its intimation had been unnecessarily delayed. Indeed Mr Sutherland submitted the contrary. Accordingly I consider that the pursuer's attempt to claim a breach of the terms of the claims procedure under the insurance policy is misconceived and irrelevant. Further, I consider that there is substance in Mr Cullen's submission that in any event the pursuer's pleadings do not identify a point at which it is averred that any delay was "unnecessary". Plainly, it is not every illness which suggests notification. Recovery from many illnesses will ensue well within the 26 weeks of the deferred period. It is to be noted that the pursuer's condition was not one of known permanent disability. It is now described as "post-viral syndrome". It appears that at the time recovery was expected. Far from being "unnecessary", delaying intimation of a claim until the twenty first week of the deferred period might be seen as arguably appropriate. It is therefore to my mind significant that in his pleadings the pursuer abstains from focussing upon any point at which the reasonable employer would have considered that the available information on continuing disability after the deferred period was so clamant that further delay was plainly unnecessary.

I turn now to the alternative case advanced on the pursuer's behalf in Article IV. It is of course true that in Hill v General Accident the employers were themselves an insurance company and it appears that the sickness benefits provided for their employees were funded directly by the defending employers (General Accident) rather than being ultimately funded by some other, third party, insurer. However I do not consider that such a distinction relating to the ultimate source of the funding can have any true bearing on the question whether the possibility, or even probability, of a sick employee's having a claim to long-term sickness provision if he remains employed implies a restriction on the employers' right to terminate the contract for some other sound reason such as redundancy. I therefore respectfully agree with Lord Hamilton when he said in the penultimate paragraph of his opinion that he did not accept the submission advanced by counsel for Mr Hill that there was:

For my part I cannot see any pertinent ground upon which the present case may be distinguished from Hill. As I understood Mr Sutherland he suggested that the decision in Hill was wrong because it relied on the employers' "motive". From my reading of Lord Hamilton's opinion in Hill it was not suggested that the employer had any motive beyond the fact that it was genuinely necessary to make Mr Hill redundant. Similarly, in the present case it is not questioned by the pursuer that his contract was terminated for the genuine reason that his post was redundant. It may be observed, peripherally, that the defenders did offer the pursuer an alternative post and had he accepted it no doubt the difficulties now encountered in relation to ill health benefits would have been obviated. I respectfully agree with and adopt the reasoning of Lord Hamilton in his opinion in Hill v General Accident, which I find equally applicable to the present case. I therefore conclude that the case advanced in Article IV is also irrelevant.

It is accordingly my opinion that the action is irrelevant and I shall therefore uphold the defenders' first plea-in-law and dismiss the action.

For completeness I should add that, had I formed a different view and been disposed to allow a proof before answer on the pursuer's claim, I would not have acceded to Mr Sutherland's motion to exclude from probation the averments relating to the defenders' construction of the contract of employment. I am far from persuaded at this point that the construction advocated by the defenders is incorrect.