Scottish Court of Session Decisions

Watson v. Student Loans Company [2003] ScotCS 84 (25 March 2003)

FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President Lady Cosgrove Lord McCluskey	A2788/01 OPINION OF THE COURT delivered by LORD McCLUSKEY in RECLAIMING MOTION in the cause IAN SMITH WATSON, as Executor Nominate of the late RONALD JOSEPH HARRISON, C.B.E. (A.P.) Pursuer and Respondent; against STUDENT LOANS COMPANY LIMITED Defenders and Reclaimers: _______

 

Act: Mitchell, Q.C., Skinner; Balfour & Manson (for Hughes Dowdall, Glasgow) (Pursuer and Respondent)

Alt: Connal, Q.C.; McGrigor Donald (Defenders and Reclaimers)

25 March 2003

Introduction

1. This is a reclaiming motion against an interlocutor pronounced by the temporary judge (T.G. Coutts, QC) allowing parties a Proof before Answer. We begin our consideration of the appeal with a brief summary and analysis of the dispute that has given rise to this litigation. The pursuer sues as executor nominate of the late Ronald Joseph Harrison (herein referred to as "the deceased"). From 10 January 1990 the deceased was employed by the defenders as their chief executive under a series of fixed term contracts, the last of which took effect in January 1995. In clause 2.3 thereof, the deceased's employment, as 'the Executive', was expressly stated to be

"for a fixed period terminating on 9 January 1998 unless previously renewed or replaced in the interim by the company under Clause 10.1 hereof or by either party giving to the other twelve months prior written notice at any time prior to 10 January 1997".

It may be noted that 9 January 1998 would be the sixty third birthday of the deceased. The fifth Part of the contract was headed "INCAPACITY FOR WORK AND SICK PAY". The terms of the relevant clauses of the contract are as follows:

"5.2. The Executive will be entitled to payment of his salary at the full rate

(less any social security or other benefits payable to him) during any periods of absence from work as a result of sickness or injury up to a maximum of 26 weeks in aggregate in any twelve consecutive months.

5.3 The company will pay statutory sick pay, where appropriate, in

accordance with the legislation in force from the time of absence, and payment of salary in accordance with Clause 5.2 above will go towards discharging its liability to pay statutory sick pay.

5.4 The Company will maintain and continue to maintain for at least the

period of this Agreement the Permanent Health Insurance Scheme which is currently in force for the benefit of employees of the Company including the Executive, the benefits of which are set out in the Schedule."

The relevant part of the Schedule referred to in clause 5.4 is G, which reads:

"G. PERMANENT HEALTH INSURANCE SCHEME

The Permanent Health Insurance Scheme ('PHI Scheme') provides a benefit level of 75% of salary (less state benefits) indexed at the rate of 7.5% per annum until normal retirement age (64). The PHI Scheme will also maintain pension contributions at the benefit level."

Clause 10.1 and 10.2 are in the following terms:

"10.1 If the Executive shall:

(a) be or become bankrupt or compound with his creditors; or

(b) be guilty of conduct tending to bring the Company or himself

into disrepute; or

(c) commit any serious or persistent breach of any of his

obligations to the Company under this Agreement; or

(d) become prohibited by law from being a Director of the

Company; or

(e) resign as Director of the Company or, in the event of his

retiring from that office by rotation, fail to offer himself for re-election

then the Company shall be entitled by notice in writing to determine his employment under this Agreement with immediate effect whereupon the Executive shall have no claim against the Company for damages or otherwise by reason of such determination. Any termination of the employment of the Executive will be without prejudice to his continuing obligations under this Agreement.

10.2 Subject to its earlier expiry or other termination under Clause 10.1

above the employment of the Executive will terminate automatically on his reaching 63 years of age."

In December 1994 the deceased became absent from work on account of illness. He never thereafter became fit to return to work and he died on 18 January 2000. On 10th March 1995 the defenders terminated his employment on the basis that they were satisfied that he had been guilty of gross misconduct in the course of his employment. In October 1996, the deceased raised the present action claiming damages for wrongful dismissal in respect of that termination of his employment. The pursuer was sisted in place of the deceased on 28 December 2001. In their defences to the action, the defenders maintain that the dismissal was not wrongful. The principal issue on the merits is accordingly whether or not the dismissal was wrongful. If it was wrongful, that dismissal would constitute a breach by the defenders of the deceased's said contract of employment. The pursuer claims that the alleged breach of contract caused the deceased to suffer loss and damage.

The pleadings

2. The pursuer's only case on record is that the deceased suffered specified loss and damage as a result of the defenders' breach of contract. The loss claimed is calculated on the basis that, had the deceased not been dismissed on 10 March 1995, he would have remained in the employment contracted for and, as an employee then absent from work as a result of sickness, he would have continued to be, or would have become, entitled to certain benefits provided for in the fifth part of the contract. In Condescendence 3 it is averred:

"Had the deceased not been dismissed unlawfully on 10 March 1995, he would have been unable to return to work due to illness. He would have been entitled to his full salary for a period of 26 weeks up until 22 May 1995 and thereafter would have become eligible for benefit under the Permanent Health Insurance Scheme instituted by the defenders."

Condescendence 4 narrates his claim for loss more fully in the following terms:

"As a result of the defenders' said breach of contract the deceased has sustained loss and damage. At the time of his dismissal his annual salary was about £68,000. He also had a number of valuable benefits. In particular, the defenders paid 17.5 per cent of his salary annually into his personal pension plan. The deceased had a company car. The defenders also provided the deceased with private medical insurance and with life cover which provided for death in service benefit of four times his salary. The deceased's whole remuneration package was worth about £90,000 per annum as at the date of his dismissal. The deceased would have been unable to return to work due to illness, had he not been dismissed. In terms of his contract he was entitled to his full salary for a period of 26 weeks i.e. until 22 May 1995. Thereafter he was entitled to and would have made a claim for benefits in terms of the Permanent Health Insurance Scheme instituted by the defenders. Under said Scheme he was entitled inter alia to receive 75% of his salary (less state benefits) indexed at the rate of 7.5% per annum until normal retirement date. Reference is made to said Scheme a copy of which is produced. In these circumstances the sum sued for is a reasonable estimate of the deceased's said loss and damage. The averments in answer are denied."

The defenders deny that there was any breach of contract. Whether or not the dismissal amounted to a breach of contract is an issue largely of fact, which cannot be resolved at the present juncture: it would have to be determined at a proof. However, it is clear that, if, after proof, the Court was satisfied that the deceased's dismissal was not wrongful, the pursuer would not be entitled to succeed in recovering any sum by way of damages in the present action. If, however, it were established that the defenders, in dismissing the deceased on 10 March 1995, thereby acted in breach of contract then the pursuer will be entitled to recover damages, provided, of course, that he can also establish that the deceased sustained loss and damage as a result of the breach. In relation to the possibility that the pursuer might succeed on the merits, the defenders maintain that, in that event, any damages due would not fall to be assessed upon the basis set forth by the pursuer in Condescendence 4. The defenders' position is stated in Answers in the following terms:

"The defenders were entitled to terminate the deceased's employment on 12 months notice given at any time prior to 10 January 1997. In any event, the defenders were entitled to terminate the deceased's contract of employment without notice by reason of his conduct".

and in Answer 4 as follows:

"In any event the sum sued for is excessive. The deceased's contract was subject to 12 months notice. Even if the deceased was entitled to notice as from 10 March 1995 he would not have been able to attend work through illness. He would have received full salary until 22 May 1995 and thereafter 75% of salary less invalidity benefit. Before deduction of tax, the deceased would have been entitled to £52,504 gross in the period to 10 March 1996. The deceased's salary was 'subject to annual review at the Board's discretion and not subject to any guaranteed or automatic increase'. Reference is made to Clause 3.1 of the pursuer's (sic) contract which is incorporated herein brevitatis causa"

The procedure roll debate

3. When the case was before the temporary judge at a procedure roll hearing, the matters debated largely related to the correct approach to the assessment of damages in the event of the pursuer's succeeding on the merits. There was no dispute that, if the pursuer succeeded on the merits, he would be entitled to payment of the deceased's full salary for a period of 26 weeks, i.e. until 22 May 1995: that was the first head of claim. That remains the position. The main damages issue at the procedure roll debate was whether or not the claim based upon the provisions of clause 5.4 of the contract was affected, and restricted, by the employers' right under clause 2.3 to dismiss an employee on twelve months' notice. The temporary judge summarised the argument thus:

"It was argued that if wrongful dismissal was established the provisions of Clause 2.3 operated to determine the extent of loss claimable by the pursuer to a maximum claim of twelve months' earnings from the date of dismissal ... It was contended that the pursuer's pleadings incorrectly proceeded on the basis that he [scil the deceased ] was entitled to remain until normal retirement age."

It was not in dispute that the right to claim the benefits themselves under clause 5.4 and the Scheme was lost as a result of his dismissal on 10 March 1995, regardless of whether or not the dismissal was wrongful; because the right to claim those benefits could be exercised only by a person in the defenders' employment at the time when the claim was first made. The defenders advanced the argument that on a proper construction of the contract as a whole, the right conferred on the defenders by clause 2.3 enabled them to terminate the deceased's entitlement at the end of twelve months. The defenders argued that this result flowed from the general principle that they were entitled to fulfil their contract in the way least burdensome to them: Morran v. Glasgow Council of Tenants Associations & Others 1997 S.C. 279. They also argued that the authorities showed that they could exercise their contractual right under clause 2.3 even though the result would be to diminish the deceased's rights under clause 5.4. We need say no more about the detail of the procedural roll debate; it is reflected in the Opinion of the temporary judge.

The clause 5.2 claim

4. Although the relevancy of this claim is not in issue, it is helpful to look at it briefly. The parties were agreed that, at the time when the deceased first became absent from work through sickness in December 1994, he was still in the employment of the defenders and was then entitled to claim and receive the benefits provided for under clause 5.2 of the contract. Counsel for the pursuer submitted that that right or entitlement became vested in the deceased when, while still employed by the defenders, he started to be absent as a result of sickness; and that his entitlement would have continued until the end of the 26 weeks period, provided that during that period he remained unfit through sickness and provided also that he remained in his employment with the defenders. If he had been properly dismissed on 10 March 1995 his entitlement to that benefit would have ceased at the moment when the dismissal took effect. If, however, his dismissal had been wrongful, then he had been wrongfully deprived of the clause 5.2 benefits that should have been payable after that date. Accordingly, the pursuer maintained, the deceased's wrongful dismissal had the effect of depriving him of the balance of the sums due under clause 5.2, in respect of the remainder of the 26 weeks referred to in that clause. That was the basis of the first element in the damages claim. We did not understand that head of claim to be challenged by the defenders, if the pursuer established that the dismissal was wrongful.

The clause 5.4 claim: the pursuer's submissions

5. In relation to this head of claim, the pursuer's principal submission was clear. It was that the date when the deceased would have qualified for the benefits available under clause 5.4 was the date when the benefits under clause 5.2 ceased to be payable, namely six months after the deceased's absence through sickness began. That date could be taken for present purposes as 22 May 1995, the date given in the pleadings. However, ran the argument, it was a necessary condition for claiming that contractual benefit that the deceased should still be in the defenders' employment at that date; accordingly, by wrongfully dismissing the deceased on 10 March 1995, the defenders had deprived the deceased of his status as an employee on 22 May 1995 and thus of his entitlement to claim benefit under clause 5.4. Thus the wrongful dismissal had effectively deprived the deceased of his contractual entitlement to the clause 5.4 benefits. It was that loss that had to be compensated for by an award of damages. The defenders' argument to the effect that they had had a right to dismiss the deceased (prospectively) under clause 2.3 had no bearing whatsoever upon the matter; because, even if the defenders had exercised that right and had intimated to the deceased on 10 March 1995 that he was to be dismissed under clause 2.3 , that dismissal with notice would not have terminated the deceased's employment earlier than March 1996. Accordingly, as at 22 May 1995, he would have continued to enjoy the necessary status as an employee, and thus to continue to possess the title and the right to claim and receive the clause 5.4 benefits. The plain meaning of the contract terms referred to was that, once an employee qualified for clause 5.4 benefits as specified in the Schedule, he acquired a vested right to receive those benefits until he reached the agreed retirement date. The argument now advanced by the defenders, to the effect that, on a proper construction of the contract, the deceased lost the right to continue to receive the clause 5.4 benefits when his employment ended would make a nonsense of the contractual right to receive such benefits; the character of those benefits was plainly indicated by the use in clause 5.4, and in the title of the Scheme, of the words "permanent" and "insurance". The whole purpose of the creation of these benefits under an insurance scheme was to provide permanent security for any unfortunate employee who, by reason of sickness, was unable to continue in employment. It was not necessary to examine the detailed wording of the Scheme itself to construe the contract in the way suggested by the pursuer. (We should note that, although the pursuer's pleadings refer to the Scheme, no copy of the Scheme was placed before this court until the Court asked to see it; neither party referred to its terms in any detail).

The clause 5.4 claim: the defenders' submissions

6. The answer that the defenders offered in this Court to this formulation of the claim was that the benefits created by clause 5.4 were not payable to a person unless he was still in the employment of the defenders at the time when the benefits were payable; and that, as the defenders had the right, under clause 2.3, to dismiss the employee by giving him twelve months notice of dismissal, the value to be attributed to the loss of those benefits resulting from a wrongful dismissal on 10 March 1995 was to be calculated on the basis that the deceased would not have been able to continue to receive them after the end of that twelve month period. This is not an argument that is discussed in the Opinion of the temporary judge ; and it is perhaps not the argument that one would expect in the light of Answer 4 for the defenders, which seems to suggest that the deceased's loss would fall to be calculated by reference to the amount of his likely actual salary during the period up until 10 March 1996. In fact, as we understand the contract and the benefits arising under clause 5.4, those benefits appear to be calculated by reference to the employee's salary at the date when the right to benefit vests (with an inflation indexing thereafter of a percentage of that salary amount). Variations in the salary of any person continuing in the defenders' employment would not come into the computation of the clause 5.4 benefits.
7. The principal argument advanced on behalf of the defenders both at the procedure roll and before this Court was therefore in support of the same basic contention; it was that, although the contract conferred upon a sick employee the long term benefits created by clause 5.4, the employee's entitlement to such benefits could be ended by the defenders if they used their clause 2.3 right to dismiss after twelve months. The damages for wrongful dismissal could not exceed the amount that the defenders would have been obliged to pay during the twelve month period. The authorities referred to were said to illustrate that an employer had an unqualified right to use the dismissal power to override the contractual provisions about emoluments, even if the result was to deprive the sick employee of the long term benefit envisaged by clause 5.4; for the right in clause 2.3 was express and clear. The employer always had the right to perform the contract in the least burdensome way and he could not be made liable for not doing that which he was not bound to do: Morran supra.. The Court should not read the contract, whether by means of implying a term or otherwise, so as to restrict the employers' express right to dismiss.

Conclusions

8. In our view, this submission, which relates to the effect of Clause 2.3 upon the rights arising under Clause 5.4, fails to meet the pursuer's claim that the effect of the wrongful dismissal was to deprive the deceased of the right and title to claim the contractual scheme benefits on 22 May 1995, being the benefits that would have vested in him at that date, albeit they would not all have become immediately payable. The defenders' argument did not acknowledge that, even if they had sought to exercise their clause 2.3 power, the deceased would still have remained in their employment until a date well beyond the date when his right to start receiving the clause 5.4 benefits vested or crystallised. Accordingly, the right under clause 2.3 would not appear to have been of any value to the defenders if the deceased was wrongfully dismissed; for the exercise of that right by the defenders would not override the pursuer's claim to benefits that had vested in him before the clause 2.3 dismissal took effect. It will be seen that this was also the view reached by the temporary judge in paragraph [12] of his Opinion, although it is not clear that the defenders had submitted the full argument to him. If, on a proper construction of Clause 5.4, the benefits provided for there, though claimed by and vested in an employee who was still in the defenders' employment at the time when he could and did first claim them, were to cease to be payable at a later date when his employment was terminated, that might restrict the damages he might claim for losing the right to claim them while still in employment. But we are not prepared to construe the service contract, including Clause 5.4, to this effect at this stage, particularly when we have not examined the terms of the Scheme. On the face of it, once the right to claim the benefits created by clause 5.4 vests in an employee who is disabled from working by reason of sickness he is entitled to receive those benefits until he reaches the agreed retirement date, provided he remains so disabled. It follows also that, at this stage at least, the main submission for the defenders does not succeed in showing that the pursuer's claim is irrelevant in whole or in part.

The decision

9. The result is that the defenders' attack upon the temporary judge's allowance of a Proof before Answer fails. It cannot be said that the pursuer's claim, properly understood, must fail. Logically, the temporary judge might have been invited to refuse to admit to probation the averments of the defenders designed only to support the arguments that were advanced in relation to the effects of clause 2.3: indeed the pursuer's first plea in law was framed to achieve that result. However, counsel for the pursuer saw little value in having any averments deleted or his first plea in law reserved. In his submission, all the arguments could be presented at a proof before answer. We agree that all these matters should be left for decision after the proof before answer. For the same reason it is also unnecessary at this stage to deal with the authorities referred to by the solicitor advocate for the defenders in support of the argument that the contract should not be construed so as to prevent the exercise by the defenders of their rights under clause 2.3.

The second Ground of Appeal

10. The foregoing deals with the matters raised in Grounds of Appeal numbers 1, 3, 4 and 5. The second Ground of Appeal was to the effect that certain averments specified therein were so lacking in specification that they failed to give fair notice of the case that the defenders had to meet. In our view there is no substance in this criticism. The pursuer avers that certain instructions were given to him at about a certain time by named individuals. The defenders deny that any such instructions were given and condescend in detail upon the instructions that they say were in fact give. We consider that the pursuer's position is made sufficiently clear. The criticism of the use by the pursuer of the word "remit" is rather mincing: what the pursuer appears to be suggesting is that the provision of entertainment to persons of influence fell within the ambit of the deceased's duties.

The disposal of the reclaiming motion

11. It was accepted at the bar that certain amendments were made at the procedure roll hearing but were not recorded in the interlocutor; they will be recorded in the interlocutor pronounced by this court. As the pursuer's first plea in law has been superseded by the allowance of a proof before answer, it is appropriate to repel it. In all other respects the interlocutor appealed against will be affirmed.