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You are here: BAILII >> Databases >> Scottish Sheriff Court Decisions >> MARJORIE McLENNAN v. I.C.C.S. (NORTHERN) LIMITED and STANDARD LIFE TRUSTEE COMPANY LIMITED [1998] ScotSC 1 (29th September, 1998)
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MARJORIE McLENNAN v. I.C.C.S. (NORTHERN) LIMITED and STANDARD LIFE TRUSTEE COMPANY LIMITED [1998] ScotSC 1 (29th September, 1998)
SHERIFFDOM OF TAYSIDE, CENTRAL AND FIFE AT DUNDEE
A852/95 JUDGMENT OF SHERIFF R.A.DAVIDSON
in the cause
MARJORIE McLENNAN
PURSUER
against
I.C.C.S. (NORTHERN) LTD.
FIRST DEFENDERS
and
STANDARD LIFE TRUSTEE COMPANY
LIMITED
SECOND DEFENDERS
Act: Dewar, Advocate; McMichael Grieve Alexander, Solicitors, Dundee
Alt: Reid, Advocate; Carltons, Solicitors, Dundee
Wright, Advocate; Messrs W. & J. Burness, Solicitors, Edinburgh.
Dundee, 29th. September,1998.
The sheriff, having resumed consideration of the cause, of consent, repels the third plea-in-law for the pursuer; quoad ultra, before answer, allows parties a proof of their respective averments under reservation of the first plea-in-law for the first defenders and the first plea-in-law for the second defenders; appoints the cause to the procedure roll of 28th. October, 1998 to assign such a diet and also to enable parties to be heard on any question of expenses in connection with the debate; sanctions the cause as suitable for the employment of counsel.
NOTE
In this case, the pursuer seeks declarator that her late husband was employed by the first defenders on 14th. April, 1994, the date of his death, together with a declarator that, qua executrix nominate, she is entitled to "payment from the second defenders as trustee of the Stanplan A Scheme established between the defenders of a lump sum death in service benefit of six times" her late husband's "pensionable earnings" at the time of his death, and therefore to grant payment against the first defenders for payment of the sum of £302,400, plus interest at 8% from the date of decree.
It is agreed that John McLennan ("the deceased") died on 14th. April, 1994 and that the pursuer is his executrix. He had been the managing director of the first defenders. That had been in terms of a ten year fixed term contract of employment from 1st. July, 1985. That was varied on 8th. October, 1991. Thereafter, the employment contract was to subsist until 30th. June, 1995 "and from year to year thereafter until terminated by one party giving to the other not less than twelve calendar months notice expiring any time after 30th. June, 1995." That provision seemed to me to be confused but it seemed to me to mean that from 30th. June, 1995 the contract would run from year to year until someone gave twelve months notice of termination, which could only mean that the first date on which the contract could be terminated was 30th. June, 1996. Counsel all proceeded on the assumption, which seems to me to be a wrong assumption, that it could have been terminated on 30th. June, 1995. However, it is an academic question for that is not an issue which arises in the case.
The pursuer avers that in early 1994, he husband had been ill for some time. On 9th. March, he wrote a letter to one of his fellow directors in the following terms:-
" I wish to tender my resignation from the 1st. April 1994.
According to my Contract of Service, Paragraph 2 states that I must give the
Company twelve months notice. Should you require me to work the 12 months, I am
prepared to do so, failing that I would be required to be compensated for these 12
months.
After having worked for the Company for 17 years, I feel I have been treated unfairly
and would appreciate your comments."
That attracted the following reply the same day, 9th. March, 1994.
" Thank you for your letter of 9th instant tendering your resignation as Managing
Director of ICCS (Northern) Ltd with effect from 1st April, 1994. I am sorry it has
come to this but in view of your unreasonable refusal to recognize that you are
presently in no fit state to do the job, this is probably in the best interests of the
Company. I therefore accept your resignation.
Regarding the 12 months notice, the Company is prepared to waive this. You will
therefore be paid until the end of this month."
There was no further written communication, according to the pursuer, prior to the deceased's death on 14th. April, 1994. The pursuer avers that, in this state of affairs, the contract of employment between the deceased and the first defenders subsisted at his date of death. There was no concluded agreement to vary the terms of the contract of employment. It is, however, a matter of admission that on 30th. March, 1994, "the first defenders wrote to the deceased forwarding his P.45 together with letters of resignation relating to his Directorships in the first defenders and associated companies, under explanation that the deceased did not sign these letters of resignation." The issue of a P.45 is, normally, a step consistent only with the termination of an employment relationship. Unfortunately, no one has lodged the P.45 as a production nor, more importantly, incorporated it in their pleadings and I decline to speculate as to its date when, with a little forethought, it could have been produced and referred to.
It is further admitted that salary was paid to 30th. March, 1994. It is not expressly stated in the pursuer's pleadings that salary was not thereafter paid but that seems to me to be implicit from the terms of the first defender's pleadings to which the pursuer's admission refers. That is another strong indication of the termination of an employment relationship, though not conclusive in the way that the date of termination in a P.45 would normally be conclusive.
The first defenders aver that "the deceased's Contract of Employment with the first defenders was terminated with effect from 1st. April, 1994." I appreciate that it is the pursuer's pleadings with which we are presently concerned but that clear averment from the first defenders puts the pursuer's averments in context. The second defenders have an averment in almost exactly the same terms. It would, inevitably, follow that if the contract of employment between the deceased and the first defenders had been terminated by the time of his death, that his estate would not be entitled to receive payment of the "death in service" benefit claimed. It is a matter of admission that the deceased had been a member of a Retirement and Deaths Benefit Plan arranged between the first and second defenders for the benefit of the first defender's employees. It is in effect, as I understand the law about the use of the expression 'believed and averred' about averments the contents of which should be within the knowledge of the party concerned, admitted that, had the deceased remained in employment at the date of his death, that six times his pensionable salary would have been payable on his death in terms of the scheme, or that appears to be the position of the first defenders. The second defender's basic position is that to qualify for payment to his estate or nominee ( there being no nominee) the deceased would have had to have remained in the first defender's employment on the date of death but that his employment had been terminated on 1st. April, 1994. They have a secondary line of argument as to the amount of any death in service benefit which might otherwise have been payable and as to whether payment of a refund of contributions made falls to be deducted from any further payment to be made, but the secondary line plainly contains matters for proof.
The same applies, in my opinion, to the pursuer's esto case against the first defenders, except insofar as the appropriate measure of damages for wrongful dismissal may require further consideration.
At the outset of the debate, counsel for the pursuer conceded that, though it continued to appear in the record, the pursuer's third plea-in-law had previously been repelled. For the avoidance of doubt, I have formally repelled it in the present interlocutor. Counsel for both defenders adhered to their respective preliminary pleas.
Counsel for the pursuer further conceded that he would only seek decree in terms of crave three of the writ if his main case in terms of craves one and two failed, it apparently being a matter of concession that the second defenders would make the appropriate payment in terms of their contract with the first defenders in the event of it being declared that the deceased remained in the first defender's employment at the time of his death. One of the issues I would wish to be addressed upon at the forthcoming procedure roll hearing is therefore whether proof before answer should meantime be restricted to those averments germane to the first and second craves.
Having resolved that issue, counsel for the first defender then addressed me in support of his preliminary plea to relevancy and specification. Put simply, his position was that what he described as "the facts averred" demonstrated that the contract had been "consensually terminated." Since that was so, prior to the death of the deceased, he had lost his entitlement to any death in service benefit and the first defenders could have no liability thereanent. He referred to Art. 3 and to the terms of the letter of 9th. March, 1994 admittedly written by the deceased. The letter was incorporated into the pleadings. The letter stated the deceased's wish to resign. The words were sufficiently clear to demonstrate that the deceased intended to resign on 1st. April. It was admitted that in the letter he went on to raise the question of what he perceived to be the contractual requirement relating to notice of termination and that he had raised the question of a financial settlement but that did not detract from the basic statement in the letter that the deceased was resigning.
I was referred to the Service Agreement between the deceased and the first defenders, which is incorporated into the pleadings. This together with the two letters to which I have already made reference are lodged in the pursuer's inventory of productions number 5/1 of process, being items 1, 10 and 11 respectively, though irritatingly none of the individual productions are numbered and a certain amount of searching for these is required. Clause 2 of the service agreement confirms that the agreement runs for ten years from 1st. July, 1985 and thereafter until terminated by twelve months notice. Clause 6 permits the possibility of termination in certain other circumstances, but it is not averred that Clause 6 has been invoked.
Counsel for the first defenders submitted that it was plain that the deceased intended to be tied to a contract which would run to 30th. June, 1995. The terms were clear. He was obliged to fulfil their terms of the contract. The earliest point at which notice could be given was 1st. July, 1994. I am unconvinced that that is correct interpretation of the contract but it is immaterial to the present issue. What is clear is that the deceased could not, in terms of the contract, give notice of termination, even on a period of twelve months, on 9th. March, 1994.
However, parties to an agreement could always agree to vary its terms, said counsel. The first defenders wanted to terminate the employment relationship with the deceased and were happy to waive any continuing obligation whether for notice or to work under the contract. So far as the first defenders were concerned, the deceased's letter of 9th. March was "an unequivocal offer to tender resignation." The issues of money and notice were "outwith the terms of the contract." I had no idea what that last part of the submission meant. It was always open to parties to agree to terminate a contract if they chose to do so.
At page 4, line 7 of Art. 3 of Condescendence, the pursuer seemed to be suggesting that the letter sent by the first defenders was a counter offer, but, in his submission, the letter from the deceased set out an intention to resign in terms that were clear and unambiguous. In "other circumstances," (presumably when he was not wishing to argue a consensual termination, but he did not specify what those other circumstances might be) the deceased's letter "could be regarded as a repudiation of the contract."
The requirement in respect of twelve months notice referred to by the deceased in his letter of 9th. March was a misconception. An unambiguous resignation cannot be tempered by any condition based on such a misconception. No authority was offered for that proposition, unsurprisingly. The author of the letter from the first defenders "patently appreciated" that twelve months notice was not contractually required - hence the waiver. It is not clear to me how that "patent appreciation" can be divined from the letter but, in any event, that seemed to me to be an issue of fact which could only be resolved after proof. What had happened, said counsel, was that the first defenders had accepted his resignation and had offered to pay him until his date of resignation. That being done, there were no subsisting obligations between the deceased and the first defenders. The contract came to an end by consent on 1st. April, 1994 and, accordingly, the averments imputing liability to the first defenders at the date of death in respect of a death in service benefit were inconsistent with the pursuer's averments otherwise, together with the contents of the incorporated documents, and fell to be repelled. If they were, then the action did not have the necessary basis in fact to succeed and the first defenders' plea that it should be dismissed should be sustained.
With reference to the esto case, it was the deceased who initiated the process which ended the employment relationship. There were no averments that he had been constructively dismissed. There was no factual averment consistent with any basis for the termination of the employment relationship other than by mutual consent There was, for example, no averment consistent with wrongful dismissal. The first defenders' letter of 9th. March, 1994 was "determinative of the esto case," and it was unnecessary to investigate the surrounding facts further, submitted counsel.
Counsel appeared to accept that he could offer no authority to support the proposition he appeared to advance that the deceased's failure to challenge the mistaken purported acceptance of his resignation or non-resignation, more accurately, immediately, was somehow determinative of the position against the deceased, as opposed to being no more than an evidential indication. He submitted that it was for the pursuer to negotiate the hurdle that there was no unequivocal offer to resign. That may well be so in terms of the onus of proof, but it does not mean that the pursuer has already fallen at the hurdle.
Counsel then turned to the averments supporting the claim for damages in relation to the esto case, which he described as "unsatisfactory." They were "founded on a denial of a state of facts," he said. Therefore the action insofar as directed against the first defenders should be struck out. I should sustain the first defender's first plea-in-law.
Counsel for the second defenders presented the court with a clear and well considered set of submissions and he directed me to a number of relevant authorities, not all of which supported his position. It was counsel's primary position that the action, so far as directed against the second defenders, should be dismissed. Whether the action was properly directed against the second defenders depended upon whether the deceased remained in the employment of the first defenders at the date of his death. The second defenders' submission was that the pursuer was bound to fail to achieve that essential state of fact even taking her pleadings pro veritate. On the face of the pleadings, the pursuer would be unable to lead evidence which could demonstrate that the deceased remained in the first defenders' employment then or at any time after 1st. April, 1994.
Counsel made the point that it was of no concern to the second defenders how the employment of the deceased came to an end, whether by resignation, by mutual consent to vary the existing contract, by dismissal or by some other undetermined means, so long as it had ended. If it were by dismissal, whether the dismissal was lawful or unlawful was equally immaterial. It was his submission, nonetheless, that, as a matter of construction, having regard to the terms of the deceased's contract of employment, that the deceased's letter of 9th. March could only be construed as a repudiation of the contract and that, if acceptance be necessary, the first defenders' response of the same date was such an acceptance.
If I were not with him on that primary submission, then, said counsel, there were a number of other indications which were consistent only with the deceased's employment coming to an end one way or another and he would direct me to these.
He then directed me to the pleadings and, in particular, to Art. 3, page 4, where the pursuer made a number of admissions, viz.;
(i) it was admitted that the deceased did not return to business following the exchange
of letters on 9th. March, 1994;
(ii) it was admitted that the first defenders had informed their bankers that the
deceased was no longer an authorised signatory on the company bank account;
(iii) it was admitted that the first defenders had written to the deceased on 30th.
March, 1994 with his P.45; and
(iv) it was admitted that the deceased's salary had been paid to 30th. March, 1994.
There was no averment that the deceased had challenged the first defenders' assertion that his "resignation" would be other than effective from 1st. April, 1994, and there was no other averment of a factual nature consistent with a continuing employment relationship. While it might be said that the deceased was ill, submitted counsel, all that was said on record about that, having regard to the pursuer's averments at page 5 of the record, was that he was ill on 9th. March, 1994. Nothing was said about him being ill subsequent to that date. It did rather seem to me that the deceased's death on 14th. April, 1994 may well have related to a state of ill health on 9th. March, rather than merely having been an unhappy coincidence, though, strictly speaking, the connection is not averred. What is, however, averred - by the second defender - is that it is "admitted that in the early part of 1994 the deceased had been ill for some time." Counsel's assertion, on the face of it, would scarcely be consistent with an admission he was presumably instructed to make.
Given all the foregoing factors, said counsel, it was hopeless to suggest that the deceased remained in the employment of the first defenders beyond 1st. April, 1994.
Counsel returned to his principal submission that the only possible construction of the letter from the deceased of 9th. March, 1994 was that it constituted a repudiation of his contract of employment. The contract itself provided that it was to run to 30th. June, 1995, so that, on a normal construction, the deceased would have been obliged to perform his contractual obligations until that date as, of course, would the first defenders. I have already expressed reservations as to whether the contract could have been terminated as early as 30th. June, 1995 but that is not germane to the issues. The deceased's letter indicated, said counsel, that he did not intend to work in terms of the contract to its natural expiry. His intention had to be construed from the terms of the letter reading it as a whole. It set out an intention not to be bound by the contract.
I observe in passing that counsel offered no authority for the proposition that he appeared to be advancing here that the deceased's intention could only be construed from the terms of the letter of 9th. March, 1994, which, followed to its logical conclusion, would suggest that extrinsic evidence not only to explain its terms but as to what otherwise was taking place between the parties would be inadmissible. I do not think that that can be right. In any event, it was plain from the terms of the contract of employment that it was a misunderstanding on the deceased's part, a misunderstanding that appears to have been followed if not compounded by the author of the first defenders' response, to think that the contract was terminable on twelve months notice. However, said counsel, the letter evinced an intention not to perform the contract in accordance with its terms at least in relation to duration.
Counsel referred me to the following authorities:-
1. The Law of Contract in Scotland : Prof. W.W. McBryde esp. Paras. 14-02 to 14-24.
2. Blyth v Scottish Liberal Club 1982 SC 140.
I found the following extracts from Professor McBryde's text helpful in examining the issues, viz;
14.02. The simplest instance of repudiation occurs when a person says that he does not intend to perform his contract.
14.05 Repudiation requires acceptance to be effective.
14.07 A person repudiates a contract when he unequivocally indicates that he is not
going to perform it. The matter is viewed objectively.
14.08 An attempt to terminate a contract under its provisions is an adherence to the
contract. Even if the attempt is unjustified, it may not, in the circumstances, be
a repudiation.
14.09 A repudiation is a material breach: it must go to the root of the contract.
14.10 The essence of repudiation is an intention to abandon the contract or refuse
further performance. It has been held to be repudiation for an employer to state
that he is not going to abide by an essential term of the contract on wages or
status or place of work, or for an employee to refuse to carry out an essential
task or to go on strike.
14.11 In the typical case repudiation is not easily inferred. A person may perform his
contract unsatisfactorily, or complain about its terms, or try to negotiate a
variation of the contract. None of these is repudiation. There is a difference
between being unhappy and depressed and deciding to end it all. Only an
unequivocal indication that a party will not perform is repudiation.
14.12 So it may not be repudiation to threaten a refusal to perform or to fail to
perform. To have an argument about implementation is not repudiation.
14.13 Repudiation by one party gives the other party an option. The option is either
(1) to accept the repudiation and claim damages for breach of contract, or (2)
to ignore or reject the repudiation and insist on performance of the contract.
14.14 Acceptance is probably any form of intimation that the innocent party is
exercising his option to end future performance of the contract. Acceptance
has the effect that neither party can insist on future performance.
14.16 'An unaccepted repudiation is a thing writ in water and of no value to anybody;
it confers no legal rights of any sort or kind' - Asquith L.J. i.c. Hammond v
Pickford Tool Co. [1951] 1 K.B. 417 at page 421.
14.23 When an employee repudiates his contract, the employer may or may not accept
the repudiation.
So far as the last statement is concerned, I will revert to it later when considering whether in this case the employment relationship ended by dismissal. Otherwise I adopt gratefully the foregoing statements of the law in respect of repudiation of a contract generally.
I would also adopt the following passage from the judgment of Lord Justice Clerk Wheatley in Blyth where he is quoting Lord Keith who, in turn, is quoting Lord Dennning, thus: -
" I would accept without hesitation the statement of Lord Denning M.R. in Federal Commerce and Navigation Co Ltd v Molena Alpha Inc. [1978] 1 Q.B. 927 at 929 that a party who breaks a contract cannot excuse himself by saying that he did it on the advice of his lawyers, or that he was under an honest misapprehension."
Counsel further referred me to Gloag on Contract, 2nd edition, at page 598, but I regret that I found nothing there which assisted me.
Counsel then moved on to support his submission about there being other ways by which it would determined that the deceased's employment had come to an end by 1st. April, 1994. In the first place, he submitted, the contract had terminated by consent. Counsel pointed out that the exchange of letters of 9th. March, 1994 resulted, in his submission, in an agreement. He made the self-evident point that parties can bring an agreement to an end if they chose to do so. In this exchange, the deceased was saying, " I will tender my resignation from 1st. April, 1994. Should you require me to work twelve months notice, I am willing to do so." The response had been, " We accept your resignation forthwith and waive any requirement for notice." There was, accordingly, agreement to end the contract on 1st. April. Counsel disagreed with any suggestion that the deceased's letter could be described as equivocal.
If this was not a repudiation by the deceased, nor a consensual variation of the contract agreeing to bring it to a premature ending, then the contract of employment was terminated by the first defenders. That had been effected either by their letter of 9th. March, 1994 purporting to accept the deceased's resignation or by the subsequent issue of the P.45. It was arguable that, in the circumstances, the first defenders were entitled to dismiss summarily but whether the dismissal was or was not in breach of contract was immaterial to the second defenders.
Counsel recognised that, on one view of the law of contract, purported termination of a contract of employment by an employer which was in breach of contract i.e. a repudiation of the contract, would require acceptance by the employee to be effective. He referred me to three authorities where he said that this was discussed, namely Gunton v Richmond Borough 1980 I.R.L.R. 321; Boyo v Lambeth Borough 1995 IRLR 50 and Malloch v Aberdeen Corporation 1971 S.C. (H.L.) 85. Gunton could scarcely be described as a decision upon which one could unreservedly found given that each of the three judges in the Court of Appeal express different opinions for reaching their conclusions, two of which are wholly inconsistent. I observe that at page 324, para 11, Lord Justice Shaw, who was the minority, describes the issue of the need for acceptance of a repudiation of a contract of employment to bring the contract to an end as "a vexed area of the common law." He reached the conclusion, the practical sense of which appeals to me, in the same paragraph, that, in relation to acceptance of a repudiation, " This practical basis for according an election to the injured party has no reality in relation to a contract of service where the repudiation takes the form of an express and direct termination of the contract in contravention of its terms. I would describe this as a total repudiation, which is at once destructive of the contractual relationship." He went on to make reference to the courts having consistently refused to order specific performance by either party to a contract of employment and, at page 325 para 12, states, " The preservation of the contractual relationship is necessarily coterminous with the ability of the law to compel performance. Where it cannot, it is the scope of damages that must afford appropriate redress to the injured party." He acknowledges, however, that in expressing the foregoing opinion he is differing from Buckley and Brightman L.Js.
At page 325, para 16, L.J. Buckley describes the issue as "an interesting question on the law of master and servant, upon which there has been much difference of judicial opinion." He then narrates and quotes from some of the cases where the differences emerge and helpfully summarises the two differing approaches at page 327, para. 27. He then proceeds to add to the difference at page 328 para 30, where he asks, " Why should the doctrine operate differently in the case of contracts of personal service from the way in which it operates in respect of other contracts ? I for my part can discover no reason why it should do so in principle. It cannot be because the court will not decree specific performance of a contract for personal service for there are innumerable kinds of contract which the court would not order to be specifically enforced, to which the doctrine would undoubtedly apply. For similar reasons it cannot, in my opinion, be because a contract of personal service involves a relationship of mutual confidence, or because the obligations of a master and a servant are mutually dependent upon co-operation between the parties. If one party to a contract of personal service were to repudiate it before the time for performance had arrived, there would be no breach of contract until the time for performance and no cause of action until then, unless the innocent party chose to create one by accepting the repudiation. I can only conclude that the doctrine does apply to contracts of personal service as it applies to the generality of contracts."
If I may respectfully say so, I find that difficult to square with what seems to me to be the true nature of an employment relationship and I find it difficult to conceive of a term of a contract of employment which could survive the end of the employment relationship in the absence of express provision or necessary implication e.g. in respect of a restrictive covenant or an obligation to provide an occupational pension. I am also conscious that the law of employer and employee, as I would prefer to categorise it, has been one of the most actively developing fields of the law over the last thirty years. It further seems to me, with due respect, that even Lord Justice Buckley has trouble with his own conclusion for he found it necessary to consist with it to "create" the notion of "implied acceptance," the requisites for which he describes at page 328 para 31. I must confess to finding it at odds with my sense of justice and logic, quantum valeat, that an innocent victim of a repudiation otherwise entitled as a matter of law to elect to maintain the existence of the contract should be held to have accepted its repudiation by implication by doing what he is required to do to mitigate his loss. Lord Justice Buckley does, at para 32 of page 328, introduce the concept of special circumstances, saying, " Finally, in a case of wrongful dismissal in the absence of special circumstances the damages recoverable on the footing of an accepted repudiation must, I think, be as great as, and most probably greater than, any damages which could be recovered on the footing of the affirmation of the contract by the innocent party and of the contract consequently remaining in operation." Perhaps the present case would fall within his "special circumstances" exception. Certainly, if acceptance of the repudiation is required, it is hard to see any positive averment in the pursuer's pleadings which would be consistent with either express or implied acceptance of the repudiation. He was off work ill until his death. He avers that he declined to sign letters of resignation from his directorships. I do not see how that can be consistent with his having accepted the repudiation of his contract of employment, esto that is what occurred. Lord Justice Buckley says at page 328 para 33, " It consequently seems to me that, in the absence of special circumstances, in a case of wrongful dismissal the court should easily infer that the innocent party has accepted the guilty party's repudiation of the contract." Given that this represents the majority view of the Court of Appeal, it would only be with diffidence and great hesitation that I would demur. However, he continues, " I do not think, however, that it is impossible that in some cases incidental or collateral terms might cause the injured party to want to keep the contract on foot." The inevitable inference from that is that he conceived that there might be exceptional cases where such easy inference would be inappropriate, and perhaps he would have been prepared to regard the present case as one such.
In the same case, Lord Justice Brightman at page 330 para 55 states, " I do not think it follows, however, from the rupture of the status of master and servant......that the contract of service......has been terminated by the wrongful act of the master.......What has been determined is only the status or relationship. So, in the result, the servant cannot sue in debt for his wages, which he is wrongfully deprived of the opportunity to earn or for his fringe benefit, such as the house which the carpenter in Ivory v Palmer had the right to occupy as part of his emoluments. As the relationship of master and servant has gone, the servant cannot claim the reward for services no longer rendered. But it does not follow that every right and obligation under the contract is extinguished." He goes on to give the illustration of a non-competition clause but it seems to me at least arguable that such clauses in contracts survive the termination of contractual relationships for sound public policy reasons irrespective of how termination came about, rather than on account of the doctrine of repudiation and acceptance. I also think the topic of "fringe benefits" requires further consideration with the growing recognition of the importance of such benefits, particularly those such as occupational pension schemes and associated assurance and insurance benefits and it has long been the subject of adverse comment that the limits on compensation awards competent to industrial tribunals do not reasonably reflect the value of such benefits when unfair dismissal occurs. Regrettably I have to say that I am singularly unconvinced by the reasoning of Lord Justice Brightman.
It was accordingly with a degree of relief and reassurance that I read the judgment of the Court of Appeal in Boyo v Lambeth Borough (supra), though at the end of the day, because of the authority of Gunton, despite the forceful and clear reservations expressed about the soundness of the majority decision therein, they were obliged in regard to the doctrine of precedence, to follow it. Boyo was a case concerning the recurring problem of an employee charged with defrauding his employers where he was initially suspended on full pay. When it became clear that the criminal proceedings against the plaintiff were not going to be resolved for months, the defendants decided that the public purse should not continue to have to meet the plaintiff's salary, asserted that the contract of employment had been determined by the operation of the doctrine of frustration, with particular regard to the bail conditions imposed, which included a requirement that he stay away from the council offices, and sent him his P.45. The plaintiff continued to maintain that he was the defendants' employee and claimed that the defendants had by their action repudiated the contract of employment. Relying on the authority of Gunton, he maintained that he had done nothing to accept the repudiation, the consequence of which was that his contract subsisted. So far as I can gather from the judgment of Lord Justice Ralph Gibson, the plaintiff at first instance sought a declaration that he remained an employee of the defendants and sought payment of arrears of salary. Initially the defendants maintained that the contract had been terminated by frustration, but latterly accepted that they had wrongfully repudiated the contract, that on the authority of Gunton it should be "readily inferred" that the plaintiff had accepted the repudiation and that he should be entitled to damages but that these should be restricted to loss to the date when acceptance of the repudiation could be inferred, there being further argument as to when that should be deemed to be. At page 55, para. 18, Lord Justice Ralph Gibson pointed out:-
" There has long been an unresolved controversy, as is pointed out in Halsbury's Laws, 1992, at para 303, as to whether (i) the contract of employment is an exception to normal contract law so that an employee wrongfully dismissed by his employer must accept that repudiation because, according to the 'unilateral' theory, the employee's only remedy in law becomes one of damages, and a repudiation of a contract of employment automatically terminates it; or (ii) contracts of employment are not formal exceptions to the normal rule that a repudiation of a contract is not effective unless or until the innocent party accepts that repudiation;" It was, of course, the latter view which prevailed in Gunton.
At page 57, para. 33, the learned judge, having set out the conclusion of the majority in Gunton and their reasons for reaching it, says, " For my part, I have difficulty in accepting in full the validity of this reasoning." He referred to an extract from a judgment of Sir John Donaldson, as he then was, when he was Chairman of the National Industrial Relations Court, i.c. Sanders v Ernest Neale Ltd 1974 IRLR 236, wherein he questioned the hypothesis upon which the reasoning in Gunton was based, namely that an employee prevented from working could not sue for wages. At page 34, Lord Justice Ralph Gibson says:-
" Further, if there is a requirement of law for acceptance by the servant of a repudiation of the master, I am unable to see why it is not a requirement for a real acceptance, that is to say a conscious acceptance intending to bring the contract to an end or the doing of some act which is inconsistent with the continuation of the contract. If that is right, I do not understand how courts would apply the notion of 'easily inferring that the innocent party has accepted............the repudiation.' Further, I do not understand why the taking of employment should automatically constitute acceptance. If I tell my employer, who has in breach of contract refused to let me do my work, that I do not accept his repudiation - and that I shall get another job but remain willing and able to do my work when sent for by him - why should I be treated as having accepted what I have not accepted ?"
At para. 35, he said, " To the majority of the court in Gunton's case, however, it was clear that it would be contrary to the basic concepts of the law of contract, in the absence of special circumstances in which the court may prevent an employer from implementing a decision to dismiss, to require an employer who has de facto dismissed a servant in breach of contract, to pay damages on the basis that the employer's obligation to the servant continues after the end of that period of time by which under the terms of the contract the employer could lawfully have brought it to an end as from the date of dismissal. That was also the opinion of Shaw L.J. who agreed with that of Sir John Donaldson expressed in the case of Sanders v Neale. I agree with it also."
At least to me it seems paradoxical that an employee should be able to say that he does not accept the wrongful repudiation of his contract of employment but should be restricted in the level of damages recoverable to loss of earnings and benefits from the date of dismissal - the wrongful repudiatory act - only until the date at which he could properly have been dismissed in accordance with the terms of his contract, though I entirely accept that the proper measure of damages in a claim for wrongful dismissal, subject to the duty to mitigate and minimise loss, can only be related to the loss of remuneration and benefits from what I might describe as the date of unlawful termination to the first date on which lawful termination could have been effected. That seems to me to provide strong, almost insurmountable, support for the proposition that a repudiation of a contract of employment, whether by employer or employee, effectively terminates the contract of employment unilaterally and forthwith, leaving the wronged employee only with a claim for damages. I cannot help but observe that it is my conception that that is how the intelligent non-legal person would tend to regard the process of "getting the sack" whether it was justified or not, that the employment relationship was over and that, subject of course to the legislation on unfair dismissal, any remedy open would be a financial one.
At para. 36 on page 57, he continues, in a passage germane to the present case, " I also accept that principle must permit the continued existence, after a wrongful dismissal which brings the de facto relationship of master and servant to an end, of obligations contained in the contract which, in Lord Oliver's words in Rigby v Ferodo Ltd. 1987 I.R.L.R. 516, 'do not of necessity depend on the existence of the relationship of master and servant,' such as the provision for disciplinary proceedings when held to be relevant to the assessment of damages, or to a term restricting the actions of the servant after termination of the contract." It occurs to me that one term of a contract which would normally survive the termination of the de facto relationship of employer and employee is the employee's right to be paid under an occupational pension scheme, though I accept that such a right is inevitably affected by the termination of that relationship since the level of benefit payable depends on the amount and duration of contributions. I am unaware of any case and none was drawn to my attention by any of the protagonists in the present case where the issue of the survival of a clause pertaining to death in service benefits in particular and employee fringe benefits if it is still apt so to describe them in the light of current practice and experience, in general has been discussed where the contract could be said to have been repudiated otherwise, and with respect to the submissions which I heard, I think this is an issue of considerable importance which can really only properly be addressed once the facts have been ascertained. I further accept, looking at matters from the viewpoint of the second defenders, that questions may well arise as to whether, in such circumstances, they would continue to have any contractual obligation in the matter, which may call for interpretation of a different contract, or whether any recovery for loss of such fringe benefits would be confined to an award of damages against an employer who wrongfully dismissed. There may even be cases where such fringe benefits should be unaffected by whether the dismissal is justified or otherwise though in the case of a death in service benefit, on the face of it it is hard to see how that could survive lawful termination of employment.
Lord Justice Ralph Gibson, at para. 37, continues, " Subject to that qualification, if it were open to this court to depart from the conclusion of the majority in Gunton, I would prefer the view expressed by Sir John Donaldson in Sander's case," i.e. the "unilateral" view of repudiation of a contract of employment.
Similarly, Lord Justice Staughton at page 58, para. 52 states, " Unconstrained by authority, my conclusions on points (2) to (6) would have been as follows:
(2) A direct repudiation, whether by employer or employee, determines a contract of
employment. Such a contract is in that respect in a class of its own. An employee
cannot be compelled to work if he declines to do so, nor be restrained from
working for anybody else. So the employer too should not be compelled to treat
the contract as still in existence against his will.
(3) I see no ground for treating something as an acceptance of repudiation in an
employment case, if it would not be an acceptance in the general law of contract. It
must demonstrate to the guilty party that the contract is accepted as at an end. Mr.
Boyo was not doing that when he pursued his claim for arrears of salary."
Points (4) to (6) are of no interest in the present case. Finally, Sir Francis Purchas, at page 60, para. 60, put it thus:-
" I would prefer to rely on an exception in those cases where the employer, by unequivocal and unilateral action, repudiates his obligations under the contract in a manner in which his decision is brought to the attention of the servant, then the exception should apply and it would not be open to the employee to reject the repudiation. His duty to mitigate loss would involve of necessity the immediate recognition of the employer's repudiation." My only hesitation about that proposition would be that I do not think the manner of the communication of the termination matters, so long as what is communicated is that the employment contract is terminated.
So the law of England would appear to be, despite the foregoing powerful dissent and expression of concern, left in a state where, though acceptance will be readily inferred, there must be an identifiable step capable of being inferred to be acceptance of an employer's repudiation. It is also observed in both cases that there may be special circumstances for which a departure from the rules would be required and that a repudiation would not necessarily bring to an end contractual terms capable of surviving independently of the employer/employee relationship. At first sight, something capable of being described as a "death in service benefit" would not appear likely to be such an exception, but I would prefer to reserve my opinion thereon pending ascertainment of the facts.
So much for the law of England. Counsel for the second defenders then referred me to the House of Lords decision in Malloch v Aberdeen Corporation (supra). I observe, at once, that at p.118, Lord Wilberforce says that " the appellant's challenge to the action taken by the respondents raises a question, in my opinion, of administrative law. The respondents are a public authority; the appellant holds a public position fortified by statute. The considerations which determine whether he has been validly removed from that position go beyond the mere contract of employment, though no doubt including it. They are, in my opinion, to be tested broadly on arguments of public policy and not to be resolved on narrow verbal distinctions." It seems to me that that passage is sufficient to make it quite clear that that decision is entirely distinguishable from the present where, esto there are considerations of public policy, they are not those apposite to administrative law. It is only of interest insofar as the decision authorised a decree reducing the decision of a local authority to terminate the employment of a teacher, the legal effect of the decision being that the pursuer had to be treated as though he had never been dismissed. That, it seems to me, was the inevitable result of a decree of reduction being granted and that does not assist one way or the other in respect of the issue whether a contract of employment requires acceptance of its repudiation. There was no discussion in the present case whether, esto the deceased was dismissed, a decree of reduction could competently have been sought nor is reduction ope exceptionis craved in this action. I did not find this decision otherwise to be of assistance in respect of the present issues. Nor have I found the issue of whether a repudiation of a contract of employment requires acceptance and, if so, in what form, a question which can be readily determined, as counsel for the second defenders inferred.
Counsel went on to submit that, in any event and esto none of the bases so far advanced convinced me as to the conclusion of the employment relationship, it remained evident from the pursuer's pleadings that the employment relationship had terminated, which was all the second defenders had to establish for them to have no obligation in the matter. In support of this argument he referred me to the case of Robert Cort & Son Ltd. v Charman 1981 I.R.L.R. 437, a decision of the Employment Appeal Tribunal in England presided over by Mr. Justice Browne-Wilkinson, as he then was. However, this case is one determined having regard to the statutory provisions pertaining to unfair dismissal and is concerned with the determination in the particular case of what was the effective date of termination of employment, which is an entirely statutory concept, to be determined having regard to the relevant provisions. In the particular case, it was necessary to determine the effective date of termination to ascertain whether the plaintiff had the requisite period of continuous employment to entitle him to make an application to an industrial tribunal for a finding that he had been unfairly dismissed. The Employment Protection (Consolidation) Act, 1978, which then ruled, provided by section 55(4)(b) that in relation to an employee whose contract of employment is terminated without notice, the effective date of termination was " the date on which the termination takes effect." As Browne-Wilkinson J. observed at page 439 para 12, the Act seems to have been drafted on the footing that what he described as the unilateral view was correct, i.e. that repudiation of a contract required no acceptance. He does say at page 440 that, " even on an acceptance view the status of employer and employee comes to an end at the moment of dismissal, even if the contract may for some other purposes continue." I doubt whether that is consistent with the reservations about the "implied acceptance" theory expressed by their Lordships in the Court of Appeal in Boyo's case. In any event, I regard this decision of persuasive authority only in relation to interpretation of the provisions of the Employment Protection (Consolidation) Act, 1978, which is of no relevance to the issues presently before me.
It was counsel's concluding submission that the unilateral view was consistent with common sense. On that approach, he submitted that in the present case, one way or another, the deceased's employment had been terminated at 1st. April, 1994. There was no other possible date of termination. Since he was accordingly not in employment at the date of his death, his executors had no claim against the second defenders. The action insofar as directed against them should accordingly be dismissed.
Counsel for the pursuer first attacked the submissions of the first defenders. It was said that the deceased's letter of 9th. March, 1994, read objectively, was consistent only with a resignation with effect from 1st. April. The other parts of the letter, it seemed to be being suggested, should be treated as having subsidiary importance, since at least in respect of the question of notice, the letter had proceeded on the basis of what was described as an irrelevant misunderstanding. However, counsel for the first defenders did not appear to have an answer to questions from the court as to how the word "wish" was to be objectively interpreted in a manner consistent with a fixed intention to do something, when the deceased could simply have said " I hereby resign with effect from...." if that were his intention. Such an expression would have been unequivocal. The form of wording used was not.
With regard to the response from the first defenders of 9th. March, 1994, counsel for the first defenders had characterised this as an acceptance of the offer to resign and as being irrelevant insofar as it purported to deal with other matters. But, said counsel for the pursuer, his colleague had again had no answer to the court's question about the twelve month notice period which the response purported to waive, beyond saying that it was irrelevant. In the submission of counsel for the pursuer, the letters could not be construed in that manner. The deceased's letter was an offer to vary the terms of his contract of employment by bringing it to a premature end. The letter contained a condition. The condition was not categorisable as subsidiary or irrelevant. It concerned payment of salary in lieu of notice. The first defenders' response did not accept the offer. It was a counter offer. It did not deal with the financial issue. Accordingly, the contract was not terminated. The deceased was saying in terms that he required to be compensated for the twelve months notice he thought was necessary to determine the contract. He may have been incorrect about the notice requirement but, in essence, what he was saying was that he would be prepared to bring the contract to an early end if suitable financial provision was made, a factor which in such circumstances could reasonably be described as commonplace.
The deceased's contract of employment and the supplementary agreement were before the court and were incorporated into the pleadings. It was a fixed term contract until June 1995 and only then did the question of giving notice arise. The deceased misunderstood the notice provision. The response from the first defenders suggested that the author of that letter also misunderstood the provision in that the letter purported to contain a waiver of that period of notice. That still begged the question about payment.
It did not follow, said counsel, that, when he wrote the letter of 9th. March, 1994, the deceased had no intention thereafter of fulfilling his contract. A perfectly acceptable and legitimate response to his letter would have been that he was required to fulfil his contract by working until June, 1995. The deceased, contrary to what counsel for the first defenders had suggested, had made it clear that he would, if required, work what he understood to be the notice period.
The terms of the correspondence, on any view, was equivocal. The date of termination of employment, if there was one fixed prior to the date of death, was a critical issue. The pursuer's position remained that the contract had not been determined at the date of death and the critical issues could only be resolved once evidence had been led. The correspondence, being equivocal, could not be determinative. There was an averment about a meeting between the deceased and representatives of the first defenders subsequent to the exchange of correspondence. Evidence about what had taken place at it would be critical.
The deceased's letter could not, as a matter of law, said counsel, be characterised as a repudiation of contract. Counsel referred me back to Professor McBryde's text, especially at para 14.07 to which reference has already been made. He also referred back to para. 14.05, where the learned author stated that repudiation required acceptance to be effective, and went on to submit that, as had been explored, that appeared to be the law of England also. At para. 14.07, Professor McBryde maintained that the law of Scotland was that a contract could only be said to be repudiated when there was an unequivocal indication that performance would not be rendered, and that whether what had transpired could be described as such an unequivocal indication had to be viewed objectively. He drew my attention to the terms of 14.11 and made the point that if this were an accurate statement of the law of Scotland, and, in his submission it was, it did not sit happily with the notion of implied acceptance which had emerged from the majority in the Court of Appeal in Gunton's case.
Counsel submitted that the response from the first defenders was "an innocent misunderstanding" of the offer made. The deceased did not offer unequivocally to resign on 1st. April, 1994; it was a mistake, therefore, to purport to accept that as though it were such an unequivocal offer.
There was therefore a lack of meeting of minds, said counsel. The first defenders' letter being a response based on a misunderstanding, it was wrong to categorise that response, as counsel for the second defenders had sought to do, as a repudiation of the contract. The author of the letter thought, albeit wrongly, that he was accepting a resignation. The author of the letter was not intending to dismiss the deceased. Had he construed the letter from the deceased properly, the response might well have been completely different. There was, accordingly, no consensus in idem to effect a variation of the contract. That being so, the contract stood unvaried and undetermined as at the date of the deceased's death, so he was still in the employment of the first defender. There was nothing in the averments otherwise which could amount to an acceptance or homologation of the termination of the employment contract.
With regard to the submissions of counsel for the second defenders as to the various bases upon which it could not be disputed that the contract of employment had terminated, counsel for the pursuer said (i) the deceased had not repudiated the contract by resigning, as he had been at pains to demonstrate; (ii) the first defenders' letter did not repudiate the contract for there was no consensus; (iii) the first defenders' communication did not repudiate the contract for it proceeded on a misunderstanding of the deceased's communication; it was not the first defenders' intention to dismiss the deceased and it could not therefore be said that there was an unequivocal act of repudiation. Counsel directed me again to Professor McBryde's text, this time to para. 14.22 where the learned author comments:-
" The difference between the practical result and the theoretical need for acceptance has caused some difficulty in employer and employee cases. When there is an unjustified dismissal by an employer (i.e. a repudiation) must there be an acceptance by the employee to end the contract ? It is thought that there should be. The authorities were reviewed in Gunton v London Borough of Richmond -upon-Thames (supra).
It can be important to determine whether or not the contract survives. While the contract survives, the parties will be bound by its terms, such as a restriction on the employee working for others during the during the time of his employment. But in many cases, whether or not the employee accepts the repudiation, his claim is damages. In practice he cannot continue to go to his work and earn his pay. He cannot obtain specific implement. In these instances whether or not there is acceptance of the repudiation could be academic."
The issue whether a repudiation required acceptance was, said counsel, unresolved so far as the law of Scotland was concerned. But, he said, the question did not arise in the present case as the letter sent by the first defenders was not a repudiation of the contract.
(iv) Counsel for the second defenders' submission appeared to amount to saying that irrespective of how one chose to categorise it, looking at the facts as averred by the pursuer, it was plain that the employment relationship had ended as at 1st. April, 1994. But where was the averment which supported this ? Most consequentially, where was the P.45 which would contain the date when the first defenders considered the employment to have terminated ? It was not lodged as a production and it would be wrong to speculate as to what it said about the date of termination. There was no good reason why it had not been lodged. It was accepted that the deceased had not returned to business but at least one reason for that was that he was suspended by the first defenders - they would not allow him to return to work - so they could hardly found on that as indicative of his attitude. The deceased's salary had been paid monthly at the end of each month and it had been paid on 30th. March. It would not have been until 30th. April, had he survived, that the deceased would have recognised that he was no longer being paid his salary. For these reasons, it was not "hopeless" to submit that the employment relationship was continuing up to the date of death and the pursuer should be given the opportunity to demonstrate the contrary. There were ongoing disciplinary proceedings. It would make no sense for the deceased to give up his contractual rights when there were ongoing proceedings.
The pursuer had a good title to continue with this action. It was accepted that, esto her claim was restricted to one for damages for wrongful dismissal, there was a question whether there were relevant averments in support of that loss. Nonetheless, since it was not the case that the pursuer's primary case could be categorised as hopeless, I should allow a proof.
I shall allow a proof before answer reserving the first plea-in-law for the first defenders and the first plea-in-law for the second defenders. In accordance with practice, I shall say as little as possible for my reasons for allowing proof before answer and will content myself with listing my reasons as follows:-
1. The letter from the deceased of 9th. March, 1994 cannot be categorised as an
unequivocal repudiation of contract. It appears to be a statement of what the
deceased would like to do. A condition of resignation or agreement to early
determination was that the deceased "be compensated" for twelve months. The
deceased did not say that he no longer intended to be bound by the contract. On one
view, he was demonstrating adherence to the terms of the contract in respect of
notice; he merely misunderstood the term relating thereto.
2. The letters from the deceased and the first defenders of 9th. March, 1994, taken
together, did not unequivocally demonstrate agreement to terminate the contract
early on any particular date, nor agreement as to its immediate termination.
3. No authority was offered for the proposition advanced if not directly then at least
by implication that the intent of the deceased and the first defenders could only be
derived from the terms of these two letters and that extrinsic evidence to explain
their terms or as to the surrounding circumstances would be inadmissible.
4. No other action or inaction averred by the pursuer was unequivocally
determinative of the termination of the contract at all or, separatim, at any given
date. It cannot therefore be said, merely on a consideration of the pursuer's
pleadings that it is "hopeless" to maintain that the deceased was employed by the
first defenders beyond 1st. April, 1994.
5. A repudiation of a contract is not, as a matter of law, to be readily inferred. An
investigation into the surrounding facts and circumstances will almost inevitably
be required where it is suggested that a court should draw the inference of
repudiation. Whether repudiation had occurred had to be viewed objectively. There
was no basis in the pursuer's averments for drawing the ready inference of
repudiation.
6. Esto the deceased was wrongfully dismissed by the first defenders, which could not
be determined solely from a consideration of the pursuer's pleadings, even having
regard to the incorporated productions, it is at least arguable that such a repudiation
would have done no more than give the deceased an option to accept the
repudiation, and it could not be determined from the pleadings that he had either
accepted the repudiation or otherwise acted in a manner inconsistent with the
continuation of the contract. While it would be my opinion that a contract of
employment is unique in that repudiation by either the employer or employee
unilaterally ends the employer/employee relationship, it cannot be established from
the pursuer's pleadings that either the deceased or the first defenders had
unequivocally repudiated the contract. In any event, in both Gunton and Boyo, the
Court of Appeal in England envisaged exceptions to the termination of employment
whether unilaterally or by acceptance, at least where the clause concerned was
capable of an existence independent of the employment relationship. It is not
impossible that the present case could, on full exploration, properly be regarded
as exceptional in its circumstances.
7. It could not conclusively be determined from the pursuer's pleadings that the
deceased's employment with the first defenders had terminated by 1st. April, 1994
even if the precise categorisation in law of how it terminated could not meantime be
formulated.
8. It is conceivable that there was an intention to terminate the contract early but
there was no consensus in idem as to the terms of such a variation of the subsisting
contract. That could only be determined following a full exploration of the facts.
Such a state of affairs would leave the existing contract subsisting and unvaried at
the date of the deceased's death, and there were not other features set out in the
pursuer's pleadings which were inevitably consistent only with the employment
relationship having terminated prior to that date.
I shall hear parties on any question of expenses arising from the preparation for or conduct of the debate at the foresaid procedure roll hearing. I had no difficulty having regard to the complexity of the issues raised and the importance of the matters canvassed both generally and to the parties in concluding that this was a cause suitable for the employment of counsel.
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