CA405/05
JUDGMENT OF SHERIFF PRINCIPAL JAMES A TAYLOR
in the cause
John Morrish
RESPONDENT
against
NTL Group Limited
APPELLANTS
GLASGOW, 14 June 2006.
The Sheriff Principal, having resumed
consideration of the cause, Refuses the appeal; Remits the case to the sheriff
to proceed as accords; Finds the appellant liable to the respondent in the
expenses of the appeal as these might be taxed; Allows an account thereof to be
given in and Remits same, when lodged, to the Auditor of Court to tax and to
report.
NOTE:-
Introduction
[1] The respondent is the former financial
director and company secretary of the appellants. His conditions of employment were regulated
by an agreement dated 6 July 1984
("The Agreement") entered into between the respondent and Clyde
Cablevision Ltd. By operation of the
Transfer of Undertakings (Protection of Employment) Regulations 1981 the rights
and obligations of Clyde Cablevision Ltd were transferred to the appellants.
Clause
1 of the agreement is in the following terms:-
"1. The
Company shall employ the Appointee and the Appointee shall serve the Company as
Financial Director and Company Secretary of the Company and subject to the
provisions for determination of this Agreement hereinafter contained such
employment shall be for a period of three years commencing on First June,
Nineteen hundred and eighty four (notwithstanding the date hereof) and
thereafter shall continue unless and until terminated by either party giving to
the other not less than twelve months written notice thereof expiring on or at
any time after Thirty first May, Nineteen hundred and eighty seven."
[2] By letter dated 6 January 2005 the appellants confirmed to the
respondent that the respondent's employment was terminated with effect from 29 December 2004. The respondent was given his contractual pay
in lieu of notice. The respondent
maintained that the appellants were not entitled to terminate the respondent's
contract of employment without giving him twelve months notice. Twelve months notice had not been given. The respondent had been summarily
dismissed. The appellants were in breach
of the agreement. As a result of the
breach the respondent sustained loss.
These losses were said by the respondent to include (1) a diminution in
value of his pension rights; (2) a loss of opportunity to receive a 2004
Executive Bonus payment; (3) a loss of opportunity to receive a payment under
the appellants' Long Term Service Incentive Plan and (4) a loss of opportunity
to exercise share options.
[3] Before the learned sheriff the
appellants submitted that as a generality the Law of Scotland recognised that
there was implied into every contract of employment a term entitling the
employer to dismiss the employee without notice on paying wages and other
contractual entitlements in lieu. The
learned sheriff agreed with the appellants' submissions in that respect. However the learned sheriff decided that said
term was not implied into this particular agreement as it was excluded by the
particular terms of the agreement. An
implied term could not oust an express term.
The employers appealed.
Appellants' submissions
[4] Mr Fairley, advocate for the appellants,
submitted that if a term was implied into a contract ex lege there required to be express, clear and unequivocal words
used in a particular contract if the term was to be excluded from that
contract. There was no term of the
Agreement which expressly excluded the appellant making payment of wages and
other contractual entitlements in lieu of notice. I was referred to McBryde the Law of
Contract in Scotland 2nd Edn at paragraph 9.09, Johnstone v Bloomsbury Health Authority
1992 QB 333 and Scottish Power plc v
Kvaerner Construction (Regions) Ltd 1999 SLT 721. There required to be a distinction drawn
between terms implied in order to give a contract business efficacy and those
implied ex lege. The latter, being based on public policy,
were more difficult to displace than the former. If there was an express term which touched
upon certain issues it did not necessarily exclude a term implied by business
efficacy touching upon the same issue.
The position with regard to a term implied ex lege was even stronger.
[5] Mr Fairley then analysed the case of Morrison v Abernethy School Board (1876)
3R 945 to explain the derivation of the implied term for which he argued. He also referred me to Graham v Thomson (1822) 1S 309, Cooper
v Henderson
(1825) 3S 619 and to the more recent case of C R S Computers Ltd v MacKenzie (unreported, 25 April 2002, EAT/1259/01). He contrasted the position in England
where the law does not imply a right in employment contracts to make payment in
lieu of notice. Accordingly I should be
careful in applying any English authorities on the subject matter.
[6] He then turned his attention to the
particular term which one finds in the Agreement. The parties had not expressly agreed anything
about payment in lieu of notice. It
would have been open to them so to do but they had elected not to do so. He contrasted the present position with the
contract in the case of Morrison and
invited the court to accept that there was a similarity in the two situations
in that both contracts were "at will". In Clause 1 of the Agreement the parties had
expressly agreed the length of the notice period whereas in Morrison the period fell to be implied
and the court deemed three months to be reasonable. The express provisions of the agreement and
the implied term for which he argued could happily co-exist together. Accordingly there was no reason why primacy
should be given to the express term to the exclusion of the implied term.
Respondent's submissions
[7] In reply Mr Reid, solicitor advocate for
the respondent, submitted that the implied term contended for by the appellants
was inconsistent with the express term in three distinct ways. In the first place, the express term entitled
the respondent to remain employed by the appellants until the expiry of a
twelve month notice period. In contrast
the proposed implied term did not entitle the respondent to remain employed by
the appellants for said period. The term
which the appellants sought to imply entitled them to summarily dismiss the
respondent without cause. Secondly,
under the express term the respondent was entitled to receive twelve months
written notice of termination. In
contrast the implied term gave the respondent no such notice. The appellants could summarily terminate the
contract without warning by tendering a payment. Thirdly, under the express term the
respondent had a legal right to receive twelve months warning of termination
and a legal right to remain employed until the expiry of that twelve month
period. The converse of course meant
that the employer was under a duty to give twelve months warning of termination
and had a duty to employ the respondent for a similar period. The implied term cut across these rights and
duties. Accordingly, submitted
Mr Reid, the appeal should be refused.
In any event it would have been open to the parties to agree upon a pay
in lieu of notice (PILON) clause. They
had not done so.
Decision
[8] I have come to the opinion that the
appeal should be refused. I agree with
Mr Fairley's submission based on Scottish
Power that a term could be implied into a contract even although the
contract contained an express term which touched upon the same subject
matter. It is instructive to consider
the particular terms of the contract between the parties in the Scottish Power case. The pursuers were the mechanical and
electrical sub-contractors in a construction project. The defenders were the main contractors. The pursuers argued that there was an implied
term which was in two parts. That term
was that the main contractors had an obligation "not to hinder or prevent
the pursuers from carrying out their obligations in accordance with the terms
of the sub‑contract or from executing and completing the sub-contract
works in a regular and orderly manner".
However there was an express term that the pursuers had to carry out the
works in accordance with a contractual timetable and in such stages and
sequences as the main contractors from time to time required. It was not disputed that the first half of
the implied term contended for, although it could be said to touch upon the
express term, was properly incorporated into the contract. In his opinion Lord Macfadyen held that the
second half of the alleged implied term was not properly incorporated as it
conflicted with an express term. The
main contractors were entitled to insist that the works were carried out in
accordance with a timetable set out in the main contract. Accordingly there was no implied term that
the sub-contractors were entitled to carry out the works in a regular and
orderly manner. The implied term had to
yield to the express term. The basis
upon which the term was said to be implied into the contract was that it was
necessary to give the contract the efficacy which the parties must have
intended. To that extent the Scottish Power case differs from the
instant case. In the instant case the
implied term is not necessary to give the contract efficacy but rather it is
said to be implied as a matter of law. I
accept that because the term is implied as a matter of law very clear words are
required in the contract to exclude the implied term. In the present case I consider that a similar
clash occurs between the express term and the implied term contended for. The contract provides that the respondent's
"...employment shall continue unless and until terminated by either party
giving to the other not less than 12 months written notice." When construing a contract one has to try to
ascertain the intention of the parties.
In doing this the court must assume that the parties intended that the
words they used were to be given some meaning.
One should not interpret a contract in such a way that one is left with
words adopted by the parties which have no content. If one takes such an approach it follows that
the respondent is entitled to "continue" in the "employment"
of the appellants until the expiry of a period of at least twelve months after written
notice has been given. To adopt the
approach urged upon me by Mr Fairley would result in these words being denied
any meaning and therefore content. If
these words are given their natural and ordinary meaning the interpretation for
which Mr Reid contended has to succeed.
To do otherwise would be to vary an express contractual term by giving
precedence to an implied term.
[9] In expressing this opinion I am mindful
that the Agreement gives the appellants the right inter alia to dismiss the respondent summarily should the
respondent be guilty of any serious misconduct or should he breach the terms of
the Agreement. I refer to Clause 17 of
the Agreement. It may also have been
open to the appellants to put the respondent on "garden leave". In my opinion the words used by the parties
in their contract are clear. They are
more than sufficient to oust the term implied ex lege. The express term has
supremacy over the implied term.
The respondent's fall back position
[10] Mr Reid had a fallback position. In his Note the learned sheriff stated on
page 7:-
"In summary I consider,
that as a matter of general law, there is implied into employment contracts an
entitlement in favour of the employer to dismiss without notice on paying wages
and other contractual entitlements in lieu."
Mr Reid sought
to challenge that finding. Unfortunately
no cross appeal had been marked by the appellants. Accordingly Mr Fairley did not have proper
notice of the extent of the law to be covered in the appeal. Indeed when opening the case for the
respondents he commented on the fact that what was said by the learned sheriff on
page 7 had not been challenged by the respondent. Although he was able to respond to some
extent, I did not have the benefit of a full argument. The essence of Mr Reid's submissions was that
the case of Morrison should be
restricted to situations where the contract of employment made no provision for
notice. His submission relied upon what
was said by Lord Deas in Morrison at
page 953 where his Lordship opined that the pursuer was only entitled to
an estimate, made by the court, of the amount of notice to which he was
entitled to receive from his employers.
That estimate was described by Lord Deas as "arbitrary". He also stated that what was being paid to
the pursuer was "an allowance...in lieu of notice" as opposed to
damages for breach of contract. However
Mr Reid did not address me on what was said by Lord Fraser in Mollison v Baillie (1885) 12 SLR 599, a
case which the learned sheriff came upon in his own researches and to which he
refers in his judgment. Lord Fraser cites
with approval what was said in Wood's Treatise on the Law of Master and
Servant, an American text:-
"When a servant is discharged without a sufficient
legal excuse, before the expiration of his term, he has his choice of two
remedies. He may elect to treat the
contract as rescinded, and at once bring an action for the value of the
services rendered, or he may sue for a breach of the contract, under cover as
probable damages from the breach..."
There is no
suggestion there made of the loss being an allowance. The expressions are what one would find in
any text on the law of contract in Scotland.
[11] I note that the learned sheriff, again
following his own researches, commented that the authors of the 11th
edition of Gloag and Henderson considered the law to be:-
"It is an established rule at common law that an
employer is entitled to dismiss an employee at any time on paying wages, and,
in certain employments, board wages, for the remainder of the term, and that
such dismissal does not involve a breach of contract."
This
followed what was said by Lord Fraser in Mollison
in a passage quoted by the learned sheriff in his Note:-
"Now, it has long been settled in this country that
a master is entitled to dismiss a servant during the term of his engagement
upon paying wages and also board wages when the servant has been boarded by the
master and the servant cannot apply for interdict so as to prevent the
dismissal."
I
respectfully agree with what was said by Lord Macfadyen in Scottish Power at page 725E that where one is dealing with a type
of contract that is commonplace, as is a contract of employment, the absence of
precedent for a particular implied term militates against the conclusion that
it arises as an ordinary legal incident.
There is much force in the conclusion that a term which fails the
business efficacy test is not implied on another basis. I did not understand it to be disputed that
the implied term for which the appellants contend fails the business efficacy
test. However I am not prepared to hold
on the submissions made that there is no precedent for the proposition that the
said implied term is a legal incident of a contract of employment. Lord Fraser, at least, considered the law to
be well established. Mr Reid did not
refer to Lord Fraser's opinion in his submission.
Mr
Reid also referred to Morran v Glasgow Council of Tenants Associations 1997 SC
279. In that case Lord President Rodger
declined to express a view on whether there is an implied right on the part of
every employer to terminate the contract of employment without notice but on
making a payment in lieu of notice.
Given that I did not hear a full argument on the issue I consider it
would be unwise for me to offer a view.
