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Cite as: [1992] UKEAT 556_91_1410

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BAILII case number: [1992] UKEAT 556_91_1410

Appeal No. EAT/556/91

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 14 October 1992

Before

HIS HONOUR JUDGE J HULL QC

MR D A C LAMBERT

MR J C RAMSAY

MR D J WILLIAMS APPELLANT

MRS B EVANS RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

APPEARANCES

For the Appellant APPELLANT IN PERSON

For the Respondent RESPONDENT IN PERSON

JUDGE J HULL QC: This is an appeal by Mr Williams from the decision of the Industrial Tribunal held at Cardiff on Friday 2 August 1991, when they decided a preliminary point regarding continuity of employment against Mr Williams as employer.

As we have explained and as is well known, the Employment Appeal Tribunal is a Tribunal which hears appeals from Industrial Tribunals only on matters of law and there is no doubt that we have to apply the law to the facts which are found by the Tribunal to see whether in any legal respect the Industrial Tribunal has gone wrong. I refer to the facts only in so far as they are material to this point and of course we have to take them from the Industrial Tribunal's own reasons. The Industrial Tribunal had the advantage of seeing the witnesses and, of course, of such local knowledge as they might have and we are not allowed to interfere with their findings of fact. I am going to refer shortly, to make this judgment of ours intelligible, to the findings of the Industrial Tribunal.

It was a majority decision, the Chairman was in favour of Mr Williams but the industrial members were in favour of Mrs Evans. Mrs Evans complained of unfair dismissal. The decision was that there had been continuity of employment on the changeover of the Pontardawe Workingmen's Club to the ownership of Mr Williams - it had previously been a members' club and it became, after the changeover, a proprietary club of which Mr Williams was the proprietor. Those, of course, are different things in law. The Tribunal said:

"3. [Mr Williams] was one of a few prospective purchasers when the club decided to dispose of either its business or its premises in 1989. As far as Mrs Evans knows - and no-one has shown us the advertisements - it was put up for sale in or after February. In July, it seems to be agreed, the respondent was accepted as a purchaser on the terms that the price would be the amount that was owing by the club to its creditors on the date of completion. If there were no intention to transfer the business, that amount should have included a redundancy payment to Mrs Evans for her 9 years' service hitherto. It does not appear that it did, or one would expect that she would have received it. On the other hand, that was the club's responsibility - it was not up to the purchasers to check the calculation and ensure that it covered all the liabilities of the club on closure.

4. The amount could not be fixed until the day of completion, which is why the contract bears the same date as the transfer: the amount was £129,183.42p. Such a figure does not logically represent either the value of the premises or of the business."

If I may pause there, it was the value which the parties chose to put on it and I think the comments, which I understand to be mainly the comments of the lawyer (the Chairman) on it, are not directly in point but I will go on to read them. He said:

"... It was simply the sum for which the owners of both were prepared to dispose of either or both. If the debt had been covered by a mortgage on the property and this were a mortgagee's sale, he might have accepted a price which was just sufficient to clear the debt due on the mortgage."

I must say that if that were something done by a mortgagee he would be in breach of his duty to the mortgagor - even a mortgagee is supposed to sell for a proper price. The Chairman commented on that rather unreal suggestion therefore:

"... That would not imply any transfer of the business as such from the mortgagor to the purchaser from the mortgagee. Here, instead of a mortgagee selling, the owners - the Committee, that is to say, of the members' club - sold on terms which merely covered what they took to be their commercial debts. It does not help us to decide what was comprised; - that is what was comprised in the sale, whether it was simply a building or the undertaking -

but the contract (exh.R1) - and he refers to the contract which was exhibited to the Tribunal although we have not seen it -

specifies merely "that piece or parcel of land situated at Pondardawe...delineated on the plan annexed to a conveyance........"

There follows the usual conveyancing language for conveying a piece of land. The Chairman commented on behalf of the Tribunal:

" - even the building is not mentioned, whether or not it existed in 1927."

A conveyance often is, although very important from a legal point of view, quite unrealistic when it deals with the details of the transaction. On occasion artificial values are imputed to various parcels and often what is sold is only clear if you know the premises. Often, for example, the boundaries and the buildings and the fixtures and fittings can only be determined by a person who has inspected and often the conveyance says nothing about those matters at all. Normally it does not mention beneficial interests in the property but simply the legal title. So the Chairman referred to that and it gave the Tribunal little help.

The Tribunal then go on:

"5 There was a choice to be made between different purchasers, and we gather from the evidence that Mr Williams was preferred because the club liked his plans for the future of the building. That would be consistent either with his agreeing to carry on the same business as before, or a similar one on lines which the club approved. The club continued to trade until an hour before the normal closing time on Thursday 19 October 1990, when the beer finally ran out."

- As I said, it is quite apparent from the figures that the club was seriously in debt -

"The following day contractors came in and refitted the cellar and a fresh supply, from another brewer, was put in. Mrs Evans - who since February, when the steward and stewardess had left, had been running the bar single-handed, full-time -

- and we have been told today that she was the only employee of the club -

"now reverted to her normal four shifts a week, with some relief, not working the Friday, which was one of her nights off, but coming in on the Saturday. She said that the first she saw of Mr Williams to talk to about the business was that he asked her if she was coming in on Saturday and she said "Yes". He remembers no more that that, in fact, he seems to have forgotten even that."

Mrs Evans has told us that before the transfer, when it was coming up and there was talk about it, she talked to the chairman and the treasurer and they said "well you just carry on as before, don't worry about it". Mr Williams, very reasonably, objects that he was not a party to that discussion. That is what she was told anyway. The Tribunal go on to comment:

"If the business were being taken over as such, it is easier to understand why staff were not spoken to beforehand, though still surprising; but if it was to be a new business, it would be remarkably casual to leave it until the last minute before seeing that there was staff to come in on the first Saturday; but the whole thing was very casual on any view."

The Tribunal there were making a point in favour of its being a transfer of the undertaking.

"6. The members who owned the Pontardawe Workingmen's Club - through the medium of the trustees, it being registered as a friendly society - formed a nucleus of the members of the new club. Not all of them joined and some new members joined, and since then the membership has fluctuated and no doubt increased considerably, but there was that amount of linkage between the old business and the new."

Of course in a Members' club, the members own the undertaking, in a proprietor's club - as this became - the proprietor is owner and has the right to say what happens in the club. The Chairman then comments:

"7. This is one of the least satisfactory questions that arise for decision in these tribunals, partly because it depends on analysing a transaction to which applicants are strangers.

- this refers to people who are in the position of Mrs Evans. She was not a party to the negotiations between the parties and the final contract between them; or to the conveyance, of course. The Chairman makes a number of comments on that and he says:

"Mrs Evans, for her considerable efforts on behalf of the club, not only over the whole nine years but especially the last eight months of her time was rewarded by a bunch of flowers - very nice, no doubt but hardly facing the legal complexities of the case."

Again, the Tribunal might have said that would be consistent with her employment being continuous by the same undertaking. We then come to the decision and the Chairman on behalf of the Tribunal says:

"8. The tribunal is divided on this question. For my part I am happy to say that my colleagues' view is that the business as such was transferred, that the whole dealing between the club and the respondent is consistent with and suggestive of an understanding that the respondent would take over the management of substantially the same business, clearing off the debts of the old management. With that, obviously, the smoothness of the transition is consistent. Absence of any mention of goodwill has never been considered fatal in these cases, and the allocation of the entire purchase price to the premises therefore seems inevitable. A restrictive covenant by the vendors would have been unnecessary and perhaps impracticable - could the trustees covenant for the whole membership? It is a fact - though by no means critical - that the respondent was in possession of part of the premises before completion for the purpose of alterations but those were parts that had been closed for some time before. The nature of the business is the same, the membership - which in a club distinguishes one club from another - was the same substantially at the moment of transfer and the change between a members' club, as that was, and a proprietary club, as this is, is not decisive. The nature of the business is essentially the same: the disposal of beer and other drinks to substantially the same clientele."

There the Chairman of the Tribunal was speaking and giving the reasons which had, undoubtedly, affected the minds of the two lay members who were the majority. Then he says:

"9. My own view is that the old club was simply divesting itself of its liabilities and leaving behind a vacuum into which the respondent could move, recruiting members from the obvious source and from other sources outside, taking over the staff on an admittedly casual basis, but that was up to him. The two businesses, although of a very similar nature, were not the same business. Cp Woodhouse v. Peter Brotherhood Ltd [1972] 2 QB 520, 537F, 538H-539H, 542C, from which it is clear that continuity of working environment is not the test, as my colleagues also appreciate.

10. The result is that the applicant is entitled to maintain her complaint of unfair dismissal, in which, as it seems, the sole issue is whether she was dismissed or not."

That was the preliminary point; the majority were in favour of Mrs Evans and held that there was continuity. This Appeal Tribunal has to decide whether that is correct or incorrect as a matter of law and so I must refer to the statutory provisions.

Under Section 151 of the Employment Protection (Consolidation) Act 1978, which is the main Act with which we deal, it is stated:

"[(1) References in any provision of this Act to a period of continuous employment are, except where provision is expressly made to the contrary, to a period computed in accordance with the provisions of this section and Schedule 13; ......."

We have to go to Schedule 13 to see what Parliament requires us to decide and under paragraph 17 of Schedule 13 of the Act sub-paragraph (2) provides as follows:

"(2) If a trade or a business or an undertaking (whether or not it be an undertaking established by or under an Act of Parliament) is transferred from one person to another, the period of employment of an employee in the trade or business or undertaking at the time of the transfer shall count as a period of employment with the transferee, and the transfer shall not break the continuity of the period of employment."

The question for us is whether the trade or undertaking of the Workingmen's Club was transferred from the committee, the trustees of the Workingmen's Club at Pontardawe, to Mr Williams or whether what was transferred was simply the building and some assets (the ordinary fixtures and fittings) in the building.

Concerning that, the Chairman based his judgment upon the case of Woodhouse v Peter Brotherhood Ltd [1972] 2QB 520; [1972] ICR 186. It is a very important case: it was the first case in which there was an appeal from the National Industrial Relations Court, which was the predecessor of this Tribunal, to the Court of Appeal.

The Court of Appeal there had to consider the transfer of a factory near Nottingham. The factory had been used by the sellers for making diesel engines. The purchasers wanted to carry on not the business of manufacturing diesel engines but the business of making compressors, spinning machines and steam turbines. However, they did take on much of the labour force; they persuaded the workers - as far as persuasion was necessary - that they should stay on and work for the purchasers. The question was whether the undertaking was transferred and I will read the headnote:

"...... The industrial tribunal held that, since the original employers had carried on the same business elsewhere after the sale of the factory,

- they did indeed move up to premises at Manchester where they carried on building their diesel engines -

.....there could not in the circumstances be a transfer of that business to the present employers, and, accordingly, held that the employees could claim only six years' service for the purposes of the redundancy payments.

The National Industrial Relations Court allowed the employees' appeal and held that since there was no break in the continuity of their employment they were entitled to redundancy payments on the basis of 20 years' service.

On appeal by the employers:-

Held, allowing the appeal, that since in August 1965 there was no transfer of the business from the original employers but only a transfer of its physical assets the employees were only entitled to redundancy payments on the basis of their service since the break in continuity of their employment.."

To understand the reasons I will refer to what was said in the Court of Appeal by Lord Denning. He referred to what he himself had said in Lloyd v Brassey, which was a case about the transfer of a farm, and he said (on page 202):

"I there stated the effect of them and the previous cases in these words, at p.103:

"If the new owner takes over the business as a going concern-so that the business remains the same business but in different hands - and the employer keeps the same job with the new owner, then he is not entitled to redundancy payment. His period of employment is deemed to continue without a break in the same job: so that, if he is afterwards dismissed by the new owner for redundancy, his payment is calculated on the whole period in that job."

To that passage I would now add this: if the new owner does not take over the business as a going concern, but only takes over the physical assets - using them in a different business - then the workman is entitled to redundancy payment from the outgoing owner."

Then a little later he says this:

"So the question is this: was there a "transfer" of the "business" or only a transfer of the "physical assets."......................

This has been said to be a question of fact and degree. But I do not think this is quite right. In many of these cases the primary facts are not in dispute. The question is, what is the correct conclusion to be drawn from them. This involves the interpretation of the statute and is therefore a question of law."

He then said that the Court of Appeal found it easier to interfere if there was dissent in the Court below; they then had to choose between the two views expressed. He said, referring to the Lloyd v Brassey case:

"This brings me to the present case. It seems to me that this factory is quite different from the farm in Lloyd v Brassey [1969] 2 Q.B. 98. In that case there was the same business being carried on both before and after the transfer. Here it was a different business. I would ask a similar question to that asked by Salmon L.J. in Lloyd v Brassey [1969] 2 Q.B. 98, 106: if anyone had been asked prior to August 1965: "What business is being carried on in the factory at Sandiacre?", his answer would have been "The manufacture of diesel engines." And if he had been asked the same question in January 1966, his answer would have been "The manufacture of spinning machines, compressors and steam turbines." If he had been asked "Is it the same business?"; he would have said "No. The manufacture of diesel engines has now gone to Manchester."

The other Lords Justices agreed with Lord Denning. Referring to the case of Lloyd v Brassey Buckley LJ said:

"After the sale, Mr. Barlow [the purchaser] owned the farm land and therefore owned the business of farming it."

In his notice of appeal in which Mr Williams undoubtedly had professional guidance he makes a number of points in criticism of the majority decision here. He says that the Industrial Tribunal as a matter of law misinterpreted and did not give effect to the facts which they found and he says the relevant findings of fact were as follows:

"(i) The applicant commenced employment as a barmaid with the Pontardawe Workingmens Club in January 1980.

(ii) In 1989 the Workingmen's Club decided to dispose of either its business or its premises ....

- that, of course, begs the question and leaves it entirely open -

(iii) The Workingmens Club traded until 19th October 1990.

(iv) On 20th October 1990 completion of sale took place. The contract specified the sale as being "that piece or parcel of land situated at Pontardawe ... delineated on the plan annexed to a Conveyance ... dated 19th October 1927 and made between &c." There was no transfer of goodwill nor did the contract contain any covenant to restrict the vendor's trading activities."

That, if I may say so, is a real lawyers' point: it is exactly the sort of thing that lawyers conventionally look for when trying to decide matters such as this and I have already commented to some extent on this. The contract, or rather the transfer itself, specified simply "the piece of land". That is because the conveyance is, from the layman's point of view, a very artificial document concerned with matters of title and usually the exact description is not something which is dealt with in the conveyance. Normally the conveyance does not describe the fixtures and fittings and other matters.

There was no transfer of goodwill. If one has a Workingmen's Club whose undertaking is what is carried on at the clubhouse, one would not expect to see goodwill separately transferred and one asks oneself what goodwill there would be, apart from that associated with the clubhouse. No covenant to restrict the vendor's trading activities - but is it realistic to imagine the trustees going off and starting next door or just down the street? The Pontardawe Workingmen's Club had been a disaster financially, apparently; eventually it had to close down for lack of funds and had to be sold. Can one imagine them going down the street and opening, in competition with Mr Williams, another workingmen's club? Mr Williams' advisers would hardly think it necessary to take a covenant against that.

Then the notice of appeal goes on:

"(v) Prior to completion the appellant was in possession of a closed part of the premises for the purposes of carrying out alterations. On the day of completion of sale contractors refitted the cellar and a fresh supply, from another brewer, was put in."

The point is taken that there was no transfer of the benefit of contracts. A concern may have some enormously valuable contracts, contracts which have been shown over the years to be very, very profitable and which the other party may very much covet; and they will be a valuable part of the assets. But what contracts of value did this club have? There is no reference to any evidence of such contracts. Would one expect them to have anything except the agreement, which was perhaps renewed monthly, with the brewers to supply beer? That would not be a valuable asset; it would have no value at all. All that they had, so far as one knows, apart from the fixtures and fittings and no doubt some furniture &c (which may not have been valuable at all) was the clubhouse; so one would not expect, if there were a transfer of the business, to see a transfer expressly of the benefit of the contracts.

The next point taken by the appellant (or his solicitors):

"(vi) The premises were renamed the "6 J's Club" and changed from being a members club to a proprietary club."

- that is important because a members' club may be treated differently to a proprietary club for the purpose of licensing law at any rate. A members' club can sometimes be simply registered: a proprietary club will require a liquor licence even if it is simply kept as a private club. -

".... The old club members formed a nucleus of the members of the new club; not all joined and there were new members.

(vii) The applicant continued, without break, in her employment until 25th March 1991."

- that, of course, is a point against the appellant because we understand and appreciate the point which is made by the Industrial Tribunal that it was extraordinarily casual if nothing was said about the situation of Mrs Evans. There she was, so to speak, being transferred, implicitly, with the bargain. Of course, if the undertaking was transferred it would be normal

for the employees - or most of them - to go with the undertaking: if they were happy in their work they would want to carry on with their work unless they had something against the new proprietor. Here both vendors and Mr Williams, the purchaser, took it for granted that Mrs Evans was coming over and she was told to carry on working please and she did.

Therefore we ask ourselves, in the light of these matters: do we think that the majority was wrong? The notice of appeal says that the tribunal:

"(a) Failed to have any or any sufficient regard for the following matters:

(i)That there was no sale or transfer of the goodwill in the business."

I would simply add to what I have said already about that, that if you had drawn up a balance sheet for this business - we do not infer as the Chairman did that no regard was paid to the value of the business - it seems to us that if a business is bought for the value of the debts, that is saying in terms that vendor and purchaser regard it as worth nothing. If you draw up a balance sheet and put on one side the assets of the business (including goodwill - if there is any goodwill), the property, the land, the fixtures, the chattels, the various articles in the clubhouse - all that sort of thing on one side and put the debts on the other, the net result is a "nil". The assets and liabilities balance each other out, so that a purchaser coming in would say: "the assets are valuable; I will buy those at the value they have put on them in this notional balance sheet. I'll pay enough to pay the debts". That is an alternative to what might have happened. At any rate when a limited company is being sold, the purchaser may buy for an entirely nominal consideration on the basis that the company, of course, will be liable for the debts.

So we do not think that that comment about "no sale or transfer of the goodwill in the business" is a valuable comment in helping Mr Williams.

"(ii) There was no sale or transfer of the business names;

Again, that would be very important in the case of a private enterprise, perhaps a retail business or a wholesalers, but in the case of a workingmens club we think it entirely meaningless. The goodwill attached and the name attached to the premises and, no doubt, the very happy experiences which the members and their families had had in the club over the years.

It is also said that there was no restriction on competition by the vendors and that I have already dealt with. One would not expect any such restriction.

"(iv)The contract did not provide for any transfer of clientele, though in fact the majority of the new members of the 6 J's Club had been members of the Workingmens Club."

One wonders how it could have provided for the clientele. The clientele were free men and women: they would not expect to be transferred and the purchaser would have to hope, quite rightly, that the members would wish to continue to come to the club under the new arrangements.

"(v)There was no transfer of the benefits of any contracts with third parties; a new brewery stepped in."

I have mentioned that. It seems to us that that carries the matter no further.

"(vi)The Conveyance makes no mention of a transfer of the business and merely specifies a sale of "that piece or parcel of land situated at Pontardawe ......"

Again, I do not think I can add to what we have already said about that. Then it says, again a point taken on behalf of Mr Williams by his solicitors:

"(vii)There is no provision with regard to any debts or liabilities of the vendor save, which is irrelevant the actual price was determined by the extent of the liabilities."

Of course there would be no provision with regard to debts and liabilities if the purchaser is saying "here is enough to pay your debts" because it is implicit in that that the vendors would pay their own debts and be liable for their own debts and he was simply taking over the assets of the club and not the liabilities; which is a very common way of selling an undertaking. It is very easy to sell the assets of a business: to transfer liabilities, of course, requires a different approach altogether.

"(viii)A proprietary club is, in licensing terms, quite different from a registered club."

We certainly accept that of course it is or may be; but the very limitation put on that by the solicitors for Mr Williams shows what a shallow point it is when looking at the business on the whole. The reality of the situation is that the club is carrying on. The fact that instead of being managed by a committee of trustees, it is now managed by a single proprietor may have a great effect in licensing law but from the point of view of the members it may mean merely that they hope the business will now be carried on in a more businesslike way. It does not seem to us that it touches the vital question of whether the undertaking was being transferred.

Then, Mr Williams's solicitors say, the Tribunal-

"(b) Placed reliance on the fact that, so far as the applicant alone was concerned, she continued to work in the same environment ............."

The fact is that the applicant was the only employee and we have already commented that it appears that everybody assumed that she would carry on.

The Chairman, apart from referring to Woodhouse v Brotherhood, did not give reasons for his dissent. In our view that case is completely different. The business that was being carried on in the factory after the transfer was a completely different business: it was not the business of manufacturing diesel engines, it was the different business of manufacturing spinning machines, compressors and steam turbines. The only connecting factor was the site of the factory and the fact that the working men and the machine tools were, for the most part, retained.

Here, it seems to us that the decision of the majority was not only sensible but correct in law. The business that was being carried on was the ordinary business of a club and in particular the supply of liquor and the facilities of a billiards room etc. - the ordinary social facilities for, primarily, the local people. It was a workingmen's club - that is an old fashioned expression now: it became a proprietary club; it had a new name, 6 J's, but no doubt Mr Williams expected, as indeed happened, that the old members would be the nucleus of the membership of the new club: some of them might leave: some new members might come in. The great thing that he hoped for, no doubt, and probably with ample justification, was that he would be able to carry on that business more efficiently and more profitably than the Trustees who had apparently not been able to make a success of it financially. We think that it was exactly the same business.

Such matters as the absence of any covenant in restraint of trade or any express assignment of goodwill seem to us quite irrelevant in the circumstances; what is relevant is that the premises were the same, the only member of staff was the same, the business, as the lay-members found (and after all they heard the evidence and had the local knowledge) was the same business and we think that the majority were well justified, as a matter of law, in finding that "the undertaking was transferred", to use the language of paragraph 17 (2) of Schedule 13 to the Act.

Therefore our conclusion is that the decision of the majority discloses no error of law. We would probably have reached the same conclusion if we were making up our own minds about it. Insofar as the Chairman disclosed the reasons for his dissent, we do not agree with them and in particular Woodhouse v Brotherhood was a case where the facts were almost as different as could be from this case.

We think that this was a genuine transfer of the undertaking: we think that Mrs Evans is entitled to say that she was continuously employed and in those circumstances we have to remit the matter to the Tribunal for them to continue with the hearing.