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Cite as: [1993] UKEAT 492_92_202, [1993] UKEAT 492_92_0202

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BAILII case number: [1993] UKEAT 492_92_0202

Appeal No. EAT/492/92

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 2 February 1993

Before

THE HONOURABLE MR JUSTICE KNOX

MR P DAWSON OBE

MR J H GALBRAITH CB

ROLLS ROYCE MOTOR CARS LTD APPELLANTS

MR J PRICE & OTHERS RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised

APPEARANCES

For the Appellants MR P CLARK

(Of Counsel)

Messrs Rowe & Maw

20 Black Friars Lane

London EC4V 6HD

For the Respondents MR J McMULLEN

(Of Counsel)

Messrs Robin Thompson

& Partners

Congress House

Great Russell Street

London WC1B 3LN

MR JUSTICE KNOX: The appeal before this Tribunal is brought by Rolls Royce Motor Cars Ltd, which I will call "the Company", against a decision of the Industrial Tribunal sitting in Shrewsbury on 27th, 28th and 29th April 1992 and sent to the parties on 20 May of that year, whereby the unanimous decision of that Tribunal was that each of seven applicants was unfairly dismissed by the Company. Questions of compensation were adjourned.

The several applicants were long serving employees of the Company. Their periods of service ranged from six and a half years which was that of Mrs Susan Warner to thirty-three years which was that of Mr John Harrop who spent the whole of his working life with the Company. The others had intermediate periods of service.

All were dismissed for redundancy on 24 April 1991 on terms that the dismissal took effect on 26th, so they all put in their Originating Applications the date of 26 April as the date of their dismissal. That there was a redundancy situation has not at any material time been disputed. The Industrial Tribunal found the following facts as regards the difficulties faced by the Company in early 1991. In 1990/91 the Company's business suffered dramatically as a consequence not only of the general economic recession but more specifically from the Gulf War and a luxury import tax on their product in the USA, so much so that the Company in early 1991 was losing £3M each week as market demand declined abruptly. There were substantial voluntary redundancies in January and February of 340 and 230 respectively and it was found that this produced an imbalance between manual and staff workers so that a decision was taken at board level that further redundancies had to be made. That was fixed as a matter of numbers of jobs to be shed at 106 towards the end of March 1991.

On 2 April 1991 there were various events. There was a statutory notification to the Department of Employment that redundancy was to take effect on 1 July and that the redundancy was not being handled in accordance with a collective agreement on redundancies but simultaneously there were meetings - there appear to have been two the same day but it is possible, we were told, that the second occurred on 3 April (nothing turns on that) - in the course of which there were negotiations with the Trade Unions involved and it was stated on behalf of the unions that they were not interested in criteria other than last in first out which the union representatives claimed was provided for by an agreement between the union MSF and the Company. That there was such an agreement between those parties was not in dispute. It was in writing and was before the Industrial Tribunal. It was dated 4 January 1989 and it was to be reviewed in January 1991 with a requirement that negotiations should start for a renewal 6 months before that, that of course falling just outside the period with which we are concerned which is April 1991.

After recitals of the object of the agreement being to provide, putting it shortly, security of employment, and as a first priority to avoid redundancy but if the worst happened and compulsory redundancy became necessary, the following provisions were to take effect:-

"In the event of compulsory redundancy there will be full consultation with MSF. Employees will be selected on the basis of shortest factory service within those job categories where redundancies have been declared. In some cases Management may consider that this gives rise to results which would be detrimental to the continued efficiency of that function in the post redundancy situation. In that event, management will discuss the situation with the MSF Negotiating Committee with the objective of agreeing a solution which will not have that effect."

The subsequent relevant facts were briefly as follows.

On 4 April revised guidelines on selection were issued to the managers. On 9 April there was a Failure to Agree registered. On 12 April the assessments by the Company in accordance with the revised guidelines which called for an evaluation under a variety of heads of the various employees concerned, the heads being Job Skills, Experience, Flexibility/Adaptability, Special Qualifications, General Employment Record and Work Performance/Achievement, all of which except the latter scored five marks, the latter scoring ten and the total therefore for perfection being thirty-five.

The assessments in accordance with those criteria were carried out and the persons thereby selected for redundancy established by 12 April 1991. On 18 April there was a further meeting with trade union representatives when the actual criteria were revealed but there was no discussion of the individual results of the application of the criteria. There was a further unproductive meeting with the union representatives on 23 April. By this time, the dismissal letters were in the process of being prepared, and on the next day, 24th, the redundant employees of whom there were only 29 at the end of the day, were interviewed and told that they were redundant and would be dismissed but that they could stay on for another two days, their employment finishing on 26 April.

In those circumstances the claims brought by these seven applicants arose under two heads, both aimed at establishing an unfair dismissal. The first was that S.59 of the Employment Protection (Consolidation) Act 1978 which I will call the 1978 Act, applied to make the dismissals what is commonly called "automatically unfair". S.59 so far as relevant reads as follows:

"Where the reason or principal reason for the dismissal of an employee was that he was redundant, but it is shown that the circumstances constituting the redundancy applied equally to one or more other employees in the same undertaking who held positions similar to that held by him and who have not been dismissed by the employer, and either -

(a)...

(b)that he was selected for dismissal in contravention of a customary arrangement or agreed procedure relating to redundancy and there were no special reasons justifying a departure from that arrangement or procedure in his case,

then, for the purposes of this Part, the dismissal shall be regarded as unfair."

It was claimed that the agreement from which I have read extracts regarding the procedure for dealing with compulsory redundancies was an agreed procedure within S.59(b) of the 1978 Act, that it was infringed by the Company and that there was no special reason justifying a departure from that procedure. The other way in which the case was put on behalf of the Applicants was that it was unfair tested by the well-known provisions of S.57 of the 1978 Act. It is not necessary to read those out in full.

It is manifest that if the dismissals were not within S.59 but were within S.57 as being unfair there would be unfair dismissals and that the applications for relief should succeed. In effect the Company has to overcome both hurdles set by S.57 and S.59 in order to resist the Applicants' claims altogether. I do not mean to imply an onus of proof under S.57(3) by referring to the Company having to overcome a hurdle. The convenient way of dealing with this case will be first of all to deal with the claim under S.59. We do this partly in deference to an argument that was addressed to us by Mr McMullen to the effect that if there is unfair dismissal under S.59, there would be a different measure of compensatory award under S.74 of the 1978 Act than would be applicable if the dismissal is unfair under S.57. We did not hear full argument on that point and we certainly are not persuaded that it is so but we do not decide it one way or the other. It does however make it desirable for us to state our views both on S.59 and on S.57.

Dealing then first of all with S.59 the first issue which arose was the question of the true construction of the agreement between the Company and MSF. The Industrial Tribunal expressed its views on this score as follows:

"The Agreement was still in existence when these redundancies were implemented. In the event of compulsory redundancies it provides for (a) "full consultation" with MSF (b) selection on the basis of LIFO (c) "in some cases" other criteria are envisaged should management consider LIFO "would be detrimental to the continued efficiency of that function" in the post redundancy situation. In that event discussion with MSF would be entered into with the objective of agreeing a solution which would not have that effect.

There is a certain ambiguity at (c) and our interpretation of the agreement was assisted by the evidence of Mr D Lynn a senior representative of MSF and a party to that agreement. He told us that "in some cases" was only intended to relate to a special situation where a highly skilled employee had been recruited to carry out a specialist function whose retention was necessary but whose length of service might bring him within those selected. It did not give management the right to abrogate the agreement completely in an overall selection process. We accept this view and interpret the agreement accordingly."

Mr Clark, for the Company, submitted that the admission of Mr Lynn's evidence in that way was an impermissible use of his testimony. First of all the proper principles for interpreting agreements, such as that in issue here, were, he submitted to be found in HOOPER v BRITISH RAILWAYS BOARD [1988] IRLR 517 at page 525 of which in paragraph 42, Lord Justice Ralph Gibson said this:

"Before dealing with Mr Marr-Johnson's submissions reference must be made to what are, in my judgment, certain basic principles of the law of contract.

(i) An offer which, upon acceptance, is relied upon as altering the legal relationship between the parties, must be construed objectively. Evidence to show what the offeror intended to be the meaning of the term is not admissible for that purpose: see Prenn v Simmonds (1971) 1 WLR 1381."

[He goes on to deal with the inadmissibility of what the parties have done after a contract as showing what the contract meant].

The evidence that Mr Lynn gave on the subject of the agreement is recorded in the Chairman's Notes in the following terms:

"p1 & 2 [that is a reference to the pages 1 & 2 in the Exhibits Bundle which contain the agreement from which I read extracts] Long Standing - 1983 - following redundancies in 1981/2. I was a party to drafting agreement, made willingly by both parties.

p2 We understood that in some instances specialists on site who had short service with company that if we operated LIFO these specialists would be lost."

That, Mr Clark submitted, is inadmissible evidence as falling within the principle cited by Lord Justice Ralph Gibson as one of the basic principles of the law of contract. The passage which is commonly cited, and indeed is the one aimed at by the Lord Justice's citation, is in Prenn v Simmonds at p.1385 where Lord Wilberforce in the House of Lords said this:

"It may be said that previous documents may be looked at to explain the aims of the parties. In a limited sense this is true: the commercial, or business object, of the transaction, objectively ascertained, may be a surrounding fact. Cardozo J. thought so in the Utica Bank case. And if it can be shown that one interpretation completely frustrates that object, to the extent of rendering the contract futile, that may be a strong argument for an alternative interpretation, if that can reasonably be found. But beyond that it may be difficult to go: it may be a matter of degree, or of judgment, how far one interpretation, or another, gives effect to a common intention: the parties, indeed, may be pursuing that intention with differing emphasis, and hoping to achieve it to an extent which may differ, and in different ways. The words used may, and often do, represent a formula which means different things to each side, yet may be accepted because that is the only way to get "agreement" and in the hope that disputes will not arise. The only course then can be to try to ascertain the "natural" meaning. Far more, and indeed totally, dangerous is it to admit evidence of one party's objective - even if this is known to the other party. However strongly pursued this may be, the other party may only be willing to give it partial recognition, and in a world of give and take, men often have to be satisfied with less than they want."

In our view those words of Lord Wilberforce are particularly apt to this agreement which was, it must be assumed, the subject of negotiation between the union and the Company, and is typically just the sort of document that might well be a formula to which both sides might be content to subscribe without necessarily agreeing as between themselves individually, precisely what the meaning of the terms used was. That view is strongly supported by the very vagueness of the language which is used. In our judgment the principle that is stated in Prenn v Simmonds is indeed applicable to exclude the evidence of Mr Lynn which seems to us to be direct evidence of the intention of one party to the transaction.

The argument by Mr McMullen in favour of admitting this evidence was first that if it was not admitted and the construction was adopted that the Company was effectively entitled only to give effect to the agreement if it felt that way inclined, that would be destructive of the patent object of the agreement. If that argument was rested on a sound premise we would be disposed to accept it, but we do not accept that the premise is a sound one. It seems to us that the Company was subject to significant obligations under the terms of this agreement, construed according to its natural meaning, and that there is no question here of the meaning which attracts us destroying the evident purpose of the agreement altogether. Equally, we are not satisfied that Mr Lynn's evidence could accurately be categorised as evidence of an existing state of affairs or as a joint object of the parties. It seems to us as a matter of fairly straight-forward interpretation of what Mr Lynn said, to be a typical example of direct evidence from a party who was engaged in the negotiation of the transaction as to what he thought the intention was.

Rejecting that evidence then as inadmissible we turn to the question - What does the passage in the agreement mean? It seems to us that the Industrial Tribunal effectively got it right in emphasising, as it did, the collocation of "in some cases" and "of that function" and that the vagueness of the expression "in some cases" can be cured by importing into the agreement the conception that the cases envisaged are those where a particular function could properly be considered by the management as being detrimentally effected by the operation of LIFO in relation to the continued efficiency of that particular function performed by the employee concerned. That seems to us to be a possible construction as a matter of the interpretation of the language actually used and is therefore to be preferred to any other form of speculation or any other use of inadmissible evidence.

On that basis it seems to us that the Industrial Tribunal again got it right in finding that there was a breach of this agreement. One perhaps finds this most clearly illustrated by the evidence that was given by Mr C Brooks, the Employee Relations Manager of the Company, to the Industrial Tribunal when in the Chairman's Notes, he is recorded as having said:

"In normal circumstances LIFO criteria to apply unless management wanted other criteria. If neither could agree - management must apply its criteria unilaterally."

It seems to us that the Company took the view and the vagueness of the agreement may well have been a moral, if not a legal, justification for it, that that indeed was the situation, that if the Company wanted other criteria they were entitled to apply them. That seems to us to be a very considerable over-simplification of the situation under the agreement in the way in which we interpret it and in those circumstances we respectfully agree with the Industrial Tribunal in finding that there was a breach of the agreement in the wholesale rejection, as opposed to selective rejection, of the last in first out criterion.

We then turn to the last question under this head - Whether or not there were or was special reasons or any special reason justifying a departure from the procedure that had been agreed? Here the Industrial Tribunal said this:

"However "special reasons" may justify a departure from the agreement and in our view the respondents had established such reasons in these cases.

(a)the criteria for marking employees' performance are exactly what would be expected where an employer seeks to retain valuable skills to carry its business forward in difficult times.

(b)LIFO alone could well defeat this objective. Mere length of service in an industry where technology is changing rapidly may not be entirely relevant. The notes at p.247 regarding the applicant Mr Hendry, make this point.[I pause there to mention that I have altered the word "More" in the text to "Mere" length of service]

(c)we have particular regard to the nature of the respondents' product - a motor car of world wide distinction, each component of which has to be carefully crafted with specialist skill and knowledge."

That was criticised by Mr McMullen as containing no reason for justifying a departure from the agreement by Mr McMullen and we agree with his criticism in relation to paragraphs (a) and (c) but not in relation to paragraph (b). (a), it will be recalled, states that the criteria used were exactly what would be expected and that seems to us, in agreement with Mr McMullen's submission, to look at the reasonableness of the way in which the Company grappled with the problem with which it was faced and that seems to us essentially different from the question whether or not there was a special reason justifying a departure from the union agreement (c), the nature of the product, again is not in itself a reason for departing from the agreement but both (a) and (c) seem to us to form part of the background and particularly (c), for the critical conclusion in (b) that LIFO alone could well defeat the objective of carrying forward the business in difficult times. It is a difficulty in the justification of the Industrial Tribunal's decision that this particular finding is couched in terms of possibility rather than of affirmative finding that there was a special reason. That affirmative finding is there at the beginning of the paragraph:

"In our view the respondents had established such reasons in these cases"

and it must be assumed that the following sub-paragraphs, although it is not so stated in terms, contained those reasons. The sentence which does in our view just, but only just, perform that office, is the one that identifies as LIFO being well able to defeat the obviously legitimate objective of carrying forward the business in difficult times.

It has to be borne in mind that the Industrial Tribunal had already stated the very serious financial situation in which the Company found itself so that there is no doubt in our mind that the Industrial Tribunal was well aware of the difficulties that the Company faced and it is evident elsewhere from the decision that the Industrial Tribunal came to the conclusion - (and indeed they said so in paragraph (a)) that the technique that was adopted for selecting employees for redundancy was intrinsically not in itself unreasonable. LIFO, they found, could well defeat the objective of carrying forward "the Company's business. Taking the whole of that paragraph together it seems to us that this is what the Industrial Tribunal must have meant. We have, however, experienced considerable difficulty in satisfying ourselves that this was indeed the effect of its decision but we bear in mind that we have to read these decisions as a whole and make due allowance for the fact that an Industrial Tribunal does not have to set all its reasons out in full.

We therefore on balance find that the Industrial Tribunal did make sufficient findings to justify its conclusion (a) that there was a breach of the agreement with the union but (b) that there was a special reason for departing from it and therefore in our view there is no automatic unfairness under S.59.

We turn therefore to look at S.57. This was dealt with by the Industrial Tribunal in paragraph 4.2 of its Decision and it reviewed the facts, stated the situation with regard to the consultations with the union and said of the various alternatives to compulsory redundancy:

"(a)Consultation with the union began in early April at two meetings when the union put forward various alternatives to compulsory redundancy. They were rejected out of hand and management indicated they intended to proceed on the principle of selection criteria. Those criteria were not then made known to the union although they had been formulated.

(b)The criteria were first made known at the meeting on 18 April after the selection process had been carried out and the individuals identified. The results of the selection process were not made known and therefore no discussion of individual cases was possible."

They then mention the final meeting with the unions on 23 April and the way in which the Applicants were dismissed and they state their overall view in paragraph (f) as follows:

Our overall view is that the respondents acted too precipitously. [Pausing there we think they meant that they were too quick rather than too steep] We appreciate the need to shed unwanted staff in their current financial state and also the need to declare redundancies as soon as possible to assuage the fears of all staff for their jobs. Nonetheless, only 29 jobs were in fact involved. There was time to discuss with the union to try to seek agreement on criteria; there was time to consult as to individuals selected. An employer acting reasonably would have done this. In our view, a reasonable employer would have seen each individual identified on the points system and disclosed the assessment to them. It is not inconceivable that an employee could then have brought forward matters which the makers of the assessment had perhaps overlooked or failed to give correct prominence. Nor is it inconceivable that more time might have produced further acceptable volunteers from other staff. Regrettably the respondents did not see fit to adopt this procedure."

On that basis they concluded that there were unfair dismissals within S.57(3) of the 1978 Act.

That was criticised by Mr Clark on the basis that it overstated as a matter of law the obligations on an employer faced with a redundancy situation. He took as his guide for what should be done Williams v Compair Maxam [1982] ICR 156 in which one finds the well known principles or guidelines that the Employment Appeal Tribunal in the Judgment of Mr Justice Browne-Wilkinson there laid down. Mr Clark pointed to the fact that the requirement on the employer under those principles was effectively one of consultation with the union rather than with the individual employees. The decision of course has to be read in the context which obtained in that case, of there being a situation where the employees were represented by an independent union recognised by the employer. Other cases that deal with other situations where there is no such recognised employer, such as for example the case of Freud v Bentalls Ltd [1982] IRLR 443 to which we were referred, do not fall under these principles. But this is a case where we have a major employer and a recognised union and so the situation is basically similar to that obtaining in Williams v Compair Maxam.

The principles, so far as relevant were stated as follows:

1The employer will seek to give as much warning as possible of impending redundancies so as to enable the union and employees who may be affected to take early steps to inform themselves of the relevant facts, consider possible alternative solutions and, if necessary, find alternative employment in the undertaking or elsewhere.

2The employer will consult the union as to the best means by which the desired management result can be achieved fairly and with as little hardship to the employees as possible. In particular, the employer will seek to agree with the union the criteria to be applied in selecting the employees to be made redundant. When a selection has been made, the employer will consider with the union whether the selection has been made in accordance with those criteria.

3Whether or not an agreement as to the criteria to be adopted has been agreed with the union, the employer will seek to establish criteria for selection which so far as possible do not depend solely upon the opinion of the person making the selection but can be objectively checked against such things as attendance record, efficiency at the job, experience, or length of service.

4The employer will seek to ensure that the selection is made fairly in accordance with these criteria and will consider any representations the union may make as to such selection.

5The employer will seek to see whether instead of dismissing an employee he could offer him alternative employment."

It was pointed out to us by Mr Clark that there is nowhere there stated any principle in terms that an employer will, if acting in accordance with these principles, consult both with the unions and with individual employees and as a matter of the English of that ex-position we agree with that analysis. Similarly he pointed to the decision in Polkey v A E Dayton Services Ltd [1988] ICR 142 at p.152 of which Lord Mackay of Clashfern L.C. said this:

"The code of practice referred to is the statutory code presently in force under the Employment Protection Act 1975, Schedule 17, paragraph 4 in which paragraph 46 provides:

"If redundancy becomes necessary, management in consultation, as appropriate, with employees or their representatives, should: (1) give as much warning as practicable to the employees concerned...; (iii) establish which employees are to be made redundant and the order of discharge;"

The Industrial Tribunal further found: "There is nothing that excuses their failure to consult but" - this is the matter that gives rise to the point of principle in the present appeal:..."

and he then goes on to deal with the application of the Court of Appeal decision British Labour Pump Co Ltd v Byrne [1979] ICR 347 which was overruled by that decision.

The significant feature is that Lord Mackay adopted what was stated in paragraph 46 of the Code of Practice which was still in force in April 1991 in those terms, with its alternative formulation of what an employer should do by way of consultation with employees or their representatives and similarly Mr Clark pointed us to p.162 where Lord Bridge of Harwich said this:

"Employers contesting a claim of unfair dismissal will commonly advance as their reason for dismissal one of the reasons specifically recognised as valid by section 57(2)(a), (b) and (c) of the 1978 Act. These, put shortly are: (a)... (b)... (c) That he was redundant. But an employer having prima facie grounds to dismiss for one of these reasons will in the great majority of cases not act reasonably in treating the reason as a sufficient reason for dismissal unless and until he has taken the steps, conveniently classified in most of the authorities as "procedural", which are necessary in the circumstances of the case to justify that course of action... in the case of redundancy, the employer will normally not act reasonably unless he warns and consults any employees affected or their representative, adopts a fair basis on which to select for redundancy and takes such steps as may be reasonable to avoid or minimise redundancy by redeployment within his own organisation."

There again there is the same alternative formulation.

We have already referred in this decision to the way in which the Industrial Tribunal summed the matter up. It can be stated as a finding that there was insufficient consultation both with the union and with the individual employees, particularly in relation to the assessments that were made of the individuals on the points system and in our view the issue before us is whether there is a principle of law that where consultation with the union on the choice of criteria to be applied in solving a compulsory redundancy situation, has been taken as far as it is practicable to do, there ceases to be any obligation on an employer to consult either the union or the individuals on the application of the criteria to individual employees. There was undoubtedly no individual consultation with the employees. That is not the issue. The issue is whether there was as a matter of law an obligation to do more than consult with the union to the extent to which the consultation proceeded.

It was pointed out that the process of consultation as regards the selection of the criteria came to an end because the unions ceased to carry on any such process and would not co-operate in further investigation of that particular issue and it may very well be that that was as far as the Company could be expected to take the process of consultation in relation to the selection of the criteria themselves. But it is at the second stage that it seems to us that it would not be right to express the obligations on employers in terms of a rigid rule that states that the obligation is only to consult either the unions or the individuals and if the unions have been consulted as far as the unions are prepared to be consulted, that releases the employer from any further consultation duties.

We of course do not go to the opposite extreme and say that in all cases employers are under an obligation to consult with individuals. Here we have a decision on the facts of this particular case by the Industrial Tribunal, that an employer acting reasonably would have seen, for example, individuals identified on the points system and disclosed the assessment to them. We are unable to find that there is any principle of law that makes that a necessarily erroneous view. To do that it seems to us that we would be in grave danger of erecting what was said in Williams v Compair Maxam into the terms of a statute and we would equally be in grave danger of providing an alternative to the actual provisions of S.57(3) which leave the matter wide open for decision by an Industrial Tribunal whether the dismissal was fair or unfair in the circumstances set out in that subsection. For those reasons we are not persuaded that the Industrial Tribunal was guilty of a relevant and significant error of law in this decision.

In those circumstances the appeal fails and the cross-appeal too.