United Kingdom Employment Appeal Tribunal

BAILII case number: [1995] UKEAT 1060_94_1505

Appeal No. EAT/1060/94

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 15 May 1995

HIS HONOUR JUDGE J HULL QC

MRS R CHAPMAN

MR S M SPRINGER MBE

---

SECRETARY OF STATE FOR EMPLOYMENT          APPELLANTS

D J MAPSTONE & OTHERS          RESPONDENTS

---

Transcript of Proceedings

JUDGMENT

Revised


 


---

APPEARANCES

For the Appellants MR R JAY

(Of Counsel)

Treasury Solicitor

Queen Anne's Chambers

28 Broadway

London

SW1H 9JS

For the Respondents MR P ARCHER

(Representative)

Thamesdown Law Centre

26 Victoria Road

Swindon

Wilts

SN1 3AW


 


JUDGE HULL QC: This is an appeal to us by the Secretary of State for Employment against a decision of the Industrial Tribunal which sat at Bristol under the chairmanship of Mr Sara on 5 September 1994 and promulgated their decision on 28 September 1994.

The substance of the matter was this. Mr Mapstone, the named Respondent to the appeal, is one of a number of employees who had been employed by a bakery. On 15 October 1993 the company which had been carrying on the business of the bakery, called Phoenix Bakeries Ltd, went into liquidation and on the same day another company, Autodine Catering Ltd, which had apparently already come into existence and traded in a small way, began to trade as proprietor of the business. Mr Mapstone and others were employed by that company and there had been clearly a transfer of the undertaking within the meaning of The Transfer of Undertakings (Protection of Employment) Regulations 1981..

Then on 20 December 1993 the business was taken over by Maple Leaf Bakeries Ltd. It is put to us as a possibility, and this is an alternative possibility which does not take the matter any further, that perhaps Phoenix Bakeries Ltd, through the liquidator, had transferred the business direct to Maple Leaf Bakeries and Autodine Ltd might have been simply carrying on as agent, or something of that sort. That does not matter.

On 7 March 1994 the Secretary of State rejected certain applications under section 122 of the Employment Protection (Consolidation) Act 1978. On 22 March Mr Mapstone presented his IT1, his application to the Industrial Tribunal, seeking orders under the Act that the Secretary of State had wrongly rejected his applications and he was then finally dismissed on 12 April 1994.

Maple Leaf Bakeries Ltd ceased trading in May 1994. They have not however gone into liquidation, nor have any of the other events occurred which would entitle anybody to say that they were insolvent.

The application which was made, in the case of Mr Mapstone, was an application for holiday pay and for arrears of wages. The application, so far as the Secretary of State was concerned, was incompetent so far as Maple Leaf Bakeries Ltd were concerned, for they had not at any time become insolvent, so the Applicant said that Phoenix Bakeries Ltd was jointly liable in respect of his holiday pay. To that the Secretary of State rejoined that he was not, in any way, liable because Phoenix Bakeries Ltd were not liable. The Secretary of State said that under Regulation 5 of the Regulations (to which I will come in a moment) the transfer of the undertaking first to Autodine Ltd, if there was a transfer to Autodine Ltd and secondly to Maple Leaf Bakeries Ltd, operated not merely to transfer the benefits and burdens of the contracts with the employees, but to extinguish any liabilities which remained with Phoenix; that was the nature of the contention.

I will now refer to the Regulations on which all turns, that is to say The Transfer of Undertakings Regulations 1981. Under those Regulations it is provided that:

"3(1) Subject to the provisions of these Regulations, these Regulations apply to a transfer from one person to another of an undertaking situated immediately before the transfer in the United Kingdom or part of one which is so situated".

And they go on to provide under Regulation 5:

"(1) Except where objection is made under paragraph (4A) below [which we are not concerned with] a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor in the undertaking or part transferred but any such contract which would otherwise have been terminated by the transfer shall have effect after the transfer as if originally made between the person so employed and the transferee".

Then under paragraph 2 of Regulation 5:

"(2) Without prejudice to paragraph (1) .... on the completion of a relevant transfer -

(a) all the transferor's rights, powers, duties and liabilities under or in connection with any such contract shall be transferred by virtue of this Regulation to the transferee; and

(b) anything done before the transfer is completed by or in relation to the transferor in respect of that contract or a person employed in that undertaking or part shall be deemed to have been done by or in relation to the transferee".

When we look at the statute under which these applications were made, section 122 provides:

"If on an application made to him in writing by an employee the Secretary of State is satisfied -

(a) that the employer of that employee has become insolvent; and

[(aa) the employment of the employee has been terminated; and]

(b) that on the relevant date the employee was entitled to be paid the whole or part of any debt to which this section applies,

the Secretary of State shall, subject to the provisions of this section, pay the employee out of [the National Insurance Fund] the amount to which in the opinion of the Secretary of State the employee is entitled in respect of that debt".

The "relevant date", it is provided in subsection (2), is the date of the insolvency, the date when the employer becomes insolvent. And section 124 provides for complaint to an Industrial Tribunal by a person who has applied, without success, for a payment under section 122.

The definition of insolvency is a narrow one section 127:

"(1) .... an employer shall be taken to be insolvent if, but only if, in England and Wales, - ....

(c) where the employer is a company, a winding up order [or an administration order] is made or a resolution for voluntary winding-up is passed with respect to it, or a receiver or manager of its undertaking is duly appointed ....".

It is not enough simply to say, in this context, "the employer is not paying his debts, I have made reasonable attempts to obtain payment by the employer". What must be shown is, as I say, that either there has been a resolution for voluntary winding-up or there has been a winding-up order or a receiver has been appointed.

So the matter, although a little involved to describe, is really this. Is the application against Phoenix Bakeries Ltd competent? It was Phoenix Bakeries Ltd who owed Mr Mapstone the holiday pay and the Industrial Tribunal found that that was a sum which had accrued due whilst he was employed by them.

It was not in contest that Autodine Catering Ltd, if they ever took a transfer, were equally liable and so also was Maple Leaf Bakeries Ltd. But Maple Leaf Bakeries Ltd was not, on any view, insolvent. Phoenix had become insolvent. Could it be said that Phoenix was still liable? Could it be said that as a result of that, the Secretary of State, because Phoenix was insolvent, was liable to pay the sum due under section 122?

The Industrial Tribunal dealt with that matter very shortly. They say at paragraph 9 of their decision:

"It has been held in Allen v Stirling District Council [1994] IRLR 208 that where there has been a transfer and where the transferor's liabilities are transferred to the transferee this does not mean that the transferor ceases to be liable but both can be jointly and severally liable from that time".

And they therefore held in paragraph 13 of their decision that the holiday pay of £656.00 was due and they said:

".... His Wages Act claims are therefore against both Phoenix Bakeries Ltd and Maple Leaf Bakeries Ltd for £656."

And they said that the Secretary of State should pay the £656.00.

As I say, the whole question depends on what has really happened under Regulation 5(2) of The Transfer of Undertakings Regulations. The Industrial Tribunal relied on the case of Allen, an appeal before the Scottish Employment Appeal Tribunal. They were not aware that, in fact, that decision had been taken to the Inner House of the Court of Session of Scotland, which is the Scottish Court of Appeal. Before I refer to that appeal I must refer to Ibex Trading Co Ltd (In Administration) v Walton & Others [1994] ICR 907. That is a decision of this Employment Appeal Tribunal for England, sitting under the chairmanship of Morison J. Mr Justice Morison and the members of this Employment Appeal Tribunal made certain observations which were not strictly necessary to their decision and they said, strictly obiter:

".... where regulation 5(1) and (2) apply the transferor ceases to be the employer of those whose contracts of employment are transferred. .... The scope of regulations 5(1) and (2) could not be wider and is inconsistent with the transferor remaining liable after the transfer for anything connected with the employment of those to whom the regulation applies".

I will not go to the actual passage in the judgment. The headnote accurately sets out what fell from Morison J., and the members of this Tribunal.

Then we come to the decision on which the Industrial Tribunal, in this case, relied for saying that the original employer who had transferred his undertaking remained jointly and severally liable. The appeal against that decision was before the Court of Session and on

17 March 1995 of this year, the Inner House of the Court of Session gave judgment. I will not read the whole of it but it is perfectly plain that they reversed the decision of the Employment Appeal Tribunal for Scotland. They set out the facts and at page 7 the Court said this:

"The Employment Appeal Tribunal reversed that finding [the finding of the Industrial Tribunal] only on the ground, which does not appear to have been argued before the Industrial Tribunal, that a proper construction of

Regulation 5(2) did not exclude the transferor's liability following the transfer. They held that the word `transfer' (in the context of transference of liability) could either mean that liability goes to the transferee instead of the transferor or that it remains with the transferor but is imposed on the transferee as well. They regarded it as `compelling' that there were no words which could be said to exclude the transferor's liability, apart from the word `transferred' itself. They concluded that `it would not be right to regard Regulation 5(2) as transferring to the transferee responsibility for a dismissal carried out entirely by the transferor and taking effect before, or simultaneously with, the transfer to the exclusion of any liability on the transferor in the absence of an express provision to that effect', and that that view seemed consistent with the main objective of the Regulations and of the Directive, namely the protection of employee rights."

Then they go on at page 9 of the transcript:

"In our opinion, there is no ambiguity in the provision contained in Regulation 5(2)(a) that on completion of a relevant transfer `all the transferor's ... liabilities under or in connection with any such contract (i.e. the contract of employment of any person employed by the transferor) shall be transferred ... to the transferee'. ... .

We agree with what was said by Morison J. in Ibex Trading Co Ltd v Walton [1994] ICR 907 at p.916 that `use of the word `transfer' in its natural and ordinary meaning suggests a taking away from one and a handing over to another'. Indeed we would go further and hold that the word cannot bear any other meaning in any circumstances. In the context of the subsequent provision in Regulation 5(2)(b) that `anything done before the transfer is completed by or in relation to the transferor in respect of that contract (i.e. a contract of employment) or a person employed in (the) undertaking or part shall be deemed to have been done by or in relation to the transferee', it is in any event a natural consequence that the liability of the transferor for performance of the acts which constitute an unfair dismissal should be discharged. It was submitted that the ordinary responsibility of an employer for dismissal of an employee should not be excluded in the absence of express provision to that effect. The Employment Appeal Tribunal held that it would `not be right' to do so. We agree that an employer's liability should not be excluded in the absence of express provision or necessary implication, but in our view the provisions contained in paragraph 2(a) and (b) of Regulation 5 unambiguously and clearly express that exclusion. This is confirmed by the

provision made in paragraph 4 of the Regulations whereby criminal liability is excepted from the effect of paragraph 2."

So that was the view of the Court of Session. It may be true that the views of the Court of Session are not, strictly speaking, binding on us but we should be very slow indeed to depart from such a weighty authority unless we were entirely satisfied that it was wrong. We should also be very slow to depart from the obiter dictum of our own Tribunal, delivered by Mr Justice Morison and the members who were with him, in Ibex.

Mr Archer, who appears for the Respondent employees and in particular Mr Mapstone, says first of all that he relies on Lord Caulfield's decision which has been overruled. He relies upon the reasoning of Lord Caulfield and he says, arguing it a priori, that with regard to this case "transfer" is consistent with the transferor retaining something. For example, he says, it is natural to speak of a transfer in the case of somebody transferring skills or knowledge to somebody, so that a teacher does not, of course, lose his own knowledge when he transfers his knowledge to his pupils. We think that probably most people would not speak of a teacher transferring his skill or knowledge. They might speak of him imparting it or passing it on or something of that sort. "Transfer" I do not think would be used except perhaps in the rather literary sense of one generation passing on to another their culture or whatever it might be.

Mr Archer also referred to something we have referred to ourselves, the ordinary idea of transferring property. He points out that a person in English law and no doubt in Scottish law who transfers property to somebody else does not thereby, against third parties, exclude his own liabilities. He may extract an indemnity from the transferee but he does not, simply because he has transferred the property, find himself free from all obligations which he has incurred previously in relation to that property and the same would apply to a business. We understand all that very well. That is perhaps why people speak of transferring property in a way that they cannot speak of transferring liabilities because in English law, at any rate, nothing would suffice to exclude the liability of the transferor for his previously incurred liabilities but a novation to which the plaintiff or party seeking to assert those liabilities was a party.

We have, of course, considered what Mr Archer has said and are grateful to him for saying it. We are not considering this matter as though it were a matter on which there is no authority. There is this weighty authority to which I have referred, and whether or not that is binding upon us we should not dream of departing from such authority unless we were satisfied that it is wrong.

We have carefully looked at Regulation 5 ourselves with the assistance of Mr Archer and Mr Jay. It appears perfectly plain to us that so far from the observations of Mr Justice Morison and the decision of the Court of Session being wrong, they are manifestly right and it therefore follows that on the transfer to which we have referred Phoenix ceased to be liable in respect of Mr Mapstone's holiday pay and any other obligations which Phoenix owed to him.

At the date of Mr Mapstone's application, the party which was liable to him was Maple Leaf. Maple Leaf is not in liquidation. It is not insolvent and in those circumstances, Mr Mapstone can assert his rights against Maple Leaf and he has no right to assert under section 122 that the Secretary of State is bound to pay him any sum whatever. It is perfectly true, as was conceded quite rightly by Mr Jay, that if in the future Maple Leaf refuses to pay Mr Mapstone what he is entitled to and if he and his colleagues decide to apply to put Maple Leaf into liquidation and he still does not receive satisfaction through that, then he may very well (other things being in his favour) have a right to apply to the Secretary of State again, and if the Secretary of State should refuse, to bring a further complaint to the Industrial Tribunal.

That is not the subject matter of our decision at all. The fact is that Phoenix Bakeries Ltd is not liable and has not, since the transfer of the undertaking, been liable to Mr Mapstone and in those circumstances, the whole foundation of his application to the Secretary of State must fail.

There is no jurisdiction to entertain a complaint in respect of Maple Leaf Bakeries Ltd for the short and simple reason that that company, is not insolvent.

In those circumstances, these appeals by the Secretary of State must succeed. We can see no basis for remitting any matters to the Industrial Tribunal and so we content ourselves by saying that the reasons which I have endeavoured to state, the appeals by the Secretary of State must succeed.