United Kingdom Employment Appeal Tribunal

BAILII case number: [1995] UKEAT 607_94_2205

Appeal No. EAT/607/94

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 22 May 1995

THE HONOURABLE MR JUSTICE MUMMERY (P)

MRS R CHAPMAN

MR A C BLYGHTON

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SECRETARY OF STATE FOR EMPLOYMENT          APPELLANTS

MR S R SOOBIAH          RESPONDENT

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Transcript of Proceedings

JUDGMENT

Revised


 


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APPEARANCES

For the Appellants MR TIMOTHY BRENNAN

(Of Counsel)

Treasury Solicitor

Queen Anne's Chambers

28 Broadway

London SW1H 9JS

For the Respondent NO APPEARANCE BY OR ON BEHALF OF THE RESPONDENT


 


MR JUSTICE MUMMERY (PRESIDENT): This is an appeal by the Secretary of State for Employment against the decision of the Industrial Tribunal held at London (South) in February 1994. The Tribunal heard a claim for redundancy payments made by a banking officer, Mr Selvan Soobiah, formerly employed by the Bank of Credit and Commerce ("BCCI") which went into compulsory liquidation on 14 January 1992. As BCCI went into compulsory liquidation, there were potential claims by their employees against the Secretary of State under the provisions concerning the "Insolvency of Employer" in Part VII of the Employment Protection (Consolidation) Act 1978. Mr Soobiah made the Secretary of State for Employment Respondent to his originating application served on the Industrial Tribunal on 1 April 1993. In the IT1, Mr Soobiah gave details of his employment, which had commenced in September 1985 and ended on 8 July 1991. He gave details of his basic hours of work per week and his wages and take-home pay. In the details of his complaint he said:

"By letter dated 29th January 1993 received by my solicitors on 1st February 1993 the Redundancy Payments Services rejected my claim for redundancy pay following my dismissal from the Bank of Credit and Commerce International when my application No.33832/92 had been stayed by reason of my employers insolvency.

I have a claim against the Secretary of State for Employment in respect of the following matters..."

There are then listed items for redundancy pay, unpaid salary, monies in lieu of notice and 23.1/2 days holiday pay.

This appeal is solely concerned with the decision of the Industrial Tribunal on the question of holiday pay. The Secretary of State contested the claim. The Tribunal unanimously decided that Mr Soobiah was entitled to 15 days holiday pay, under the terms of Section 122 (3)(c)(ii) of the 1978 Act. The Tribunal ordered him to be paid the sum of £594 being three weeks pay, at the maximum of £198 per week then allowable under Section 122 sub section 5 of The Act out of the National Insurance fund. The Secretary of State was dissatisfied with that decision and appealed by Notice of Appeal served on 23 June 1994. The E.A.T. was informed last month by solicitors acting for Mr Soobiah that their client would not be represented at the hearing of the appeal. We have, therefore, only heard submissions from Mr Brennan, Counsel for the Secretary of State. We are indebted to him for the full and fair way in which he has presented the legal arguments.

The point on the appeal is one of law on the construction of Section 122(3)(c) of the 1978 Act and related sections, notably the definitions in Section 127(3). The facts which give rise to the point of law are few. The undisputed facts are that Mr Soobiah was an employee of BCCI, under a contract; the terms of which entitled him to carry forward a maximum of 10 days leave from one calendar year to the next calendar year. In this case it is agreed that on the termination of his employment on 8 July 1991, he had an entitlement to ten days holiday pay in respect of the year 1991 and that he had carried over five days holiday pay from 1990. The crucial question on this appeal is whether the Industrial Tribunal erred in law in holding that Mr Soobiah "became entitled" to the five days holiday pay during the twelve months ending with the relevant date, which is the liquidation of BCCI on 14 January 1992.

In order to understand that point and the arguments it is necessary to examine the statutory provisions. Section 122 sub Section 1 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) that 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."

In sub Section 2 there is a definition of the "relevant date". The relevant date in this case is the date on which BCCI went into compulsory liquidation, the 14 January 1992. Sub Section 3 provides that the section applies to specified debts. There are a list of debts from (a)-(e), starting with arrears of pay and finishing with certain sums by way of reimbursement. We are only concerned in this case with (c):

"any holiday pay:--

....

(ii) to which the employee became entitled during the twelve months ending with the relevant date"

It is necessary to consider the definition of holiday pay in the interpretation provision Section 127 sub Section 3 which provides that in Sections 122 to 126:

"holiday pay" means

(a) pay in respect of a holiday actually taken; (that is not applicable to the facts of this case) or

(b) any accrued holiday pay which under the employee's contract of employment would in the ordinary course have become payable to him in respect of the period of a holiday if his employment with the employer had continued until he became entitled to a holiday"

Mr Brennan accepts that the definition in (b) includes the accrued holiday pay, both in respect of the ten days for 1991 and the five days carried over from 1990.

It is necessary to look next at the contractual provisions. They are contained in the section headed "holiday entitlement". Paragraph 8 of that provides:

"A maximum of 10 days' leave may be carried forward from one calendar year to the next calendar year."

It is also material to read paragraph 11 which provides:

"Salary in lieu of holidays will not be paid, except to a member of staff who leaves BCC and who has not taken the pro-rata holiday to which he/she is entitled."

The argument for the Secretary of State is clearly summarised in the Skeleton Argument, submitted by Mr Brennan and elaborated by him in the course of oral argument, in response to our numerous questions. His submission is that, on the true construction of Section 122(3)(c)(ii), Mr Soobiah "became entitled" in respect of the relevant five days accrued holiday pay in 1990, before the period of twelve months referred to in Section 122(3)(c) i.e. the period ending with the relevant date on 14 January 1992. He submitted that Mr Soobiah did not "become entitled" to the five days accrued holiday pay during the twelve months ending on 14 January 1992. He was already entitled to it when it was carried forward from 1990. He became entitled to it, at the very latest, at the end of 1990, not during the relevant period of twelve months. That, stripped of all its detail, is the essence of the argument.

The Tribunal did not accept that argument. In our view, they were right not to do so. The Tribunal's reasoning, with which we agree, is contained in a careful decision which sets out the issues, the agreed facts, the relevant law and the submissions of the parties, before reaching the reasons for rejecting the Secretary of State's argument in paragraphs 15 to 18. The Tribunal's decision was this:

"15. The Tribunal is in no doubt that it must look at a period of twelve months ending on 14 January 1992, the date of compulsory liquidation of the Respondent company. During that period the Applicant's employment ended on 8 July 1991. He then become entitled to what? There is no dispute between the parties that according to the relevant contractual arrangements, he become entitled to 10 days holiday pay for the year 1991. But, in his case, he was by then already contractually entitled to five days accrued holiday pay from 1990. Whilst it might be argued that he did not become entitled to that accrued holiday pay on 8 July 1991 because the entitlement was already there, surely it would be artificial to separate his two entitlements. What one needs to do is to look at to what he became entitled on 8 July 1991. One part of that entitlement was his accrued holiday pay from 1990 and the other part was the calculation of a pro rata entitlement in the middle of the current year of employment ie. 1991."

"16. The Tribunal feels that the proper meaning to put on the words in Section 122(3)(c)(ii) already quoted must be to look at the event which crystallises the matter during the 12 months in question - here the liquidation - and to see what his overall contractual entitlement then is. It is bolstered in this view by the fact that in Section 122(3)(i) there is a maximum entitlement limited to six weeks in all and moreover (i) speaks of "a period or periods" of holiday. In the Tribunal's view this is a recognition that there can be more than one component part of entitlement."

"17. The Tribunal's decision should not create particular problems to insolvency practitioners as suggested by the Liquidator. There would not be that many cases in practice where a contractual right to carry forward holiday entitlement from one year to the next would exist. A Liquidator must in any event examine the contractual entitlement of any employee in circumstances such as are being considered in this case."

"18. The Tribunal accordingly finds and so declares that the entitlement of the Applicant under Section 122(3)(c) is to a total of 15 days holiday pay..."

They then refer to the calculation of the figures. Mr Brennan criticised the reasoning in those paragraphs, in particular paragraph 15. He submitted that the error of the Tribunal was to treat the words "become entitled to" in Section 122(3)(c)(ii) as if they said "was entitled during". He did not dispute that Mr Soobiah was entitled during the relevant period to fifteen days holiday pay, but he had only become entitled, during that period, to ten of those days. He had become entitled to five of those days before the relevant period. He submitted that the Tribunal were wrong in holding that it was artificial to separate the two entitlements. He said that separation of the two entitlements was a necessary consequence of the Industrial Tribunal's finding that the relevant entitlement to five days holiday pay accrued at an earlier time outside the period of 12 months ending with the relevant date. He also argued that the Tribunal's reasoning in paragraph 16, based on the reference to `a period or periods of holiday' in Section 122(3)(c)(i), was without any support; it was not relevant to the question whether an entitlement which accrued more than twelve months before the relevant date was to be treated as if it accrued within twelve months of the relevant date. He submitted that we should set aside the Industrial Tribunal's Declaration and substitute for it an order in respect of a period of ten days, which amounts to £396, instead of 15 days.

In our view, the decision of the Industrial Tribunal was legally correct. As we read the provisions, Mr Soobiah became entitled, during the twelve months ending at the relevant date, to fifteen days holiday pay. We bear in mind the context. This provision is in a number of sections which confer on employees rights to payments from the Secretary of State, in the event of the insolvency of an employer. The word "entitled" is a frequent topic of conflicting interpretations, particularly in contexts of contract, fiscal legislation, trusts and succession. "Entitled" can mean "entitled in right" or "in interest"; it can mean "entitled in possession"; and it can mean "entitled in enjoyment". It is not correct, however, to carry into a context such as this, the refinements of these distinctions. In our view, having regard to the context of an employers' insolvency, to the references to debt, to the payment of those debts by the Secretary of State and to the relevant contractual provisions, we are left in little doubt that on a purposive interpretation of the language of Section 122(3)(c)(ii) Mr Soobiah "became entitled", during the twelve months ending with the relevant date to fifteen days holiday pay. He exercised the option, conferred on him by the contract, to carry forward five of those days from 1990 to 1991. He became entitled to those five days holiday pay in the year to which he carried them forward. He was entitled in the previous year, to carry them forward to the next year; but he did not become entitled, in our view, to the holiday pay until the year to which he had carried them forward. It was not disputed by Mr Brennan that if you carried forward holiday pay under this contract, you would receive payment at the rate payable in the year to which you had carried them forward. The rate of payment would not be frozen as at the year in which you had exercised the option to carry them forward. There would, as the Tribunal observed, be no sensible ground for differentiating between the ten days to which he indisputably became entitled in 1991 and the five days which he had carried over into 1991 from 1990.


 


The essence of this case is to look first at the provisions of the contract, containing the option to carry forward; and secondly, to look at the provisions of the legislation and read them in the context of the Secretary of State guaranteeing payment of the debts which the Employer is unable to pay because of his insolvency. On that point it was accepted by Mr Brennan in argument, and in our view rightly accepted, that, on the correct interpretation of these provisions and on the correct construction of this contract, it would not have been open to Mr Soobiah to opt in 1990 to carry forward five days from 1990 to 1991, and then go to his Employer in 1990 and ask to be paid for those five days. It was also accepted by him that if the Employer had remained solvent when Mr Soobiah left the employment, Mr Soobiah would have been entitled to require from his Employer payment for the five days as well as for the ten days.

That fits into the general scheme of the Tribunal's reasoning, that, in this case, Mr Soobiah did become entitled to the holiday pay for the whole fifteen days during the twelve months ending with the 14 January 1992. For those reasons, we agree with the decision of the Industrial Tribunal. There is no error of law in it. This appeal should be dismissed.