United Kingdom Employment Appeal Tribunal

BAILII case number: [1996] UKEAT 33_95_1804

Appeal No. EAT/33/95

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 18th April 1996

THE HONOURABLE MR JUSTICE BUTTERFIELD

MRS J MATTHIAS

MR R SANDERSON OBE

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VAUX BREWERIES LTD          APPELLANTS

(1) MR T TUTTY

(2) RIVER WEAR SOCIAL CLUB

(3) W H JONES AND G H HOWARTH          RESPONDENTS

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Transcript of Proceedings

JUDGMENT

Revised


 


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APPEARANCES

For the Appellants MR A JACK

(of Counsel)

Mr M Hodgson (Solicitor)

Legal Department

Vaux Group Plc

The Brewery

Sunderland

SR1 3AN

NO APPEARANCE BY OR ON BEHALF OF THE 1ST & 2ND RESPONDENTS

For the 3rd Respondents PROFESSOR R LEWIS

(of Counsel)

Messrs Dickinson Dees

Solicitors

Cross House

Westgate Road

Newcastle Upon Tyne

NE99 1SB


 


MR JUSTICE BUTTERFIELD: This is an appeal from a decision of the Industrial Tribunal sitting at Newcastle, notified to the parties on 16th December 1994.

The Industrial Tribunal held unanimously that the applicant, Mr Thomas Tutty, had been unfairly dismissed, and by virtue of the Transfer of Undertakings Protection of Employment Regulations 1981, to which I will refer hereinafter as "the Regulations", the second respondent, Vaux Breweries Ltd were liable to compensate the applicant in the sum of £4,300.

Against that decision, Vaux Breweries Ltd, the appellants, now appeal. It is not disputed that Mr Tutty was unfairly dismissed; however, the appellants submit that it is not they who are obliged to compensate him, but Mr Jones and Mr Howarth, the third respondents to the application, and the respondents in this appeal. If the appellants are wrong in that submission, they say that it is the first respondents to the application, River Wear Social Club Ltd who should be obliged to compensate Mr Tutty. The appellants further assert that the Industrial Tribunal was in error in its calculation of the sum awarded in compensation.

The applicant, Mr Tutty, has not appeared at this appeal, and is not represented. Solicitors acting for him have informed the tribunal that he is happy that the matter should proceed in his absence and content that this tribunal should determine any question of alteration of the sum of compensation were that to arise.

The facts giving rise to this appeal are as follows. For a number of years a club operated in Hendon, Sunderland, known as the River Wear Social Club. The club premises were owned and managed by a limited company, River Wear Social Club Ltd. In September 1983 the company employed Mr Tutty as the Steward of the club. He was provided with rent free accommodation in a flat above the club premises, together with provision of heating and lighting.

The appellants are a brewery, who, as many such breweries do, gave considerable financial assistance to the club, no doubt in return for the club agreeing to sell exclusively the beer of the appellants in their premises.

The loans advanced to the club by the appellants, were secured by a first mortgage on the freehold of the premises. From October 1992 the club was in considerable financial difficulty, a difficulty which only increased as the months went by. The appellants became more and more concerned about the situation. They were anxious to protect, so far as they properly could, their financial interest in the premises. In particular, the then Sales Manager of the appellants, Mr Clark took a very active part in doing what he could to safeguard the position of the appellants.

It was plainly very much in the interests of the appellants for the club to continue trading. Had the appellants foreclosed on their mortgage, as of course they were empowered to do, that would have been of little assistance to them. The club premises were clearly of much greater value as a going concern. Once closed, the premises would lose such custom as they had hitherto enjoyed, and even if re-opened, that custom might not have been regained. Thus the investment of the appellants in the club was much the better protected if the ownership of the club could be transferred to new proprietors, but continued trading during the period of transfer.

To that end, in the Autumn of 1993, the appellants sought prospective purchasers for the club premises and its business. The respondents Mr Jones and Mr Howarth were interested. Meetings and discussions between them and the appellants took place. By letter dated 15th December 1993, the appellants wrote to Mr Tutty in the following terms:

"I refer to our recent discussions regarding the future of the River Wear Social Club. As you are aware, the club is insolvent and has no future in its present form.

It is the intention of the brewery to close the club and sell it to a proprietor as a matter of urgency. I am afraid the proposed new owner will be employing his own staff and will require the use of the club flat."

On 21st December 1993, Mr Tutty was required to hand over the keys of the club and the club safe, and thereafter ceased to act as club steward. He did however, remain in occupation of the flat.

The club itself continued to trade. Negotiations between the appellants and prospective purchasers continued. Ultimately on 2nd February 1994, the respondents, Mr Jones and Mr Howarth exchanged contracts with the River Wear Social Club Ltd for the purchase of the club premises. The purchase price was in the unusually precise sum of £186,688.50, which represented to the penny the balance due to the appellants on the loan which it had made. No money in fact changed hands. The whole of the purchase price was left on mortgage in favour of the appellants, secured on the club premises. The transaction was completed on 11th March 1994. Whilst on paper the vendors were the River Wear Social Club Ltd, the reality was, as the Industrial Tribunal found, that all the negotiations were conducted by the appellants, and it was as if they themselves were selling this property and this business. The Industrial Tribunal found that there was doubt up to the very last minute as to whether the purchase by Mr Jones and Mr Howarth would proceed.

Against that history, it is clear that Mr Tutty was unfairly dismissed. The Regulations plainly applied. He was dismissed by reason of the transfer of the club's business, and for no other reason. Accordingly his dismissal is deemed to be unfair by the provisions of Regulation 8(1).

But who is to compensate him? The Industrial Tribunal found on the evidence, that there was an effective transfer of the club's business from the River Wear Social Club Ltd on 22nd December 1993, after which date, the company had no further involvement in the running of the club.

The question, however is, to whom was the transfer made? Mr Jack on behalf of the appellant, submits that the undertaking was transferred to Mr Jones and/or Mr Howarth. The tribunal found, and Mr Lewis on behalf of the respondents to this appeal so submits correctly, that the transfer was made to the appellants. In determining the question, the tribunal considered who was in control of the undertaking, that is to say the business of the club, during the period from 22nd December 1993 to 2nd February 1994. They directed themselves that, in effect, whoever was in control of the undertaking during that period was liable to compensate Mr Tutty as being the transferee of the undertaking in December 1993.

It is to be noted that the Industrial Tribunal made a number of findings of fact. In our unanimous judgment, they were entitled to reach the findings of fact they did reach on the evidence available to them. Those findings of fact, so far as they are relevant to this appeal, are as follows.

First, that from 22nd December 1993 to 2nd February 1994, Mr Jones ran the club on a day-to-day basis. His responsibilities on the evidence extended to and only extended to the ordering and receiving of stock, cashing up the tills and paying for the stock from his own bank account, and then recouping himself out of the cash held in the club's safe. It is accepted that additionally he paid the bar staff their wages in cash out of the till.

During that same period, the appellant paid the bills for rates and electricity on the premises, and possibly the gas bill and any V.A.T. liabilities. There was no evidence to show that Mr Jones employed the club's staff. Indeed, the exchange of letters between solicitors prior to exchange of contracts for the purchase of the premises, suggests to the contrary. Nor was there any evidence, certainly no evidence accepted by the tribunal, that Mr Jones kept the profits, such as they were, from the sales of the stock.

The tribunal further concluded that it was the appellants through Mr Clark, who assumed the de facto management of the club, so as to protect the appellant's investment in the club premises and the outstanding loan due to them. There was, as we have said, plainly evidence entitling the Industrial Tribunal to reach those conclusions, and it cannot be argued that those findings were perverse in the sense that no reasonable tribunal could properly so have found.

We have been invited to consider a number of authorities, both of the European Court and of the domestic courts in considering the approach adopted by the tribunal to the question of the application of the Regulations to this particular situation.

We do not propose in the course of this judgment to recite those authorities, but we have had each of them in mind in reaching our conclusions in this case.

The Regulations I should cite to this extent. Regulation 3(2) provides that:

"(2) ... these Regulations so apply whether the transfer is effected by sale or by some other disposition or by operation of law."

It is submitted on behalf of the respondent, that the words "some other disposition" are wide words, encompassing any number of different situations, and what a tribunal has to do, is to look at the circumstances of each case and reach its conclusions in the light of its findings of fact.

Regulation 3(4) provides:

"(4) It is hereby declared that a transfer of an undertaking or part of [one-

(a) may be effected by a series of two or more transactions; and

(b) may take place whether or not any property is transferred to the transferee by the transferor]."

Finally, Regulation 5(3) provides:

"(3) Any reference in paragraph (1) or (2) above to a person employed in an undertaking or part of one transferred by a relevant transfer is a reference to a person so employed immediately before the transfer, including, where the transfer is effected by a series of two or more transactions, a person so employed immediately before any of those transactions."

In our judgment, in deciding whether a transaction amounts to the transfer of business, and to whom, regard must be had to the substance of the transaction rather than the form. Consideration must be given to the whole of the circumstances, weighing the factors pointing in one direction, and the other. In situations such as occurred here, the vital consideration is whether the effect of the transaction was to put the transferee in effective possession and control of a going concern, the activities of which he could carry on without interruption. Many factors may be relevant in determining that matter, though few will be conclusive in themselves. The absence of the assignment of premises, stock in trade, or outstanding contracts will not be conclusive, if the particular circumstances of the transferee enabling him to carry on the same business as before apply. That is precisely, in our judgment, what happened here.

The effect of the transfer on 22nd December 1993 was to put the appellants in control of the club business which they could operate as they chose. But submits, Mr Jack, they were not the transferees because they did not exercise control as a result of a legal right. True it is that the appellants had the power to exercise that right under the mortgage held by them which they could enforce legally. In the particular circumstances here, there was no need for them to enforce those rights because in reality the club relinquished its rights to continue the operation of the club business to the appellants. Mr Jack submits, that may be so, but it will not do. There must, he submits, be a legal transfer. We do not agree with that submission.

We are reinforced in our conclusions by certain observations of the President of this tribunal in the case of Kellman v Kerr Contract Services [1995] ICR 260. In a reserved judgment, in which the President considered in some detail the relevant law relating to the transfer of undertaking regulations, he said this at page 267F:

"(5) The cumulative effect of the decisions on the Directive is that a transfer of an undertaking may occur for the purposes of the Directive even though: ... there has been no transfer of the ownership of assets tangible or intangible. What matters is the transfer of responsibility for the operation of the undertaking in which the employees are employed."

Later he was to say this, still considering general propositions concerning the relevant law:

"The theme running through all the recent cases is the necessity of viewing the situation from an employment perspective, not from a perspective conditioned by principles of property, company or insolvency law."

We respectfully agree, and adopt the words he uses there. Taking what we hope is not only a robust, but also a sensible view of the situation that actually existed as found by the Industrial Tribunal here, the reality is that the appellants were running the show. If Mr Clark had not cared for the way that Mr Jones was performing the limited duties he did, he could have turned him out peremptorily. Mr Jones was a bare licensee, there potentially to take over the premises, but by no means certainly so as the tribunal indicated in the way in which we have already described.

In those circumstances, the appellants primary submission fails. In our judgment, the Industrial Tribunal was perfectly entitled to conclude, as it did, that there was a transfer of the undertaking from the club to the appellants on 22nd December 1993.

Mr Jack, on behalf of the appellants, further submits that the transfer here fell within the provisions of Regulation 3(4) and 5(3) to which we have already referred. It is said that the undertaking was transferred to the respondents by a series of undertakings concerned with letting Mr Jones into occupation of the club on 22nd December 1993, and concluding with the signing of the contract for sale on 2nd February 1994. Mr Jack relies in particular upon the decision of Bork International v Forengingen af Abejdsledere [1988] ECR 3057. In particular relying on the observations contained in that authority at page 3076 paragraph 14 and 18. The effect of that submission, submits Mr Jack, is that where there is a transfer from A to B to C and an employee is dismissed as a result of that series of transfers, liability passes to C and does not stop with B. That may indeed be the position in the particular factual situation with which the court was concerned in the case of Bork. However, as Mr Lewis rightly points out, the court was at pains to make clear, in the case of Bork, that it is for the national court to make the necessary appraisal of the facts in the light of the interpretative criteria laid down by the court. Here, the Industrial Tribunal found that there was one transfer in December 1993 to the appellants, and a second transfer some weeks later to the respondents. There were therefore two transfers not a series of transactions relating to one transfer. That therefore, is an end really to the secondary point advanced by Mr Jack. For those reasons, the appeal so far as liability is concerned fails.

So far as the question of compensation is concerned, it is submitted that the tribunal was in error in adding the value of the flat provided to Mr Tutty rent free to his basic wages for the purpose of determining his award.

We have grave doubts as to whether that submission is well-founded. It seems to us, as a matter of reality, that the level of an employee's remuneration is likely to have taken into account such additional advantages as living in a rent free flat. However, in the circumstances of this case, it is quite plain that Mr Tutty in fact continued to enjoy those benefits, even though his employment had been determined, certainly at least until 2nd February 1994, at which time it is accepted his employment could have been properly and fairly terminated. In those circumstances, for him to be compensated by way of money for the loss of his flat when in fact he was enjoying that benefit, means that he is compensated twice over.

Accordingly, we propose to allow the appeal so far as the element of compensation is concerned to the extent sought by the appellants. His basic award will be reduced from that of £205 to £185.11 per week. The compensatory award will similarly be reduced to £144.85 per week. When the appropriate mathematics are performed, that reduces his total award by the sum of £639.36. The award must further be reduced by the additional sum of £200 awarded by the tribunal for the loss of his statutory right. Again, as is correctly pointed out, since the Industrial Tribunal found that Mr Tutty could have been fairly dismissed on 2nd February 1994, he would have lost his statutory right not to be unfairly dismissed at that time. Therefore, that element of the award too must go, producing a final reduction of £839.36 and the final award therefore will be that the appellants must compensate Mr Tutty in the sum of £3,460.64. To that extent, and for those reasons, the appeal is allowed,

Leave to appeal is refused.