United Kingdom Employment Appeal Tribunal

BAILII case number: [1996] UKEAT 439_95_0702

Appeal No. EAT/439/95

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 16th January 1996

Judgment delivered on 7th February 1996

Before

HIS HONOUR JUDGE C SMITH Q.C.

MISS J W COLLERSON

MR E HAMMOND OBE

---

MR D JONES          APPELLANT

SECRETARY OF STATE FOR EMPLOYMENT          RESPONDENT

---

Transcript of Proceedings

JUDGMENT

Revised


 


---

APPEARANCES

For the Appellant MR G P MORRIS

(of Counsel)

Messrs J Magnus Macaskill

Solicitors

Brunswick Road

Buckley

Clwyd

CH7 2EF

For the Respondent MR B CARR

(of Counsel)

The Treasury Solicitor

Queen Anne's Chambers

28 Broadway

London SW1H 9JS


 


JUDGE SMITH Q.C.: This is an appeal by the Applicant employee against the decision of an Industrial Tribunal sitting at Cardiff on 5th May 1994 where by the Industrial Tribunal held that the Appellant's contract of employment with Ashbrook Constructions Ltd was frustrated before that company went into Administrative Receivership on 12th November 1992 so that he was not entitled to a redundancy payment, wages in lieu of notice, nor holiday pay under Section 122 of the Employment Protection (Consolidation) Act 1978. The claim was made of course against the Secretary of State, the Respondent relying upon the rights given to an employee on the insolvency of an employer under Section 122.

The facts are set out in paragraph 2 of the Industrial Tribunal's decision. It is apparent that the Appellant was born on 19th July 1943, and that he commenced employment on 26th October 1976 as a driver/labourer with Ashbrook Construction Ltd. At the beginning of January 1991 he became ill with back problems. He was seen by an orthopaedic surgeon on 12th January 1991. Thereafter he submitted sickness certificates and received statutory and sick pay from his employer. On 4th March 1991 he felt fit to work and contacted his employers and said he wanted to start the next day. The Appellant claims that he spoke to a Mr Snape, a director of Ashbrook, and was told that there was no work for him. According to him when he asked if he were sacked he was told that the directors would have to decide. According to the findings of the Industrial Tribunal he then went back to his doctor and his incapacity continued without interruption until March 1994, when he was found to be incapable of his normal occupation and only fit for light work. The Industrial Tribunal found as a fact that he was incapable of work from January 1991 to March 1994. He received sick pay until July 1991 and thereafter he was in receipt of invalidity benefit. In September or October 1991 the Appellant learnt that colleagues of his had been made redundant. However he did not contact his employers who in their turn did not contact him.

On 17th February 1992 the Appellant lodged a complaint before an Industrial Tribunal saying that he had been dismissed on the grounds of redundancy on 4th March 1991 and claiming a redundancy payment which complaint was adjudicated upon in June 1992. The claim failed because that Industrial Tribunal then held that there had been no dismissal in March 1991, that there was no redundancy situation in March 1991 and that in any event the claim had been made out of time. The employers then claimed before that Industrial Tribunal that the contract of employment was frustrated but no finding was made by that Industrial Tribunal. As appears from the findings in paragraph 2 of the decision of 5th May 1994it is clear that the Industrial Tribunal held that Mr Snape had said at the hearing in June 1992 before the previous tribunal that the employers were waiting for the Appellant to let them know when he was fit to return to work to his full employment as in March 1991 he had said he was fit only for driving duties and not any labouring.

As can be seen the findings of the Industrial Tribunal on the issue of frustration are to be found in paragraph 4 of their decision. Those finding are self-explanatory. In sum, the Industrial Tribunal found as a fact that throughout the period of 22 months from January 1991 to November 1992 the Appellant was incapable of work and that it was inconceivable that the contract subsisted throughout that period. The only contract between Mr Jones and Ashbrook was a brief telephone call on 4th March 1991. They stated that they did not find it possible to put a precise date on when the contract was frustrated but they concluded that the Appellant's contract became frustrated by his long-term inability to perform his duties.

It was submitted to us by Counsel for the Appellant that the Industrial Tribunal's conclusions as expressed in paragraph 4 of their reasons make it clear in his submission that they had not applied the correct test in law in deciding whether as a matter of fact the Appellant's contract was frustrated, and that they had not carried out the necessary analysis by reference to the test laid down by Lord Donaldson in Marshall v Harland & Wolff Ltd [1972] ICR 101 in the context of an allegation of frustration based on incapacity due to sickness. It was submitted to us that they had not applied the test correctly or at all and that this can be demonstrated by what is alleged to be their failure to take into account at least some of the factors listed by Lord Donaldson in Marshall beginning on page 105 and indeed by Phillips J. (then President of the Employment Appeal Tribunal) in the case of Egg Stores (Stamford Hill) Ltd v Liebovici [1977] ICR 260.

The submission was made to us in essence that the Industrial Tribunal had simply looked back in 1994 and, seeing that there was a long period of incapacity, had concluded that that on its own established frustration. Whereas it was submitted what they should have done was to have looked back to a notional date between January 1991 and November 1992 and, looking at the situation as it then was, as it had been, and, importantly, what the future prospects were in order to find whether frustration had in fact taken place by application of the basic test posed by Lord Donaldson. The submission was made to us, correctly in our judgment, that Industrial Tribunals must guard against too easy an application of the doctrine of frustration in the context of employment law where it is to be treated as an exceptional state of affairs. He also reminded us of what he described as the useful exercise proposed by Wood J. (then President of this Employment Appeal Tribunal) in the case of Williams v Watson Coaches Ltd [1990] ICR 536 at page 541 which he submitted an Industrial Tribunal should be encouraged to adopt, namely to attempt to decide the relevant date of frustration so that the judicial mind was concentrated on whether there really is a frustration situation.

Whilst we accept these two general propositions it is quite clear, in our judgment, subject to a careful and critical approach being taken by an Industrial Tribunal, that frustration may occur where there is an event, such as illness or accident, which unhappily befalls an employee where, even though at the time of the event the outcome was uncertain, the time can ultimately arrive when looking back a Court can say at some point (even if it is not possible to say precisely when) matters have gone on for so long and the prospects of the future are so poor that it is no longer practical to regard the contract as still subsisting.

This, in our judgment, is quite clear from the very clear statement of principle made by Phillips J. in the Egg Stores Ltd case at page 265. Counsel accepted, of course, that in cases of disability frustration could be found as a matter of fact but he submitted that in the instant decision the Industrial Tribunal cannot have taken account of the factors listed as being factors of which account must be taken as set out in the cases of Marshall and Egg Stores Ltd.

Counsel for the Respondent, on the other hand, submitted that it is clearly implicit from the decision of the Industrial Tribunal that they did consider many of the factors set out by those authorities and, that where they did not do so, they were right not to do so since they would have been speculating about matters upon which there was no evidence. He submitted that the conclusions expressed by the Industrial Tribunal, admittedly quite shortly, are only consistent with their having applied the proper test to the extent that the evidence permitted them so to do. In particular Counsel submitted that they were fully justified in making their findings of fact on the evidence before them namely:

(1) that throughout the period of 22 months and beyond the Appellant was incapable of work;

(2) that the only contact between the Appellant and his employers between January 1991 and November 1992 was a telephone call in March 1991, and

(3) that the Appellant's contract became frustrated by his long-term inability to perform his duties.

He submitted that on close analysis many of the factors were, on a fair reading of the decision, plainly taken into account by the Industrial Tribunal. He also submitted that, in effect, it is plain that the Industrial Tribunal had in mind the desirability of following Wood's J. useful guide in trying to establish a date when the contract was frustrated when the Industrial Tribunal found in terms that they could not put a precise date on when the frustration occurred.

Mr Carr, Counsel for the Respondent, helpfully reminded us of the important dictum of Lawton LJ. in Shepherd v Jerron [1986] ICR 802 page 811 namely that:

"The first question is whether what happened was capable in law of frustrating the contract; the second is whether it did frustrate it: this is a question of fact: see Pioneer Shipping Ltd v B.T.P. Tioxide Ltd [1982] A.C. 724, 752, per Lord Roskill."

Counsel for the Respondent also reminded us of the important principle laid down by Lord Donaldson in the case Martin v Glynwed Distribution Ltd [1983] ICR 511 at page 514 F-H.:- namely

"It is very important, and sometimes difficult, to remember that where a right of appeal is confined to questions of law, the appellate tribunal must loyally accept the findings of fact with which it is presented and where as can happen from time to time it is convinced that it would have reached a different conclusion of fact, it must resist the strong temptation to treat what are in truth findings of fact as findings of law or mixed findings of fact and law. The correct approach involves a recognition that Parliament has constituted the Industrial Tribunal the only tribunal of facts and that conclusions of fact must be accepted unless it is apparent that on the evidence no reasonable tribunal could have reached them. If such be the case and happily it is a rarity the tribunal which is assumed to be a reasonable tribunal must have misdirected itself in law and the Employment Appeal Tribunal will be entitled to intervene."

Before expressing our conclusions on these submissions we should first deal shortly with what Mr Carr, Counsel for the Respondent, correctly described as two preliminary points which have assumed some importance in the way the arguments have developed before us. The first relates to a submission made by Mr Morris for the Appellant that the Industrial Tribunals important finding in paragraph 4 of its decision that for the 22 month period the Appellant was incapable of work was, he submitted, inconsistent with the Industrial Tribunal's own findings of fact in paragraph 2 of the decision. We cannot accept this submission. In our judgment the findings in paragraph 2 abundantly justified the conclusion reached in paragraph 4. In our judgment all the facts found in paragraph 2 point inescapably in that direction and the only factor which arguably points in the other direction was a mere expression of opinion by the Appellant in March 1991 "that he felt able to return to do some work". But it is clear that the Industrial Tribunal found that after March 1991 he returned to his doctor and his period of incapacity continued without interruption until one month ago (i.e. March 1994) when the examining medical officer found him capable of light work but even then incapable of his normal occupation. We must reject that submission made by Mr Morris.

The second preliminary matter relates to what proper inferences can be drawn, if any, from the earlier Industrial Tribunal proceedings to which we have referred above and which were heard in June 1992 and are referred to in the instant decision in paragraph 3. Mr Morris sought to persuade us that on a true reading of that decision the first Industrial Tribunal implicitly rejected the submission then made to it by the employers that the contract had been frustrated. Accordingly, he submitted, that that factor should at least have been a powerful influencing factor before the second Industrial Tribunal when they came to consider the issue in May 1994. Mr Carr, on the other hand, submitted that no such construction of the first Industrial Tribunal's decision was permissible. He submitted that it is quite clear that that Industrial Tribunal was concerned to decide whether there was a dismissal or not on the grounds of redundancy in March 1991 and having decided:

(a) that there was not, and

(b) that in any event the Appellant's claim for redundancy payment was time-barred, there was no need for that Industrial Tribunal to consider whether or not the employment contract had, at some date after March 1991, been frustrated.

He submitted that the first Industrial Tribunal simply did not decide the matter because they did not need so to do. Mr Carr added that to the extent that the first Industrial Tribunal did make any finding on that contention they appear to have accepted that the employment relationship was not continuing between the parties as at the time when they gave their decision having regard to the way they express themselves on the final page of their decision in terms which appear to assume that the Appellant no longer had a job with Ashbrook Construction Ltd.

Here again, we find we must accept Mr Carr's submission and reject that of Mr Morris and we conclude that there was no reason whatsoever for the second Industrial Tribunal, whose decision we are judging, to have considered in any detail the very different facts and circumstances before the first Industrial Tribunal let alone draw any inference adverse to the conclusion that this Appellant's contract had been frustrated.

Having dealt with those submissions we turn to the main issue. We should say straight away that we agree entirely with Mr Morris's submission that the invocation of the doctrine of frustration must always be viewed very critically, and is to be regarded very much as the exception rather than the rule in employment contracts. We have borne this in mind when examining this decision. We also accept that it would have been more satisfactory had the Industrial Tribunal set out the legal test against which they were to make findings of fact perhaps by reference to either Lord Donaldson's or Phillips's J. statements of principle as set out in the earlier cases to which we have referred.

However, in our judgment, there can be no doubt at all that long-term illness or injury disabling an employee from being able to work is capable of bringing about a frustration of an employment contract. Often, of course, for one reason or another it will not do so. Very commonly no doubt an employee will find himself having to be dismissed due to ill-health, sometimes no doubt he will resign on terms. There are many different possibilities, but in our judgment it remains the case that albeit rarely, the correct legal analysis is that the contract of employment has become frustrated. The importance of this in our judgment is that it cannot be said that the Industrial Tribunal misdirected themselves in law in accepting that long-term disability was capable of amounting to a frustrating event. Secondly, in our judgment, it is apparent that the Industrial Tribunal were very well aware of the fact that frustration had to be established at some point in the 22 month period between January 1991 and November 1992. In our judgment, although they did not spell it out in so many words, it is plain that that they did look back to a notional date during that period and, although they could not find a precise date, that they considered the issue of frustration as at that admittedly imprecise notional date. It is also quite clear, in our judgment, that on looking back, as we find they did, the Industrial Tribunal did consider the future prospects for the Appellant being able to get back to work as at that notional imprecise date during that 22 month period. This is plain in our judgment form the words "and beyond" in the sentence "throughout the period of 22 months and beyond Mr Jones was incapable of work." We find additional support for this interpretation of the Industrial Tribunal's decision from the earlier finding of fact by the Industrial Tribunal that the Appellant remained unfit to carry out his job until March 1994.

Accordingly we find we must reject Mr Morris's submission that the Industrial Tribunal did not as he put it "stand back at the notional period and ask themselves what are the prospects for recovery." In our judgment on a fair reading of the decision this is what the Industrial Tribunal did do. Their finding that the Appellant remained unfit to work right up to March 1994 was plainly made in order that they could look to the future from a date before the receivership in November 1992 in order to judge the prospects of recovery.

Next, we accept Mr Carr's submission that, shortly expressed though they are, the Industrial Tribunal's conclusions in paragraph 4 are strongly indicative of the fact that they had the correct test in law in mind, and we find it quite impossible to say that the Industrial Tribunal misdirected itself in law in any way.

We turn finally to consider the submission that the Industrial Tribunal failed to address itself to the factors enumerated by the Lord Donaldson and Phillips J. in the two cases we have earlier cited. In our judgment, on close analysis, there is nothing to suggest that where they were relevant the Industrial Tribunal did not have such of them substantially in mind as they were able properly to consider on the evidence before them. Thus, how long the Appellant had been in employment was referred to in paragraph 2, the nature, length and effect of the illness was of course considered, whether wages were still being paid was considered, as were the terms of the contract relating to sick pay, and in our judgment whether a reasonable employer could be expected to wait for the employee any longer, and, in our judgment, as part and parcel of that, the prospects of recovery. It is correct that the Industrial Tribunal did not expressly consider how long the employment would have been expected to continue but they clearly did not decide or deal with the case other than on the basis that it was a long-term employment. It is true that the Industrial Tribunal did not consider the risk to the employer of acquiring further obligations for redundancy payment or compensation payments for unfair dismissal to any replacement employee but in our judgment there simply was no evidence before them on such a factor, and it would have been mere speculation in the absence of evidence to consider this factor. Nor was consideration given to the question as to why the employers did not dismiss the appellant but here again there was no evidence before them one way or the other as to this and any finding on it would be the purest speculation. Thus the employers might not have dismissed because they were prepared to keep the Appellant on the books without having to pay him so that the contract still subsisted, but on the other hand they might not have dismissed because they took the view that the contract had already been frustrated, an argument which they had put forward in June 1992 before the Industrial Tribunal.

Finally with regard to the question of consideration being given to acts and statements of the employer in relation to the employment the Industrial Tribunal did find, as they were entitled to do on the evidence, in our judgment, that there had been no contact whatsoever between the parties between March 1991 and November 1992 and in our judgment they were entitled to regard this fact as supporting their conclusion that the contract had been frustrated. Beyond that, there was no evidence before them as to any statements made or acts done by the employers of which they could take cognisance.

At the end of the day, in our judgment it cannot be said here that the Industrial Tribunal did not apply the correct test or that they failed to ask themselves the central question, namely whether the Appellant's incapacity, looked at before Ashbrook went into receivership in 1992, at some unspecified date before that time, was of such a nature and appeared likely to continue for such a long time that further performance of his duties as a driver/labourer would be impossible. Indeed in our judgment it is apparent that the Industrial Tribunal did ask themselves the correct questions, applied the correct test, and reached a conclusion of fact with which we cannot interfere. Accordingly this appeal dismissed.