United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	Mr B Napier, Queen's Counsel Instructed by- Perth & Kinross Council Legal Services 2 High Street PERTH PH1 5PH
For the 1st Respondents For the 2nd Respondents For the 3rd Respondents	Miss M Kerr, Solicitor Of- Messrs Harper Macleod Solicitors The Ca'd'oro 45 Gordon Street GLASGOW G1 3PE Mr B Campbell, Solicitor DLA Solicitors 249 West George Street GLASGOW G2 4RB Mr A O'Neill, Queen's Counsel Instructed by- Messrs Thorntons Solicitors 50 Castle Street DUNDEE DD1 3AQ


 


LORD JOHNSTON:

1. This is an appeal at the instance of the Perth and Kinross Council who were the original respondents before the Employment Tribunal in respect of a finding that there was a relevant transfer within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("TUPE") as between the appellants and what are now the second respondents.
2. The factual background to the matter is that after a tendering process, the now second respondents were awarded contracts in relation to housing maintenance relating to the appellants' housing stock. Unfortunately, the second respondents got into financial trouble and a provisional liquidator was appointed on 28 December 2000. He was confirmed as Interim Liquidator by a winding up order from the Sheriff dated 16 January 2001. By operation of law, the contract that was in existence between the appellants and the second respondents, by its terms automatically determined at that date, as the Employment Tribunal so found. Thereafter, by an informal arrangement to continue the work for the appellants on an ad hoc basis was accepted by the liquidator on terms which, save for the right of the appellants to terminate without notice, which then applied, were the same as the terms that had been previously applied. Work orders, however, were placed on a day to day basis. The Tribunal found that the liquidator attempted without success to find a purchaser for the business of the second respondents in the months following appointment. Eventually, the appellants decided, in the light of the deteriorating performance of the contractor, they would end the ad hoc arrangement and notice was given to this effect on 14 May 2001. The termination of the work was thus effected on 31 May 2001. At that date the work which had been previously done by the second respondents was taken back in hand by the appellants.
3. None of these facts are in dispute.
4. The grounds of appeal advanced by Mr Napier, Q.C., on behalf of the appellants, fell into three quite separate categories.

1. Was the transfer which the Employment Tribunal found to have taken place one which could fall within the scope of TUPE, standing the limitations set on the scope of the Acquired Rights Directive ("ARD") in insolvency situations by the jurisprudence of the European Court of Justice?

2. Was the transfer of the works contract away from the Newtown the transfer of a "stable economic entity" having regard to the nature of the contractual arrangements in force between the appellants and the second respondents on 31 May 2001?

3. Esto there was in existence a stable economic entity as at 31 May, was the decision of the Employment Tribunal that there was a transfer of the same from the second respondents to the appellants one which the Employment Tribunal was entitled to reach?

6. There had been a subsidiary issue about the position with regard to Meldrums, which is now not an issue.
7. With regard to the first issue, a very material question of law arises which does not seem to have been decided authoritatively in the United Kingdom. The broad issue is whether or not, when a European Directive is implemented by subsidiary legislation of the United Kingdom Parliament, under section 2 of the Treaty of Rome Act 1972, can the relevant Regulations be intra vires if the effect of those Regulations brought in by the UK Parliament is to widen the scope of the Directive which it is seeking to implement. This Tribunal focussed on this matter in Addison v Denholm Ship Management (UK) Ltd [1997] IRLR 389, commenting critically upon a case R v Secretary of State for Industry ex parte UNISON [1996] ICR 1003. This Tribunal stated in this context "the child cannot be larger, wider or have greater implications than its parent allows."
8. Mr Napier had submitted that there could be a variety of situations of insolvency ranging from debt management orders through receiverships to ultimate insolvency. He referred to a number of text books, namely, Rajani, Tolley's Corporate Insolvency, 1995 page 547 and D Pollard, Corporate Insolvency second edition 2000 pages 109 to 110. He then referred us to the case of Harry Berg and Johannes Theodorus Maria Busschers v Ivo Martin Besselsen European Court Reports 1988 page 02559. In passing he quoted the Advocate General to the effect:-

"Ultimately, the only cases to which Article 1 [of the ARD] is always and indisputably inapplicable are those involving an undertaking which is bankrupt or a company which is in liquidation."

This is confirmed by the main ruling of the Court in Abels [1985] ECR 469 which states:-

"ARD does not apply to transfers taking place in the context of insolvency proceedings instituted with a view to the liquidation of the assets of the transferor under the supervision of the competent judicial authority."

This was followed in D'Urso & Ors v Ercole Marelli [1992] IRLR 136 where it was held that ARD did not apply to a transfer which occurred in the context of insolvency proceedings which were intended to realise the assets of the undertaking for the benefit of its creditors. Some discussion, it was submitted, took place in this case as to the absence of any express provision in the Directive dealing with liquidation which pointed to the intention of the legislators not to cover that issue or rather exclude it. Without going into details at this stage, Mr Napier recognised there were other aspects than complete insolvency, where a different situation might occur. However, here, if there was any transfer to the appellants, it was not the result of the liquidator selling on part of the business as a going concern but was instead about the liquidator being unable to continue trading at all and thus closing down his operation.

9. Mr Napier referred us to two more cases, namely, R v Maxwell Fleet and Facilities Management Ltd (No.2) [2000] IRLR 368 but submitted that did not bear on the issue since it was concerned with Regulation 4 of TUPE. He also referred us to Belhaven Brewery Co Ltd v Berekis EAT/724/92 where the EAT in a subsidiary argument held that the Employment Tribunal had been right to reject an argument that the vesting of a trade or business in a trustee in bankruptcy was not a relevant transfer under TUPE because it went further than the scope of ARD. Mr Napier's submission in this respect was that this approach was wrong, particularly having regard to the subsequent case of Abels.
10. Mr Napier essentially submitted that it was the duty of this Tribunal to interpret the TUPE regulations against the scope of the terms of ARD and not to approach the matter on any form of purposive or broader consideration thus proper insolvency excluded the application of TUPE. He finally submitted in this context that if there was any doubt as to the position, this Tribunal should make a reference to the ECJ to have the matter resolved.
11. Turning to the second ground of appeal with regard to stable economic entity, Mr Napier's simple position was that the ad hoc arrangements operating from the date of the liquidation to the date of termination could not be described as either stable or indeed an economic entity. They were day to day arrangements capable of being terminated at any time.
12. He went into the now well traversed rationalisation of such cases as Rygaard v Stro Molle Akustik [1996] IRLR 51 and Spijkers [1986] ECR 1119. The most recent discussions of this issue were to be found in Temco Service Industries v Imzilyen & Ors [2002] IRLR 214 ECJ as further discussed by the EAT in Cheesman (the same year). In essence, he said, it was quite impossible to categorise whatever the arrangements were between the appellants and the second respondents after the date of liquidation as both stable and indeed even an economic entity since it was simply doing ad hoc work.
13. With regard to the third ground of appeal, Mr Napier argued there had been no transfer of any entity however it should be categorised. To effect this there had to be a transfer of a business as a going concern and he referred again to Spijkers. There was no question of a going concern being transferred in the present case. All that happened was the business proper was terminated by the liquidation. The contractual arrangements went on in an ad hoc basis and were brought to an end by the actions of the appellants as at 31 May. It followed, he submitted, as at that date there was nothing to transfer however it was categorised.
14. He recognised that the insolvency question had not been raised before the Employment Tribunal but emphasised its importance. The other two grounds of appeal had been determined by the Employment Tribunal on a wrong basis of law and should be overturned.
15. Miss Kerr and Mr Campbell, appearing respectively for the now first and second respondents before us, made common ground in respect of all three grounds of appeal.
16. In essence, it was submitted, that it should not necessarily be assumed that the TUPE Regulations following upon ARD did not encompass insolvency situations, at least of some type, and the very variance of such situations throughout Europe pointed to that. In any event, it was submitted that where there could be a concurrence of interest between both creditors and workers, such should be reflected by applying the Regulations to protect the workers. This would be particularly true if the liquidators sought to sell the business as a going concern albeit that it was recognised here that he had failed so to do. Reference was made to the case of Dethier Equipement SA v Dassy and Sovam [1998] IRLR 266 but that case was concerned with the Business Transfers Directive and does inter alia distinguish between the application of that and ARD with regard to insolvency, inasmuch that it confirms that that Directive does not apply in insolvency situations, thus comparing it to the position in Abels with regard to ARD.
17. With regard to the second and third grounds of appeal, the position adopted quite properly by both Miss Kerr and Mr Campbell, was following upon statements by this Tribunal in Compass Services UK Ltd v Patrick EAT/1264/99 where there was more than one view that could be taken of either the question of economic entity or transfer and the view was competently reached by the Tribunal of first instance, this Tribunal should not interfere and that approach we fully understand.
18. The insolvency issue is very important and is novel, at least as far as this Tribunal is concerned.
19. We approach the matter upon the basis it is the primary duty of a liquidator to ingather and dispose of assets for the maximum benefit of creditors. It seems to us, that if he has to look over his shoulder at the TUPE Regulations, this might well fetter the extent to which he might perform this duty. We do however recognise that in receivership or administration, there may be an opportunity for the Regulations to apply if the business is sold on provided it is so done as a going concern and this is very important. Whatever may be the position of a liquidator with regard to the sale of the business as a going concern, when it comes to irretrievable insolvency and cessation of business, we are satisfied that European jurisprudence does not admit the application of the ARD Directive. If it is to be suggested that TUPE has effectively allowed the Directive to operate in that context we consider that it falls foul of the approach that we adopted in Addison to the effect that it is going beyond the scope of the Directive and would therefore in that respect be ultra vires. The issue requires to be addressed by primary legislation.
20. With regard to the question of a reference, we consider that the position in Europe, as it currently stands with regard to the issue of insolvency and TUPE, is sufficiently clear with regard to absolute insolvency as to not require any such reference to be made and we decline to do so.
21. With regard to the other two issues, we cannot contemplate that an operation which depends for its existence from a day to day effective handout of work to which it is not contractually entitled, such as could be terminated or ceased at any time, should be determined as a stable entity. We also have considerable doubts, notwithstanding certain cases about single contractors' situations that this case, subsequent to 31 January, could have been regarded as reflecting an entity operating in respect of the work that was being handed out. We are, however, more concerned to decide the case as regards the issue of stability.
22. Finally, on the question of transfer, we do not consider there was anything left to transfer to the Council at the time of the cessation of business brought about by the appellants declining to offer any more work. There was simply nothing to transfer. The fact that in due course the work has been taken up by the original employer, i.e. the appellants, is nothing to the point. Nothing passed between the parties. The liquidator simply brought the business to an end because there was no more work for it to do.
23. In these circumstances we consider that this appeal succeeds on all three grounds and we will so order.
24. The appeal is therefore allowed and the decision of the Employment Tribunal will be quashed.