United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR JONATHAN WALTERS (of Counsel) Instructed by: Messrs Morgan Cole Solicitors Bradley Court Park Place Cardiff CF1 3DP
For the Respondent	MS ANYA PALMER (of Counsel) Instructed by: Messrs Osborne Clark Solicitors 2 Temple Back East Temple Quay Bristol BS1 6EG

SUMMARY

Unfair Dismissal

ET incorrectly applied Sir John Donaldson's dictum in Bridgen [1987] IRLR 58 (based on Woodar v Wimpey): assertion of wrong interpretation of contract not enough for repudiation, which requires intention not to comply with contract as properly construed. Remitted to ET.


 


THE HONOURABLE MR JUSTICE BURTON (PRESIDENT)

1. This has been the appeal by the Respondent, Haberdasher's Monmouth School for Girls, against the unanimous decision by the Hereford Employment Tribunal, after a hearing on 30 June and 14 July 2003, in a Decision handed down on 18 September 2003, whereby the Tribunal found that the Applicant, Mrs Turner, had been unfairly dismissed by the Respondent. The Tribunal also found that the Appellant was in breach of contract by its failure to pay the Applicant holiday pay, which is a decision that has not been appealed.
2. There were two issues in general terms that required to be decided by the Employment Tribunal. The first was whether in fact the Applicant had been an employee of the Appellant, in her position as a visiting music teacher at the school. The Tribunal resolved that issue in favour of the Applicant.
3. The second issue was whether by asserting that the Applicant was not an employee, but that she had been, for the 22 years that she had been engaged at the school as a music teacher, so engaged on a contract of service, or self-employed, the Appellant was in repudiatory breach of contract, such that the Applicant was entitled, when she resigned, as she did, from her engagement or employment, by letter dated 30 October 2002, taking effect at the end of the term on 31 December 2002, to treat herself as constructively dismissed.
4. The unusual circumstance of this case, against a background that it appears the Respondent had decided, or been advised, to change over all its contracts to ones that were unambiguously contracts of employment, is that both sides had legal advice at the time.
5. The letter of the Applicant of 10 May 2002 is what appears to have started the long slide through to the eventual resignation, when the Applicant wrote to Mr Charlton, the Bursar at the Appellant's school, as follows, on receipt of a draft contract of employment for her to sign:

"There is a [principal] point in the draft contract that I am unable to accept. I have taught in the school for 22 years and I am not prepared to forego all those years for the proposal in paragraph 2. My employment contract over that period entitles me to the same terms and conditions of employment. Both my union and the employment team of a national firm of solicitors advise me that I currently enjoy employed status through my initial letter of appointment and implied working conditions over the past 22 years."

6. Correspondence continued until 27 June, when a letter was sent by the Bursar, enclosing the final version of her contract, which remained in the same terms, namely not recognising her previous employment as having been as an employee.
7. By letter dated 20 September 2002 Mr Charlton wrote again, noting that she had not yet signed and returned a copy of the contract, and by letter dated 24 September 2002 the Applicant repeated her unwillingness to sign the document, because it did not acknowledge her past 22 years statutory service as an employee of the school.
8. By letter dated 26 September Mr Charlton wrote to say that he regretted to inform her that the school's position remained unchanged in the matter, as it considered her to have been self-employed.
9. 11 October saw a reply from the Applicant saying that she found it unacceptable and disappointing that her past 22 years service could not be recognised within the contract, and especially unsatisfactory in the light of her past service that they could not recognise her service as an employee of the school, and asked them to reconsider the decision.
10. The response to that was by letter of 16 October 2002 which read as follows:

"Dear Mrs Turner

Thank you for your letter of 11 October, in which you voiced concern regarding the starting date of your contract.

I have discussed this issue with the School's solicitors and, whilst I note your comments, I would not wish to change that particular clause in your contract. I appreciate from the comments in your letter that, in turn, you might not then wish to sign the contract. However, I would still wish you to work at HMSG and hope that you would continue to work here for the whole of this academic year and, hopefully, if there continues to be work available, in future years."

11. The response by the Applicant was to write to Dr Despontin at the school as follows:

"I am writing to inform you that I wish to tender my resignation from my employment at Haberdasher's Monmouth School for Girls ("the School") with effect from the end of this term. Therefore, my employment will terminate on 31^st December 2002.

I consider that I have no option but to resign from the School because the School has refused to recognise my employment status, continuous service and statutory rights. In doing so, I consider that the School has eroded the trust and confidence that should exist between us and has acted in breach of my statutory rights and my contract of employment. I have had correspondence with Mr. Charlton regarding the new contract of employment you gave to me and I have continually maintained that I consider that I have been an employee of the School for 22 years. In the new contract of employment, the School has stated that I would be considered to be an employee from the date of that agreement. However, the School has refused to accept that I was an employee before that date and to recognise my continuity of employment.

In my opinion, the new contract of employment has not changed my relationship with the School in any way. It simply sets down in writing the relationship I have always had with the School.

As such, I consider that I am entitled to the benefits I should have received as an employee during my time at the School, including holiday pay, sick pay and recognition of my continuity of service and, as such, my resignation is without prejudice to my rights as an employee.

I would like to leave as soon as possible, but as a gesture of good will to both my pupils and the School after 22 years of employment, and in order to assist you in finding a replacement I am willing to delay my departure until the end of this term."

12. Looked at from the point of view of this Appeal Tribunal, and entirely irrelevantly to the outcome of the hearing below, it is disappointing to note that there were legal advisers on both sides and yet this outcome seems almost ineluctably to result.
13. It appears to be common ground between Counsel now before us, Ms Palmer and Mr Walters, both of whom appeared below, that it would have been possible for the Appellant's position to have been preserved. For example, Mr Walters accepts that, even had the Applicant signed the contract, certainly if she had done so under cover of an accompanying letter preserving her rights, she would have preserved entitlement to continuity of service if she had it, notwithstanding signature of a contract which did not record those rights. But the position is that somehow or other that did not occur and, in the event, as we have indicated, the Employment Tribunal, when the matter came literally to court, decided that she had been an employee and thus that the employer it was who was taking the wrong position in relation to the construction of the contract.
14. This is, however, not a situation in which, as we have indicated, as does occur on some occasions, an employer says "unless you sign this contract you must go", or, in which the employer makes it a condition of continued employment or engagement that the contract of employment is signed. The 16 October letter, at any rate on its face, recognises and accepts the fact that if the letter is not signed the Applicant will be staying on as a music teacher, albeit of course, so far as the Appellant was concerned, on the terms which the School asserted had always been the case, namely that she was not an employee, but of course on the same terms so far as salary was concerned.
15. The issue of dispute about terms and conditions of a contract has most clearly arisen in the decision in the House of Lords in Woodar Investment and Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277. That was a case in which the parties, or at any rate one of them, honestly but mistakenly believed that they were entitled to act in a certain way by virtue of their understanding of the contract.
16. The speeches in the House of Lords have been addressed before us. The following passages appear to be particularly relevant. Lord Wilberforce at page 280 says this:

"…unless the invocation of that provision were totally abusive, or lacking in good faith, (neither of which is contended for), the fact that it has proved to be wrong in law cannot turn it into a repudiation."

At 283 Lord Wilberforce further said:

"I shall simply state that the proposition that a party who takes action relying simply on the terms of the contract, and not manifesting by his conduct an ulterior intention to abandon it, is not to be treated as repudiating it is supported by…"

and then he refers to previous cases, which he approves; and then he further says at 283:

"Repudiation is a drastic conclusion which should only be held to arise in clear cases of a refusal, in a matter going to the root of the contract, to perform contractual obligations."

17. Lord Keith at 297 said this:

"Where one party, honestly but erroneously, intimates to the other reliance upon a term of the contract which, if properly applicable, would entitle him lawfully to rescind the contract, in circumstances which do not and are not reasonably understood to infer that he will refuse to perform his obligations even if it should be established that he is not so entitled, legal proceedings to decide that issue being in contemplation, I do not consider it in accordance with ordinary concepts of justice that the other party should be allowed to treat such other conduct as a repudiation."

On the facts of that case, although not of this case, legal proceedings to resolve the issue were in contemplation.

18. At 299 Lord Scarman said:

"…they honestly believed the contract did give them the right. When one examines the totality of their conduct and its impact upon Mr. Cornwell it is plain…that the defendants, though claiming mistakenly to exercise a power given them by the contract to bring it to an end, were not evincing an intention not to be bound by the contract. On the contrary, they believed they were acting pursuant to the contract…

It never occurred to Mr. Cornwell that the defendants, if held not to have been entitled to give notice of rescission, would refuse to perform the contract."

19. The principles in Woodar v Wimpey have been well accepted over the years and indeed are referred to in a number of other cases which have been put before us by both sides. Financial Techniques (Planning Services) Ltd v Hughes [1981] IRLR 32 was referred to by Mr Walters, particularly at paragraph 29, while Ms Palmer refers to Millbrook Furnishing Industries Ltd v McIntosh [1981] IRLR 309.
20. It was also followed in British Broadcasting Corporation v Beckett [1983] IRLR 43, in which, however, there is also reference, to which our attention was drawn by Ms Palmer, to what has sometimes been said to be a competing point of view, expressed by Lord Wilberforce himself, in Federal Commerce & Navigation v Molena Alpha [1979] AC 757 at 758, namely that if a party's conduct is such as to amount to a threatened repudiatory breach, his subjective desire to maintain the contract cannot prevent the other party from drawing the consequences of his actions. It would perhaps need a whole chapter of a textbook to discuss the reconciliation which, from time to time, academics have made between that dictum and the more well-established and well-followed conclusions of the House of Lords in Woodar v Wimpey.
21. However, no such distinction or careful differentiation needs to be made in this case, because it was accepted by both Counsel before the Tribunal, and not disputed before us, that in fact the most concise and correct recitation of the law is set out by Sir John Donaldson MR in Bridgen v Lancashire County Council [1987] IRLR 58. Albeit in what might be said to be an obiter passage, he correctly, in the judgment of both Counsel and indeed in our judgment, summarised the legal position as follows:

"The mere fact that a party to a contract takes a view of its construction which is ultimately shown to be wrong does not of itself constitute repudiatory conduct. It has to be shown that he did not intend to be bound by the contract as properly construed."

22. It is plain that that, set in the context of Woodar v Wimpey, to which we have referred, make the position entirely clear. What is not sufficient is an assertion, however forthright, by a party in good faith, of its interpretation of a contract – as here, an interpretation of the contract that the other party to it is not an employee but is self-employed – and an intention to act in accordance with the party's interpretation of that contract. What is necessary in order to amount to repudiation is a position that the party will not comply with the contract unless such be the case, i.e. that the party does not intend to be bound by the contract as properly construed, i.e. if it should turn out that such party should be wrong in its interpretation.
23. It appears from the frank explanation by Ms Palmer that she had not turned her mind to Woodar v Wimpey or Bridgen, or the authorities upon which it was finally agreed that the Tribunal should operate, until Mr Walters had relied upon the dictum of Sir John Donaldson MR as interpreting the law correctly in his written closing submissions before the Tribunal; and she, as we have indicated, agreed with him that that was the correct approach in law, as we indeed believe it was.
24. She has shown us her own written submissions before the Tribunal, or extracts from them, by reciting them in her own Skeleton Argument. In those submissions she herself specifically referred to the passage in Bridgen from Sir John Donaldson's judgment, and made the submission that "In this case if the Tribunal accepts that Mrs Turner was an employee and had been since 1980, then plainly it is shown that the Respondent did not intend to be bound by that. The Respondent was not prepared to be bound by the contract at all." That was her submission.
25. Mr Walters, of course, was pointing in particular to Mr Charlton's letter of 16 October and to the case which he says was accepted by the Tribunal that the School was prepared to continue to employ the Applicant, Ms Palmer submitting that, at any rate from that letter, it is only apparent that it was prepared to employ her on its own terms.
26. What plainly was necessary for the Tribunal properly to address that question was for it to reach a conclusion as to whether the Appellant was prepared to comply with its obligations, as and when and if properly construed. Ms Palmer submits that that would be a difficult task and that it is not appropriate for an applicant to be required to prove that a respondent did not have the relevant intention. But, as became clear in the course of argument, there will be many occasions – we are not necessarily saying that this case illustrates them – in which it will be apparent that if an employer were to say "oh well, of course I would have continued to comply with the contract if I had turned out to be wrong" then the other party would be in a position to say that the employer was not to be believed. If, for example, the position that a party was taking in relation to a contract, if wrong, would have had a very dramatic financial impact then, particularly after analysis of the precise circumstances of the discussions between the parties, it might be simple for a Tribunal to conclude that such were the dramatic consequences of the interpretation relied on by the employer, if he were wrong, that he would not then have complied, whatever he might now say.
27. Such would be the case, clearly, if there were, in relation to this kind of situation, a scenario in which it would never be the case that an employer would retain someone as an employee, (rather than as self-employed) because it would be entirely contrary to some well-established policy; or, if the consequence of employing such a person as an employee rather than as self-employed were dramatically expensive.
28. It might also be that on the construction of a particular set of circumstances the Tribunal might conclude that, even if a lot was not at stake, such was the high-handedness or bloodymindedness of one side or another to the negotiations or discussions that had it turned out to be wrong it would not in fact have complied with the contract, come hell or high water.
29. But there must be, in our judgment, some kind of consideration and discussion of that kind, because otherwise, as in the end it appeared to us Ms Palmer was compelled to accept, Sir John Donaldson's helpful, precise dictum, which consists of two sentences, would not be honoured as to the contents of both sentences. We remind ourselves what he said:

"The mere fact that a party to a contract takes a view of its construction which is ultimately shown to be wrong does not of itself constitute repudiatory conduct. It has to be shown that he did not intend to be bound by the contract as properly construed."

30. An assertion, however high-handed, however heavy-handed, however determined, as to the interpretation of a contract, would, on that basis, not be sufficient of itself to constitute repudiatory conduct, absent of course some finding of a different breach of contract, such as breach of the mutual term of trust and confidence or something of that kind, without the second sentence being fulfilled, namely that the relevant intention had to be shown.
31. The Employment Tribunal spent, as is understandable, the majority of its Decision in analysing the facts, and then in dealing with the question as to whether in fact the contract prior to the May 2002 correspondence had been one of employment. It then deals with constructive dismissal and in particular this issue, only between paragraphs 38 and 41. There is nothing wrong with conciseness, particularly in the light of the findings of fact earlier in the judgment, provided the issue is addressed in accordance with the legal position.
32. At paragraph 40 the Tribunal referred in terms to the judgment of Sir John Donaldson in the case of Bridgen, which it cites. Paragraph 41 is then the central and indeed only paragraph of conclusion in relation to this issue and it reads as follows:

"[The Respondent] contends that it had not evinced an intention not to be bound by the contract as properly construed. In our view, however, the respondent's position could not have been plainer nor made more clear to the applicant. She was told directly that in the view of the respondent she had not been an employee of the respondent and was not an employee of the respondent at that stage. In reality, the offer made by the respondent, was either that she agreed to become an employee of the respondent on the terms that it offered, which involved an acceptance that she had not previously been employed and therefore had no statutory rights, or that she continue working on the terms as before, that is to say as a self-employed independent contractor. In our view that choice given to an employee of long standing is a fundamental breach of the contract of employment."

33. It is in our judgment quite plain that paragraph 41 goes no further than reciting the position by reference to the first sentence of Sir John Donaldson's dictum, and indeed it does so without express consideration of the terms and consequences of the letter of 10 October 2002.
34. But what it does not do is then go on to deal with the second sentence of Sir John Donaldson's dictum; and the consequence of its not doing so is that the only conclusion it reaches, namely that the giving of the choice to an employee of long-standing is a fundamental breach, is in effect exactly the same as saying that the statement of the employer's position as to its interpretation of the contract is a fundamental breach. It does not go on to reach the conclusion, for example, that it must be inferred, notwithstanding what the Appellant may have said, that it did not intend to be bound by the contract as properly construed.
35. This is, as we have indicated, not a case in which there was anything uttered, either orally or in writing, by way of "over my dead body"; indeed, on the face of it, the reverse is said in the letter of 10 October, albeit, as Ms Palmer points out, only on its own terms. But there is no consideration at all by the Tribunal as to the kind of considerations that we were setting out earlier in this judgment, so as to be able to decide that, whatever the Appellant might say or have said – and it does not appear as though in fact Mr Charlton was cross-examined in this regard in any event – it would not have continued to employ the Applicant if it had had to do so on the basis that she was an employee with an entitlement to continuity of employment, and possibly the retrospective application of certain terms and conditions of such employment.
36. The consequence in our view is clear, namely that this Tribunal has not answered its own question, and in particular has not given an answer to the conundrum set by Sir John Donaldson and indeed by their Lordships in Woodar v Wimpey.
37. Mr Walters submits that we should not send the matter back. Ms Palmer, although she originally suggested that if, contrary to her contention, we were satisfied that the Tribunal had erred in law, we should not send it back, in the end accepted that she could not say that had the Tribunal asked itself the correct question it would be bound to answer it in a way such as to uphold its decision as it presently is.
38. Mr Walters did not quite put the case in the same way. He submitted that in a case where the Tribunal had heard evidence without cross-examination, and consequently without evidence, at any rate evidence that might have been of use, to raise the kind of issues which we have discussed in the course of this judgment, if we were to send it back to a different Tribunal to be reheard then the evidence would be called afresh and Ms Palmer and the Applicant would be given a second bite at the cherry, when in fact the best that ought to happen is that she should be put in the same position as if she were now making the closing submissions, but without any fresh evidence.
39. It appeared to us that the logic of that course was that the matter should go back to the same Tribunal to hear no fresh evidence but simply to re-hear submissions in accordance with the correct approach. However, Mr Walters did not ask us to take that course, and indeed presented only to us the alternatives of substituting our own decision or sending it back to a fresh Tribunal.
40. We are satisfied that the authorities showing the limited role for an Employment Appeal Tribunal in substituting its own decision must prevent us from doing so. We are unable to be satisfied as to the outcome of a Tribunal hearing if the correct questions be addressed, one way or the other, and we are satisfied that this ought to be remitted.
41. Once it is to be remitted then we are not invited to consider the question of sending it back without starting afresh, as would be required to happen, with a fresh Tribunal. It is always a rare course to send the matter back for rehearing by the same Tribunal, and we would certainly not do it unless both sides were inviting us to do so, in a case of this kind. If the matter is to go back to a fresh Tribunal, therefore, there must be fresh evidence, although we are entirely satisfied that the issue that must be run before that Tribunal must be the same issue as was run before this Tribunal If a case of breach of the implied term of mutual trust and confidence (which is not mentioned by the Tribunal) was not run below, then it plainly could not now be run.
42. The issue that will now be run will be the same as fell to be decided by the Tribunal, namely whether in the circumstances of this case the Respondents were repudiating the contract of employment by taking the position they did in relation to its construction and whether in those circumstances the Applicant was entitled to treat what they did as a repudiation of the contract of employment by reference to the dictum of Sir John Donaldson in Bridgen, to which we have referred.
43. In those circumstances, and to that extent, this appeal is allowed.