United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant:	MR O BRITTON (Solicitor) 16 Billy Lows Lane Potters Bar Herts EN6 1XN
For the First Respondent: For the Second, Third and Fourth Respondents:	MR J FROST (Solicitor) Hillingdon Law Centre 12 Harold Avenue Hayes Middlesex UB3 4QW MR R A SEGAL (Solicitor) A Segal & Co Insolvency Practitioners Albert Chambers 221-223 Chingford Mount Road London E4 8LP

SUMMARY

Practice and Procedure

Challenge to ET's decision on a preliminary issue not to "disjoin" the Appellant employers from the proceedings after a new cause of action (TUPE) was identified for the first time at the hearing, necessitating an application for amendments to the IT1 and consideration of the jurisdictional issues. Appeal allowed.


 


THE HONOURABLE MRS JUSTICE COX

1. By a decision of the Watford Employment Tribunal on a preliminary issue, the decision being promulgated on 8 October 2003, it was ordered that the second Respondent to these proceedings, Regal Travel and Tours Ltd, now the Appellant in this appeal, was to remain a party to these proceedings. The Appellant appeals against that decision and this is the full and expedited hearing of their appeal. We have had the benefit of submissions from Mr Britton on behalf of the Appellant and from Mr Frost for the Applicant Mr Patil, the first Respondent to this appeal. No other party to these proceedings has appeared or been represented before us in this appeal and we understand that in fact Mr Patil, Regal Travel and KMC now remain as parties to these proceedings.
2. The relevant facts are these and we shall summarise or recite the findings of the Tribunal set out in their Extended Reasons. The preliminary hearing was in fact convened by the Tribunal of its own motion to determine whether the second and third Respondents, Regal Travel and Mr Kerai, should be "disjoined" from the proceedings. The background was as follows. Mr Patil in his Originating Application stated that he was employed by KMC Ltd between 18 August and 21 October 2002. Mr Naidu's Originating Application stated that he was similarly employed by KMC between slightly different dates, again between August and October 2002.
3. Both of the Applicants were alleging that they were unfairly dismissed and that their former employer had acted in breach of contract and had made unlawful deductions from their wages. The Tribunal set out at paragraphs 5-11 their findings of fact and the sequence of events and in view of their importance we shall refer to them in full here:

"5. In order to claim unfair dismissal an applicant generally requires a minimum of one year continuous service. Neither of these Applicants had continuous service of this length. During the course of the hearing, the Applicants' representative explained that the complaints of unfair dismissal were being advanced on the basis that the Applicants had been dismissed for asserting a statutory right relating to the National Minimum Wage and/or Working Time Regulations and/or that they had been dismissed for a reason connected with a transfer of undertakings pursuant to the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("TUPE"). The second Respondent's representative stated that he had been unaware that the Applicants were putting their cases in this way. We have accordingly given directions to ensure that these issues are properly pleaded by the Applicants and that the Respondents have an opportunity to amend their Notices of Appearance should they wish to do so.

6. The cases of both Mr Patil and Mr Naidu were originally bought against a single Respondent, Kerai Management Consultant Limited. By letters dated 6 May 2003 both Applicants sought to join Regal Travel and Tours Limited and Mr Ramji Kerai. In doing so, the Applicants stated that they were "applying to pierce the corporate veil". [This] application was granted. In the Notices of Appearance submitted by the Second and Third Respondents they each maintained that the correct Respondent was Kerai Management Consultants Limited and that the Applicants' applications against the Second and Third Respondents were misconceived. In these circumstances the Tribunal ordered a preliminary hearing of its own motion to determine whether the Second and Third Respondents should be disjoined.

7. The applications to join the second and third, Respondents had been made following the sale of Kerai Management Consultants Limited ("KMC") to Regal Travel and Tours Limited ("Regal") on 25 9ctober 2002 and the subsequent winding up of KMC by way of creditors voluntary liquidation on 10' February 2003. The Applicants considered the circumstances of these events to be suspicious.

8. The first Respondent, KMC, was registered as a company in 1997. At the relevant time its main business was the operation of three restaurants, Gigi's, Magnum's and Ruffle's. The Applicants were recruited in India to work in these restaurants and had work permits obtained by KMC. The Directors of KMC were Mr Kerai and his wife and its shareholders were Mr Kerai and his brother.

9. The second Respondent, Regal, was also registered as a company in 1997. At the time the Applicants were dismissed the directors of Regal were Mr Kerai and his wife. Mr Kerai was its sole shareholder.

10. On the 10 October 2002 KMC entered into a sale agreement to dispose of its restaurant businesses to Regal. Under the agreement Regal was to purchase the goodwill of the three restaurant businesses, their chattels, trade fixtures and fittings 'and equipment together with their leases and licences for a consideration of £300,000. Mr Kerai maintained that this sale did not leave KMC as a shell as it still had interests in a recruitment business and was attempting to acquire a further venture, Club 19 Executive.

11. Mr Patil's employment with KMC terminated on 18 October 2002 and Mr Naidu's employment terminated on 21 October. As noted earlier, the completion of the sale of the restaurant businesses to Regal occurred on 25 October. Mr Kerai stated that if the employment of the Applicants had not terminated they would have continued to work in one of the three restaurant businesses as employees of KMC but that his intention was that they would eventually work at Club 19 Executive, should that venture become operational, which it did not."

4. At paragraph 12 the Tribunal record the fact that at the time the Originating Applications were lodged in January 2003 the Applicants had no knowledge or no detailed knowledge of the sale of the restaurant businesses to the Appellants. Upon becoming aware of the sale of the businesses and the subsequent liquidation of KMC the Applicants sought further and better particulars from KMC. When these were not forthcoming voluntarily the Applicants then obtained an order from the Tribunal. By that time it would appear that a liquidator had been appointed to act on behalf of KMC and the Tribunal indicated that the further and better particulars had still not been furnished.
5. It follows from the above that at the hearing on 12 September 2003 Mr Britton, then representing the Appellants, came prepared to meet an argument that the Applicants were entitled to "pierce the veil of incorporation". However, as the Tribunal record at paragraph 13 of their reasons:

"Instead, Mr Frost put the Applicants' case for opposing the disjoinder of the second Respondent exclusively on the basis that the sale of KMC's restaurant businesses to Regal was a relevant transfer for the purposes of TUPE and that the Applicants were dismissed for a reason connected with that transfer. Mr Oliver [they mean Mr Britton] argued that if the Applicants had been dismissed at all they had been dismissed for misconduct."

6. The Tribunal then set out their conclusions at paragraphs 14 to 16 and again in view of their importance we shall refer to them in full here:

"14. We find that the sale of the restaurant businesses by KMC to Regal was a relevant transfer for the purposes of TUPE and that' the Applicants were assigned to the businesses transferred prior to the termination of their employment. Indeed, paragraph 10 of the sale agreement states:

"The parties hereby acknowledge that the sale and purchase hereby agreed will constitute a relevant transfer for the purposes of the Transfer of Undertakings (Protection of Employment) Regulations 1981 which will not operate so as to terminate any of the contracts and employment of the employee brief details which are set out in the schedule hereto and it is their intention that such contracts will be transferred to the purchaser pursuant to the said regulations on completion with the exception of Work Permit Holders".

15. The names of the Applicants did not appear on the schedule to the sale agreement, even though the Applicants were still KMC employees on the 10 October, when the agreement was signed. Mr Kerai explained that this was for a reason related to their work permits, in that immigration law did not permit the Applicants employment to transfer automatically to Regal by reason of TUPE. No authority was presented to the Tribunal on this issue. If the application of TUPE to employees who require work permits is to be an issue at the full merits hearing, the parties should prepare appropriate legal submissions.

16. In our judgement there was not sufficient evidence before us at the preliminary hearing to determine whether the Applicants were dismissed and if so, whether their dismissals were connected with a relevant transfer. These are issues which are more appropriate for decision after having heard evidence and full argument at the merits hearing. Accordingly, we find that the second Respondent should not be dismissed from these proceedings."

7. The following matters therefore emerged from our recital of these reasons:

(1) The reason for permitting the Applicants to join the Appellants (then second Respondents) to the proceedings was that which had been asserted in the letter to the Tribunal of 6 May 2003, namely that as at the dates of termination of their employment the second Respondent was the Applicants' true employer and the Applicants wished to "pierce the corporate veil".

(2) At the preliminary hearing, however, the Applicants withdrew their application to pierce the corporate veil and sought to justify the joinder of the second Respondent by advancing a new and distinct cause of action, relying on and asserting rights pursuant to TUPE. They argued that by virtue of the TUPE Regulations the termination of their employment was connected with the transfer of the business by the first to the second Respondent on 25 October 2002 and that accordingly the same was unfair; and secondly they argued that there had been an automatic unfair dismissal of each of them because they were dismissed after asserting statutory rights to the first Respondent prior to the said transfer. Mr Frost in argument before us sought initially to persuade us that the nature of the case had not really changed but he realistically accepted during oral argument that this was not so and that a very different case was in reality now being advanced.

(3) Effectively this was an application to amend the Originating Applications by adding new causes of action, of which the Appellants had had no notice. We have not seen any amended pleadings but we understand that the Originating Applications were subsequently amended to incorporate these changes to the case.

8. By refusing to disjoin the second Respondents the Tribunal effectively granted this application to amend. However a number of issues arose from the new case being advanced by the Applicants. Firstly, the new causes of action were arguably outside the jurisdiction of the Tribunal because the 3-month time limit for bringing such claims had expired in respect of both Applicants by 21 January 2003 (see section 111 (2) (a) of the Employment Rights Act 1996). Secondly, it was arguable that neither Applicant had the necessary 12-month qualifying period pursuant to sections 94 and 108 of the 1996 Act and Regulation 8 (5) of the TUPE Regulations. No doubt there were other matters which the Appellants may have wished to raise in opposing any application to amend on the basis of the well-known principles applying to such applications in the case of Selkent Bus Co Ltd v Moore [1996] ICR 836, a decision of this Employment Appeal Tribunal, and in particular those dicta which appear at paragraphs 842-3 dealing with the matters which are relevant to the Tribunal's consideration of any application to amend.
9. The effect of the Tribunal's decision not to disjoin the Appellants is that none of these issues, all of which were relevant to a decision to permit the new claims to proceed against the Appellants, were considered by the Employment Tribunal. Mr Britton submits that once the Applicants had withdrawn the original claim against the Appellants based on lifting the corporate veil, the Tribunal should have disjoined the Appellants. They should then have proceeded to consider fresh application to join the Appellants on the basis of the new cause of action and the question of appropriate amendments sought to be made to the originating applications.
10. We agree that in proceeding as they did the Tribunal erred, because the Appellants were effectively deprived of the opportunity to resist an application to join the Appellants to the proceedings on the basis of the new cause of action, in which there were plainly relevant jurisdictional issues which merited consideration and determination by the Tribunal.
11. We therefore accept the Appellants' submissions that they should have been disjoined from the proceedings in order that the matter was then considered afresh by the Tribunal.
12. That being our conclusion, Mr Britton's next submission relates to where we go from here. He submits that the Tribunal should not even have been prepared to entertain a fresh application to join the Appellants and to amend the Originating Applications to permit a new cause of action to proceed so long out of time. He points out that the Applicants had at all times been represented and he draws our attention to the delay in bringing the new claim and to the obvious fact that the new claim sought to be advanced was a very substantial change in the Applicants' case.
13. He relies, as I have already indicated, on the well-known dicta in the Selkent case. He contends that, had the Tribunal addressed their mind to all these points, they would have been bound to reject any application to be permitted to advance this new cause of action having regard to the matters which he sets out in detail in paragraphs 9-13 of his Skeleton Argument. These relate, for example, to the question whether there was a dismissal, the reason for a dismissal if such was found, the reasons for delay, questions of qualifying periods and so forth.
14. Mr Britton, in persuasive submissions invites us now to take our own view of the material which was before the Tribunal and concludes that there was only one way in which the Tribunal could have exercised their discretion.
15. Having heard from both sides in this appeal however we do not accept that it is appropriate for this appellate Tribunal now to conduct an enquiry into matters which it seems to us are properly the province of the Employment Tribunal in determining, as a matter of their discretion, whether to permit joinder of the Appellants and consequential amendments to the Originating Applications on the basis of the new cause of action.
16. It seems to us that the discretion to be exercised is properly that of the Employment Tribunal and not of this Employment Appeal Tribunal. The helpful submissions from Mr Frost seem to us to support the view we take that there are clearly matters to be ventilated in relation to those issues by both sides.
17. In the circumstances we therefore allow this appeal, order that the Appellants are disjoined from these proceedings and remit the matter to a freshly-constituted Tribunal to enable them to consider a fresh application by the Applicant, Mr Patil, to join the Appellants to the proceedings on the basis of the cause of action which was advanced for the first time at the previous hearing on 12 September 2003.