Appeal No. UKEAT/0490/09/DA
EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS
At
the Tribunal
On
7 May 2010
Before
THE
HONOURABLE MR JUSTICE MITTING
(SITTING ALONE)
MRS
M FEARON VAUGHAN SIMPSON APPELLANT
WM
A MERRICK
(FORMERLY T/A W A
MERRICK & CO SOLICITORS) RESPONDENT
Transcript of Proceedings
JUDGMENT
SUMMARY
PRACTICE AND PROCEDURE – Preliminary issues
Employer entitled to counterclaim under Article 4 Employment
Tribunals (Extension of Jurisdiction) England & Wales Order 1994 when a
bankrupt Claimant makes a claim for damages under s3(2) Employment Act 1996
whether or not claim is a nullity because Claimant has not obtained permission
of the official receiver or an assignment of the claim before bringing it.
THE HONOURABLE MR JUSTICE MITTING
1.
The Appellant is a 57‑year‑old woman; she worked for 23 years
as a solicitor’s clerk for the firm W A Merrick and Co. The solicitor’s regulatory
authority suspended Mr Merrick, the principal of that firm, from practice, for
12 months from 1 February 2008. Mr Merrick says that although
he was prevented from acting as a solicitor by that order, the business of the
firm did not wholly cease. The Appellant says that her employment ended on
31 January 2008 and that she was dismissed, dismissed unfairly,
without due notice or pay in lieu, without her holiday pay being paid and
without receiving the redundancy payment to which she claims she was entitled.
2.
Mr Merrick says that the Appellant resigned on 28 February 2008 by presenting a letter dated 20 February 2008 demanding payment of pay in lieu, holiday pay and a redundancy payment. He made a number of
other claims or allegations against her: (1), on 13 July 2007 and 16 July 2007 she withdrew £900.00 from his office account for personal
purposes without his knowledge or approval. He says that he subsequently agreed
to treat that sum as a loan, of which £700.00 remains outstanding; (2), she
drew a pre‑signed cheque for £519.48 on 20 July 2007 without
his knowledge or approval and for personal purposes; (3), she drew a further
pre‑signed cheque for £1,400.00 on 6 August 2007, again without
his knowledge or approval and for personal purposes; (4), he lent her £585.58
to assist with her bankruptcy - I am now told that that sum was lent before she
was declared bankrupt on 5 June 2007; (5), he did work for her “in
defence of her bankruptcy” for which he claimed £6,086.62; (6), she took
£4,000.00 in petty cash in the two years up to April 2007; (7), she abused
the email facility at the office for three years up to February 2008 at a
cost to the firm of £600.00; (8), she lost a file, as a result of which he was
liable to reimburse the Legal Services Commission £8499.01. That incident is
said to have occurred after she was declared bankrupt.
3.
The dates matter. She was declared bankrupt on 5 June 2007 and discharged automatically on 5 June 2008. The Appellant commenced
proceedings in the Employment Tribunal on 1 April 2008. She claimed compensation for unfair dismissal, a redundancy payment, unpaid holiday
pay and pay in lieu of notice. Mr Merrick filed a Notice of Appearance in time
and counterclaimed the sums to which I have referred.
4.
Mr Merrick applied to strike out all of the Appellant’s claims except for
that for unfair dismissal which, it is common ground, is not affected by her
bankruptcy. He did so on the premise that the value of the claims form part of
her estate in bankruptcy and so were automatically assigned during the currency
of the bankruptcy order to the official receiver. That application was
determined by Employment Judge Burgher on 20 May 2009. He accepted it and struck out the claim. He held that the value of the monetary
claims formed part of her estate and had not been assigned to her by her
trustee in bankruptcy and summarised his conclusions as follows:
“Having considered the competing submissions I conclude that the
Claimant, being undischarged bankrupt as at 1 April 2008, had no standing to bring the relevant claims without it being assigned to her by the
Official Receiver. It was not assigned to her and therefore her claims of
holiday pay, redundancy pay and notice pay cannot proceed and are dismissed.”
5.
That finding was, in hindsight, somewhat harsh because it is the settled
practice of this Tribunal to stay claims that are brought without the
permission of the trustee in bankruptcy or administrator as appropriate until
permission of the court or an assignment by the administrator or trustee is
made (see Unite the Union v Fitzpatrick & Ors
UKEAT/0513/08/LA). There is, however, no appeal against that ruling.
6.
The Appellant, at the same time, applied to strike out Mr Merrick’s
counterclaim. That had been brought under Article 4 of the Employment
Tribunals (Extension of Jurisdiction) England and Wales Order 1994 SI
1994/1623 which provides:
“Proceedings may be brought before an Employment Tribunal in
respect of a claim of an employer for the recovery of damages or any other sum (other
than a claim for damages, or for some due, in respect of personal injuries) if
-
(a) the claim is one to which section 131(2) of the 1978
Act applies and which a court in England and Wales would under the law for the
time being in force have jurisdiction to hear and determine;
(b) the claim is not one to which Article 5 applies;
(c) the claim arises or is outstanding on the termination of the
employment of the employee against whom it is made; and
(d) proceedings in respect of a claim of that employee have been
brought before an Employment Tribunal by virtue of this Order.”
7.
The Appellant’s claim was, of course, brought by virtue of section 3(2)
of the Employment Tribunals Act 1996 so that, subject to an argument as
to the nullity of that claim, it is common ground that the requirements of
Article 4(d) were satisfied in respect of the counterclaim. The reference
to section 131(2) of the 1978 Act is now to be read, because of the repeal
of that Act, as a reference to section 3(2) of the 1996 Act which
provides:
“(2) Subject to subsection (3) this section applies to-
(a) a claim for damages for breach of a contract of employment
or other contract connected with employment […] if the claim is such that a
court in England and Wales or Scotland would under the law for the time being in
force have jurisdiction to hear and determine an action in respect of the
claim.”
8.
Employment Judge Burgher decided that the claims for, as he put it, the
repayment of the loan of £585.58, the misuse of the two cheques, the taking of
petty cash and the unauthorised use of the internet might have arisen “in
connection with the contract of employment” and so could proceed, but that the
remaining claims were not so connected and so could not proceed. There is no
appeal by Mr Merrick against the dismissal of those parts of his counterclaim.
The Appellant, however, appeals against his decision permitting the four
elements of the claim to proceed. One of them is no longer live, the claim for
damages for alleged misuse of the internet, and I need say no more about it.
9.
Ms Sole, who has argued the Appellant’s appeal with economy and skill,
originally sought to argue that Mr Merrick could not have brought any of his
counterclaims without first obtaining the permission of the bankruptcy court.
He was required to do so by statute in respect of claims which were provable
debts in the bankruptcy. Mr Stone, who has responded with the same skill and
economy to the appeal, relied on section 382 of the Insolvency Act 1986
in respect of part of the counterclaims.
10.
That section has the effect of making a debt or obligation provable in a
wide variety of circumstances, but it does not apply to obligations or claims
which arise after the commencement of the bankruptcy. That is made clear by
its words, the relevant parts of which are:
“-(1) “Bankruptcy Debt”, in relation to a bankrupt, means (subject
to the next subsection) any of the following-
(a) any debt or liability to which he is subject at the
commencement of the bankruptcy,
(b) any debt or liability to which he may become subject after
the commencement of the bankruptcy (including after his discharge from
bankruptcy) by reason of any obligation incurred before the commencement of the
bankruptcy,
[…]
(2) In determining for the purposes of any provision in this
Group of Parts whether any liability in tort is a bankruptcy debt, the bankrupt
is deemed to become subject to that liability by reason of an obligation
incurred at the time when the cause of action accrued.”
11.
Ms Sole initially sought to argue that because the counterclaims, even
where the incidents which gave rise to them had occurred after the commencement
of the bankruptcy, arose out of a contract of employment which had been made
long before, so the debt was, in respect of those claims, provable in the
bankruptcy by virtue of section 382(1)(b) of the 1986 Act. That argument,
with respect to her, is simply untenable. The duty of fidelity which the Appellant
owed to the firm arose before the commencement of the bankruptcy and continued
after it, but the debt or claim arose only when she breached it, as it is
alleged she did.
12.
Accordingly, the counterclaims which are made by Mr Merrick in respect
of the incidents arising after 5 June 2007 were not provable in the
bankruptcy and are not, therefore, affected by it. Such of the remainder of
his counterclaims, as survived Employment Judge Burgher’s Judgment, are,
however, now entirely redundant. Section 281 of the Insolvency Act has
the effect of discharging the Appellant from all liabilities in respect of
provable debts on her discharge from bankruptcy.
13.
Thus, the claims which Employment Judge Burgher allowed to proceed for
£4,000.00 for allegedly misappropriated petty cash in the two years to
April 2007 and of the loan of £585.58, although theoretically still alive
could not conceivably benefit Mr Merrick. They are theoretically alive,
because they might give rise to a readjustment of the Appellant’s estate in the
bankruptcy but nobody suggests that it was such that there would be anything
left to adjust. She personally is discharged by section 281 in respect of them.
Mr Merrick, seeing good sense of that, accordingly acknowledges that no purpose
would be served by pursuing those counterclaims and accepts, as I understand
it, that Employment Judge Burgher’s decision in respect of them should be
overturned.
14.
That leaves the post‑bankruptcy claims. Section 281 does not
discharge the Appellant in respect of them. That does not mean, according to
Ms Sole’s argument, that they can, nonetheless, properly be determined in the
proceedings for unfair dismissal which still continue before the Employment
Tribunal. Her argument is that because the claims for monetary sums brought by
her were a nullity so the counterclaim, which could only be brought on the
premise that she brought such a claim, was also a nullity. The argument that
her claims were a nullity is, for the reasons explained, in Unite the Union v Fitzpatrick
mistaken. The practice of the Employment Tribunal is to stay such proceedings
so as to permit appropriate consent to be obtained.
15.
It is, however, not necessary for me to examine the Chancery Division
authorities which give rise to that proposition because I am satisfied that
even if the claims were a nullity, the Employment Tribunal, nonetheless, had
jurisdiction under the 1994 order to entertain the counterclaims. I found that
decision upon the well‑reasoned judgment of this Tribunal, presided over
by Judge Hull QC in Patel v RCMS Limited [1999] IRLR 161 in which, in paragraphs 21 to 23, he sets out all of the
practical reasons why any contrary conclusion would not be viable.
16.
I summarise his reasoning. When an employer is served with a monetary
claim brought under the 1994 order in the Employment Tribunal he has a choice.
He can pursue any counterclaim within Article 4 of the order in the county
court or, no doubt at less expense and by procedures that may be easier to
apply for an unrepresented employer, he can bring a counter-claim in the
Employment Tribunal. When he receives the claim he will have no reason to
doubt that the claim is procedurally sound. He may dispute it on its merits
but he would take a considerable risk, and would certainly lose the opportunity
of ventilating his own counterclaims in the Tribunal, if he did nothing and
simply argued that the claims were a nullity.
17.
Where, as here, the alleged cause of the nullification is the fact that
the Claimant is bankrupt and lacks the consent of the court or an assignment by
her trustee in bankruptcy, an employer will not ordinarily have any means of
knowing whether either of those events has occurred. If they have, the claim
is not a nullity; it is only if they have not that it might be treated as a
nullity on a strict view of bankruptcy law. That view is not one which
prevails in the Employment Tribunal. Accordingly all considerations of good
sense point to allowing the employer to treat the claims as being validly made
for the purpose of deciding whether or not he should counterclaim in the
Tribunal.
18.
If Ms Sole’s argument is right then, as Judge Hull pointed out in Patel,
the employer could incur a great deal of expense in seeking to litigate his
counterclaim in the Tribunal which would all be wasted. Ms Sole relies on
paragraph 24 of Judge Hull’s Judgment:
“It is not a case, as was pointed out in argument, of the
employees claim, as it was out of time, being a nullity. It cannot be said
that it was something which could simply be ignored. If it is not a nullity
then it is a complaint which the employer is entitled to take advantage of as
giving both jurisdiction and time limit within which he must proceed.”
19.
It does not follow that because Judge Hull dismissed the claim that the
employee’s claim was a nullity, that if he had held that it was he would have
treated the counterclaim as a nullity as well. He would, in my view, have been
wrong to do so if he had been persuaded to do so. All that Article 4
requires is that the employee brings a claim under Article 3 within the
category of claims identified in section 3(2) of the 1996 Act for him to
be able to respond with a counterclaim similarly limited under Article 4. The
procedural requirement is, thus, straightforward. It is no more than that the
employee should bring a claim, apparently complying with the limitations
imposed by Article 3 and section 3(2).
20.
I reach that conclusion thankfully. If it was wrong then, at least in
theory and in the case of a bankrupt Claimant such as this Claimant, an
employer might be put, quite without any blame on his part, to unnecessary
expense to no purpose at all beneficial to either party. Accordingly, and save
as to the counterclaim for £4,000.00 petty cash and for repayment of the loan
of £585.58, this appeal is dismissed.
21.
For the avoidance of doubt, the counterclaim for the balance of the sum
allegedly withdrawn from the office account for personal purposes can be
pursued.
