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Cite as: [1999] ICR 1226, [1999] 4 All ER 897, [1999] 1 WLR 2042, [1999] WLR 2042, [1999] UKHL 47, [2000] IRLR 43

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Carmichael and Another v. National Power Plc [1999] UKHL 47; [1999] 1 WLR 2042; [1999] 4 All ER 897 (18th November, 1999)

HOUSE OF LORDS

Lord Chancellor Lord Goff of Chieveley Lord Jauncey of Tullichettle Lord Browne-Wilkinson Lord Hoffmann

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

CARMICHAEL AND ANOTHER

(RESPONDENTS)

v.

NATIONAL POWER PLC.

(APPELLANTS)

ON 18 NOVEMBER 1999

LORD IRVINE OF LAIRG L.C.

My Lords,

Mrs. Leese and Mrs. Carmichael began to accept work as guides at Blyth Power Stations in Northumberland in 1989. The work was part-time. Both worked for about 3.75 hours per week in 1990 and 6 hours per week in 1991. In the following years their hours increased and by 1995 they may have been working for as many as 25 hours per week. They were paid at a flat rate for the hours actually worked.

The issue is whether they were employees under contracts of employment and therefore entitled under section 1(1) of the Employment Protection (Consolidation) Act 1978 (see now section 1 of the Employment Rights Act 1996) to written particulars of the terms of their employment from National Power Plc., the successor to Blyth Power Stations, formerly operated by the Central Electricity Generating Board ("C.E.G.B.").

The issue is narrow. The primary case advanced on behalf of Mrs. Leese and Mrs. Carmichael throughout has been that an exchange of correspondence between the parties in 1989 constituted a contract; and that that contract was to be classified as a contract of employment. The claim to particulars of terms of employment was not advanced on the basis that when they actually worked as guides they did so under successive ad hoc contracts of employment.

The industrial tribunal held that they failed at the first hurdle: the correspondence did not constitute any contract, whether of service or otherwise. The Employment Appeal Tribunal dismissed an appeal from that decision. By a majority (Kennedy L.J. dissenting) the Court of Appeal allowed their appeal [1998] I.C.R. 1167. National Power appeal by leave of your Lordships' House.

On 15 November 1989, the C.E.G.B. invited applications "for the posts of station guides." "Successful candidates" would be required to:- "Supervise parties of visitors on pre-selected tour routes around the power station site;" as well as explain and answer questions on the various parts of the plant; and give a short presentation about the C.E.G.B. and how electricity is made and transmitted. They were also to be given "full training." The invitation continued:

Mrs. Leese and Mrs. Carmichael applied, were interviewed and then received letters in common form:

The pre-typed reply letter, which both signed and returned, reads:

Both were then trained; and thereafter worked as guides on invitation when they were available and chose to work. Mr. Langstaff Q.C. on their behalf contends that they were appointed to a post, guides, and emphasises that the language of "employment" is used; and that, when working, they were on the payroll for PAYE purposes.

The industrial tribunal held that their case "founders on the rock of absence of mutuality," that is that, when not working as guides, they were in no contractual relationship of any kind with the C.E.G.B.

The tribunal made this finding on the basis of (a) the language of the March 1989, documentation; (b) the way in which it had been operated; and (c) the evidence of the parties as to how it had been understood. For reasons I will amplify later, this was in my judgment the correct approach. In substance it held that the documents did no more than provide a framework for a series of successive ad hoc contracts of service or for services which the parties might subsequently make; and that when they were not working as guides they were not in any contractual relationship with the C.E.G.B. The parties incurred no obligations to provide or accept work but at best assumed moral obligations of loyalty in a context where both recognised that the best interests of each lay in being accommodating to the other.

The decision therefore was: that by accepting an "offer of employment as a station guide on a casual as required basis," Mrs. Leese and Mrs. Carmichael were doing no more than intimate that they were ready to be invited to attend for casual work as station guides as and when the C.E.G.B. required their services. Just as the C.E.G.B. was not promising to offer them any casual work, but merely intimating that it might be offered, so also they were not agreeing to attend whenever required.

The contrary, however, was argued by Mr. Langstaff Q.C. He maintained that, once appointed, they became employees under contracts of employment which obliged the C.E.G.B. to provide them with such guide work as might become available in future, which they in turn were obliged to undertake when made available.

This submission construes the words, "Employment will be on a casual as required basis," as empowering the C.E.G.B. to require Mrs. Leese and Mrs. Carmichael to undertake guide work as need for it arose.

If the issue were to be determined solely by reference to the documentation, I would, as a matter of construction, reject it. The words imposed no obligation on Mrs. Leese and Mrs. Carmichael, but intimated that casual employment on the pay terms stated could ensue as and when the C.E.G.B.'s requirements for the services of guides arose. Thus, the documents provided no more than a framework for ad hoc contracts of service or services which Mrs. Leese and Mrs. Carmichael might make with C.E.G.B. in the future.

The decision of the majority of the Court of Appeal to allow their appeals turned on two constructions of the documents which gave them immediate contractual effect.

Ward L.J. declined to hold that there was a contract in terms that Mrs. Leese and Mrs. Carmichael were obliged to provide their casual labour as guides as and when required, with the C.E.G.B. under no obligation to provide any casual work at all. He was, however, of the opinion that that might be the ordinary and natural meaning of the words; that is, that the C.E.G.B. would not be required to make any work available except as and when need arose; and that "whenever such a need arises the guide will be required to meet that need and perform the services as a guide" (p. 1187D). That imbalance of obligation, however, he avoided by holding that these obligations were subject to implied terms imposing "an obligation on the company to provide a reasonable share of work for each (guide) whenever the company had . . .work available" and "on the (guides) to take a reasonable amount of work once they have agreed to act as (guides) for the company . . ." (p. 1187E)

Chadwick L.J., however, was more restrictive. The words, "as required" meant that the guide's duties were "to be performed when there is a need for the services of a guide." Subject only to reasonable notice, the C.E.G.B. could "require the appointee to attend and to carry out the duties for which she has been engaged." ( p. 1194D). Chadwick L.J. further held: "There is no basis upon which it could be held that the C.E.G.B. were under any obligation to arrange tours in order that the station guides should have work to do." (p. 1195D); but they were, in order to give the contract business efficacy, obliged "to ensure that work of the nature described in the notice of 15 November 1988, when available and in so far as it cannot be performed by full time employees of the C.E.G.B., will be offered to those who have been recruited and trained as part-time station guides before being offered to anyone who has not been so trained." (p. 1196D). The contract therefore obliged "the C.E.G.B. and the applicants to offer and to undertake the work which was available." (p. 1196H).

If this appeal turned exclusively - and in my judgment it does not - on the true meaning and effect of the documentation of March 1989, then I would hold as a matter of construction that no obligation on the C.E.G.B. to provide casual work, nor on Mrs. Leese and Mrs. Carmichael to undertake it, was imposed. There would therefore be an absence of that irreducible minimum of mutual obligation necessary to create a contract of service (Nethermere (St. Neots) Ltd. v. Gardiner [1984] I.C.R. 612, 623C-G per Stephenson L.J., and Clark v. Oxfordshire Health Authority [1998] 1.R.L.R. 125, 128 per Sir Christopher Slade, at paragraph 22).

In my judgment it would only be appropriate to determine the issue in these cases solely by reference to the documents in March 1989, if it appeared from their own terms and/or from what the parties said or did then, or subsequently, that they intended them to constitute an exclusive memorial of their relationship. The industrial tribunal must be taken to have decided that they were not so intended but constituted one, albeit important, relevant source of material from which they were entitled to infer the parties' true intention, along with the other objective inferences which could reasonably be drawn from what the parties said and did in March 1989, and subsequently.

The documents contained no provisions governing when, how, or with what frequency guide work would be offered; there were no provisions for notice of termination on either side; the sickness, holiday and pension arrangements for regular staff did not apply; nor did the grievance and disciplinary procedures. Significantly, as Kennedy L.J. in his dissenting judgment with which I agree emphasised, in 1994, for example, Mrs. Carmichael was not available for work on 17 occasions nor Mrs. Leese on 8. (p. 1174D). No suggestion of disciplining them arose. The objective inference is that when work was available they were free to undertake it or not as they chose. This flexibility of approach was well suited to their family needs. Just as the need for tours was unpredictable so also were their domestic commitments. Flexibility suited both sides. As Mrs. Carmichael said in her application form, "the part-time casual arrangement would suit my personal circumstances ideally!" The arrangement turned on mutual convenience and goodwill and worked well in practice over the years. The tribunal observed that Mrs. Leese and Mrs. Carmichael had a sense of moral obligation to the C.E.G.B., but would infer no legal obligation. Mr. Lovatt also gave evidence for the C.E.G.B. that "neither ladies are required to work if they do not wish to do so." In my judgment, therefore, the industrial tribunal was well entitled to infer from the March 1989, documents, the surrounding circumstances and how the parties conducted themselves subsequently that their intention neither in 1989 nor subsequently was to have their relationship regulated by contract whilst Mrs. Leese and Mrs. Carmichael were not working as guides. The industrial tribunal correctly concluded that their case "founders on the rock of absence of mutuality." I repeat that no issue arises as to their status when actually working as guides.

Thus, even if the words, "employment will be on a casual as required basis" in the March 1989 documentation were, as Mr. Langstaff Q.C. contends, capable of imposing an obligation to undertake guide work when required - and in my judgment they are not - that interpretation is negated by the findings of the industrial tribunal. So also, even if the March 1989 documentation were capable of bearing the primary constructions which found favour with Ward L.J. and Chadwick L.J. - and in my judgment they are not - the terms which each implied, by invoking business efficacy may not be implied because there may be no implication on that ground unless into a relationship itself contractual.

For all these reasons I would allow this appeal and reinstate the industrial tribunal's reserved decision of 11 September 1995.

LORD GOFF OF CHIEVELEY

My Lords,

I have had the advantage of reading in draft the speeches of my noble and learned friends the Lord Chancellor and Lord Hoffmann. For the reasons which they have given, I too would allow this appeal.

LORD JAUNCEY OF TULLICHETTLE

My Lords,

I have had the advantage of reading in draft the speeches of my noble and learned friends the Lord Chancellor and Lord Hoffmann. For the reasons which they have given, I too would allow this appeal.

LORD BROWNE-WILKINSON

My Lords,

I have read the speech of my noble and learned friend on the Woolsack with which I agree. For the reasons which he gives I too would allow this appeal.

LORD HOFFMANN

My Lords,

I have had the advantage of reading in draft the speech of my noble and learned friend the Lord Chancellor. For the reasons which he gives, I agree that the appeal should be allowed and the decision of the industrial tribunal restored. I add a few words only on the troublesome distinction between questions of fact and questions of law.

The difficulties which have arisen in this area are, I think, attributable to the historical origin of the distinction in trial by jury and the pragmatic way in which the courts have applied it. In his Hamlyn Lectures on Trial by Jury (1956), Lord Devlin said (at p. 61):

Included in the second category is the construction of documents in their natural and ordinary meaning. An uninitiated person might have thought that, for example, the interpretation of a letter written by a layman stating the terms upon which he offered work to someone else, should be a question of fact, best decided by an employment tribunal (formerly an industrial tribunal: see the Employment Rights (Dispute Resolution) Act 1998), which was likely to be more familiar with the relevant background than a judge. But the opposite is the case: see Davies v. Presbyterian Church of Wales [1986] 1 W.L.R. 323. This rule may be part of the explanation for the otherwise remarkable fact that the Employment Appeal Tribunal has a majority of lay members although it has jurisdiction to hear appeals only on questions of law. As Lord Devlin explains (at pp. 97-98) the rule was adopted in trials by jury for purely pragmatic reasons. In mediaeval times juries were illiterate and most of the documents which came before a jury were deeds drafted by lawyers. In the eighteenth and nineteenth centuries the rule was maintained because it was essential to the development of English commercial law. There could have been no precedent and no certainty in the construction of standard commercial documents if questions of construction had been left in each case to a jury which gave no reasons for its decision. Thus the rule that the construction of documents is a question of law was well established when industrial tribunals were created and has been carried over into employment law.

It was this rule upon which the majority in the Court of Appeal relied as entitling them to say that the construction of the exchange of letters between the C.E.G.B. and the respondents, together with any terms which could be implied be law into the contract which they created, was a question of law. I agree with my noble and learned friend the Lord Chancellor that even if this was the case, I would prefer the construction adopted by the industrial tribunal to that of the majority in the Court of Appeal. But I think that the Court of Appeal pushed the rule about the construction of documents too far. It applies in cases in which the parties intend all the terms of their contract (apart from any implied by law) to be contained in a document or documents. On the other hand, it does not apply when the intention of the parties, objectively ascertained, has to be gathered partly from documents but also from oral exchanges and conduct. In the latter case, the terms of the contract are a question of fact. And of course the question of whether the parties intended a document or documents to be the exclusive record of the terms of their agreement is also a question of fact.

The principle is illustrated by the old case of Moore v. Garwood (1849) 4 Exch. 681. The plaintiff sued to recover a deposit which he had paid in 1845, at the height of the great Victorian railway boom, for shares in a proposed railway company. The scheme was afterwards abandoned and the company never incorporated. Whether he was entitled to his money back depended partly upon the terms of the prospectus and some letters and partly upon what had been said at a meeting of the promoters and subscribers when it first appeared that the formation of the company was likely to be delayed. The Lord Chief Baron directed the jury that:

On appeal to the Court of Exchequer Chamber, Patteson J. gave the unanimous opinion of the judges. He said, at pp. 689-690, that the main point in the case was:

The majority of the Court of Appeal thought that the industrial tribunal should have decided as a matter of law that the exchange of letters was an offer and acceptance which gave rise to a contract of employment exclusively in writing. It followed that the construction of the letters would then also be a matter of law. For my part, I do not think that was a very realistic conclusion. The letters were not drafted by a lawyer and their language was extremely concise. To construe them as a complete written contract left the Court of Appeal having to interpret the cryptic phrase "on a casual as required basis" in what they, as judges, took to be its natural and ordinary meaning, without the assistance of the evidence of what the parties had understood or how the contract had been operated. By this method they arrived at an interpretation different from that given to the words by the unanimous industrial tribunal, to say nothing of the Employment Appeal Tribunal.

Putting the matter at its lowest, I think that it was open to the industrial tribunal to find, as a fact, that the parties did not intend the letters to be the sole record of their agreement but intended that it should be contained partly in the letters, partly in oral exchanges at the interviews or elsewhere and partly left to evolve by conduct as time went on. This would not be untypical of agreements by which people are engaged to do work, whether as employees or otherwise. Although the tribunal did not expressly state this to be their finding, their whole approach to the evidence was consistent only with their having come to such a conclusion. In my view they were entitled to do so.

On this basis, the ascertainment of the terms of the agreement was a question of fact with which the Employment Appeal Tribunal were right not to interfere. The tribunal took into account the language of the letters (see paragraph 5(f) of their extended reasons, in which they underlined the words "on a casual as required basis" and said that they were "important to note") but they also took into account the subsequent conduct of the parties, some of which pointed to employment and some of which did not, and the evidence of both the respondents and Mr. Lovatt for the C.E.G.B. as to what they had understood their respective obligations to be. Ward L.J. said, at p. 1185G that was a mistake. The terms of the contract must be objectively construed. "What they thought they had achieved is of no consequence." Chadwick L.J. likewise said, at p. 1194B, that "the question was not what the parties thought their obligations were." This austere rule would be orthodox doctrine in a case in which the terms of the contract had been reduced to writing. But I do not think that it applies to a case like the present. In a case in which the terms of the contract are based upon conduct and conversations as well as letters, most people would find it very hard to understand why the tribunal should have to disregard the fact that Mr. Lovatt and Mrs. Carmichael both agreed that the C.E.G.B. were under no obligation to provide work and the respondents under no obligation to perform it. It is, I think, pedantic to describe such evidence as mere subjective belief. In the case of a contract which is based partly upon oral exchanges and conduct, a party may have a clear understanding of what was agreed without necessarily being able to remember the precise conversation or action which gave rise to that belief. As the Court of Appeal pointed out, the tribunal did not make any specific findings about what was said at the interviews or on any other occasion. But the terms of the engagement must have been discussed and these conversations must have played a part in forming the views of the parties about what their respective obligations were.

The evidence of a party as to what terms he understood to have been agreed is some evidence tending to show that those terms, in an objective sense, were agreed. Of course the tribunal may reject such evidence and conclude that the party misunderstood the effect of what was being said and done. But when both parties are agreed about what they understood their mutual obligations (or lack of them) to be, it is a strong thing to exclude their evidence from consideration. Evidence of subsequent conduct, which would be inadmissible to construe a purely written contract (see Whitworth Street Estates (Manchester) Ltd. v. James Miller and Partners Ltd. [1970] A.C. 583) may be relevant on similar grounds, namely that it shows what the parties thought they had agreed. It may of course also be admissible for the same purposes as it would be if the contract had been in writing, namely to support an argument that the terms have been varied or enlarged or to found an estoppel.

Once it is accepted that tribunal's finding as to the lack of mutuality of obligation between the respondents and the C.E.G.B. cannot be disturbed, it follows that the engagement of the respondents as guides in 1989 cannot have constituted in itself a contract of employment. It laid down the terms upon which it was expected that they would from time to time work for the C.E.G.B. and it may well be that when performing that work, they were being employed. But that would not be enough for the respondents. They could succeed only if the 1989 engagement created an employment relationship which subsisted when they were not working. On the findings of the Tribunal, it did not in itself give rise to any legal obligations at all and the respondents' claim must therefore fail.

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