Grady v HM Prison Service [2003] EWCA Civ 527

A1/2003/0264 EATRFA1/2003/0264A EATRF[2003] EWCA Civ 527
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
(HIS HONOUR JUDGE J McMULLEN QC)
Venue Royal Courts of Justice, Strand, London WC2A 2LLDate Friday, 11 April 2003
Before
LORD JUSTICE THORPELORD JUSTICE SEDLEYMR JUSTICE RICHARDS________________________
Between
SHARON MARIE GRADYAppellantHM PRISON SERVICERespondent________________________________________________MICHAEL MULHOLLAND (instructed by Messrs Linder Myers of Manchester M2 4JF) appeared for appellant.JEREMY JOHNSON (instructed by The Treasury Solicitor of London SW1H 9JS) appeared for respondent.Hearing Hearing date: Tuesday 1 April 2003
JUDGMENT : APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)

SEDLEY LJ:

[1]This is a judgment of the court.

The issue

[2]The appellant was for almost fifteen years an administration officer in the prison service. Following the termination of her employment in November 2000 she brought proceedings before the Leeds employment tribunal alleging unfair dismissal, wrongful dismissal and disability discrimination. The employment tribunal has jurisdiction today, as it used not to have, in all three matters.[3]On the date scheduled for the hearing, 12 November 2001, her claims were all struck out for repeated non-compliance with procedural directions and she was ordered to pay costs. She gave notice of appeal to the Employment Appeal Tribunal on 21 November. On 31 January 2002 she was adjudged bankrupt, and when her appeal came on for hearing before the EAT counsel for the respondent submitted that Miss Grady lacked standing to pursue it because all her rights of action had vested by law in her trustee in bankruptcy, who had not reassigned any of them to her. The EAT acceded to this argument and dismissed the appeal for want of jurisdiction. Because the point was not an easy or a clear one, they themselves granted permission to appeal to this court.[4]Before going any further it is right to say that the EAT went on to indicate that the substantive appeal, if competent, might have had merit.

The statutory framework

[5]Since the answer to the issue before us depends in part on the framework of statute law, it is as well to set it out now. For reasons to which I will come, we are concerned only with the unfair dismissal provisions.[6]By s.94(1) of the Employment Rights Act 1996 an employee has the right not to be unfairly dismissed. While dismissal is necessarily a matter of contract law, fairness in relation to it is a statutory construct. By s. 98, provided that the employer can show that the dismissal was on a stipulated ground, the tribunal must decide whether or not it was reasonable in the circumstances to base the dismissal on it.[7]By s.111 employment tribunals are given jurisdiction to hear complaints of unfair dismissal. If they find it established, the remedies are those set out in sections 112 to 117: reinstatement, re-engagement and compensation. By s.112 the tribunal must explain to the complainant what orders it can make under the first two heads and in what circumstances. If the complainant then asks for such an order, the tribunal has power to make it (s.112(3)), and by s.116(1) it must begin by considering reinstatement in the same job (see s. 114). If, but only if, it decides against reinstatement it must consider re-engagement (see s. 115).[8]By s.112(4) if no order is made either for reinstatement or for re-engagement, the tribunal is to make an award of compensation, calculated according to ss. 118 to 127A. This consists in essence of a basic award, representing not consequential loss but the years of the employee’s life invested in the lost job, and a compensatory award representing an equivalent of common law damages. By s.117(3), if an order for reinstatement or re-engagement has been made and not complied with, the tribunal is required to make a full award in lieu for unfair dismissal, plus “an additional award of compensation of an amount not less than 26 nor more than 52 weeks’ pay”.[9]S. 206(2) and (3) provide that where an employee has died, tribunal proceedings for unfair dismissal may be instituted or continued by the employee’s personal representative. No provision is made for transmission or discontinuance in the event of bankruptcy.

The effect of bankruptcy

[10]S.306 of the Insolvency Act 1986 provides that the estate of a bankrupt shall vest in his trustee in bankruptcy at the moment of the trustee’s appointment without the need of any formality. By s.283(1) the estate is defined as comprising “all property belonging to or vested in the bankrupt at the commencement of the bankruptcy”, and by s.436 property is defined as including “things in action”. A right to bring or pursue legal proceedings is a thing in action.[11]The law has for many years distinguished, however, between proceedings which seek to recover money or property in which the bankrupt’s creditors will have an interest and causes of action personal to the bankrupt which do not vest in his trustee. Among these, as Hoffmann LJ explained in Heath v Tang [1993] 1 WLR 1421, 1423, are:
“Cases in which ‘the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind or character, and without immediate reference to his rights of property’: see Beckham v Drake (1849) 2 HL Cas. 579, 604, per Erle J and Wilson v United Counties Bank Ltd [1920] AC 102. Actions for defamation and assault are obvious examples. The bankruptcy does not affect his ability to litigate such claims.”
If, however, the damages from such a claim are invested, the investment can be claimed by the trustee: Re Wilson, ex parte Vine (1878) 8 Ch.D 364, CA.[12]If within a single claim both kinds of remedy are sought (in other words, if the claim is hybrid), the claim falls outside the exception and vests in the trustee: Ord v Upton [2000] Ch. 352, 360. But where one event gives rises to two or more claims, one for damage to property and one for personal injury, the former alone vests in the trustee and the latter remains with the bankrupt: Halsbury Laws of England (4th ed., vol. 3(2), 2002 reissue) para. 436.[13]Halsbury’s Laws of England (supra) para.435, n.2, lists (with authority for each) the following examples of causes of action which pass to the trustee: breach of contract to deliver goods, or to repair; for commission or other money earned by the bankrupt, other than ‘personal earnings’; for earnings greater than are needed for the maintenance of the bankrupt and his family; for trespass or negligence causing damage to the bankrupt’s property or involving him in pecuniary liability; for misrepresentation or fraud; for relief against a usurious bargain or against forfeiture. The list also includes, on the authority of Beckham v Drake (ante), a claim for wrongful dismissal.[14]The borderline is marked by such distinctions as that between a claim for damages for a conspiracy which has caused mental and physical distress and loss of reputation (which, if it relates in part to the bankrupt in the way of his business, ranks as property passing to the trustee: see Wenlock v Moloney (1967) 111 Sol.Jo. 437, CA), and a claim for damages for negligence or assault causing personal injury, or for defamation (see Beckham v Drake, ante). There is no bright line.

The arguments

[15]Mr Mulholland accepted before the EAT that in the light of these authorities Miss Grady’s claims for wrongful dismissal and disability discrimination, being in substance money claims, had vested by operation of law in her trustee in bankruptcy and could not be pursued except by the trustee or by means of reassignment to her. But he has submitted that the claim for a remedy for unfair dismissal is of a different and personal kind, falling within the exception in favour of personal causes of action, because it is principally a claim for reinstatement in the lost job or re-engagement in an equivalent one.[16]Mr Johnson, for the Prison Service, in addition to a technical point to which we will come in a moment, contends that a claim in respect of unfair dismissal is not materially different from a claim in respect of unlawful dismissal. In the latter, reinstatement by way of specific performance is also possible: see Hill v C.A.Parsons Ltd [1972] Ch. 305. In the former, the claim is as much for compensation as for reinstatement or re-engagement. He also contends that Mr Mulholland, by admitting that the claim in respect of wrongful dismissal has gone, has debarred himself from arguing that the claim in respect of unfair dismissal has not gone too. But his essential contention is that unfair dismissal is in its essence an action on a contract with the immaterial qualification that by statute the breach has to involve unreasonableness.[17]For the appellant it is said that this is a false analysis: the action is a unique statutory tort in which termination is merely the gateway to the enforcement of a right to keep a job which the claimant has unfairly lost.

How many claims?

[18]Mr Johnson begins with a somewhat technical argument that because both tribunals below had before them a single application containing three claims, two of which were admitted to have vested in the trustee, the appeal which was under way when Ms Grady became bankrupt was a hybrid claim the whole of which therefore vested in her trustee. We did not find it necessary to trouble Mr Mulholland about this. Not only is this manifestly a case falling within the class, set out in paragraph 11 above, of distinct claims arising out of a single set of facts. The submission, if right, would produce the pointless result that applicants could guard themselves against the risk of a supervening bankruptcy by issuing three applications or notices of appeal instead of one (and no doubt that their lawyers could be sued for not advising them to do so).

Did the unfair dismissal claim vest in the trustee?

[19]The principle underlying this seemingly metaphysical question is that a bankrupt forfeits his assets, beyond the means of subsistence, to his creditors. The qualification that a viable legal claim does not pass to the trustee with the bankrupt’s other assets if it represents redress for some wrong personal to the bankrupt is not, as Mr Johnson suggested it was, an exception to the statutory provision devised by the common law. It is the accepted construction, known to Parliament long before the passage of the 1986 Act, of a thing in action in the context of the insolvency legislation: see Ord v Upton [2000] Ch. 352, 360, per Aldous LJ. There is no dispute that, by the process described in paragraph 10 above, all things in action belonging to the bankrupt vest in her trustee. The question is whether the pending appeal to the EAT was a thing in action within the meaning of the legislation.[20]There can in our judgment be no distinction for this purpose between the claim and the appeal. The appeal, brought as of right, was a continuation of the claim once it had failed at first instance. Either both fall or neither falls within the material meaning of a thing in action.[21]It seems to us that the upshot of the many decided cases on this topic is that a claim which represents a transmissible asset of the bankrupt forms part of the estate on which the creditors have a claim, while one which reflects some aspect of the bankrupt’s individuality does not. This is not to say that the end-product of the latter is also protected. Just as an investment of, say, libel damages will accrue to the estate and vest in the trustee (see paragraph 11 above), one would expect that earnings beyond those needed for subsistence from a job in which the bankrupt was reinstated would form part of the estate, as those from a bankrupt’s continuing employment do.[22]In our judgment the essential nature of a claim for unfair dismissal is personal, not proprietary. Unlike a claim for wrongful dismissal, which (except in the rare case where specific performance can be granted) is an action for damages for breach of a contract, a claim for unfair dismissal only begins with the employer’s fundamental breach. It proceeds through the issues described in paraphrase in paragraphs 6 and 7 above. The purpose and effect of the sequential provisions for judgment and redress can fairly be said to be the recognition of a vested interest in a job - something of a different order from the common law’s view of a job as a simple contract which can be broken by a party willing to pay the appropriate price for breach.[23]Mr Johnson relies nevertheless on the reasoning of Lord Brougham in Beckham v Drake (ante) at 640:
“The law … is shewn to be this, that even where there is no actual damage proved, or even where the damage is merely nominal for a breach of contract, still if that is in respect either of property or of a proprietary right, such as service or work and labour, as in the present case, even in that case it passes.”
While Beckham v Drake is undoubtedly regarded as a continuing source of law, care needs to be taken with it. It was in form a decision of the House of Lords in the years before the Judicature Acts, and the speech of Lord Brougham was concurred in by Lord Campbell alone. The report does not indicate which if any other members of the house sat and voted. The report is for this reason more valued for the extensive opinions of the judges which their Lordships had called for upon the appeal from the Court of Exchequer Chamber, among them the opinion of Erle J cited by Hoffmann LJ in Heath v Tang (paragraph 11 ante). The action was for payment of a fixed contractual sum for the premature termination of the plaintiff’s seven-year contract of service, and the plea in bar was that the cause of action had passed on his bankruptcy to the assignees. Erle J said (at 606):
“As to that part of [the promise] respecting the continuance of this relation, it has no reference to the feelings of the bankrupt, so as to be analogous to the promises and causes of action which are decided to be excepted, and it is not the substance of the promise which is considered in the award of damage; but as to the other part, namely, the paying of the wages, it is the consideration for the promise of service….[T]he first ground abovementioned, namely, that the contract relates to the person, is true only in respect of the consideration for the promise, which is personal skill and labour, and not in respect of the promise itself…”
The reasoning of Williams J (at 598-9) picks up this point:
“…it cannot be doubted that where a contract remains to be executed, and cannot be executed without the co-operation of the bankrupt, his assignees cannot enforce the contract, at all events unless they can procure him to co-operate.”
Williams J goes on to point out that, a breach having now occurred, the plaintiff “is not bound by the contract to bestow any of his skill and labour in order to sustain the right of action”.[24]None of this reasoning answers the present question, but all of it in our view tends to place on the non-vesting side of the line a claim which is primarily directed at the restoration of a contractual relationship in which the claimant’s skill and labour are the essential commodity. There is nothing frivolous in Mr Mulholland’s question whether the Official Receiver could seriously seek reinstatement in Ms Grady’s former job – for that is the principal remedy claimed in these proceedings which are said to have become his, and the first remedy which the tribunal is required by law to explore. It was in principle the question posed by Chief Baron Abinger (dissenting, it is true, but not on this aspect of the argument) in Gibson v Carruthers (1841) 8 M&W 321, 343-4. Lord Abinger recalled that at the time when Sir Walter Scott’s publisher became bankrupt (he was probably referring to Constable, who in 1826 went down with over £250,000 in debts) he had contracted to pay Scott £4,000 for his next novel. When his assignees claimed the benefit of the contract, Scott had objected that the quality and respectability of the publisher was so central to the contract that Constable’s bankruptcy had discharged it. “I must own,” said the Chief Baron, “that his reasoning appeared satisfactory to me; but a more obvious illustration of the principle on which it rested would have been afforded by reversing the case, and supposing that Sir Walter Scott had been the bankrupt and his booksellers solvent, would they have been content to pay their £4,000 and take the risk of publishing a novel written by the assignees of the novelist?”[25]In our judgment a claim for reinstatement or re-engagement consequent on an unfair dismissal, and indeed a significant element of the compensation which can be awarded in lieu of these, is not a thing in action of the kind which forms part of a bankrupt’s estate, even though the eventual fund (if an award is made) may be. It is a claim of a unique kind which offers the restoration to the claimant of something which only the claimant can do. To vest it in the trustee in bankruptcy would be of no appreciable benefit to the creditors except to the extent that it might produce a money settlement (which would represent not a concession but a liquidation of the bankrupt’s claim to her job). For the rest, the creditors will probably be better served if the bankrupt can get her job back or a similar job in its place, and that is something the trustee cannot do in her stead. Mr Johnson rightly does not fall back on the circular proposition that in that case the trustee can always reassign the claim to the bankrupt.[26]The Employment Appeal Tribunal (Judge McMullen QC, Mr Lambert and Mr Manners) took the view that the difference between wrongful and unfair dismissal being chiefly one of remedies, and orders for re-engagement and reinstatement being “very rare” (we do not in fact know the figures), there was no sufficient difference between the two to indicate a differential effect of bankruptcy. They concluded that in the light of the authorities a right to claim unfair dismissal was a property right and not a personal right.

Conclusions

[27]For reasons which we have given we respectfully take the contrary view. We consider that an unfair dismissal claim, both in its nature and in its remedies, is personal to the claimant and not apt to vest in her trustee in bankruptcy as a thing in action.[28]We have been invited, if we reach this stage, to determine the substantive issue which the EAT considered itself precluded from determining. We decline to do so. The issue is one which depends heavily on the accumulated experience and knowledge of the EAT in respect of employment tribunal practice and procedure, and our judgment – at least in the absence of a reasoned decision from them – would be a poor substitute for theirs.[29]We therefore allow the appeal as to Ms Grady’s standing and remit the matter to the Employment Appeal Tribunal for determination on its merits.

Postscript

[30]The Prison Service is not a legal entity. The true respondent is the Crown, which by virtue of the list issued pursuant to s.17 of the Crown Proceedings Act 1947 should be sued in the name of the Home Office.

Cited in 8 later judgments