Dynamex Friction Ltd & Anor v Amicus & Ors [2008] EWCA Civ 381

“Friction would not be paying the strikers following the decision by the Liverpool Employment Tribunal as the company did not have the money to pay them. The company had stocks on floor probably worth £1 million but if it went into liquidation these stocks would be hard to sell as they were highly specialised and would probably be sold only at 10% to 20% of their value, giving about £200,000 to its creditors. It had been stated by Mr Craig Smith that there was someone who was probably interested in buying the stock and after going into liquidation/administration the company might be able to carry on trading or be back in business within a month, or maybe a few weeks. It is interesting to note the prediction made by Mr Craig Smith as this is almost exactly what happened and transpired over a period of months up to August 2003.”

“10. … In this meeting he [the Amicus officer] expressed concerns in relation to the intentions of Mr Craig Smith and painted a hypothetical scenario saying that Friction could go into receivership as a stage-managed event and that the company would then rise Phoenix-like out of the ashes and be controlled remotely by Mr Smith. Derek Weir’s response to this was “You’re not a million miles away.”

“9. … [Mr Rutherford] recalls that during a meeting with Craig Smith on 29th July 2003 it had been stated that [Friction] had been advised that any appeal relating to the decision on liability by the Liverpool Employment Tribunal would not be successful. Furthermore, it is accepted at this stage that allegedly there was insufficient money to pay employees in the future – hence there would be no alternative but to consider dismissing them. Ultimately, following his discussions with Mr Craig Smith it was accepted and decided to attempt to sell the business of Friction as a going concern and also its assets at the earliest opportunity. The employees of Friction were on holiday period which it is believed commenced on 1st August 2003 and the business would have been closed until Monday 18th August 2003. It is understood that the factory normally closed in August of each year for maintenance and repairs to be carried out. In the circumstances, Mr Craig Smith decided to petition for an administration order and this was granted with effect from 7th August 2003 and Mr J. Moran and Mr R.M. Rutherford were appointed as joint administrators of that date.” [I interpolate that a purpose of the administration was the more advantageous realisation of the assets than would be achieved on a winding-up.] “In consequence of the appointment, Mr Rutherford went to the factory in Caernarfon on 7th August 2003 but there were only half a dozen or so employees present – these were mainly office workers. He spoke to them and said they were dismissed and he arranged for a dismissal letter to be sent out to all of those employees who were dismissed on 8th August 2003 (see page 203 …). It is accepted by the Tribunal that, as stated by Mr Rutherford, there was no money in the bank and unless arrangements could be made for the transfer of the business and its assets with effect from 18th August 2003 the company may well have been insolvent and have to cease to trade.”

“It is further accepted, as stated by Mr Rutherford, that there was no time for advertising the sale of the business and that he had to expeditiously sell it as a going concern. It is accepted that he sent a letter to all creditors on 7th August 2003 advising them as to the administration order … and asking them if they were interested in acquiring the goodwill, assets and undertaking of the company and, if so, to apply for details. It is further accepted that on 12th August 2003 financial information was circulated by him to nine interested parties requesting their best and final offers by 10 am on 15th August 2003 (see page 529 …). The Tribunal notes from the letter dated 12th August 2003 written by the manager, Assets Finance of Davenhams Trust Plc” [who had some debenture in its favour] “that in that letter she says that they are aware that the Directors [of Realty] are wishing to purchase the assets and have plans to sublet the assets and the building. This reinforces the contention that there were special arrangements taking place between [Dynamex] and [Realty] during the period 6th-28th August 2003 in respect of the previous business and undertaking of [Friction] (see page 574 …). It was also accepted that he received an email dated 14th August 2003 from Mr Mark Jones giving an offer to the administrator and incorporating a business plan (see page 521 …). It is further accepted that Mr Rutherford made arrangements for a press release on 15th August 2003 relating to the fact that Dynamex had made an offer to take over the production line and had allegedly reached an agreement with Davenhams as to its charge over the production line, parts and machinery (see page 204 …). The Tribunal has of course noted that [Dynamex] was not incorporated until 26th August 2003 (see page 745 …). It is accepted from the evidence of Mr Rutherford that following certain advice that he had received from Singletons as valuers … the parts and machinery of Friction (amounting to approximately 5% which was not subject to a charge in favour of Davenhams) was sold to Realty for £50,000. … It is further accepted from the evidence of Mr Rutherford that the production line and customers of Friction were sold to the sponsors/promoters with effect from 15th August 2003 for the benefit of Dynamex which was incorporated on 26th August 2003. It is also accepted that on 18th August 2003 the sale of the parts and machinery which were not subject to any charge had been effected and transferred to Realty which of course owned the premises which had been leased in Caernarfon to Friction.”

“16 Following the transfer of the business, Dynamex paid to Realty each month £51,000 to cover £14,000 for the hire of plant and machinery, £12,000 as a facility service charge and £25,000 rent for the premises at Caernarfon. The Tribunal has looked at the reality of the situation and as from 28th August 2003 Dynamex was running the production line and had acquired the customer list of Friction. It was dependent upon using the premises leased from Realty and using plant and machinery owned by Realty. Dynamex and Realty were intertwined and conjoined in jointly running the undertaking which had previously belonged to Friction and which was quite clearly still a stable, economic entity. Dynamex and Realty between them conducted the same business in the manufacturing and sale of friction parts for car brakes and clutches, using the same trading name as had previously been used by Friction, using the same premises, using the same plant and machinery, using the customer list, supplying the same customers and employing a workforce made up entirely of former employees of Friction. Although it is most unusual, the Tribunal is satisfied that in this particular instance there was a transfer from the previous undertaking and stable economic entity of Friction jointly to Dynamex and Realty. The Tribunal finds that there was no transfer of any part of the undertaking to [TBA]. TBA purchased some finished products and raw materials but this was not the transfer of a stable, economic entity or capable, on the facts, of being a transfer of part of the undertaking. ”

“(6) Written reasons for a judgment shall include the following information – (a) the issues which the tribunal or chairman has identified as being relevant to claims; (b) if some identified issues were not determined, what those issues were and why there were not determined; (c) findings of fact relevant to the issues which have been determined; (d) a concise statement of the applicable law; (e) how the relevant findings of fact and applicable law have been applied in order to determine the issue; …” (a) the issues which the tribunal or chairman has identified as being relevant to claims; (b) if some identified issues were not determined, what those issues were and why there were not determined; (c) findings of fact relevant to the issues which have been determined; (d) a concise statement of the applicable law; (e) how the relevant findings of fact and applicable law have been applied in order to determine the issue; …”

“… the rule is surely intended to be a guide and not a straitjacket. Provided it can be reasonably spelled out from the determination of the Employment Tribunal that what rule 30(6) requires has been provided by that tribunal, then no error of law will have been committed.”

“As far as he was concerned [Friction] could not carry on business; he had no available cash and he had no alternative but to dismiss all of the employees on day one of his appointment – that is with effect from 7th August 2003.”

“As far as the book value of [Friction] is concerned at that time it was “solvent”

“At the hearing it was accepted by all of the parties’ representatives that there had been no collusion whatsoever between Mr Rutherford, as joint administrator, and the subscribers to the formation of [Dynamex] which, as stated, was incorporated on 26th August 2003.”

“It was maintained by Mr Smith that he had been advised by Mr Rutherford that the best time to close down [Friction] and to seek a sale of the company as a going concern would be at a time when there would be the least impact on customers. As the factory was closed on 1st August 2003 and was not due to open again until 18th August the administrator, without seeking any advice from Mr Smith, decided that it would be prudent to dismiss all of the employees with effect from 7th August 2003.”

“It was admitted by Mr Smith that he knew that the administrator had written to seven or eight interested parties who were interested in purchasing the business and he himself had helped to show some of the parties around the factory premises. Mr Mark Ivor Jones had originally worked for [Friction] and in a telephone conversation with him Mark Jones indicated he had an interest in acquiring the business of [Friction]. Indeed he helped Mark Jones formulate a business plan.”

“As far as he [Smith] was concerned at that meeting he pointed out that [Friction] had very severe financial problems and in consequence it had to sell the parts, machinery and equipment to Davenhams and arrange for invoice sales to be paid at a discount by Eurosales. For cash flow purposes [Friction] was completely dependent upon Eurosales. The general creditors were also discussed at that meeting and the fact that David Lang had an interest in buying the shares of [Friction] and [TBA]. There was also an interest from Derek Weir [and others] if they could get a grant from the Welsh Development Agency to enable them to acquire the shares of [Friction]. He maintained that at that time he was only interested in the sale of [Friction] and wanted to get out of the business. By that he meant all of the businesses in which the Smith family were involved in the United Kingdom.”

“He maintained that he had also never mentioned to Mr Hamilton that the acquisition by Mr Jones was to be a definite transfer and he did not ask anyone to join Mark Jones simply helped him put his business plan together. He had no idea how Mark Jones had set up his company. He agreed that the administrator, Mr Rutherford, had indicated that he was going to dismiss all of the employees, but he had no idea he would dismiss them on the first day of his appointment.”

“He maintains that the whole administration had been stage-managed, and that Mr Craig Smith was still in control of the administration.”

“The primary question for us is as to whether the dismissed employees were employed “immediately before the transfer”.”

“The purpose of the directive [Council Directive (77/187 E.E.C.)] and the regulations as stated in the written submissions of Mr Allen [counsel for Amicus] is to ensure that on any transfer of an undertaking the employment of the workers in the undertaking is preserved or if the employment transfers” [sic - I think it must mean “terminates”] “by reason of the transfer their rights arising out of that determination are effectively safeguarded and that there is a mandatory obligation to provide effective and not merely symbolic remedies. The Tribunal as stated in these cases had been on the look out for any devices designed to evade regulation,”

“He maintains, of course, that the unusual feature of these cases is that either the administration itself or at the very least the timing of the administration and, therefore, the dismissals which Craig Smith knew would follow thereafter were controlled by the Smith family group of companies. … He maintains that there was collusion between Mr Craig Smith and the transferees (namely Dynamex Friction/Ferotec Realty). His argument is that the Smith family companies had an interest in the continuing of the former business of Friction Dynamics free of liability to the TGWU, Amicus and the former employees of Friction Dynamics, many of whom had very long service and would, therefore, have been expensive to dismiss otherwise. The Tribunal had noted the inferences to be drawn from the structure of the companies and from the matters listed in paragraph 24 of his written submissions. The Tribunal has also carefully noted the inferences put forward by Miss Hewitt on behalf of the [Secretary of State] in paragraph 7 of her written submissions. It was maintained by Mr Allen that Mr Craig Smith got the administrators into Friction Dynamics having made arrangements for the business to continue under a new name in order to free himself of various liabilities to former employees. Therefore, he contends that the dismissals which automatically followed the appointment of the administrators are transfer related. He further submits that the timing and order of events were stage-managed in order to by-pass the operation of the TUPE regulations except that the administrator, Mr Rutherford, may have been an unwitting tool of Mr Smith’s machinations. As far as that is concerned the Tribunal, as indeed was accepted by all of the representatives at the hearing, finds that there was no collusion whatsoever between the administrator, Mr Rutherford and either [Dynamex] or Mr Craig Smith. It was accepted that Mr Rutherford carried out the correct procedures in connection with his duties as administrator. He thought it right, proper and necessary to dismiss all of the employees with effect from 7th August 2003 particularly in view of the fact that there was no cash available to pay wages to employees after 18th August 2003 in so far as hourly paid workers were concerned and also that there was no money to pay the monthly staff who had only been paid up until 31st July 2003. The Tribunal, in particular, does not accept that it is a reasonable inference that the transfer was pre-planned and that it was clear to Mr Smith before he petitioned for the administration order that there would a transfer to Mr Mark Jones.”

“The Tribunal is satisfied on the facts that there was no collusion by the administrator with [Dynamex] and also no collusion by the administrator with Mr Craig Smith. Similarly it is satisfied that Mr Craig Smith was not in collusion with the subscribers of [Dynamex].”

“In this particular case before us the Tribunal is satisfied that the reason or principal reason for the dismissal of all the employees with effect from 7th August 2003 was an economic one and regulation 8(1) does not apply. Moreover it was not for a reason connected with a transfer. In those circumstances the additional words added to regulation 5(3) by Lord Oliver in the Litster case do not apply. It therefore follows that the claimants in these cases were not employed by [Friction] immediately before the transfer and liability for the claims made by the claimants remains with [Friction]. As it is “insolvent” it rests with the Secretary of State as statutory guarantor for the relevant liabilities.”

“31. In our judgment it is simply not sufficient for the Employment Tribunal to record as noted those paragraphs in Counsel’s closing submissions. It is, of course, well-settled that an Employment Tribunal does not have to set out in their reasons each and every point put before them. However, we accept Mr Allen’s submission that the detailed points advanced in both closing addresses represented a carefully framed factual picture designed to make the Appellant’s case that an intricate web had been woven by Mr Smith, using the Administrator as an ‘unwitting tool’ to circumvent the TUPE provisions. Whether that case is made out or not is for the Employment Tribunal to decide; but in reaching a determination it is incumbent, in our view, on the Employment Tribunal to demonstrate by its reasons precisely what material findings of fact it made and why it declined to draw the inference which the Appellants asked it to draw. This the Employment Tribunal failed to do.”

“The Appellants literally do not know why their case based on inferences to be drawn from the primary facts was rejected.”

“35. The question which has troubled us in this connection is, whose reasons are we concerned with? The dismissals were effected by Mr Rutherford as administrator of [Friction]; he was not, it is common ground, in collusion with Mr Smith (cf the collusion found as fact in Litster between the receivers and the transferee). His stated reason, accepted by the Employment Tribunal, was purely economic; the business had no assets out of which to pay the wages. In these circumstances, is it relevant for the Employment Tribunal to consider whether or not events were staged-managed by Mr Smith, even if the Appellants’ case was accepted?”

“Whilst we can see the similarities between Honeycombe and the present case, based on the Employment Tribunal’s factual conclusions, the result there may have been different had a factual case similar to that advanced by the Appellants and rejected in the present case been established. It all depends on the facts and, for the reasons given earlier, we find that the Employment Tribunal failed to adequately explain its reasons for the factual conclusions which it reached.”

“To provide for the protection of employees in the event of a change of employer, in particular, to ensure that their rights are safe-guarded …”

“1. The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer within the meaning of Article 1(1) shall, by reason of such transfer, be transferred to the transferee.”

“1. The transfer of an undertaking, business or part of a business shall not in itself constitute grounds for dismissal by the transferor or the transferee. This provision shall not stand in the way of dismissals that may take place for economic, technical or organisational reasons entailing changes in the work-force.”

“In that case [Spence] the transferor company was in receivership and the receivers had been negotiating a transfer of the business under a threat by the company's major customer to withdraw its work unless a transfer of the business had been agreed by 24 November 1983. No sale had been agreed by that date and although on 28 November 1983 the negotiations were continuing, the receivers had to decide whether it was proper in the interests of the debenture holders to continue to employ the workforce and to continue trading. Since there was no guarantee that the negotiations would be successful, the decision was taken to cease trading immediately and, at 11.00 a.m. on that morning the employees were notified that they were dismissed with immediate effect. In fact, the negotiations were successful and an agreement for the sale of the undertaking was signed at 2.00 p.m. on that day. The employees were in fact re-employed by the transferee but claimed redundancy payments from the redundancy fund under section 106 of the Act of 1978. The claim was resisted on the ground that, since the claimants were employed "immediately before the transfer" their employment was continued with the transferee of the business by regulation 5(1), following the decision in the Anchor Hotel case [1985] I.C.R. 724. It is worth noting that it was found as a fact by the industrial tribunal, first, that the sequence of events was the result of independent action by the receivers and the transferees and that there was no collusion between them and, secondly, that the reason why the receivers decided to dismiss the workforce was that, until a contract could be renegotiated with the company's principal customer, there was no prospect of any work for the business. It follows from these findings that the reason for the dismissal was not one connected with the transfer but was due to economic considerations, with the result that regulation 8(1) did not render the dismissals unfair. … The Court of Appeal did not consider, and was not called upon to consider, a position where, whether under a collusive bargain or otherwise, an employee is dismissed from his employment solely or principally because of the prospective transfer of the undertaking in which he is employed, so that his dismissal is statutorily deemed to be unfair …”

“The approach to the construction of primary and subordinate legislation enacted to give effect to the United Kingdom's obligations under the E.E.C. Treaty have been the subject matter of recent authority in this House (see Pickstone v Freemans Plc [1989] A.C. 66) and is not in doubt. If the legislation can reasonably be construed so as to conform with those obligations - obligations which are to be ascertained not only from the wording of the relevant Directive but from the interpretation placed upon it by the European Court of Justice at Luxembourg - such a purposive construction will be applied even though, perhaps, it may involve some departure from the strict and literal application of the words which the legislature has elected to use.”

“It may, I think, be assumed that those who drafted both the Directive and the Regulations were sufficiently acquainted with the realities of life to appreciate that a frequent - indeed, possibly, the most frequent - occasion upon which a business or part of a business is transferred is when the original employer is insolvent, so that an employee whose employment is terminated on the transfer will have no effective remedy for unfair dismissal unless it is capable of being exerted against the transferee. It can hardly have been contemplated that, where the only reason for determination of the employment is the transfer of the undertaking or the relevant part of it, the parties to the transfer would be at liberty to avoid the manifest purpose of the Directive by the simple expedient of wrongfully dismissing the workforce a few minutes before the completion of the transfer. The European Court of Justice has expressed, in the clearest terms, the opinion that so transparent a device would not avoid the operation of the Directive ...”

“The result of regulation 8(1) is the same as article 4(1), namely, that if the new owner wishes to dismiss the workers he cannot achieve his purpose either by procuring the old owner to dismiss the workers, prior to the transfer taking place, or by himself dismissing the workers after the date of the transfer.”

“Article 3 of the Directive and regulation 5(1) of the Regulations of 1981 were plainly intended to prevent an insolvent old owner from dismissing a workforce at the behest of a solvent new owner so as to deprive the workforce effectively of their rights.”

“This indicates a calculated disregard for the obligations imposed by regulation 10 of the Regulations.”

“… the sequence of events and the secrecy with which they were enshrouded are such that they cannot rationally be accounted for otherwise than by the hypothesis that the dismissal of the existing workforce was engineered specifically with a view to preventing any liability for the obligations incidental to their contracts of employment from attaching to Forth Estuary, so as to leave them with nothing but a claim for redundancy on the redundancy fund under section 106 of the Act of 1978 and an illusory claim for unfair dismissal against an insolvent company.”

“Where employees are dismissed, with a view to and before, a transfer falling within the Directive and are re-engaged immediately by the transferee thereafter, their dismissal must be regarded as contrary to articles 4(1), subject to the exceptions specified in that paragraph.”

“Under article 4, the transfer does not by itself justify his dismissal by the transferor or the transferee unless such dismissal is for economic, technical or organisational reasons entailing changes in the workforce; . . . The employer who dismisses an employee for one of the reasons specified in article 4(1) can thus justify the dismissal. Otherwise if the dismissal or purported dismissal is based on the transfer of the undertaking or business, the employee can insist on his rights under article 3.”

“In the present case there was no finding of collusion between the administrator and Mrs and Mrs Goodman. We accept that such collusion is not a prerequisite for a transfer-related reason for dismissal under Regulation 8(1). … However, we are satisfied that the tribunal fell into error by patently failing to consider whether or not the reason or principal reason for dismissal by the Administrator was an economic reason, thus negativing a transfer-related reason under Regulation 8(1).”

“He further submits that the timing and order of events was stage-managed in order to bypass the operation of the TUPE regulations except that the administrator, Mr Rutherford, may have been an unwitting tool of Mr Craig Smith’s machinations.”

“As far as that is concerned the Tribunal … finds that there was no collusion whatsoever between the administrator, Mr Rutherford and either Dynamex or Mr Craig Smith.”

“7.1 If an Administration Order was made in respect of the Company, there would not be sufficient funds to permit it to continue to trade, especially in the light of the capital expenditure referred to at the end of para 2.4. In the circumstances the Administrators will almost certainly dismiss the majority of the staff immediately, retaining 3 or 4 staff to update the books and records and liaise with customers during the initial term of the Administration. The Administrators would then negotiate with interested parties in an attempt to secure better realisations for Creditors. It is anticipated that a sale can be achieved during the traditional August shutdown period.”

“8. Dismissal of employee because of relevant transfer (1) Where either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated for the purposes of Part V of the 1978 Act and Articles 20 to 41 of the 1976 Order (unfair dismissal) as unfairly dismissed if the transfer or a reason connected with it is the reason or principal reason for his dismissal. (2) Where an economic, technical or organisational reason entailing changes in the workforce of either the transferor or the transferee before or after a relevant transfer is the reason or principal reason for dismissing an employee – (a) paragraph (1) above shall not apply to his dismissal; …” (a) paragraph (1) above shall not apply to his dismissal; …”

“17. … the Tribunal is satisfied that the reason or principal reason for the dismissal of all of the employees with effect from 7 August 2003 was an economic one and Regulation 8(1) does not apply. Moreover it was not for a reason connected with a transfer. In those circumstances the additional words added to Regulation 5(3) by Lord Oliver in the Litster case do not apply. It therefore follows that the claimants in these cases were not employed by [Friction] immediately before the transfer and liability for the claims made by the claimants’ [sic] remains with [Friction]. As it is ‘insolvent’ it rests with the Secretary of State as statutory guarantor for the relevant liabilities.”

“35. The question which has troubled us in this connection is, whose reasons are we concerned with? The dismissals were effected by Mr Rutherford as administrator of [Friction]; he was not, it is common ground, in collusion with Mr Smith (cf the collusion found as fact in Litster between the receivers and the transferee). His stated reason, accepted by the Employment Tribunal, was purely economic; the business had no assets out of which to pay the wages. In these circumstances, is it relevant for the Employment Tribunal to consider whether or not events were stage-managed by Mr Smith, even if the Appellants’ case was accepted?”

“11. [Counsel] further submits that the timing and order of events were stage managed in order to bypass the operation of the TUPE Regulations except that the administrator, Mr Rutherford, may have been an unwitting tool of Mr Smith’s machinations. As far as that is concerned the Tribunal, as indeed was accepted by all of the representatives at the hearing, finds that there was no collusion whatsoever between the administrator, Mr Rutherford, and either [Dynamex] or Mr Craig Smith. It was accepted that Mr Rutherford carried out the correct procedures in connection with his duties as administrator. He thought it right, proper and necessary to dismiss all of the employees with effect from 7 August 2003, particularly in view of the fact there was no cash available to pay wages to employees after 18 August 2003 insofar as hourly paid workers were concerned and also there was no money to pay monthly paid staff who had only been paid up until 31 July 2003. The Tribunal, in particular, does not accept that it is a reasonable inference that the transfer was pre-planned and that it was clear to Mr Smith before he petitioned for the Administration Order that there would be a transfer to Mr Mark Jones.”