Edgestop Ltd (In Receivership) v McGorry & Anor [1992] UKEAT 215_92_2710

EAT

Edgestop Ltd (In Receivership) v McGorry & Anor

[1992] UKEAT 215_92_2710 · 1992-10-27

MR JUSTICE KNOX: This is an appeal by Edgestop Limited acting through its Receivers, Messrs Adrian Richard Stanway and Alan Peter Whalley of Cork Gulley's against a decision of the Industrial Tribunal sitting at Exeter on the 6th January 1992 which sent Summary Reasons for its decision on the 7th January and Full Reasons on the 28th January, the decision being that the two Applicants a Mr and Mrs McGorry were unfairly dismissed and were awarded sums by way of compensation. The appeal before us is concerned with the first of those decisions, that is to say the unfair dismissal rather than on the figures.

The position was that the two Applicants, Mr and Mrs McGorry were appointed by the Respondents to be managers of a hotel in Torquay known as the "Roseland Hotel". The Company, Edgestop Ltd, had various other enterprises and the Roseland Hotel was not the only site where the Company's business was carried on.

In October 1990, the Receivers, who were then appointed, appointed Mr and Mrs McGorry as the managers of another hotel, the "Overmead Hotel", Torquay, which is the one with which this application is concerned. So far as the appointment of Mr McGorry is concerned it was found by the Industrial Tribunal to be based on one letter only which merely stated:

"I am writing to confirm your appointment as manager of the Overmead Hotel with effect from the 16th October 1990."

and Mrs McGorry did not even have the benefit of that but no separate point has been taken in argument before us with regard to Mrs McGorry, the Industrial Tribunal coming to the conclusion that effectively it was a joint appointment of the two as manager and his wife. There were terms and conditions of employment put before the Industrial Tribunal in relation to Mr McGorry's appointment and one matter should perhaps be mentioned, although it was not central to the submissions made to us, and that is that there was a provision for a grievance procedure. What it provided was this:

" Grievances

The firm will try to resolve as quickly as possible any grievance you may have about your employment, you should contact the firm's managers who will be able to respond to your complaint."

That is the totality of the grievance procedure.

Matters proceeded, as far as one can tell, satisfactorily for exactly a year until on the 16th October 1991, the year has fallen from paragraph 5 of the Industrial Tribunal's decision but it is fairly clearly 1991, an agreement was entered into between the Receivers on the one hand and a Company called "Nursing and Care Associates Ltd", which is referred to in the decision, conveniently as NCL and I will adopt those initials. It is largely on the terms of that appointment that the issues in this appeal turn. The appointment was a very detailed written one, dated as I have said, 16th October 1991, and made between NCL, called "the Manager" the Receivers and a Mr Stanniland who was joined as the guarantor of NCL. There were various recitals, including a recital of the appointment of the Receivers by the Debenture Holders, and a recital that the manager, NCL, and the Receivers had agreed that the manager should assume day to day management of the hotel, thereinafter referred to, in the manner and subject to the terms and conditions therein contained. "The premises" was defined as the Overmead Hotel, "the business" was defined as the business of a hotel carried on by the Joint Receivers at the premises, meaning of course the Overmead Hotel. The agreement that the manager should provide services included the following services:

"2.1To carry out the day-to-day operation of the business as described in this Agreement in compliance with the responsibilities put on the Joint Receivers."

In Clause 2.3 the time limit was from the 18th October 1991 until the 2nd January 1992 unless terminated on prior notice. As was pointed out to us, therefore, it was not a very long term agreement. There was a provision for the Joint Receivers to make available to the manager, free of charge, suitable office accommodation at the Hotel. The manager was not required to devote the whole of its time and attention as perhaps would have been normal had the manager been a human being and had this been a normal appointment of a hotel manager. Nothing in our view turns on that aspect of the matter. There were various requirements for the manager to adopt accounting mechanisms and equipment and to provide information to the Receivers but when it comes down to the detailed duties that were imposed on the manager, one finds this in Clause 2.14:

"The Manager shall also: (a)Provide adequate professional, technical, ancillary and other staff; all staff provided by the Manager shall be the employees or contractors of the Manager unless otherwise agreed:" (b), (c), (d) are all clauses that require the manager to provide things that are essential for the conduct of a hotel business, such as: furniture; hot and cold water; light, heat and ventilation; (e) is requiring a repairing obligation; (f) and (g) are fire hazard obligations, for example:

"(g) Make adequate arrangements to secure by means of fire drills and practices that the staff in the premises and, in so far as it is practicable, the guests, know the procedures to be followed in the case of fire. (h)provide adequate kitchen equipment," [and similar].

"(i) Supply adequate food for every guest:"

and that has to be read in conjunction with the later clause 3.1 which reads:

"The Manager will order all food, wet stocks, cleaning materials, laundry materials, and other consumables necessary for the day-to-day running of the business.

(j) Arrange adequate laundry facilities:

" (k) was dealing with the excise licence that was no doubt held in connection with the Hotel and subsequent clauses in 2.14 were concerned with complying with statutory obligations and a final sweeping up clause: (o)"to report to the Joint Receivers any acts matters or things which are necessary or desirable for the safe and efficient management of the Business and which the Manager is not hereunder authorised to do,"

Then, in 2.15 there was the clause that purported to deal with the situation regarding existing employees. It reads as follows:

"the Manager will work with the Licensee [we would mention in passing that the Industrial Tribunal has slightly misquoted that clause in its decision in that it reads `the Manager will work with " a licensee", in fact it is "the L icensee"] and employees of the Joint Receivers to ensure that they understand their responsibilities or, where necessary, advertise and appoint suitable persons to fulfil this requirement, subject to the Joint Receivers' prior consent."

That is not a very felicitously expressed clause because it is not clear to the reader exactly what the requirement is that is referred to near the end. It looks probable that what was intended was that the requirement was the necessity to have the staff that existed to run the Hotel, so that the advertisement and appointment of suitable persons would be with a view to keeping up the staff at its necessary level. But as was emphasised to us both this clause and a subsequent clause 3.5, which reads:

"Senior staff will be interviewed and the staff structure assessed and, if necessary, new appointments and restructuring undertaken with the Joint Receivers' prior consent."

both require the Joint Receivers' prior consent before a person can be appointed to be the employee of the Joint Receivers, and it would probably be a reasonable inference that a similar consent would be required to a dismissal although that is not, in fact, so stated in terms. On the other hand it is perfectly clear that NCL, as the Manager under this agreement, did have authority to take all preliminary steps to any necessary alteration in the staff. But they did not have authority, it would appear, to appoint new staff, absent the Receivers' consent.

There were other obligations of an advisory nature imposed on NCL which need not be gone into in detail and there were provisions with regard to the expenditure of money. In 3.2 the agreement read:

"Any small consumable items will be purchased through petty cash and recorded on a petty cash sheet."

and then there is provision about a float of £100 being kept for the purpose of petty cash. Capital expenditure was not to be made without the prior written approval of the Joint Receivers.

There were provisions for the way in which staff were to be paid through PAYE but nothing, in our view, turns on that. Nor was any reliance placed on that clause.

The central point in the appeal, in our view, is the challenge that was made to the conclusion that the Industrial Tribunal expressed, having quoted, and in one small respect that I have earlier mentioned, slightly misquoted, the terms of that agreement, with regard to its scope. What the Industrial Tribunal said in paragraph 5 of its decision was this:

"In short the terms of that contract would appear to place on NCL Ltd all the duties of a hotel manager which is how they are described in the contract."

That was attacked before us as not an accurate analysis of the terms of that agreement. We are unpersuaded by that. True it is that there clearly was an intention to insert into the structure, immediately below the Joint Receivers, NCL with a degree of managerial functions that would be outside the managerial functions of an ordinary hotel manager. To that extent it is clear to us that there was not an exact correspondence throughout between on the one hand, the duties that were imposed on Mr McGorry under his existing contractual relationship and the duties that were imposed on NCL. But it is equally clear to us that there was a significant area of overlap between what Mr McGorry was under an obligation to do and what NCL were being required to do by that agreement of the 16th October 1991. The most obvious example is the buying of the food, but in our view it did not end there. There was ample material upon which the Industrial Tribunal could, in our view, conclude that all the duties of a hotel manager were embraced by the very detailed provisions of the agreement with NCL.

It was rightly submitted to us that it was right for the Industrial Tribunal to go on and say as they did:

"It is important however for us to look also at what happened in practice."

and their findings which Mr Bloch, who appeared for the Receivers, very properly accepted are binding on this Tribunal, were as follows on the factual aspect of the matter: first of all Mr and Mrs McGorry were told on the telephone on the 17th October that the contractual managers, NCL, were being, or had in fact been, appointed. That is all that one knows about that telephone call between Mr McGorry and someone in Cork Gully.

The next day, Friday 18th October, Mr Stanniland, who was the Managing Director of NCL, arrived in Mr McGorry's absence and I quote from the Industrial Tribunal decision:

"In the absence of the manager he [that is Mr Stanniland] instructed his assistant, Mr Evans, to go into the accounts office and to check the floats and to start on the process of looking at the accounting systems. He also took it upon himself, either before or just after Mr McGorry arrived, to reprimand certain staff and he also made immediate arrangements to move some furniture. All of these matters were part of the day-to-day management of the hotel rather than of the strategic head office management of the business."

There was then recorded a conflict of evidence between what Mr McGorry said and Mr Stanniland said regarding a meeting which they both agreed did occur on that Friday. The Industrial Tribunal to cut a fairly long story short accepted Mr McGorry's account rather than Mr Stanniland's. Their conclusion was contained in paragraph 10 of their decision:

"In our view those actions [those are the actions of Mr Stanniland] were not the actions of a person whose intention was to sit back for a fortnight to see how the business ran. Equally they were not the actions of a person who respected the existing manager's position. Doing the cash check before he arrived and allowing Mr Evans to see the accountant without Mr McGorry's agreement are not the actions of a person who is sitting back. Equally the decision about moving furniture was very much a matter of day-to-day control. Furthermore, Mr Stanniland, without consulting Mr McGorry, arranged for his son, [presumably Mr Stanniland's] who was an entertainer, to perform that Saturday evening. Finally, as we find, he upset the restaurant manager."

In those circumstances the Industrial Tribunal posed itself, as we see it, the right question in relation to a claim as was advanced by Mr McGorry of constructive dismissal, as defined by Section 55(2)(c) of the Employment Protection (Consolidation) Act 1978, when the Tribunal said in paragraph 12:

"In those circumstances we have to decide whether there were fundamental breaches of their respective contracts of employment."

and in relation to Mr McGorry, they said:

"His management responsibilities were being substantially changed."

and they concluded the changes set out:

"were so fundamental as to change the status of his employment from that of a general manager to a far more lowly position closer to supervisor."

and from that they concluded:

"that there was a fundamental breach of his contract of employment and that he resigned as a result of that fundamental breach and was therefore constructively dismissed."

The position with regard to Mrs McGorry was slightly different, but we need not go into that aspect of the matter because no distinction was drawn in argument before us about the two.

What was said in criticism of that decision of the Industrial Tribunal was this: first of all there was a failure by the Industrial Tribunal to consider the question whether there was an intention on the part of the Receivers to get rid of Mr and Mrs McGorry and it was submitted, that that was the proper test and that the Industrial Tribunal had not applied it. In our view that is more a verbal point than one of substance. One is judged by one's actions in the operation of the law rather than on one's subjective intentions and once a tribunal has reached the conclusion which we expressed our view the Industrial Tribunal rightly did at an early stage, in interpreting the agreement of the 16th October 1991 as conferring all the duties of a hotel manager on NCL, it follows that the actions of NCL in pursuance of that contract thus interpreted do legitimately form the subject matter of the material upon which the tribunal objectively ascertains what the intention of the Receivers must be taken to have been. Of course the Receivers did not intend that there should be a fundamental breach of the contract of employment between them and Mr and Mrs McGorry. Parties in fundamental breach of contract very frequently have no specific intention to be in that invidious position. The question that the law addresses itself to is whether their actions do, objectively considered, amount to such a state of affairs. In our view the Industrial Tribunal was justified in reaching the conclusion which it did that NCL's actions were effectively binding on the Receivers. Various points were made in support of the general proposition that the Receivers had no intention to get rid of Mr and Mrs McGorry. One was that the appointment of NCL was only a temporary measure and, a fortiori, Mr Stanniland's activities must be regarded as temporary and that therefore no excessive importance should be attached to them.

In our view, it was quite permanent enough for the Industrial Tribunal to be justified in concluding that there was indeed a fundamental breach in Mr McGorry's effective demotion.

Secondly, it was submitted to us that it would have been possible for Mr McGorry to have got in touch with Cork Gully and find out whether there was, perhaps, some mistake. Reliance was placed in that context on the case of Peter Dumenil v. James Ruddin Ltd [1953] 2AER 294 and one of the passages which perhaps most clearly summarises this point is a passage in Lord Justice Jenkins' judgment at page 299 when he deals with what the situation in that case was. There, there was an instalment contract for the purchase of 140 cases of a particular breed of Australian skinned rabbits. The first instalment, the whole having been paid for, was called for by the purchasers, who had been given a delivery order, and when they applied to the storage company for 25 of the 140 cases, were told erroneously, by the manager of the storage company that there were no rabbits of that brand in the stores. The purchasers were in fairly regular contact with the vendors but they did not get into contact with them at all, in relation to either those 25 cases, which were not thus delivered, or in relation to the other 115 cases which remained to be delivered under the instalment contract. In those circumstance the Court of Appeal decided that there was no repudiatory conduct on the part of the sellers and that the admitted error, and indeed breach of contract that had been committed by the manager of the cold store, was no more than a breach of contract in relation to one of several instalments and did not amount to a repudiation of the whole. The problem is of fairly frequent occurrence in the law of instalment contracts, but as regards contact between the parties, Lord Justice Jenkins at page 299 said this:

"No doubt what the buyers believed, that is to say, the absence from the cold stores of any Australian skinned rabbits of the appropriate brand, suggested that the sellers might be intending not to carry out their contract, but I cannot think it goes any further than that the buyers might reasonably say to themselves: `This looks as though the sellers have repudiated, or are intending to repudiate, the contract, unless there is some other explanation.' It seems to me that one must make that reservation - `unless there is some other explanation.'"

and on that basis it was submitted to us that it would have been reasonable for the telephone to be picked up again as it had been used the day before Mr Stanniland called at the Hotel and for Cork Gully to be asked whether what was going on was in accordance with the terms of the agreement that existed between the two Receivers and NCL.

There are various answers to that submission. The first is that there is no trace that this was put to Mr or Mrs McGorry in evidence. In our view, this was something which, if it was to be relied upon by the Receivers as a failure by Mr and Mrs McGorry to act in a reasonable way, should have been put to them in cross-examination and Mr Bloch candidly accepted that had he been conducting the case he would have put the question, as no doubt he would.

Secondly, the grievance procedure which, it was pointed out, Mr and Mrs McGorry did not avail themselves of, would hardly have advanced matters very much because, as will be recalled, all it said was "you should contact the firm's managers" and we know, of course, that the telephone call did at least tell Mr McGorry, that NCL had been appointed as managers and it seems to us that the grievance procedure would just have led back to Mr Stanniland, which would not have advanced matters very much.

Thirdly, it does seem to us that the authority that we were referred to, while of course, binding on us if there was any such question as an instalment contract involved, is dealing with an entirely different factual state of affairs, namely where there is a positive mistake made. The manager said there were no such rabbits, when there were such rabbits. Whereas, here, one is dealing with, perhaps an enthusiastic exercise of the powers that were conferred on NCL by the contract they had with the Receivers, but there is no question of an error of a factual nature which could easily be cleared up by a telephone call. This was conduct by Mr Stanniland which we are unpersuaded was actually in breach of the contract with NCL but whether it was or not it seems to us that the McGorrys can hardly be blamed for acting on the basis that, what Mr Stanniland did was what he was authorised to do.

We have not been able to identify any significant error of law in the Industrial Tribunal's decision and on that basis we do not propose to give leave for this to go forward to a full hearing. The appeal will be dismissed.