Campion Hall v Wain & Anor [1995] UKEAT 1112_94_1011

EAT
Campion Hall v Wain & Anor
[1995] UKEAT 1112_94_1011 · 1995-11-10
MR JUSTICE MUMMERY (PRESIDENT): This is an appeal by Campion Hall, Oxford against the decision of the Industrial Tribunal, the Chairman sitting alone, at Reading on 19th and 20th October 1994. The Tribunal Chairman ruled on a preliminary question in a claim for unfair dismissal brought by Mrs Beryl Wain for the loss of her job as catering manager in January 1994.Mrs Wain's case, as set out her originating application presented on 14th March 1994, was that from 26th November 1990 until 2nd January 1994 she was employed as a catering manager by a firm of contract caterers, Gardner Merchant Ltd, the second respondents to the claim. They were responsible at that time for providing a catering service to the first respondents, Campion Hall, Oxford. In October 1993 Campion Hall terminated the contract with effect from 2nd January 1994. The catering service was then operated by Campion Hall themselves. She alleged that the service was to be operated in substantially the same manner. Her understanding was that her position was covered by the 1981 Regulations governing the Transfer of Undertakings. She applied to Campion Hall to remain catering manager. She was interviewed, but turned down for the job. She claimed, by reference to a number of authorities, to the Acquired Rights Directive and the 1981 Regulations, that she had been unfairly dismissed by Campion Hall.The response of Campion Hall, which raised the preliminary issue, was that they had not dismissed Mrs Wain. Their case, set out in detail in an attachment to the Notice of Appearance, was along these lines. From August 1987 Campion Hall purchased catering services from Gardner Merchant. They used catering managers to deliver the services. Mrs Wain was appointed by Gardner Merchant as their catering manager. Following a meeting in February 1993 Gardner Merchant promised to give attention to requirements of Campion Hall, but they failed to deliver the food services and the menus identified. As a result of alleged continuing unacceptable performance, Campion Hall notified Gardner Merchant in October 1993 that they would cease to purchase the catering services from the beginning of January 1994.It was decided that Campion Hall would cater for itself. Mrs Wain was allowed to apply to the Hall's chief chef and catering manager. She was interviewed, but she was not appointed. The details of the interview and other matters are set out in the Notice of Appearance.In those circumstances the contention of Campion Hall was that Mrs Wain had never been employed by them. If, however, they were held liable as an employer for her dismissal, it was asserted that such dismissal was not unfair. It was justified either by the re-organisational requirements of Campion Hall caused by the change in the catering arrangements, or on the grounds of the alleged failure before October 1993 of the catering services under her management to reach an acceptable standard despite numerous complaints. It was denied that there was a transfer of an undertaking. The unfair dismissal denial was repeated.It is clear from the IT1 and IT3 that there was a preliminary issue i.e. whether or not a relevant transfer occurred on 2nd or 3rd January 1994.The Chairman decided that there was a relevant transfer for the purposes of the 1981 Regulations from Gardner Merchant to Campion Hall, on about 3rd January 1994.The Chairman explained the reasons for that conclusion in the extended reasons sent to the parties on 4th November 1994.Campion Hall appealed against the decision, on the grounds, that it contained legal errors in the interpretation and application of the 1981 Regulations, the cases decided on those regulations and on the Acquired Rights Directive to the facts found by the Chairman.On the hearing of the appeal we have heard excellent arguments from Mr Hawthorne on behalf Campion Hall, and from Mr Korn on behalf of Gardner Merchant. They have both assisted us in reaching a clear conclusion on this point.As far as Mrs Wain is concerned, a letter was written on her behalf by the Oxford Citizens Advice Bureau to say that she would not be attending today's hearing, and that she supported the arguments put forward by Gardner Merchant.In order to understand the rival contentions on the case, it is necessary to refer to the findings of fact by the Chairman and to the reasons for his decision. Central to his reasoning and to the case advanced by Mr Hawthorne, is the contractual arrangement reached between Campion Hall and Gardner Merchant in July 1987; that contract was terminated and gave rise to the alleged transfer. We have read a copy of the contract referred to in the decision and to certain provisions in it.Under the contractual arrangements Gardner Merchant were to be responsible for the following aspects of the catering service:
"(a) The procurement of the necessary goods, foodstuffs and articles at normal wholesale or trade prices from our nominated suppliers."
In paragraph 2 Campion Hall appointed Gardner Merchant as sole caterers and agreed to provide free of all charges:
"(a) Catering premises, all necessary plant, furniture, fixtures, fittings, ... (b) Power, lighting and heating of catering premises, fuel and water .... (c) All cleaning with the exception of Gardner Merchants Limited responsibilities [ noted in an earlier paragraph ] ...
Paragraph 4 dealt with financial arrangements in these terms:
"(a) GARDNER MERCHANT LIMITED to discharge all outgoings and retain all takings and render at four or five weekly intervals invoices showing the total takings and rebate as noted below and expenses including but not limited to the invoiced cost of purchases of foodstuffs, confectionary and other consumer commodities, cleaning materials, protective clothing, stationery, equipment replacements as agreed and the cost of wages including sick payments, National Insurance, training charge, redundancy payments and staff termination costs arising from changes initiated or agreed by you, advertisements for staff, postages, telephone calls, laundering and sundry expenditure, together with the Management Fee showing the amount due which, after deduction of any Standing Order payment, is to be paid on submission of the invoice. (b) The Management Fee is reviewable with effect from each anniversary of this Agreement and for the first year is £2,500 (plus Value Added Tax). (c) The rebate is nil per centum of food procured from Gardner Merchant Limited's nominated suppliers at normal wholesale or trade price."
In the circumstances of that agreement and its termination, the Chairman found the following facts. Mrs Wain was employed as a catering manager, having initially about three other staff under her. She was employed by Gardner Merchant. The Chairman described the nature and size of Gardner Merchant's operation. He referred to the contractual documents, and said:
"The essential obligations for the purpose of this present application are the procurement of the necessary food stuffs and the provision of good quality meals. For this purpose, Gardner Merchant have to provide and pay the catering staff. The obligations of Campion Hall are to provide, free of charge, all the catering premises together with the necessary plant, ..."
He went on to say:
"... in October 1993, Campion Hall gave notice to Gardner Merchant that they proposed to terminate the contractual arrangements with a result that the applicant's employment came to an end."
In paragraph 3 of the decision he identified a number of important factors. The first was that Gardner Merchant, in discharging the undertaking to purchase foodstuffs from a panel of nominated suppliers, enjoyed from those arrangements discounts from at least some of the suppliers. Whether the suppliers were nominated because they were prepared to provide discounts or whether they were nominated because they provided satisfactory food stuffs, was a point on which the Chairman had no evidence.He referred to Mrs Wain's contract of employment, which specified her place of employment as Campion Hall. She was never employed at any other site. Her contract contained a clause that her employers had the right to second her to another part of the company's activities or to vary the nature and place of her employment by offering her a suitable alternative.He described the staffing arrangements during the subsistence of the catering contract, and the concerns of the Master and Fellows about the quality and quantity of the food provided under the contract.He said:
"What happened thereafter [ that is after 3rd January 1994 ] was, essentially, that Campion Hall took back the catering and it is now done in-house and I propose to say little more about that in due course."
He stated the legal considerations advanced in argument, including the purpose of the Acquired Rights Directive under which the 1981 Regulations were made. He had to identify whether there was an undertaking or part of one capable of being transferred. On that point he referred to the decision of the Employment Appeal Tribunal in Dines v Initial Health Care Services and another [1993] IRLR 521 and to factors referred to by Wood J in that judgment.He examined various factors. The place at which the catering service was supplied, at all times belonged to Campion Hall. He considered the catering equipment, including small items like crockery and cutlery and major items like ovens and dish-washing equipment. He did not think that intangible matters, such as goodwill were of great importance in this case. He referred to the skill of Gardner Merchant staff in providing satisfactory meals. He said:
"All staff were employed by Gardner Merchant and were paid by them. So far as provision of the service is concerned, the point has been made that Gardner Merchant operated under a contract which restricted their choice of suppliers from whom they could purchase food. The point has also been made that Gardner Merchant were not entitled to any rebate under the terms of the contract but in fact what happened was that by reason, probably, of their bulk buying ability they were able to obtain discounts from their suppliers. Those discounts were not passed to Campion Hall."
He then referred to the details of the rendering of accounts for the supply of foodstuffs to Gardner Merchant. The Chairman concluded:
"Considering all those factors, I have asked myself whether or not it is possible to identify an economic unit which may have existed prior to 3 January 1994, and if such a unit existed what was it? I find that there was such an economic unit and that it was part of Gardner Merchant's overall activities in the provision of catering services to Campion Hall by Gardner Merchant staff and at Campion Hall's premises using their equipment for the purposes of feeding the Master Fellows and students of that college."
There is no legal misdirection in the Chairman's approach to the question posed in that paragraph. He turned to the question of whether or not the economic unit identified was capable of being transferred, and if so, whether it was transferred. On that aspect he considered the rival submissions, and he came to the conclusion (if it was necessary for him to do so) that the reason for termination of the contractual arrangements was that there was alleged dissatisfaction on the part of Campion Hall. He made in clear that it was not for him to decide whether the dissatisfaction was justified or well-founded. But he did not think that the dissatisfaction was capable of amounting to a fact which shed any light on, or assisted him in deciding, whether, there was a relevant transfer.He said (correctly in our view) that, in determining whether there was a relevant transfer, he should consider the present position and compare it with the position as it was before. If the two were broadly comparable, that was an indication, but no more than an indication, whether or not there may have been a relevant transfer. It was not conclusive of itself. He said that there had been no tendering exercise, Campion Hall had, for reasons explained earlier, simply formed the wish to take the catering services back in-house. No evaluation exercise was carried out, save that they concluded that they could provide a standard of catering which they considered better. That that factor did not prevent there being a relevant transfer. He was supported in that view by two decisions of the European Court of Molly Kro and Daddy's Dance Hall . He described the service now provided - breakfasts, lunches, and dinners with occasional `guest night' meals - and said that it was essentially the same as had been supplied during the currency of the Gardner Merchant contract.He dealt with the staff situation, and said that, at the date of termination, there were two members of the staff, Mrs Wain and the Steward, Mr Dooley. Prior to the notice of termination, the general assistant had been transferred to a vacancy elsewhere within Gardner Merchant's organisation. Mr Porter, who replaced the assistant chef, had resigned. He dealt in detail, which it is unnecessary to repeat, with the staff arrangements.He concluded that it was clear that a change in the method of providing the service did not necessarily prevent there being a transfer of an undertaking.He stated his conclusion in paragraph 10 as follows:
"10 I have concluded that whilst there are similarities and dissimilarities between the position before and after 3 January 1994, on a qualitative analysis of them my view is that the provision of service before and after are broadly comparable and whilst there have been some changes, I do not think that they are of such significance as would lead me to say that there had been no transfer."
The fact that the two situations were similar did not itself prove there was a transfer. He had to consider whether or not what had happened was that the economic unit had been transferred or whether it had ceased and been replaced by another activity, whether or not in the nature of an identifiable undertaking. It seemed to him that one factor amongst all the others he could look to was that Campion Hall were at least prepared to consider employing Mrs Wain, thought they decided not to do so.He took into account that this was a situation in which the provision of the catering service did not move from one contractor to another, but reverted to the customer, Campion Hall.For all those reasons, and having regard to the underlying purpose of the directive and the regulations, he said that there was a relevant transfer from Gardner Merchant to Campion Hall.The substantive hearing on the merits would take place at a later stage.Campion Hall appealed against that preliminary ruling. Mr Hawthorne's essential case was this. The provision of the catering services was founded on the July 1987 contract. Its essential obligations were part of the economic unit which constituted the undertaking. The Chairman misdirected himself by deciding that the issue whether or not the 1981 Regulations should apply should be determined by reference to a qualitative analysis of the provision of the services before and after 3rd January 1994. The direction should be that the criterion for establishing a transfer was whether the business in question retained its identity. Prior to 3rd January 1994, Gardner Merchant's evidence showed that it was essential to the viability of their catering provision that the contractual covenant restricted suppliers of food to nominated suppliers, coupled with the contractual covenant by which Campion Hall paid the invoiced cost of the food purchases to Gardner Merchant. Gardner Merchant recouped or otherwise secured a rebate on the invoiced cost for their account with the nominated suppliers. The fact was that those covenants in the contract were essential. They were the "life-blood" of the contract. There was no viable economic entity without them. The Chairman should have compared the provision of the service after 3rd January 1994 without those contractual covenants with the provision of the service before 3rd January 1994 dependent on those covenants. The Chairman would then have concluded that the economic entity was based on the contractual restrictive covenants. It was only capable of being transferred if a transfer incorporated those covenants. He referred to the decisions in Dines and in the European Court of Justice in Schmidt v Spar . The Chairman failed to concentrate on the question "has the economic entity retained its identity?" Campion Hall's catering service after January 1994, without the contractual restrictions on the source or the price of catering supplies, should be compared with Gardner Merchant's pre-January 1994 service entirely founded on the contractual restriction. The only possible answer to the question whether the identity of the economic unit was retained, was "No".The central plank of Mr Hawthorne's case is therefore that the contractual restrictions in the July 1987 contract gave benefits to Gardner Merchant crucial to operating the economic entity conducted by them. Those benefits were not available to Campion Hall after the termination of the contract. It became a different, not the same or a similar, economic entity.We are unable to agree that there is a legal error in the Chairman's decision. We agree with the submissions of Mr Korn on behalf of Gardner Merchant. The Chairman's reasoning was legally correct.Mr Korn's submissions were that the essential obligations of the contract of 1987 related to the provision by Gardner Merchant of catering services to Campion Hall. That was the undertaking. The Chairman was right in concluding, on the contract and the evidence, that the undertaking in question prior to 3rd January 1994 was the provision of catering services. What happened to those services after 3rd January 1994? They were resumed by Campion Hall.The Chairman's reasoning was in accordance with later cases, in the Court of Appeal in Dines and in the European Court of Justice in Schmidt v Spar . It is unnecessary to set out the passages cited. He also cited the decision of this Tribunal in Council of the Isles of Scilly v Brintel Helicopters Limited [1995] ICR 249 , in particular passages on page 255, 256 and 258 and passages to similar effect in another decision of the Employment Appeal Tribunal, Kelman v Care Contract Services Limited [1995] ICR 260 at page 267C to E. On the basis of those passages Mr Korn submitted that the conclusion of the Industrial Tribunal was one that the Chairman was entitled to reach. All that happened on 3rd January 1994, relevant to the issue under the 1981 Regulations, was that there was a change in the service provider. It was irrelevant that Campion Hall were able to provide the service more economically by using different suppliers than Gardner Merchant had used. The only difference was that Campion Hall was able to use different suppliers and employ different staff. That did not prevent there from being a transfer of an undertaking. The recent decision of the European Court of Justice cited by Mr Hawthorne in his arguments, the case of Rygaard decided on 19th September 1995 did not assist Mr Hawthorne's arguments. During the course of his submissions, Mr Hawthorne made reference to the passage in the judgment about the necessity for a transfer of an undertaking to relate to a "stable economic entity" and argued that the Gardner Merchant undertaking was not a stable economic entity when compared with the economic unit in the hands of Campion Hall. He referred again to the contractual provisions which made Gardner Merchants' undertaking a viable economic one. We agree with Mr Korn that when read in context, the reference to stable economic entity in the Rygaard case does not indicate any significant change in the European Court of Justice's view of the correct interpretation of the Acquired Rights Directive. It is made clear from paragraph 15 of the judgment that the approach as laid down by that Court in Spijkers as long ago as 1986, is whether the business retains its identity. It is necessary to consider whether the operation of the entity in question is actually continued or resumed by a new employer with the same or similar economic activities. The facts of Rygaard were very different from this. The reference to a stable economic entity was in the context of completing the performance of a specific contract for construction. We are unable to derive any assistance from that case which we have not already derived from the earlier cases of the European Court.In brief, there are no grounds on which we can hold this decision to be in error of law. We dismiss the appeal.MR JUSTICE MUMMERY (PRESIDENT): Following the judgment on this case, Mr Korn raised three matters up for decision.First, a reference in the judgment to breaches of contract by his clients. He wishes to have it made clear in the transcript, when it is corrected, that these are matters in dispute. I shall do that.Secondly, he submitted, and we agree, that the consequence of the dismissal of the appeal is that his client should be dismissed from the proceedings.Thirdly, he has asked for an order for costs against Campion Hall under Rule 34 of the Employment Appeal Tribunal Rules 1993. That role confers power on the Tribunal to order one party to pay costs to another if the proceedings were unnecessary, improper or vexatious, or if there has been unreasonable delay or other unreasonable conduct in bringing or conducting the proceedings. If those matters are established we can order the party at fault to pay the whole or such part as we think fit as the costs and expenses incurred by the other party in connection with the proceedings.In support of that application, Mr Korn made three points. The appeal never stood a hope of success. It was unreasonable to pursue it. Secondly, that one of the reasons why it was being pursued was, as appeared in some correspondence, that Campion Hall were seeking to mitigate loss in relation to damage suffered as result of an alleged breach of contract by Gardner Merchant. It had also been made clear in correspondence that Gardner Merchant regarded this appeal as hopeless and would ask for costs if it was unsuccessful. Thirdly, the effect of the appeal has been to achieve nothing as far as Campion Hall are concerned, only to keep Mrs Wain waiting for the determination of her substantive claim for unfair dismissal. Mr Hawthorne opposed the application. He said that there was a serious point in the appeal, the analysis of the contractual provisions in relation to the question of what was an economic entity, and whether its identity existed in different hands. Mitigation of damages was not the sole reason for the appeal. It was not unreasonable to bring the appeal in the circumstances.We have considered the arguments advanced on each side and reached the conclusion that, although the appeal failed, it cannot be said that it was unreasonable, improper or vexatious to pursue it. It has resulted in a decision on a point not argued in any previous decision, even though, for the reasons explained, the Chairman's decision on the point is in line with the general principles laid down in earlier cases.We decline to make an order for costs.