Secretary Of State For Employment v Dines & Anor [1995] UKEAT 384_94_1005

EMPOLYMENT APPEAL TRIBUNAL
BAILII case number: [1995] UKEAT 384_94_1005Case No Appeal No. EAT/384/94Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS
Between
Secretary Of State For EmploymentDines & Anor
Date 10 May 1995
[1]BAILII case number: [1995] UKEAT 384_94_1005 Appeal No. EAT/384/94 EMPOLYMENT APPEAL TRIBUNAL 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS At the Tribunal On 10th May 1995 THE HONOURABLE MR JUSTICE MORISON MR J R CROSBY MRS T MARSLAND SECRETARY OF STATE FOR EMPLOYMENT APPELLANT(1) DINES,(2) HOLLAND RESPONDENTS Transcript of Proceedings JUDGMENT Revised APPEARANCES For the Appellant MR R JAY (of Counsel) The Treasury Solicitor Queen Anne's Chambers 28 Broadway London SW1H 9JS For the Respondents MISS R DEGEL (of Counsel) P.R.L. Totenhofer Solicitor 1 Queen Street Brightlingsea Essex CO7 0PH MR JUSTICE MORISON : Where an employee has the misfortune to be employed by an entity which refuses or is unable, due to insolvency, to pay its employee certain of their dues, then subject to the fulfilment of specific conditions the Secretary of State for Employment is obliged to make to those employees payments out of the National Insurance Fund. On doing so, the Secretary of State is effectively subrogated to the employees rights against the employer. The first example of such a situation is to be found in Section 106 of the 1978 Act, where an employer fails to pay a redundancy payment due to his employees, and the amount remain unpaid, either because the employer fails or refuses to pay it, despite all reasonable endeavours by the employee to recover it, or because the employer is insolvent. In such a case the employee makes an application to the Secretary of State, who, if satisfied that such a payment was due from the employer, and that one of the two events leading to non-payment had occurred, will then pay to the employee, out of the fund, an amount which represents the employer's payment, as defined in the Act. If the Secretary of State has not dealt with the application in a way satisfactory to the employee he may present a complaint to an Industrial Tribunal naming the Secretary of State as respondent: section 108 of the 1978 Act. The second type of payments which the Secretary of State may become liable to make to an employee are set out in Section 122 of the Act. These payments include monies outstanding under the contract of employment such as: arrears of pay, including sums due in respect of the notice period, outstanding holiday pay, and a basic award of compensation. In relation to these monies, the liability of the Secretary of State to make payments from the fund is contingent upon him being satisfied that the employer is insolvent. If satisfied that the monies were due, and the employer has become insolvent, the Secretary of State is required to pay out of the fund monies calculated in accordance with the provisions of the Act subject to a weekly limit, which I think is £205.00. It is to be noted that, by way of contrast with the redundancy provisions, recoupment from the Secretary of State is conditional upon the employer being insolvent. Being unscrupulous and disappearing, or simply defaulting, is not enough, under Section 122, although it might well be enough under Section 106. Insolvency is defined in the Act, Section 127(1) provides that:
"... an employer shall be taken to be insolvent if, but only, in England and Wales,- ... (c) where the employer is a company, a winding up order [or an administration order] is made or a resolution for voluntary winding up is passed with respect to it, or a receiver or manager of its undertaking is fully appointed, or possession is taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property of the company comprised in or subject to the charge [or a [voluntary arrangement proposed for the purposes of Part I of the Insolvency Act 1986 is approved under that Part ]]."
It seems to us that the statutes specifies the only circumstances in which there is an insolvency, and they are confined to those cases specified in 127(1)(c) as the words "if, but only if" make clear. What happened in this case is that the two employees were dismissed by reason of redundancy, by a company called Leverlodge Ltd "the Company", by whom they had been employed for some years. The Company did not pay the redundancy payment to which the employees were entitled. Further, each was entitled to arrears of holiday pay, and each to outstanding wages earned but not paid. The figures in this case are not in dispute. Therefore the employees had claims which potentially fell within Sections 106 and 122 of the Act. The Secretary of State paid the employees their redundancy entitlement out of the fund, but refused to pay the other sums. When the matter came on for hearing, the Industrial Tribunal were obviously concerned they had not received the help from the Department of Employment to which they believed they were entitled. The Department of Employment said that they were not satisfied that the Company was insolvent. They said the Company had been struck off the Register at Companies House, and therefore "The procedure for liquidation would not be applicable", and the employees' representative obtained confirmation, apparently from Companies House, that the Company was struck off the Register on 25th August 1992, and was dissolved by notice in the London Gazette of 1st September 1992. The Secretary of State's IT3 did not admit the insolvency. The matter was listed for hearing, and the Secretary of State did not appear, but on his behalf there had been lodged a submission on the facts. The Industrial Tribunal adjourned the case to 14th January 1994; they gave no indication to the Secretary of State that they expected a representative to appear to give them assistance. Indeed, in the their original unrevised decision the Industrial Tribunal had indicated that they intended to make enquiries themselves, and there was no need for either party to attend the resumed hearing. It appears that the Industrial Tribunal themselves carried out some kind of company search in the meantime, and discovered no more that was already known. In a revised decision, the Industrial Tribunal indicated that they adjourned the matter so that the Secretary of State's representative could attend, but we have been told, and accept, that no communication was received by the Secretary of State's department. Having drawn attention to the powers of the Secretary of State to require disclosure of documents from companies and others in possession of relevant material, the Industrial Tribunal concluded that if the Secretary of State wished to assert that a company was not insolvent, it was for him to assist the Tribunal in coming to a correct factual conclusion. They then concluded that all the evidence pointed to the employer having been insolvent, and relied upon the fact that the employees received no wages, redundancy payment or information. "The employer just disappeared. It is a perfectly reasonable inference for the tribunal to draw from those facts that the employer did so because it was insolvent, in the absence of any explanation to the contrary." They said if they were wrong about that:
"... we draw the parties attention to the fact that both we and the applicants are prevented from making further enquiry because of an absence of appropriate powers which can effectively be exercised whereas the Secretary of State had a statutory power in section 126 of the Act but to all appearances has declined to exercise that power."
They then made an order for costs against the Secretary of State in the sum of £350.00:
"... because in our view it was unreasonable of [ him ] to make the submissions which were made on his behalf and then to fail to attend the hearings to sustain those representations in evidence and to be open to cross examination on them or to be present to reply to the argument conducted on the part of the applicants"
It is to be noted that no suggestion was made in the IT1s of either applicant that the Secretary of State had been unhelpful or had failed or refused to exercise his powers to require information. In their IT1s the applicants contended:
"... that the company is already dissolved albeit not by any process of liquidation as the Company has been struck off the Register for failure to deliver Annual Returns (copy of letter herewith). The Employment Service have confirmed liquidation is not longer applicable (copy letter herewith)."
The IT1s continued with the statement which was no doubt true at the time, that the Redundancy Payments Office had not paid them their entitlement despite the Department of Employment having suggested that they contact that office. It seems to us quite clear that the Industrial Tribunal had all the facts available to them to reach a determination of the matter. The Company did not appear to be insolvent within the meaning of the Act because it had been removed from the Register and dissolved, possibly because no annual returns had been filed. But that was not an insolvency as defined in the Act. The Industrial Tribunal appear to us to have confused the question whether a company is insolvent in the sense that in cannot pay its debts as and when they fall due, with whether a company is insolvent within the statutory definition contained in Section 127(1) of the Act, which requires some judicial or administrative act. Whilst there are, or maybe cases where an inference could be drawn, that such a judicial or administrative act had occurred, this was not such a case. The documents which the Tribunal had available comprised the following in particular: A letter from Leverlodge Ltd to the applicants, amongst other people, indicating that there was an anticipated involuntary liquidation, and that details concerning this, "will be sent to you and when the Liquidator is appointed". That is a letter of 31st December 1991.[2]The next document is a letter dated 21st October 1992, from the Company's solicitors, directed to the Applicant's solicitors, with regard to the Company, and it said, that their instructions (coming from an associated company) were that "Leverlodge Limited, has ceased trading and is expected shortly to be put into liquidation as it had no funds to meet any demands."[3]On 11th December 1992 the Redundancy Payments Service responded to the applicants and their request for payment from the fund in this way:
"Before we can make any payments under these provisions, we must be satisfied that your ex-employer has become insolvent as defined by the Act."
They then proceed to give a sensible summary of the statutory definition. "Our enquiries have produced no evidence that Leverlodge has become insolvent and so as things stand we cannot pay your client under the provisions." "In the circumstances, you may wish to consider an application to the court for a winding up order. A joint application (if made with any other former employees who are owed money) would help spread the cost." "If you want to check, later on, whether the company has become insolvent, you can apply in person or write to the Companies Registration Office, [ and they give the address ]. Alternatively you can telephone that office [ and they give the telephone number ] and ask for the Companies Liquidation Section." "I am sorry that we are unable to assist you further." That letter seems to us to represent a helpful response in the circumstances, albeit at that time they were not prepared to consider their powers under Section 106(1)(a).[4]The next document is dated 18th February 1993 from Companies House addressed to a Mr Totenhofer who is apparently a solicitor, and it is on a standard form and it deals with a letter he has sent to them and it says that the name of the company was struck off the the register on 25th February 1992 and the company was dissolved by notice in the London Gazette of 1st September 1992.[5]On the same day the Employment Service wrote to Mr Totenhofer as follows:
"With reference to your letter of 5 February 1993 concerning Mr J Holland and Mr B Dines who were employed by Leverlodge Ltd. As the company appears to have been struck off the register at Companies House the procedures for liquidation would not be applicable. The Redundancy Payments Office at Arena House, North End Road, Wembley, Middlesex HA9 0BS will be able to advise you of the employers legal liabilities and may be able to assist in securing a payment for your clients."
[6]On 3rd March 1993, Mr Totenhofer wrote to The Redundancy Payments Office indicating he was instructed by the two applicants and he said:
"The position with regard to the company is that no steps were actively taken to appoint a Liquidator, but the company was struck off the Register at Companies House on the basis that it had filed to file any Returns etc. We have been in touch with the Employment Service at Colchester who have suggested that we write to you to ascertain how we can obtain on behalf of our Clients, as obviously the normal procedures for putting the company into liquidation are no longer appropriate."
[7]The Redundancy Payments Service on 29th July 1993 in response to the IT1 did not admit that Leverlodge Ltd was insolvent within the meaning of the Act.[8]On 21st September 1993, a fuller summary of the Secretary of State's submissions was presented to the Industrial Tribunal, in which, apart from the facts set out above, it says:
"The Secretary of State's enquiries have established that the employer in this case is not insolvent as defined in s127 of the Act."
It seems to us, that in the light of that material, that there was no basis for the Industrial Tribunal to infer that the administrative or judicial act required for an insolvency within the meaning of Section 127 had occurred. In other words, it seems to us that the Industrial Tribunal failed to recognised that a clear distinction is to be drawn between inferring an insolvency situation on the one hand, and inferring that a judicial or administrative order or act has been made or done in consequence of that situation on the other. Accordingly it seems to us, that in relation to the finding made by this Industrial Tribunal that the facts established enabled them to infer that there was an insolvency was wrong in law, because they mis-directed themselves as to the need for an administrative or judicial act. We now turn to the question of the order for costs. It seems to us quite unfair that the Industrial Tribunal should criticise the Secretary of State without first having given him an opportunity to make representations. As we have noted, there was no indication in the IT1s of any criticism of the way the Secretary of State dealt with the matter. Like any other party, the Secretary of State is entitled not attend a hearing, but can instead rely on written representations. If the Tribunal were minded either to criticise the conduct of the Secretary of State or to make an award of costs, in our view it should have invited his attendance at the second hearing, but instead did not do so. Accordingly, it seems to us, that the order for costs that the Tribunal made was unfairly made, and we have no hesitation in allowing the appeal from that order. That said, we wish to make it clear that if a Tribunal reasonably invites assistance from the Secretary of State it is normally entitled to receive it, and so far as we are concerned, we would expect the Secretary of State and his officers to comply with such reasonable requirements. We were invited by Mr Jay, on behalf of the Secretary of State, to try and give guidance in relation to future cases. We are not sure that this is the appropriate occasion to do so. It seems to us that the argument which was raised in this case to the effect that criticism can be made of the Secretary of State's failure to exercise his powers to obtain information somehow transfers the burden of proof on to him is not sustainable in law. The Secretary of State is given these powers so that he can satisfy himself that it is appropriate to make payments out of public monies. It is his duty not to give away public monies, unless he is satisfied that the conditions for their payment have been fulfilled. It seems to us that if there is complaint about him not making proper enquiries the Industrial Tribunal is probably not the correct forum for that to be done, but we express no concluded view on that matter. Accordingly the appeal is allowed.