Edcrest Ltd v Swift Transport Services Ltd & Ors [1995] UKEAT 448_95_0512

EAT
Edcrest Ltd v Swift Transport Services Ltd & Ors
[1995] UKEAT 448_95_0512 · 1995-12-05
MR JUSTICE MUMMERY (PRESIDENT) : This is an appeal by Edcrest Ltd against the decision of the Industrial Tribunal held at Manchester on 6 October and 2 December 1994.The Tribunal unanimously decided, on a preliminary point, that there had been no transfer of an undertaking or part of an undertaking from Edcrest Ltd, the first Respondent in proceedings brought by Mr G M Taylor and other Applicants, to Swift Transport Services Limited, the second Respondent to the Application. They said that there had been no such transfer between 30 April and 3 May 1993 or at any other time.The effect of that decision was that Swift Transport Services Ltd, ("Swift"), were accordingly dismissed from the proceedings.Edcrest appealed by notice of appeal served on 25 April 1995. In the notice of appeal they contended on various grounds that the Industrial Tribunal had erred in law and that the appeal should be allowed. On 20 November the solicitors acting for Swift, Brodies, of Atholl Crescent in Edinburgh, wrote to the solicitors for Edcrest, saying that the case should be remitted to a differently constituted Tribunal for reasons given by Edcrest's solicitors. They suggested that there should be an agreed joint application to the Employment Appeal Tribunal. On 22 November, Edcrest's solicitors wrote to the Appeal Tribunal referring to their appeal listed for today. They pointed out that the appeal related to a preliminary issue as to whether there was a transfer of an undertaking by Edcrest to Swift. They said that as a result of discussions between themselves and Brodies (for Swift), it had been recognized by Swift that the Industrial Tribunal's reasons for finding in favour of Swift were not such as to be likely to withstand scrutiny on appeal. They therefore said this:
"Accordingly, and in order to avoid the expense of the parties attending for a hearing before the Employment Appeal Tribunal, it is proposed by ourselves and by Brodies that the appeal be allowed by consent and that the preliminary issue be remitted for hearing by a fresh tribunal."
They enclosed a copy of the letter from Brodies consenting to that course of action.It was recognized in the later paragraphs of the letter that there might be difficulty in persuading the Tribunal to allow an appeal and a remission by consent. They referred to the decision of this Tribunal last year in J Sainsbury Plc v Moger [1994] ICR 800 at 806-7 that, to take such a course, the Appeal Tribunal would normally be required to be satisfied by argument that there was an error of law in the Industrial Tribunal's decision. In the hope of persuading this Tribunal to dispense with a hearing, Edcrest's solicitors enclosed a copy of their Counsel's skeleton argument in support of the appeal and expressed the hope that that would suffice to satisfy this Tribunal that there was an error of law in the Industrial Tribunal's decision and that it was appropriate to allow the appeal by consent without the expense of a hearing. It was pointed out that the expense of attending an oral argument would be substantial, because it would involve representatives of Edcrest's solicitors travelling from Birmingham and a representative of Brodies having to travel from Edinburgh.Brodies sent another letter to the Appeal Tribunal, dated 24 November, stating that they agreed that the matter be remitted to a freshly convened Tribunal. They recognized that the Applicants, Edcrest, were likely to succeed in obtaining such an order at the appeal and, therefore, urged this Tribunal, in order to save time, to take the course suggested by Edcrest.The parties were informed by a letter of 29 November that I had given a direction that it was only necessary for Edcrest to be represented by a solicitor or Counsel at the hearing today, but that it was not appropriate to allow the appeal by consent without hearing oral submissions.The position today is that Mr Giffin argued the case on behalf of Edcrest. Ms Craig attended on behalf of Swift to support the submission that the appeal should be allowed and that, in consequence, it will be necessary to remit the Industrial Tribunal. Mr Hagan, who represents the Applicants who are members of the Transport and General Workers Union, attended the hearing as an observer. He has taken no part in the argument on the appeal.We have to decide two things. First, whether there is an error of law in the decision and, secondly, if so, whether this is a case which requires to be remitted to an Industrial Tribunal or one which we can decide ourselves on the basis of the facts found by the Industrial Tribunal in the decision for which full reasons were notified to the parties on 16 March 1995.It is disturbing to note that 2½ years have passed since this case began. It was on 22 July 1993 that Mr Taylor and his fellow Applicants presented originating applications to the Industrial Tribunal claiming unfair dismissal and non-payment of redundancy pay. Their claims were resisted by Edcrest on the basis that, for the reasons set out in the grounds of resistance in the notice of appearance, there had been a transfer of an undertaking to Swift and that, accordingly, contracts of employment of all those who have been employed by Edcrest in the undertaking transferred to Swift and had effect thereafter as if originally made between those employees and Swift. All the liabilities of Edcrest in connection with the contracts of employment were also transferred to Swift. For those reasons Edcrest denied that there was any liability for all or any of the claims made by the Applicants in connection with their contracts of employment.That question came before the Tribunal on a preliminary point. In the full reasons for the decision, having set out the formal matters, the Tribunal explained how they used the application of Mr Taylor, by agreement, as a specimen case. The facts relating to the termination of the employment of Mr Taylor and the 24 other Applicants were the same. In paragraph 7 the Tribunal stated its findings of fact on the oral and documentary evidence. The facts they found were these:
"Mr Taylor with the twenty-four other applicants, were employed until on or about 3 May 1993 by Edcrest in servicing an agreement between it and Leyland for the provision of a dedicated distribution service of automotive parts and components manufactured by Leyland from Edcrest's Chorley depot to distribution points throughout the UK."
On 4 February 1994 Leyland went into administrative receivership. The receivers continued to use the services of Edcrest for the distribution service under and operations agreement dated 19 February 1993, which is called "the Edcrest Agreement". That also covered a separate activity of Edcrest or Leyland involving the transportation and storage of vehicles. The latter operation is not affected by the Industrial Tribunal's decision.
"(d) Edcrest had an existing contractual arrangement with Leyland to provide the service described, but when Leyland went into receivership, the receivers then entered into the Edcrest agreement to which Leyland was also a party, for the continuation of the distribution of automotive parts and components from its Chorley plant around the country for Leyland. (e) Edcrest operated the agreement between February and May 1993, when, as a result of a dispute between it and Leyland, represented by the administrative receivers, the latter terminated the agreement in so far as it related to the dedicated distribution of parts and components for Leyland by failing to supply any automotive components for Edcrest to deliver. (f) As a result of this termination the employees of Leyland on Friday 30 April 1993 ... refused to load Edcrest's vehicles with automotive parts for distribution in accordance with the Edcrest agreement. (g) On 30 April 1993 Leyland, by its receivers, entered into an agreement with Swifts ... to perform similar services as had been performed under the agreement with Edcrest for the distribution element of the business."
On those findings of fact the Tribunal identified the preliminary point whether the Edcrest agreement related to an undertaking or part of an undertaking within the meaning of the 1981 Transfer of Undertakings Regulations and, if it did, whether that undertaking was the subject of a relevant transfer by Edcrest to Swifts, as defined in Regulation 3(1). Edcrest operated a " dedicated " distributive agreement. That meant that it allocated vehicles solely to distribution for Leyland and for no other company. The position with Swifts was that from 30 April 1993 they operated a network agreement. That meant that they used their vehicles for the distribution of Leyland's automotive parts and for goods for other parties as well on the same vehicle.The Tribunal identified its task as simple to state, but far from simple to resolve. They resolved the question whether there was an undertaking in favour of there being an undertaking. The question on this point was identified in paragraph 10 as this: whether the service provided by Edcrest that was transferred to Swifts was an undertaking. They found that there was an undertaking. There is no appeal against that point. The appeal is against their decision on the second point, that is, whether the service provided by Swifts was the same undertaking that had been carried on by Edcrest. If it was, there would be a relevant transfer. If it was not, there would be no transfer. They found that it was not the same undertaking and that there was no transfer.That is appealed against. We have had the benefit of helpful arguments from both sides. Mr Giffin submitted that in the decision of the Tribunal four grounds were given for the conclusion that there was no transfer of an undertaking. Those grounds are set out in paragraphs 16 to 18 of the decision. He identified the four grounds as follows: first, that Edcrest lost the work because of its own actions in removing certain vehicles to Holland without the consent of the receivers of Leyland. Second, that the service provided by Swift was fundamentally different because it was a network, rather than a dedicated, system of distribution. Thirdly, that the undertaking was the individual agreement. There was nothing else, no transfer of goodwill, property or equipment. Fourthly, and finally, the grounds stated by the Tribunal in paragraph 18 of the decision in these terms:
"it would seem absurd to hold that this agreement could be regarded as a transfer of an undertaking, when no employee had ever been informed that there was a transfer as Edcrest itself did not at the time consider there was such, thus saddling Swifts, who had presumably competed by tender for the work with all the employment costs associated with Edcrest's loss of the work. It is considered that the only decision which is in accordance with commonsense and equity is that there was no transfer of an undertaking in the context of this case ..."
In order to decide whether some or all of those reasons are erroneous in law, it is necessary to examine briefly at some passages in the recent authorities which give guidance on the correct approach to determining whether or not there is a transfer of an undertaking.It is unnecessary to refer to these cases in detail. The first authority was cited to the Industrial Tribunal. The other three were not cited because they had not yet been decided and reported.The first case is Porter and Nanayakkara v Queen's Medical Centre (Nottingham University Hospital [1993] IRLR 486 . Mr Giffin referred us to paragraphs 48 and 49 of the decision, which says this:
"Upon the admitted facts and the facts which, as I have said, I assume can be established, I am satisfied that we are here presented with an instance of a business carried on in a different way, which is not conclusive against there being a transfer (the language of the Advocate-General in the case of Spijkers . I am further satisfied that this is a situation in which a public body has decided to terminate an arrangement with one person and to replace it with an arrangement with another having, by agreement between the public body and the latter person, similar aims. I refer to the conclusion of the Court on the concept of legal transfer in the case of Dr Sophie Redmond Stichting . I am further satisfied that the reasons given by the Advocate-General in that case for holding that the criteria of transfer of an undertaking were fulfilled are applicable by analogy here.
There is a further consideration supporting this conclusion which I consider to be important. One factor which is always to be taken into account is the type of undertaking in question. Here it is an undertaking for the provision of medical services. Medical science does not stand still. As it advances, methods of giving neonatal and paediatric care are naturally modified and improved. This process is going on all the time. It does not mean that the object of the undertaking is changing but only that new means of achieving it are being adopted. In the language of the hospital general manager in his letter of 28 January 1993, it means that `the care to children presently provided is being developed'. We are therefore dealing with a type of undertaking in which it is particularly likely that different ways of carrying on the undertaking may be adopted without destroying its identity."We refer to paragraphs 38 and 39 which contain references to other decisions of the European Court and the English Courts. Paragraph 38:
"I quote a further passage from Advocate-General Slynn's Opinion in the Spijkers case at p. 299:
`Similarly, the fact that the business is carried on in a different way is not conclusive against there being a transfer - new methods, new machinery, new types of customer are relevant factors but they do not of themselves prevent there being in reality a transfer of a business or undertaking.'An example of such a position is provided by Kenny v South Manchester College , in which Sir Michael Ogden held that there was a transfer of the undertaking of providing prison education services at a young offender institution, although some of the teaching materials used by the transferors would be dropped and the transferees would use their own teaching materials and open learning packs.39. If there has been a change of the person operating the undertaking it is unimportant for the applicability of the Directive whether the ownership of the undertaking has been transferred."Next Mr Giffin referred to passages in of the decision of this Tribunal in Council of the Isles of Scilly v Brintel Helicoptors Ltd [1995] ICR 249 . A passage at 252B referred to the fact that:
"Brintel went into administration, and in 1992, for reasons which the industrial tribunal felt no need to explore, the council became dissatisfied with the service provided by them and resolved to and did terminate their arrangements by notice in November 1992 to take effect at the end of January 1993."
Mr Giffin observed that the Tribunal evidently regarded it as irrelevant for an industrial tribunal, in deciding whether there was a transfer or not, to explore the reasons for the termination of the agreement. He cited a further passage at page 256 at E where Mr

Justice Morison, giving the decision of the Tribunal, said:

"It seems to us that an industrial tribunal, when faced with the question `has there been a transfer of an undertaking within the meaning of the Regulations?' should start by identifying the economic entity in which the relevant employees had been employed before the alleged transfer. They may wish to inquire, first, about the activities comprised in the economic entity before the transfer: what is being done, what is going on. In seeking an answer, they will also want to identify the assets both tangible and intangible which were necessary to the performance of those activities. They should identify the employees who worked there and the jobs they did. They should then examine the position after the alleged transfer by looking at the same matters. One of the factors which an industrial tribunal will wish to take into account is the number of employees who were actually taken on by the transferee. That is not the only criterion to use, but where particular skills are required the fact that many of the employees have been taken over may be an indication that the economic entity has retained its identity, so that one could say that it had been transferred. That is not to say that one cannot have a transfer to which the Regulations of 1981 apply where the transferee has taken on none of the former employees."

Mr Justice Morison went on to say:

"In the light of that analysis, the industrial tribunal should ask itself whether, having regard to all the circumstances, the economic entity identified prior to the transfer can be found after the transfer. In every case the concluding question must be: has the economic entity retained its identity; not, it is to be noted, has the same business continued in existence? In answering this question, an industrial tribunal may find some help in seeking an answer to a different question: is the job previously done by the employee still in existence?"
That is crucial guidance to industrial tribunals. It was not available to the tribunal in this case. It emphasises the importance and nature of the retention of identity test.Finally, Mr Giffin relied on the passage at page 258 at D where Mr

Justice Morison said:

"The employer is the person who profits from the economic activity being performed for the benefit of a third party. Thirdly, the economic activity before and after the `transfer' was identifiable. It does not have to be separate and discrete, in the sense that it is conducted separately from any other business being carried on by the employer (whether before transfer or after transfer). It needs to be identifiable in the sense that the same work before and after the transfer is capable of being observed."
Thus there may be a transfer of an undertaking, even though it is not possible to identify in the hands of the transferee a separate number of activities which are the same as or similar to those carried on by the transferor.About the same time as the Brintel case there was a further case, Kelman v Care Contract Services Ltd [1995] ICR 260. Mr Giffin cited a passage at page 268 B-C which again referred to the importance of the persistence of identity of an economic entity in the hands of a transferee. The passage concluded:
"If, despite the changes resulting from the alleged transfer, jobs are still there to be done, though for a different employer, the Directive and the Regulations may apply."
Finally, a passage was cited from one of the most recent cases Birch and others v(1) Nuneaton and Bedworth Borough Council and(2) Sports and Leisure Manager Ltd [1995] IRLR 518 at paragraph 47 which said this:
"... The undertaking in which the employees were employed has changed hands. It has therefore been transferred. If similar activities are continued in different hands, the identity of the undertaking is retained, a transfer occurs, the employees follow the work and protection is enjoyed by the employees."
The cases of Brintel Helicopters and Kelman were cited in support.In the light of those cases, there was little dispute between Mr Giffin and Miss Craig about this industrial tribunal decision. It was agreed by them, and we concur in their agreement, that the Tribunal made errors of law in relying on two of the four reasons given. First, the fact of Edcrest's loss of the contract being brought about by its own actions was an entirely irrelevant consideration in determining whether or not there was a transfer of an undertaking. As Mr Giffin said, either there is an identifiable economic entity amounting to an undertaking or there is not. That undertaking either retains its identity in the hands of a successor or it does not. The reasons why the undertaking passes from transferor to transferee are immaterial. No case has ever suggested the contrary. The Tribunal erred in law in regarding that as a relevant factor for the purposes of deciding whether there was a transfer.Secondly, it is agreed by Mr Giffin and Miss Craig and also concurred in by us, that the fourth ground is irrelevant in determining whether or not there is a transfer. Mr Giffin submitted that the Tribunal's view of what was commonsense and equity appeared to have been the factor that ultimately determined the decision in this case. He said that the duty of the Tribunal was to apply the law. The correct application of the law would usually produce a result in accord with commonsense and equity, but the Tribunal had no jurisdiction to disapply the 1981 Regulations because they considered that a proper application did not produce a result regarded as sensible or equitable. In any event, he submitted, it was extremely hard to see why it would have been silly or inequitable to find a transfer in this case. If there was a transfer and if the 1981 Regulations had been applied, the result would have been that the employees, through their Union, would have had a right to be consulted about their future in advance of the transfer. Instead, what actually happened was that the imminent change was kept from both Edcrest and the employees until the moment when Leyland staff refused to load Edcrest's lorries for the next day's work.Further, the Edcrest employees would have had a right to follow their jobs. If Swift wished to dispense with their services, they would have had to establish an economic, technical or organizational reason for doing so, and to follow a fair procedure and reach a reasonable decision. He submitted, and we agree, that it was not clear why the Tribunal regarded those consequences as unacceptable.Thus two of the four grounds which influenced the decision of the Tribunal that there was no transfer, are erroneous in law.We should say something about the other grounds. There is no dispute, and we agree, that the Tribunal were correct in having regard to whether there was a transfer of property, goodwill and equipment. The fact that assets did not pass from Edcrest to Swift was a legitimate matter to take into account, though not, by itself, a reason for rejecting the argument that there was a transfer from Edcrest to Swift. Mr Giffin cited authorities that the passing of assets are not a sine qua non of the transfer of an undertaking. See paragraph 44 of the decision in Birch .That leaves one point on which we have spent a considerable discussing the position with Mr Giffin and Miss Craig. That is the conclusion of the Tribunal on the question whether the activities carried on by Swift were the same as or similar to or were different from the activities previously carried on by Edcrest. The crucial part of the Tribunal's decision is in paragraph 17 where the Tribunal said this:
"Having considered all the features of this case, and accepting Mr Giffin's argument that it was immaterial that Edcrest did not initially even consider the question of a transfer of its undertaking because there is either a transfer or there is not a transfer irrespective of how a party viewed it at the time, the Tribunal came to the conclusion that the service afforded by Swifts under its agreement with Leyland through the Receivers was an entirely different concept from that provided by Edcrest. It is recognised by the transport industry that network and dedicated systems of distribution are fundamentally different, and although it is true that the customers served may well have been the same, there was evidence before the Tribunal that the differences are fundamental. Swifts carried out their agreement by hiring trailers to supplement their existing stock and acquired no assets and no goodwill from Edcrest. There can be no doubt that the service provided by Swifts was an undertaking to which TUPE would apply but it was not the same undertaking that Edcrest operated. In each case both Edcrest and Swifts, the undertaking was the individual agreement - there was nothing else - there was no transfer of goodwill, property or equipment."
There are also references earlier in the decision, in particular at paragraph 8, to the operation of a "network agreement" different from a "dedicated" definitive agreement operated by Edcrest. The network agreement is one involving the use of vehicles for the distribution of Leyland's parts and also for transport for other parties, as well as on the same vehicle.It is also important to note that, in their findings of fact the Tribunal, stated at paragraph 7(g) that Leyland had entered into an agreement with Swifts on 30 April 1993 to:
"perform similar services as had been performed under the agreement with Edcrest for the distribution element of the business."
On this point we are of the view that the Tribunal were directing their mind to a relevant factor and, indeed, a crucial factor, that is, the comparison of the activities of the alleged transferor, Edcrest, before and the activities of the alleged transferee, Swift, after the alleged transfer. The Tribunal's conclusion was that there were fundamental differences. In the light of that we considered whether it would be possible to allow the appeal on the grounds that there was an error of law and then, on the basis of this finding of fact, decide the appeal without the need for remission and the further delay involved, additional to the 2½ years' delay which has already occurred.We have come to the conclusion that this is a matter which we cannot resolve on the basis of the findings of fact by the Tribunal. The appeal must be allowed. There are errors of law in the decision. We do not find that the position is so clearly stated on the findings of fact that we can say confidently that, if this matter were remitted, the Tribunal could only come to one conclusion, namely, that the activities were so different that there was no transfer. We propose to remit this matter. It is agreed between the parties, and we agree, that the matter should be remitted to a differently constituted Industrial Tribunal.We are concerned about the further delays. We make these suggestions: first, that the question whether there is a transfer of an undertaking should be considered by the Industrial Tribunal in the light of the guidance in the authorities; secondly, that time might be saved if the parties were to agree, from such documents as they have and from such notes of evidence that they have of the previous hearing, those facts are not in dispute and, if there are facts in dispute, to identify those facts so that the remitted hearing can concentrate on evidence of the disputed facts.We make it clear that we do not intend to preclude the bringing of relevant evidence not brought at the previous hearing. It may be that each side considers that there is more relevant evidence available on the issue of a transfer than was given to the first tribunal. We hope that it will be possible to obtain an early date for the hearing of the remitted points and that it will not be too long before a decision is made one way or the other whether there was a transfer of an undertaking.One final matter. Mr Hagan, for the Applicants, has taken no part in the appeal. We see nothing in the first decision of the Industrial Tribunal or anything that has happened on this appeal, which precludes him from participating in the remitted hearing if those advising the members of his Union take the view that it might be more to their advantage to find that one of the two contending parties is right than the other. We are not in a position to express any view on this question. We make it clear that there is nothing to prevent the Applicants from participating in this dispute. It may affect the rights of the Applicants. If it does or if they reasonably think it does, they should be allowed to participate in the argument and evidence.