Richards & Ors v Reliance Security Systems Ltd & Anor [1996] UKEAT 1118_94_2002

EAT
Richards & Ors v Reliance Security Systems Ltd & Anor
[1996] UKEAT 1118_94_2002 · 1996-02-20
MR JUSTICE MUMMERY (PRESIDENT): This is an appeal from the decision of the Industrial Tribunal held in Newcastle on 16 June, 25, 30, 31 August, and 15 September 1994. The Tribunal heard argument and evidence on a preliminary issue as to whether there had been a transfer of an undertaking within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 1981. The preliminary issue arose in proceedings brought by Mr Richards and three others, who have been employed as Security Officers by the second Respondents, Associated Electrical Industries Ltd trading as AEI Cables. They started proceedings in July 1993 claiming unfair dismissal. They alleged that there had been a transfer of an undertaking by AEI Cables to the first Respondents, Reliance Security Services Ltd on 17 April 1993.Their case was stated simply. They were unfairly dismissed when there was a transfer in April 1993, covered by the 1981 Regulations and the 1977 Acquired Rights Directive . The case was contested. The position taken by Reliance Security Services was this: that they supplied security services throughout the United Kingdom to customers. One of their customers was AEI Cables. They denied there was a transfer within the meaning of the regulations or the directive. They denied that they had employed the Applicants or had dismissed the Applicants. They did not admit that the dismissal, if there was one, was unfair. They denied liability to the Applicants in any way.The preliminary issue focused on a narrow point on Regulation 2 of the 1981 Regulations. The Regulations provided that:
"`undertaking' includes any trade or business but does not include any undertaking or part of an undertaking which is not in the nature of a commercial venture ."
That provision in the Regulations was amended so as to exclude the reference to undertakings which were not in the nature of a commercial venture. The amendment did not have effect until after 30 August 1993. This case is governed by the unamended regulations. The Tribunal had to decide whether there was an undertaking in the nature of a commercial venture.The Tribunal unanimously came to the conclusion, for reasons which run to twenty-seven pages, notified to the parties on 13 October 1994, that there was no transfer of an undertaking within the 1981 Regulations. The essence of their reasoning is in paragraph 15 of the decision:"15 In all of these circumstances the Tribunal concluded that for the security services to be an undertaking or part of an undertaking in the nature of a commercial venture when those services were in the hands of AEI there must be clear evidence of a profit motive. The Tribunal could find no such motive."...That decision was reached on the evidence, documentary and oral. Only one witness gave evidence, Mr Scott, AEI's Personnel Manager. A statement was handed into the Tribunal from a Mr John Scott by Mr Mead, who represented the Applicants. There was a statement of agreed facts, set out in paragraph 4 of the decision. The bulk of the decision is a comprehensive review of authorities on transfers of undertakings, in the European Court of Justice, the Court of Appeal and the Employment Appeal Tribunal.Reliance were satisfied with that decision, but the Applicants were not. They appealed by a Notice of Appeal served on 20 November 1994. They said that the Industrial Tribunal erred in law in finding that the words "in the nature of a commercial venture" in Regulation 2(1) of the 1981 Regulations were to be applied to the particular part of the business transferred, rather than to the undertaking as a whole, such that parts of undertakings, where the undertaking itself was in the nature of a commercial venture, were outside the application of the Regulations. They also contended that the Tribunal had erred in law in that they failed to construe Regulation 2(1) so as to bring about the result contended for in their first ground of appeal, having regard to a purposive interpretation. They referred to the Directive which contained no reference to a requirement that an undertaking, or part of an undertaking, should be in the nature of a commercial venture.They also took the point that the Tribunal erred in law in holding that an undertaking, or part of an undertaking, must have clear evidence of a profit motive for the 1981 Regulations to apply. Reliance resisted the appeal. Although AEI served an answer to the appeal, they later informed the Tribunal that they wished to withdraw their answer and that they did not intend to be present at the hearing. There was no objection to their application to withdraw their answer. They have taken no part in the appeal. So far as Reliance is concerned, the position until 16 February was that they were fighting this appeal on all fronts. This is apparent not only from the answer dated 28 February 1995 but also from the Skeleton Argument dated 6 December 1995, served for the hearing originally fixed for 13 December, but postponed on account of the indisposition of Reliance's representative.The position changed on 16 February when the solicitors for Reliance wrote a letter to the Applicants' solicitors, referring to a telephone conversation between the solicitors and stating that it was agreed as follows:
"1. Subject to 2 below, the respondent consents to the Appellants appeal being allowed on the basis that the Industrial Tribunal applied the incorrect test at the preliminary hearing by failing to focus upon the words "whether the undertaking was in the nature of a commercial venture."
2. On 20 February 1996, the Employment Appeal Tribunal will therefore solely be addressed on whether, based upon the findings of fact made by the Industrial Tribunal, the Employment Appeal Tribunal itself can determine whether or not this was an undertaking in the nature of a commercial venture or whether the case should be remitted to an Industrial Tribunal for further evidence to be heard upon this point, and if so, whether it should be remitted to the same or a differently constituted tribunal.We record our submission that this case should be remitted to the same tribunal for further evidence to be heard to enable this question of fact to be answered applying the correct test."The position was that the solicitors for Reliance informed the Employment Appeal Tribunal by a letter of 19 February that, although it was still necessary for the appeal to proceed, it was possible to agree to limit the scope of the appeal in accordance with the letter. There is no dispute that the appeal should be allowed. The only dispute is whether, in allowing the appeal, we should decide, on the basis of the facts set out in the Industrial Tribunal's decision, that there was a transfer of an undertaking within the meaning of the Regulations, or whether we should remit it to the Industrial Tribunal for further evidence and argument.The position taken by Mr Mead on behalf of the Applicants was that, given the findings of fact made by the Tribunal, this Tribunal is able to rule on the preliminary issue whether there was a transfer of an undertaking within the meaning of the Regulations. He referred to three cases which would justify that course. There is no doubt about the power of this Tribunal to make a decision which the Industrial Tribunal could have made. Schedule 11 of the Employment Protection (Consolidation) Act 1978 paragraph 21(1) deals with the powers of the Appeal Tribunal. It is provided:
"For the purpose of disposing of an appeal the Appeal Tribunal may exercise any powers of the body or officer from whom the appeal was brought or may remit the case to that body or officer."
The judicial authority which lays down the principles upon which that power is exercised, has settled that, where the Industrial Tribunal decision is, as a result of a misdirection, plainly and unarguably wrong on the facts found by the Tribunal and those facts do not require amplification or reinvestigation, then remission to the Tribunal is inappropriate. The E.A.T. is entitled and bound to substitute its own conclusion, based on a correct application of the law to the facts. In our view, that proposition in Harvey on Industrial Relations and Employment Law Vol.4 T.1713 is an accurate statement of the position laid down by the Court of Appeal in Hellyer Bros Ltd v McLeod [1987] ICR 526 at 547 and McLaren v National Coal Board [1988] ICR 370 at 378 . There is a striking instance of the circumstances in which this Tribunal (and higher Courts) may exercise this power. Mr Mead referred to Dines v Initial Health Care Services Ltd [1995] ICR 11 , a decision of the Court of Appeal on the 1981 Regulations. The position taken by the Court of Appeal, in allowing the appeal in that case, is one which Mr Mead submits, should be followed in this case. At page 23H, Lord Justice Neill, having identified the error of law in the Tribunal, considered the question whether it was necessary to remit the case. He said this:
"In some cases an appeal is allowed and the matter has to go back. In some cases that means a misdirection would mean that the matter would have to go back to be reheard by another Industrial Tribunal, to reach a conclusion on the particular facts. In the present case, however, there is the special feature that the facts were not in dispute before the Industrial Tribunal and therefore it seems to me that this court is in as good a position as was the Industrial Tribunal to reach a decision."
There were things that the Court of Appeal did not know, but he considered, on the basis of the agreed facts, that the Court of Appeal were able to find that there was a transfer. Mr Mead submits that is the same here. There were agreed facts. It is not necessary for any further facts to be found. The facts agreed were in relation to the very issue we are asked by Mr Mead to decide. The agreed facts were on the preliminary issue: Was this undertaking covered by the 1981 Regulations or not? This is the issue we are asked to decide. It is conceded that the Industrial Tribunal made a misdirection. Why should the case have to go back to the Industrial Tribunal to rehear the matter, when the facts on this issue were agreed before the Industrial Tribunal and before this Tribunal?The agreed facts are set out in paragraph 4 of the decision:" As stated earlier in this decision the parties produced a statement which shows that they were agreed on sundry matters of fact as follows:(a) The first respondent ("Reliance") is a contract guarding company providing predominantly static manned security services to its customers. It employs approximately 4,500.(b) The second respondent ("AEI") is a cable manufacturer with a principal place of business in Birtley, Co.Durham. It currently employs approximately 620.(c) The applicants are all former employees of AEI. Their employment with AEI terminated on 16 April 1993.(d) The applicants were employed by AEI as security guards at its Birtley site. They formed part of a team of eight employees providing twenty-four-hour security services at that site.(e) The applicants' duties during their employment by AEI are contained in the Standing Instructions at pages 322-362 of the agreed bundle of documents.(f) On or about 18 March 1993 AEI communicated by letter to Reliance its intention to enter into a contract for Reliance to provide security services at the Birtley site commencing 17 April 1993 (page 317).(g) Three AEI security guards applied to Reliance and from 17 April 1993 became employees of Reliance working on Reliance's terms and conditions. The other five security guards (including the applicants) did not apply, and were not employed by Reliance.(h) AEI ceased to employ security guards to provide an in-house security service on 16 April 1993. From 17 April 1993, Reliance provided security services at the Birtley site with no break between the two periods.(i) Reliance and AEI entered into a written agreement ("the Contract") dated 16 April 1993 but executed on 27 May 1993 governing the provision of security services, (...).(j) The Contract provides for Reliance to charge a fixed fee of £4.53 per man-hour worked for two years with public and Bank Holiday working charged at double-time. The Contract makes no provision for any other payments from AEI to Reliance.(k) The security services provided by Reliance, set out in the Assignment Instructions at pages 380-442, were agreed between AEI and Reliance after 17 April 1993.

(i) goodwill

(ii) third-party customers

(iii) work in progress by way of contracts

(iv) debts

In fact none of the above existed in relation to AEI's security services.(n) No title or interest in any of the following passed to Reliance from AEI:- (i) Intellectual property rights eg copyright in documentation(ii) AEI's business name.(o) After 17 April 1993, Reliance, in providing the security services to AEI, supplied to its employees their uniforms, torches and batteries, and the clocking-in system. These had previously been supplied by AEI. (p) After 17 April 1993 Reliance, in providing the security services to AEI, used AEI's gatehouse, weighbridge, CCTV system, radios and proforma security documentation. (q) The in-house security service at AEI was at all material times not a core activity of AEI, AEI's core business being cable manufacturing."It is accepted by Mr Shrives, for Reliance, that AEI Cables was a commercial undertaking. The issue in the case relates to the part of the undertaking concerned with the in-house provision of security services. It is also accepted by Mr Shrives, that the decision on this point is the only remaining issue on the question whether there is a transfer of an undertaking. There, of course, remain questions as to whether there has been a dismissal by reason of a transfer, and whether it was an unfair dismissal, but Mr Shrives accepts that if we decide, or if on remission the Industrial Tribunal decide, that the undertaking in relation to security services was in the nature of a commercial venture, then that concludes the issue whether there was a transfer of an undertaking for the purposes of the 1981 Regulations.It is on the basis of those submissions and on the basis of what has been accepted by Mr Shrives on the misdirection in the decision, that Mr Mead submitted that we should allow the appeal and substitute for the ruling of the Industrial Tribunal a decision that there was a transfer of an undertaking within the meaning of the regulations. Mr Shrives presented a forceful argument as to why this should be remitted to the Industrial Tribunal. The essence of his case is that, although certain facts were agreed for the purposes of the Industrial Tribunal hearing in 1994, the case law on this subject has moved on since then.It is now clear, he submits, that there are further areas of fact which should be investigated by the Tribunal, before a decision can be made on the commercial venture point. We are not able to find these facts; we are not a fact-finding tribunal: it will be necessary to bring witnesses and documentary evidence. The Industrial Tribunal, to whom this matter is remitted, would be the proper forum to decide these facts. What are these facts? In the Skeleton Argument this submission is made:
"7. If (which is denied) [and this is now admitted] the Industrial Tribunal erred in law in applying the "commercial venture" test then the case must be remitted to the Industrial Tribunal for reconsideration of the issues (....). The Employment Appeal Tribunal cannot make findings of fact. An appropriate comparison would be with the similarities and the differences between the Second Respondent's security operation immediately before the transfer and how a private security operation run on commercial lines operated. There are no findings of fact to permit that comparison to be made. Merely because activities appear similar before and after a change in contractor does not mean that there was an undertaking or part of an undertaking in the nature of a commercial venture which was transferred or that that is the sole criterion to which the Tribunal must address itself."
Those general propositions were amplified by Mr Shrives by reference to three decisions which, he said, showed that it was necessary to make further investigation of the facts. He referred to the Court of Appeal decision in Woodcock v The Committee for the time being of the Friends School Wigton [1987] IRLR 98 ; to U.K. Waste Control Ltd v Wren [1995] ICR decided by this Tribunal on 25 May 1995, and to another decision of this Tribunal, at about the same time, Birch v Nuneaton and Bedworth Borough Council [1985] IRLR 518 . The matters that Mr Shrives suggested would need to be investigated by an Industrial Tribunal, in addition to the matters already agreed, are the kind mentioned in paragraph 35 of the decision in Birch :
"The Tribunal should look at the essence of the undertaking in question, [in this case the in-house security services of AEI Cables] look at its purposes, organisation, users, and policies governing its management and then make a comparison of those factors with a private security service run on commercial lines in order to see whether on a consideration of similarities and differences, the undertaking in question was in the nature of a commercial venture."
He gave examples of how one would look at costing and accounting procedures and so on, all matters which have not been dealt with by this Industrial Tribunal in the 1994 decision, not dealt with because, he says, it was not appreciated until the more recent decisions of U.K. Waste Control v Birch , that the words " in the nature of a commercial undertaking" were of particular significance. These cases have highlighted the areas of fact that need to be explored before a decision can be made.We have taken careful note of those submissions, but we do not accept them. We agree with the approach urged by Mr Mead. There is no need to remit this matter for these reasons: the issue before the Tribunal, from which this appeal was brought, was whether this undertaking, the in-house security services of AEI, was in the nature of a commercial undertaking. For that purpose, the Tribunal were provided with all the evidence which the parties thought necessary - documentary, oral and an agreed statement of facts. The issue in this Tribunal is the same: was the Tribunal right or wrong in law, in holding on the evidence before it, that the undertaking was not in the nature of a commercial venture? Mr Shrives has conceded, rightly in our view, that the Tribunal misdirected themselves in reaching that conclusion. That was a misdirection of law. It follows from that concession that the decision on the facts before them was wrong. We should substitute the right decision. These activities were in the nature of a commercial venture.Mr Mead is right when he says that Mr Shrives is really asking for an opportunity to look at arguments and facts already put before the Tribunal. They will not make any difference to the result. We agree. The fact is, that AEI is a trade or business. It is a commercial undertaking. The security services provided in-house were part of that undertaking. The facts found by the Tribunal and agreed by the parties, point only to one conclusion. That is that the security services were in the nature of a commercial undertaking. It is on that basis that we decide to allow the appeal and substitute, for the Industrial Tribunal's decision, a decision that there was in this case, on 17 April 1993, the transfer of an undertaking within the meaning of the 1981 Regulations.The fallacy of Mr Shrive's arguments on this point is that he has relied on three cases, Wren , Birch and Woodcock , where the main undertaking carried out did not appear to be in the nature of a trade or business. So the question arose whether what they were doing, or whether what part of what they were doing, was in the nature of a commercial venture. Because of the nature of the activities in those three cases, the emphasis was on the words " in the nature of ". Mr Shrives has attempted to apply the points in those cases to a very different situation, where one starts with what is undoubtedly a commercial undertaking, that of AEI.The approach adopted by Mr Shrives to such a situation, involves an arbitrary unrealistic exercise of dividing up the whole of a commercial undertaking into parts, and asking whether the parts are in the nature of a commercial undertaking or not. That is not, in our view, the correct approach. The basis upon which we make our decision in this appeal is that the Industrial Tribunal, by concession, misdirected itself. The facts found in the decision, mainly contained in an agreed statement, are sufficient for us to say with confidence that, if this matter were remitted to the same or a different Industrial Tribunal, they could only come to one result, that this was a case covered by the 1981 Regulations. For all those reasons we make the order sought by Mr Mead. The appeal is allowed. We declare that there was a transfer of an undertaking in this case.Following the order allowing the appeal, an application was made by Mr Mead for costs under Rule 34 of The Employment Appeal Tribunal Rules 1993 provides:
"(1) Where it appears to the Appeal Tribunal that any proceedings were unnecessary, improper or vexatious or that there has been unreasonable delay or other unreasonable conduct in bringing or conducting the proceedings the Tribunal may order the party at fault to pay any other party the whole or such part as it thinks fit of the costs or expenses incurred by that other party in connection with the proceedings.
(2) Where an order is made under paragraph (1) of this rule, the Appeal Tribunal may assess the sum to be paid or may direct that it be assessed by the taxing officer, from whose decision an appeal shall lie to a judge."The basis of Mr Mead's application was that this had been an unnecessary hearing. There had been unreasonable conduct in the conduct of the appeal, because the Respondents' conceded that there was a misdirection of the Industrial Tribunal, though they did not concede this until early December 1995. They then tried to argue against the inevitable consequence of that concession, that this Appeal Tribunal would substitute the correct decision. Mr Shrives opposed this. He pointed to the concession and the discussion between the solicitors whether, if the matter were remitted, it was to go to the same Tribunal or a different Tribunal. He said that the arguments presented today were reasonable and proper arguments, supported by the authorities cited.We have decided to exercise our discretion to make an order in this case on this basis. The hearing of the appeal was unnecessary in view of the concession. It was unreasonable, having made the concession, for Reliance not to have accepted the jurisdiction of this Tribunal to rule on the preliminary issue. We think that the position is concluded by the fact that the Industrial Tribunal decided this point on the basis of agreed facts. As the decision on the basis of agreed facts, involved a misdirection of law, it followed that, if the law were correctly stated, it could be applied by us to those facts to reach the correct conclusion. There was never, in our view, any reasonable prospect of persuading this Tribunal to remit a case, in which the facts had been agreed, to be re-heard either by the same Tribunal, in whole or in part, or by a different Tribunal. This was a clear case where a misdirection by the Industrial Tribunal as to the law meant that, if the appeal were allowed, this Tribunal would substitute its own decision. The costs of the appeal will be paid by Reliance. They will be assessed by the Taxing Officer in the absence of agreement. Leave to appeal is refused.