James v The Greytree Trust [1996] UKEAT 699_95_1701

EAT
James v The Greytree Trust
[1996] UKEAT 699_95_1701 · 1996-01-17

JUDGE ALTMAN :

This is an appeal from the decision of the Industrial Tribunal in London (North) sitting at Stratford on 3rd February 1995 and it follows upon the decision which was, though initially given in summary form, promulgated with extended reasons on 25th May 1995. The appeal raises the oft-rehearsed argument as to whether, due to incapacity, an employee has been dismissed, or his contract of employment frustrated.The applicant before the tribunal and the appellant here, because the tribunal found in its decision that the contract was frustrated, is a woman aged 58 at the time of the hearing before the tribunal, working on a weekly contract as a full-time cleaner for the respondents. She began work for the predecessors in the business in 1976 and so had 18 years service and was a well-respected and valued employee.The respondents, a charity in form, took over the running of the home where the applicant was an employee in 1991.Part of the value attached to the work of the applicant by the respondents was not only the cleaning that she did, but that she did it in the context of having a well-established relationship with many of the residents in the home and that was something of value. This of course meant, no doubt, that if she were to be replaced or away for a time, the respondents in this situation would have to weigh the use of temporary workers against the need to build permanent relationship with any replacement cleaner and to make a decision in the long-run as a result.Until 1992 the applicant had a good sickness record. The contract of employment upon which she was engaged was before the Industrial Tribunal. She had what was essentially a printed standard form particulars of employment under the statutory requirements as her basic contract of employment, which made reference to sickness or injury and was amended for employees who had at least 12 months service. It provided that no payment would be made for time lost, but that payment would be made on receipt of a medical certificate within the first three days of incapacity and that sickness benefit would be deducted from that pay. So the contract on the face of it provided for the contract to subsist in the event of some sickness absence. That of course does not necessarily mean all sickness absence. But in due course a note to staff was sent by the Director, Mr White, which the tribunal found was dated 12th December 1991 after the current respondents took over, and the tribunal quoted the provisions as follows:
"1. No pay will now be made for any absences for sickness for the first three days. This has been forced upon us by a clear abuse by just one or two members of staff.
If a person is off for 4 or more days and can produce the appropriate Sick Note they may be eligible for Sickness Benefit."which really echoes what was in the contract to which I have referred. Under the heading of sickness it also says this:
"2. [ This was part of the evidence before the tribunal, although not specifically referred to by the tribunal. ] Any person who shows a persistent record of ill health, either by single days off or for prolonged periods may find themselves subject to a `Fitness for work' medical check. We shall reserve the right to request confirmation from the persons General Practitioner and, if necessary, call in our own independent Medical Examiner."
So, as a matter of general principle, the actual contract between the parties envisaged prolonged absence from work within the continuing subsistence of the contract. Of course that does not necessarily mean that all prolonged absences from work would be within the contract, but it is a relevant consideration.A statement of policy on sickness was then set out on 6th January 1994, and that was quoted and so we repeat it:
"All sick leave is now being recorded on each personal file. Any person absent for any more than five separate days within a three month period may be asked to present evidence of illness. Any person absent for a period in excess of three weeks either for medical or physical reasons may be asked to provide medical evidence or submit themselves to an independent medical examination to prove that, on their return to work, they will be fit and able to continue in their duties as described in their Contract of Employment. Before returning to work following any period of sick leave, all staff must notify the Home 24 hours prior to their return."
Sadly, it appears that in 1994 the applicant developed a condition described as "tennis elbow" which involved no doubt primarily the development of osteo-arthritis. Sick notes were provided, three covering the period from 1st March to 27th June 1994. It follows that the absence from work was continuous from 1st March until the date of dismissal, something approaching four months.Then on 13th June 1994, the respondents wrote to the solicitors for the applicant in the following terms. They set out the sickness absence pointing out that there had been 17 weeks of sickness absence, and that in the last six months as a result the applicant had worked for 45 days. They go on:
"If Mrs James is unable to perform her duties under her Contract the Greytree Trust will have no choice but to treat her Contract as frustrated by ill health and terminate her employment. Mrs James's current sick note expires on 27th June 1994 (thirteen weeks from 28th March). If she is unable to return to work then regrettably we will have no alternative but to assume that Mrs James's health is such that she is unable to continue her employment with us."
They then refute the previous assertion of redundancy that had been suggested possibly as some sort of device by the applicant's solicitors, and deal with another matter.Following upon that letter, and before the expiry of her current sick note, the applicant provided a sick note for the period of 23rd June 1994 to 23rd December 1994, and so on 30th June 1994, the respondents wrote to the applicant a final letter thanking the applicant for her letter of 24th June 1994 and saying this:
"... I have noted that Dr Shah has signed you off for a further six months from 23rd June, 1994.
As you are unable to perform your duties at Sydney House and are unable to work the Greytree Trust's obligation to pay you has come to an end. Your contract of employment has become frustrated. I must, therefore, treat your employment as ended and will be sending you your P45 under separate cover.May I remind you that as an employee, the Trust cannot and will not pay Statutory Sick Pay from sight of a photocopy sick note. Any employer must see the original document before paying SSP.

Yours sincerely, ..."

That letter brought to an end the 18 years of service which the applicant had given to the respondents and their predecessors.Those are the facts of the matter.We turn now to the reasons given by the tribunal having rejected any suggestion of redundancy and it is necessary for the purpose of this decision to go through the whole reasoning of tribunal:

" The reason for the dismissal

10 The reason given by the Respondents for the dismissal was that the Applicant was unable to perform her duties because of her continued sickness through osteo-arthritis. This is a reason falling within section 57(2)(a) relating to the capability of the employee for performing the kind of work which she was employed to do by the employer. The Applicant was unable to perform her duties as a cleaner by virtue of her illness through osteo-arthritis."The next sub-heading underlined was:

" Frustration of the contract

11 In determining whether the Respondents acted reasonably or unreasonably in all the circumstances in treating the Applicant's continued sickness and incapacity to work as a sufficient reason for treating the contract as frustrated, the Tribunal took the following matters into account:- [ Then the next four sub-paragraphs had all their margins indented and we feel that that is of some significance. ](a) The Respondents are a charitable organisation making no profit. At the time of the Applicant's termination of employment, the Respondents employed four cleaners at Sydney house and it was important that there was continuity of employment because relationships were built up between the cleaning and other staff and the inmates of the old people's home at Sydney House.(b) The Applicant was an excellent worker and had she continued to be able to undertake the work, there was no question that the Respondents would not have retained her services until retirement. The Respondents indicated that if she were fit to work they would be prepared to find a job for her.(c) The Respondents were justified in looking at the situation at the end of June 1994 and seeking the best outcome for the continued cleaning of Sydney House. When the Respondents received the medical certificate dated 23 June stating that the Applicant would be unfit for work until 23 December, some six months later, the Respondents were justified in saying that 10 months absence through sickness frustrated the contract of employment with the Applicant.(d) Frustration of a contract occurs when without the fault of either party some reasonably unforeseeable event occurs which makes further performance of the contract impossible. The Applicant's incapacity was prolonged and the Tribunal was satisfied that because at the time of dismissal it was known that the sickness would continue for at least 10 months in all, the Respondents were justified in treating the contract of employment as frustrated.(e) The Tribunal were satisfied that there was no question of redundancy.The unanimous decision of the Tribunal is that the employer was reasonable in treating the contract as frustrated by the Applicant's prolonged illness and therefore the Applicant's claim is dismissed."On behalf of the appellant, Mr Lambe argues that this was a finding of dismissal, even though the word "frustration" was used. On behalf of the respondents, Miss Wenlock argues that this a finding of frustration, even though the terms of dismissal were used. In a sense we understand Mr Lambe's submission that really this is a finding that supports both parties.In considering, if they were, whether or not this was a dismissal or frustration, the tribunal had the task of applying principles of law to the primary facts which they had found. The principles of law which they had to consider in order to decide if the contract was frustrated really can be summarised, in the context of this case, as being whether, by some event which was not within the control of the parties, the contract had become incapable of performance. We would refer to the decision of the National Industrial Relations Court of Hebden v Forsey & Son [1973] ICR 60 , presided over by Sir Hugh Griffiths, which was not cited to us by the parties, but which we informed the parties we might consider so as to give them an opportunity of making submissions upon it. I refer to it rather than the main decision on this point because it quotes the main decision and Sir Hugh Griffiths adds one point. The test which has been adopted time and again in the many cases before the Courts in this area, is from Marshall v Harland & Wolff Ltd [1972] ICR 101 , in which the following test was formulated:
"Was the employee's incapacity, looked at before the purported dismissal, of such a nature, or did it appear likely to continue for such a period, that further performance of his obligations in the future would either be impossible or would be a thing radically different from that undertaken by him and agreed to be accepted by the employer under the agreed terms of his employment?"
Of course, "radically" in its origin comes from the word "root", and Sir Hugh Griffiths went on:
"This is a test to enable the court to determine whether the incapacity is of such a nature that it strikes at and destroys the root of the contract and thus the relationship of employer and employee, for it is only then that the contract is frustrated."
Whilst in paragraph 11(d) that test is, to all intents and purposes, set out, at no point in the decision have we been able to discern any place where the Chairman has expressed the judgment of the tribunal directly on the facts they found as to whether or not this contract was frustrated. Rather, it seems to us, they adopted the approach which was analogous to the approach they would have adopted in an ordinary dismissal case, of finding the reason for dismissal and then considering whether the respondents were themselves reasonable in treating that as frustration. Is that simply a cosmetic matter? After all, even extended reasons given after deliberation and thought following a request after the hearing from an Industrial Tribunal, are not to be examined with Lord Denning's MR "fine toothcomb", and must be looked at in the terms of what is really being said. It has been suggested by Miss Wenlock, who, if we may say so, has valiantly striven to support the decision of the tribunal, that the use of the word "dismissal" was simply a linguistic error which did not affect the substance of what was being said. She points out where at the end of paragraph 6 the tribunal when reciting the facts said that the period of absence was continuous until her "dismissal", they did not really mean that, when the very issue they were deciding is whether or not there had been a dismissal. She suggests that in paragraph 10 where it says "The reason given by the Respondents for the dismissal" is typed, what was really meant was "the reason given by the applicant in his submissions for the dismissal", because she has a note that that was the submission of the applicant. But we are driven to the conclusion that between the submission of the applicant, and the formulation of that matter in the decision, stands the deliberation of the tribunal, composed of course not only of the Chairman but of the two members.Then the decision goes on under the heading of "frustration of the contract" to deal with this matter in terms which really do appear to be lifted from the tests which apply when considering the actions of an employer under the statutory provisions of Section 57 of the Employment Protection (Consolidation) Act 1978 . Indeed, that very section is cited by the tribunal in paragraph 10, and they refer to capability and they define the issue of the ill health of the applicant in terms of capability. Of course that may well be an ingredient in the test of frustration. But they ask themselves this question under the heading of frustration of the contract:
"In determining whether the Respondents acted reasonably or unreasonably in all the circumstances in treating the Applicant's continued sickness and incapacity to work as a sufficient reason for treating the contract as frustrated, the Tribunal took the following matters into account:- ..."
The tribunal did not have to make that determination at all. It was an irrelevant consideration to the issue of frustration. Although differently expressed something very similar was relevant; this was whether the point had come at which the respondents could reasonably conclude that this contract was not capable of performance any more, as one of the factors to be taken into account by the tribunal in deciding whether it was. The tribunal deal with the factors of the nature of the employment and the need for continuity and long relationships, and the fact that the applicant was likely to continue until retirement. Those are matters of course that come within some of the tests we apply in frustration, but they then go on to say that:
"The Respondents were justified in looking at the situation at the end of June 1994 and seeking the best outcome for the continued cleaning of Sydney House."
Therefore, they say, that:
"... the Respondents were justified in saying that 10 months absence through sickness frustrated the contract of employment with the Applicant."
That raises another question, because we have read the letter of 30th June 1994, coming hot on the heels of the earlier letter of 13th June 1994 which gave until 27th June 1994. There is no evidence, certainly from that letter, and it may be that there was evidence before the tribunal that we have not heard about, but certainly on the face of the letter there is nothing to indicate that the respondents had moved their sights from 27th June 1994 on receipt of that sick note, or whether they were simply using that sick note to confirm the stance that they had earlier expressed. And on top of that, of course, there is the general problem as to what that really has to do, in the way it is expressed, with the question of frustration. The tribunal end finally with their final decision which was not whether or not the contract on all the facts found by them had been frustrated, but was:
"that the employer was reasonable in treating the contract as frustrated by the Applicant's prolonged illness and [ Here is the final determinant so far as this appeal is concerned the word: ] therefore the Applicant's claim is dismissed"
It is the final determinant because one cannot see within the words of the tribunal any point at which they themselves have examined all the primary facts to make their judgment as to whether or not there was frustration; quite the reverse. There seems to be, although it is not clear, an inclination in the general trend of the decision for the tribunal to regard their task in frustration as being analogous to that which it is in an ordinary dismissal of seeing whether or not the respondents had acted reasonably in treating it as frustration, and in effect leaving it to the respondents, as long as they acted reasonably, to decide whether there was frustration; not the tribunal as a matter of law on the facts found. Accordingly we are driven to the conclusion that it is clear that the tribunal failed to ask themselves the question which is fundamental to the issue of frustration, which is whether they, on the facts found, found as a matter of law, whether it was frustrated and it is clearly a matter of law; the case of Hebden v Forsey makes that clear.In the recent case, a very helpful case if we may say so with respect, of this tribunal presided over by the then President Sir John Wood of Williams v Watsons Coaches Limited [1990] ICR 536 , the learned judge makes the point, which is very important, that the tribunal, in effect, consists of three members and when there are issues of law it is important for all those members to be clear of the legal principles which are being applied. One of the concerns that this tribunal has is that the members of the Industrial Tribunal certainly do not appear from the way in which this decision is phrased to have been alive to the difference in principles of law, even if it may be that the Chairman, as we are sure he did, knew what the legal provisions were and may have had those to some extent in mind.Accordingly we are driven to the conclusion that the Industrial Tribunal misdirected itself on the law and the approach in law to take to the facts which they had found. We do not go so far as Mr Lambe would ask us to do, which is to say that that is a decision which in reality is a finding of dismissal. It is not clear to us that that can be said affirmatively, but in view of our conclusions it is inevitable that this appeal must be allowed.The question of frustration being a conclusion of law based upon findings of primary facts, we have, with the concurrence of the parties, gone on to make our own finding as to whether or not this contract had been frustrated.We take into account all the primary facts set out in the decision of the tribunal. We take into account the letters which passed. It seems to us that the letter of 13th June 1994 which suggested a conditional sort of frustration depending upon a return by 27th June 1994 was, if one understands the thinking behind it, envisaging the continuation of the contract providing conditions were met. It is not clear from the letter of 30th June 1994, in so far as we deal with the attitude of the employer, whether he switched his sight to the long-term effects. But even if he had, and that was part of his view, it was certainly part of our view in looking at the contract of employment, that one should take account of the fact that there was a sickness certificate for a period of six months, and an ascertained answer to the question whether the applicant would return to work thereafter. Although with a condition such as osteo-arthritis about which we have heard, it may well be that the prognosis was poor.We take into account the notice to staff to which I have referred, which demonstrates that this contract of employment, like so many nowadays, envisaged absence for long periods within the contract, that is without the contract's being frustrated. It is trite to observe that simply because someone does not turn up for work, does not mean to say that the contract is frustrated of itself; all the circumstances must be looked at, and nowadays the courts and employers are accustomed to long periods of sickness absence, and with larger employers than in this particular case, often for very long periods.We also take into account that the employer himself had taken no step up until the perhaps unintentionally, but we are sure provocative suggestion that there was a redundancy situation came from the applicant and which set all the wheels in motion. The employer had taken no view about bringing the employment to an end, and that was a matter really of weeks before the termination of employment.We take into account the very long service of the applicant and the fact that therefore there would have developed what Lord Donaldson in Marshall's case in effect described as "an implied term" of there being longer absence to be expected in this sort of contract. That must balance the need of the respondents for long-term relationships between cleaners and staff.We take into account that this is a contract which the parties would have expected to continue until the applicant's retirement.We also take into account that the law itself, as the relationship of employer and employee passes more and more from one of contract to one of status, and the statutes envisage long periods for employees to be not at work whilst employment nonetheless continues. Maternity provisions for instance do that. The very section which may apply in this case, Schedule III to the Employment Protection (Consolidation) Act 1978 specifically provides that when employment is terminated at the end of and during a period of incapacity, presumably because of such incapacity, certain payments are to be made within the framework of the contract.The question of the relationship of frustration to the modern law of employment is a very difficult one as Lord Mustill pointed out in one case; "the doctrine of frustration has developed over many years through the common law, the law which is applied generally in relation to employment nowadays is very often statutory law and it is difficult to marry the two." Take for instance, the question of redundancy. The redundancy arises because the work has gone. Could one very often have a better example of frustration? But it is very rare in those cases of redundancy which are brought about through no action of the employer and which are outside the control of the employer. But one does not hear of such situations being described as frustration.In considering this case and those principles we apply the law to which our attention has been directed. I have quoted already from Marshall v Harland & Wolff through the reference to Hebden v Forsey & Son . That case also deals with the general relationships, the absence of any indication of termination and its effect, and points out one factor which must weigh with a tribunal is the fact that a person is a key employee, which in a different way applies in this case. We have also been referred to the case of Egg Stores (Stamford Hill) Limited v Leibovici which is a decision of Phillips J. which provides something of a gloss upon the decision of Marshall v Harland & Wolff where at page 264 of the Industrial Court Reports for 1977 Phillips J. refers to the definition to which I have already referred:
"That is helpful, but one needs to know in what kind of circumstances can it be said that further performance of his obligations in the future will be possible? It seems to us that an important question to be asked in cases such as the present - we are not suggesting that it is the only question - is:
"has the time arrived when the employer can no longer reasonably be expected to keep the absent employee's post open for him?" ..."
and points out how similar that is to the question of dismissal. This matter was then further considered in the case of Williams v Watson Luxury Coaches Limited [1990] ICR 536 . That is a very helpful decision in which the Employment Appeal Tribunal deal quite extensively with the history of the law in this matter. They set out at page 541 the following propositions:
" A number of principles relevant to the application of the doctrine to contracts of employment can be derived from these decisions which, in any event, are rare occurrences in the realm of employment law.
First, that the court must guard against too easy an application of the doctrine, more especially when redundancy occurs and also when the true situation may be a dismissal by reason of disability. Secondly, that although it is not necessary to decide that frustration occurred on a particular date, nevertheless an attempt to decide the relevant date is far from a useless exercise as it may help to determine in the mind of the court whether it really is a true frustration situation. Thirdly, that there are a number of factors which may help to decide the issue as they may each point in one or other direction. These we take from Phillips J. In Egg Stores (Stamford Hill) Ltd v. Leibovici [1977] I.C.R. 260, 265:
"Among the matters to be taken into account in such a case in reaching a decision are these: (1) the length of the previous employment; (2) how long it had been expected that the employment would continue; (3) the nature of the job; (4) the nature, length and effect of the illness or disabling event; (5) the need of the employer for the work to be done, and the need for a replacement to do it; (6) the risk to the employer of acquiring obligations in respect of redundancy payments or compensation for unfair dismissal to the replacement employee; (7) whether wages have continued to be paid; (8) the acts including the dismissal of, or failure to dismiss, the employee; and (9) whether in all the circumstances a reasonable employer could be expected to wait any longer."
To these we would add the terms of the contract as to the provisions for sickness pay, if any, and also, a consideration of the prospects of recovery. Fourthly - see F C Shepherd & Co Ltd v. Jerrom [1986] I.C.R. 802 - the party alleging frustration should not be allowed to rely upon the frustrating event if that event was caused by that party - at least where it was caused by its fault."[ Which does not apply in this case ]Then there was a difference in the argument between him and the lay members with whom he sat. But he did quote the industrial members, and it is of some importance when looking at the one aspect of what parties would expect when looking at this sort of contract. He says that they (the members) believe that:
"the doctrine of frustration when applied to employment contracts is one which, unless severely limited in its scope, can do harm to good industrial relations as it provides an easy escape from the obligations of investigation which should be carried out by a conscientious employer."
He quotes again Sir John Donaldson from the Marshall v Harland Wolff case:
"We have been caused some concern by Mr Bingham's suggestion that our decision could lead to employers abandoning the admirable practice of keeping sick employees `on the books', ...[ then the suggestion of a `holding department' is explained ]."
[And goes on]:My own approach is rather different [ that is to the members ] but, before explaining, it is important to remind myself that although I would most likely have approached these facts from the basis of redundancy and disability, it is for an industrial tribunal to find the facts and that unless there is a misdirection of law it is not for this appeal tribunal to interfere."We have found the misdirection of law and feel driven therefore, to interfere. He then concludes:
"Apart from these two passages there are three statements of principle of law upon which the industrial tribunal depends and directs itself.
First, that the legal effect of frustration does not depend upon the intention, opinion or knowledge of the parties as to the event. Secondly, that there is no necessity to decide a precise date upon which frustration occurs. Neither of these is open to criticism and is with respect clearly correct.[ Referring back to the decision. He goes on to deal with the details of the decision ]."We have looked at all the facts in relation to those principles. It was a very short period of time between the applicant's request for consideration for redundancy and the employers' determination that there had been frustration. They were willing to reach that judgment at a very early stage. Therefore it seems to us that it is not a case in which one can say that the employer in this case had reached a conclusion on due consideration that the employment was at an end. But even if that were his opinion, we look at the objective facts in addition, which show that in relation to the length of service this was by no means an excessively long period of absence, and one in which many employers would only just be beginning to bring into play the ordinary investigation procedures for long-term incapacity and which, in this particular case, the respondents had not begun to do.We also take into account the terms of contract between the parties and the very great difficulty in distinguishing the facts of this case from the ordinary incapacity case. We have come to the conclusion looking at all the facts and considering the principles to apply, and the statutory framework which dominates nowadays contracts of employment more and more and the thoughts behind that, and the particular views expressed of the members and the repeated references in cases to the need to avoid slipping automatically into frustration as a parallel to incapacity, that this was not a case in which the contract had been frustrated. This was a case in which the applicant was dismissed.

JUDGE ALTMAN :

The parties invited the Tribunal to remit this case to the Industrial Tribunal to determine the issue whether the dismissal was unfair in accordance with the statutory test. To make it clear for this part of the order, this tribunal has decided that there was a dismissal and that the reason for dismissal related to capability.The better course, it seems to us in the end, is to accede to the representatives suggestion that this matter be listed before a differently constituted tribunal, if only because of the greater ease to arrange a rapid hearing. The order is for remission for re-hearing before a differently constituted tribunal of the issues under Section 57(3) of the Employment Protection (Consolidation) Act 1978 .