MR M S O'CONNELL v THAMES WATER UTILITIES PLC [1999] UKEAT 903_98_0106

EMPLOYMENT APPEAL TRIBUNAL

BAILII case number: [1999] UKEAT 903_98_0106

Case No Appeal No. EAT/903/98

Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

Between

MR M S O'CONNELLAPPELLANT

THAMES WATER UTILITIES PLCRESPONDENT

Before

Mr Justice Charles Ms B Switzer Mr B M Warman

Date 1 June 1999

[1]APPEARANCES For the Appellant MR P MEAD (of Counsel) Messrs Thompsons Solicitors Congress House Great Russell Street London WC1B 3LW For the Respondents MR A HILLIER (of Counsel) Instructed By: Ms C Hagestadt Legal Adviser Engineering Employers Federation Broadway House Tothill Street London SW1H 9NQ MR JUSTICE CHARLES : This is an appeal by Mr O'Connell against one part of a decision of the Employment Tribunal who gave Summary Reasons which were sent to the parties on 18 March 1998 and Extended Reasons sent to the parties on 19 May 1998. The hearing lasted several days and at it Mr O'Connell represented himself. With hindsight the Employment Tribunal recognised that the procedure adopted at the hearing caused problems. In paragraph 3 of their Extended Reasons they say this:

"The hearing of this matter occupied a number of days and the Tribunal was presented with voluminous bundles of documents by both parties. Unfortunately the hearing was somewhat protracted by the fact that the Tribunal invited the respondent to present its case first with the unfortunate result that important aspects of the applicant's claim did not become sufficiently clear to the Tribunal or the respondent until a comparatively late stage in the proceedings."

[2]We mention this because, as will become more apparent later in this judgment, the way in which the point that is the subject of this appeal is now put on behalf of Mr O'Connell is different to the way in which it was put,(a) before the Employment Tribunal,

(b) in the original Notice of Appeal and

(c) in the amended Notice of Appeal. It also raises a point as to what the Tribunal would have decided if they had not taken into account certain regulations passed in 1989 called the Water Reorganisation (Pensions etc) Regulations 1989 to which we will also refer.

[3]The point that is the subject of this appeal relates to Mr O'Connell's assertion that the Respondent company should pay him, (or alternatively as it was once put but is no longer put), that the Respondent company should procure that he be paid a sum pursuant to a practice, policy or discretion adopted prior to the privatisation of the water industry by the Water Act 1989 by his then employer, Thames Water Authority under an employment security and severance scheme known as WISS which was established in 1977. The relevant provision, and thus the relevant discretion, is referred to at paragraph 5 (y) of the Extended Reasons and can be summarised for present purposes by saying that it resulted in an enhancement of a length of service payment to employees over 50 by six and two thirds of notional years.

[4]Mr O'Connell maintained that such practice, policy or exercise of discretion continued after the privatisation of the water industry pursuant either to the original scheme or a mirror image scheme operated by the Respondent company. Mr O'Connell goes on to maintain that he should have been paid an enhanced payment pursuant thereto. As we understand it(a) before the Employment Tribunal it was accepted that such a practice, policy or exercise of discretion continued under the mirror image scheme operated by the Respondent company but that such practice etc. ceased in 1992 when the Respondent company put in place a new scheme, and

(b) the Respondent company's case is, and always has been, that any payment was discretionary and non-contractual.

[5]The most important paragraph in the Extended Reasons relating to Mr O'Connell's contention that he should have been paid pursuant to such practice etc. is paragraph 15 which is in the following terms:

"We are satisfied, however, that under the Water Reorganisation (Pensions etc) Regulations 1989 there was an obligation on the employer to continue to exercise the discretion in a way no less favourable than it had been exercised up to 1992. However, by virtue of Regulation 4 the liability to meet such enhancement falls on the National Rivers Authority or its statutory successor. It may be that the applicant would have a valid claim for such enhancement, but if so this claim would not lie against the present respondents and again in this respect the application must fail."

We pause to comment that it is possible that a paragraph is missing in the Extended Reasons before paragraph 15 but that is, and at present must remain, speculation.

[6]In the Summary Reasons given earlier the Employment Tribunal had expressed their conclusions concerning the rejection of the claim that is the subject matter of this appeal in the following terms which are contained in paragraph 7 of those reasons:

" Claim for compensation for failure to enhance pension We are satisfied that the respondents had a practice up until January 1992 of enhancing the retirement terms for employees over 50 who were compulsorily retired early. A lump sum payment calculated as a fraction of the annual salary was paid. In the applicant's case, by reason of his length of service, he was entitled to one and a half years' salary and this was paid to him. He claimed that he would also have been entitled to an enhancement of six and two thirds years on his service for pension purposes. The respondents' case was that the redundancy and severance policy had been altered in January 1992 to exclude the enhancement by added years. They referred to the documents at page 122 et seq in the bundle. It was not suggested that this was a negotiated agreement, but was a unilateral change imposed by the respondent. Having regard to the remarks of the Employment Appeal Tribunal in the case of Jones v Associated Tunnelling [1981] IRLR 477 at paragraph 22 we are satisfied that the impact of this would not have been immediately apparent to the applicant in 1992 and failure to protest against this change does not amount to acquiescence. The applicant's contract in this respect was not varied. However, by virtue of the Water Reorganisation (Pensions) Regulations 1989, Regulation 4, liability to meet the payment at a level no less favourable than that previously paid fell on the then National Rivers Authority or now its statutory successor body. The liability does not fall on the respondents in these proceedings and this aspect of the claim is dismissed."

It can be seen that the last two sentences of paragraph 7 follow closely paragraph 15 in the Extended Reasons. The Extended Reasons do not include reasoning in similar terms to that included in the first part of paragraph 7.

[7]Before leaving the Summary Reasons we also record, as a matter of convenience, paragraph 2(d) which sets out the way in which the Applicant advanced his claim in the following terms:

"(d) The applicant claimed that as at the date he was made redundant the respondents' severance scheme which was introduced in 1997 entitled him to a discretionary enhancement of six and two third years' service so as to augment the pension to which he would be entitled. He was given a discretionary payment of one and a half years' salary, but claimed that the discretion to add additional years had always been exercised and that by virtue of Regulation 7 [of] the water Reorganisation (Pensions) Regulations 1989 the respondents were obliged to exercise their discretion in a way no less favourable to him than before."

In the Extended Reasons at paragraph 4(d) the Employment Tribunal also set out the way in which Mr O'Connell advanced his claim but we will not set that out in this judgment.

[8]It is apparent from(i) the citation at paragraph 2(d) of the Summary Reasons,

(ii) a reading of paragraph 4(d) of the Extended Reasons, and

(iii) an expanded statement which was put in in writing before the Employment Tribunal by the Applicant setting out the nature of his claim; that before the Employment Tribunal his argument and claim was based on WISS, the 1977 scheme, and a continuation of a practice thereunder, and further that an integral and essential part of the argument before the Employment Tribunal advanced by Mr O'Connell was that the Water Reorganisation Regulations 1989 applied and, in particular, that paragraph 7 of those regulations applied. We shall therefore turn to look at those regulations, (the "1989 Regulations"). The most relevant paragraphs are 4, 5 and 7. They are in the following terms:

" Transfer of liabilities in respect of pensions etc . 4. (1) Subject to paragraph (3), all liabilities relating to pensions payable to, or in respect of, any person to whom this paragraph applies which would, but for the 1989 Act, fall to be discharged on or after the transfer date by a water authority by virtue of any provision mentioned in Schedule 1 or 2 hereto (other than from a fund maintained for the purposes of regulations made under section 7 of the Superannuation Act 1972(a) shall become liabilities of the National Rivers Authority. (2) Paragraph (1) applies to a person who has at any time been the chairman or otherwise been a member of or an employee of - (a) a water authority; (b) a former water authority(b); or (c) the National Water Council(c). Transfer of certain pension liabilities of the Thames Water Authority 5. All liabilities of the Thames Water Authority to pay any pension to or in respect of a person who has at any time been an officer or servant of - (a) the Conservators of the River Thames; or (b) the Lee Conservancy Catchment Board, being liabilities which would, but for the 1989 Act, fall to be discharged by that Authority on or after the transfer date, shall on that date become liabilities of the successor company to that Authority. Discretionary powers 7. Where - (a) immediately before the transfer date it was the prevailing practice of a water authority to exercise so as to secure the payment of, or of increased, pensions any discretionary power exercisable by them by virtue of any provision mentioned in Schedule 1 or 2 hereto or under any scheme referred to in regulation 6(2); and (b) that or any corresponding power becomes exercisable by the National Rivers Authority or the successor company on or after the transfer date, the Authority or the company, as the case may be, shall exercise the power in relation to any liability which falls to be discharged by it by virtue of regulation 4 or 5 in a way which is not less beneficial than the general character of that practice."

Also the definition of "preserved pension" is relevant and is in the following terms:

" Interpretation 2. In these Regulations - . .. 'pension' includes an allowance or gratuity and a payment by way of an increase in a pension or by way of compensation for loss of office or for any other reason; and 'preserved' in relation to any pension means a pension to which a person has become entitled but which has not become payable at the transfer date."

[9]For present purposes the most relevant paragraph of the 1989 Regulations is paragraph 4 and an issue of construction arises as to whether the liabilities referred to therein are existing liabilities or liabilities that might arise at any time in the future. Secondly and importantly, as a matter of construction, the ambit of regulation 7 is relevant. As to regulation 7, we are of the view that it is limited to any liability which falls to be discharged by virtue of regulations 4 or 5. Further for our part we consider that the liabilities referred to in paragraph 4, are existing liabilities and not, as we understand Mr O'Connell contended before the Employment Tribunal, liabilities that might arise in the future under WISS if it applied on termination of employment. Further and in any event, we agree with the Employment Tribunal that if that is wrong any liability under paragraph 4 is not a liability of the Respondent company and thus that paragraph 7 imposes no obligation on the Respondent company. This flows from the words at the end of paragraph 7 namely:

"... shall exercise the power in relation to any liability which falls to be discharged by it by virtue of regulation 4 or 5 [our emphasis] in a way which is not less beneficial than the general character of that practice"

[10]The original Notice of Appeal asserted that the Employment Tribunal were wrong as to their construction and application of the 1989 Regulations and therefore confirms that the 1989 Regulations were a central plank, or basis, of Mr O'Connell's arguments before the Employment Tribunal.

[11]In our judgment correctly, the assertions set out in this original Notice of Appeal have been abandoned. As appears from what we have already said, in our judgment these assertions and arguments were wrong. It is also now, in our judgment correctly, common ground that the 1989 Regulations do not apply at all. It follows that it is now common ground that the reason for the decision of the Employment Tribunal set out in Extended Reasons at paragraph 15 (and at the end of paragraph 7 of the Summary Reasons) is wrong in law. Additionally it is common ground that the first sentence of paragraph 15 in the Extended Reasons as to the application of regulation 7 of the 1989 Regulations is wrong in law.

[12]It follows that it is common ground that the Employment Tribunal erred in law in the manner in which they rejected Mr O'Connell's contention because they relied on the 1989 Regulations. We agree that those regulations simply do not apply.

[13]An oddity in the case is however, that the Tribunal erred in accepting a point argued by the Appellant, Mr O'Connell that the 1989 Regulations did apply. As we understand it the Respondent company's position was that, if (and we repeat if) the 1989 Regulations applied they did not found any liability because the liability was not one that was placed upon that company but was placed upon the NRA. This was a point that was accepted by the Employment Tribunal, and in our judgment they would have been correct to do so if the 1989 Regulations had applied. However, that does not affect point that we have identified namely that the Employment Tribunal made an error in concluding (or proceeding on the basis) that the 1989 Regulations applied.

[14]Mr O'Connell now wishes to advance an argument based exclusively on contract which he would wish to argue arose through custom and practice. It was, as we understood it, essentially common ground that this issue in those terms was not raised or considered in detail by the Employment Tribunal. Normally when this Tribunal identifies an error of law by the statutory decision maker, namely the Employment Tribunal, it will set aside that decision. This could simply result in an appeal being allowed, but alternatively it could give rise, and often does give rise, to the question whether this Tribunal should remit the case back to the Employment Tribunal or decide the issue between the parties itself.

[15]This Tribunal only takes the latter course if it is clear to it what the Employment Tribunal would have decided if it had not made the relevant error of law. On behalf of the Respondent company, it was urged on us that this is the case here because on the basis of what was argued and what appears in the Summary and Extended Reasons, it was said that the Tribunal below identified and found that there was only a discretionary policy and thus it would never have held that there was a contractual liability imposed upon the Respondent company.

[16]It was also argued that we should not allow Mr O'Connell to raise new arguments on this appeal which had not been raised below and which would result in a remission to the Employment Tribunal. As we understood it, it was further argued on the same lines or on the same basis that we should not remit to the Employment Tribunal so as to enable them to consider new arguments of law. As to that we were referred to the case of Jones v Governing Body of Burdett Coutts School

[1988] IRLR 521

, and in particular, to paragraph 20.

[17]In our judgment, although we can see that there is force in the point that if the Employment Tribunal had concluded that the 1989 Regulations did not apply that having regard to the manner in which the case was conducted before them, the Employment Tribunal would have concluded that Mr O'Connell failed. But in our judgment we cannot be certain that this would be the case, for amongst others the following reasons:(1) We feel unable to predict how the arguments would have developed if the matter had been approached on the basis that the 1989 Regulations did not apply and thus, whether the points based upon the establishment of a contract by custom and practice would have been put either by the person representing the Respondent company out of her duties to the Tribunal, by Mr O'Connell himself or by the Tribunal itself.

(2) In our judgment this view is re-enforced by (a) the reference to paragraph 7 of the Summary Reasons to consideration of contractual entitlement which does at least show that the contractual position was considered to some extent, and (b) the point we made at the beginning of this judgment and which was raised by the Tribunal in paragraph 3 of their Extended Reasons.

[18]Further, in our judgment, because we have identified an error of law by the decision-maker, namely the Employment Tribunal which did form part of the subject matter of the original appeal, albeit in the slightly strange circumstances we have described, this is a different kind of case to Jones . There, as we understand it, the Employment Appeal Tribunal did not find an error in the conclusion that had been reached relating to redundancy, but introduced a further point into the appeal which had been conceded below.

[19]In our judgment this case is more analogous to the situation we have identified earlier, where this Tribunal identifies an error of law by the Employment Tribunal and then has to ask itself whether, notwithstanding the existence of the error of law, is it quite clear how the substantive issue would be decided between the parties and it is only when it can answer the question that it is quite clear how that would be decided that this Tribunal should reach the decision which binds the parties rather than remit the question to the Employment Tribunal.

[20]However, if we are wrong as to that, and applying paragraph 20 in the Jones case which shows that in exceptional circumstances this Tribunal can permit an additional point of law to be added, and the ensuing paragraph that tells us that if we do it, we have to give our reasons for doing it.

[21]We are of the view that this is an exceptional case and in reaching that conclusion we have had regard to the following matters. Firstly, the issue that is raised is a fairly complicated one. Secondly, it is clear to us that some arguments based on contract were raised below. Thirdly, it seems to us, and indeed this was confirmed during the course of submissions, that it was the Chairman of the Tribunal himself who put considerable weight on the 1989 Regulations and, as we understand it, to some extent elevated their application to an important point, albeit as we have pointed out, it was something that was within, and an important part of, Mr O'Connell's arguments. Fourthly, there is some confusion as to the extent of the concession made on behalf of the employer which is set out at the beginning of paragraph 9 of the Extended Reasons and fifthly, and again we go back to paragraph 3 of the Extended Reasons which show that no doubt, for very good and sensible reasons at the time the Respondent company was invited to open this case, but as the Employment Tribunal recognised, this unfortunately (although, no doubt, having a number of benefits) produced a disadvantage, namely that some of the points being raised by Mr O'Connell did not become clear until a very late stage before the Employment Tribunal.

[22]Taking those points together, in our judgment this is an exceptional case in which fairness requires that the Employment Tribunal should consider the arguments in the light of the appropriate evidence.

[23]We therefore conclude that we should remit this point to an Employment Tribunal for re-hearing.

[24]Finally, the issue arises as to whether or not that should be the same or a different Tribunal. We are clear that it should be a different Tribunal. We are confident that the original Tribunal would do their best to approach the matter with a clear and open mind. Looking at it for ourselves, we think that would be a very difficult task for them, even if one assumes that they would be able to succeed in doing it, the problem would still remain that in our view justice would not be seen to being done if they were to reconsider the case. For those reasons we will remit the issue, that is the subject of this appeal, to a differently constituted Employment Tribunal.