MR A H COLLINS v THE SECRETARY OF STATE FOR TRADE AND INDUSTRY [2001] UKEAT 1460_99_3101

EMPLOYMENT APPEAL TRIBUNAL
BAILII case number: [2001] UKEAT 1460_99_3101Case No Appeal No. EAT/1460/99Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS
Between
MR A H COLLINSAPPELLANTTHE SECRETARY OF STATE FOR TRADE AND INDUSTRYRESPONDENT
Before
His Honour Judge D Pugsley Mrs J M Matthias Mr D NormanDate 31 January 2001
[1]APPEARANCES For the Appellant MR T LINDEN (of Counsel) Instructed By: Messrs Pattinson & Brewer Solicitors 30 Great James Street London WC1 3HA For the Respondent MISS E DIXON (of Counsel) Instructed By: Ms K Hayes The Treasury Solicitor Queen Anne's Chambers 28 Broadway London SW1H 9JS JUDGE D PUGSLEY : This is a case which arises out of an appeal by the Appellant from a decision of the Employment Tribunal sitting in Leeds. This case has not been concluded with the brisk alacrity of the time estimate but nevertheless we express our gratitude to both Counsel for the speedy way in which they have dealt with the matter that came before us, as the matter was second in a rather long list.[2]Mr Collins worked for some years with a transport company. Sadly, that company went into Receivership and Receivers were appointed on 8 February 1999. As is standard form he sent to the Applicant the normal form about entitlement to redundancy and we have considerable sympathy for the Applicant who, no doubt believed that you do not get those forms unless you are eligible. When he applied he was told he was not entitled to the relevant redundancy and his claim was rejected.[3]The Secretary of State for Trade & Industry has a difficult and, we suspect, at times a very distasteful duty in rejecting such claims but they have a duty only to pay if there is a legal liability.[4]The basis of the rejection is this. In February 1996 the Applicant had suffered an injury at work, receiving severe injuries to his right hand. He had been released from the care of his Consultant Surgeon in 1998 and thereafter prescribed a course of physiotherapy, whereupon thereafter he considered he was fit to work. During that period he did not receive any payment, there was no entitlement to sick pay. He did, of course, receive the Statutory Sick Pay and subsequently, Incapacity Benefit and Disablement Living Allowance. He remained "on the books" of the Company, receiving a Christmas payment of £10 value of vouchers and a P60 at the end of each tax year which solemnly showed "zero pay".[5]At the end of 1998, beginning of 1999, the Applicant spoke to a Mr O'Brien who was the Company's Personnel Manager and he was invited to stay on the books of the Company or to take a redundancy payment. Because he had a belief that he would return to work and accepted that he would not easily find alternative work at the age of 59, he elected to stay on the books. However, once he was sufficiently fit for work he heard that the financial position of the Company was poor in the extreme and it was likely to go into Receivership. He was unwilling to work for a few weeks because he would take the risk of damaging his hand again, for the potential benefit of no more than two or three weeks' salary. He did not want to take that risk.[6]Following the rejection of his claim for redundancy, the Applicant considered whether he would work elsewhere. He did not take work with a driving agency because the pay he would receive was not, from his point of view, worthwhile. He had State Benefits of £144 a week and the Tribunal concluded that he would wish to earn substantially more than that if he was to be in gainful employment. The Applicant indicated to the Tribunal that he had made various approaches to other transport companies but he has not made any formal applications for vacancies, whether advertised or not, and it did not appear to the Tribunal that he was making any particular or strenuous effort to obtain alternative employment.[7]The narrative account that has just been given comes from the paragraphs 3, 4, 5 and 6 of the decision in a rather ambiguous manner. These paragraphs are more referring to the narrative of the evidence heard, rather than analysis of the facts which appears later in the decision.[8]The reason that the department rejected the claim of insolvency for redundancy was their contention that the Applicant's contract was frustrated by reasons of events that occurred between 1996 and 1999. The doctrine of frustration is one that does apply to the contract of employment and the Tribunal correctly defined it that:
"frustration occurs when some reasonably unforeseeable event occurs which makes the contract impossible or unlawful to perform, or radically different from what the parties originally intended. When such a contract is frustrated, it comes to an end without a dismissal on the part of the employer, or a resignation on the part of the employee."
[9]Section 136(5) of the Employment Rights Act 1996 , which can assist an applicant if there is frustration by an event affecting an employer, does not, on the facts of this matter the Tribunal decide, assist the Applicant. It is common ground, and quite rightly it has not been argued, that the position so far as frustration under Section 136(5), does not affect the issue.[10]The frontiers between cases involving unfair dismissal and cases under the Disability Discrimination Act have not yet been accurately delineated and chartered and there may well be a tension between cases of unfair dismissal and discrimination legislation which is to be plumbed by Tribunals. Equally, it has to be said, the relationship between frustration and ill-health are difficult matters. It is unnecessary for any reference to be made to the other principal area of frustration in the area of employment, on which there has been authority; namely imprisonment.[11]The problem is an acute one and is often and perhaps, said without flippancy, one which Lawton LJ identified in his much neglected but well worth reading judgment in Western Excavating (EEC) Ltd v Sharp [1978] ICR 221 , where he pointed out what has been called "the elephant test" "that you can often recognise something that you cannot define". At what point is a contract frustrated? In the words of Phillips J, former President of this Tribunal, in clear lucid language in Egg Stores Ltd v Leibovici [1977] 260 at p. 265 he says this: "It is possible to divide into two kinds the events relied upon as bringing about the frustration of a short-term periodic contract of employment. There may be an event (e.g. a crippling accident) so dramatic and shattering that everyone concerned will realise immediately that to all intents and purposes the contract must be regarded as an end. Or there may be an event, such as illness or accident, the course and outcome of which is uncertain. It may be a long process before one is able to say whether the event is such as to bring about the frustration of the contract. But there will have been frustration of the contract, even though at the time of the event the outcome was uncertain, if the time arrives when, looking back, one can say that at some point (even if it is not possible to say precisely when) matters had gone on so long, and the prospects for the future were so poor, that it was no longer practical to regard the contract as still subsisting. 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 and the statements of the employer in relation to the employment, including the dismissal of, or failure to dismiss the employee; and(9) whether in all the circumstances a reasonable employer could have expected to wait any longer.[12]The Tribunal directed itself, according to that test, and went through the various factors which were outlined in the lucid judgment of Phillips J. It had also been referred to the case of Williams v Watson Luxury Coaches Ltd [1990] ICR 536 EAT. The Tribunal then went through the various points, stage by stage, and then it did a balancing exercise and came to the view that there had been frustration. It cited, as we say, an earlier part of the decision in Leibovici in which it says this:
"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?' It will thus be seen that the sort of question which has to be considered when it is being decided whether a dismissal in such circumstances was unfair, and that which has to be considered when deciding whether the contract has been frustrated, are not dissimilar."
The learned Chairman said at paragraph 12:
"I do not take the simplistic mathematical approach of simply counting the pointers in each direction. If one factor in favour of the Applicant had seemed to me to outweigh the others, then I would have had no hesitation in finding in favour of the Applicant. I am unable to identify any such factor amongst those that seemed to me to assist the Applicant. In all of the circumstances, and with considerable sympathy for the position in which the Applicant finds himself, I have concluded that this contract was indeed frustrated as is argued by the Respondent. Since it was frustrated, the Applicant was not an employee at the date upon which he claims to be entitled to a redundancy payment; his claim is not therefore well-founded and is dismissed."
[13]Although he does not use those illuminating words of Mummery J, as he then was, in Hall (Inspector of Taxes) v Lattimer [1994] ICR CA, approved at 226 of painting a picture, nevertheless it is clear that this Tribunal Chairman was well aware that his job was not as an audit clerk giving each aspect some sort of numerical ranking but, to look at the whole picture.[14]Mr Linden has argued that the Tribunal were wrong because insufficient weight has been given into the judgment to the fact that a contract of employment is a voluntary relationship between parties and it is a contradiction in terms that, although both parties regarded the employment as continuing, it had in fact terminated. It is submitted that the doctrine of frustration does not permit a court to impose on the parties a termination of the contract against their will. If they regard the contract of employment as continuing then by definition it is not terminated.[15]Mr Linden points out that the present case is not one in which, for example, both parties recognise the Appellant would never return to work but agreed the Appellant would remain on the books in order to qualify his pension. On the contrary, the Appellant received Christmas vouchers given to employees and was given a P60 at the end of each year. The employer also regarded himself as liable to pay redundancy payment to the Appellant in the event of termination of employment, as is indicated by the choice offered to the Appellant by Mr O'Brien at the end of 1998 or beginning of 1999.[16]In February 1999 the Receivers, points out Mr Linden, wrote to the Appellant as a member of the workforce. It is one thing, says Mr Linden, to say a contract will come to an end because of an event over which the parties had no control when neither party needs to have taken positive steps to have brought the contract to an end. One can look back and say there was a point at which the contract came to an end, even if the parties took no positive steps to acknowledge this fact and even if the employers failed to take the point before it became an issue in the proceedings. It is quite another thing, Mr Linden argues, to say the contract of employment came to an end, despite the fact that both parties regarded it as continuing, notwithstanding the alleged frustrating event, and had taken positive steps on the basis it was continuing.[17]We bear in mind that at paragraph 11, on page 7 of the Employment Appeal bundle (in Roman (xi) in paragraph Arabic 11) the Tribunal made this finding:
"The Applicant argued that there was a considerable prospect of recovery in that he would have returned to the employment of the Company but for his belief that it was in its 'death throes' before the actual receivership. Mr Quinn argued that the subsequent failure of the Applicant to obtain any work and his present reliance upon walking with a stick, indicated that there was little prospect of recovery. I also bear in mind that the Applicant has failed to make any realistic applications for work. I accept Mr Quinn's submission that the Applicant had no real intention of going back to work and that there was no prospect of his doing so."
[18]That was a finding pregnant of frustration. We have carefully considered the case of G F Sharp v McMillan [1998] IRLR 632 at paragraphs 19 to 22. Mr Linden, with disarming charm, acknowledges that at first blush the decision is rather against his submission. He then says, but the critical factor of that case was that both parties recognise there was no prospect of the employee returning to work and it was agreed he be kept on the books so that he could qualify for a more generous pension. In this case, he says, it is a case in which the parties acknowledge the contract had come to an end and entered into a different arrangement. That it is argued is a distinguishing factor on the facts. In Sharp v McMillan [1998] IRLR 632, the facts very simply concerned someone who had injured his left hand as a joiner:
"He met with the company's managing director [a year after the injury or just thereafter] and told him that he had lost the use of his left hand and was, and would remain, permanently unfit for work as a joiner. Although, given his condition, there was no prospect of finding any alternative work for him, the employers agreed to keep him 'on the books' so he could draw the more generous pension benefits which would apply after he reached age 60 on 31 March 1996. Nothing was said as to what was to happen after that date. Mr McMillan subsequently made an application to an employment tribunal claiming a redundancy payment. His application was refused. Thereafter, the employers sent him a letter saying: "
We refer to the recent tribunal and your evidence that as a result of your hand injury you will be unable to resume employment as a joiner. We therefore consider your contract of employment with our company frustrated, and give formal notice that as a consequence of your ill health, your employment with our company will terminate on 22 November 1996."[19]Mr McMillan then made an application effectively for money in lieu of notice. The Tribunal upheld his complaint. It said that, although the contract in their view would have been frustrated in December 1995, if matters remained as they were at the time of the meeting, the parties agreed to keep the contract alive and were entitled to do so and that the contract had not come to an end when the employer reached 60. The purpose for which the contract was kept alive therefore ceased, since the employers had indicated in their evidence that they expected to discuss the matter further after that date. They, therefore, decided that the contract was still in existence and he was therefore entitled to notice pay.[20]Lord Johnston, referring to the standard work in Scotland on the contract of employment, Professor Walker's book, referred to a paragraph, this is at paragraph 20:
"Nevertheless, save in cases of supervening illegality, is there anything to prevent parties ratifying, and continuing for a time, or to the end, to treat subsisting a contract which the court would have called frustrated? There seems to be no reason why they should not do so, though if the court is invoked it may still treat the contract as frustrated at the date of the frustrating event, whatever the opinions of the parties or their subsequent actings."
Lord Johnston's rather terse comment is at the authorities cited in support of that proposition frankly do not vouch for it. Lord Johnston went on to say this (paragraph 20):
"It respectfully seems to us that if a contract is frustrated by operation of law, there is nothing to revive and a nullity has to be declared. There is nothing to prevent parties entering into a new arrangement, but they must do so with the clear intention to achieve that result or else there is no consensus ad idem. If the parties both think that what is in fact the case is that the previous contract is still subsisting, there is no intention to create a new contract since there exists a mistaken belief on the part of both parties that the old contract is subsisting. The proper legal analysis of that position is that the contract is frustrated, is dead, and nothing has taken its place."
[21]Lord Johnston then goes on to cite that well known passage from Sir John Donaldson in Marshall v Harland & Wolff Ltd [1972] IRLR 90. Sharp was not cited to the Tribunal below, but in our view that fortifies us in the sound approach of this Tribunal Chairman.[22]We cannot say that the Tribunal erred in law, given the finding of fact they made in paragraph (xi) at page 5, in concluding that was a case in which frustration had taken place, notwithstanding the conversation about a redundancy payment or "staying on the books". This contract no longer subsisted and, therefore, the Applicant was not eligible for redundancy pay. We reach this with great sadness because the Applicant, through no fault of his, was in a position where he did not get a redundancy payment. We are bound to say that the combined researches of Counsel as to how such redundancy payment would be calculated have led to the view that neither wished to express an opinion on the topic. The appeal is therefore dismissed.