Four Seasons Healthcare Limited (FORMERLY COTSWOLD SPA RETIREMENT HOTELS LTD) v MR R H MAUGHAN [2004] UKEAT 0274_04_0610

EMPLOYMENT APPEAL TRIBUNAL
BAILII case number: [2004] UKEAT 0274_04_0610Case No Appeal No. UKEAT/0274/04Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS
Between
Four Seasons Healthcare Limited (FORMERLY COTSWOLD SPA RETIREMENT HOTELS LTD)APPELLANTMR R H MAUGHANRESPONDENT
Before
His Honour Judge Ansell Dr K MohantyDate 6 October 2004
[1]APPEARANCES For the Appellants MR M WALKER (of Counsel) Instructed by: Messrs Eversheds LLP Solicitors Cloth Hall Court Infirmary Street Leeds LS1 2JB For the Respondent MR M PURCHASE (of Counsel) Instructed by: UNISON Employment Rights Unit 1 Mabledon Place London WC1H 9AJ SUMMARY Frustration of contract - did it date from date of offence or date of conviction - Court's bail conditions preventing him working frustrate the contract. HIS HONOUR JUDGE ANSELL This is an appeal from a Decision of a Newcastle upon Tyne Employment Tribunal who, after a hearing in December 2003, unanimously awarded the Respondent the sum of £15,145.44 in respect of unauthorised deductions from pay. The Decision was promulgated on 9 January 2004.[2]The background facts are that the Appellant Company is part of a group operating 300 care homes throughout the United Kingdom, and the Respondent was employed as a Registered Mental Nurse at one of the care homes, Willow Court Nursing Home, North Shields, from 12 August 1996. On 17 January 2003, as a result of information received, the Respondent was suspended from duty, as a result of an allegation of non-specific abuse of a patient. The initial suspension was to be for a period not exceeding seven days without pay in accordance with the Appellant's Disciplinary Procedure, clause 3.33. The police were notified and the Respondent was subsequently arrested, interviewed and charged with a number of serious offences. He was granted bail and two of the conditions were that he should not communicate directly or indirectly with any of the prosecution witnesses (which included management and other employees at the home) and must not enter the premises of the home.[3]In May 2003 a letter was sent by the Respondent's union seeking further details of the allegations against him, and the investigation which had been undertaken, and requesting that his full pay should be reinstated in arrears, apart from the seven day period laid down in the Disciplinary Procedure and the response was that due to the seriousness of the charges, he would remain suspended without pay until a full investigation had been carried out which, at the police's request, would not take place until the prosecution had been completed. He was subsequently convicted with a number of offences on 30 October 2003 and sentenced to a term of two years' imprisonment on 24 November. Under the contract of employment at section 9, headed "Absenteeism" it was stated that "Other than Statutory Sick Pay or Statutory Maternity Pay, payment will not be made for absence."[4]The Respondent's claim for arrears of wages was defended by the Appellants on two bases. First it was suggested that the absenteeism provision should be applied by analogy to the Respondent's position, and that no payment was due to him as he was not at work. It was also submitted on behalf of the Appellants that the contract of employment had been frustrated by reason of the Respondent's inability to work as a result of his being charged and bailed. The Tribunal rejected this suggestion and found that the Appellants were in breach of contract in that they continued to suspend the Respondent without pay, and that amounted to a breach of section 13 of the Employment Rights Act . The Tribunal did find that the eventual convictions frustrated the contract, since from the date of conviction under the Care Homes Regulations 2001 the Respondent could no longer be employed in a care home and thus his entitlement to wages ceased on 30 October 2003, the date of his conviction.[5]The appeal grounds and supporting Skeleton Argument raised two main issues. First it was alleged that an employee was only entitled to remuneration for a given period, if upon a proper construction of the contract, he either provided work or was ready and willing to provide work, and that the Respondent failed to discharge the burden that was upon him in proving that he was ready and willing to work. It appeared to this Tribunal that this was not an issue that had been raised before the Employment Tribunal, and therefore, in accordance with our normal practice, we would not allow it to be raised as a ground of appeal before us. Mr Walker, for the Appellants, was not able to satisfy us that this issue had been raised before the Tribunal, and accordingly and quite properly, he did not seek to pursue the issue before us.[6]The second issue related to frustration. Mr Walker contended that the contract was frustrated by two possible supervening events. Firstly by the commission of the first assault upon a resident by the Respondent, which as a result rendered it unlawful for the Appellants to continue to employ him at Willow Court, pursuant to Regulation 19 of the Care Homes Regulations 2001 (SI2001/3965). Secondly, that the contract was frustrated as a result of the bail conditions which made it impossible for him to enter Willow Court or work, and in reality he was not able to work at any of the other of the establishments run by the Appellants.[7]At the commencement of the hearing, we again raised with Mr Walker whether the precise reasons for the contract being frustrated had been argued before the Tribunal. The parties before us appear to agree that the two possibilities were part of the submissions made on behalf of the Appellants and thus we allowed Mr Walker to proceed with the appeal on the issue of frustration.[8]The Tribunal dealt with the issue of frustration in paragraphs 9 and 10 of their Decision as follows:
"9 The Tribunal does not find that there was any frustration of the employment contract. This would have required some outside event or extraneous change of situation nor foreseen or provided for by the parties at the time of contracting, which either made it impossible for the contract to be performed at all or rendered its performance something radically different from what the parties contemplated when they entered into it. 10. The fact that the applicant was the subject of allegations of gross misconduct did not amount to such an event. It was a situation which entitled the respondents to investigate the matter (consistent with not prejudicing the criminal investigation) and then decided whether they were to continue the applicant in their employment or to reach a decision that they had reasonable grounds for terminating that employment."
Mr Walker firstly argued that by reason of Regulation 19 of the Care Homes Regulations 2001, it was not lawful for the Appellants to continue to employ the Respondent at Willow Court, and the contract was frustrated from the date of commission of the first assault upon a resident by him. Regulation 19(1) provides that:
"(1) The registered person shall not employ a person to work at the care home unless - (a) the person is fit to work at the care home;"
Mr Walker submitted to us that from the time of the commission of the first assault, it was clear that the Respondent was no longer a fit person to work at the care home, and indeed it was unlawful for the Appellants to continue to employ him, and that supervening illegality was sufficient to frustrate the contract. He argues that it matters not that the Appellants were aware of the fact, since the frustrating event operates to discharge the contract immediately and automatically, irrespective of the attitude and knowledge of the parties - see Denny, Mott and Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265 . He argues that whilst the guilt of the Respondent may not have been clearly established until either the Crown Court had established his guilt or the employers, through proper investigation had done so, once that guilt was established, it operated to frustrate the contract, with effect from the date of the commission of the first offence, since it was at that date that the Respondent had become an unfit person, for the purposes of the Regulations. It did not require a qualitative judgment on the part of the employers as to whether he was or was not fit, since the only possible conclusion that could follow from an assault upon the patient would be that the Respondent was no longer a fit person to work at a care home. He argues that the criminal presumption of innocence has no place in contract law, the contract being frustrated at the moment of the first assault, not when a jury pronounced its verdict.[9]For the Respondent, Mr Purchase firstly reminded us of the general principles concerning frustration. The elements of frustration were summarised by Lord Brandon in Hannah Blumenthal [1983] 1 AC 854, page 909F:
"The first essential factor is that there be some outside event or extraneous change of situation, not foreseen or provided for by the parties at the time of the contracting, which makes it impossible for the contract to be performed at all, or at least renders its performance something radically different from what the parties contemplated when they entered into it."
In Davis Contractors Ltd -v- Fareham Urban District Council [1956] AC 627 , Lord Radcliffe, at page 727, said that:
"frustration is not lightly to be invoked as the dissolvent of a contract"
[10]Mr Purchase submits that it is important not to invoke frustration where, as in this case, there is a disciplinary procedure in the contract which provides for summary dismissal for "verbal or physical abuse towards residents". In F C Shepherd -v- Jerrom [1986] IRLR 358 at paragraph 59 Mustill LJ said that:
"I accept that the presence of a termination provision should inhibit the Court from being too ready to find in favour of frustration."
[11]With regard to the effect of Regulation 19, he makes two submissions: firstly that Regulation 19 cannot operate so as to frustrate the contact; and, secondly, and in any event, Regulation 19 could not frustrate the contract until it was established that the employee was not fit. With regard to the first submission, he makes the following points:(1) The misconduct leading to the conviction for assault on the residents was fully provided for in the contract in a detailed disciplinary procedure, and thus it was always open to the Appellants, acting reasonably within the meaning of section 98 of the Employment Rights Act 1996 to terminate the contract.(2) Section 98(2)(d) of the 1996 Act expressly provides that a dismissal may be potentially fair when an employee "could not continue to work in the position that he held without contravention (by him or by his employer) of a duty or restriction imposed by or under an enactment". Thus the statute clearly contemplated that working in contemplation of an enactment would be a potentially fair reason for dismissal, rather than frustration of the contract.(3) It was not an outside event which rendered the contract unlawful, but the employee's own conduct.(4) Regulation 19(1) is expressed as an obligation imposed upon an employer and not in terms which suggest automatic termination of the contract, nor even as a general prohibition, and it clearly requires the exercise of judgment on the part of the employer in deciding whether or not the employee is fit. Again, he argues this is inconsistent with automatic termination which is the characteristic of frustration.(5) The Regulations clearly contemplate that a contract of employment can exist, even if an employee is not fit, because Regulation 43(1) makes it a criminal offence to breach Regulation 19(1). Such an offence could never be committed where the contract automatically terminated at the point of unfitness. Further, if the employee was deemed automatically unfit by the first event, e.g. the first assault, his continuing employment could make the employer liable for prosecution, even if the employer did not know that it had occurred.[12]Mr Purchase's second main submission is that as the Tribunal found, Regulation 19(1) cannot frustrate a contract until it is established that the employee is not fit. As the Tribunal held at paragraph 11, to suggest that he was not fit from the time when an offence is alleged to have been committed, would undermine the presumption of innocence and natural justice, and he would be deemed to be unfit before any investigation, even before the employers knew. He submits that under the 2001 Regulations, there is an obligation on the employer to carry out a proper investigation so that a clear and reasoned decision can be given as to whether or not an employee is fit to work at a care home. He argues that this did not occur until the conviction on 30 October, and it was only at this point that Regulation 19 could possibly frustrate the contract. He referred us to decision number 442 of the Care Standards Tribunal in Walwin Fairclough Operating as Premier Care --v Wolverhampton City Council , where the Care Standards Tribunal said this, at paragraph 47:
"One of the most important duties of a proprietor in safeguarding the welfare of the children cared for in a children's home must be to ensure that the staff and in particular the person in charge, are fit to work there."
[13]On all these issues, we fully accept the arguments advanced on behalf of the Respondent. Frustration requires that there should be some outside event or extraneous change of situation, not foreseen or provided for by the parties within the contract. However, in this contract there was a detailed disciplinary procedure, which made specific reference to physical abuse directed towards residents, and it seems to us that the presence of such a detailed disciplinary procedure should indeed, in the words of Mustill LJ, "inhibit" us from being "too ready to find in favour of frustration". On the issue of Regulation 19 we fully accept that this must involve a qualitative decision being taken by the employer, or in this case taken by the Crown Court which is totally inconsistent with the suggestion of an automatic termination arising from a frustrating event. It seems to us that an employee can only cease to be fit, so as to bring about the consequences under Regulation 19, once a proper investigation has been carried out, either by the employer or by the Criminal Court, and we reject the notion that once that unfitness has been determined, it can be backdated in terms of frustration to the date when it actually occurred, the effect of which would be to say that an allegation of itself renders a person not fit.[14]Mr Walker's second submission was that the bail conditions, which effectively prevented the Respondent from working at Willow Court, amounted to a supervening event, frustrating the contract. He argued that the effect of the bail condition was to prevent the Respondent fulfilling his obligations as an employee for what could be an unreasonably long period of time, and drew an analogy with those cases such as F C Shepherd , in which the Court of Appeal have held that a contract of employment was capable of being frustrated by the imposition of a custodial sentence. He further argues that whilst, under the contract of employment, the employers did have the right to change the place of employment in exceptional circumstances, the place of employment was said to be Willow Court, and indeed it was clear from the witness statement of Julia Bentley, on behalf of the Appellants, that they would not have allowed the Respondent to work in any other care home, pending the outcome of the criminal trial.[15]Mr Purchase seeks to argue that the Respondent could have been moved elsewhere under the contract, and that he was willing to move, but it was the employer's choice not to do that until the conclusion of the trial. Moreover, he argues that the employers, by suspending, albeit without pay, were clearly willing to wait until the Crown Court proceedings had been concluded, and thus they clearly did not regard the period of bail as so substantial as to bring the contract to an end.[16]Again, we agree with Mr Purchase's arguments. We are particularly mindful of the fact that neither party has been able to refer us to any cases where, as opposed to an eventual term of imprisonment, it has been suggested that a period of bail, even if it prevents the employee from attending work, can be considered as a frustrating event. In the Shepherd case, the passing of an indeterminate custodial sentence of borstal training was held to frustrate the apprenticeship contract, since the passing of the sentence meant that there would be a substantial break in the employee's period of training, and at the end of the contract period he would not have been as well trained as the parties had contemplated that he would have been, which would have affected the employer's plans for him to take over the job of a skilled worker who was due to retire. Further, in this case, the employers did have the opportunity, if they so wished, of dismissing the employee. Whilst they had been asked by the police not to carry out detailed investigations for fear of prejudicing the criminal trial, there was clearly some information available to them, in relation to the allegations against the employee, and on the basis of that information, they could have taken the decision to dismiss, since that opportunity was available to them, but they decided to continue the suspension of the employee. It seems to us that the Tribunal were perfectly correct in finding that the contract continued and was not frustrated, and thus wages had to be paid. Accordingly, for the reasons that we have set out, this appeal is dismissed.