Appeal No. EAT/204/94

	EMPLOYMENT APPEAL TRIBUNAL
	58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

		At the Tribunal
		On 13 December 1995

	Before

	HIS HONOUR JUDGE P CLARK

	MR S M SPRINGER MBE

	MRS M E SUNDERLAND JP

MR A HUGHES	APPELLANT

(1) SECRETARY OF STATE FOR EMPLOYMENT
(2) MR G MURDOCK & 7 OTHERS
(3) HAINES WATTS INSOLVENCY SERVICES	RESPONDENTS

	Transcript of Proceedings

	JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR I GATT
(of Counsel)
Messrs Lupton Fawcett
Yorkshire House
Greek Street
Leeds
LS1 5SX

For the 1st Respondent	NO APPEARANCE BY OR
For the 2nd Respondent	REPRESENTATION ON 	BEHALF OF THE 1st and
	2nd RESPONDENTS

For the 3rd Respondent	MR S SCHAW-MILLER
(of Counsel)
Messrs Taylor Joynson Garrett
Carmelite
50 Victoria Embankment
Blackfriars
London
EC4Y ODX

	JUDGE CLARK:   In January 1990 the Appellant, Mr Hughes, purchased Woodside Quarry with the assistance of a loan of about £5 million from Westpac Banking Corporation ("the Bank").  The Bank executed a legal charge dated 10 January 1990 over the quarry as security for the loan ("the Charge").  Clause 11 of the Charge contained provisions for the appointment of Receivers in the event of default on the part of Mr Hughes.

	The quarry was effectively used to carry on the business of a land-fill site.  On acquiring the business Mr Hughes took on responsibility for persons then employed in that business.  They included the 8 Applicants in this case.

	In due course Mr Hughes defaulted under the terms of the loan and on 24 June 1992 Alan David Kenningham and John Charles Heath were appointed Receivers under the provisions of the charge ("the Receivers").

	On 7 July 1992 the Receivers dismissed 4 of the Applicants, Messrs Murdoch, Fairburn, Robertson and Wildman ("the 1992 employees").

	The Receivers continued trading, but on 17 May 1993 the remaining Applicants, Messrs Oxtoby, Hirst, Watson and Patrick were summarily dismissed ("the 1993 employees").

	There is no dispute but that all 8 Applicants were dismissed by reason of redundancy; that they were entitled to redundancy payments and as to the quantum of each redundancy payment.  The question is who is responsible for making those payments?

	Before the Leeds Industrial Tribunal, which heard these redundancy claims over 2 days on 7 June and 16 July 1993, there were effectively 4 parties:

	(1)  the 8 Applicants

	(2)  Mr Hughes

	(3)  The Secretary of State for Employment, who has a statutory obligation to make the payments in the events specified in Section 106 of the Employment Protection (Consolidation) Act 1978 (the 1978 Act)

	(4)  The Receivers

	The Industrial Tribunal found that Mr Hughes alone was responsible for all 8 redundancy payments.  Their full reasons are dated 30 July 1993 and it is apparent from the reasons that the basis of decision was

	(a)  that the Receivers were at all times acting as the agents of Mr Hughes under the terms of the charge, and 

	(b)  that the provisions of Section 37 of the Insolvency Act 1986 (the 1986 Act) did not apply to these Receivers

	(c)  if Section 37 did apply then:

		(i)  the 1992 employees were dismissed within 14 days of the Receivers' appointment, and therefore by Section 37(2) no personal liability could attach to them

		(ii)  the Tribunal rejected the Receiver's case that they had disclaimed adoption of the contracts of employment for the purposes of Section 37(1) of the 1986 Act.

	Against that decision Mr Hughes appealed by a Notice of Appeal dated 27 August 1993.  The grounds of appeal were drafted by Mr Hughes in person, he having conducted his own case before the Industrial Tribunal.

	A preliminary hearing took place before this Tribunal (Mummery J. presiding) on 4 July 1994, and the appeal was allowed to proceed to a full hearing.

	Solicitors and Counsel were then instructed on behalf of Mr Hughes, and an Amended Notice of Appeal was drafted by Counsel, Mr Gatt, who appears before us today.

	Leave to amend the notice appears to have been given by the Registrar, on application by letter, on 14 June 1995.

	Without discourtesy intended or taken neither the 8 Applicants nor the Secretary of State appear or are represented at this hearing.  Accordingly the argument in this appeal has been addressed to us by Counsel for Mr Hughes and the Receivers only.

	The points which Mr Gatt wishes to take in this appeal, as they appear from his Amended Notice and are developed in his Skeleton Argument, include the following:

	(1)  that in finding that the Receivers at all times acted as agents for Mr Hughes under the terms of the Charge, and in particular Clause 11.7, the Industrial Tribunal failed to take into account the application of the doctrine of privity of  contract and 

	(2) the Industrial Tribunal failed to consider whether or not there had been a relevant transfer of the quarry undertaking between Mr Hughes and the Receivers.

	We enquired whether those points, not going to the jurisdiction of the Tribunal, had been taken below, and if not, whether Mr Schaw-Miller, Counsel for the Receivers, objected to our considering new points.  He did object, and after hearing argument we concluded that these points had not been taken below and ought not now to be raised in accordance with this Tribunal's usual practice.  See Kumchyk v Derby County Council [1978] ICR 1116.  That case makes clear that the inexperience of the advocate below, here Mr Hughes, is not a ground for permitting new points to be argued, particularly where it would, as here, be necessary for further evidence to be heard before deciding those points.

	That left Mr Gatt with effectively one line of attack, based on Section 37(1) of the 1986 Act.  He accepted that any personal liability of the Receivers could not extend to the 1992 employees by virtue of the provisions of Section 37(2), as the Industrial Tribunal found in paragraph 8 of their reasons.

	Section 37(1) provides, so far as is material,

		"(1)  A receiver or manager appointed under powers contained in an instrument (other than an administrative receiver) is, to the same extent as if he had been appointed by order of the court -

			(a)  personally liable ... on any contract of employment adopted by him in the performance of those functions, and 

			(b)  entitled in respect of that liability to indemnity out of the assets."

	In essence, Mr Gatt submitted:

	(1) that the provisions of Section 37(1) applied to these Receivers

	(2) that the Receivers had adopted the contracts of employment of the Applicants (the contracts) 

	(3)  that the effect of adopting the contracts was to render the Receivers personally liable for the redundancy payments due to the 1993 employees.

	In answer Mr Schaw-Miller 

	(1) disputed the application of Section 37(1) to these Receivers

	(2)  accepted that the Receivers had adopted the contracts, in the light of the Tribunal's finding at paragraph 10 of their reasons that there had been no disclaimer.  In any event, even if a disclaimer had been given it would be of no effect in the light of the House of Lords decision in Powdrill v Watson [1995] 2 WLR 312.

	(3)  contended that even if Section 37(1) applied, and the Receivers had adopted the contracts, the section did not extend to fixing the Receivers with personal liability for statutory redundancy payments.

	In the light of our conclusions on the third issue we find it unnecessary to decide the first, that is the application of Section 37(1) to these Receivers.  Accordingly we shall assume, without deciding the point, that Section 37(1) does apply, and secondly proceed on the basis that the contracts were adopted by the Receivers.  The question then is, does that render the Receivers personally liable for the redundancy payments of the 1993 employees?

	The case of Powdrill involved two conjoined appeals raising similar issues.  The main issue was whether or not administrators or receivers adopted contracts of employment for the purposes of the 1986 Act simply by continuing the business in which the employees continued to work.  In giving the leading opinion of the House, Lord Browne-Wilkinson construed the words "adoption" at page 349G in this way:

		"In my judgment ... adoption in sections 19 and 44 can only connote some conduct by the administrator or receiver which amounts to an election to treat the continued contract of employment with the company as giving rise to a separate liability in the administration or receivership."

	Pausing there, we think that the same construction should be applied to the word "adopted" in Section 37(1) of the Act.

	We must emphasise the words "the continued contract of employment with the company".  In our judgment the contract which continues is that between the original employer and the employee; it is not a new contract between receiver and employee.  It is, of course, well-settled law that the appointment of receivers does not, of itself, terminate existing contracts of employment.  Re Mack Trucks (Britain) Ltd [1967] 1WLR 780.

	Accordingly, as the House held in Powdrill, in these circumstances the Receivers assume personal liability for such contractual obligations as arrears of salary, pay in lieu of notice, contributions to occupational pension schemes and holiday pay falling due during the term of the receivership.

	In Powdrill itself, at first instance, one of the Paramount employees included a claim for compensation for unfair dismissal.  That aspect was dealt with by Evans-Lombe J. at page 29 of the transcript of his judgment in this way:

		"Dealing finally with compensation for unfair dismissal, in my judgment, claims under this head do not attract the protection of Section 19(5) [of the 1986 Act] because they arise by reason of the provisions of the Employment Protection (Consolidation) Act 1978 and not under the relevant Contract of Employment albeit the compensation becoming due under that Act is calculated by reference to such contract."

	There was no appeal against that finding.

	In our view that approach is correct and applies equally to redundancy payments.

	The right to a redundancy payment under Section 81 of the 1978 Act is granted to an employee who is dismissed by his employer in the circumstances there set out.  "Employer" and "employee" are defined in Section 153(1) of the 1978 Act.  The employment relationship depends upon the existence of a contract of employment between the parties.

	Here, the contract of employment at all times existed between Mr Hughes and the Applicants.  The Receivers did not become their employers.  The right to a redundancy payment arose from the circumstances set out in Section 81, not solely out of the contract of employment.  To that extent a clear distinction arises, in our view, between the contractual obligations of the type identified by the House of Lords in Powdrill and the statutory obligations with which we are here concerned.  We reject Mr Gatt's submission that the 

words of Section 37(1) of the 1986 Act encompass the entitlement of employees to a statutory redundancy payment.

	It therefore follows that this appeal must be dismissed.